UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from to
Commission File No.
(Exact name of registrant as specified in its charter)
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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As of May 5, 2022, the registrant had outstanding
TABLE OF CONTENTS
COMMONLY USED DEFINED TERMS
The following is a list of certain acronyms and terms generally used in the industry and throughout this document: |
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CrossAmerica Partners LP and subsidiaries: |
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CrossAmerica |
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CrossAmerica Partners LP, the Partnership, CAPL, we, us, our |
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Holdings |
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CAPL JKM Holdings LLC, an indirect wholly-owned subsidiary of CrossAmerica and sole member of CAPL JKM Partners |
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CAPL JKM Partners |
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CAPL JKM Partners LLC, a wholly-owned subsidiary of Holdings |
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Joe’s Kwik Marts |
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Joe’s Kwik Marts LLC, a wholly-owned subsidiary of CAPL JKM Partners |
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CrossAmerica Partners LP related parties: |
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DMI |
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Dunne Manning Inc. (formerly Lehigh Gas Corporation), an entity affiliated with the Topper Group |
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General Partner |
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CrossAmerica GP LLC, the General Partner of CrossAmerica, a Delaware limited liability company, indirectly owned by the Topper Group. |
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Topper Group |
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Joseph V. Topper, Jr., collectively with his affiliates and family trusts that have ownership interests in the Partnership. Joseph V. Topper, Jr. is the founder of the Partnership and a member of the Board. The Topper Group is a related party and large holder of our common units |
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TopStar |
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TopStar Inc., an entity affiliated with a family member of Joseph V. Topper, Jr. TopStar is an operator of convenience stores that leases retail sites from us, and since April 14, 2020, also purchases fuel from us. |
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Other Defined Terms: |
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7-Eleven |
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7-Eleven, Inc. |
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AOCI |
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Accumulated other comprehensive income |
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Board |
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Board of Directors of our General Partner |
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Bonus Plan |
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The Performance-Based Bonus Compensation Policy is one of the key components of “at-risk” compensation. The Bonus Plan is utilized to reward short-term performance achievements and to motivate and reward employees for their contributions toward meeting financial and strategic goals. |
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CAPL Credit Facility |
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Credit Agreement, dated as of April 1, 2019, as amended by the First Amendment to Credit Agreement, dated as of November 19, 2019, and by the Second Amendment to Credit Agreement, dated as of July 28, 2021, among the Partnership and Lehigh Gas Wholesale Services, Inc., as borrowers, the guarantors from time to time party thereto, the lenders from time to time party thereto and Citizens Bank, N.A., as administrative agent. |
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COVID-19 Pandemic |
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In December 2019, a novel strain of coronavirus was reported to have surfaced. In March 2020, the World Health Organization declared the outbreak a pandemic. |
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DTW |
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Dealer tank wagon contracts, which are variable market-based cent per gallon priced wholesale motor fuel distribution or supply contracts; DTW also refers to the pricing methodology under such contracts |
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EBITDA |
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Earnings before interest, taxes, depreciation, amortization and accretion, a non-GAAP financial measure |
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EMV |
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Payment method based upon a technical standard for smart payment cards, also referred to as chip cards |
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Exchange Act |
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Securities Exchange Act of 1934, as amended |
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Form 10-K |
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CrossAmerica’s Annual Report on Form 10-K for the year ended December 31, 2021 |
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Internal Revenue Code |
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Internal Revenue Code of 1986, as amended |
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IPO |
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Initial public offering of CrossAmerica Partners LP on October 30, 2012 |
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JKM Credit Facility |
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Credit Agreement, as amended on July 29, 2021 among CAPL JKM Partners, Holdings and Manufacturers and Traders Trust Company, as administrative agent, swingline lender and issuing bank |
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LIBOR |
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London Interbank Offered Rate |
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MD&A |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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NYSE |
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New York Stock Exchange |
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Omnibus Agreement |
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The Omnibus Agreement, effective January 1, 2020, by and among the Partnership, the General Partner and DMI. The terms of the Topper Group Omnibus Agreement were approved by the independent conflicts committee of the Board, which is composed of the independent directors of the Board. Pursuant to the Topper Group Omnibus Agreement, DMI agrees, among other things, to provide, or cause to be provided, to the Partnership certain management services at cost without markup. |
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Partnership Agreement |
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Second Amended and Restated Agreement of Limited Partnership of CrossAmerica Partners LP, dated as of February 6, 2020 |
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Predecessor Entity |
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Wholesale distribution contracts and real property and leasehold interests contributed to the Partnership in connection with the IPO |
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Term Loan Facility |
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$185 million delayed draw term loan facility provided under the JKM Credit Facility |
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U.S. GAAP |
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U.S. Generally Accepted Accounting Principles |
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WTI |
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West Texas Intermediate crude oil |
ii
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CROSSAMERICA PARTNERS LP
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars, except unit data)
(Unaudited)
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March 31, |
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December 31, |
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2022 |
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2021 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net of allowances of $ |
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Accounts receivable from related parties |
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Inventory |
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Assets held for sale |
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Other current assets |
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Total current assets |
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Property and equipment, net |
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Right-of-use assets, net |
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Intangible assets, net |
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Goodwill |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Current portion of debt and finance lease obligations |
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$ |
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$ |
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Current portion of operating lease obligations |
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Accounts payable |
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Accounts payable to related parties |
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Accrued expenses and other current liabilities |
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Motor fuel and sales taxes payable |
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Total current liabilities |
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Debt and finance lease obligations, less current portion |
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Operating lease obligations, less current portion |
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Deferred tax liabilities, net |
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Asset retirement obligations |
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Other long-term liabilities |
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Total liabilities |
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Commitments and |
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Preferred membership interests |
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— |
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Equity: |
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Common units— |
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Accumulated other comprehensive income |
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Total equity |
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Total liabilities and equity |
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$ |
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$ |
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See Condensed Notes to Consolidated Financial Statements.
1
CROSSAMERICA PARTNERS LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of Dollars, except unit and per unit amounts)
(Unaudited)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Operating revenues (a) |
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$ |
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$ |
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Costs of sales (b) |
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Gross profit |
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Operating expenses: |
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Operating expenses (c) |
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General and administrative expenses |
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Depreciation, amortization and accretion expense |
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Total operating expenses |
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Loss on dispositions and lease terminations, net |
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Operating income (loss) |
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Other income, net |
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Interest expense |
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Income (loss) before income taxes |
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Income tax benefit |
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Net income (loss) available to limited partners |
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$ |
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$ |
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Basic and diluted earnings per common unit |
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$ |
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$ |
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Weighted-average limited partner units: |
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Basic common units |
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Diluted common units |
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Supplemental information: |
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(a) includes excise taxes of: |
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$ |
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$ |
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(a) includes rent income of: |
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(b) excludes depreciation, amortization and accretion |
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(b) includes rent expense of: |
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(c) includes rent expense of: |
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See Condensed Notes to Consolidated Financial Statements.
2
CROSSAMERICA PARTNERS LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Cash flows from operating activities: |
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Net income (loss) |
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$ |
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$ |
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Adjustments to reconcile net income (loss) to net cash provided by |
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Depreciation, amortization and accretion expense |
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Amortization of deferred financing costs |
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Credit loss expense |
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Deferred income tax benefit |
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Equity-based employee and director compensation expense |
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Loss on dispositions and lease terminations, net |
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Changes in operating assets and liabilities, net of acquisitions |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Principal payments received on notes receivable |
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Proceeds from sale of assets |
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Capital expenditures |
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Cash paid in connection with acquisitions, net of cash acquired |
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Net cash used in investing activities |
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Cash flows from financing activities: |
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Borrowings under revolving credit facilities |
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Repayments on revolving credit facilities |
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Borrowings under the Term Loan Facility |
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— |
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Repayments on the Term Loan Facility |
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Net proceeds from issuance of preferred membership interests |
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— |
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Payments of finance lease obligations |
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( |
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Payments of deferred financing costs |
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Distributions paid on distribution equivalent rights |
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( |
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Distributions paid on common units |
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( |
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( |
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Net cash used in financing activities |
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( |
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Net increase in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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See Condensed Notes to Consolidated Financial Statements.
3
CROSSAMERICA PARTNERS LP
CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
(Thousands of Dollars, except unit amounts)
(Unaudited)
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Limited Partners' Interest |
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AOCI |
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Total Equity |
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Units |
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Dollars |
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Dollars |
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Dollars |
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Balance at December 31, 2021 |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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Other comprehensive income |
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Unrealized gain on interest rate swap contracts |
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Realized loss on interest rate swap contracts |
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— |
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— |
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Total other comprehensive income |
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— |
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— |
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Comprehensive income |
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— |
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Issuance of units related to 2021 Bonus Plan |
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— |
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Distributions paid |
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— |
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— |
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Balance at March 31, 2022 |
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$ |
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$ |
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$ |
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Balance at December 31, 2020 |
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$ |
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$ |
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$ |
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Net loss |
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— |
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( |
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— |
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( |
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Other comprehensive income |
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Unrealized gain on interest rate swap contracts |
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— |
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— |
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Realized loss on interest rate swap contracts |
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— |
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— |
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Total other comprehensive income |
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— |
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— |
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Comprehensive (loss) income |
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— |
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( |
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( |
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Issuance of units related to 2020 Bonus Plan |
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— |
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Tax effect from intra-entity transfer of assets |
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— |
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( |
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— |
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( |
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Distributions paid |
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— |
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( |
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— |
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( |
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Balance at March 31, 2021 |
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$ |
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$ |
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$ |
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See Condensed Notes to Consolidated Financial Statements.
4
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. DESCRIPTION OF BUSINESS AND OTHER DISCLOSURES
Our business consists of:
Interim Financial Statements
These unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and the Exchange Act. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature unless disclosed otherwise. Management believes that the disclosures made are adequate to keep the information presented from being misleading. The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in our Form 10-K. Financial information as of March 31, 2022 and for the three months ended March 31, 2022 and 2021 included in the consolidated financial statements has been derived from our unaudited financial statements. Financial information as of December 31, 2021 has been derived from our audited financial statements and notes thereto as of that date.
Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. Our business exhibits seasonality due to our wholesale and retail sites being located in certain geographic areas that are affected by seasonal weather and temperature trends and associated changes in retail customer activity during different seasons. Historically, sales volumes have been highest in the second and third quarters (during the summer activity months) and lowest during the winter months in the first and fourth quarters. The COVID-19 Pandemic has impacted our business and these seasonal trends typical in our business. See the “COVID-19 Pandemic” section below.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results and outcomes could differ from those estimates and assumptions. On an ongoing basis, management reviews its estimates based on currently available information. Changes in facts and circumstances could result in revised estimates and assumptions.
Significant Accounting Policies
Certain new accounting pronouncements have become effective for our financial statements during 2022, but the adoption of these pronouncements did not materially impact our financial position, results of operations or disclosures.
Concentration Risk
For the three months ended March 31, 2022 and 2021, respectively, our wholesale business purchased approximately
For the three months ended March 31, 2022 and 2021, respectively, approximately
5
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2022 and 2021, respectively, approximately
COVID-19 Pandemic
During the first quarter of 2020, an outbreak of a novel strain of coronavirus spread worldwide, including to the U.S., posing public health risks that reached pandemic proportions. We experienced a sharp decrease in fuel volume in mid-to-late March 2020. Although fuel volumes largely recovered during the second half of 2020 and continued to recover in 2021 and 2022, we cannot predict the scope and severity with which COVID-19 will impact our business. Sustained decreases in fuel volume or erosion of margin could have a material adverse effect on our results of operations, cash flow, financial position and ultimately our ability to pay distributions.
Note 2. ACQUISITION OF ASSETS FROM 7-ELEVEN
In February 2022, we closed on the final
Inventories |
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$ |
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Other current assets |
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Property and equipment |
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Intangible assets |
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( |
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Goodwill |
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( |
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Total assets |
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$ |
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|||
|
|
|
|
|||
Accrued expenses and other current liabilities |
|
$ |
|
|||
Other non-current liabilities |
|
|
|
|||
Asset retirement obligations |
|
|
|
|||
Total liabilities |
|
$ |
|
|||
Total consideration, net of cash acquired |
|
$ |
|
|||
The fair value of inventory was estimated at retail selling price less estimated costs to sell and a reasonable profit allowance for the selling effort.
The fair value of land was based on a market approach. The value of buildings and equipment was based on a cost approach. The buildings and equipment are being depreciated on a straight-line basis, with estimated remaining useful lives of
The fair value of the wholesale fuel distribution rights included in intangible assets was based on an income approach. Management believes the level and timing of cash flows represent relevant market participant assumptions. The wholesale fuel distribution rights are being amortized on a straight-line basis over an estimated useful life of approximately
The fair value of goodwill represents expected synergies from combining operations, intangible assets that do not qualify for separate recognition, and other factors. All goodwill is anticipated to be deductible for tax purposes.
Management continues to review the valuation and is confirming the result to determine the final purchase price allocation. We anticipate finalizing purchase accounting during the second quarter of 2022.
We funded these transactions primarily through the JKM Credit Facility as well as undrawn capacity under the CAPL Credit Facility and cash on hand.
6
CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. ASSETS HELD FOR SALE
We have classified
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Land |
|
$ |
|
|
$ |
|
||
Buildings and site improvements |
|
|
|
|
|
|
||
Equipment |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
Less accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Assets held for sale |
|
$ |
|
|
$ |
|
||
The Partnership has continued to focus on divesting lower performing assets. During the three months ended March 31, 2022, we sold
See Note 5 for information regarding impairment charges primarily recorded upon classifying sites within assets held for sale.
Note 4. INVENTORIES
Inventories consisted of the following (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Retail site merchandise |
|
$ |
|
|
$ |
|
||
Motor fuel |
|
|
|
|
|
|
||
Inventories |
|
$ |
|
|
$ |
|
||
Note 5. PROPERTY AND EQUIPMENT
Property and equipment, net consisted of the following (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Land |
|
$ |
|
|
$ |
|
||
Buildings and site improvements |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Equipment |
|
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
|
||
Property and equipment, at cost |
|
|
|
|
|
|
||
Accumulated depreciation and amortization |
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