10-K/A 1 capl-10ka_20191231.htm 10-K/A capl-10ka_20191231.htm

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

FORM 10-K/A

Amendment No. 1

(Mark One)

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                             to                            

Commission File No. 001-35711

CROSSAMERICA PARTNERS LP

(Exact name of registrant as specified in its charter)

Delaware

 

45-4165414

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

600 Hamilton Street, Suite 500

Allentown, PA

 

18101

(Zip Code)

(610) 625-8000

(Address of Principal Executive Offices)

 

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Units

CAPL

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No

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. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer   Accelerated filer   Non-accelerated filer   Smaller reporting company   Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

The aggregate market value of our common units based on the closing price on the New York Stock Exchange on June 28, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, held by non-affiliates of the registrant was approximately $309.0 million.

As of February 21, 2020, the registrant had outstanding 37,023,114 common units.

Documents Incorporated by Reference: None.

 


 

EXPLANATORY NOTE

 

CrossAmerica Partners LP (“CrossAmerica,” the “Partnership,” “we,” “us” or “our”) is filing this Amendment No. 1 on Form 10-K/A (this “Amendment”) to amend its Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “Form 10-K”), which was originally filed on February 26, 2020 with the U.S. Securities and Exchange Commission (the “SEC”). The sole purpose for filing this Amendment is to include summarized financial information for our investment in CST Fuel Supply, an entity in which we owned a 17.5% interest from July 1, 2015 through March 25, 2020 and that has been accounted for as an equity method investment during that period. No other changes to the contents of the Form 10-K have been made, except as specified in this explanatory note.

In the Form 10-K, we disclosed the 1.7 billion gallons of motor fuel purchased by CST Fuel Supply during 2019 in Note 2 under “Concentration Risk.” We also disclosed the $0.05 fixed markup per gallon CST Fuel Supply generated and our limited partner interest of 17.5% in Note 13 under “CST Fuel Supply Equity Interests.” With this information, users can recompute the equity income from CST Fuel Supply presented on our statements of operations as well as the cash received from CST Fuel Supply presented in our statements of cash flows by multiplying the volume by the fixed markup per gallon by our limited partner interest. Consistent information was provided for 2018 and 2017.

This Amendment inserts supplemental financial information into Note 13 to the financial statements under the heading “CST Fuel Supply Equity Interests.” Although the Form 10-K included all information to enable users of our financial statements to understand the operations of CST Fuel Supply and to recompute the equity income from CST Fuel Supply presented on our statements of operations as well as the cash received from CST Fuel Supply presented in our statements of cash flows, we are filing this Amendment to also include supplemental financial information for certain periods of 2017, 2018 and 2019 in Note 13 to the financial statements in order to more clearly comply with the requirements of Regulation S-X Rule 4-08(g). The inclusion of this summarized financial information of CST Fuel Supply in this Amendment does not impact or affect our consolidated financial condition or results of operations.

This summarized financial information was required to be included in the Form 10-K pursuant to Rule 4-08(g) of Regulation S-X and we failed to include such information. In light of these and related omissions, this Amendment includes updated disclosure regarding our conclusions with respect to the effectiveness of our disclosure controls and procedures in Item 9A. Controls and Procedures.

There are no revisions to management’s report on internal control over financial reporting nor to Grant Thornton LLP’s opinions on the financial statements and internal control over financial reporting, other than the dual-dating of Grant Thornton’s opinion on the financial statements as required by this Amendment to include the supplemental financial information in Note 13 to the financial statements.

This Amendment does not affect any other parts of, or exhibits to, the Form 10-K, and those unaffected parts or exhibits are not included in this Amendment. Except as expressly stated in this Amendment, the Form 10-K continues to speak as of the date of the filing of the Form 10-K, and we have not updated the disclosure contained in this Amendment to reflect events that have occurred since the filing of the Form 10-K. Accordingly, this Amendment must be read in conjunction with the Partnership’s other filings made with the SEC subsequent to the filing of the Form 10-K, including amendments to those filings, if any.

 

 


 

TABLE OF CONTENTS

 

 

 

1 No changes have been made and the inclusion of Part I, Commonly Defined Terms is solely for the convenience of the reader.

 


 

 

PART I

COMMONLY USED DEFINED TERMS

 

The following is a list of certain acronyms and terms generally used in the industry and throughout this document:

 

CrossAmerica Partners LP and subsidiaries:

 

 

 

CrossAmerica Partners LP

CrossAmerica, the Partnership, we, us, our

 

 

 

LGP Operations LLC

a wholly owned subsidiary of the Partnership

 

 

 

LGW

Lehigh Gas Wholesale LLC

 

 

 

LGPR

LGP Realty Holdings LP

 

 

 

LGWS

Lehigh Gas Wholesale Services, Inc. and subsidiaries

 

 

CrossAmerica Partners LP related parties at any point during 2019:

 

 

 

Circle K

Circle K Stores Inc., a Texas corporation, and a wholly owned subsidiary of Couche-Tard

 

 

 

Couche-Tard

Alimentation Couche-Tard Inc. (TSX: ATD.A ATD.B)

 

Couche-Tard Board

the Board of Directors of Couche-Tard

 

 

 

CST

CST Brands, LLC and subsidiaries, indirectly owned by Circle K

 

 

 

CST Fuel Supply

CST Fuel Supply LP is the parent of CST Marketing and Supply, indirectly owned by Circle K. Since July 1, 2015, we have owned a 17.5% limited partner interest in CST Fuel Supply. See Note 25 to the financial statements for information regarding the exchange of this investment for certain assets owned by Circle K.

 

 

 

CST Marketing and Supply

CST Marketing and Supply, LLC, indirectly owned by Circle K. It is CST’s wholesale motor fuel supply business, which provides wholesale fuel distribution to the majority of CST’s legacy U.S. retail convenience stores on a fixed markup per gallon.

 

 

 

CST Services

CST Services LLC, a wholly owned subsidiary of Circle K

 

 

 

DMI

Dunne Manning Inc. (formerly Lehigh Gas Corporation), an entity affiliated with the Topper Group

 

 

 

DMP

Dunne Manning Partners LLC, an entity affiliated with the Topper Group and controlled by Joseph V. Topper, Jr. Since November 19, 2019, DMP has owned 100% of the membership interests in the sole member of the General Partner.

 

 

 

DMR

Dunne Manning Realty LP, an entity affiliated with the Topper Group

 

 

 

DMS

Dunne Manning Stores LLC (formerly known as Lehigh Gas-Ohio, LLC), an entity affiliated with the Topper Group. DMS is an operator of retail motor fuel stations. DMS leases retail sites from us in accordance with a master lease agreement and purchases a significant portion of its motor fuel for these sites from us on a wholesale basis under rack plus pricing. The financial results of DMS are not consolidated with ours.

 

 

 

General Partner

CrossAmerica GP LLC, the General Partner of CrossAmerica, a Delaware limited liability company, indirectly owned by the Topper Group

 

 

 

Topper Group

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.

 

 

 

TopStar

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 but does not purchase fuel from us.

1


 

 

 

 

 

Recent Acquisitions:

 

 

 

Nice N Easy Assets

The assets acquired from Nice N Easy Grocery Shoppes in November 2014

 

 

 

Landmark Assets

The assets acquired from Landmark Industries in January 2015

 

 

 

Franchised Holiday Stores

The franchised Holiday stores acquired in March 2016

 

 

 

Jet-Pep Assets

The assets acquired from Jet-Pep, Inc. in November 2017

 

 

Other Defined Terms:

 

 

 

 

Applegreen

Applegreen plc or one of its subsidiaries

 

 

 

ASC

Accounting Standards Codification

 

 

 

ASU

Accounting Standards Update

 

 

 

Board

Board of Directors of our General Partner

 

 

 

BP

BP p.l.c.

 

 

 

Branded Motor Fuels

Motor fuels that are purchased from major integrated oil companies and refiners under supply agreements. We take legal title to the motor fuel when we receive it at the rack and generally arrange for a third-party transportation provider to take delivery of the motor fuel at the rack and deliver it to the appropriate sites in our network.

 

 

 

Circle K Omnibus Agreement

The Amended and Restated Omnibus Agreement, dated October 1, 2014, as amended effective January 1, 2016, February 1, 2018 and April 29, 2019 by and among CrossAmerica, the General Partner, DMI, DMS, CST Services and Joseph V. Topper, Jr., which amends and restates the original omnibus agreement that was executed in connection with CrossAmerica’s initial public offering on October 30, 2012. The terms of the Circle K Omnibus Agreement were approved by the conflicts committee of the Board. Pursuant to the Circle K Omnibus Agreement, CST Services agrees, among other things, to provide, or cause to be provided, to the Partnership certain management services.

 

 

 

CST Fuel Supply Exchange

Exchange Agreement, dated November 19, 2019, between the Partnership and Circle K. Pursuant to the CST Fuel Supply Exchange Agreement, Circle K has agreed to transfer to the Partnership certain owned and leased convenience store properties and related assets (including fuel supply agreements) and wholesale fuel supply contracts covering additional sites, and, in exchange, the Partnership has agreed to transfer to Circle K 100% of the limited partnership units in CST Fuel Supply.

 

 

 

CST Merger

The merger of Ultra Acquisition Corp., a Delaware corporation and an indirect, wholly owned subsidiary of Circle K (“Merger Sub”), with CST, with CST surviving the merger as a wholly owned subsidiary of Circle K, which closed on June 28, 2017. See CST Merger Agreement below.

 

 

 

CST Merger Agreement

CST’s Agreement and Plan of Merger entered into on August 21, 2016 with Circle K and Merger Sub. Under and subject to the terms and conditions of the CST Merger Agreement, on June 28, 2017, Merger Sub was merged with and into CST, with CST surviving the CST Merger as a wholly owned subsidiary of Circle K.

 

 

 

DTW

Dealer tank wagon contracts, which are variable cent per gallon priced wholesale motor fuel distribution or supply contracts; DTW also refers to the pricing methodology under such contracts

 

 

 

EBITDA

Earnings before interest, taxes, depreciation, amortization and accretion, a non-GAAP financial measure

 

 

 

EICP

The Partnership’s Lehigh Gas Partners LP Executive Income Continuity Plan, as amended

 

 

 

2


 

EMV

Payment method based upon a technical standard for smart payment cards, also referred to as chip cards

 

 

 

Exchange Act

Securities Exchange Act of 1934, as amended

 

 

 

ExxonMobil

ExxonMobil Corporation

 

 

 

FASB

Financial Accounting Standards Board

 

 

 

Form 10-K

CrossAmerica’s Annual Report on Form 10-K for the year ended December 31, 2019

 

 

FTC

U.S. Federal Trade Commission

 

 

 

Getty Lease

In May 2012, the Predecessor Entity, which represents the portion of the business of DMI and its subsidiaries and affiliates contributed to the Partnership in connection with the initial public offering, entered into a 15-year master lease agreement with renewal options of up to an additional 20 years with Getty Realty Corporation.

 

 

 

GP Purchase

Purchase by DMP from subsidiaries of Circle K of: 1) 100% of the membership interests in the sole member of the General Partner; 2) 100% of the Incentive Distribution Rights issued by the Partnership; and 3) an aggregate of 7,486,131 common units of the Partnership. These transactions closed on November 19, 2019.

 

 

 

IDRs

Incentive Distribution Rights represent the right to receive an increasing percentage of quarterly distributions after the target distribution levels have been achieved, as defined in our Partnership Agreement. As a result of the GP Purchase, DMP owned 100% of the outstanding IDRs from November 19, 2019 through February 6, 2020. See Note 25 to the financial statements for information regarding the elimination of the IDRs.

 

 

 

Internal Revenue Code

Internal Revenue Code of 1986, as amended

 

 

 

IPO

Initial public offering of CrossAmerica Partners LP on October 30, 2012

 

 

 

IRS

Internal Revenue Service

 

 

 

LIBOR

London Interbank Offered Rate

 

 

 

MD&A

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

Motiva

Motiva Enterprises, LLC

 

 

 

NTI

CST’s new to industry stores opened after January 1, 2008, which is generally when CST began designing and operating its larger format stores that accommodate broader merchandise categories and food offerings and have more fuel dispensers than its legacy stores

 

 

 

NYSE

New York Stock Exchange

 

 

 

Partnership Agreement

The First Amended and Restated Agreement of Limited Partnership of CrossAmerica Partners LP, dated as of October 1, 2014, as amended; see Note 25 to the financial statements regarding the elimination of the IDRs, which triggered the need to further amend the Partnership Agreement

 

 

 

Plan

In connection with the IPO, the General Partner adopted the Lehigh Gas Partners LP 2012 Incentive Award Plan, a long-term incentive plan for employees, officers, consultants and directors of the General Partner and any of its affiliates who perform services for the Partnership

 

 

 

Predecessor Entity

Wholesale distribution contracts and real property and leasehold interests contributed to the Partnership in connection with the IPO

 

 

 

Retail site

A general term to refer to convenience stores, including those operated by commission agents, independent dealers, Circle K, DMS or lessee dealers, as well as company operated sites

 

 

 

RIN

Renewable identification number, an identifier used by governmental agencies to track a specific batch of renewable fuel

 

 

 

3


 

SEC

U.S. Securities and Exchange Commission

 

 

 

Tax Cuts and Jobs Act

On December 22, 2017, the U.S. government enacted tax legislation formally known as Public Law No. 115-97, commonly referred to as the Tax Cuts and Jobs Act

 

 

 

Terms Discounts

Discounts for prompt payment and other rebates and incentives from our suppliers for a majority of the gallons of motor fuel purchased by us, which are recorded within cost of sales. Prompt payment discounts are based on a percentage of the purchase price of motor fuel.

 

 

 

Topper Group Omnibus Agreement

The Topper Group 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 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.

 

 

 

Transitional Omnibus Agreement

Upon the closing of the GP Purchase, the Circle K Omnibus Agreement was terminated and the Partnership entered into a Transitional Omnibus Agreement, dated as of November 19, 2019, among the Partnership, the General Partner and Circle K. Pursuant to the Transitional Omnibus Agreement, Circle K has agreed, among other things, to continue to provide, or cause to be provided, to the Partnership certain management services, administrative and operating services, as provided under the Circle K Omnibus Agreement through June 30, 2020 with respect to certain services, unless earlier terminated or unless the parties extend the term of certain services. In addition, from January 1, 2020 until the closing of the CST Fuel Supply Exchange, the General Partner will provide Circle K with certain administrative and operational services, on the terms and conditions set forth in the Transitional Omnibus Agreement.

 

 

 

U.S. GAAP

U.S. Generally Accepted Accounting Principles

 

 

 

UST

Underground storage tanks

 

 

 

Valero

Valero Energy Corporation and, where appropriate in context, one or more of its subsidiaries, or all of them taken as a whole

 

 

 

WTI

West Texas Intermediate crude oil

 

4


 

PART II

ITEM 8. FINANCIAL STATEMENTS

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The SEC, as required by Section 404 of the Sarbanes-Oxley Act, adopted rules requiring companies to file reports with the SEC to include a management report on such company’s internal control over financial reporting in its Form 10-K. In addition, our independent registered public accounting firm must attest to our internal control over financial reporting.

The management of CrossAmerica is responsible for establishing and maintaining adequate internal control over financial reporting. This internal control system was designed to provide reasonable assurance to the company’s management and Board regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. CrossAmerica management assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2019. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework, 2013 version. Based on our assessment, we believe that, as of December 31, 2019, the Partnership’s internal control over financial reporting is effective based on those criteria.

Attestation Report of the Independent Registered Public Accounting Firm

Grant Thornton LLP, our independent registered public accounting firm, has audited our internal control over financial reporting as of December 31, 2019. Their report dated February 25, 2020, expressed an unqualified opinion on our internal control over financial reporting.

5


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors, General Partner and Limited Partners

CrossAmerica Partners LP

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of CrossAmerica Partners LP (a Delaware partnership) and subsidiaries (the “Partnership”) as of December 31, 2019 and 2018, the related consolidated statements of income, equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Partnership’s internal control over financial reporting as of December 31, 2019, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 25, 2020 expressed an unqualified opinion.

Change in accounting principle

As discussed in Note 2 to the consolidated financial statements, the Partnership has changed its method of accounting for leases effective January 1, 2019 due to the adoption of Accounting Standards Codification (ASC) Topic 842 – Leases.

Basis for opinion

These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on the Partnership’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ GRANT THORNTON LLP

We have served as the Partnership’s auditor since 2011.

Arlington, Virginia

February 25, 2020 (except for the supplemental balance sheet and income statement information for CST Fuel Supply LP for each of the three years in the period ended December 31, 2019 in Note 13, as to which the date is January 21, 2021)

6


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors, General Partner and Limited Partners

CrossAmerica Partners LP

Opinion on internal control over financial reporting

We have audited the internal control over financial reporting of CrossAmerica Partners LP (a Delaware partnership) and subsidiaries (the “Partnership”) as of December 31, 2019, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Partnership as of and for the year ended December 31, 2019, and our report dated February 25, 2020 expressed an unqualified opinion on those financial statements.

Basis for opinion

The Partnership’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Partnership’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and limitations of internal control over financial reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ GRANT THORNTON LLP

Arlington, Virginia

February 25, 2020

7


 

CROSSAMERICA PARTNERS LP

CONSOLIDATED BALANCE SHEETS

(Thousands of Dollars, except unit data)

 

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,780

 

 

$

3,191

 

Accounts receivable, net of allowances of $557 and $607, respectively

 

 

32,160

 

 

 

16,160

 

Accounts receivable from related parties

 

 

4,299

 

 

 

9,697

 

Inventories

 

 

6,230

 

 

 

14,083

 

Assets held for sale

 

 

13,231

 

 

 

2,218

 

Other current assets

 

 

5,795

 

 

 

5,513

 

Total current assets

 

 

63,495

 

 

 

50,862

 

Property and equipment, net

 

 

565,916

 

 

 

647,413

 

Right-of-use assets, net

 

 

120,767

 

 

 

 

Intangible assets, net

 

 

44,996

 

 

 

59,063

 

Goodwill

 

 

88,764

 

 

 

88,764

 

Other assets

 

 

21,318

 

 

 

20,820

 

Total assets

 

$

905,256

 

 

$

866,922

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of debt and finance lease obligations

 

$

2,471

 

 

$

2,296

 

Current portion of operating lease obligations

 

 

23,485

 

 

 

 

Accounts payable

 

 

57,392

 

 

 

32,632

 

Accounts payable to related parties

 

 

431

 

 

 

25,045

 

Accrued expenses and other current liabilities

 

 

16,382

 

 

 

17,871

 

Motor fuel taxes payable

 

 

12,475

 

 

 

10,604

 

Total current liabilities

 

 

112,636

 

 

 

88,448

 

Debt and finance lease obligations, less current portion

 

 

534,859

 

 

 

519,276

 

Operating lease obligations, less current portion

 

 

100,057

 

 

 

 

Deferred tax liabilities, net

 

 

19,369

 

 

 

19,929

 

Asset retirement obligations

 

 

35,589

 

 

 

32,747

 

Other long-term liabilities

 

 

24,349

 

 

 

95,589

 

Total liabilities

 

 

826,859

 

 

 

755,989

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Common units—(34,494,441 and 34,444,113 units issued and

   outstanding at December 31, 2019 and 2018, respectively)

 

 

78,397

 

 

 

110,933

 

General Partner’s interest

 

 

 

 

 

 

Total Partners’ Capital

 

 

78,397

 

 

 

110,933

 

Total liabilities and equity

 

$

905,256

 

 

$

866,922

 

 

See Notes to Consolidated Financial Statements.

 

8


 

CROSSAMERICA PARTNERS LP

CONSOLIDATED STATEMENTS OF INCOME

(Thousands of Dollars, except unit and per unit amounts)

 

 

 

For the Year Ended December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

Operating revenues(a)

 

$

2,149,429

 

 

$

2,445,917

 

 

$

2,094,827

 

Costs of sales

 

 

1,994,792

 

 

 

2,273,122

 

 

 

1,934,061

 

Gross profit

 

 

154,637

 

 

 

172,795

 

 

 

160,766

 

Income from CST Fuel Supply equity interests

 

 

14,768

 

 

 

14,948

 

 

 

14,906

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

52,554

 

 

 

61,919

 

 

 

61,297

 

General and administrative expenses

 

 

16,849

 

 

 

17,966

 

 

 

27,887

 

Depreciation, amortization and accretion expense

 

 

55,032

 

 

 

66,549

 

 

 

57,470

 

Total operating expenses

 

 

124,435

 

 

 

146,434

 

 

 

146,654

 

(Loss) gain on dispositions and lease terminations, net

 

 

(1,648

)

 

 

(6,297

)

 

 

3,401

 

Operating income

 

 

43,322

 

 

 

35,012

 

 

 

32,419

 

Other income, net

 

 

524

 

 

 

373

 

 

 

439

 

Interest expense

 

 

(27,000

)

 

 

(32,872

)

 

 

(27,919

)

Income before income taxes

 

 

16,846

 

 

 

2,513

 

 

 

4,939

 

Income tax benefit

 

 

(1,230

)

 

 

(2,733

)

 

 

(18,237

)

Net income

 

 

18,076

 

 

 

5,246

 

 

 

23,176

 

Less: net (loss) income attributable to noncontrolling interests

 

 

 

 

 

(5

)

 

 

18

 

Net income attributable to limited partners

 

 

18,076

 

 

 

5,251

 

 

 

23,158

 

IDR distributions

 

 

(533

)

 

 

(1,579

)

 

 

(4,337

)

Net income available to limited partners

 

$

17,543

 

 

$

3,672

 

 

$

18,821

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per common unit

 

$

0.51

 

 

$

0.11

 

 

$

0.56

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average limited partner units:

 

 

 

 

 

 

 

 

 

 

 

 

Basic common units

 

 

34,454,369

 

 

 

34,345,298

 

 

 

33,844,823

 

Diluted common units(b)

 

 

34,484,801

 

 

 

34,345,298

 

 

 

33,855,345

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental information:

 

 

 

 

 

 

 

 

 

 

 

 

(a) Includes excise taxes of:

 

$

78,004

 

 

$

97,929

 

 

$

79,937

 

(a) Includes revenues from fuel sales to and rental

    income from related parties of:

 

 

297,568

 

 

 

433,740

 

 

 

414,781

 

(b) Diluted common units were not used in the calculation of diluted earnings per common unit for 2018 because to do so

    would have been antidilutive.

 

 

See Notes to Consolidated Financial Statements.

 

9


 

CROSSAMERICA PARTNERS LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands of Dollars)

 

 

 

For the Year Ended December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

18,076

 

 

$

5,246

 

 

$

23,176

 

Adjustments to reconcile net income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, amortization and accretion expense

 

 

55,032

 

 

 

66,549

 

 

 

57,470

 

Amortization of deferred financing costs

 

 

1,027

 

 

 

1,534

 

 

 

1,707

 

Amortization of (above) below market leases, net

 

 

 

 

 

(21

)

 

 

70

 

Provision for losses on doubtful accounts

 

 

362

 

 

 

611

 

 

 

103

 

Deferred income taxes

 

 

3,569

 

 

 

(4,261

)

 

 

(18,853

)

Equity-based employee and director compensation expense

 

 

1,246

 

 

 

481

 

 

 

1,931

 

Circle K Omnibus Agreement fees settled in common units

 

 

 

 

 

3,300

 

 

 

13,200

 

Loss (gain) on dispositions and lease terminations, net

 

 

1,648

 

 

 

6,297

 

 

 

(3,401

)

Changes in operating assets and liabilities, net of acquisitions

 

 

(8,633

)

 

 

10,016

 

 

 

13,557

 

Net cash provided by operating activities

 

 

72,327

 

 

 

89,752

 

 

 

88,960

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Principal payments received on notes receivable

 

 

1,098

 

 

 

780

 

 

 

450

 

Proceeds from sale of assets

 

 

4,856

 

 

 

6,642

 

 

 

27,552

 

Proceeds from sale of assets to Circle K

 

 

3,148

 

 

 

 

 

 

 

Capital expenditures

 

 

(24,611

)

 

 

(13,717

)

 

 

(12,488

)

Cash paid in connection with acquisitions, net of cash acquired

 

 

 

 

 

 

 

 

(75,627

)

Cash paid to Circle K in connection with acquisitions

 

 

 

 

 

(485

)

 

 

 

Net cash used in investing activities

 

 

(15,509

)

 

 

(6,780

)

 

 

(60,113

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings under the revolving credit facility

 

 

137,303

 

 

 

128,107

 

 

 

205,121

 

Repayments on the revolving credit facility

 

 

(116,303

)

 

 

(136,107

)

 

 

(140,621

)

Payments of long-term debt and finance lease obligations

 

 

(2,297

)

 

 

(2,866

)

 

 

(2,032

)

Payments of sale-leaseback obligations

 

 

 

 

 

(1,019

)

 

 

(865

)

Payment of deferred financing costs

 

 

(3,972

)

 

 

(901

)

 

 

(6

)

Contributions from Circle K

 

 

 

 

 

6,306

 

 

 

329

 

Distributions paid on distribution equivalent rights

 

 

(86

)

 

 

(37

)

 

 

(22

)

Distributions paid to holders of the IDRs

 

 

(533

)

 

 

(1,579

)

 

 

(4,337

)

Distributions paid to noncontrolling interests

 

 

 

 

 

(20

)

 

 

(103

)

Distributions paid on common units

 

 

(72,341

)

 

 

(75,562

)

 

 

(83,764

)

Net cash used in financing activities

 

 

(58,229

)

 

 

(83,678

)

 

 

(26,300

)

Net (decrease) increase in cash and cash equivalents

 

 

(1,411

)

 

 

(706

)

 

 

2,547

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

3,191

 

 

 

3,897

 

 

 

1,350

 

Cash and cash equivalents at end of period

 

$

1,780

 

 

$

3,191

 

 

$

3,897

 

 

See Notes to Consolidated Financial Statements.

 

10


 

 

CROSSAMERICA PARTNERS LP

CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME

(Thousands of Dollars, except unit amounts)

 

 

 

Limited Partners’ Interest

General

 

 

Incentive

 

 

 

 

 

 

 

 

 

 

 

Common

Unitholders

 

 

Partner’s

Interest

 

 

Distribution

Rights

 

 

Noncontrolling

Interest

 

 

Equity

 

 

 

Units

 

 

Dollars

 

 

Dollars

 

 

Dollars

 

 

Dollars

 

 

Dollars

 

Balance at December 31, 2016

 

 

33,524,952

 

 

$

221,044

 

 

$

 

 

$

 

 

$

(233

)

 

$

220,811

 

Vesting of incentive and director awards, net of units

   withheld for taxes

 

 

35,993

 

 

 

896

 

 

 

 

 

 

 

 

 

 

 

 

896

 

Issuance of units to Circle K for the payment of fees

   under the Circle K Omnibus Agreement

 

 

550,516

 

 

 

14,033

 

 

 

 

 

 

 

 

 

 

 

 

14,033

 

Contributions from Circle K

 

 

 

 

 

329

 

 

 

 

 

 

 

 

 

 

 

 

329

 

Net income and comprehensive income

 

 

 

 

 

18,821

 

 

 

 

 

 

4,337

 

 

 

18

 

 

 

23,176

 

Distributions paid

 

 

 

 

 

(83,786

)

 

 

 

 

 

(4,337

)

 

 

(103

)

 

 

(88,226

)

Balance at December 31, 2017

 

 

34,111,461

 

 

 

171,337

 

 

 

 

 

 

 

 

 

(318

)

 

 

171,019

 

Vesting of incentive and director awards, net of units

   withheld for taxes

 

 

40,534

 

 

 

490

 

 

 

 

 

 

 

 

 

343

 

 

 

833

 

Issuance of units to Circle K for the payment of fees

   under the Circle K Omnibus Agreement

 

 

292,118

 

 

 

6,518

 

 

 

 

 

 

 

 

 

 

 

 

6,518

 

Contributions from Circle K, net of tax

 

 

 

 

 

4,691

 

 

 

 

 

 

 

 

 

 

 

 

4,691

 

Acquisition of leasehold interest in three sites from Circle K

 

 

 

 

 

(56

)

 

 

 

 

 

 

 

 

 

 

 

(56

)

Other

 

 

 

 

 

(120

)

 

 

 

 

 

 

 

 

 

 

 

(120

)

Net income (loss) and comprehensive income (loss)

 

 

 

 

 

3,672

 

 

 

 

 

 

1,579

 

 

 

(5

)

 

 

5,246

 

Distributions paid

 

 

 

 

 

(75,599

)

 

 

 

 

 

(1,579

)

 

 

(20

)

 

 

(77,198

)

Balance at December 31, 2018

 

 

34,444,113

 

 

 

110,933

 

 

 

 

 

 

 

 

 

 

 

 

110,933

 

Vesting of incentive and director awards, net of units

   withheld for taxes

 

 

50,328

 

 

 

862

 

 

 

 

 

 

 

 

 

 

 

 

862

 

Transition adjustment upon adoption of ASC 842, net of tax

 

 

 

 

 

28,896

 

 

 

 

 

 

 

 

 

 

 

 

28,896

 

Asset exchange with Circle K, net of tax

 

 

 

 

 

(7,410

)

 

 

 

 

 

 

 

 

 

 

 

(7,410

)

Net income and comprehensive income

 

 

 

 

 

17,543

 

 

 

 

 

 

533

 

 

 

 

 

 

18,076

 

Distributions paid

 

 

 

 

 

(72,427

)

 

 

 

 

 

(533

)

 

 

 

 

 

(72,960

)

Balance at December 31, 2019

 

 

34,494,441

 

 

$

78,397

 

 

$

 

 

$

 

 

$

 

 

$

78,397

 

 

See Notes to Consolidated Financial Statements.

 

11

 


CROSSAMERICA PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1. DESCRIPTION OF BUSINESS

Purchase of the General Partner by the Topper Group

On November 19, 2019, subsidiaries of DMP purchased from subsidiaries of Circle K: 1) 100% of the membership interests in the sole member of the General Partner; 2) 100% of the IDRs issued by the Partnership; and 3) an aggregate of 7,486,131 common units of the Partnership. Joseph V. Topper, Jr. is the founder and, since November 19, 2019, chairman of the Board.

Through its control of DMP, the Topper Group controls the sole member of our General Partner and has the ability to appoint all of the members of the Board and to control and manage the operations and activities of the Partnership. As of February 21, 2020, the Topper Group also has beneficial ownership of a 47.7% limited partner interest in the Partnership. 

Description of Business

Our business consists of:

 

the wholesale distribution of motor fuels;

 

the retail distribution of motor fuels to end customers at retail sites operated by commission agents or through September 2019, us;

 

the owning or leasing of retail sites used in the retail distribution of motor fuels and, in turn, generating rental income from the lease or sublease of the retail sites; and to a lesser extent,

 

through September 2019, the operation of retail sites.

The financial statements reflect the consolidated results of the Partnership and its wholly owned subsidiaries. Our primary operations are conducted by the following consolidated wholly owned subsidiaries:

 

LGW, which distributes motor fuels on a wholesale basis and generates qualifying income under Section 7704(d) of the Internal Revenue Code;

 

LGPR, which functions as our real estate holding company and holds assets that generate qualifying rental income under Section 7704(d) of the Internal Revenue Code; and

 

LGWS, which owns and leases (or leases and sub-leases) real estate and personal property used in the retail distribution of motor fuels, as well as provides maintenance and other services to its customers. In addition, LGWS sells motor fuel on a retail basis at sites operated by commission agents. Through September 2019, LGWS also distributed motor fuels on a retail basis and sold convenience merchandise items to end customers at company operated retail sites. Income from LGWS generally is not qualifying income under Section 7704(d) of the Internal Revenue Code.

Note 2. SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

These consolidated financial statements were prepared in accordance with U.S. GAAP. These financial statements include the consolidated accounts of CrossAmerica and subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

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.

12

 


CROSSAMERICA PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash and Cash Equivalents

We consider all short-term investments with maturity of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents are stated at cost, which, for cash equivalents, approximates fair value due to their short-term maturity. We are potentially subject to financial instrument concentration of credit risk through our cash and cash equivalents. We maintain cash and cash equivalents with several major financial institutions. We have not experienced any losses on our cash equivalents.

Receivables

Accounts receivable primarily result from the sales of motor fuels to customers and rental fees for retail sites. The majority of our accounts receivable relate to our motor fuel sales that can generally be described as high volume and low margin activities. Credit is extended to a customer based on an evaluation of the customer’s financial condition. In certain circumstances collateral may be required from the customer. Receivables are recorded at face value, without interest or discount. Receivables include amounts due from financial institutions for customer credit and debit card transactions.

The provision for bad debts is generally based upon a specific analysis of aged accounts while also factoring in any new business conditions that might impact the historical analysis, such as market conditions and bankruptcies of particular customers. Bad debt provisions are included in general and administrative expenses.

We review all accounts receivable balances on at least a quarterly basis and provide an allowance for doubtful accounts based on historical experience and on a specific identification basis.

Inventories

Motor fuel inventory consists of gasoline, diesel fuel and other petroleum products and is stated at the lower of average cost or net realizable value using the first-in, first-out method. We record inventory from the time of the purchase of motor fuels from third-party suppliers until the retail sale to the end customer.

Asset Acquisitions and Business Combinations

When closing on an acquisition, we must first determine whether substantially all of the fair value of the set of gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set is not a business. If this threshold is not met, we determine whether the set meets the definition of a business.

A business is defined as an integrated set of assets and activities that is capable of being conducted and managed for the purpose of providing a return to investors or other owners, members or participants. A business typically has inputs, processes applied to those inputs and outputs that are used to generate a return to investors, but outputs are not required for a set to be a business. A business must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs.

We account for asset acquisitions (i.e. transactions involving the acquisition of a set of assets that does not meet the definition of a business) in accordance with the guidance under ASC 805-50 and other applicable guidance. Asset acquisitions are generally accounted for by allocating the cost of the acquisition, including acquisition costs, to the individual assets acquired and liabilities assumed on a relative fair value basis.

We account for business combinations in accordance with the guidance under ASC 805–Business Combinations. The purchase price is recorded for assets acquired and liabilities assumed based on fair value. The excess of the fair value of the consideration conveyed over the fair value of the net assets acquired is recorded as goodwill.

The income statement includes the results of operations for each acquisition from their respective date of acquisition.

Whether we account for a transaction as an asset acquisition or a business combination, determining the fair value of assets and liabilities requires management’s judgment, the utilization of independent valuation experts and involves the use of significant estimates and assumptions with respect to the timing and amounts of future cash inflows and outflows, discount rates, market prices and asset lives, among other items. The judgments made in the determination of the estimated fair value assigned to the assets acquired, the liabilities assumed and any noncontrolling interest in the investee, as well as the estimated useful life of each asset and the duration of each liability, can materially impact the financial statements in periods after acquisition, such as through depreciation and amortization.

13

 


CROSSAMERICA PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property and Equipment

Property and equipment is recorded at cost, which equals fair value in the case of a business combination or generally approximates fair value in the case of an asset acquisition. Depreciation is recognized using the straight-line method over the estimated useful lives of the related assets, including: 10 to 20 years for buildings and improvements and three to 30 years for equipment. Amortization of leasehold improvements is based upon the shorter of the remaining terms of the leases including renewal periods that are reasonably assured, or the estimated useful lives, which generally range from seven to 10 years.

Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Maintenance and repairs are charged to operations as incurred. Gains or losses on the disposition of property and equipment are recorded in the period the sale meets the criteria for recognition.

Intangible Assets

Intangible assets are recorded at fair value in the case of a business combination or at a value that generally approximates fair value in the case of an asset acquisition. Intangible assets associated with wholesale fuel supply contracts and wholesale fuel distribution rights are amortized over 10 years. Trademarks are amortized over five years. Covenants not to compete are amortized over the shorter of the contract term or five years. Intangible assets associated with above and below market leases in which we are the lessor are amortized over the applicable lease term. Intangible assets with finite useful lives are amortized over their respective estimated useful lives and reviewed for impairment if we believe that changes or triggering events have occurred that could have caused the carrying value of the intangible assets to exceed its fair value. Intangible assets with indefinite lives are not amortized but are tested for impairment annually or more frequently if events and circumstances indicate that the intangible assets might be impaired.

Impairment of Assets

Long-lived assets, which include property and equipment and finite-lived intangible assets, are tested for recoverability whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. A long-lived asset is not recoverable if its carrying amount exceeds the sum of the undiscounted cash flows expected to result from its use and eventual disposition. If a long-lived asset is not recoverable, an impairment loss is recognized for the amount by which the carrying amount of the long-lived asset exceeds its fair value, with fair value determined based on discounted estimated net cash flows or other appropriate methods.

Goodwill

Goodwill represents the excess of cost over the fair value of net assets of businesses acquired. Goodwill is not amortized, but instead is tested for impairment at the reporting unit level at least annually, and more frequently if events and circumstances indicate that the goodwill might be impaired. The annual impairment testing date of goodwill is October 1.

In performing our annual impairment analysis, ASC 350–20, Intangibles–Goodwill and Other, allows us to use qualitative factors to determine whether it is more likely than not (likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount, including goodwill.

If, after assessing the totality of events or circumstances, we determine that it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, no further testing is necessary. However, if we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we perform the goodwill impairment test.

In the goodwill impairment test, the reporting unit’s carrying amount (including goodwill) and its fair value are compared. If the estimated fair value of a reporting unit is less than the carrying value, an impairment charge is recognized for the deficit up to the amount of goodwill recorded.

No goodwill was impaired for any period presented.

14

 


CROSSAMERICA PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Investment in CST Fuel Supply

ASU 2016-15–Statement of Cash Flows (ASC 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) was effective January 1, 2018. This ASU provides guidance on cash flow presentation of various specific transactions. We apply the cumulative earnings approach in presenting our cash flows from our investment in CST Fuel Supply. Distributions received are considered returns on investment and classified as cash inflows from operating activities. See Note 25 for information regarding the exchange of this investment for certain assets owned by Circle K.

Debt Issuance Costs

Debt issuance costs that are incurred in connection with the issuance of debt are deferred and amortized to interest expense using the straight-line method (which approximates the effective interest method) over the contractual term of the underlying indebtedness. Debt issuance costs are classified as a reduction of the associated liability.

Environmental Matters

Liabilities for future remediation costs are recorded when environmental assessments from governmental regulatory agencies and/or remedial efforts are probable and the costs can be reasonably estimated. Other than for assessments, the timing and magnitude of these accruals generally are based on the completion of investigations or other studies or a commitment to a formal plan of action. Environmental liabilities are based on best estimates of probable undiscounted future costs using currently available technology and applying current regulations, as well as our own internal environmental policies. Environmental liabilities are difficult to assess and estimate due to uncertainties related to the magnitude of possible remediation, the timing of such remediation and the determination of our obligation in proportion to other parties. Such estimates are subject to change due to many factors, including the identification of new retail sites requiring remediation, changes in environmental laws and regulations and their interpretation, additional information related to the extent and nature of remediation efforts and potential improvements in remediation technologies. Amounts recorded for environmental liabilities have not been reduced by possible recoveries from third parties.

Asset Retirement Obligations

We record a liability, which is referred to as an asset retirement obligation, at fair value for the estimated cost to remove underground storage tanks (USTs) used to store motor fuel at owned and leased retail sites at the time we incur that liability, which is generally when the UST is installed or upon entering the lease. We record a discounted liability for the fair value of an asset retirement obligation with a corresponding increase to the carrying value of the related long-lived asset. We depreciate the amount added to property and equipment and recognize accretion expense in connection with the discounted liability over the estimated remaining life of the UST. Accretion expense is reflected in depreciation, amortization and accretion expense. We base our estimates of the anticipated future costs for removal of a UST on our prior experience with removal. Removal costs include the cost to remove the USTs, soil remediation costs resulting from the spillage of small quantities of motor fuel in the normal operations of our business and other miscellaneous costs. We review our assumptions for computing the estimated liability for the removal of USTs on an annual basis. Any change in estimated cash flows is reflected as an adjustment to the liability and the associated asset.

Segment Reporting

We present our segment reporting in accordance with ASC 280–Segment Reporting and engage in both the wholesale and retail distribution of motor fuels, primarily gasoline and diesel fuel. We present our results to our chief operating decision maker segregated between wholesale and retail activities. As a result, we are deemed to conduct our business in two segments: 1) the wholesale segment and 2) the retail segment. The class of customer and gross margins are sufficiently different between these two businesses to warrant two reportable segments. See Note 21 for additional information.

15

 


CROSSAMERICA PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition

In May 2014, the FASB issued ASU 2014-09–Revenue from Contracts with Customers (ASC 606), which results in comprehensive new revenue accounting guidance, requires enhanced disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized, and develops a common revenue standard under U.S. GAAP and International Financial Reporting Standards. Specifically, the core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. This guidance became effective January 1, 2018 and we applied the modified retrospective method of adoption. There was no material impact on the financial statements other than disclosures. This guidance applies to over 90% of our revenues as the only primary revenue stream outside the scope of this guidance is rental income.

Revenues from the delivery of motor fuel are recorded at the time of delivery to our customers, by which time the price is fixed, title to the products has transferred and payment has either been received or collection is reasonably assured, net of applicable discounts and allowances. Incremental costs incurred to obtain certain contracts with customers are deferred and amortized over the contract term and are included in other noncurrent assets on the balance sheets. Amortization of such costs are classified as a reduction of operating revenues.

Revenues from the sale of convenience store products are recognized at the time of sale to the customer.

Revenues from leasing arrangements for which we are the lessor are recognized ratably over the term of the underlying lease.

In transactions in which we sell and lease back property, we apply guidance from ASC 606 in determining whether the transfer of the property should be accounted for as a sale. Specifically, we assess if we have satisfied a performance obligation by transferring control of the property.

See Note 21 for additional information on our revenues and related receivables.

Cost of Sales

We include in our cost of sales all costs we incur to acquire motor fuel and merchandise, including the costs of purchasing, storing and transporting inventory prior to delivery to our customers. A component of our cost of sales is the discount for prompt payment and other rebates, discounts and incentives offered by our suppliers. Prompt payment discounts from suppliers are based on a percentage of the purchase price of motor fuel and the dollar value of these discounts varies with motor fuel prices. Cost of sales does not include any depreciation of our property and equipment, as these amounts are included in depreciation, amortization and accretion expense on our statements of income.

Motor Fuel Taxes

LGW collects motor fuel taxes, which consist of various pass-through taxes collected from customers on behalf of taxing authorities and remits such taxes directly to those taxing authorities. LGW’s accounting policy is to exclude the taxes collected and remitted from wholesale revenues and cost of sales and account for them as liabilities. LGWS’s retail sales and cost of sales include motor fuel taxes as the taxes are included in the cost paid for motor fuel and LGWS has no direct responsibility to collect or remit such taxes to the taxing authorities.

Lease Accounting

We lease certain retail sites from third parties under long-term arrangements with various expiration dates.

Through December 31, 2018, we accounted for leases in accordance with ASC 840–Leases.

We are the lessee in certain sale-leaseback transactions for certain retail sites, and as we have continuing involvement in the underlying retail sites through a sublease with a lessee dealer, the sale-leaseback arrangements were accounted for as financing transactions under ASC 840.

In February 2016, the FASB issued ASU 2016-02–Leases (ASC 842). This standard modifies existing guidance for reporting organizations that enter into leases to increase transparency by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This guidance was effective for us on January 1, 2019.

16

 


CROSSAMERICA PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We elected the package of practical expedients permitted under the transition guidance within the new standard, which allows us to not reassess: 1) whether any expired or existing contracts are or contain leases; 2) lease classifications for any expired or existing leases; and 3) initial direct costs for any existing leases. We also elected the practical expedient to not assess whether existing or expired land easements that were not previously accounted for as leases under ASC 840 are or contain a lease under ASC 842. We did not elect the hindsight practical expedient and thus did not reassess the lease term for existing leases. We did not elect the practical expedient to not separate lease components from non-lease components for any classes of assets. We made an accounting policy election to not recognize lease assets and lease liabilities on the balance sheet for leases with an initial term of one year or less. We elected the current period adjustment transition method as permitted by ASU 2018-10 and recorded a cumulative effect adjustment to equity effective January 1, 2019.

There was no impact from the adoption of this ASU on the accounting for our capital (now called finance) lease obligations.

Since our previous sale-leaseback transactions were accounted for as failed sale-leasebacks, we were required to reassess these leases under the new guidance as part of adopting ASC 842. We concluded that control, including the significant risks and rewards of ownership, transferred to the buyer-lessor at the inception of each sale-leaseback transaction, and as a result these leasing transactions do not represent financing obligations under ASC 842. Therefore, these leases are accounted for as operating leases under the new guidance and the $42.0 million of net property and equipment and $76.1 million of sale-leaseback financing obligations recorded on the balance sheet as of December 31, 2018 were removed as part of our transition adjustment effective January 1, 2019. In addition, $5.2 million of deferred tax assets primarily relating to the failed sale-leasebacks were removed from the balance sheet as part of our transition adjustment.

In order to measure our lease liability under our leases as lessee, we are required to discount our minimum rental payments using the rate implicit in the lease, unless such rate cannot be readily determined, in which case our incremental borrowing rate is used. As we do not know the amount of our lessors’ initial direct costs, we are generally unable to determine the rate implicit in our leases. As a result, we generally use our incremental borrowing rate, which is the rate we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term in a similar economic environment. We considered the rates we paid in previous financing and sale-leaseback transactions, the rates on our borrowings under our prior secured revolving credit facility and mortgage rates on commercial properties for various terms in developing our incremental borrowing rates.

Effective January 1, 2019, we recognized right-of-use assets related to operating leases, inclusive of direct costs of entering leases and below market lease intangible assets and net of deferred rent expense and above market lease liabilities, totaling $133.3 million. We recorded lease liabilities related to operating leases, including related to the sale-leaseback transactions noted above, totaling $135.9 million.

The net adjustment recorded to equity as of January 1, 2019 was a credit of $28.9 million.

The table below summarizes these adjustments to the January 1, 2019 balance sheet (in millions).

 

 

 

 

 

 

Remove

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

sale-

 

 

Record

 

 

Balance

 

 

 

 

 

 

 

 

 

 

 

leaseback

 

 

ROU asset/

 

 

sheet

 

 

 

 

 

 

 

As Reported

 

 

balances

 

 

lease liability

 

 

reclasses

 

 

As Adjusted

 

Property and equipment, net

 

$

647.4

 

 

$

(42.0

)

 

$

 

 

$

 

 

$

605.4

 

Right-of-use assets, net

 

 

 

 

 

 

 

 

135.9

 

 

 

(2.6

)

 

 

133.3

 

Intangible assets, net

 

 

59.1

 

 

 

 

 

 

 

 

 

(1.0

)

 

 

58.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued expenses and other

   current liabilities

 

 

17.9

 

 

 

(1.1

)

 

 

 

 

 

 

 

 

16.8

 

Current portion of operating

   lease obligations

 

 

 

 

 

 

 

 

24.3

 

 

 

 

 

 

24.3

 

Operating lease obligations,

   less current portion

 

 

 

 

 

 

 

 

111.6

 

 

 

 

 

 

111.6

 

Deferred tax liabilities, net

 

 

19.9