UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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, 2020
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
(State or Other Jurisdiction of
Incorporation or Organization)
600 Hamilton Street, Suite 500
Allentown, PA
(Address of Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Units
Securities registered pursuant to Section 12(g) of the Act: None
Trading Symbol(s)
CAPL
45-4165414
(I.R.S. Employer
Identification No.)
18101
(Zip Code)
(610) 625-8000
(Registrant’s telephone number, including area code)
Name of each exchange on which registered
New York Stock Exchange
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, 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☒
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 30, 2020, the last
business day of the registrant’s most recently completed second fiscal quarter, held by non-affiliates of the registrant was approximately $260.4
million.
As of February 22, 2021, the registrant had outstanding 37,868,046 common units.
Documents Incorporated by Reference: None.
TABLE OF CONTENTS
PART I
Commonly Used Defined Terms
Cautionary Statement Regarding Forward-Looking Statements
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
Signatures
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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
LGW
LGPR
LGWS
Lehigh Gas Wholesale LLC
LGP Realty Holdings LP
Lehigh Gas Wholesale Services, Inc. and subsidiaries
CrossAmerica Partners LP related parties at any point during 2019 or 2020:
Circle K
Couche-Tard
CST
CST Fuel Supply
Circle K Stores Inc., a Texas corporation, and a wholly owned subsidiary of Couche-Tard
Alimentation Couche-Tard Inc. (TSX: ATD.A ATD.B)
CST Brands, LLC, which merged into Circle K Stores. Inc. on February 28, 2020, and
subsidiaries, indirectly owned by Circle K
CST Fuel Supply LP is the parent of CST Marketing and Supply, indirectly owned by Circle K.
From July 1, 2015 through March 25, 2020, we owned a 17.5% limited partner interest in CST
Fuel Supply. See Note 4 to the financial statements for information regarding the closing of the
CST Fuel Supply Exchange.
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
DMP
DMS
General Partner
Topper Group
TopStar
Dunne Manning Inc. (formerly Lehigh Gas Corporation), an entity affiliated with the Topper
Group
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.
Dunne Manning Stores LLC (formerly known as Lehigh Gas-Ohio, LLC), an entity affiliated
with the Topper Group. Through April 14, 2020, DMS was an operator of retail motor fuel
stations. DMS leased retail sites from us in accordance with a master lease agreement and
purchased 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. See Note 5 to the
financial statements regarding the acquisition of retail and wholesale assets from the Topper
Group and related termination of the fuel supply and master lease agreements with us.
CrossAmerica GP LLC, the General Partner of CrossAmerica, a Delaware limited liability
company, indirectly owned by the 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 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.
1
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:
ASC
ASU
Board
BP
CARES Act
Accounting Standards Codification
Accounting Standards Update
Board of Directors of our General Partner
BP p.l.c.
Coronavirus Aid, Relief, and Economic Security Act, an economic stimulus bill signed into law
on March 27, 2020 in response to the economic fallout of the COVID-19 Pandemic
CDC
The Center for Disease Control and Prevention
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 IPO on
October 30, 2012. The terms of the Circle K Omnibus Agreement were approved by the
independent conflicts committee of the Board. Pursuant to the Circle K Omnibus Agreement,
CST Services agreed, among other things, to provide, or cause to be provided, to the Partnership
certain management services. See Note 16 to the financial statements for information regarding
the termination of this agreement and the concurrent entering into the Transitional Omnibus
Agreement.
COVID-19 Pandemic
In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China.
In March 2020, the World Health Organization declared the outbreak a pandemic.
CST Fuel Supply Exchange
CST Merger
DTW
EBITDA
EICP
EMV
Exchange Agreement, dated November 19, 2019, between the Partnership and Circle K, which
closed effective March 25, 2020. Pursuant to the Exchange Agreement, Circle K transferred 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 transferred to Circle K 100% of the limited partnership units it
held in CST Fuel Supply.
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.
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
Earnings before interest, taxes, depreciation, amortization and accretion, a non-GAAP financial
measure
The Partnership’s Lehigh Gas Partners LP Executive Income Continuity Plan, as amended
Payment method based upon a technical standard for smart payment cards, also referred to as
chip cards
Exchange Act
ExxonMobil
Securities Exchange Act of 1934, as amended
ExxonMobil Corporation
2
FASB
Form 10-K
FTC
GP Purchase
IDRs
Financial Accounting Standards Board
CrossAmerica’s Annual Report on Form 10-K for the year ended December 31, 2020
U.S. Federal Trade Commission
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.
Incentive Distribution Rights represented the right to receive an increasing percentage of
quarterly distributions after the target distribution levels were achieved. As a result of the GP
Purchase, DMP owned 100% of the outstanding IDRs from November 19, 2019 through
February 6, 2020. See Note 23 to the financial statements for information regarding the
elimination of the IDRs.
Internal Revenue Code
Internal Revenue Code of 1986, as amended
IPO
IRS
LIBOR
MD&A
Marathon
Motiva
NYSE
Initial public offering of CrossAmerica Partners LP on October 30, 2012
Internal Revenue Service
London Interbank Offered Rate
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Marathon Petroleum Company LP
Motiva Enterprises, LLC
New York Stock Exchange
Partnership Agreement
Plan
The First Amended and Restated Agreement of Limited Partnership of CrossAmerica Partners
LP, dated as of October 1, 2014, as amended. See Note 23 to the financial statements regarding
the elimination of the IDRs, which triggered the need to further amend the Partnership
Agreement
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
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 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.
3
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 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. In addition, from January 1, 2020 until the closing of the CST
Fuel Supply Exchange, the General Partner provided 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
Valero
WTI
Underground storage tank
Valero Energy Corporation and, where appropriate in context, one or more of its subsidiaries, or
all of them taken as a whole
West Texas Intermediate crude oil
4
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that
involve risks and uncertainties. Forward-looking statements include the information concerning our possible or assumed future
results of operations, business strategies, financing plans, competitive position, credit ratings, distribution growth, potential
growth opportunities, potential operating performance improvements, potential improvements in return on capital employed, the
effects of competition and the effects of future legislation or regulations. You can identify our forward-looking statements by the
words “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,”
“will,” “would,” “expect,” “objective,” “projection,” “forecast,” “guidance,” “outlook,” “effort,” “target” and similar
expressions. Such statements are based on our current plans and expectations and involve risks and uncertainties that could
potentially affect actual results. These forward-looking statements include, among other things, statements regarding:
future retail and wholesale gross profits, including gasoline, diesel and convenience store merchandise gross profits;
our anticipated level of capital investments, primarily through acquisitions, and the effect of these capital investments
on our results of operations;
anticipated trends in the demand for, and volumes sold of, gasoline and diesel in the regions where we operate;
volatility in the equity and credit markets limiting access to capital markets;
our ability to integrate acquired businesses;
expectations regarding environmental, tax and other regulatory initiatives; and
the effect of general economic and other conditions on our business.
In general, we based the forward-looking statements included in this report on our current expectations, estimates and projections
about our company and the industry in which we operate. We caution you that these statements are not guarantees of future
performance and involve risks and uncertainties we cannot predict. We anticipate that subsequent events and market
developments will cause our estimates to change. In addition, we based many of these forward-looking statements on
assumptions about future events that may prove to be inaccurate. Accordingly, our actual outcomes and results may differ
materially from what we have expressed or forecasted in the forward-looking statements. Any differences could result from a
variety of factors, including the following:
the Topper Group’s business strategy and operations and the Topper Group’s conflicts of interest with us;
availability of cash flow to pay the current quarterly distributions on our common units;
the availability and cost of competing motor fuels;
motor fuel price volatility or a reduction in demand for motor fuels, including as a result of the COVID-19 Pandemic;
competition in the industries and geographical areas in which we operate;
the consummation of financing, acquisition or disposition transactions and the effect thereof on our business;
environmental compliance and remediation costs;
our existing or future indebtedness and the related interest expense and our ability to comply with debt covenants;
our liquidity, results of operations and financial condition;
failure to comply with applicable tax and other regulations or governmental policies;
future legislation and changes in regulations, governmental policies, immigration laws and restrictions or changes in
enforcement or interpretations thereof;
future regulations and actions that could expand the non-exempt status of employees under the Fair Labor Standards
Act;
future income tax legislation;
changes in energy policy;
increases in energy conservation efforts;
technological advances;
the impact of worldwide economic and political conditions;
5
the impact of wars and acts of terrorism;
weather conditions or catastrophic weather-related damage;
earthquakes and other natural disasters;
hazards and risks associated with transporting and storing motor fuel;
unexpected environmental liabilities;
the outcome of pending or future litigation; and
our ability to comply with federal and state laws and regulations, including those related to environmental matters,
the sale of alcohol, cigarettes and fresh foods, employment and health benefits, including the Affordable Care Act,
immigration and international trade.
You should consider the risks and uncertainties described above, and elsewhere in this report, including under Part I. Item 7
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II. Item 1A “Risk Factors,”
included in this Form 10-K, in connection with considering any forward-looking statements that may be made by us and our
businesses generally. We cannot assure you that anticipated results or events reflected in the forward-looking statements will be
achieved or will occur. The forward-looking statements included in this report are made as of the date of this report. We undertake
no obligation to publicly release any revisions to any forward-looking statements, to report events or to report the occurrence of
unanticipated events after the date of this report, except as required by law.
6
ITEM 1. BUSINESS
Overview
We were formed as a Delaware limited partnership in 2011 primarily engaged in the wholesale distribution of motor fuel and the
ownership and leasing of real estate used in the retail distribution of motor fuel. We also generate revenues from the operation of
company operated retail sites.
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. As a result of this transaction, we are no longer an affiliate of, and are independent of, Circle K.
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 22, 2021,
the Topper Group also has beneficial ownership of a 48.9% limited partner interest in the Partnership.
Our principal executive office address is 600 Hamilton Street, Suite 500, Allentown, PA 18101, and our telephone number is
(610) 625-8000. Our common units trade on the NYSE under the ticker symbol “CAPL.”
We conduct our business through two operating segments, Wholesale and Retail. As of December 31, 2020, we distributed motor
fuel on a wholesale basis to approximately 1,700 sites located in 34 states. We own or lease approximately 1,100 sites, of which
we operate 150 as company operated 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 the real estate holding company of 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. Since our acquisition of retail and wholesale
assets that closed on April 14, 2020, LGWS also distributes motor fuels on a retail basis and sells 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. See Note 5 for information related to our acquisition of
retail and wholesale assets that closed on April 14, 2020.
Available Information
Our internet website is www.crossamericapartners.com. Information on this website is not part of this Form 10-K. Annual reports
on our Form 10-K, quarterly reports on our Form 10-Q and our current reports on Form 8-K filed with (or furnished to) the SEC
are available on this website under the “Investor Relations” tab and are free of charge, soon after such material is filed or
furnished. In this same location, we also post our corporate governance guidelines, code of ethics and business conduct and the
charters of the committees of our Board. These documents are available in print to any unitholder that makes a written request to
CrossAmerica Partners L.P. Attn: Corporate Secretary, 600 Hamilton Street, Suite 500, Allentown, Pennsylvania 18101.
Operations
Wholesale Segment
Our primary operation is the wholesale distribution of motor fuel. Our Wholesale segment generated 2020 revenues of $1.6
billion. The wholesale segment includes the wholesale distribution of motor fuel to lessee dealers, independent dealers,
commission agents, DMS (through the closing of the acquisition of retail and wholesale assets), Circle K and company operated
retail sites. We have exclusive motor fuel distribution contracts with lessee dealers who lease the property from us. We also have
exclusive distribution contracts with independent dealers to distribute motor fuel but do not collect rent from the independent
dealers. Similar to lessee dealers, we have motor fuel distribution agreements with DMS (through the closing of the acquisition of
retail and wholesale assets) and Circle K and collect rent from both.
7
We are one of the ten largest independent distributors by motor fuel volume in the United States for ExxonMobil, BP and Shell,
and we also distribute Chevron, Sunoco, Valero, Gulf, Citgo, Marathon and Phillips 66-branded motor fuels (approximately 90%
of the motor fuel we distributed during 2020 was branded). We receive a fixed mark-up per gallon of motor fuel on approximately
71% of gallons sold to our customers. The remaining gallons are primarily DTW priced contracts with our customers. These
contracts provide for variable, market-based pricing. An increase in DTW gross profit results from the acquisition cost of
wholesale motor fuel declining at a faster rate as compared to the rate that retail motor fuel prices decline. Conversely, our DTW
motor fuel gross profit declines when the cost of wholesale motor fuel increases at a faster rate as compared to the rate that retail
motor fuel prices increase.
Regarding our supplier relationships, a majority of our total gallons of motor fuel purchased are subject to Terms Discounts for
prompt payment and other rebates and incentives, which are recorded within cost of sales. Prompt payment discounts are based on
a percentage of the purchase price of motor fuel. As such, the dollar value of these discounts increases and decreases
corresponding with motor fuel prices. Therefore, in periods of lower wholesale motor fuel prices, our gross profit is negatively
affected, and, in periods of higher wholesale motor fuel prices, our gross profit is positively affected (as it relates to these
discounts). Based on our current volumes, we estimate a $10 per barrel change in the price of crude oil would impact our overall
annual wholesale motor fuel gross profit by approximately $2.3 million related to these payment discounts.
The following table highlights the aggregate volume of motor fuel distributed by our Wholesale segment to each of our principal
customer groups (in millions). See Item 7—Results of Operations for additional information on the drivers of the fluctuations in
the volume and site counts below.
Gallons of Motor Fuel Distributed
Year Ended December 31,
2019
2018
2020
Wholesale Fuel Distribution Sites
End of Year
2019
2018
2020
Independent dealers (a)
Lessee dealers
DMS
Circle K
Commission agents (b)
Company operated retail sites
Total
450
373
17
23
141
113
1,117
315
392
75
63
129
30
1,004
332
322
115
70
141
67
1,047
687
653
—
5
208
150
1,703
369
648
68
28
169
—
1,282
362
500
86
43
170
63
1,224
(a) Gallons distributed to independent dealers include gallons distributed to sub-wholesalers and commercial accounts, which
are not included in the site counts reported above.
Includes independent commission sites owned or leased by the commission agent.
(b)
Description of Principal Customer Groups
Independent Dealer
The independent dealer owns or leases the property and owns all motor fuel and convenience store inventory.
We contract to exclusively distribute motor fuel to the independent dealer at a fixed mark-up per gallon or, in some
cases, DTW.
Distribution contracts with independent dealers are typically seven to 15 years in length.
As of December 31, 2020, the average remaining distribution contract term was 5.5 years.
Lessee Dealer
We own or lease the property and then lease or sublease the site to a dealer.
The lessee dealer owns all motor fuel and retail site inventory and sets its own pricing and gross profit margins.
We collect wholesale motor fuel margins at a fixed mark-up per gallon or, in some cases, DTW.
Under our distribution contracts, we agree to supply a particular branded motor fuel or unbranded motor fuel to a site
or group of sites and arrange for all transportation.
Exclusive distribution contracts with dealers who lease property from us run concurrent in length to the retail site’s
lease period (generally three to 10 years).
8
DMS
Circle K
Leases are generally triple net leases.
As of December 31, 2020, the average remaining lease agreement term was 2.9 years.
Since the April 14, 2020 acquisition of retail and wholesale assets, we no longer sell fuel nor lease sites to DMS. See
Note 5 to the financial statements for additional information.
Prior to April 14, 2020, we owned or leased the property and then leased or subleased the site to DMS and distributed
fuel to DMS at a fixed mark-up per gallon.
DMS owned the motor fuel and retail site inventory and set its own pricing and gross profit margin.
In conjunction with the joint acquisitions of Nice N Easy Assets in 2014 and Landmark Assets with CST and the
purchase of NTIs by us from CST in 2015, we own the property and lease the retail sites to Circle K. With respect to
the Nice N Easy Asset and Landmark Asset acquisitions, we also entered into a 10-year motor fuel distribution
agreement with CST, pursuant to which we distribute motor fuels to Circle K at a fixed mark-up per gallon. As of
December 31, 2020, we distribute fuel on a wholesale basis to 45 Circle K sites and lease 11 sites to Circle K. As of
December 31, 2020, there are only five sites at which we both supply fuel and lease the property to Circle K. Many of
the sites previously owned and leased to Circle K were sold in the asset exchanges with Circle K. The Nice N Easy
and Landmark sites that have been sold have been reclassified as independent dealers as we no longer control the
property but continue to distribute fuel to such sites.
At the 45 sites to which we distribute motor fuel, Circle K owns all motor fuel and retail site inventory and sets its
own pricing and gross profit margin.
Commission Agents
LGW distributes motor fuel on a wholesale basis to LGWS, which owns the motor fuel inventory and sells motor fuel
to retail customers. LGW records qualifying wholesale motor fuel distribution gross income in our wholesale
segment and LGWS records the non-qualifying retail sale in our retail segment.
Company Operated
LGW distributes on a wholesale basis all of the motor fuel required by our company operated sites to LGWS, which
owns the motor fuel inventory and sells motor fuel to retail customers. LGW records qualifying wholesale motor fuel
distribution gross income in our wholesale segment and LGWS records the non-qualifying retail sale in our retail
segment.
Rental Income
We also generate revenues through leasing or subleasing our real estate. We own or lease real and personal property and we lease
or sublease that property to tenants, the substantial majority of which are wholesale customers as described above. As such, we
manage our real estate leasing activities congruently with our Wholesale segment. We own approximately 58% of our properties
that we lease to our dealers or utilize in our retail business. Our lease agreements with third-party landlords have an average
remaining lease term of 5.6 years as of December 31, 2020.
The following table presents rental income (in millions), including rental income from commission agents that is included in the
Retail segment, and the number of sites from which rental income was generated:
Rental Income
Year Ended December 31,
2019
2018
2020
Sites from which Rental
Income was Generated
End of Year
2019
2018
2020
Total
$
83.2 $
90.1 $
85.6
948
1,003
880
9
Rental income decreased in 2020 primarily as a result of the termination of leases with DMS and certain lessee dealers in
connection with the acquisition of retail and wholesale assets. This rental income has effectively been replaced by retail fuel,
merchandise and other revenues as we now operate these sites ourselves rather than leasing them to a dealer. See Note 5 to the
financial statements for additional information.
CST Fuel Supply
In 2015, we purchased a 17.5% limited partner interest in CST Fuel Supply. We received pro rata distributions from CST Fuel
Supply related to CST Marketing and Supply’s distribution of motor fuel to the majority of CST’s legacy U.S. retail sites.
Effective March 25, 2020, we divested our entire interest in CST Fuel Supply in the CST Fuel Supply Exchange as further
described in Note 4 to the financial statements.
Retail Segment
Our Retail segment generated 2020 revenues of $680 million. The Retail segment includes the retail sale of motor fuel at retail
sites operated by commission agents and, with our acquisition of retail and wholesale assets that closed on April 14, 2020, the sale
of convenience merchandise items and the retail sale of motor fuel at company operated retail sites.
See Note 5 to the financial statements for information related to our acquisition of retail and wholesale assets. With this
transaction, we not only added wholesale fuel contracts to our portfolio but added retail assets and reestablished a retail capability
that enables us to pursue a broader range of acquisition opportunities and provides greater flexibility for optimizing the class of
trade for each asset in our portfolio.
Company Operated Sites
As noted above, with our acquisition of retail and wholesale assets that closed on April 14, 2020, we again operate
company operated sites.
We own or lease the property, operate the retail site and retain all profits from motor fuel and retail site operations.
We own the merchandise inventory and retain the profits from the sale of convenience merchandise items.
We own the motor fuel inventory and set the motor fuel pricing.
We maintain inventory from the time of the purchase of motor fuel from third-party suppliers until the retail sale to
the end customer. On average, we maintain approximately 5-days’ worth of motor fuel sales in inventory at each site.
LGW distributes on a wholesale basis all of the motor fuel required by our company operated sites to LGWS, which
owns the motor fuel inventory and sells motor fuel to retail customers. LGW records qualifying wholesale motor fuel
distribution gross income in our wholesale segment and LGWS records the non-qualifying retail sale in our retail
segment.
Commission Sites
We own or lease the property and then lease or sublease the site to the commission agent, who pays rent to us and
operates all the non-fuel related operations at the sites for its own account.
We own the motor fuel inventory, set the motor fuel pricing and generate revenue from the retail sale of motor fuels to
the end customer.
We pay the commission agent a commission for each gallon of motor fuel sold.
LGW distributes motor fuel on a wholesale basis to LGWS, which owns the motor fuel inventory and sells motor fuel
to retail customers. LGW records qualifying wholesale motor fuel distribution gross income in our wholesale
segment and LGWS records the non-qualifying retail sale in our retail segment.
As of December 31, 2020, the average remaining motor fuel distribution and lease agreement term for our
commission agents was 0.9 years.
Subsequent to an acquisition, we evaluate the eventual long-term operation of each retail site acquired: (a) to be operated as a
company operated retail site; (b) to be converted into a lessee dealer; or (c) other strategic alternatives, including selling the site.
By converting retail sites into lessee dealers, we continue to benefit from motor fuel distribution volumes as well as rental income
from lease or sublease arrangements while reducing operating expenses.
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The following chart depicts how motor fuel is procured and distributed to our customer groups and how convenience merchandise
items were procured and distributed to our company operated retail sites. The chart also depicts the relationship of our real estate
activities to our customer groups.
Recent Developments
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments”
for a discussion of completed transactions affecting our business and a discussion of the COVID-19 Pandemic.
Business Strategy and Objective
Our primary business objective is to generate sufficient cash flows from operations to make quarterly cash distributions to our
unitholders and, over time, to increase our quarterly cash distributions while maintaining discipline with leverage. The amount of
any distribution is subject to the discretion of the Board, and the Board may modify or revoke the cash distribution policy at any
time. Our Partnership Agreement does not require us to pay any distributions.
Our business strategy to achieve our objective of paying and, over time, increasing our quarterly cash distributions, is focused on
the following key initiatives:
Expand within and beyond our existing markets through acquisitions. Since our IPO and through February 22, 2021,
we have completed acquisitions for a total of approximately 900 fee and leasehold sites for total consideration of
approximately $1.2 billion;
Enhance our real estate business’ cash flows by owning or leasing sites in prime locations;
Increase our Wholesale segment by expanding market share and growing rental income over time;
Maintain strong relationships with major integrated oil companies and refiners; and
Optimize the operations of acquired assets to the most appropriate format (lessee dealer, independent dealer, retail
site) to provide for more stable cash flows and maximize our investment return.
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We believe our competitive strengths will allow us to capitalize on our strategic opportunities, including:
Stable cash flows from real estate rent income and wholesale motor fuel distribution;
Established history of acquiring sites and successfully integrating these sites and operations into our existing
business;
Long-term relationships with major integrated oil companies and other key suppliers, which support our negotiations
with and enable us to collaboratively work with our suppliers to maximize benefits to the Partnership; and
Prime real estate locations in areas with high traffic and considerable motor fuel consumption.
Supplier Arrangements
We distribute branded motor fuel under the Exxon, Mobil, BP, Shell, Chevron, Sunoco, Valero, Gulf, Citgo, Marathon and
Phillips 66 brands to our customers. Branded motor fuels are purchased from major integrated oil companies and refiners under
supply agreements. For 2020, our Wholesale segment purchased approximately 29%, 22%, 13% and 10% of its motor fuel from
ExxonMobil, BP, Motiva and Marathon, respectively. Certain suppliers offer volume rebates or incentive payments to drive
volumes and provide an incentive for branding new locations. Certain suppliers require that all or a portion of any such incentive
payments be repaid to the supplier in the event that the sites are rebranded within a stated number of years. We also purchase
unbranded motor fuel for distribution. As of December 31, 2020, our supply agreements had a weighted-average remaining term
of approximately 5.4 years.
Competition
Our Wholesale segment competes with other motor fuel distributors. Major competitive factors for us include, among others,
customer service, price and quality of service and availability of products.
The convenience store industry is highly competitive, fragmented and characterized by constant change in the number and type of
retailers offering products and services of the type sold at our sites. We compete with other retail site chains, independently
owned retail sites, motor fuel stations, supermarkets, drugstores, discount stores, dollar stores, club stores and hypermarkets.
Major competitive factors include, among others, location, ease of access, product and service selection, motor fuel brands,
pricing, customer service, store appearance, and cleanliness.
Seasonality
Our business exhibits substantial 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.
Trade Names, Service Marks and Trademarks
We are a wholesale distributor of motor fuel for various major integrated oil companies and are licensed to market/resell motor
fuel under their respective motor fuel brands.
We are not aware of any facts that would negatively affect our continuing use of any trademarks, trade names or service marks.
Environmental Laws and Regulations
We are subject to extensive federal, state and local environmental laws and regulations, including those relating to USTs, the
release or discharge of materials into the air, water and soil, waste management, pollution prevention measures, storage, handling,
use and disposal of hazardous materials, the exposure of persons to hazardous materials, greenhouse gas emissions, and
characteristics, composition, storage and sale of motor fuel and the health and safety of our employees. We incorporate by
reference into this section our disclosures included in Note 2 under the captions “Environmental Matters” and “Asset Retirement
Obligations” as well as Note 12 under the caption “Asset Retirement Obligations” and Note 17 to the financial statements.
Other Regulatory Matters
Our retail sites are subject to regulation by federal, state, and/or local agencies and to licensing and regulations by state and local
health, sanitation, safety, fire and other departments relating to the development and operation of retail sites, including regulations
relating to zoning and building requirements and the preparation and sale of food.
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Our retail sites are also subject to federal, state and/or local laws governing such matters as wage rates, overtime, working
conditions and citizenship requirements. At the federal, state and local levels, there are proposals under consideration from time
to time to increase minimum wage rates and modify or restrict immigration policies.
Human Capital
The Partnership has no direct employees. As of December 31, 2020, 203 employees of the Topper Group provided management
services to us under the Topper Group Omnibus Agreement. In addition, 1,182 store employees of the Topper Group provided
services at our company operated sites.
Our human capital resources objectives include identifying, recruiting, retaining, incentivizing and integrating our existing and
new employees. As a customer-centric company with a strong service culture, we constantly work to maintain our position as an
employer of choice. This requires a commitment to workplace inclusion and safety, as well as competitive total compensation that
meets the needs of our employees. Our talent management and succession plan process includes the identification of key positions
based on current and future business strategies, the identification of potential successors and a plan for talent development.
We are continuing to closely monitor the impact of the evolving effects of the COVID-19 Pandemic on our business. See “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments—COVID-19
Pandemic” for a discussion of our efforts to reduce the risks of exposure to COVID-19.
ITEM 1A. RISK FACTORS
If any of the following risks were to occur, our business, financial condition or results of operations could be materially and
adversely affected. In that case, we might not be able to pay distributions on our common units, the trading price of our common
units could decline and you could lose all or part of your investment. Also, please read “Cautionary Statement Regarding
Forward-Looking Statements.”
Limited partner interests are inherently different from the capital stock of a corporation although many of the business risks to
which we are subject are similar to those that would be faced by a corporation engaged in a similar business.
Risk Factor Summary
Below is a summary of our risk factors:
We may not have sufficient distributable cash from operations to enable us to pay our quarterly distributions.
If we are unable to make acquisitions on economically acceptable terms, our future growth and ability to increase
distributions to unitholders will be limited, and any acquisitions are subject to substantial risks.
Volatility in crude oil and wholesale motor fuel costs affect our business, financial condition and results of operations and
our ability to make distributions to unitholders.
Seasonality in wholesale motor fuel costs and sales, as well as merchandise sales, affect our business, financial condition
and results of operations and our ability to make distributions to unitholders.
Both the wholesale motor fuel distribution and the retail motor fuel industries are characterized by intense competition and
fragmentation.
Changes in credit or debit card expenses could reduce our gross profit, especially on motor fuel sold at company-operated
retail sites.
New entrants or increased competition in the convenience store industry could result in reduced gross profits.
General economic, financial and political conditions that are largely out of our control could adversely affect our business,
financial condition and results of operations and reduce our ability to make distributions to unitholders.
Changes in consumer behavior and travel as a result of changing economic conditions, labor strikes or otherwise could
adversely affect our business, financial condition and results of operations and reduce our ability to make distributions to
unitholders.
Broad-based business or economic disruptions caused by the COVID-19 Pandemic, or other similar health crises, could
adversely affect our business, financial condition, results of operations or cash available for distribution to our unitholders.
We are subject to extensive government laws and regulations concerning store merchandise items and environmental laws,
and laws, regulations, technological, political and scientific developments regarding climate change and fuel efficiency
may decrease demand for motor fuel. We are also subject to federal, state and local laws and regulations that govern the
product quality specifications of the motor fuel that we distribute and sell.
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Changes in U.S. trade policy, including the imposition of tariffs and the resulting consequences, may have a material
adverse impact on our business, operating results and financial condition.
Unfavorable weather conditions could adversely affect our business, financial condition and results of operations and
reduce our ability to make distributions to unitholders.
Negative events or developments associated with our branded suppliers could have an adverse impact on our revenues.
We depend on four principal suppliers for the majority of our motor fuel.
We rely on our suppliers to provide trade credit to adequately fund our ongoing operations.
We could be adversely affected by the creditworthiness and performance of our customers, suppliers and contract
counterparties.
Pending or future litigation could adversely affect our financial condition and results of operations.
The dangers inherent in the storage and transport of motor fuel could cause disruptions and could expose us to potentially
significant losses, costs or liabilities.
We depend on third-party transportation providers for the transportation of all of our motor fuel.
Our motor fuel sales in our Wholesale segment are generated under contracts that must be renegotiated or replaced
periodically.
We rely on our information technology systems and network infrastructure to manage numerous aspects of our business
and could be adversely affected by the failure to protect sensitive customer, employee or vendor data.
Our debt levels and debt covenants may limit our flexibility in obtaining additional financing and in pursuing other business
opportunities and our ability to make distributions to unitholders.
An increase in interest rates may cause the market price of our common units to decline and a significant increase in interest
rates could adversely affect our ability to service our indebtedness.
We do not own all of the land on which our retail sites and certain facilities are located, which could result in increased costs
and disruptions to our operations.
We may not be able to lease sites we own or sub-lease sites we lease on favorable terms.
We rely on DMI and Circle K to indemnify us for any costs or expenses that we incur for certain environmental liabilities
and third-party claims.
The Topper Group controls us and may have conflicts of interest with us. Further, our General Partner and its affiliates,
including the Topper Group, have conflicts of interest with us and limited fiduciary duties and they may favor their own
interests to the detriment of our unitholders and us.
The Topper Group or the Board may modify or revoke our cash distribution policy at any time at their discretion.
Our Partnership Agreement does not require us to pay any distributions at all.
We rely on the employees of the Topper Group to provide key management services to our business pursuant to the Topper
Group Omnibus Agreement.
Our General Partner has limited liability regarding our obligations.
If we distribute a significant portion of our cash available for distribution to our partners, our ability to grow and make
acquisitions could be limited.
Our Partnership Agreement replaces, eliminates and modifies, as applicable, the duties, including the fiduciary duties, of
our General Partner, the Board or any committee thereof, and modifies the burden of proof in any action brought against the
General Partner, the Board or any committee thereof.
Our General Partner’s affiliates, including the Topper Group, may compete with us.
Holders of our common units have limited voting rights.
Our General Partner interest or the control of our General Partner may be transferred to a third party without unitholder
consent, and our General Partner has a call right that may require unitholders to sell their common units at an undesirable
time or price.
The market price of our common units could be adversely affected by sales of substantial amounts of our common units in
the public or private markets, including sales by the Topper Group or other large holders.
We may issue unlimited additional units without unitholder approval, which would dilute existing unitholder ownership
interests, and our General Partner’s discretion in establishing cash reserves may reduce the amount of cash available for
distribution to unitholders.
Our Partnership Agreement restricts the voting rights of unitholders owning 20% or more of our common units.
Management fees and cost reimbursements due to our General Partner and the Topper Group for services provided to us or
on our behalf will reduce cash available for distribution to our unitholders.
Our tax treatment depends in large part on our status as a partnership for U.S. federal income tax purposes.
We have subsidiaries that are treated as corporations for U.S. federal income tax purposes and are subject to
entity-level U.S. federal, state and local income and franchise tax.
The tax treatment of publicly traded partnerships or an investment in our common units could be subject to potential
legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis.
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Our unitholders are required to pay taxes on their share of income from us even if they do not receive any cash distributions
from us.
Unitholders may be subject to limitation on their ability to deduct interest expense incurred by us.
Tax gain or loss on the disposition of our common units could be more or less than expected.
Tax-exempt organizations and non-U.S. persons face unique tax issues from owning common units that may result in
adverse tax consequences to them.
Our unitholders are subject to state and local income taxes and return filing requirements in states and localities where they
do not live as a result of investing in our common units.
We will treat each purchaser of our common units as having the same tax benefits without regard to the actual common
units purchased.
We prorate our items of income, gain, loss and deduction for U.S. federal income tax purposes and allocate them between
transferors and transferees of our common units each month based upon the ownership of our common units on the first
business day of each month and as of the opening of the applicable exchange on which our common units are listed, instead
of on the basis of the date a particular common unit is transferred.
If a unitholder loans their common units to a short seller to cover a short sale of common units, they may be considered to
have disposed of those common units for U.S. federal income tax purposes.
We have adopted certain valuation methodologies that may result in a shift of income, gain, loss and deduction between our
General Partner and the unitholders.
If the IRS makes audit adjustments to our income tax returns for tax years beginning after 2017, it (and some states) may
assess and collect any resulting taxes (including any applicable penalties and interest) directly from us, in which case we
may require our unitholders and former unitholders to reimburse us for such taxes (including any applicable penalties or
interest) or, if we are required to bear such payment, our cash available for distribution to our unitholders might be
substantially reduced.
Risks Relating to Our Industry and Our Business
We may not have sufficient distributable cash from operations to enable us to pay our quarterly distribution following the
establishment of cash available for distribution and payment of fees and expenses.
We may not have sufficient cash each quarter to pay quarterly distribution at current levels or at all.
The amount of cash we can distribute on our common units principally depends upon the amount of cash we generate from our
operations, which will fluctuate from quarter to quarter based on, among other things:
demand for motor fuel products in the markets we serve, including seasonal fluctuations, and the margin per gallon
we earn selling and distributing motor fuel;
the wholesale price of motor fuel and its impact on the payment discounts we receive;
seasonal trends in the industries in which we operate;
supply, and the impact that severe storms could have to our suppliers’ and customers’ operations;
competition from other companies that sell motor fuel products or operate retail sites in our targeted market areas;
the inability to identify and acquire suitable sites or to negotiate acceptable leases for such sites;
the potential inability to obtain adequate financing to fund our expansion;
the level of our operating costs, including payments to the Topper Group under the Topper Group Omnibus
Agreement;
prevailing economic conditions;
regulatory actions affecting the supply of or demand for motor fuel, our operations, our existing contracts or our
operating costs; and
volatility of prices for motor fuel.
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In addition, the actual amount of cash we will have available for distribution will depend on other factors such as:
the level and timing of capital expenditures we make;
the restrictions contained in our credit facility;
our debt service requirements and other liabilities;
the cost of acquisitions, if any;
fluctuations in our working capital needs;
our ability to borrow under our credit facility and access capital markets on favorable terms, or at all; and
the amount, if any, of cash reserves established by our General Partner in its discretion.
Incurring additional debt may significantly increase our interest expense and financial leverage and issuing additional limited
partner interests may result in significant unitholder dilution and would increase the aggregate amount of cash required to
maintain the cash distribution rate, which could materially decrease our ability to pay distributions. Consequently, there is no
guarantee that we will distribute quarterly cash distributions to our unitholders in any quarter.
The amount of cash we have available for distribution to unitholders depends primarily on our cash flow rather than on our
profitability, which may prevent us from making cash distributions, even during periods when we record net income.
The amount of cash we have available for distribution depends primarily on our cash flow, and not solely on profitability, which
will be affected by non-cash items. As a result, we may make cash distributions during periods when we record losses for
financial accounting purposes and may not make cash distributions during periods when we record net income for financial
accounting purposes.
If we are unable to make acquisitions on economically acceptable terms, our future growth and ability to increase
distributions to unitholders will be limited.
Our strategy to grow our business and increase distributions to unitholders is dependent on our ability to make acquisitions that
result in an increase in cash flow. Our growth strategy is based, in large part, on our expectation of ongoing divestitures of retail
and wholesale fuel distribution assets by industry participants. We may be unable to make accretive acquisitions for any of the
following reasons:
we are unable to identify attractive acquisition candidates or negotiate acceptable purchase contracts for them;
we are unable to raise financing for such acquisitions on economically acceptable terms, for example, if the market
price for our common units declines;
we are outbid by competitors; or
we or the seller are unable to obtain any necessary consents.
If we are unable to make acquisitions on economically acceptable terms, our future growth and ability to increase distributions to
unitholders will be limited. In addition, if we consummate any future acquisitions, our capitalization and results of operations may
change significantly. We may also consummate acquisitions, which at the time of consummation we believe will be accretive, but
ultimately may not be accretive and may in fact result in a decrease in distributable cash flow per unit as a result of incorrect
assumptions in our evaluation of such acquisitions, unforeseen consequences, or other external events beyond our control. If any
of these events occurred, our future growth could be adversely affected.
Any acquisitions are subject to substantial risks that could adversely affect our business, financial condition and results of
operations and reduce our ability to make distributions to unitholders.
Any acquisitions involve potential risks, including, among other things:
the validity of our assumptions about revenues, demand, capital expenditures and operating costs of the acquired
business or assets, as well as assumptions about achieving synergies with our existing business;
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the incurrence of substantial unforeseen environmental and other liabilities arising out of the acquired businesses or
assets, including liabilities arising from the operation of the acquired businesses or assets prior to our acquisition, for
which we are not indemnified or for which the indemnity is inadequate;
the costs associated with additional debt or equity capital, which may result in a significant increase in our interest
expense and financial leverage resulting from any additional debt incurred to finance the acquisition, or the issuance
of additional common units on which we will make distributions, either of which could offset the expected accretion
to our unitholders from any such acquisition and could be exacerbated by volatility in the equity or debt capital
markets;
a failure to realize anticipated benefits, such as increased available distributable cash flow, an enhanced competitive
position or new customer relationships;
the inability to timely and effectively integrate the operations of recently acquired businesses or assets, particularly
those in new geographic areas or in new lines of business;
unforeseen difficulties operating in new and existing product areas or new and existing geographic areas;
a decrease in our liquidity by using a significant portion of our available cash or borrowing capacity to finance the
acquisition;
the incurrence of other significant charges, such as impairment of goodwill or other intangible assets, asset
devaluation or restructuring charges;
performance from the acquired assets and businesses that is below the forecasts we used in evaluating the acquisition;
a significant increase in our working capital requirements;
competition in our targeted market areas;
customer or key employee loss from the acquired businesses and the inability to hire, train or retain qualified
personnel to manage and operate such acquired businesses; and
diversion of our management’s attention from other business concerns.
In addition, our ability to purchase or lease additional sites involves certain potential risks, including the inability to identify and
acquire suitable sites or to negotiate acceptable leases or subleases for such sites and difficulties in adapting our distribution and
other operational and management systems to an expanded network of sites.
Our reviews of businesses or assets proposed to be acquired are inherently imperfect because it generally is not practicable to
perform a perfect review of businesses and assets involved in each acquisition. Even a detailed review of assets and businesses
may not necessarily reveal existing or potential problems, nor will it permit a buyer to become sufficiently familiar with the assets
or businesses to fully assess their deficiencies and potential. For example, inspections may not always be performed on every
asset, and environmental problems, such as groundwater contamination, are not necessarily observable even when an inspection
is undertaken. Unitholders will not have the opportunity to evaluate the economic, financial and other relevant information that
we will consider in determining the application of our funds and other resources toward the acquisition of certain businesses or
assets.
Volatility in crude oil and wholesale motor fuel costs affect our business, financial condition and results of operations and our
ability to make distributions to unitholders.
For 2020, motor fuel revenues accounted for 89% of our total revenues and motor fuel gross profit accounted for 54% of total
gross profit. Wholesale motor fuel costs are directly related to, and fluctuate with, the price of crude oil. Volatility in the price of
crude oil, and subsequently wholesale motor fuel prices, is caused by many factors, including general political, regulatory and
economic conditions, acts of war, terrorism or armed conflict, instability in oil producing regions, particularly in the Middle East
and South America, and the value of U.S. dollars relative to other foreign currencies, particularly those of oil producing nations.
In addition, the supply of motor fuel and our wholesale purchase costs could be adversely affected in the event of a shortage or
oversupply of product, which could result from, among other things, interruptions of fuel production at oil refineries, new supply
sources, sustained increases or decreases in global demand or the fact that our motor fuel contracts do not guarantee an
uninterrupted, unlimited supply of motor fuel.
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Significant increases and volatility in wholesale motor fuel costs could result in lower gross profit dollars, as an increase in the
retail price of motor fuel could impact consumer demand for motor fuel and convenience merchandise and could result in lower
wholesale motor fuel gross profit dollars. Dramatic increases in oil prices reduce retail motor fuel gross profits because wholesale
motor fuel costs typically increase faster than retailers are able to pass increases along to customers. In addition, significant
decreases in oil prices and the corresponding decreases in wholesale motor fuel sales prices can result in lower revenues and gross
profit margins, as our wholesale motor fuel gross profits include discounts from our suppliers calculated as a percentage of the
cost of wholesale motor fuel. As the market prices of crude oil, and, correspondingly, the market prices of wholesale motor fuel,
experience significant and rapid fluctuations, we attempt to pass along wholesale motor fuel price changes to our customers
through retail price changes; however, we are not always able to do so immediately. The timing of any related increase or
decrease in sales prices is affected by competitive conditions in each geographic market in which we operate. As such, our
revenues and gross profit for motor fuel can increase or decrease significantly and rapidly over short periods of time and
potentially adversely impact our business, financial condition, results of operations and ability to make distributions to our
unitholders. The volatility in crude oil and wholesale motor fuel costs and sales prices makes it extremely difficult to forecast
future motor fuel gross profits or predict the effect that future wholesale costs and sales price fluctuations will have on our
operating results and financial condition.
Seasonality in wholesale motor fuel costs and sales, as well as merchandise sales, affect our business, financial condition and
results of operations and our ability to make distributions to unitholders.
Oil prices, wholesale motor fuel costs, motor fuel sales volumes, motor fuel gross profits and merchandise sales often experience
seasonal fluctuations. For example, consumer demand for motor fuel typically increases during the summer driving season and
typically falls during the winter months. Travel, recreation and construction are typically higher in these months in the geographic
areas in which we operate, increasing the demand for motor fuel and merchandise that we sell. Therefore, our revenues are
typically higher in the second and third quarters of our fiscal year. A significant change in any of these factors, including a
significant decrease in consumer demand (other than typical seasonal variations), could materially affect our motor fuel and
merchandise volumes, motor fuel gross profit and overall customer traffic, which in turn could have a material adverse effect on
our business, financial condition, results of operations and cash available for distribution to our unitholders.
Both the wholesale motor fuel distribution and the retail motor fuel industries are characterized by intense competition and
fragmentation, and our failure to effectively compete could adversely affect our business, financial condition and results of
operations and reduce our ability to make distributions to unitholders.
The markets for distribution of wholesale motor fuel and the sale of retail motor fuel are highly competitive and fragmented,
which results in narrow margins. We have numerous competitors, and some may have significantly greater resources and name
recognition than we do. We rely on our ability to provide value added reliable services and to control our operating costs to
maintain our margins and competitive position. If we were to fail to maintain the quality of our services, any or all of our
wholesale customers could choose alternative distribution sources and expected retail customers could purchase from other
retailers, each decreasing our margins. Furthermore, major integrated oil companies may decide to distribute their own products
in direct competition with us, or large wholesale customers may attempt to buy directly from the major integrated oil companies.
The occurrence of any of these events could have a material adverse effect on our business, results of operations and our ability to
make distributions to our unitholders.
Changes in credit or debit card expenses could reduce our gross profit, especially on motor fuel sold at company-operated
retail sites.
A significant portion of sales at our company-operated retail sites typically involve payment using credit or debit cards. We are
assessed fees as a percentage of transaction amounts and not as a fixed dollar amount or percentage of our gross profits. Higher
motor fuel prices result in higher credit and debit card expenses, and an increase in credit or debit card use or an increase in fees
have a similar effect. Therefore, credit and debit card fees charged on motor fuel purchases that are more expensive as a result of
higher motor fuel prices are not necessarily accompanied by higher gross profits. In fact, such fees may cause lower gross profits.
Lower gross profits on motor fuel sales caused by higher fees may decrease our overall gross profit and could have a material
adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders.
New entrants or increased competition in the convenience store industry could result in reduced gross profits.
At our company operated retail sites, we compete with numerous other convenience store chains, independent convenience
stores, supermarkets, drugstores, discount warehouse clubs, motor fuel service stations, mass merchants, fast food operations and
other similar retail outlets. In addition, several non-traditional retailers, including supermarkets and club stores, compete directly
with convenience stores. An increase in competition from such competitors, or the entrance of additional competitors, could result
in reduced gross profits and have a material adverse effect on our business, financial condition or results of operations.
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General economic, financial and political conditions that are largely out of our control could adversely affect our business,
financial condition and results of operations and reduce our ability to make distributions to unitholders.
Recessionary economic conditions, higher interest rates, higher motor fuel and other energy costs, inflation, increases in
commodity prices, higher levels of unemployment, higher consumer debt levels, higher tax rates and other changes in tax laws or
other economic factors may affect consumer spending or buying habits, and could adversely affect the demand for motor fuel and
convenience items we will sell at our retail sites. Unfavorable economic conditions, higher motor fuel prices and unemployment
levels can affect consumer confidence, spending patterns and miles driven, with many customers “trading down” to lower priced
products in certain categories when unfavorable conditions exist. These factors could lead to sales declines in both motor fuel and
general merchandise, and in turn could have an adverse impact on our business, financial condition and results of operations.
A tightening of credit in the financial markets or an increase in interest rates may make it more difficult for wholesale customers
and suppliers to obtain financing and, depending on the degree to which it occurs, may cause a material increase in the
nonpayment or other nonperformance by our customers and suppliers. Even if our credit review and analysis mechanisms work
properly, we may experience financial losses in our dealings with these third parties. A material increase in the nonpayment or
other nonperformance by our wholesale customers and/or suppliers could adversely affect our business, financial condition,
results of operations and cash available for distribution to our unitholders.
Examples of other general economic, financial and political risks include:
a general or prolonged decline in, or shocks to, regional or broader macro-economics;
regulatory changes that could impact the markets in which we operate, which could reduce demand for our goods and
services or lead to pricing, currency, or other pressures; and
deflationary economic pressures, which could hinder our ability to operate profitably in view of the challenges inherent
in making corresponding deflationary adjustments to our cost structure.
The nature of these types of risks, which are often unpredictable, makes them difficult to plan for, or otherwise mitigate, and they
are generally uninsurable, which compounds their potential impact on our business. Any such event could have a material adverse
effect on our business, financial condition, results of operations and cash available for distributions to our unitholders.
Terrorist attacks and threatened or actual war or armed conflict may adversely affect our business.
Our business is affected by general economic conditions and fluctuations in consumer confidence and spending, which can
decline as a result of numerous factors outside of our control. Terrorist attacks or threats, whether within the United States or
abroad, rumors or threats of war, actual conflicts involving the United States or its allies, or military or trade disruptions
impacting our suppliers or our customers may adversely impact our operations. Specifically, strategic targets such as energy
related assets may be at greater risk of future terrorist attacks than other targets in the United States. These occurrences could have
an adverse impact on energy prices, including prices for motor fuels, and an adverse impact on our operations. Any or a
combination of these occurrences could have a material adverse effect on our business, financial condition, results of operations
and cash available for distribution to our unitholders.
Changes in consumer behavior and travel as a result of changing economic conditions, labor strikes or otherwise could
adversely affect our business, financial condition and results of operations and reduce our ability to make distributions to
unitholders.
In the retail motor fuel industry, customer traffic is generally driven by consumer preferences and spending trends, growth rates
for commercial truck traffic and trends in travel and weather. Changes in economic conditions generally, or in the regions in
which we operate, could adversely affect consumer spending patterns and travel in our markets. In particular, weakening
economic conditions may result in decreases in miles driven and discretionary consumer spending and travel, which affect
spending on motor fuel and convenience items. In addition, changes in the types of products and services demanded by consumers
or labor strikes in the construction industry or other industries that employ customers who visit retail sites, may adversely affect
our sales and gross profit. Additionally, negative publicity or perception surrounding motor fuel suppliers could adversely affect
reputation and brand image, which may negatively affect our motor fuel sales and gross profit. Similarly, advanced technology
and increased use of hybrid cars or cars using alternative fuels would reduce demand for motor fuel. Our success depends on our
ability to anticipate and respond in a timely manner to changing consumer demands and preferences while continuing to sell
products and services that remain relevant to the consumer and thus generally have a positive impact overall merchandise gross
profit.
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Broad-based business or economic disruptions caused by the COVID-19 Pandemic, or other similar health crises, could
adversely affect our business, financial condition, results of operations or cash available for distribution to our unitholders.
Global health concerns, such as the COVID-19 Pandemic, could result in social, economic and labor instability that adversely
affect employee, customer, vendor, distribution channel and other business partner relationships, and in so doing could adversely
affect our business, financial condition, results of operations and cash flows. For example, federal, state and local governmental
actions restricting the ability of our customers to essential travel only, adversely impacts consumption of fuel. Sustained
limitation on travel, or a general reluctance to travel due to the COVID-19 Pandemic, adversely impacts our fuel volumes.
Sustained fuel volume decreases and less foot traffic would adversely impact our dealer operated locations which could
potentially pose increased credit risks or trigger a default under our fuel supply and lease agreements.
We do not have fleet operations but rely on common carriers to distribute and deliver our products. Although we have not
experienced significant disruptions to date, if these distribution channels are adversely impacted by the COVID-19 Pandemic,
delivery of our products could be jeopardized.
Although we have not experienced significant costs to date, we may incur costs related to the implementation of prescribed safety
protocols related to the COVID-19 Pandemic. With the April 14, 2020 closing of our acquisition of retail and wholesale assets,
the Partnership now has 150 company operated sites. For example, we may incur substantial costs in connection with staffing
impacted stores and the closing and subsequent cleaning of impacted stores resulting from a continued spread of COVID-19. We
may also temporarily lose the services of employees or experience interruptions in our business which could lead to
inefficiencies, interruptions in our regular operations and potential reputational harm. If we do not respond appropriately to the
COVID-19 Pandemic or other similar health crises, or if customers do not perceive our response to be adequate for a particular
region or our business as a whole, we could suffer damage to our reputation, which could materially adversely affect our business,
financial condition and results of operations in the future.
There can be no assurances that these and other scenarios resulting from the COVID-19 Pandemic, or other similar health crises,
will not have a material and adverse impact on our business, financial condition, results of operations or cash available for
distribution to our unitholders. We are continuing to monitor this public health crisis and its impact on employees, customers,
vendors, distribution channels and other business partners and the overall economic environment within the U.S. and worldwide,
but we cannot presently predict the full scope and severity of the disruptions caused by the COVID-19 Pandemic on our business,
financial condition, results of operations and cash available for distribution to our unitholders.
We are subject to extensive government laws and regulations concerning store merchandise items and operations, and the cost
of compliance with such laws and regulations can be material.
Our business and properties are subject to extensive local, state and federal governmental laws and regulations relating to, among
other things, the sale of alcohol, tobacco and money orders, and public accessibility requirements. The cost of compliance with
these laws and regulations can have a material adverse effect on our operating results and financial condition. In addition, failure
to comply with local, state, provincial and federal laws and regulations to which our operations will be subject may result in
penalties and costs that could adversely affect our business and our operating results.
In certain areas where our retail sites are located, state or local laws limit the retail sites’ hours of operation or their sale of
alcoholic beverages, tobacco products, possible inhalants and lottery tickets, in particular to minors. Failure to comply with these
laws could adversely affect our revenues and results of operations because these state and local regulatory agencies have the
power to revoke, suspend or deny applications for and renewals of permits and licenses relating to the sale of these products or to
seek other remedies, such as the imposition of fines or other penalties. Moreover, these laws may impact our sales volumes in
general, as customers who purchase certain products such as alcoholic beverages typically buy other products when they shop.
Laws that curtail the consumer’s ability to buy certain products at our retail sites may curtail consumer demand for other products
that we sell.
We are subject to extensive government laws and regulations concerning our employees, and the cost of compliance with such
laws and regulations can be material.
Regulations related to wages and other compensation affect our business. Any appreciable increase in applicable employment
laws and regulations, including the statutory minimum wage, exemption levels or overtime regulations could result in an increase
in labor costs and such cost increase, or the penalties for failing to comply with such statutory minimums, could adversely affect
our business, financial condition, results of operations and cash available for distribution to our unitholders.
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In addition, we are directly and indirectly affected by new tax legislation and regulation and the interpretation of tax laws and
regulations. This includes potential changes in tax laws or the interpretation of tax laws relating to incentive compensation.
Changes in such legislation, regulation or interpretation could have an adverse effect on our incentive compensation structures,
which could affect our ability to recruit, develop and retain talented executives and could have a material adverse effect on our
business, financial condition, results of operations and cash available for distribution to our unitholders.
Any changes in the employment, benefit plan, tax or labor laws or regulations described above or new regulations proposed from
time to time, could have a material adverse effect on our employment practices, our business, financial condition, results of
operations and cash available for distribution to our unitholders.
We are subject to extensive federal, state and local environmental laws, and the cost of complying with such laws may be
material.
Our operations are subject to a variety of environmental laws and regulations, including those relating to emissions to the air (such
as the federal Clean Air Act), discharges into water (such as the federal Clean Water Act), releases of hazardous and toxic
substances and remediation of contaminated sites (such as the Comprehensive Environmental Response Compensation and
Liability Act of 1980 (“CERCLA”)), and similar state and local laws and regulations.
Under CERCLA, we may, as the owner or operator, be liable for the costs of removal or remediation of contamination at our
current locations or our former locations, whether or not we knew of, or were responsible for, the presence of such contamination.
In particular, as an owner and operator of motor fueling stations, we face risks relating to petroleum product contamination that
other retail site operators not engaged in such activities would not face. The remediation costs and other costs required to clean up
or treat contaminated sites could be substantial. Contamination on and from our current or former locations may subject us to
liability to third parties or governmental authorities for injuries to persons, property or natural resources and may adversely affect
our ability to sell or rent our properties or to borrow money using such properties as collateral.
CERCLA also provides that persons who dispose of or arrange for the disposal or treatment of hazardous or toxic substances at
third-party sites may also be liable for the costs of removal or remediation of such substances at these disposal sites although such
sites are not owned by such persons. Our historic and current operation of many locations and the disposal of contaminated soil
and groundwater wastes generated during cleanups of contamination at such locations could expose us to such liability.
Pursuant to the Resource Conservation and Recovery Act of 1976, as amended, the EPA has established a comprehensive
regulatory program for the detection, prevention, investigation and cleanup of leaking underground storage tanks. State or local
agencies are often delegated the responsibility for implementing the federal program or developing and implementing equivalent
state or local regulations. Compliance with existing and future environmental laws regulating such tanks and systems may require
significant expenditures. We pay fees to state “leaking UST” trust funds in states where they exist. These state trust funds are
expected to pay or reimburse us for remediation expenses related to contamination associated with USTs subject to their
jurisdiction. Such payments are always subject to a deductible paid by us, specified per incident caps and specified maximum
annual payments, which vary among the funds.
Additionally, such funds may have eligibility requirements that not all of our current or anticipated sites will meet. To the extent
state funds or other responsible parties do not pay or delay payments for remediation, we will be obligated to make these
payments, which, in the aggregate, could have a material adverse effect on our business, financial condition, results of operations
and cash available for distribution to our unitholders. We can give no assurance that these funds or responsible third parties are or
will continue to remain viable.
Motor fuel operations present risks of soil and groundwater contamination. In the future, we may incur substantial expenditures
for remediation of contamination that has not been discovered at locations which we may acquire. We regularly monitor our
facilities for environmental contamination and record liabilities on our financial statements to cover potential environmental
remediation and compliance costs when probable to occur and reasonably estimable. However, we can make no assurance that the
liabilities we have recorded are the only environmental liabilities relating to our current and former locations, that material
environmental conditions not known to us do not exist, that future laws or regulations will not impose material environmental
liability on us or that our actual environmental liabilities will not exceed our reserves. In addition, failure to comply with
environmental regulations, including the Clean Air Act, the Clean Water Act or CERCLA, or an increase in regulations could
have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our
unitholders.
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Laws, regulations, technological, political and scientific developments regarding climate change and fuel efficiency may
decrease demand for motor fuel.
Developments aimed at reducing greenhouse gas emissions’ contribution to climate change may decrease the demand or increase
the cost for our major product, petroleum-based motor fuel. Attitudes toward this product and its relationship to the environment
may significantly affect our effectiveness in marketing our product and sales. Efforts to steer the public toward
non-petroleum-based fuel dependent modes of transportation may foster a negative perception toward motor fuel or increase costs
for our product, thus affecting the public’s attitude toward our primary product. New technologies that increase fuel efficiency or
offer alternative vehicle power sources or laws or regulations to increase fuel efficiency, reduce consumption or offer alternative
vehicle power sources may result in decreased demand for petroleum-based motor fuel. A number of new legal incentives,
regulatory requirements and executive initiatives, including the Clean Power Plan (“CPP”), the Affordable Clean Energy
(“ACE”) rule that the Environmental Protection Agency (the “EPA”) has proposed to replace the CPP, and various government
subsidies such as the extension of certain tax credits for renewable energy, have made these alternative forms of energy more
competitive. We may also incur increased costs for our product, which we may not be able to pass along to our customers. These
developments could potentially have a material adverse effect on our business, financial condition, results of operations and cash
available for distribution to our unitholders.
Changes in U.S. trade policy, including the imposition of tariffs and the resulting consequences, may have a material adverse
impact on our business, operating results and financial condition.
The previous U.S. presidential administration indicated its intent to adopt a new approach to trade policy. For example, in 2018,
the U.S. government reached a new trade agreement with the Canadian and Mexican governments to replace the North America
Free Trade Agreement with the United States-Mexico-Canada Agreement.
The U.S. also initiated tariffs on certain foreign goods and has raised the possibility of imposing significant, additional tariff
increases or expanding the tariffs to capture other types of goods. In response, certain foreign governments imposed retaliatory
tariffs on goods that their countries import from the U.S.
Changes in U.S. trade policy, including due to the change in the U.S. presidential administration, could result in one or more
foreign governments adopting responsive trade policies that make it more difficult or costly for us to do business in or import our
products from those countries. This in turn could require us to increase prices to our customers, which may reduce demand, or, if
we are unable to increase prices, result in lowering our margin on products sold.
We cannot predict the extent to which the U.S. or other countries will impose quotas, duties, tariffs, taxes or other similar
restrictions upon the import or export of our products in the future, nor can we predict future trade policy or the terms of any
renegotiated trade agreements and their impact on our business. The adoption and expansion of trade restrictions, the occurrence
of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact
demand for our products, our costs, our customers, our suppliers, and the U.S. economy, which in turn could have a material
adverse effect on our business, operating results and financial condition.
Unfavorable weather conditions could adversely affect our business, financial condition and results of operations and reduce
our ability to make distributions to unitholders.
Our company operated retail sites are located in regions throughout the U.S. that are susceptible to certain severe weather events,
such as hurricanes, flooding, severe thunderstorms, snowstorms, tornadoes and extreme heat and cold. Inclement weather
conditions could damage our facilities, our suppliers or could have a significant impact on consumer behavior, travel and retail
site traffic patterns as well as our ability to operate our retail sites. We could also be affected by regional occurrences, such as
energy shortages or increases in energy prices, fires or other natural disasters. Further, our ability to insure these locations and the
related cost of such insurance coverage could have a material adverse effect on our business, financial condition, results of
operations and cash available for distribution to our unitholders.
Additionally, many studies have discussed the relationship between GHG emissions and climate change. One consequence of
climate change noted in many of these reports is the increased severity of extreme weather, such as increased hurricanes and
floods. Such events could adversely affect our operations through water damage, powerful winds or increased costs for insurance.
Climate change also continues to attract considerable public and scientific attention. Recently, litigation has been filed against
companies in the energy industry related to climate change. Should such suits succeed, we could face additional compliance costs
or litigation risks.
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We could be adversely affected if we are not able to attract and retain a strong management team.
We are dependent on our ability to attract and retain a strong management team. If, for any reason, we are not able to attract and
retain qualified senior personnel, our business, financial condition, results of operations and cash flows could be adversely
affected. We also are dependent on our ability to recruit qualified retail site and field managers. Failure to attract and retain these
individuals at reasonable compensation levels could have a material adverse effect on our business, financial condition, results of
operations and cash available for distribution to our unitholders.
We depend on four principal suppliers for the majority of our motor fuel. A disruption in supply or a change in our
relationship with any one of them could adversely affect our business, financial condition and results of operations and
reduce our ability to make distributions to unitholders.
In 2020, we purchased approximately 29%, 22%, 13% and 10% of our motor fuel from ExxonMobil, BP, Motiva and Marathon,
respectively. A change of motor fuel suppliers, a disruption in supply or a significant change in pricing with any of these suppliers
could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution
to our unitholders.
Negative events or developments associated with our branded suppliers could have an adverse impact on our revenues.
We believe that the success of our operations is dependent, in part, on the continuing favorable reputation, market value, and
name recognition associated with the branded motor fuel sold through our Wholesale Segment and Retail Segment. Erosion of the
value of those brands could have an adverse impact on the volumes of motor fuel we distribute, which in turn could have a
material adverse effect on our business, financial condition, results of operations and ability to make distributions to our
unitholders.
We rely on our suppliers to provide trade credit to adequately fund our ongoing operations.
Our business is impacted by the availability of trade credit to fund motor fuel purchases and inventory purchases of our retail
sites. An actual or perceived downgrade in our liquidity or operations could cause our suppliers to seek credit support in the form
of additional collateral, limit the extension of trade credit or otherwise materially modify their payment terms. Any material
changes in payments terms, including payment discounts, or availability of trade credit provided by our principal suppliers, could
have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our
unitholders.
We could be adversely affected by the creditworthiness and performance of our customers, suppliers and contract
counterparties.
We are exposed to risk related to the creditworthiness and performance of our customers, suppliers and contract counterparties.
As of December 31, 2020, we had outstanding accounts receivable totaling $29.5 million. This amount primarily consisted of
vendor rebates due from our suppliers, credit card receivables, receivables arising from the sale of fuel and other products to
independent franchised or licensed fuel station operators as well as amounts receivable from other industrial and commercial
clients. Contracts with longer payment cycles or difficulties in enforcing contracts or collecting accounts receivable could lead to
material fluctuations in our cash flows and could adversely impact our business, financial condition and results of operations.
Pending or future litigation could adversely affect our financial condition and results of operations. Litigation and publicity
concerning motor fuel or food quality, health and other issues could result in significant liabilities or litigation costs and
cause consumers to avoid our retail sites.
Retail site businesses can be adversely affected by litigation and complaints from customers or government agencies resulting
from motor fuel or food quality, illness or other health or environmental concerns or operating issues stemming from one or more
locations. Additionally, we may become a party to litigation pertaining to individual personal injury, off-specification motor fuel,
product liability, consumer protection laws, contract disputes, wage and hour unemployment claims and other legal actions in the
ordinary course of our business and we are occasionally exposed to industry-wide or class-action claims arising from the products
we carry or industry-specific business practices. Adverse publicity about these allegations may negatively affect us, regardless of
whether the allegations are true, by discouraging customers from purchasing motor fuel, merchandise or food at one or more of
our retail sites. We could also incur significant liabilities if a lawsuit or claim results in a decision against us. Even if we are
successful in defending such litigation, our litigation costs could be significant, and the litigation may divert time and money
away from our operations and adversely affect our performance. Our defense costs and any resulting damage awards may not be
fully covered by our insurance policies.
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The dangers inherent in the storage and transport of motor fuel could cause disruptions and could expose us to potentially
significant losses, costs or liabilities.
We store motor fuel in storage tanks at our retail sites. These operations are subject to significant hazards and risks inherent in
storing and transporting motor fuel. These hazards and risks include, but are not limited to, fires, explosions, traffic accidents,
spills, discharges and other releases, any of which could result in distribution difficulties and disruptions, environmental
pollution, governmentally imposed fines or cleanup obligations, personal injury or wrongful death claims and other damage to
our properties and the properties of others.
We are not fully insured against all risks incident to our business. We may be unable to maintain or obtain insurance of the type
and amount we desire at reasonable rates. As a result of market conditions, premiums and deductibles for certain of our insurance
policies have increased and could escalate further. In some instances, certain insurance could become unavailable or available
only for reduced amounts of coverage. If we were to incur a significant liability for which we were not fully insured, it could have
a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our
unitholders.
We depend on third-party transportation providers for the transportation of all of our motor fuel. Thus, a change or shortage
of providers or a significant change in our relationship or commercial terms with any of these providers could adversely affect
our business, financial condition and results of operations and reduce our ability to make distributions to unitholders.
All of the motor fuel we distribute is transported from motor fuel terminals to gas stations by third-party carriers. A change or
shortage of transportation providers, a disruption in service or a significant change in our relationship or commercial terms with
any of these transportation carriers could have a material adverse effect on our business, financial condition, results of operations
and cash available for distribution to our unitholders.
We are subject to federal, state and local laws and regulations that govern the product quality specifications of the motor fuel
that we distribute and sell.
Various federal, state and local agencies have the authority to prescribe specific product quality specifications to the sale of
commodities. Changes in product quality specifications, such as reformulated fuels mandates, reduced sulfur content in refined
petroleum products or other more stringent requirements for fuels, could reduce our ability to procure products and result in a
decrease to our sales volume, require us to incur additional handling costs, and/or require the expenditure of capital. If we are
unable to procure product or recover these costs through increased sales, our ability to meet our financial obligations could be
adversely affected. Failure to comply with these regulations could result in substantial penalties.
Our motor fuel sales in our Wholesale segment are generated under contracts that must be renegotiated or replaced
periodically. If we are unable to successfully renegotiate or replace these contracts, then our business, financial condition and
results of operations and ability to make distributions to unitholders could be adversely affected.
Our Wholesale segment’s motor fuel sales are generated under contracts that must be periodically renegotiated or replaced. We
may be unable to renegotiate or replace these contracts when they expire, and the terms of any renegotiated contracts may not be
as favorable as the contracts they replace. Whether these contracts are successfully renegotiated or replaced is often times subject
to factors beyond our control. Such factors include fluctuations in motor fuel prices, counterparty ability to pay for or accept the
contracted volumes and a competitive marketplace for the services offered by us. If we cannot successfully renegotiate or replace
our contracts or must renegotiate or replace them on less favorable terms, sales from these arrangements could decline, which
could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution
to our unitholders.
Further, we have contracts with certain multi-site lessee dealers that provide for the ability for each party to sever or recapture a
certain number of sites from the contract. If sites are severed, we will seek to replace the dealer, but it is possible that the
agreement with any new dealer may not provide for an equivalent fuel margin and/or rental income stream, which could have a
material adverse effect on our business, financial condition, results of operations and cash available for distribution to our
unitholders. It is also possible that we will operate the site until the dealer is replaced or indefinitely.
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We rely on our information technology systems and network infrastructure to manage numerous aspects of our business, and
a disruption of these systems could adversely affect our business, financial condition and results of operations and reduce our
ability to make distributions to unitholders.
We depend on our information technology (“IT”) systems and network infrastructure to manage numerous aspects of our business
and provide analytical information to management. These systems are an essential component of our business and growth
strategies, and a serious disruption to them could significantly limit our ability to manage and operate our business efficiently.
These systems may be vulnerable to, among other things, damage and interruption from power loss or natural disasters, computer
system and network failures, loss of telecommunications services, physical and electronic loss of data, security breaches and
computer viruses, which could result in a loss of sensitive business information, systems interruption or the disruption of our
business operations. To protect against unauthorized access or attacks, we have implemented infrastructure protection
technologies and disaster recovery plans, but there can be no assurance that a technology systems breach or systems failure, which
may nonetheless occur and go undetected, will not have a material adverse effect on our business, financial condition, results of
operations and cash available for distribution to our unitholders.
Our business and our reputation could be adversely affected by the failure to protect sensitive customer, employee or vendor
data, whether as a result of cyber security attacks or otherwise, or to comply with applicable regulations relating to data
security and privacy.
In the normal course of our business as a motor fuel and merchandise retailer, we obtain large amounts of personal data, including
credit and debit card information from our customers. While we have invested significant amounts in the protection of our IT
systems and maintain what we believe are adequate security controls over individually identifiable customer, employee and
vendor data provided to us, a breakdown or a breach in our systems that results in the unauthorized release of individually
identifiable customer or other sensitive data could nonetheless occur.
Cyber-attacks are rapidly evolving and becoming increasingly sophisticated. A successful cyber-attack resulting in the loss of
sensitive customer, employee or vendor data could adversely affect our reputation, results of operations, financial condition and
liquidity, and could result in litigation against us or the imposition of penalties. Moreover, a security breach could require that we
expend significant additional resources to further upgrade the security measures that we employ to guard against cyber-attacks.
Further, complying with continually evolving regulations associated with the protection of credit and debit card information is
costly and taking these measures does not necessarily provide an offsetting financial benefit to us. Failure to comply with these
regulations could subject us or our dealers to fines or other regulatory sanctions (potentially including discontinuing operations)
and potentially to lawsuits. Additionally, if we acquire a company that has violated or is not in compliance with applicable data
protection laws, we may incur significant liabilities and penalties as a result. The cost of compliance and the ramifications of
non-compliance could have a material adverse effect on our business, financial condition, results of operations and cash available
for distribution to our unitholders.
Our debt levels and debt covenants may limit our flexibility in obtaining additional financing and in pursuing other business
opportunities.
We have a significant amount of debt. As of December 31, 2020, we had $513.2 million of total debt and $188.1 million of
availability under our revolving credit facility. Our level of indebtedness could have important consequences to us, including the
following:
our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other
purposes may be impaired, or such financing may not be available on favorable terms;
covenants contained in our credit facility will require us to meet financial tests that may affect our flexibility in
planning for and reacting to changes in our business, including possible acquisition opportunities;
we will need a substantial portion of our cash flow to make interest payments on our indebtedness, reducing the funds
that would otherwise be available for operations, future business opportunities and distributions to unitholders;
our debt level will make us more vulnerable than our competitors with less debt to competitive pressures or a
downturn in our business or the economy generally; and
our debt level may limit our flexibility in responding to changing business and economic conditions.
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Our ability to service our indebtedness will depend upon, among other things, our future financial and operating performance,
which may be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are
beyond our control. If our operating results are not sufficient to service our current or future indebtedness, we will be forced to
take actions, such as reducing distributions, reducing or delaying our business activities, acquisitions, investments and/or capital
expenditures, selling assets, restructuring or refinancing our indebtedness, or seeking additional equity capital or bankruptcy
protection. We may not be able to affect any of these actions on satisfactory terms, or at all.
An increase in interest rates may cause the market price of our common units to decline and a significant increase in interest
rates could adversely affect our ability to service our indebtedness.
Like all equity investments, an investment in our common units is subject to certain risks. Borrowings under the credit facility
bear interest at variable rates, subject to interest rate swap contracts we entered into to hedge future changes in variable rates. If
market interest rates increase, such variable-rate debt will create higher debt service requirements, which could adversely affect
our cash flow and ability to make cash distributions. In exchange for accepting these risks, investors may expect to receive a
higher rate of return than would otherwise be obtainable from lower-risk investments. Accordingly, as interest rates rise, the
ability of investors to obtain higher risk-adjusted rates of return by purchasing government-backed debt securities may cause a
corresponding decline in demand for riskier investments generally, including yield-based equity investments such as publicly
traded limited partnership interests. Reduced demand for our common units resulting from investors seeking other more favorable
investment opportunities may cause the trading price of our common units to decline.
The interest rate on our credit facility is variable; therefore, we have exposure to movements in interest rates, subject to our
interest rate swap contracts. A significant increase in interest rates could adversely affect our ability to service our indebtedness.
The increased cost could make the financing of our business activities more expensive. These added expenses could have an
adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders.
LIBOR, the interest rate benchmark used as a reference rate on our variable rate credit facility, is expected to be phased out after
2021, when private-sector banks are no longer required to report the information used to set the rate. Without this data, LIBOR
may no longer be published, or the lack of quality and quantity of data may cause the rate to no longer be representative of the
market. At this time, no consensus exists as to what rate or rates will become accepted alternatives to LIBOR, although the U.S.
Federal Reserve, in connection with the Alternative Reference Rates Committee, a steering committee comprised of large U.S.
financial institutions, is considering replacing U.S. dollar LIBOR with the Secured Overnight Financing Rate (“SOFR”). SOFR is
a more generic measure than LIBOR and considers the cost of borrowing cash overnight, collateralized by U.S. Treasury
securities. Given the inherent differences between LIBOR and SOFR or any other alternative benchmark rate that may be
established, there are many uncertainties regarding a transition from LIBOR, including but not limited to the need to amend all
contracts with LIBOR as the referenced rate and how this will impact the Partnership’s cost of variable rate debt. The Partnership
will also need to consider new contracts and if they should reference an alternative benchmark rate or include suggested fallback
language, as published by the Alternative Reference Rates Committee. The consequences of these developments with respect to
LIBOR cannot be entirely predicted and span multiple future periods but could result in an increase in the cost of our variable rate
debt, which may be detrimental to our financial position or operating results.
Our credit facility contains operating and financial restrictions that may limit our business, financing activities and ability to
make distributions to unitholders.
The operating and financial restrictions and covenants in our credit facility and any future financing agreements could adversely
affect our ability to finance future operations or capital needs or to engage, expand or pursue our business activities. For example,
our credit facility may restrict our ability to:
make distributions if any potential default or event of default occurs;
incur additional indebtedness, including the issuance of certain preferred equity interests, or guarantee other
indebtedness;
grant liens or make certain negative pledges;
make certain advances, loans or investments;
make any material change to the nature of our business, including mergers, consolidations, liquidations and
dissolutions;
make certain capital expenditures in excess of specified levels;
acquire another company;
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enter into a sale-leaseback transaction or certain sales or leases of assets;
enter into certain affiliate transactions; or
make certain repurchases of equity interests.
Our credit facility limits our ability to pay distributions upon the occurrence of the following events, among others:
failure to pay any principal when due or failure to pay any interest, fees or other amounts owed under our credit
facility when due, subject to any applicable grace period;
failure of any representation or warranty in our credit agreement to be true and correct, and the failure of any
representation or warranty in any other agreement delivered in connection with our credit facility to be true and
correct in any material respect;
failure to perform or otherwise comply with the covenants in our credit facility or in other loan documents beyond the
applicable notice and grace period;
any default in the performance of any obligation or condition beyond the applicable grace period relating to any other
indebtedness of more than certain thresholds;
failure of the lenders to have a perfected first priority security interest in the collateral pledged by any loan party;
the entry of one or more judgments in excess of certain thresholds, to the extent any payments pursuant to the
judgment are not covered by insurance;
a change in ownership or control of our General Partner or us;
a violation of the Employee Retirement Income Security Act of 1974, or “ERISA”; and
a bankruptcy or insolvency event involving us or any of our subsidiaries.
Our ability to comply with the covenants and restrictions contained in our credit facility may be affected by events beyond our
control, including prevailing economic, financial and industry conditions. If market or other economic conditions deteriorate, our
ability to comply with these covenants may be impaired. If we violate any of the restrictions, covenants, ratios or tests in our credit
facility, the debt issued under the credit facility may become immediately due and payable, and our lenders’ commitment to make
further loans to us may terminate. We might not have, or be able to obtain, sufficient funds to make these accelerated payments. In
addition, our obligations under our credit facility will be secured by substantially all of our assets, and if we are unable to repay
our indebtedness under our credit facility, the lenders could seek to foreclose on such assets.
We do not own all of the land on which our retail sites and certain facilities are located, which could result in increased costs
and disruptions to our operations.
We do not own all of the land on which our retail sites and certain facilities are located, and we lease a portion of such sites from
third parties under long-term arrangements with various expiration dates. As such, we are subject to the possibility that we are
unable to renew such leases or are only able to do so with increased costs or more onerous terms, which could have a material
adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders.
We may not be able to lease sites we own or sub-lease sites we lease on favorable terms and any such failure could adversely
affect our business, financial condition and results of operations and reduce our ability to make distributions to unitholders.
We may lease and/or sub-lease certain sites to lessee dealers or commission agents where the rent expense is more than the lease
payments. If we are unable to obtain tenants on favorable terms for sites we own or lease, the lease payments we receive may not
be adequate to cover our rent expense for leased sites and may not be adequate to ensure that we meet our debt service
requirements. We cannot provide any assurance that the margins on our wholesale distribution of motor fuels to these sites will be
adequate to offset unfavorable lease terms. The occurrence of these events could have a material adverse effect on our business,
financial condition, results of operations and cash available for distribution to our unitholders.
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We rely on DMI to indemnify us for any costs or expenses that we incur for environmental liabilities and third-party claims,
regardless of when a claim is made, that are based on environmental conditions in existence prior to the closing of the IPO at
our Predecessor Entity’s sites. To the extent escrow accounts, insurance and/or payments from DMI are not sufficient to
cover any such costs or expenses, our business, financial condition and results of operations and ability to make distributions
to unitholders could be adversely affected.
The Circle K Omnibus Agreement provides that DMI must indemnify us for any costs or expenses that we incur for
environmental liabilities and third-party claims, regardless of when a claim is made, that are based on environmental conditions in
existence prior to the closing of the IPO at our Predecessor Entity’s sites. Such indemnification survives the termination of the
Circle K Omnibus Agreement. DMI is the beneficiary of escrow accounts created to cover the cost to remediate certain
environmental liabilities. In addition, DMI maintains insurance policies to cover environmental liabilities and/or, where
available, participates in state programs that may also assist in funding the costs of environmental liabilities. There are certain
sites that were acquired by us in connection with the IPO with existing environmental liabilities that are not covered by escrow
accounts, state funds or insurance policies. To the extent escrow accounts, insurance and/or payments from DMI are not sufficient
to cover any such costs or expenses, our business, liquidity and results of operations could be adversely affected.
We rely on Circle K to indemnify us for any costs or expenses that we incur for environmental liabilities and third-party
claims, regardless of when a claim is made, that are based on environmental conditions in existence prior to the closing of the
asset exchanges with Circle K and the CST Fuel Supply Exchange. To the extent escrow accounts, insurance and/or payments
from Circle K are not sufficient to cover any such costs or expenses, our business, financial condition and results of
operations and ability to make distributions to unitholders could be adversely affected.
The Asset Exchange Agreement and related agreements provide that Circle K must indemnify us for any costs or expenses that
we incur for environmental liabilities and third-party claims, regardless of when a claim is made, that are based on environmental
conditions in existence prior to the closing of the asset exchanges with Circle K and the CST Fuel Supply Exchange. Such
indemnification survives the termination of the Circle K Omnibus Agreement. Circle K is the beneficiary of escrow accounts
created to cover the cost to remediate certain environmental liabilities. In addition, Circle K maintains insurance policies to cover
environmental liabilities and/or, where available, participates in state programs that may also assist in funding the costs of
environmental liabilities. To the extent escrow accounts, insurance and/or payments from Circle K are not sufficient to cover any
such costs or expenses, our business, liquidity and results of operations could be adversely affected.
Risks Inherent in our Structure
The Topper Group controls the sole member of our General Partner, which has sole responsibility for conducting our
business and managing our operations. Our General Partner and its affiliates, including the Topper Group, have conflicts of
interest with us and limited fiduciary duties and they may favor their own interests to the detriment of our unitholders and us.
The Topper Group controls the sole member of our General Partner and therefore has the ability to appoint all of the directors of
our Board. Although our General Partner has a legal duty to manage us in good faith, the General Partner and its executive
officers (as employees of the Topper Group) have a fiduciary duty to manage our General Partner in a manner beneficial to its
owner, the Topper Group. Furthermore, certain officers of our General Partner are directors of our Board or officers of affiliates
of our General Partner. Therefore, conflicts of interest may arise between us and our unitholders, on the one hand, and our General
Partner and its affiliates, including the Topper Group, on the other hand. In resolving these conflicts of interest, under the
Partnership Agreement, our General Partner may favor its own interests and the interests of the Topper Group over our interests
and the interests of our common unitholders. These conflicts include the following situations, among others:
our General Partner is allowed to take into account the interests of parties other than us, such as the Topper Group, in
resolving conflicts of interest, which has the effect of limiting its fiduciary duty to our unitholders;
neither our Partnership Agreement nor any other agreement requires the Topper Group to pursue a business strategy
that favors us;
officers of our General Partner who provide services to us may devote time to affiliates of our General Partner and
may be compensated for services rendered to such affiliate;
our Partnership Agreement limits the liability of and reduces fiduciary duties owed by our General Partner and also
restricts the remedies available to unitholders for actions that, without the limitations, might constitute breaches of
fiduciary duty;
except in limited circumstances, our General Partner has the power and authority to conduct our business without
unitholder approval;
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our General Partner determines the amount and timing of asset purchases and sales, borrowings, issuances of
additional partnership securities and the creation, reductions or increases of cash reserves, each of which can affect
the amount of cash that is available for distribution to our unitholders;
our General Partner determines the amount and timing of any capital expenditures and whether a capital expenditure
is classified as a maintenance capital expenditure, which reduces operating surplus. Such determination can affect the
amount of cash available for distribution to our unitholders;
our General Partner may cause us to borrow funds in order to permit the payment of cash distributions, even if the
purpose or effect of the borrowing is to make incentive distributions;
our Partnership Agreement permits us to distribute up to $15 million as operating surplus, even if it is generated from
asset sales, non-working capital borrowings or other sources that would otherwise constitute capital surplus;
our Partnership Agreement does not restrict our General Partner from causing us to pay it or its affiliates for any
services rendered to us or entering into additional contractual arrangements with its affiliates on our behalf;
our General Partner intends to limit its liability regarding our contractual and other obligations;
our General Partner may exercise its right to call and purchase our common units if it and its affiliates own more than
80% of our common units;
our General Partner controls the enforcement of obligations that it and its affiliates owe to us; and
our General Partner decides whether to retain separate counsel, accountants or others to perform services for us.
The Topper Group or the Board may modify or revoke our cash distribution policy at any time at their discretion.
Our Partnership Agreement does not require us to pay any distributions at all.
The Board has adopted a cash distribution policy pursuant to which we intend to distribute quarterly an amount at least equal to
the minimum quarterly distribution of $0.4375 per unit on all of our units to the extent we have sufficient cash from our operations
after the establishment of reserves and the payment of our expenses. However, the Topper Group, as the owner of our General
Partner, or the Board may change such policy at any time at their discretion and could elect not to pay distributions for one or
more quarters. In addition, our credit facility includes specified restrictions on our ability to make distributions.
Our Partnership Agreement does not require us to pay any distributions at all. Accordingly, investors are cautioned not to place
undue reliance on the permanence of our distribution policy in making an investment decision. Any modification or revocation of
our cash distribution policy could substantially reduce or eliminate the amounts of distributions to our unitholders. The amount of
distributions we make, if any, and the decision to make any distribution at all, will ultimately be determined by the Topper Group
as the owner of all of the membership interests in the sole member of our General Partner, whose interests may differ from those
of our common unitholders.
We rely on the employees of the Topper Group to provide key management services to our business pursuant to the Topper
Group Omnibus Agreement. If our Topper Group Omnibus Agreement were to be terminated, we may not be able to find
suitable replacements to perform such services for us without interruption to our business or increased costs.
Under our Topper Group Omnibus Agreement, the Topper Group provides us with the personnel necessary to support our
management, administrative and operating services, including accounting, tax, legal, internal audit, risk management and
compliance, environmental compliance and remediation management oversight, treasury, information technology and other
administrative functions, as well as the management and operation of our wholesale distribution and retail business. If our Topper
Group Omnibus Agreement is terminated, we may suffer interruptions to our business or increased costs to replace these services.
The liability of the Topper Group and Couche-Tard is limited under our Topper Group Omnibus Agreement and Circle K
Omnibus Agreement and we have agreed to indemnify the Topper Group and Couche-Tard against certain liabilities, which
may expose us to significant expenses.
The Topper Group Omnibus Agreement and the Circle K Omnibus Agreement provide that we must indemnify the Topper Group
and Couche-Tard for certain liabilities, including any liabilities incurred by the Topper Group and Couche-Tard attributable to the
operating and administrative services provided to us under the agreement, other than liabilities resulting from the Topper Group’s
or Couche-Tard’s bad faith, fraud, or willful misconduct, as applicable.
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Our General Partner has limited liability regarding our obligations.
Our General Partner has limited liability under contractual arrangements between us and third parties so that the counterparties to
such arrangements have recourse only against our assets, and not against our General Partner or its assets. Our General Partner
may therefore cause us to incur indebtedness or other obligations that are nonrecourse to our General Partner. Our Partnership
Agreement provides that any action taken by our General Partner to limit its liability is not a breach of our General Partner’s
fiduciary duties, even if we could have obtained more favorable terms without the limitation on liability. In addition, we are
obligated to reimburse or indemnify our General Partner to the extent that it incurs obligations on our behalf. Any such
reimbursement or indemnification payments would reduce the amount of cash otherwise available for distribution to our
unitholders.
If we distribute a significant portion of our cash available for distribution to our partners, our ability to grow and make
acquisitions could be limited.
We may determine to distribute a significant portion of our cash available for distribution to our unitholders. In addition, we
expect to rely primarily upon external financing sources, including commercial bank borrowings and the issuance of debt and
equity securities, to fund our acquisitions and expansion capital expenditures. To the extent we are unable to finance growth
externally, distributing a significant portion of our cash available for distribution may impair our ability to grow.
In addition, if we distribute a significant portion of our cash available for distribution, our growth may lag behind the growth of
businesses that reinvest all of their cash to expand ongoing operations. To the extent we issue additional units in connection with
any acquisitions or expansion capital expenditures, the payment of distributions on those additional units may increase the risk
that we will be unable to maintain or increase our per unit distribution level. There are no limitations in our Partnership
Agreement or our credit facility on our ability to issue additional common units, provided there is no default under the credit
facility. The incurrence of additional commercial borrowings or other debt to finance our growth strategy would result in
increased interest expense, which, in turn, may impact the cash available for distribution to our unitholders.
Our Partnership Agreement replaces, eliminates and modifies, as applicable, the duties, including the fiduciary duties, of our
General Partner, the Board or any committee thereof, and modifies the burden of proof in any action brought against the
General Partner, the Board or any committee thereof.
Our Partnership Agreement contains provisions that modify the duties of the General Partner, including the fiduciary duties of the
General Partner, and restricts the remedies available to unitholders for actions taken by our General Partner that might otherwise
constitute breaches of fiduciary duty under Delaware partnership law. For example, our Partnership Agreement:
provides that whenever our General Partner, the Board or any committee of the Board makes a determination or
takes, or declines to take, any other action in its capacity as the general partner of the Partnership, our General Partner
is required to make such determination, or take or decline to take such other action, in good faith, and will not be
subject to any higher standard under any Delaware Act (as defined below), or any other law, rule or regulation, or at
equity;
provides that any determination, act or failure to act by our General Partner will be deemed in good faith unless such
party believed such determination, other action or failure to act, given the totality of the circumstance, was averse to
the interests of the Partnership;
in any proceeding brought by the Partnership, any limited partner, or any Person who acquires an interest in a
Partnership interest or any other Person who is bound by the Partnership Agreement, challenging such action,
determination or failure to act, the Person bringing or prosecuting such proceeding shall have the burden of proving
that such determination, action or failure to act was not in good faith;
provides that whenever the General Partner makes a determination or takes or declines to take any other action in its
individual capacity as opposed to in its capacity as the general partner of the Partnership, whether under the
Partnership Agreement or any other agreement contemplated thereby, then the General Partner, or any affiliate
thereof, is entitled to the fullest extent permitted by law, to make such determination or to take or decline to take such
other action free of any fiduciary duty, duty of good faith, obligation imposed by Delaware Act, law, rule or in equity
to the Partnership, any limited partner or any Person who acquires an interest in a Partnership interest or any other
Person who is bound by the Partnership Agreement. Examples of decisions that our General Partner may make in its
individual capacity include:
how to allocate business opportunities among us and its affiliates;
whether to exercise its call right; and
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whether or not to consent to any merger or consolidation of the Partnership or amendment to the Partnership
Agreement.
provides that our General Partner and its officers and directors will not be liable for monetary damages to the
Partnership or our limited partners resulting from any act or omission unless there has been a final and
non-appealable judgment entered by a court of competent jurisdiction determining that our General Partner or its
officers and directors, as the case may be, acted in bad faith or, in the case of a criminal matter, acted with knowledge
that the conduct was criminal;
provides that the General Partner may consult with legal counsel, accountants, appraisers, management consultants,
investment bankers and other consultants and advisers selected by it, and any act taken or omitted in reliance upon the
advice or opinion (including an opinion of counsel) of such persons as to matters that the General Partner reasonably
believes to be within such person’s professional or expert competence shall be conclusively presumed to have been
done or omitted in good faith and in accordance with such advice or opinion; and
provides that our General Partner will not be in breach of its obligations under the Partnership Agreement or its
fiduciary duties to us or our limited partners if a transaction with an affiliate or the resolution of a conflict of interest
is:
approved by the independent conflicts committee of the Board, although our General Partner is not obligated to
seek such approval; or
approved by the vote of a majority of the outstanding common units, excluding any common units owned by
our General Partner and its affiliates.
By purchasing a common unit, a unitholder is treated as having consented to the provisions in the Partnership Agreement,
including the provisions discussed above.
Our General Partner’s affiliates, including the Topper Group, may compete with us.
Our Partnership Agreement provides that our General Partner will be restricted from engaging in any business activities other
than acting as our General Partner and those activities incidental to its ownership interest in us. Except as provided in the Topper
Group Omnibus Agreement, affiliates of our General Partner are not prohibited from engaging in other businesses or activities,
including those that might be in direct competition with us.
Pursuant to the terms of our Partnership Agreement, the doctrine of corporate opportunity, or any analogous doctrine, does not
apply to our General Partner, the Topper Group or any of their affiliates, including their executive officers and directors. Any such
person or entity that becomes aware of a potential transaction, agreement, arrangement or other matter that may be an opportunity
for us will not have any duty to communicate or offer such opportunity to us. Any such person or entity will not be liable to us or
to any limited partner for breach of any fiduciary duty or other duty by reason of the fact that such person or entity pursues or
acquires such opportunity for itself, directs such opportunity to another person or entity or does not communicate such
opportunity or information to us. This may create actual and potential conflicts of interest between us and affiliates of our General
Partner and result in less than favorable treatment of our unitholders and us. Conflicts of interest may arise in the future between
us and our unitholders, on the one hand, and the affiliates of our General Partner and the Topper Group, on the other hand. In
resolving these conflicts, the Topper Group may favor its own interests over the interests of our unitholders.
Holders of our common units have limited voting rights and are not entitled to elect our General Partner or the directors of the
Board, which could reduce the price at which the common units will trade.
Unlike the holders of common stock in a corporation, unitholders have only limited voting rights on matters affecting our
business and, therefore, limited ability to influence management’s decisions regarding our business. Unitholders will have no
right on an annual or ongoing basis to elect or remove the members of our Board. The Board, including the independent directors,
is chosen entirely by the Topper Group, as a result of its ownership of all the membership interests in the sole member of our
General Partner, and not by our unitholders. Unlike publicly traded corporations, we will not conduct annual meetings of our
unitholders to elect directors or conduct other matters routinely conducted at annual meetings of stockholders of corporations. As
a result of these limitations, the price at which the common units will trade could be diminished because of the absence or
reduction of a takeover premium in the trading price.
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Even if holders of our common units are dissatisfied, they may not be able to remove our General Partner.
If our unitholders are dissatisfied with the performance of our General Partner, they will have limited ability to remove our
General Partner. The vote of the holders of at least 66 2(cid:187)3% of all outstanding common units voting together as a single class is
required to remove our General Partner. As of February 22, 2021, the Topper Group beneficially owned approximately 48.9% of
our outstanding common units.
Our General Partner interest or the control of our General Partner may be transferred to a third party without unitholder
consent.
Our General Partner may transfer its General Partner interest to a third party in a merger or in a sale of all or substantially all of its
assets without the consent of our unitholders. Furthermore, our Partnership Agreement does not restrict the ability of the Topper
Group to transfer its membership interests in the sole member of our General Partner to a third party. The new members of our
General Partner would then be in a position to replace the Board and executive officers of our General Partner with their own
designees and thereby exert significant control over the decisions taken by the Board and executive officers of our General
Partner. This effectively permits a “change of control” without the vote or consent of the unitholders.
Our General Partner has a call right that may require unitholders to sell their common units at an undesirable time or price.
If at any time our General Partner and its affiliates hold more than 80% of the common units, our General Partner will have the
right, but not the obligation, which it may assign to any of its affiliates or to us, to acquire all, but not less than all, of the common
units held by unaffiliated persons at a price equal to the greater of (1) the average of the daily closing price of the common units
over the 20 trading days preceding the date that is three days before notice of exercise of the call right is first mailed and (2) the
highest per-unit price paid by our General Partner or any of its affiliates for common units during the 90-day period preceding the
date such notice is first mailed. As a result, unitholders may be required to sell their common units at an undesirable time or price
and may not receive any return or a negative return on their investment. Unitholders may also incur a tax liability upon a sale of
their units. Our General Partner is not obligated to obtain a fairness opinion regarding the value of the common units to be
repurchased by it upon exercise of the call right. There is no restriction in our Partnership Agreement that prevents our General
Partner from issuing additional common units and exercising its call right. If our General Partner exercised its call right, the effect
would be to take us private and, following the deregistering of the units, we would no longer be subject to the reporting
requirements of the Exchange Act. As of February 22, 2021, the Topper Group beneficially owned approximately 48.9% of our
outstanding common units.
The market price of our common units could be adversely affected by sales of substantial amounts of our common units in the
public or private markets, including sales by the Topper Group or other large holders.
As of February 22, 2021, we had 37,868,046 common units outstanding. Sales by the Topper Group or other large holders of a
substantial number of our common units in the public or private markets, or the perception that such sales might occur, could have
a material adverse effect on the price of our common units or could impair our ability to obtain capital through an offering of
equity securities. In addition, we have agreed to provide registration rights to the Topper Group. Under our Partnership
Agreement and pursuant to a registration rights agreement that we have entered into, the Topper Group has registration rights
relating to the offer and sale of any units that it holds, subject to certain limitations.
We may issue unlimited additional units without unitholder approval, which would dilute existing unitholder ownership
interests.
Our Partnership Agreement does not limit the number of additional limited partner interests, including limited partner interests
that rank senior to the common units that we may issue at any time without the approval of our unitholders. The issuance of
additional common units or other equity interests of equal or senior rank could have the following effects:
our existing unitholders’ proportionate ownership interest in us will decrease;
the amount of cash available for distribution on each unit may decrease;
the risk that a shortfall in the payment of the minimum quarterly distribution will be borne by our common
unitholders will increase;
the ratio of taxable income to distributions may increase;
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the relative voting strength of each previously outstanding unit may be diminished;
the claims of the common unitholders to our assets in the event of our liquidation may be subordinated and/or diluted;
and
the market price of our common units may decline.
Our General Partner’s discretion in establishing cash reserves may reduce the amount of cash available for distribution to
unitholders.
The Partnership Agreement requires our General Partner to deduct from operating surplus cash reserves that it determines are
necessary to fund our future operating expenditures. The General Partner may reduce cash available for distribution by
establishing cash reserves for the proper conduct of our business, to comply with applicable law or agreements to which we are a
party or to provide funds for future distributions to partners. These cash reserves will affect the amount of cash available for
distribution to unitholders.
Our Partnership Agreement restricts the voting rights of unitholders owning 20% or more of our common units.
Our Partnership Agreement restricts unitholders’ voting rights by providing that any units held by a person or group that owns
20% or more of any class of units then outstanding, other than our General Partner and its affiliates, their transferees and persons
who acquired such units with the prior approval of the Board, cannot vote on any matter.
Management fees and cost reimbursements due to our General Partner and the Topper Group for services provided to us or
on our behalf will reduce cash available for distribution to our unitholders. The amount and timing of such reimbursements
will be determined by our General Partner.
Prior to making any distribution on our common units, we will pay the Topper Group the management fee and reimburse our
General Partner and the Topper Group for all out-of-pocket third-party expenses they incur and payments they make on our
behalf, pursuant to the Topper Group Omnibus Agreement. Our Partnership Agreement provides that our General Partner will
determine in good faith the expenses that are allocable to us. In addition, pursuant to the Topper Group Omnibus Agreement, the
Topper Group will be entitled to reimbursement for certain expenses that they incur on our behalf. Our Partnership Agreement
does not limit the amount of expenses for which our General Partner and the Topper Group may be reimbursed. The
reimbursement of expenses and payment of fees, if any, to our General Partner and the Topper Group will reduce the amount of
cash available to pay distributions to our unitholders.
Unitholders may have liability to repay distributions and in certain circumstances may be personally liable for the obligations
of the Partnership.
Under certain circumstances, unitholders may have to repay amounts wrongfully returned or distributed to them. Under
Section 17-607 of the Delaware Revised Uniform Limited Partnership Act (the “Delaware Act”), we may not make a distribution
to our unitholders if the distribution would cause our liabilities to exceed the fair value of our assets. Delaware law provides that
for a period of three years from the date of the impermissible distribution, limited partners who received the distribution and who
knew at the time of the distribution that it violated Delaware law will be liable to the limited partnership for the distribution
amount. Liabilities to partners on account of their partnership interests and liabilities that are non-recourse to the Partnership are
not counted for purposes of determining whether a distribution is permitted.
It may be determined that the right, or the exercise of the right by the limited partners as a group, to (i) remove or replace our
General Partner, (ii) approve some amendments to our Partnership Agreement or (iii) take other action under our Partnership
Agreement constitutes “participation in the control” of our business. A limited partner that participates in the control of our
business within the meaning of the Delaware Act may be held personally liable for our obligations under the laws of Delaware, to
the same extent as our General Partner. This liability would extend to persons who transact business with us under the reasonable
belief that the limited partner is a General Partner. Neither our Partnership Agreement nor the Delaware Act specifically provides
for legal recourse against our General Partner if a limited partner were to lose limited liability through any fault of our General
Partner.
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The NYSE does not require a publicly traded partnership like us to comply with certain of its corporate governance
requirements.
Our common units are listed on the NYSE. Because we are a publicly traded partnership, the NYSE does not require us to have,
and we do not intend to have, a majority of independent directors on our Board or to establish and maintain a compensation
committee or a nominating and corporate governance committee. Additionally, any future issuance of additional common units or
other securities, including to our affiliates, will not be subject to the NYSE’s shareholder approval rules that apply to a
corporation. Accordingly, unitholders will not have the same protections afforded to corporations (other than “controlled
companies”) that are subject to all of the NYSE corporate governance requirements.
Tax Risks
Our tax treatment depends in large part on our status as a partnership for U.S. federal income tax purposes and our otherwise
not being subject to a material amount of U.S. federal, state and local income or franchise tax. If the IRS were to treat us as a
corporation for U.S. federal income tax purposes or if we were to otherwise be subject to a material amount of additional
entity level income, franchise or other taxation for U.S. federal, state or local tax purposes, then our cash available for
distribution to our unitholders would be substantially reduced.
The anticipated after-tax benefit of an investment in our common units depends largely on our being treated as a partnership for
U.S. federal income tax purposes. First, a partnership is exempt from U.S. federal income tax, and the partnership’s income is
instead allocated to the partners for inclusion on their tax returns. Second, under the Tax Cuts and Jobs Act, the partner may also
deduct from the partnership’s taxable income allocable to such partner an amount equal to 20% of such qualified business income
(subject to certain limits), resulting in a lower effective tax rate for the partner with respect to the partnership’s income. A publicly
traded partnership, such as us, may be treated as a corporation, instead of being treated as a partnership, for U.S. federal income
tax purposes unless 90% or more of its gross income for every taxable year it is publicly traded consists of qualifying income.
Based on our current operations we believe that we will be able to satisfy this requirement and, thus, be treated as a partnership,
rather than a corporation, for U.S. federal income tax purposes. However, a change in our business, or a change in current law,
could also cause us to be treated as a corporation for U.S. federal income tax purposes or otherwise subject us to entity-level
taxation.
If we were required to be treated as a corporation for U.S. federal income tax purposes or otherwise subject to entity-level
taxation, then we would pay U.S. federal income tax on our taxable income at the corporate tax rate which, under current law, is
21%. We would also likely pay state and local income tax at varying rates. Distributions to our unitholders would generally be
taxed again as either a dividend (to the extent of our current and accumulated earnings and profits) and/or as taxable gain after
recovery of a unitholder’s U.S. federal income tax basis in their units, and no income, gains, losses, deductions or credits would
flow through to our unitholders. Because a U.S. federal income tax would be imposed upon us as a corporation, our cash available
for distribution to our unitholders would be substantially reduced. Thus, treatment of us as a corporation would result in a material
reduction in the anticipated cash flow and after-tax return to our unitholders.
At the state level, were we to be subject to federal income tax, we would also be subject to the income tax provisions of many
states. Moreover, because of widespread state budget deficits and other reasons, several states are evaluating ways to
independently subject partnerships to entity-level taxation through the imposition of state income taxes, franchise taxes and other
forms of taxation. Imposition of any additional such taxes on us or an increase in the existing tax rates would reduce the cash
available for distribution to our unitholders.
Our Partnership Agreement provides that if a law is enacted or existing law is modified or interpreted in a manner that results in us
becoming subject to either: (a) entity-level taxation for U.S. federal, state, local and/or foreign income and/or withholding tax
purposes to which we were not subject prior to such enactment, modification or interpretation, and/or (b) an increased amount of
one or more of such taxes (including as a result of an increase in tax rates), then the minimum quarterly distribution amounts and
the target distribution amounts may be adjusted (i.e., reduced) to reflect the impact of that law on us.
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We have subsidiaries that are treated as corporations for U.S. federal income tax purposes and are subject to entity-level U.S.
federal, state and local income and franchise tax.
We conduct a portion of our operations and business through one or more direct and indirect subsidiaries that are treated as C
corporations for federal income tax purposes (including LGWS). We may elect to conduct additional operations through these
corporate subsidiaries in the future. These corporate subsidiaries are subject to corporate-level taxes, at the corporate tax rate,
which is currently 21%, and will also likely be subject to state (and possibly local) income tax at varying rates, on their taxable
income. Any such entity level taxes will reduce the cash available for distribution to us and, in turn, to unitholders. If the IRS were
to successfully assert that these corporations have more tax liability than we anticipate or legislation were enacted that increased
the corporate tax rate, our cash available for distribution to unitholders would be further reduced. Distributions from any such C
corporation will generally be taxed again to unitholders as dividend income to the extent of current and accumulated earnings and
profits of such C corporation. The maximum federal income tax rate applicable to qualified dividend income that is allocable to
individuals is 20%. An individual unitholders’ share of dividend and interest income from LGWS or other C corporation
subsidiaries would constitute portfolio income that could not be offset by the unitholders’ share of our other losses or deductions.
The tax treatment of publicly traded partnerships or an investment in our common units could be subject to potential
legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis.
The present U.S. federal income tax treatment of publicly traded partnerships, including us, or of an investment in our common
units may be modified by administrative, legislative or judicial changes or differing interpretations at any time. For example, from
time to time, members of Congress propose and consider such substantive changes to the existing federal income tax laws that
affect publicly traded partnerships. If successful, these proposals or other similar proposals could eliminate the qualifying income
exception upon which we rely for our treatment as a partnership for U.S. federal income tax purposes.
Any modification to the U.S. federal income tax laws may be applied retroactively and could make it more difficult or impossible
for us to be treated as a partnership for U.S. federal income tax purposes. We are unable to predict whether any of these changes
or other proposals will ultimately be enacted. Any such changes could negatively impact the value of an investment in our
common units.
If the IRS contests the U.S. federal income tax positions we take, the market for our common units may be adversely impacted and
the costs of any contest will reduce our cash available for distribution to our unitholders. We have not requested any ruling from
the IRS with respect to our treatment as a partnership for U.S. federal income tax purposes or any other U.S. federal income tax
matter affecting us. The IRS may adopt positions that differ from the conclusions of our counsel expressed in our disclosures or
from the positions we take. It may be necessary to resort to administrative or court proceedings to sustain some or all of our
counsel’s conclusions or the positions we take, and such positions may not ultimately be sustained. A court may not agree with
some or all of our counsel’s conclusions or the positions we take. Any contest with the IRS may materially and adversely impact
the market for our common units and the price at which they trade. In addition, the costs of any contest with the IRS, which will be
borne indirectly by our unitholders and our General Partner, will result in a reduction in cash available for distribution.
Our unitholders are required to pay taxes on their share of income from us even if they do not receive any cash distributions
from us. A unitholder's share of our taxable income, and its relationship to any distributions we make, may be affected by a
variety of factors, including our economic performance, transactions in which we engage or changes in law and may be
substantially different from any estimate we make in connection with a unit offering.
Our unitholders are required to pay U.S. federal income taxes and, in some cases, state and local taxes, on their allocable share of
our taxable income and gain even if they do not receive any cash distributions from us. Our unitholders may not receive cash
distributions from us equal to their share of our taxable income or even equal to the actual tax due with respect to that income.
A unitholder’s share of our taxable income, and its relationship to any distributions we make, may be affected by a variety of
factors, including our economic performance, which may be affected by numerous business, economic, regulatory, legislative,
competitive and political uncertainties beyond our control, and certain transactions in which we might engage. For example, we
may engage in transactions that produce substantial taxable income allocations to some or all of our unitholders without a
corresponding increase in cash distributions to our unitholders, such as a sale or exchange of assets, the proceeds of which are
reinvested in our business or used to reduce our debt, or an actual or deemed satisfaction of our indebtedness for an amount less
than the adjusted issue price of the debt. A unitholder’s ratio of its share of taxable income to the cash received by it may also be
affected by changes in law.
35
From time to time, in connection with an offering of our common units, we may state an estimate of the ratio of federal taxable
income to cash distributions that a purchaser of our common units in that offering may receive in a given period. These estimates
depend in part on factors that are unique to the offering with respect to which the estimate is stated, so the expected ratio
applicable to other common units will be different, and in many cases less favorable, than these estimates. Moreover, even in the
case of common units purchased in the offering to which the estimate relates, the estimate may be incorrect, due to the
uncertainties described above, challenges by the IRS to tax reporting positions which we adopt, or other factors. The actual ratio
of taxable income to cash distributions could be higher or lower than expected, and any differences could be material and could
materially affect the value of our common units.
Unitholders may be subject to limitation on their ability to deduct interest expense incurred by us.
In general, we are entitled to a deduction for interest paid or accrued on indebtedness properly allocable to our trade or business
during our taxable year. Under the Tax Cuts and Jobs Act, for taxable years beginning after December 31, 2017, our deduction for
“business interest” is limited to the sum of our business interest income and 30% of our “adjusted taxable income.” However, the
CARES Act increased the limitation for tax year 2020 to 50% of our adjusted taxable income. For purposes of this limitation, our
adjusted taxable income is computed without regard to any business interest expense or business interest income, and in the case
of taxable years beginning before January 1, 2022, any deduction allowable for depreciation, amortization or depletion.
Tax gain or loss on the disposition of our common units could be more or less than expected.
If a unitholder sells common units, the unitholder will recognize a gain or loss equal to the difference between the amount realized
and that unitholder’s tax basis in those common units. Distributions per common unit in excess of a unitholder’s allocable share of
our net taxable income result in a decrease in that unitholder’s tax basis in its common units. The amount of this decreased tax
basis, with respect to the units sold will, in effect, become taxable income to that unitholder, if that unitholder sells such units at a
price greater than that unitholder’s tax basis in those units, even if the sales price received is less than the original cost.
Furthermore, a substantial portion of the amount realized, whether or not representing gain, may be taxed as ordinary income due
to potential recapture of depreciation and amortization deductions and certain other items. In addition, because the amount
realized includes a unitholder’s share of our non-recourse liabilities, if a unitholder sells units, that unitholder may incur a tax
liability in excess of the amount of cash received from the sale.
Tax-exempt organizations and non-U.S. persons face unique tax issues from owning common units that may result in adverse
tax consequences to them.
Investment in our common units by an organization that is exempt from U.S. federal income tax, such as employee benefit plans,
individual retirement accounts and non-U.S. persons raises issues unique to them. For example, a substantial amount of our U.S.
federal taxable income and gain constitute gross income from an unrelated trade or business and the amount thereof allocable to a
tax-exempt organization would be taxable to such organization as unrelated business taxable income. Distributions to a non-U.S.
person that holds our common units will be reduced by U.S. federal withholding taxes imposed at the highest applicable U.S.
federal income tax rate and such non-U.S. person will be required to file U.S. federal income tax returns and pay U.S. federal
income tax, to the extent not previously withheld, on his, her or its allocable share of our taxable income and gain.
Under the recently enacted Tax Cuts and Jobs Act, if a unitholder sells or otherwise disposes of a common unit, the transferee is
required to withhold 10% of the amount realized by the transferor unless the transferor certifies that it is not a foreign person, and
we are required to deduct and withhold from the transferee amounts that should have been withheld by the transferee but were not
withheld. However, the Department of the Treasury and the IRS have determined that this withholding requirement should not
apply to any disposition of a publicly traded interest in a publicly traded partnership (such as us) until regulation or other guidance
has been issued clarifying the application of this withholding requirement to dispositions of interests in publicly traded
partnerships. Accordingly, while this new withholding requirement does not currently apply to interests in us, there can be no
assurance that such requirement will not apply in the future.
Any tax-exempt organization or a non-U.S. person should consult its tax advisor before investing in our common units.
36
Our unitholders are subject to state and local income taxes and return filing requirements in states and localities where they
do not live as a result of investing in our common units.
In addition to U.S. federal income taxes, our unitholders will likely be subject to other taxes, such as state and local income taxes,
unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we
do business or own property, even if they do not live in any of those jurisdictions. Our unitholders will likely be required to file
state and local income tax returns and pay state and local income taxes in some or all of these various jurisdictions. Further, our
unitholders may be subject to penalties for failure to comply with those requirements. We currently conduct business in 34 states
(see “Item 2. Properties”). Each unitholder must assess the need to file and pay income tax in these states on their allocated share
of partnership taxable income. We may own property or conduct business in other states, localities or foreign countries in the
future. It is the responsibility of each unitholder to file all U.S. federal, state, local and foreign tax returns. In certain states, tax
losses may not produce a tax benefit in the year incurred and also may not be available to offset income in subsequent tax years.
Some states may require us, or we may elect, to withhold a percentage of income from amounts to be distributed to a unitholder
not otherwise exempt from withholding, who is not a resident of the state. Withholding, the amount of which may be greater or
less than a particular unitholders’ income tax liability to the state, generally does not relieve a nonresident unitholder from the
obligation to file a state income tax return. Amounts withheld may be treated as if distributed to unitholders for purposes of
determining the amounts distributed by us. Our counsel has not rendered an opinion on the state, local or non-U.S. tax
consequences of an investment in our common units.
We will treat each purchaser of our common units as having the same tax benefits without regard to the actual common units
purchased. The IRS may challenge this treatment, which could adversely affect the value of the common units.
Because we cannot match transferors and transferees of common units, we will adopt depreciation and amortization positions that
may not conform to all aspects of existing Treasury Regulations. A successful IRS challenge to those positions could adversely
affect the amount of U.S. federal income tax benefits available to our unitholders. It also could affect the timing of these tax
benefits or the amount of gain for U.S. federal income tax purposes from any sale of common units and could have a negative
impact on the value of our common units or result in audit adjustments to a unitholder’s U.S. federal income tax returns.
We prorate our items of income, gain, loss and deduction for U.S. federal income tax purposes and allocate them between
transferors and transferees of our common units each month based upon the ownership of our common units on the first
business day of each month and as of the opening of the applicable exchange on which our common units are listed, instead of
on the basis of the date a particular common unit is transferred. The IRS may challenge this treatment, which could change
the allocation of items of income, gain, loss and deduction among our unitholders.
We generally prorate our items of income, gain, loss and deduction between transferors and transferees of our common units each
month based upon the ownership of our common units on the first day of each month, instead of on the basis of the date a
particular common unit is transferred. Treasury Regulations allow a similar monthly convention, but such regulations do not
specifically authorize the use of the proration method we have adopted. If the IRS were to successfully challenge our proration
method, we may be required to change the allocation of items of income, gain, loss and deduction among our unitholders.
If a unitholder loans their common units to a short seller to cover a short sale of common units, they may be considered to
have disposed of those common units for U.S. federal income tax purposes. If so, the unitholder would no longer be treated for
U.S. federal income tax purposes as a partner with respect to those common units during the period of the loan and they may
recognize gain or loss from such deemed disposition.
Because a unitholder whose common units are loaned to a “short seller” to cover a short sale of common units may be considered
as having disposed of the loaned common units, the unitholder may no longer be treated for federal income tax purposes as a
partner with respect to those common units during the period of the loan to the short seller and the unitholder may recognize gain
or loss from such disposition. Moreover, during the period of the loan of common units to the short seller, any of our income, gain,
loss or deduction with respect to such common units may not be reportable by the respective unitholder, and any cash
distributions received by the unitholder as to those common units could be fully taxable to them as ordinary income. Unitholders
desiring to assure their status as partners and avoid the risk of gain recognition from a loan to a short seller are urged to consult a
tax advisor to discuss whether it is advisable to modify any applicable brokerage account agreements to prohibit their brokers
from loaning their common units.
37
We have adopted certain valuation methodologies that may result in a shift of income, gain, loss and deduction between our
General Partner and the unitholders. The IRS may challenge this treatment, which could adversely affect the value of the
common units.
When we issue additional units or engage in certain other transactions, our General Partner will determine the fair market value of
our assets and allocate any unrealized gain or loss attributable to our assets to the capital accounts of our unitholders and our
General Partner. Although we may from time to time consult with professional appraisers regarding valuation matters, including
the valuation of our assets, our General Partner will make many of the fair market value determinations of our assets using a
methodology based on the market value of our common units as a means to measure the fair market value of our assets. Our
methodology may be viewed as understating or overstating the value of our assets. In that case, there may be a shift of income,
gain, loss and deduction between certain unitholders and our General Partner, which may be unfavorable to such unitholders. The
IRS may challenge our valuation methods and allocations of income, gain, loss and deduction between our General Partner and
certain of our unitholders.
A successful IRS challenge to these methods or allocations could adversely affect the amount of taxable income, gain or loss
being allocated to our unitholders for U.S. federal income tax purposes. It also could affect the amount of taxable gain from our
unitholders’ sale of common units and could have a negative impact on the value of the common units or result in audit
adjustments to our unitholders’ U.S. federal income tax returns without the benefit of additional deductions.
If the IRS makes audit adjustments to our income tax returns for tax years beginning after 2017, it (and some states) may
assess and collect any resulting taxes (including any applicable penalties and interest) directly from us, in which case we may
require our unitholders and former unitholders to reimburse us for such taxes (including any applicable penalties or interest)
or, if we are required to bear such payment, our cash available for distribution to our unitholders might be substantially
reduced.
Pursuant to the Bipartisan Budget Act of 2015, if the IRS makes audit adjustments to our income tax returns for tax years
beginning after 2017, it (and some states) may assess and collect any resulting taxes (including any applicable interest and
penalties) directly from us. We will generally have the ability to shift any such tax liability to our General Partner and our
unitholders in accordance with their interests in us during the year under audit, but there can be no assurance that we will be able
to do so (or will choose to do so) under all circumstances, or that we will be able to (or choose to) effect corresponding shifts in
state income or similar tax liability resulting from the IRS adjustment in states in which we do business in the year under audit or
in the adjustment year. If we make payments of taxes, penalties and interest resulting from audit adjustments, we may require our
unitholders and former unitholders to reimburse us for such taxes (including any applicable penalties or interest) or, if we are
required to bear such payment, our cash available for distribution to our unitholders might be substantially reduced. Additionally,
we may be required to allocate an adjustment disproportionately among our unitholders, causing the publicly traded units to have
different capital accounts, unless the IRS issues further guidance.
In the event the IRS makes an audit adjustment to our income tax returns and we do not or cannot shift the liability to our
unitholders in accordance with their interests in us during the year under audit, we will generally have the ability to request that
the IRS reduce the determined underpayment by reducing the suspended passive loss carryovers of our unitholders (without any
compensation from us to such unitholders), to the extent such underpayment is attributable to a net decrease in passive activity
losses allocable to certain partners. Such reduction, if approved by the IRS, will be binding on any affected unitholders.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The following table shows the aggregate number of sites we owned or leased by customer group at December 31, 2020:
Owned
Sites
Leased
Sites
Total
Sites
Percentage
of
Total Sites
67 %
1 %
18 %
14 %
100 %
742
313
—
11
195
44
108
150
465 1,098
Lessee dealers
Circle K
Commission agents
Company operated
Total
429
11
151
42
633
38
We conduct business at sites located in Alabama, Arkansas, Colorado, Delaware, Florida, Georgia, Illinois, Indiana, Kansas,
Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Mississippi, New Hampshire, New
Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, South Dakota,
Tennessee, Texas, Virginia, West Virginia and Wisconsin.
The following table provides a history of our sites acquired, changes between customer groups or sold during 2020:
Lessee
Dealers
DMS
Circle K
Commission
Agents
Number at beginning of year
Acquired
Changes between customer groups
Divested
Number at end of year (a)
716
90
(37 )
(27 )
742
68
—
(66 )
(2 )
—
46
—
(1 )
(34 )
11
Company
Operated Total
—
62
92
(4 )
150
1,003
170
—
(75 )
1,098
173
18
12
(8 )
195
(a)
Excludes independent commission sites and includes sites where we collect rent but to which we do not distribute motor fuel and closed
sites.
Our principal executive offices are in Allentown, Pennsylvania in approximately 47,000 square feet of leased office space.
ITEM 3. LEGAL PROCEEDINGS
We are from time to time party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of
business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract, property
damages, environmental damages, employment-related claims and damages, punitive damages, civil penalties or other losses, or
injunctive or declaratory relief. With respect to all such lawsuits, claims and proceedings, we record a reserve when it is probable
that a liability has been incurred and the amount of loss can be reasonably estimated. In addition, we disclose matters for which
management believes a material loss is at least reasonably possible. None of these proceedings, separately or in the aggregate, are
expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows. In all
instances, management has assessed the matter based on current information and made a judgment concerning its potential
outcome, giving due consideration to the nature of the claim, the amount and nature of damages sought and the probability of
success. Management’s judgment may prove materially inaccurate, and such judgment is made subject to the known uncertainties
of litigation.
Additional information regarding legal proceedings is included in Note 18 to the financial statements.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
39
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
As of February 22, 2021, we had 37,868,046 common units outstanding, held by approximately 20 holders of record. Our
common units are listed and trade on the NYSE under the symbol “CAPL.” Included in the number of common units outstanding
are 10,053,028 common units currently owned by the Topper Group, which cannot be transferred absent registration with the
SEC or an available exemption from the SEC’s registration requirements.
Cash Distribution Policy
General
The Board has adopted a policy to make cash distributions per unit each quarter, in an amount determined by the Board following
the end of such quarter. In general, we expect that cash distributed for each quarter will equal cash generated from operations less
cash needed for maintenance capital expenditures, accrued but unpaid expenses (including the management fee to the Topper
Group), reimbursement of expenses incurred by our General Partner, debt service and other contractual obligations and reserves
for future operating and capital needs or for future distributions to our partners. We expect that the Board will reserve excess cash,
from time to time, in an effort to sustain or permit gradual or consistent increases in quarterly distributions. Restrictions in our
credit facility could limit our ability to pay distributions upon the occurrence of certain events. See “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Facility.”
The Board may also determine to borrow to fund distributions in quarters when we generate less cash available for distribution
than necessary to sustain or grow our cash distributions per unit. The factors that we believe will be the primary drivers of our
cash generated from operations are changes in demand for motor fuels, the number of sites to which we distribute motor fuels, the
margin per gallon we are able to generate at such sites and the profitability of sites we own and lease.
Our cash distribution policy, established by our General Partner, is to distribute each quarter an amount at least equal to the
minimum quarterly distribution of $0.4375 per unit on all units ($1.75 per unit on an annualized basis). The distribution declared
by the Board on January 21, 2021 was $0.5250 per unit (or $2.10 per unit on an annualized basis). Our General Partner may
determine at any time that it is in the best interest of our Partnership to modify or revoke our cash distribution policy. Modification
of our cash distribution policy may result in distributions of amounts less than, or greater than, our minimum quarterly
distribution, and revocation of our cash distribution policy could result in no distributions at all. In addition, our credit facility
includes certain restrictions on our ability to make cash distributions.
IDRs
On February 6, 2020, we closed on the Equity Restructuring Agreement that eliminated the IDRs. See Note 23 for further
discussion on the elimination of the IDRs.
Unregistered Sales of Equity Securities and Use of Proceeds
Through February 22, 2021, the Topper Group holds an aggregate 10,053,028 common units that were issued as consideration for
asset purchases, partial settlement of the management fee and the elimination of the IDRs. These units are all restricted and cannot
be transferred absent registration with the SEC or an available exemption from the SEC’s registration requirements. These
issuances were made in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data reflect the operating data for the periods and as of the dates indicated.
To ensure a full understanding, you should read the selected financial data presented below in conjunction with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and accompanying notes
included in this Form 10-K.
40
The financial data below are presented in thousands.
2020
For the Year Ended December 31,
2018
2017
2019
2016
Income Statement Data:
Total revenues
Operating income (a)
Net income (a)
Net income attributable to limited partners (a)
Net income per common unit-basic and diluted (a)
Operating Data:
Wholesale
Average motor fuel distribution sites
Gallons of motor fuel distributed (in millions)
Motor fuel gross margin
Motor fuel gross margin per gallon
Rent income
Retail
Average total system sites
Gallons of motor fuel sold (in millions)
Motor fuel gross margin per gallon
Merchandise gross margin percentage (b)
Other Financial Data (unaudited)
Adjusted EBITDA (c)
Distributable Cash Flow (c)
Distributions paid per common unit
Distribution Coverage (c)
$ 1,932,323 $ 2,149,429 $ 2,445,917 $ 2,094,827 $ 1,869,806
32,171
115,592
10,715
107,456
10,704
107,456
0.22
2.87 $
$
43,322
18,076
18,076
0.51 $
32,419
23,176
23,158
0.56 $
35,012
5,246
5,251
0.11 $
1,612
1,117
$ 102,785 $
0.092 $
$
72,799 $
$
1,256
1,004
71,918 $
0.072 $
81,427 $
1,242
1,047
70,019 $
0.067 $
77,404 $
1,183
1,032
58,844 $
0.057 $
79,344 $
1,128
1,035
54,112
0.052
74,955
306
260
0.049 $
26.0 %
206
160
0.032 $
21.2 %
245
208
0.047 $
21.7 %
168
161
0.045 $
24.4 %
157
160
0.053
24.6 %
$
$ 107,416 $ 103,703 $ 113,352 $ 109,077 $ 103,634
81,628
$ 102,468 $
2.4000
2.1000 $
$
1.02x
1.31x
80,123 $
2.1000 $
1.11x
81,234 $
2.4800 $
0.97x
78,043 $
2.2025 $
1.03x
(a) As further discussed in Notes 2 and 24 to the financial statements, we adopted ASC 842 on lease accounting effective
January 1, 2019, and as a result, our results for 2020 and 2019 are not directly comparable to the results for periods prior to
2019. Most significantly, payments on our previous failed sale-leaseback obligations were characterized as principal and
interest expense in periods prior to 2019. Starting in 2019, these payments are characterized as rent expense.
(b) As further discussed in Note 24 to the financial statements, we reclassified revenues related to certain ancillary items such
as car wash revenue, lottery commissions and ATM commissions from merchandise margin to other revenues for 2019 and
2018 to conform to the current year presentation, which impacted the merchandise gross profit percentages reported for
2019 and 2018. We did not conform 2017 and 2016 to the same presentation.
(c) See reconciliation of non-GAAP financial measures under the heading “Management’s Discussion of Financial Condition
and Results of Operations—Results of Operations—Non-GAAP Financial Measures” below.
Balance Sheet Data:
Cash and cash equivalents
Total current assets
Total assets
Total current liabilities
Long-term debt, excluding current portion
Total liabilities
Total equity
2020
2019
As of December 31,
2018
2017
2016
$
513 $
74,821
1,014,342
146,948
527,299
904,674
109,668
1,780 $
69,386
911,147
112,636
534,859
832,750
78,397
3,191 $
50,862
866,922
88,448
519,276
755,989
110,933
3,897 $
80,506
947,236
93,473
529,147
776,217
171,019
1,350
65,407
931,989
75,133
465,119
711,178
220,811
41
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following MD&A is intended to help the reader understand our results of operations and financial condition. This section is
provided as a supplement to and should be read in conjunction with Items 1, 1A and 8 (which includes our consolidated financial
statements) contained in this report.
MD&A is organized as follows:
Recent Developments—This section describes significant recent developments.
Significant Factors Affecting Our Profitability—This section describes the significant impact on our results of
operations caused by crude oil commodity price volatility, seasonality and acquisition and financing activities.
Results of Operations—This section provides an analysis of our results of operations, including the results of
operations of our business segments and non-GAAP financial measures.
Liquidity and Capital Resources—This section provides a discussion of our financial condition and cash flows. It
also includes a discussion of our debt, capital requirements, other matters impacting our liquidity and capital
resources and an outlook for our business.
New Accounting Policies—This section describes new accounting pronouncements that we have already adopted,
those that we are required to adopt in the future and those that became applicable in the current year as a result of new
circumstances.
Critical Accounting Policies Involving Critical Accounting Estimates—This section describes the accounting
policies and estimates that we consider most important for our business and that require significant judgment.
Purchase of the General Partner by the Topper Group
Recent Developments
As a result of the GP Purchase, 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.
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 22, 2021,
the Topper Group also has beneficial ownership of a 48.9% limited partner interest in the Partnership (see Note 23 for disclosure
regarding the elimination of the IDRs).
Equity Restructuring
On January 15, 2020, the Partnership entered into an Equity Restructuring Agreement (the “Equity Restructuring Agreement”)
with the General Partner and Dunne Manning CAP Holdings II LLC (“DM CAP Holdings”), a wholly owned subsidiary of DMP.
Pursuant to the Equity Restructuring Agreement, all of the outstanding IDRs of the Partnership, all of which were held by DM
CAP Holdings, were cancelled and converted into 2,528,673 newly-issued common units representing limited partner interests in
the Partnership based on a value of $45 million and calculated using the volume weighted average trading price of $17.80 per
common unit for the 20-day period ended on January 8, 2020, five business days prior to the execution of the Equity Restructuring
Agreement (the “20-day VWAP”).
This transaction closed on February 6, 2020, after the record date for the distribution payable on the Partnership’s common units
with respect to the fourth quarter of 2019.
Simultaneously with the closing of the equity restructuring, the General Partner executed and delivered the Second Amended and
Restated Agreement of Limited Partnership of the Partnership (the “Second Amended and Restated Partnership Agreement”) to
give effect to the Equity Restructuring Agreement.
42
The Second Amended and Restated Partnership Agreement amended and restated the First Amended and Restated Agreement of
Limited Partnership of the Partnership, dated as of October 30, 2012, as amended, in its entirety to, among other items, (i) reflect
the cancellation of the IDRs and (ii) eliminate certain legacy provisions that no longer apply, including provisions related to the
IDRs and subordinated units of the Partnership that were formerly outstanding.
The terms of the Equity Restructuring Agreement were approved by the independent conflicts committee of the Board.
Asset Exchange Transactions with Circle K
During the third quarter of 2020, we completed the asset exchanges contemplated under the Asset Exchange Agreement entered
into with Circle K on December 17, 2018 (the “Asset Exchange Agreement”).
In the first asset exchange, which closed on May 21, 2019, Circle K transferred to the Partnership 60 (52 fee; 8 leased) U.S.
company operated convenience and fuel retail stores (“CK Properties”) having an aggregate fair value of approximately $58.1
million, and the Partnership transferred to Circle K 17 company operated properties and the real property for eight of the master
lease properties (“CAPL Properties”) having an aggregate fair value of approximately $58.3 million.
In the second asset exchange, which closed on September 5, 2019, Circle K transferred to the Partnership 56 (51 fee; 5 leased) CK
Properties having an aggregate fair value of approximately $50.2 million, and the Partnership transferred to Circle K the real
property for 19 CAPL Properties having an aggregate fair value of approximately $51.4 million.
In the third asset exchange, which closed February 25, 2020, Circle K transferred to the Partnership ten (all fee) U.S. company
operated convenience and fuel retail stores having an aggregate fair value of approximately $11.0 million, and the Partnership
transferred to Circle K the real property for five CAPL Properties having an aggregate fair value of approximately $10.3 million.
In the fourth asset exchange, which closed April 7, 2020, Circle K transferred to the Partnership 13 (11 fee; 2 leased) CK
Properties having an aggregate fair value of approximately $13.1 million, and the Partnership transferred to Circle K the real
property for seven CAPL Properties having an aggregate fair value of approximately $12.8 million.
In the fifth asset exchange, which closed May 5, 2020, Circle K transferred to the Partnership 29 (22 fee; 7 leased) CK Properties
having an aggregate fair value of approximately $31.5 million, and the Partnership transferred to Circle K the real property for 13
of the CAPL Properties having an aggregate fair value of approximately $31.7 million.
In the sixth and final asset exchange, which closed September 15, 2020, Circle K transferred to the Partnership 23 (17 fee; 6
leased) CK Properties having an aggregate fair value of approximately $20.4 million, and the Partnership transferred to Circle K
the real property for four of the CAPL Properties having an aggregate fair value of approximately $20.0 million. Because the sixth
asset exchange represents the final closing contemplated by the Asset Exchange Agreement, Circle K also transferred a $6.7
million cash payment, which included the $0.4 million deficit in fair value between the total properties exchanged, to the
Partnership in connection with the closing, in accordance with the terms of the Asset Exchange Agreement.
In connection with the closing of these asset exchanges, the stores transferred by Circle K were converted to dealer operated sites
as contemplated by the Asset Exchange Agreement and Circle K’s rights under the dealer agreements and agent agreements that
were entered into in connection therewith were assigned to the Partnership.
We accounted for the first two tranches of the asset exchange (that closed in 2019) as transactions between entities under common
control as our General Partner was owned by Circle K at the time of closing on those transactions.
Since our General Partner was acquired by the Topper Group in November 2019, the Partnership and Circle K were not entities
under common control at the time of closing on the third, fourth, fifth and sixth asset exchanges. In connection with these asset
exchanges, we recognized gains on the sales of the CAPL Properties, including the proceeds mentioned above, totaling $19.3
million in the statements of operations for 2020.
See Note 3 to the financial statements for additional information.
43
CST Fuel Supply Exchange Agreement
Effective March 25, 2020, pursuant to the terms of the previously announced CST Fuel Supply Exchange Agreement dated as of
November 19, 2019 (the “CST Fuel Supply Exchange Agreement”), between the Partnership and Circle K, Circle K transferred to
the Partnership 33 owned and leased convenience store properties (the “Properties”) and certain assets (including fuel supply
agreements) relating to such Properties, as well as U.S. wholesale fuel supply contracts covering 331 additional sites (the “DODO
Sites”), subject to certain adjustments, and, in exchange therefore, the Partnership transferred to Circle K all of the limited
partnership units in CST Fuel Supply that were owned by the Partnership, which represent 17.5% of the outstanding units of CST
Fuel Supply (collectively, the “CST Fuel Supply Exchange”). Twelve Properties and 56 DODO Sites (collectively, the “Removed
Properties”) were removed from the Exchange Transaction, and Circle K made an aggregate payment of approximately $14.1
million to us in lieu of the Removed Properties, in each case, pursuant to the terms and conditions of the CST Fuel Supply
Exchange Agreement.
The assets exchanged by Circle K included (a) fee simple title to all land and other real property and related improvements owned
by Circle K at the Properties, (b) Circle K’s leasehold interest in all land and other real property and related improvements leased
by Circle K at the Properties, (c) all buildings and other improvements and permanently attached machinery, equipment and other
fixtures located on the Properties, (d) all tangible personal property owned by Circle K on the Properties, including all
underground storage tanks located on the Properties, (e) all of Circle K’s rights under the dealer agreements related to the
Properties and the DODO Sites, (f) Circle K’s rights under the leases to the leased Properties and all tenant leases and certain other
contracts related to the Properties, (g) all fuel inventory owned by Circle K and stored in the underground storage tanks at
locations operated by dealers that are independent commission marketers, (h) all assignable permits related to the Properties and
related assets owned by Circle K, (i) all real estate records and related registrations and reports and other books and records of
Circle K to the extent relating to the Properties, and (j) all other intangible assets associated with the foregoing assets
(collectively, the “Assets”). The Partnership also assumed certain liabilities associated with the Assets.
The Partnership and Circle K agreed to indemnify each other for, among other things, breaches of their respective representations
and warranties contained in the CST Fuel Supply Exchange Agreement for a period of 18 months after the date of closing (except
for certain fundamental representations and warranties, which survive until the expiration of the applicable statute of limitations)
and for breaches of their respective covenants and for certain liabilities assumed or retained by the Partnership or Circle K,
respectively. The respective indemnification obligations of each of the Partnership and Circle K to the other are subject to the
limitations set forth in the CST Fuel Supply Exchange Agreement.
In connection with the execution of the CST Fuel Supply Exchange Agreement, the Partnership and Circle K also entered into an
Environmental Responsibility Agreement, dated as of November 19, 2019 (the “Environmental Responsibility Agreement”),
which agreement sets forth the parties’ respective liabilities and obligations with respect to environmental matters relating to the
Properties. As further described in the Environmental Responsibility Agreement, Circle K retained liability for known
environmental contamination or non-compliance at the Properties, and the Partnership assumed liability for unknown
environmental contamination and non-compliance at the Properties.
The terms of the CST Fuel Supply Exchange Agreement were approved by the independent conflicts committee of the Board.
In connection with closing on the CST Fuel Supply Exchange, on March 25, 2020, we entered into a limited consent (the
“Consent”) to our credit facility, among the Partnership, the lenders from time to time party thereto and Citizens Bank, N.A., as
administrative agent. Pursuant to the Consent, the lenders consented to the consummation of the CST Fuel Supply Exchange.
The fair value of our investment in CST Fuel Supply that was divested and the Assets acquired was $69.0 million based on a
discounted cash flow analysis. We accounted for the divestiture of our investment in CST Fuel Supply under ASC 860, “Transfers
and Servicing.” We recorded a gain on the divestiture of our investment in CST Fuel Supply of $67.6 million in 2020,
representing the fair value of assets received less the carrying value of the investment exchanged. At the closing of the CST Fuel
Supply Exchange, we divested 100% of our ownership interest in CST Fuel Supply and no longer have any involvement with
CST Fuel Supply.
See Note 4 to the financial statements for additional information.
44
Retail and Wholesale Acquisition
On April 14, 2020, we closed on an asset purchase agreement (“Asset Purchase Agreement”) with the sellers (“Sellers”)
signatories thereto, including certain entities affiliated with the Topper Group that are under common control with the
Partnership. Pursuant to the Asset Purchase Agreement, we expanded the retail operations of the Partnership by 169 sites (154
company operated sites and 15 commission sites) through a combination of (1) entering into new leasing arrangements with
related parties as the lessee for 62 sites and (2) terminating contracts where we were previously the lessor and fuel supplier under
dealer arrangements for 107 sites which, as a result of the Asset Purchase Agreement, are now company operated sites. As a result
of the Asset Purchase Agreement, we have expanded our wholesale fuel distribution by 110 sites, including 53 third-party
wholesale dealer contracts, and supply of the 62 newly leased sites.
The Asset Purchase Agreement provided for an aggregate consideration of $36 million, exclusive of inventory and in-store cash,
with approximately $21 million paid in cash and 842,891 newly-issued common units valued at $15 million and calculated based
on the volume weighted average trading price of $17.80 per common unit for the 20-day period ended on January 8, 2020, five
business days prior to the announcement of the transaction. The 842,891 common units were issued to entities controlled by
Joseph V. Topper, Jr. The cash portion of the purchase price was financed with borrowings under our credit facility.
In connection with the closing of the transactions contemplated under the Asset Purchase Agreement, we assumed certain
contracts with third parties and affiliates necessary for the continued operation of the sites, including agreements with dealers and
franchise agreements. Further, we have entered into customary triple-net ten-year master leases as lessee with certain affiliates of
the Topper Group, with an aggregate annual rent of $8.1 million payable by the Partnership.
In connection with the consummation of the transactions contemplated by the Asset Purchase Agreement, our contracts with one
of the Sellers, DMS, were terminated and DMS is no longer a customer or lessee of the Partnership. As a result, $8.0 million of the
purchase price was accounted for as a loss on lease terminations during 2020. In addition, we wrote off $3.1 million of deferred
rent income related to these same leases, also recorded as a loss on lease terminations during 2020.
In addition, the parties performed Phase I environmental site assessments with respect to certain sites. The Sellers agreed to retain
liability for known environmental contamination or non-compliance at certain sites, and the Partnership agreed to assume liability
for unknown environmental contamination and non-compliance at certain sites.
Further, the Asset Purchase Agreement contains customary representations and warranties of the parties as well as
indemnification obligations by Sellers and the Partnership, respectively, to each other. The indemnification obligations must be
asserted within 18 months of the closing and are limited to an aggregate of $7.2 million for each party.
The terms of the Asset Purchase Agreement were approved by the independent conflicts committee of the Board.
With this transaction, we not only added wholesale fuel contracts to our portfolio but added retail assets and reestablished a retail
capability that enables us to pursue a broader range of acquisition opportunities and provides greater flexibility for optimizing the
class of trade for each asset in our portfolio.
See Note 5 to the financial statements for additional information.
Interest Rate Swap Contracts
The interest payments on our credit facility vary based on monthly changes in the one-month LIBOR and changes, if any, in the
applicable margin, which is based on our leverage ratio as further discussed in Note 13 to the financial statements. To hedge
against interest rate volatility on our variable rate borrowings under the credit facility, on March 26, 2020, we entered into an
interest rate swap contract. The interest rate swap contract has a notional amount of $150 million, a fixed rate of 0.495% and
matures on April 1, 2024. On April 15, 2020, we entered into two additional interest rate swap contracts, each with notional
amounts of $75 million, a fixed rate of 0.38% and that mature on April 1, 2024. All of these interest rate swap contracts have been
designated as cash flow hedges and are expected to be highly effective.
See Note 14 to the financial statements for additional information.
45
Topper Group Omnibus Agreement
On January 15, 2020, the Partnership entered into an Omnibus Agreement, effective as of January 1, 2020 (the “Topper Group
Omnibus Agreement”), 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 agreed, among other things, to provide, or cause to be provided, to the
General Partner for the benefit of the Partnership, at cost without markup, certain management, administrative and operating
services, which services were previously provided by Circle K under the Transitional Omnibus Agreement, dated as of November
19, 2019, among the Partnership, the General Partner and Circle K.
The Topper Group Omnibus Agreement will continue in effect until terminated in accordance with its terms. The Topper Group
has the right to terminate the Topper Group Omnibus Agreement at any time upon 180 days’ prior written notice, and the General
Partner has the right to terminate the Topper Group Omnibus Agreement at any time upon 60 days’ prior written notice.
See Note 16 to the financial statements for additional information.
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 have reached pandemic proportions. The COVID-19 Pandemic poses a threat to the health and economic
wellbeing of employees of the Topper Group that provide services to us, customers, vendors, distribution channels and other
business partners. Currently, our operations have been deemed essential by the state and local governments in which we operate.
Of the 33 states in which we operate, 30 were, at certain points during 2020, under a state mandated stay-at-home order, limiting
our customers to only essential travel. The operation of all of our retail sites is critically dependent on employees of the Topper
Group who staff these locations. To ensure the wellbeing of those employees and their families, we have implemented safety
protocols as outlined by the CDC’s guidelines for the COVID-19 Pandemic to support daily field operations and provided
personal protection equipment to those employees whose positions necessitate them, and we have implemented work from home
policies at our corporate office consistent with CDC guidance to reduce the risks of exposure to the COVID-19 Pandemic while
still supporting our operations.
We do not have fleet operations but rely on common carriers to distribute and deliver our products. Although we have not
experienced significant disruptions to date, if these distribution channels were adversely impacted by the COVID-19 Pandemic,
delivery of our products could be jeopardized. Also, sustained volume decreases and less foot-traffic resulting from the
COVID-19 Pandemic may lead to cash flow constraints at our dealer-operated locations potentially posing increased credit risk
and leading to a default on their fuel supply or lease agreements with us.
Although we have not experienced significant costs to date, we may incur costs related to the implementation of prescribed safety
protocols related to the COVID-19 Pandemic. With the April 14, 2020 closing of our acquisition of retail and wholesale assets, the
Partnership now has 150 company operated sites (see Note 5 to the financial statements for additional information). In the event
there are confirmed diagnoses of COVID-19 within a significant number of these stores, we may incur costs related to the closing
and subsequent cleaning of these stores and the ability to adequately staff the impacted sites. We may also experience reputation
risk as consumers may choose to frequent alternate locations not operated by us.
We experienced a sharp decrease in fuel volume in mid-to-late March. Although fuel volumes recovered during the second half of
2020, they remain below historical levels. For 2020, the negative impact of the volume decrease on fuel gross profit was partially
offset by the positive impact from the decline in crude prices during the second quarter of 2020, which increased DTW margins.
As a result of the implications of COVID-19, we assessed property and equipment, other long-lived assets and goodwill for
impairment and concluded no assets were impaired as of March 31, 2020. No indicators of impairment stemming from the
COVID-19 Pandemic have been identified since. See Note 9 to the financial statements for information regarding impairment
charges related primarily to classifying sites as assets held for sale.
We cannot predict the scope and severity with which COVID-19 will impact our business, financial condition, results of
operations and cash flows. 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.
46
Significant Factors Affecting our Profitability
The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit
Wholesale segment
The prices paid to our motor fuel suppliers for wholesale motor fuel (which affects our cost of sales) are highly correlated to the
price of crude oil. The crude oil commodity markets are highly volatile, and the market prices of crude oil, and, correspondingly,
the market prices of wholesale motor fuel, experience significant and rapid fluctuations. We receive a fixed mark-up per gallon on
approximately 71% of gallons sold to our customers. The remaining gallons are primarily DTW priced contracts with our
customers. These contracts provide for variable, market-based pricing that results in motor fuel gross profit effects similar to retail
motor fuel gross profits (as crude oil prices decline, motor fuel gross profit generally increases, as discussed in our Retail segment
below). The increase in DTW gross profit results from the cost of wholesale motor fuel declining at a faster rate as compared to
the rate that retail motor fuel prices decline. Conversely, our DTW motor fuel gross profit declines when the cost of wholesale
motor fuel increases at a faster rate as compared to the rate that retail motor fuel prices increase.
Regarding our supplier relationships, a majority of our total gallons purchased are subject to Terms Discounts. The dollar value of
these discounts increases and decreases corresponding to motor fuel prices. Therefore, in periods of lower wholesale motor fuel
prices, our gross profit is negatively affected, and, in periods of higher wholesale motor fuel prices, our gross profit is positively
affected (as it relates to these discounts).
Retail segment
We attempt to pass along wholesale motor fuel price changes to our retail customers through “at the pump” retail price changes;
however, market conditions do not always allow us to do so immediately. The timing of any related increase or decrease in “at the
pump” retail prices is affected by competitive conditions in each geographic market in which we operate. As such, the prices we
charge our customers for motor fuel and the gross profit we receive on our motor fuel sales can increase or decrease significantly
over short periods of time.
Changes in our average motor fuel selling price per gallon and gross margin are directly related to the changes in crude oil and
wholesale motor fuel prices. Variations in our reported revenues and cost of sales are, therefore, primarily related to the price of
crude oil and wholesale motor fuel prices and generally not as a result of changes in motor fuel sales volumes, unless otherwise
indicated and discussed below.
We typically experience lower retail motor fuel gross profits in periods when the wholesale cost of motor fuel increases, and
higher retail motor fuel gross profits in periods when the wholesale cost of motor fuel declines.
As previously reported, we converted 46 company operated sites to dealer operated sites in the third quarter of 2019. As a result of
this transition, we did not have any company operated sites for the period from September 30, 2019 through closing on the retail
and wholesale acquisition on April 14, 2020, since which we have again been operating company operated sites.
Seasonality Effects on Volumes
Our business is subject to 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 months) and lowest during the
winter months in the first and fourth quarters.
Impact of Inflation
Inflation affects our financial performance by increasing certain of our operating expenses and cost of goods sold. Operating
expenses include labor costs, leases, and general and administrative expenses. While our Wholesale segment benefits from higher
Terms Discounts as a result of higher fuel costs, inflation could negatively impact our operating expenses. Although we have
historically been able to pass on increased costs through price increases, there can be no assurance that we will be able to do so in
the future.
47
Acquisition and Financing Activity
Our results of operations and financial condition are also impacted by our acquisition and financing activities as summarized
below.
2019
2020
On April 1, 2019, we entered into a new credit facility as further discussed in “Liquidity and Capital
Resources—Debt” and Note 13 to the financial statements. On November 19, 2019, we further amended the new
credit facility to allow for the GP Purchase.
On May 21, 2019 and September 5, 2019, we completed the first two asset exchange transactions with Circle K as
further discussed in Note 3 to the financial statements.
We completed four additional tranches of the asset exchange with Circle K on February 25, 2020, April 7, 2020, May
5, 2020 and September 15, 2020, as further described in Note 3 to the financial statements. With the closing of the
sixth tranche, the transactions contemplated under the Asset Exchange Agreement have concluded.
On February 6, 2020, we closed on the Equity Restructuring Agreement that eliminated the IDRs as further discussed
in Note 23 to the financial statements.
Effective March 25, 2020, we closed on the CST Fuel Supply Exchange as further described in Note 4 to the financial
statements.
On April 14, 2020, we closed on the acquisition of retail and wholesale assets as further described in Note 5 to the
financial statements.
Adoption of ASC 842 on Lease Accounting
As further discussed in Notes 2 and 24 to the financial statements, we adopted ASC 842 effective January 1, 2019, and as a result,
our results for 2020 and 2019 are not directly comparable to the results for 2018. Most significantly, payments on our previous
failed sale-leaseback obligations were characterized as principal and interest expense in periods prior to 2019. Starting in 2019,
these payments are characterized as rent expense. These payments for the Wholesale and Retail segments amounted to
approximately $6.7 million and $0.5 million for 2018, respectively. Of the total payments, $5.5 million was classified as interest
expense in 2018.
Conversion of Our Midwest Company Operated Sites to Lessee Dealers
During the third quarter of 2019, we converted 46 company operated Upper Midwest sites to lessee dealer sites. As a result of this
transition, we did not have any company operated sites from September 30, 2019 through April 14, 2020, the date of closing on
the acquisition of retail and wholesale assets.
Results of Operations
We have omitted discussion of the earliest of the three years covered by our consolidated financial statements presented in this
Annual Report because that disclosure was already included in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2019, filed with the SEC on February 25, 2020. You are encouraged to reference Part II, Item 7, within that report,
for a discussion of our financial condition and results of operations for the year ended December 31, 2019 as compared to the year
ended December 31, 2018.
48
Consolidated Income Statement Analysis
Below is an analysis of our consolidated statements of income and provides the primary reasons for significant increases and
decreases in the various income statement line items from period to period. Our consolidated statements of income are as follows
(in thousands):
Operating revenues
Cost of sales
Gross profit
2020
Year Ended December 31,
2019
$ 1,932,323 $ 2,149,429 $ 2,445,917
1,720,196 1,994,792 2,273,122
172,795
154,637
212,127
2018
Income from CST Fuel Supply equity interests
Operating expenses:
Operating expenses
General and administrative expenses
Depreciation, amortization and accretion expense
Total operating expenses
Gain (loss) on dispositions and lease terminations, net
Operating income
Other income, net
Interest expense
Income before income taxes
Income tax benefit
Net income
Less: net loss attributable to noncontrolling interests
Net income attributable to limited partners
IDR distributions
Net income available to limited partners
3,202
14,768
14,948
90,928
20,991
68,742
180,661
80,924
115,592
503
(16,587 )
99,508
(7,948 )
107,456
—
107,456
(133 )
107,323 $
52,554
16,849
55,032
124,435
(1,648 )
43,322
524
(27,000 )
16,846
(1,230 )
18,076
—
18,076
(533 )
17,543 $
61,919
17,966
66,549
146,434
(6,297 )
35,012
373
(32,872 )
2,513
(2,733 )
5,246
(5 )
5,251
(1,579 )
3,672
$
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Consolidated Results
Operating revenues decreased $217 million or 10%, while operating income increased $72 million or 167%.
Operating revenues
Significant items impacting these results prior to the elimination of intercompany revenues were:
A $377 million (19%) decrease in our Wholesale segment revenues primarily attributable to the decrease in crude oil
prices. The average daily spot price of WTI crude oil decreased 31% to $39.16 per barrel in 2020, compared to
$56.98 per barrel in 2019. The wholesale price of motor fuel is highly correlated to the price of crude oil. See
“Significant Factors Affecting our Profitability—The Significance of Crude Oil and Wholesale Motor Fuel Prices on
Our Revenues, Cost of Sales and Gross Profit.” Volume increased 11% primarily as a result of the volume generated
by the asset exchanges with Circle K, the CST Fuel Supply Exchange and the acquisition of the retail and wholesale
assets (the average number of sites with wholesale fuel distribution increased 28% from 2019 compared to the same
period in 2020), partially offset by the impact of the COVID-19 Pandemic.
A $225 million (49%) increase in our Retail segment revenues primarily attributable to a 62% increase in volume
driven by the increase in company operated and commission sites as a result of the April 2020 acquisition of retail
and wholesale assets and the March 2020 CST Fuel Supply Exchange, partially offset by the divestiture of 17
company operated sites in May 2019 in connection with the first tranche of the asset exchange with Circle K and the
conversion of 46 company operated sites to dealer operated sites in the third quarter of 2019 (the average total system
sites increased 49% from 2019 compared to the same period in 2020). Partially offsetting these increases was a 16%
decrease in the average selling price of motor fuel driven by the decrease in wholesale prices as discussed above. In
addition, merchandise revenue increased $75 million driven by the increase in company operated sites as discussed
above.
49
Intersegment revenues
We present the results of operations of our segments on a consistent basis with how our management views the business.
Therefore, our segments are presented before intersegment eliminations (which consist of motor fuel sold by our Wholesale
segment to our Retail segment). As a result, in order to reconcile to our consolidated change in operating revenues, a discussion of
the change in intersegment revenues is included in our consolidated MD&A discussion.
Our intersegment revenues increased $65 million (21%), primarily attributable to the incremental intersegment revenues
generated by the company operated and commission sites acquired in the April 2020 acquisition of retail and wholesale assets and
the March 2020 CST Fuel Supply Exchange, partially offset by the conversion of 46 company operated sites to dealer operated
sites in the third quarter of 2019 and the decrease in wholesale prices discussed above.
Cost of sales
Cost of sales decreased $275 million (14%) as a result of the decrease in wholesale motor fuel prices and from the divestiture of
17 company operated sites in May 2019 in connection with the first tranche of the asset exchange with Circle K and the
conversion of 46 company operated sites to dealer operated sites discussed above. Partially offsetting this decrease was the impact
of the increase in sites acquired in the asset exchanges with Circle K, the CST Fuel Supply Exchange and the acquisition of retail
and wholesale assets mentioned above. In addition, cost of merchandise sales increased $54 million driven by the increase in
company operated sites as discussed above.
Gross profit
The increase in gross profit was primarily driven by 1) an increase in motor fuel gross profit driven by DTW margins resulting
from the movements in crude prices during the two years as well as the fact that a greater percentage of our wholesale volume is
DTW-priced in 2020 in comparison to 2019; and 2) an increase in company operated sites, which increased merchandise gross
profit. See “Results of Operations—Segment Results” for additional gross profit analyses.
Income from CST Fuel Supply equity interests and Operating expenses
See “Segment Results” for additional analyses.
General and administrative expenses
General and administrative expenses increased $4.1 million (25%) primarily attributable to a $1.4 million increase in
acquisition-related costs driven by the asset exchanges with Circle K, the CST Fuel Supply Exchange and the acquisition of retail
and wholesale assets. In addition, credit loss expense increased $0.8 million and management fees increased $1.9 million related
to the increase in headcount primarily stemming from the April 2020 acquisition of retail and wholesale assets.
Depreciation, amortization and accretion expense
Depreciation, amortization and accretion expense increased $13.7 million (25%) primarily due to $9.1 million of impairment
charges recorded in connection with our ongoing real estate rationalization effort and the resulting reclassification of these sites to
assets held for sale, as compared to $4.5 million for the comparable period of the prior year. In addition, we recorded additional
depreciation and amortization related primarily to the assets acquired in the asset exchanges with Circle K, the CST Fuel Supply
Exchange and the acquisition of retail and wholesale assets.
Gain (loss) on dispositions and lease terminations, net
During 2020, we recorded a $67.6 million gain on the sale of our 17.5% investment in CST Fuel Supply (see Note 4 to the
financial statements for additional information). In addition, we recorded $19.3 million in gains related to the properties sold in
the asset exchanges with Circle K and $6.4 million in gains related to the sale of sites in connection with our ongoing real estate
rationalization effort. Partially offsetting these gains, we recorded a $10.9 million loss on lease terminations, including a write-off
of deferred rent income, in connection with the April 2020 acquisition of retail and wholesale assets (see Note 5 to the financial
statements for additional information).
During 2019, we recorded a $0.5 million loss on the sale of inventory to a third-party multi-site operator in connection with the
conversion of the company operated Upper Midwest sites. In addition, we recorded a $0.6 million loss to write off deferred rent
income related to DMS giving notice to sever 12 sites in early 2020 from the master lease with us. As a result of replacing
dispensers in Alabama as a part of the rebranding effort of those sites, we recorded a $1.0 million loss on disposal. Partially
offsetting these losses was a $0.5 million net gain on sales of assets.
50
Interest expense
Interest expense decreased $10.4 million (39%) primarily driven by a reduction in interest expense on borrowings under our
credit facility due to a decrease in the average interest rate from 4.7% to 2.6%.
Income tax benefit
We recorded an income tax benefit of $7.9 million and $1.2 million for 2020 and 2019, respectively. The benefits were primarily
driven by losses incurred by our taxable subsidiaries and changes in state apportionment. See Note 22 for additional information.
Segment Results
We present the results of operations of our segments consistent with how our management views the business. Therefore, our
segments are presented before intersegment eliminations (which consist of motor fuel sold by our Wholesale segment to our
Retail segment). These comparisons are not necessarily indicative of future results.
Wholesale
The following table highlights the results of operations and certain operating metrics of our Wholesale segment. The narrative
following these tables provides an analysis of the results of operations of that segment (thousands of dollars, except for the
number of distribution sites and per gallon amounts):
Year Ended December 31,
2019
2018
2020
Gross profit:
Motor fuel–third party
Motor fuel–intersegment and related party
Motor fuel gross profit
Rent gross profit (a)
Other revenues
Total gross profit (a)
Income from CST Fuel Supply equity interests (b)
Operating expenses
Operating income (a)
Motor fuel distribution sites (end of period): (c)
Motor fuel–third party
Independent dealers (d)
Lessee dealers (e)
Total motor fuel distribution–third party sites
Motor fuel–intersegment and related party
DMS (related party) (f)
Circle K (g)
Commission agents (Retail segment) (h)
Company operated retail sites (Retail segment) (i)
Total motor fuel distribution–intersegment
and related party sites
Motor fuel distribution sites (average during the
period):
$
45,117 $
26,801
71,918
56,344
2,887
55,864 $
46,921
102,785
50,411
2,344
37,323
32,696
70,019
59,605
3,384
155,540 131,149 133,008
14,948
(30,108 )
$ 123,457 $ 113,299 $ 117,848
3,202
(35,285 )
14,768
(32,618 )
687
653
1,340
369
648
1,017
—
5
208
150
68
28
169
—
362
500
862
86
43
170
63
363
265
362
1,276
336
1,612
938
318
1,256
834
408
1,242
Motor fuel-third party distribution
Motor fuel-intersegment and related party distribution
Total motor fuel distribution sites
Volume of gallons distributed (in thousands)
Third party
Intersegment and related party
Total volume of gallons distributed
845,858 706,759 653,535
270,930 297,235 393,725
1,116,788 1,003,994 1,047,260
Wholesale margin per gallon
$
0.092 $
0.072 $
0.067
51
(a) We adopted ASC 842 effective January 1, 2019 and as a result, results for 2020 and 2019 are not comparable to 2018. See
Notes 2 and 24 to the financial statements for additional information.
(b) Represents income from our equity interest in CST Fuel Supply. See Note 4 to the financial statements for information
(c)
regarding the CST Fuel Supply Exchange.
In addition, as of December 31, 2020 and 2019, we distributed motor fuel to 13 sub-wholesalers who distributed to
additional sites, respectively.
(d) The increase in the independent dealer site count was primarily attributable to the 288 independent dealer contracts
acquired in the CST Fuel Supply Exchange and the asset exchange with Circle K which resulted in 26 Circle K sites being
converted to independent dealers.
(e) The increase in the lessee dealer site count was primarily attributable to the 72 lessee dealer sites acquired in the asset
exchanges with Circle K, the 18 lessee dealer sites acquired in the CST Fuel Supply Exchange and converting sites operated
by DMS to lessee dealer sites, partially offset by the impacts of the acquisition of retail and wholesale assets that resulted in
the termination of leases at 48 lessee dealer sites and the real estate rationalization effort.
(f) The decrease in the DMS site count was primarily attributable to the acquisition of retail and wholesale assets that resulted
in the termination of 54 leases with DMS and the conversion of sites operated by DMS to lessee dealer sites.
(g) The decrease in the Circle K site count was primarily attributable to the asset exchange with Circle K, which resulted in 26
Circle K sites being converted to independent dealer sites.
(h) The increase in the commission site count was primarily attributable to the 37 commission sites acquired in the CST Fuel
(i)
Supply Exchange.
The increase in the company operated site count was primarily attributable to the 154 company operated sites from the
acquisition of retail and wholesale assets.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Gross profit increased $24.4 million (19%), while operating income increased $10.2 million (9%). These results were driven by:
Motor fuel gross profit
The $30.9 million (43%) increase in motor fuel gross profit was primarily driven by DTW margins resulting from the movements
in crude prices during the two years. In addition, particularly with the acquisition of retail and wholesale assets, a greater
percentage of our wholesale volume is DTW-priced in 2020 in comparison to 2019. Volume increased 11% as a result of the asset
exchanges with Circle K, the CST Fuel Supply Exchange and the acquisition of retail and wholesale assets, partially offset by the
impact of the COVID-19 Pandemic. These increases were partially offset by lower terms discounts as a result of lower crude
prices. See “Significant Factors Affecting our Profitability—The Significance of Crude Oil and Wholesale Motor Fuel Prices on
Our Revenues, Cost of Sales and Gross Profit.”
Rent gross profit
Rent gross profit decreased $5.9 million (11%) primarily as a result of terminating leases in connection with the acquisition of
retail and wholesale assets and $0.5 million in short-term rent concessions, partially offset by the impacts from the conversion of
46 company operated sites to dealer operated sites in the third quarter of 2019 and the CST Fuel Supply Exchange.
Income from CST Fuel Supply equity interests
Income from CST Fuel Supply equity interests decreased $11.6 million as a result of the March 2020 CST Fuel Supply Exchange.
See Note 4 to the financial statements for additional information.
Operating expenses
Operating expenses increased $2.7 million (8%) primarily as a result of a $1.1 million increase in environmental costs related to
increased remediation reserves and increased costs in compliance testing and monitoring and a $1.0 million increase in insurance
costs due to the increase in controlled sites as a result of the acquisitions. In addition, we incurred increases in management fees
related to the increase in headcount primarily stemming from the April 2020 acquisition of retail and wholesale assets and a
general increase in operating expenses driven by the increase in the number of controlled sites due particularly to the asset
exchanges with Circle K, the CST Fuel Supply Exchange and the conversion of 46 company operated sites to dealer operated sites
in the third quarter of 2019.
52
Retail
The following table highlights the results of operations and certain operating metrics of our Retail segment. The narrative
following these tables provides an analysis of the results of operations of that segment (thousands of dollars, except for the
number of retail sites, gallons sold per day and per gallon amounts):
Gross profit:
Motor fuel
Merchandise (a)
Rent
Other revenue (a)
Total gross profit
Operating expenses
Operating income
Retail sites (end of period):
Commission agents (b)
Company operated retail sites (c)
Total system sites at the end of the period
Total system operating statistics:
Average retail fuel sites during the period
Motor fuel sales (gallons per site per day)
Motor fuel gross profit per gallon, net of credit card
fees and commissions
Commission agents statistics:
Average retail fuel sites during the period
Motor fuel gross profit per gallon, net of credit card
fees and commissions
Year Ended December 31,
2019
2018
2020
$
$
12,691 $
32,046
7,608
4,626
56,971
(55,643 )
1,328 $
5,147 $
10,169
6,302
1,507
23,125
(19,936 )
3,189 $
9,820
20,375
6,314
3,731
40,240
(31,811 )
8,429
208
150
358
169
—
169
170
63
233
306
2,316
206
2,127
245
2,327
$
0.049 $
0.032 $
0.047
199
170
177
$
0.015 $
0.015 $
0.015
Company operated retail site statistics:
Average retail fuel sites during the period
Motor fuel gross profit per gallon, net of credit card fees
Merchandise gross profit percentage, net of credit card
fees (a)
107
0.094 $
36
0.101 $
68
0.115
$
26.0 %
21.2 %
21.7 %
(a) We reclassified revenues related to certain ancillary items such as car wash revenue, lottery commissions and ATM
commissions from merchandise margin to other revenues to conform to the current year presentation, which amounted to
$1.5 million and $3.7 million for 2019 and 2018, respectively. This reclassification also impacted the merchandise gross
profit percentages reported for 2019 and 2018.
(b) The increase in the commission site count was primarily attributable to the 37 commission sites acquired in the CST Fuel
Supply Exchange.
(c) The increase in the company operated site count was primarily attributable to the 154 company operated sites from the
acquisition of retail and wholesale assets.
53
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Gross profit increased $33.8 million (146%), while operating income decreased $1.9 million (58%). These results were impacted
by:
Gross profit
Our motor fuel gross profit increased $7.5 million (147%) attributable to a 62% increase in volume driven by the
increase in company operated and commission sites as a result of the April 2020 acquisition of retail and wholesale
assets and the March 2020 CST Fuel Supply Exchange, partially offset by the divestiture of 17 company operated
sites in May 2019 in connection with the first tranche of the asset exchange with Circle K, the conversion of 46
company operated sites to dealer operated sites in the third quarter of 2019 and the impact of the COVID-19
Pandemic. In addition, we realized a higher average margin per gallon as the higher retail fuel margins at our
company operated sites comprised a larger percentage of our overall retail fuel margins in 2020 as compared to 2019.
Our merchandise gross profit increased $21.9 million (215%) as a result of the increase in company operated sites
driven by the April 2020 acquisition of retail and wholesale assets, partially offset by the divestiture of 17 company
operated sites in May 2019 in connection with the first tranche of the asset exchange with Circle K and the conversion
of 46 company operated sites to dealer operated sites in the third quarter of 2019. Other revenue increased $3.1
million (207%) due to the same drivers.
Rent gross profit increased $1.3 million (21%) due primarily to the commission sites acquired in the April 2020
acquisition of retail and wholesale assets and the March 2020 CST Fuel Supply Exchange.
Operating expenses
Operating expenses increased $35.7 million (179%) due primarily to the increase in company operated and commission sites as a
result of the April 2020 acquisition of retail and wholesale assets and CST Fuel Supply Exchange, partially offset by the
divestiture of 17 company operated sites in May 2019 in connection with the first tranche of the asset exchange with Circle K and
the conversion of 46 company operated sites to dealer operated sites in the third quarter of 2019. Our average company operated
site count increased 197% from 2019 to 2020. Further, we lease a greater percentage of our company operated sites in 2020 as
compared to 2019. Rent expense at our company operated sites increased $8.7 million.
Non-GAAP Financial Measures
We use non-GAAP financial measures EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio.
EBITDA represents net income available to us before deducting interest expense, income taxes and depreciation, amortization
and accretion (which includes certain impairment charges). Adjusted EBITDA represents EBITDA as further adjusted to exclude
equity funded expenses related to incentive compensation and the Circle K Omnibus Agreement, gains or losses on dispositions
and lease terminations, net, certain discrete acquisition related costs, such as legal and other professional fees and severance
expenses associated with recently acquired companies, and certain other discrete non-cash items arising from purchase
accounting. Distributable Cash Flow represents Adjusted EBITDA less cash interest expense, sustaining capital expenditures and
current income tax expense. Distribution Coverage Ratio is computed by dividing Distributable Cash Flow by the weighted
average diluted common units and then dividing that result by the distributions paid per limited partner unit.
EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio are used as supplemental financial
measures by management and by external users of our financial statements, such as investors and lenders. EBITDA and Adjusted
EBITDA are used to assess our financial performance without regard to financing methods, capital structure or income taxes and
the ability to incur and service debt and to fund capital expenditures. In addition, Adjusted EBITDA is used to assess the operating
performance of our business on a consistent basis by excluding the impact of items which do not result directly from the
wholesale distribution of motor fuel, the leasing of real property, or the day to day operations of our retail site activities. EBITDA,
Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio are also used to assess the ability to generate cash
sufficient to make distributions to our unitholders.
We believe the presentation of EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio provides
useful information to investors in assessing the financial condition and results of operations. EBITDA, Adjusted EBITDA,
Distributable Cash Flow and Distribution Coverage Ratio should not be considered alternatives to net income or any other
measure of financial performance or liquidity presented in accordance with U.S. GAAP. EBITDA, Adjusted EBITDA,
Distributable Cash Flow and Distribution Coverage Ratio have important limitations as analytical tools because they exclude
some but not all items that affect net income. Additionally, because EBITDA, Adjusted EBITDA, Distributable Cash Flow and
Distribution Coverage Ratio may be defined differently by other companies in our industry, our definitions may not be
comparable to similarly titled measures of other companies, thereby diminishing their utility.
54
The following table presents reconciliations of EBITDA, Adjusted EBITDA, and Distributable Cash Flow to net income, the
most directly comparable U.S. GAAP financial measure, for each of the periods indicated (in thousands, except for per unit
amounts):
Net income available to limited partners (a)
$
Interest expense (a)
Income tax benefit
Depreciation, amortization and accretion expense
EBITDA (a)
Equity-funded expenses related to incentive compensation
and the Circle K Omnibus Agreement (b)
(Gain) loss on dispositions and lease terminations, net (c)
Acquisition-related costs (d)
Adjusted EBITDA (a)
Cash interest expense (a)
Sustaining capital expenditures (e)
Current income tax benefit (expense) (f)
Distributable Cash Flow (a)
Weighted average diluted common units
Distributions paid per limited partner unit (g)
Distribution Coverage Ratio (a)(h)
$
$
Year Ended December 31,
2019
2020
107,323 $
16,587
(7,948 )
68,742
184,704
172
(80,924 )
3,464
107,416
(15,545 )
(3,529 )
14,126
102,468 $
37,369
2.1000 $
1.31x
17,543 $
27,000
(1,230 )
55,032
98,345
1,246
1,648
2,464
103,703
(25,973 )
(2,406 )
4,799
80,123 $
34,485
2.1000 $
1.11x
2018
3,672
32,872
(2,733 )
66,549
100,360
3,781
6,297
2,914
113,352
(31,338 )
(2,443 )
(1,528 )
78,043
34,345
2.2025
1.03x
(a) As further discussed in Notes 2 and 24 to the financial statements, we adopted ASC 842 effective January 1, 2019, and as a
result, our results for 2020 and 2019 are not directly comparable to the results for 2018. Most significantly, payments on our
previous failed sale-leaseback obligations were characterized as principal and interest expense in periods prior to 2019.
Starting in 2019, these payments are characterized as rent expense. These payments for the Wholesale and Retail segments
amounted to approximately $6.7 million and $0.5 million for 2018, respectively. Of the total payments, $5.5 million was
classified as interest expense in 2018.
(b) As approved by the independent conflicts committee of the Board, the Partnership and Circle K mutually agreed to settle
certain amounts due under the terms of the Circle K Omnibus Agreement in limited partner units of the Partnership. All
charges allocated to us by Circle K under the Circle K Omnibus Agreement since the first quarter of 2018 through
December 31, 2019, and all charges allocated to us under the Topper Group Omnibus Agreement since January 1, 2020,
have been paid by us in cash.
(c) We recorded gains on the sale of CAPL Properties in connection with the asset exchange with Circle K of $19.3 million in
2020. We also recorded gains on the sale of sites in connection with our ongoing real estate rationalization effort of $6.4
million in 2020. Also in 2020, we recorded a $67.6 million gain on the sale of our 17.5% investment in CST Fuel Supply.
Also in 2020, we recorded a loss on lease terminations, including the non-cash write-off of deferred rent income associated
with these leases, of $10.9 million.
In June 2018, we executed master fuel supply and master lease agreements with a third-party multi-site operator of retail
motor fuel stations, to which we transitioned 43 sites in Florida from DMS in 2018. In 2018, in connection with this
transition, we paid a $3.8 million contract termination payment to DMS. Additionally, we recorded a $2.4 million charge
primarily to write off deferred rent income related to our recapture of these sites from the master lease agreement with
DMS.
(d) Relates to certain acquisition related costs, such as legal and other professional fees, separation benefit costs and purchase
accounting adjustments associated with recently acquired businesses.
(e) Under the Partnership Agreement, sustaining capital expenditures are capital expenditures made to maintain our long-term
operating income or operating capacity. Examples of sustaining capital expenditures are those made to maintain existing
contract volumes, including payments to renew existing distribution contracts, or to maintain our sites in conditions suitable
to lease, such as parking lot or roof replacement/renovation, or to replace equipment required to operate the existing
business.
(f) Consistent with prior divestitures, the current income tax benefit in 2020 and 2019 excludes income tax incurred on the sale
of sites. 2020 and 2019 also include the tax benefit of 100% bonus depreciation on the eligible assets acquired in the asset
exchanges with Circle K as well as certain dispenser upgrades and rebranding costs.
(g) On January 21, 2021, the Board approved a quarterly distribution of $0.5250 per unit attributable to the fourth quarter of
2020. The distribution was paid February 9, 2021 to all unitholders of record on February 2, 2021.
(h) The distribution coverage ratio is computed by dividing Distributable Cash Flow by the weighted average diluted common
units and then dividing that result by the distributions paid per limited partner unit.
55
Liquidity and Capital Resources
Liquidity
Our principal liquidity requirements are to finance our operations, fund acquisitions, service our debt and pay distributions to our
unitholders. We expect our ongoing sources of liquidity to include cash generated by our operations and borrowings under the
revolving credit facility and, if available to us on acceptable terms, issuances of equity and debt securities. We regularly evaluate
alternate sources of capital, including sale-leaseback financing of real property with third parties, to support our liquidity
requirements.
Our ability to meet our debt service obligations and other capital requirements, including capital expenditures, acquisitions, and
partnership distributions, will depend on our future operating performance, which, in turn, will be subject to general economic,
financial, business, competitive, legislative, regulatory and other conditions, many of which are beyond our control. As a normal
part of our business, depending on market conditions, we will, from time to time, consider opportunities to repay, redeem,
repurchase or refinance our indebtedness. Changes in our operating plans, lower than anticipated sales, increased expenses,
acquisitions or other events may cause us to seek additional debt or equity financing in future periods.
We believe that we will have sufficient cash flow from operations, borrowing capacity under the revolving credit facility and
access to capital markets and alternate sources of funding to meet our financial commitments, debt service obligations,
contingencies, anticipated capital expenditures and partnership distributions. However, we are subject to business and operational
risks that could adversely affect our cash flow. A material decrease in our cash flows would likely produce an adverse effect on
our borrowing capacity as well as our ability to issue additional equity and/or debt securities and/or maintain or increase
distributions to unitholders.
See “Recent Developments—COVID-19 Pandemic” for a discussion of the impacts and potential impacts on our liquidity from
the COVID-19 Pandemic as well as actions we have taken or could take to mitigate its impact.
Cash Flows
The following table summarizes cash flow activity (in thousands):
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
2020
Year Ended December 31,
2019
$ 104,484 $ 72,327 $ 89,752
(19,549 ) (15,509 )
(6,780 )
(86,202 ) (58,229 ) (83,678 )
2018
Operating Activities
Net cash provided by operating activities increased $32.2 million for 2020 compared to 2019, primarily attributable to the
incremental cash flow generated by the sites added through the asset exchanges with Circle K, the CST Fuel Supply Exchange,
the acquisition of retail and wholesale assets and the strong DTW margins in 2020, partially offset by the impact of the
COVID-19 Pandemic. Additionally, changes in working capital stemming primarily from the acquisition of retail and wholesale
assets (particularly the related increase in accounts payable and accrued expenses and other current liabilities) also benefited net
cash provided by operating activities in 2020 more than in 2019.
As is typical in our industry, our current liabilities exceed our current assets as a result of the longer settlement of real estate and
motor fuel taxes as compared to the shorter settlement of receivables for fuel, rent and merchandise.
Investing Activities
We received $23.0 million from Circle K primarily in connection with the CST Fuel Supply Exchange that closed in March 2020
and the final tranche of the asset exchange with Circle K that closed in September 2020; see Notes 3 and 4 to the financial
statements for additional information. In addition, we received $21.2 million in proceeds from disposals during 2020 in
connection with our real estate rationalization effort and paid $28.2 million in connection with our April 2020 acquisition of retail
and wholesale assets. Also, we incurred capital expenditures of $37.1 million in 2020.
In 2019, we incurred capital expenditures of $24.6 million. Additionally, in 2019, we received $3.1 million in proceeds related to
the first and second tranches of the asset exchange with Circle K as a result of the inventory divested at the 17 company operated
sites and the security deposits from dealers transferred by Circle K to us. We also received $4.9 million of proceeds on sales of
assets.
56
Financing Activities
In 2020, we paid $77.9 million in distributions and made net repayments on our credit facility of $5.8 million.
In 2019, we paid $73.0 million in distributions and made net borrowings on our credit facility of $21.0 million.
Distributions
Distribution activity for 2020 was as follows (in thousands):
Quarter Ended
December 31, 2019
March 31, 2020
June 30, 2020
September 30, 2020
December 31, 2020
Record Date
February 3, 2020
May 5, 2020
August 4, 2020
November 3, 2020
February 2, 2021
$
Payment Date
February 10, 2020
May 12, 2020
August 11, 2020
November 10, 2020
February 9, 2021
Cash Distribution
(per unit)
Cash Distribution
(in thousands)
18,111
19,881
19,887
19,912
19,912
0.5250 $
0.5250
0.5250
0.5250
0.5250
The amount of any distribution is subject to the discretion of the Board, which may modify or revoke our cash distribution policy
at any time. Our Partnership Agreement does not require us to pay any distributions. As such, there can be no assurance we will
continue to pay distributions in the future.
IDRs
We distributed $0.1 million to the Topper Group and $0.5 million to Circle K with respect to the IDRs in 2020 and 2019,
respectively. See Note 23 for a discussion of the elimination of the IDRs, which closed on February 6, 2020.
Debt
As of December 31, 2020, our consolidated debt and finance lease obligations consisted of the following (in thousands):
Revolving credit facility
Finance lease obligations
Total debt and finance lease obligations
Current portion
Noncurrent portion
Deferred financing costs, net
$
Noncurrent portion, net of deferred financing costs
$
513,180
20,007
533,187
2,631
530,556
3,257
527,299
Our revolving credit facility is secured by substantially all of our assets. Taking the interest rate swap contracts into account, our
effective interest rate at December 31, 2020 was 2.10% (our applicable margin was 1.75% as of December 31, 2020). Letters of
credit outstanding at December 31, 2020 totaled $4.0 million. The amount of availability under the revolving credit facility at
February 22, 2021, after taking into consideration debt covenant restrictions, was $166.6 million.
The credit facility also contains certain financial covenants. We are required to maintain a consolidated leverage ratio (as defined
in the credit facility) for the most recently completed four fiscal quarters of 4.75 to 1.00. Such threshold is increased to 5.50 to
1.00 for the quarter during a specified acquisition period. Upon the occurrence of a qualified note offering (as defined in the credit
facility), the consolidated leverage ratio when not in a specified acquisition period is increased to 5.25 to 1.00, while the specified
acquisition period threshold remains 5.50 to 1.00. Upon the occurrence of a qualified note offering, we are also required to
maintain a consolidated senior secured leverage ratio (as defined in the credit facility) for the most recently completed four fiscal
quarter period of not greater than 3.75 to 1.00. Such threshold is increased to 4.00 to 1.00 for the quarter during a specified
acquisition period. We are also required to maintain a consolidated interest coverage ratio (as defined in the credit facility) of at
least 2.50 to 1.00. As of December 31, 2020, we were in compliance with these financial covenants.
See Note 13 to the financial statements for additional information on the credit facility.
57
Capital Expenditures
We make investments to expand, upgrade and enhance existing assets. We categorize our capital requirements as either sustaining
capital expenditures, growth capital expenditures or acquisition capital expenditures. Sustaining capital expenditures are those
capital expenditures required to maintain our long-term operating income or operating capacity. Acquisition and growth capital
expenditures are those capital expenditures that we expect will increase our operating income or operating capacity over the long
term. We have the ability to fund our capital expenditures by additional borrowings under our revolving credit facility or, if
available to us on acceptable terms, accessing the capital markets and issuing additional equity, debt securities or other options,
such as the sale of assets. Our ability to access the capital markets may have an impact on our ability to fund acquisitions. We may
not be able to complete any offering of securities or other options on terms acceptable to us, if at all.
The following table outlines our capital expenditures and acquisitions (in thousands):
Year Ended December 31,
2019
2018
2020
Sustaining capital
Growth
Acquisitions
Total capital expenditures and acquisitions
3,529 $
2,406 $
$
2,443
33,528 22,205 11,274
28,244
485
$ 65,301 $ 24,611 $ 14,202
—
As noted previously, the increase in growth capital expenditures was largely driven by dispenser upgrades, EMV upgrades and
rebranding of sites.
Contractual Obligations
Our contractual obligations as of December 31, 2020 are summarized below (in thousands):
2021
2022
2023
2025
Thereafter
Total
— $
— $
$
10,626 10,626 10,626
3,446
— $ 513,180
— 35,226
5,019 22,255
33,118 31,350 29,141 26,224 23,961 81,043 224,837
$ 46,989 $ 45,321 $ 43,213 $ 546,300 $ 27,613 $ 86,062 $ 795,498
— $
—
3,652
3,345
3,245
Payments Due by Period
2024
— $ 513,180 $
3,348
3,548
Long-term debt
Interest payments on debt
Finance lease obligations
Operating lease obligations
Total consolidated obligations
Credit Facility
As discussed previously, our credit agreement matures April 25, 2024. See Note 13 to the financial statements for additional
information.
Interest Payments on Debt
Such amounts include estimates of interest expense related to our credit facility assuming a 2.10% interest rate. The rate assumed
takes into account the interest rate swap contracts.
Finance Lease Obligations
We have certain retail site properties under finance leases. Finance lease obligations in the table above include both principal and
interest. See Note 13 to the financial statements for additional information.
Operating Lease Obligations
The operating lease obligations include leases for land, office facilities and retail sites. Operating lease obligations reflected in the
table above include all operating leases that have initial or remaining non-cancelable terms in excess of one year and are not
reduced by minimum rentals to be received by us under subleases. In addition, such amounts do not reflect contingent rentals that
may be incurred in addition to minimum rentals.
Our principal executive offices are in Allentown, Pennsylvania, in an office space leased by the Topper Group, for which the rent
is charged to us as a cost under the Topper Group Omnibus Agreement. Future lease payments on this office lease are included
within operating lease obligations.
58
See Note 15 to the financial statements for additional information.
Other Liabilities
We have excluded asset retirement obligations and other liabilities for which the timing of payment or the amount is not
determinable.
Under the terms of various supply agreements, the Partnership is obligated to minimum volume purchases measured in gallons of
motor fuel. Future minimum volume purchase requirements are 580 million gallons in 2021, reducing to 274 million gallons in
2025. Future minimum volume purchase requirements from 2026 through 2030 total 1.2 billion gallons. The aggregate dollar
amount of the future minimum volume purchase requirements is dependent on the future weighted average wholesale cost per
gallon charged under the applicable supply agreements. The amounts and timing of the related payment obligations cannot
reasonably be estimated reliably. As a result, payment of these amounts has been excluded from the table above. See Note 18 to
the financial statements for additional information.
Concentration of Customers
Approximately 12% of our rent income for 2020 was from one multi-site operator.
Off-Balance Sheet Arrangements
The Topper Group Omnibus Agreement contingently requires us to perform environmental remediation work as further discussed
in Note 16 to the financial statements. We also have operating leases and motor fuel purchase commitments as previously
discussed in “Contractual Obligations” and in Notes 15 and 18 to the financial statements.
Contingencies
Environmental Matters
See Note 17 to the financial statements for a discussion of environmental matters.
Legal Matters
See Note 18 to the financial statements for a discussion of legal matters.
Quarterly Results of Operations
See Note 26 to the financial statements for quarterly financial and operating data for each quarter of 2020 and 2019.
Outlook
As noted previously, the prices paid to our motor fuel suppliers for wholesale motor fuel (which affects our cost of sales) are
highly correlated to the price of crude oil. The crude oil commodity markets are highly volatile, and the market prices of crude oil,
and, correspondingly, the market prices of wholesale motor fuel, experience significant and rapid fluctuations, which affect our
motor fuel gross profit. See “Significant Factors Affecting our Profitability—The Significance of Crude Oil and Wholesale Motor
Fuel Prices on Our Revenues, Cost of Sales and Gross Profit” for additional information.
Our results for 2021 are anticipated to be impacted by the following:
Transactions effected pursuant to the Asset Exchange Agreement entered into with Circle K are anticipated to increase
motor fuel volume and motor fuel gross profit.
The CST Fuel Supply Exchange is anticipated to increase motor fuel volume and motor fuel gross profit.
The acquisition of retail and wholesale contracts from the Topper Group and certain other parties is anticipated to
increase gross profit both within the Wholesale and Retail segments.
We anticipate that we will continue to realize reductions in our fuel costs as a result of new or amended fuel purchase
contracts.
Our volume starting in mid-March 2020 was and continues to be negatively impacted by the COVID-19 Pandemic,
which negatively impacts fuel gross profit. See “Recent Developments—COVID-19 Pandemic” for additional
information and actions we have and could take in the future to mitigate its impact.
59
We will continue to evaluate acquisitions on an opportunistic basis. Additionally, we will pursue acquisition targets that fit into
our strategy. Whether we will be able to execute acquisitions will depend on market conditions, availability of suitable acquisition
targets at attractive terms, acquisition related compliance with customary regulatory requirements, and our ability to finance such
acquisitions on favorable terms and in compliance with our debt covenant restrictions.
For information on recent accounting pronouncements impacting our business, see Note 2 to the financial statements.
New Accounting Policies
Critical Accounting Policies Involving Critical Accounting Estimates
We prepare our financial statements in conformity with U.S. GAAP. The preparation of these financial statements requires us to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period.
Actual results could differ from those estimates. See Note 2 to the financial statements for a summary of our significant
accounting policies.
Critical accounting policies are those we believe are both most important to the portrayal of our financial condition and results,
and require our most difficult, subjective or complex judgments, often because we must make estimates about the effect of
matters that are inherently uncertain. Judgments and uncertainties affecting the application of those policies may result in
materially different amounts being reported under different conditions or using different assumptions. We believe the following
policies to be the most critical in understanding the judgments that are involved in preparing our financial statements.
Revenue Recognition
We have applied ASC 606 since January 1, 2018. 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 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.
In 2020, we closed on tranches of the Asset Exchange Agreement and CST Fuel Supply Exchange with Circle K, both
representing largely nonmonetary transactions. We apply provisions of ASC 606, ASC 845 and ASC 860 as applicable to our
nonmonetary exchanges based on the individual facts and circumstances of each transaction. For these particular transactions, we
estimated the fair value of the assets divested and acquired based on an income approach using discount rates commensurate with
the risk inherent in the cash flows, similar to how we estimate fair value in an asset acquisition or business combination as further
described below. We record gains and losses as required by the applicable guidance, in these cases representing the excess of the
fair value of the assets and cash consideration received less the carrying value of the assets divested. See Notes 3 and 4 to the
financial statements for additional information.
Accounts receivable primarily result from the sale of motor fuels to customers. Our accounts receivable is generally considered as
having a similar risk profile. 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 and fuel and lease agreements are generally
cross-collateralized when applicable. Receivables are recorded at face value, without interest or discount.
The allowance for credit losses is generally based upon historical experience while also factoring in any new business conditions
that might impact the historical analysis, such as market conditions and bankruptcies of particular customers. Credit loss expense
is included in general and administrative expenses. We review all accounts receivable balances on at least a quarterly basis.
60
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.
See Notes 7 and 24 to the financial statements for additional information on our revenues and related receivables.
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 to the individual assets acquired and liabilities assumed on a relative fair
value basis. Two of the key differences in accounting for transactions as asset acquisitions as compared to business combination
are summarized below:
Transaction costs are capitalized as a component of the cost of the assets acquired rather than expensed as incurred;
Goodwill is not recognized. Rather, any excess consideration transferred over the fair value of the net assets acquired
is allocated on a relative fair value basis to the identifiable net assets other than certain non-qualifying assets as
defined in the guidance.
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 these items
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.
Goodwill
Goodwill represents the excess of the fair value of the consideration conveyed to acquire a business over the fair value of the net
assets 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. We consider macroeconomic conditions such as developments in equity and credit markets,
industry and market conditions such as the competitive environment, cost factors such as changes in our cost of fuel, our financial
performance and our unit price.
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.
61
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.
At December 31, 2020 and 2019, we had goodwill totaling $88.8 million. Of the December 31, 2020 balance, $74.2 million was
assigned to the wholesale reporting unit and $14.6 million was assigned to the retail reporting unit. After assessing the totality of
events and circumstances, we determined that it is more likely than not that the fair value of our reporting units exceed their
carrying amounts and therefore goodwill is not impaired at December 31, 2020 or 2019.
Tax Matters
As a limited partnership, we are not subject to federal and state income taxes. Income tax attributable to our taxable income,
which may differ significantly from income for financial statement purposes, is assessed at the individual level of the unit holder.
We are subject to a statutory requirement that non-qualifying income, as defined by the Internal Revenue Code, cannot exceed
10% of total gross income for the calendar year. If non-qualifying income exceeds this statutory limit, we would be taxed as a
corporation. The non-qualifying income did not exceed the statutory limit in any period.
Certain activities that generate non-qualifying income are conducted through our wholly owned taxable corporate subsidiary,
LGWS. Current and deferred income taxes are recognized on the earnings of LGWS. Deferred income tax assets and liabilities
are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates.
Valuation allowances are initially recorded and reevaluated each reporting period by assessing the likelihood of the ultimate
realization of a deferred tax asset. We consider a number of factors in assessing the realization of a deferred tax asset, including
the reversal of temporary differences, projections of future taxable income and ongoing prudent and feasible tax planning
strategies. The amount of deferred tax assets ultimately realized may differ materially from the estimates utilized in the
computation of valuation allowances and may materially impact the financial statements in the future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
Market risk is the risk of loss arising from adverse changes in market rates and prices. The principal market risks to which we are
exposed are interest rate risk and commodity price risk.
Interest Rate Risk
As of December 31, 2020, we had $513.2 million outstanding on our revolving credit facility. Our outstanding borrowings bear
interest at LIBOR plus an applicable margin, which was 1.75% at December 31, 2020. Our borrowings had a weighted-average
interest rate at December 31, 2020 of 1.93%.
On March 26, 2020, we entered into an interest rate swap contract to hedge against interest rate volatility on our variable rate
borrowings under the credit facility. The interest rate swap contract has a notional amount of $150 million, a fixed rate of 0.495%
and matures on April 1, 2024. On April 15, 2020, we entered into two additional interest rate swap contracts, each with notional
amounts of $75 million, a fixed rate of 0.38% and that mature on April 1, 2024. See Note 14 to the financial statements for
additional information.
As a result of entering into these interest rate swap contracts, we have effectively converted approximately 60% of our variable
rate borrowings under our credit facility to a fixed rate.
Taking the interest rate swap contracts into account, our effective interest rate at December 31, 2020 was 2.10%. A one
percentage point change in LIBOR would impact annual interest expense by approximately $2.1 million.
Commodity Price Risk
We purchase gasoline and diesel fuel from several suppliers at costs that are subject to market volatility. These purchases are
generally made pursuant to contracts or at market prices established with the supplier.
We do not currently engage in hedging activities for these purchases due to our pricing structure that allows us to generally pass
on price changes to our customers and related parties.
62
A majority of our total gallons purchased are subject to Terms Discounts for prompt payment and other rebates and incentives,
which are recorded within cost of sales. Prompt payment discounts are based on a percentage of the purchase price of motor fuel.
As such, the dollar value of these discounts increases and decreases corresponding with motor fuel prices. Based on our current
volumes, we estimate a $10 per barrel change in the price of crude oil would impact our annual wholesale motor fuel gross profit
by approximately $2.3 million related to these payment discounts.
Foreign Currency Risk
Our operations are located in the U.S., and therefore are not subject to foreign currency risk.
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, 2020. 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, 2020, 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, 2020. Their report dated March 1, 2021, expressed an unqualified opinion on our internal control over
financial reporting.
63
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2020, 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, 2020, 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 March 1, 2021 expressed an unqualified opinion.
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 regarding 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the
accounts or disclosures to which they relate.
CST Fuel Supply Exchange Nonmonetary Transaction
As described further in Note 4 to the consolidated financial statements, the Partnership exchanged its ownership interest in CST
Fuel Supply, a financial asset previously accounted for under the equity method, for nonmonetary consideration representing
tangible and intangible assets. This transaction resulted in the Partnership recording a non-cash gain of $67.6 million,
representing the estimated fair value of assets received less the carrying value of the investment exchanged. We identified this
nonmonetary transaction as a critical audit matter.
The principal considerations for our determination of the CST Fuel Supply Exchange Nonmonetary Transaction as a critical audit
matter are the high level of estimation uncertainty related to the determination of the fair value of the assets exchanged.
Determination of fair value requires management to make complex judgments in order to identify and select significant
assumptions, including prospective financial information, discount rate, attrition rate and weighted average cost of capital, which
include management’s use of internal specialists.
64
Our audit procedures related to the CST Fuel Supply Exchange Nonmonetary Transaction included the following, among others.
We tested the design and operating effectiveness of relevant controls including, among others, management’s validation
of the inputs to the valuations, and management’s review of the significant assumptions.
We obtained and inspected the contractual arrangements and the Partnership’s technical accounting documentation for
the transaction.
We tested the Partnership’s key inputs and assumptions used to estimate future revenues and net cash flows based upon
historical results and recent performance for assets received and divested.
We performed substantive testing on a sample of the data used by management’s specialists for reasonableness and
accuracy.
With the assistance of our valuation specialists, we tested the reasonableness of the fair value determined by
management for both the divested equity method investment and the acquired assets with a focus on significant
assumptions, including prospective financial information, discount rate, attrition rate and weighted average cost of
capital.
We evaluated the level of knowledge, skill, and ability of management’s specialists and their relationship to the
Partnership and made inquiries of management’s specialists regarding the process followed and judgments used to
estimate the fair value of assets acquired.
/s/ GRANT THORNTON LLP
We have served as the Partnership’s auditor since 2011.
Arlington, Virginia
March 1, 2021
65
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, 2020, 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, 2020, 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, 2020, and our
report dated March 1, 2021 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
March 1, 2021
66
CROSSAMERICA PARTNERS LP
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars, except unit data)
Current assets:
ASSETS
Cash and cash equivalents
Accounts receivable, net of allowances of $429 and $557, respectively
Accounts receivable from related parties
Inventory
Assets held for sale
Other current assets
Total current assets
Property and equipment, net
Right-of-use assets, net
Intangible assets, net
Goodwill
Other assets
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt and finance lease obligations
Current portion of operating lease obligations
Accounts payable
Accounts payable to related parties
Accrued expenses and other current liabilities
Motor fuel and sales taxes payable
Total current liabilities
Debt and finance lease obligations, less current portion
Operating lease obligations, less current portion
Deferred tax liabilities, net
Asset retirement obligations
Other long-term liabilities
Total liabilities
Commitments and contingencies
Equity:
Common units—37,868,046 and 34,494,441 units issued and
outstanding at December 31, 2020 and 2019, respectively
Accumulated other comprehensive loss
Total equity
Total liabilities and equity
December 31,
2020
2019
$
$
$
513 $
28,519
931
23,253
9,898
11,707
74,821
570,856
167,860
92,912
88,764
19,129
1,014,342 $
2,631 $
31,958
63,978
5,379
23,267
19,735
146,948
527,299
141,380
15,022
41,450
32,575
904,674
1,780
38,051
4,299
6,230
13,231
5,795
69,386
565,916
120,767
44,996
88,764
21,318
911,147
2,471
23,485
57,392
431
16,382
12,475
112,636
534,859
100,057
19,369
35,589
30,240
832,750
112,124
(2,456 )
109,668
1,014,342 $
78,397
—
78,397
911,147
$
See Notes to Consolidated Financial Statements.
67
CROSSAMERICA PARTNERS LP
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars, except unit and per unit amounts)
Operating revenues (a)
Cost of sales (b)
Gross profit
Income from CST Fuel Supply equity interests
Operating expenses:
Operating expenses (c)
General and administrative expenses
Depreciation, amortization and accretion expense
Total operating expenses
Gain (loss) on dispositions and lease terminations, net
Operating income
Other income, net
Interest expense
Income before income taxes
Income tax benefit
Net income
Less: net loss attributable to noncontrolling interests
Net income attributable to limited partners
IDR distributions
Net income available to limited partners
2020
For the Year Ended December 31,
2019
$ 1,932,323 $ 2,149,429 $ 2,445,917
1,720,196 1,994,792 2,273,122
172,795
14,948
212,127
3,202
154,637
14,768
2018
90,928
20,991
68,742
180,661
80,924
115,592
503
(16,587 )
99,508
(7,948 )
107,456
—
107,456
(133 )
107,323 $
52,554
16,849
55,032
124,435
(1,648 )
43,322
524
(27,000 )
16,846
(1,230 )
18,076
—
18,076
(533 )
17,543 $
61,919
17,966
66,549
146,434
(6,297 )
35,012
373
(32,872 )
2,513
(2,733 )
5,246
(5 )
5,251
(1,579 )
3,672
$
Basic and diluted earnings per common unit
$
2.87 $
0.51 $
0.11
Weighted-average limited partner units:
Basic common units
Diluted common units (d)
Supplemental information:
37,369,487 34,454,369 34,345,298
37,369,487 34,484,801 34,345,298
(a) Includes excise taxes of:
(a) Includes rent income of:
(b) excludes depreciation, amortization and accretion
and includes rent expense of:
19,723
(c) Includes rent expense of:
1,047
(d) Diluted common units were not used in the calculation of diluted earnings per common unit for
2018 and 2020 because to do so would have been antidilutive.
141,429 $
83,233
78,004 $
90,139
25,214
9,067
27,493
379
97,929
85,642
$
See Notes to Consolidated Financial Statements.
68
CROSSAMERICA PARTNERS LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, amortization and accretion expense
Amortization of deferred financing costs
Amortization of above market leases, net
Credit loss expense
Deferred income tax (benefit) expense
Equity-based employee and director compensation expense
Circle K Omnibus Agreement fees settled in common units
(Gain) loss on dispositions and lease terminations, net
Changes in operating assets and liabilities, net of acquisitions
Net cash provided by operating activities
Cash flows from investing activities:
Principal payments received on notes receivable
Proceeds from sale of property and equipment
Proceeds from sale of assets to Circle K
Capital expenditures
Cash paid in connection with acquisitions, net of cash acquired
Cash paid to Circle K in connection with acquisitions
Net cash used in investing activities
Cash flows from financing activities:
Borrowings under the revolving credit facility
Repayments on the revolving credit facility
Payments of long-term debt and finance lease obligations
Payments of sale-leaseback obligations
Payment of deferred financing costs
Contributions from Circle K
Distributions paid on distribution equivalent rights
Distributions paid to holders of the IDRs
Distributions paid to noncontrolling interests
Distributions paid on common units
Net cash used in financing activities
Net decrease in cash and cash equivalents
For the Year Ended December 31,
2019
2018
2020
$
107,456 $
18,076 $
5,246
68,742
1,042
—
1,210
(4,436 )
172
—
(88,912 )
19,210
104,484
974
21,729
23,049
(37,057 )
(28,244 )
—
(19,549 )
246,003
(251,823 )
(2,458 )
—
—
—
(40 )
(133 )
—
(77,751 )
(86,202 )
(1,267 )
55,032
1,027
—
362
3,569
1,246
—
1,648
(8,633 )
72,327
1,098
4,856
3,148
(24,611 )
—
—
(15,509 )
137,303
(116,303 )
(2,297 )
—
(3,972 )
—
(86 )
(533 )
—
(72,341 )
(58,229 )
(1,411 )
66,549
1,534
(21 )
611
(4,261 )
481
3,300
6,297
10,016
89,752
780
6,642
—
(13,717 )
—
(485 )
(6,780 )
128,107
(136,107 )
(2,866 )
(1,019 )
(901 )
6,306
(37 )
(1,579 )
(20 )
(75,562 )
(83,678 )
(706 )
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
1,780
513 $
3,191
1,780 $
3,897
3,191
See Notes to Consolidated Financial Statements.
69
CROSSAMERICA PARTNERS LP
CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
(Thousands of Dollars, except unit amounts)
Balance at December 31, 2017
Net income (loss) and comprehensive income (loss)
Vesting of incentive and director awards, net of units
withheld for taxes
Issuance of units to Circle K for the payment of fees
under the Circle K Omnibus Agreement
Contributions from Circle K, net of tax
Acquisition of leasehold interest in three sites from Circle K
Other
Distributions paid
Balance at December 31, 2018
Net income and comprehensive income
Vesting of incentive and director awards, net of units
withheld for taxes
Transition adjustment upon adoption of ASC 842, net of tax
Asset exchange with Circle K, net of tax
Distributions paid
Balance at December 31, 2019
Net income
Other comprehensive income
Unrealized loss on interest rate swap contracts
Realized loss on interest rate swap contracts
reclassified from AOCI into interest expense
Total other comprehensive loss
Comprehensive income (loss)
Issuance of units to the Topper Group in connection
with the Equity Restructuring Agreement
Acquisition of assets from entities under common
control, net of fair value of common units issued
Vesting of equity awards, net of units withheld for tax
Distributions paid
Balance at December 31, 2020
Limited Partners’ Interest
Common
Unitholders
Units
Dollars
Incentive
Distribution
Rights
Dollars
Noncontrolling
Interest
Dollars
34,111,461 $ 171,337 $
3,672
—
— $
1,579
(318 ) $
(5 )
Accumulated
other
comprehensive
loss
Dollars
Total
Equity
Dollars
— $ 171,019
—
5,246
40,534
490
—
343
—
833
292,118
—
—
—
—
6,518
4,691
(56 )
(120 )
(75,599 )
34,444,113 110,933
17,543
—
50,328
—
—
—
34,494,441
862
28,896
(7,410 )
(72,427 )
78,397
— 107,323
—
—
—
—
(1,579 )
—
533
—
—
—
(533 )
—
133
—
—
—
—
(20 )
—
—
—
—
—
—
—
—
—
6,518
—
4,691
—
(56 )
—
(120 )
—
(77,198 )
— 110,933
—
18,076
—
862
—
28,896
—
(7,410 )
—
(72,960 )
—
78,397
— 107,456
—
—
—
—
(2,859 )
(2,859 )
—
—
—
—
— 107,323
—
—
133
2,528,673
—
—
842,891
2,041
—
4,169
26
(77,791 )
37,868,046 $ 112,124 $
—
—
(133 )
— $
—
—
—
—
—
—
—
— $
403
403
(2,456 )
(2,456 )
(2,456 ) 105,000
—
—
—
—
—
4,169
26
(77,924 )
(2,456 ) $ 109,668
See Notes to Consolidated Financial Statements.
70
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.
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, 19, 2021,
the Topper Group also has beneficial ownership of a 48.9% limited partner interest in the Partnership.
Description of Business
Our business consists of:
the wholesale distribution of motor fuels;
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;
the retail sale of motor fuels to end customers at retail sites operated by commission agents or, since April 14, 2020,
ourselves; and
since April 14, 2020, the operation of retail sites, including the sale of convenience merchandise to end customers.
We had no company operated sites from September 30, 2019 through April 14, 2020. See Notes 3, 5 and 24 for
additional information.
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 sale 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. Since our acquisition of retail and wholesale assets that
closed on April 14, 2020, LGWS also sells motor fuels on a retail basis and sells 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. See Note 5 for information related to our acquisition of retail and
wholesale assets that closed on April 14, 2020.
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.
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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 and Financial Instrument Credit Losses
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” This standard requires
that for most financial assets, losses be based on an expected loss approach which includes estimates of losses over the life of
exposure that considers historical, current and forecasted information. Expanded disclosures related to the methods used to
estimate the losses as well as a specific disaggregation of balances for financial assets are also required. The impact of adopting
this guidance effective January 1, 2020 was not material.
The primary financial instrument within the scope of this guidance is our accounts receivable, which mainly result from the sale
of motor fuels to customers. Our accounts receivable is generally considered as having a similar risk profile. Credit is extended to
a customer, generally a dealer or a commission agent, based on an evaluation of the customer’s financial condition prior to
entering into fuel supply and/or lease agreements. In certain circumstances, collateral may be required from the customer and fuel
and lease agreements are generally cross-collateralized when applicable. Receivables are recorded at face value, without interest
or discount.
The allowance for credit losses is generally based upon historical experience while also factoring in any new business conditions
that might impact the historical analysis, such as market conditions and bankruptcies of particular customers. Credit loss expense
is included in general and administrative expenses. We review all accounts receivable balances on at least a quarterly 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.
Retail site merchandise inventory is valued at the lower of average cost or net realizable value using the first-in, first-out method,
written down, as necessary, for potentially obsolete or slow-moving inventory.
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.
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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.
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 and licenses are amortized over periods from five to 15 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.
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No goodwill was impaired for any period presented.
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 24 for additional information.
Revenue Recognition
We have applied ASC 606 since January 1, 2018. 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 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.
74
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.
In 2020, we closed on tranches of the Asset Exchange Agreement and CST Fuel Supply Exchange with Circle K, both
representing largely nonmonetary transactions. We apply provisions of ASC 606, ASC 845 and ASC 860 as applicable to our
nonmonetary exchanges based on the individual facts and circumstances of each transaction. For these particular transactions, we
estimated the fair value of the assets divested and acquired based on an income approach using discount rates commensurate with
the risk inherent in the cash flows, similar to how we estimate fair value in an asset acquisition or business combination as further
described below. We record gains and losses as required by the applicable guidance, in these cases representing the excess of the
fair value of the assets and cash consideration received less the carrying value of the assets divested. See Notes 3 and 4 to the
financial statements for additional information.
See Notes 7 and 24 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.
ASC 842–Leases requires the recognition of 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.
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.
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.
There was no impact from the adoption of this ASU on the accounting for our capital (now called finance) lease obligations.
75
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.
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.
Since we did not restate prior periods as part of adopting this guidance, our results for 2019 are not directly comparable to our
results for periods before January 1, 2019. Specifically, payments on our failed sale-leaseback obligations were characterized as
principal and interest expense in periods prior to January 1, 2019. Beginning on January 1, 2019, these payments are characterized
as rent expense and thus reduce gross profit and operating income (primarily from the Wholesale segment) relative to the results
reported for periods prior to January 1, 2019.
See Notes 13, 15 and 24 for additional information.
ASC 842 requires leases be evaluated and classified as either operating or finance for financial reporting purposes. The lease term
used for lease evaluation includes option periods only in instances in which the exercise of the option period is reasonably certain.
Generally, lease payments are expensed on a straight-line basis over the term of the lease including renewal periods that are
reasonably certain at the inception of the lease. In addition to these lease payments, certain leases require additional contingent
payments based on sales volume or future inflation, which are expensed as incurred.
Income Taxes
Our wholly owned taxable subsidiaries recognize deferred income tax assets and liabilities for the expected future income tax
consequences of temporary differences between financial statement carrying amounts and the related income tax basis.
Income tax attributable to our earnings and losses, excluding the earnings and losses of our wholly owned taxable subsidiaries, are
assessed at the individual level of the unitholder. Accordingly, we do not record a provision for income taxes other than for those
earnings and losses generated or incurred by our wholly owned taxable subsidiaries.
Tax positions not meeting the more-likely-than-not recognition threshold at the financial statement date may not be recognized or
continue to be recognized under the accounting guidance for income taxes. Where required, we recognize interest and penalties
for uncertain tax positions in income taxes.
Valuation allowances are initially recorded and reevaluated each reporting period by assessing the likelihood of the ultimate
realization of a deferred tax asset. Management considers a number of factors in assessing the realization of a deferred tax asset,
including the reversal of temporary differences, projections of future taxable income and ongoing prudent and feasible tax
planning strategies. The amount of deferred tax assets ultimately realized may differ materially from the estimates utilized in the
computation of valuation allowances and may materially impact the financial statements in the future.
Earnings per Common Unit
In addition to the common units, we have identified the IDRs as participating securities and compute income per unit using the
two-class method under which any excess of distributions declared over net income shall be allocated to the partners based on
their respective sharing of income specified in the Partnership Agreement. Net income per common unit applicable to limited
partners is computed by dividing the limited partners’ interest in net income, after deducting any incentive distributions, by the
weighted-average number of outstanding common units.
See Note 23 for disclosure regarding the elimination of the IDRs, which closed on February 6, 2020.
76
Interest Rate Swap Contracts
Commencing in March 2020, the Partnership started to use interest rate swap contracts to reduce its exposure to unfavorable
changes in interest rates. The Partnership accounts for derivative contracts in accordance with ASC Topic 815, “Derivatives and
Hedging,” and recognizes derivative instruments as either assets or liabilities on the balance sheet and measures those instruments
at fair value. The changes in fair value of the derivative transactions are presented in accumulated other comprehensive income
and reclassified to interest expense as the interest payments on our credit facility are made.
The portion of derivative positions that are anticipated to settle within a year are included in other current assets and accrued
expenses and other current liabilities, while the portion of derivative positions that are anticipated to settle beyond a year are
recorded in other assets or other long-term liabilities.
Cash inflows and outflows related to derivative instruments are included as a component of operating activities on the statements
of cash flows, consistent with the classification of the hedged interest payments on our credit facility.
See Note 14 for information related to our interest rate swap contracts.
New Accounting Guidance Pending Adoption
Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” The amendments in this
Update simplify the accounting for income taxes by removing certain exceptions to the general principles in ASC 740. The
amendments also improve consistent application of and simplify GAAP for other areas of ASC 740 by clarifying and amending
existing guidance, such as the accounting for a franchise tax (or similar tax) that is partially based on income. This standard was
effective January 1, 2021 for the Partnership. The impact of adopting this guidance was not material.
Concentration Risks
For 2019 and 2018, we distributed approximately 8% and 11% of our total wholesale distribution volume to Dunne Manning
Stores LLC (DMS), an entity associated with the family of a member of the Board and DMS accounted for approximately 7% and
15% of our rental income, respectively. See Note 5 for information regarding the termination of leases with DMS in connection
with the acquisition of retail and wholesale assets.
For 2019 and 2018, we distributed 6% and 7% of our total wholesale distribution volume to Circle K retail sites and received 14%
and 20% of our rental income from Circle K, respectively.
For more information regarding transactions with DMS and its affiliates and Circle K, see Note 16.
Approximately 12% of our rent income for 2020 was from one multi-site operator.
In 2020, our wholesale business purchased approximately 29%, 22%, 13% and 10% of its motor fuel from ExxonMobil, BP,
Motiva and Marathon, respectively. In 2019, our wholesale business purchased approximately 26%, 22%, 15% and 12% of its
motor fuel from ExxonMobil, BP, Circle K and Motiva, respectively. In 2018, our wholesale business purchased approximately
26%, 26%, 13% and 10% of its motor fuel from ExxonMobil, BP, Motiva and Circle K, respectively. No other fuel suppliers
accounted for 10% or more of our motor fuel purchases during 2020, 2019 or 2018.
Approximately 16% of our motor fuel gallons sold was delivered by one carrier.
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 have reached pandemic proportions.
We experienced a sharp decrease in fuel volume in mid-to-late March. Although fuel volumes recovered during the second half of
2020, they remain below historical levels. For 2020, the negative impact of the volume decrease on fuel gross profit was partially
offset by the positive impact from the decline in crude prices, which increased DTW margins.
77
As a result of the implications of COVID-19, we assessed property and equipment, other long-lived assets and goodwill for
impairment and concluded no assets were impaired as of March 31, 2020. No indicators of impairment stemming from the
COVID-19 Pandemic have been identified since. See Note 9 for information regarding impairment charges related primarily to
classifying sites as assets held for sale.
We cannot predict the scope and severity with which COVID-19 will impact our business, financial condition, results of
operations and cash flows. 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 3. ASSET EXCHANGE TRANSACTION WITH CIRCLE K
On December 17, 2018, as approved by the independent conflicts committee of the Board, we entered into an Asset Exchange
Agreement (the “Asset Exchange Agreement”) with Circle K. Pursuant to the Asset Exchange Agreement, the parties agreed to
exchange (i) certain assets of CrossAmerica related to 56 convenience and fuel retail stores previously leased and operated by
Circle K pursuant to a master lease that CrossAmerica previously purchased jointly with or from CST (the “master lease
properties”), and 17 convenience and fuel retail stores previously owned and operated by CrossAmerica located in the U.S. Upper
Midwest (collectively, including the master lease properties, the “CAPL Properties”), having an aggregate fair value of
approximately $184.5 million, for (ii) certain assets of Circle K related to 192 (162 fee and 30 leased) company-operated
convenience and fuel retail stores (the “CK Properties”), having an aggregate fair value of approximately $184.5 million. The
existing fuel supply arrangements for the 56 master lease properties remained unchanged.
The assets exchanged by CrossAmerica included (i) its fee simple title to all land and other real property and related
improvements owned by CrossAmerica at the CAPL Properties, (ii) all buildings and other improvements located on the CAPL
Properties, (iii) all tangible personal property owned by CrossAmerica and primarily used in connection with the operation of the
CAPL Properties, including all underground storage tanks located on such properties and owned by CrossAmerica, (iv)
CrossAmerica’s rights under certain contracts related to the CAPL Properties, (v) all in-store cash, inventory owned by
CrossAmerica and assignable permits owned or held by CrossAmerica at the 17 convenience store sites owned and operated by
CrossAmerica, (vi) all real estate records and related registrations and reports relating exclusively to the CAPL Properties, and
(vii) all goodwill and other intangible assets associated with the foregoing assets (collectively, the “CAPL Assets”). The assets
exchanged by Circle K included (a) its fee simple title to all land and other real property and related improvements owned by
Circle K at the CK Properties, (b) all buildings and other improvements located on the CK Properties, (c) all tangible personal
property owned by Circle K and primarily used in connection with the operation of the CK Properties, including all underground
storage tanks located on such properties and owned by Circle K, (d) Circle K’s rights under the dealer agreements and agent
agreements to be entered into and assigned to CrossAmerica relating to each CK Property that will be dealerized as contemplated
by the Asset Exchange Agreement, (e) Circle K’s rights under certain contracts related to the CK Properties, (f) all real estate
records and related registrations and reports relating exclusively to the CK Properties, and (g) all goodwill and other intangible
assets associated with the foregoing assets (collectively, the “CK Assets”). CrossAmerica will also assume certain liabilities
associated with the CK Assets, and Circle K assumed certain liabilities associated with the CAPL Assets.
The CK Properties were assigned to CrossAmerica in multiple tranches after Circle K executed a dealer agreement or agent
agreement, as applicable, with respect to each CK Property to be included in a tranche and the applicable dealer or agent assumed
possession and operating control of such property. As a result, the exchange of assets pursuant to the Asset Exchange Agreement
occurred in a series of separate tranche closings as Circle K entered into such dealer agreements or agent agreements. At each
separate closing, CK Properties and related CK Assets were exchanged for CAPL Properties and related CAPL Assets of
approximately equivalent value.
Each separate closing was subject to the satisfaction or waiver of customary closing conditions. The Asset Exchange Agreement
contains customary representations, warranties, agreements and obligations of the parties. CrossAmerica and Circle K have
generally agreed to indemnify each other for breaches of the representations, warranties and covenants contained in the Asset
Exchange Agreement for a period of 18 months after the date of the final closing (or for certain specified losses, until the
expiration of the applicable statute of limitations). Except for such specified losses, the respective indemnification obligations of
each of CrossAmerica and Circle K to the other will not apply to the first $1.845 million of losses and the aggregate
indemnification obligations will not exceed $39.9 million.
78
In connection with the execution of the Asset Exchange Agreement, CrossAmerica and Circle K also entered into an
Environmental Responsibility Agreement (the “ERA”), which agreement sets forth the parties’ respective liabilities and
obligations with respect to environmental matters relating to the CAPL Properties and the CK Properties. Generally, (i) each party
retained liability for known contamination at the sites it transferred to the other party and (ii) each party assumed liability for
unknown contamination at the sites it received from the other party, except that the ERA does not affect any liability that Circle K
currently has under the existing master lease of the master lease properties.
First Asset Exchange
In the first asset exchange, which closed on May 21, 2019, Circle K transferred to the Partnership 60 (52 fee; 8 leased) U.S.
company operated convenience and fuel retail stores (“CK Properties”) having an aggregate fair value of approximately $58.1
million, and the Partnership transferred to Circle K all 17 of the Upper Midwest properties and the real property for eight of the
master lease properties (“CAPL Properties”) having an aggregate fair value of approximately $58.3 million.
Second Asset Exchange
In the second asset exchange, which closed on September 5, 2019, Circle K transferred to the Partnership 56 (51 fee; 5 leased) CK
Properties having an aggregate fair value of approximately $50.2 million, and the Partnership transferred to Circle K the real
property for 19 CAPL Properties having an aggregate fair value of approximately $51.4 million.
Third Asset Exchange
In the third asset exchange, which closed on February 25, 2020, Circle K transferred to the Partnership ten (all fee) CK Properties
having an aggregate fair value of approximately $11.0 million, and the Partnership transferred to Circle K the real property for
five CAPL Properties having an aggregate fair value of approximately $10.3 million.
Fourth Asset Exchange
In the fourth asset exchange, which closed April 7, 2020. Circle K transferred to the Partnership 13 (11 fee: 2 leased) CK
Properties having an aggregate fair value of approximately $13.1 million, and the Partnership transferred to Circle K the real
property for seven CAPL Properties having an aggregate fair value of approximately $12.8 million.
Fifth Asset Exchange
In the fifth asset exchange, which closed May 5, 2020, Circle K transferred to the Partnership 29 (22 fee; 7 leased) CK Properties
having an aggregate fair value of approximately $31.5 million, and the Partnership transferred to Circle K the real property for 13
CAPL Properties having an aggregate fair value of approximately $31.7 million.
Sixth and Final Asset Exchange
In the sixth and final asset exchange, which closed September 15, 2020, Circle K transferred to the Partnership 23 (17 fee; 6
leased) CK Properties having an aggregate fair value of approximately $20.4 million, and the Partnership transferred to Circle K
the real property for four CAPL Properties having an aggregate fair value of approximately $20.0 million. Because the sixth asset
exchange represents the final closing contemplated by the Asset Exchange Agreement, Circle K also transferred a $6.7 million
cash payment to the Partnership in connection with the closing, in accordance with the terms of the Asset Exchange Agreement,
which included the $0.4 million cumulative deficit in the fair value of the CK Properties we acquired compared with the fair value
of the CAPL Properties we divested.
We accounted for the first two tranches of the asset exchanged (that closed in 2019) as transactions between entities under
common control as our General Partner was owned by Circle K at the time of the closing of those transactions. As such, the sites
divested were recorded as a charge against equity. The sites acquired were recorded at carryover book basis from Circle K’s
balance sheet as a contribution to equity.
79
Since our General Partner was acquired by the Topper Group in November 2019, the Partnership and Circle K were not entities
under common control at the time of closing on the third, fourth, fifth and sixth asset exchanges. In connection with these asset
exchanges, we recognized gains on the sales of the CAPL Properties, including the proceeds mentioned above, totaling $19.3
million in 2020, representing the fair value of assets and cash consideration received less the carrying value of assets transferred
to Circle K. Additionally, we recorded the following to reflect the acquisition of the CK Properties in these asset exchanges (in
thousands):
Property and equipment, net
Right-of-use assets, net
Intangible assets, net
Total assets
Current portion of operating lease obligations
Operating lease obligations, less current portion
Other long-term liabilities
Asset retirement obligations
Total liabilities
Net assets acquired
$
$
$
$
$
53,242
5,266
25,508
84,016
1,194
4,072
675
2,815
8,756
75,260
Note 4. CST FUEL SUPPLY EXCHANGE AGREEMENT
Effective March 25, 2020, pursuant to the terms of the previously announced CST Fuel Supply Exchange Agreement dated as of
November 19, 2019 (the “CST Fuel Supply Exchange Agreement”), between the Partnership and Circle K, Circle K transferred to
the Partnership 33 owned and leased convenience store properties (the “Properties”) and certain assets (including fuel supply
agreements) relating to such Properties, as well as U.S. wholesale fuel supply contracts covering 331 additional sites (the “DODO
Sites”), subject to certain adjustments, and, in exchange therefore, the Partnership transferred to Circle K all of the limited
partnership units in CST Fuel Supply that were owned by the Partnership, which represent 17.5% of the outstanding units of CST
Fuel Supply (collectively, the “CST Fuel Supply Exchange”). Twelve Properties and 56 DODO Sites (collectively, the “Removed
Properties”) were removed from the Exchange Transaction, and Circle K made an aggregate payment of approximately $14.1
million to us in lieu of the Removed Properties, in each case, pursuant to the terms and conditions of the CST Fuel Supply
Exchange Agreement.
The assets exchanged by Circle K included (a) fee simple title to all land and other real property and related improvements owned
by Circle K at the Properties, (b) Circle K’s leasehold interest in all land and other real property and related improvements leased
by Circle K at the Properties, (c) all buildings and other improvements and permanently attached machinery, equipment and other
fixtures located on the Properties, (d) all tangible personal property owned by Circle K on the Properties, including all
underground storage tanks located on the Properties, (e) all of Circle K’s rights under the dealer agreements related to the
Properties and the DODO Sites, (f) Circle K’s rights under the leases to the leased Properties and all tenant leases and certain
other contracts related to the Properties, (g) all fuel inventory owned by Circle K and stored in the underground storage tanks at
locations operated by dealers that are independent commission marketers, (h) all assignable permits related to the Properties and
related assets owned by Circle K, (i) all real estate records and related registrations and reports and other books and records of
Circle K to the extent relating to the Properties, and (j) all other intangible assets associated with the foregoing assets
(collectively, the “Assets”). The Partnership also assumed certain liabilities associated with the Assets.
The Partnership and Circle K agreed to indemnify each other for, among other things, breaches of their respective representations
and warranties contained in the CST Fuel Supply Exchange Agreement for a period of 18 months after the date of closing (except
for certain fundamental representations and warranties, which survive until the expiration of the applicable statute of limitations)
and for breaches of their respective covenants and for certain liabilities assumed or retained by the Partnership or Circle K,
respectively. The respective indemnification obligations of each of the Partnership and Circle K to the other are subject to the
limitations set forth in the CST Fuel Supply Exchange Agreement.
In connection with the execution of the CST Fuel Supply Exchange Agreement, the Partnership and Circle K also entered into an
Environmental Responsibility Agreement, dated as of November 19, 2019 (the “Environmental Responsibility Agreement”),
which agreement sets forth the parties’ respective liabilities and obligations with respect to environmental matters relating to the
Properties. As further described in the Environmental Responsibility Agreement, Circle K retained liability for known
environmental contamination or non-compliance at the Properties, and the Partnership assumed liability for unknown
environmental contamination and non-compliance at the Properties.
80
The terms of the CST Fuel Supply Exchange Agreement were approved by the independent conflicts committee of the Board.
In connection with closing on the CST Fuel Supply Exchange, on March 25, 2020, we entered into a limited consent (the
“Consent”) to our credit facility, among the Partnership, the lenders from time to time party thereto and Citizens Bank, N.A., as
administrative agent. Pursuant to the Consent, the lenders consented to the consummation of the CST Fuel Supply Exchange.
The fair value of our investment in CST Fuel Supply that was divested and the Assets acquired was $69.0 million based on an
income approach using a discount rate commensurate with the risk inherent in the cash flows. We accounted for the divestiture of
our investment in CST Fuel Supply under ASC 860, “Transfers and Servicing.” We recorded a gain on the divestiture of our
investment in CST Fuel Supply of $67.6 million in the first quarter of 2020, representing the fair value of assets received less the
carrying value of the investment exchanged. Subsequent to closing on the CST Fuel Supply Exchange, we no longer have any
involvement with CST Fuel Supply. Additionally, we recorded the following to reflect the acquisition of the Assets (in
thousands):
Motor fuel inventory
Property and equipment, net
Right-of-use assets, net
Intangible assets, net
Total assets
Current portion of operating lease obligations
Operating lease obligations, less current portion
Asset retirement obligations
Other long-term liabilities
Total liabilities
Net assets acquired
Cash received from Circle K in lieu of Removed Properties
Cash received from Circle K related to net liabilities assumed
Total cash received from Circle K
Total fair value of assets received in CST Fuel Supply Exchange
$
$
$
$
$
$
$
$
863
23,590
4,168
35,010
63,631
1,217
5,391
1,240
3,194
11,042
52,589
14,065
2,331
16,396
68,985
Note 5. RETAIL AND WHOLESALE ACQUISITION
On April 14, 2020, we closed on an asset purchase agreement (“Asset Purchase Agreement”) with the sellers (“Sellers”)
signatories thereto, including certain entities affiliated with the Topper Group that are under common control with the
Partnership. Pursuant to the Asset Purchase Agreement, we expanded the retail operations of the Partnership by 169 sites (154
company operated sites and 15 commission sites) through a combination of (1) entering into new leasing arrangements with
related parties as the lessee for 62 sites and (2) terminating contracts where we were previously the lessor and fuel supplier under
dealer arrangements for 107 sites which, as a result of the Asset Purchase Agreement, are now company operated sites. As a result
of the Asset Purchase Agreement, we have expanded our wholesale fuel distribution by 110 sites, including 53 third-party
wholesale dealer contracts, and supply of the 62 newly leased sites.
The Asset Purchase Agreement provided for an aggregate consideration of $36 million, exclusive of inventory and in-store cash,
with approximately $21 million paid in cash and 842,891 newly-issued common units valued at $15 million and calculated based
on the volume weighted average trading price of $17.80 per common unit for the 20-day period ended on January 8, 2020, five
business days prior to the announcement of the transaction. The 842,891 common units were issued to entities controlled by
Joseph V. Topper, Jr. The cash portion of the purchase price was financed with borrowings under our credit facility.
In connection with the closing of the transactions contemplated under the Asset Purchase Agreement, we assumed certain
contracts with third parties and affiliates necessary for the continued operation of the sites, including agreements with dealers and
franchise agreements. Further, we have entered into customary triple-net ten-year master leases as lessee with certain affiliates of
the Topper Group, with an aggregate annual rent of $8.1 million payable by the Partnership. See Note 15 for additional
information on our operating leases as lessee.
81
In connection with the consummation of the transactions contemplated by the Asset Purchase Agreement, our contracts with
certain Sellers, including DMS, were terminated and such entities are no longer customers or lessees of the Partnership. As a
result, $8.0 million of the purchase price was accounted for as a loss on lease terminations during 2020. In addition, we wrote off
$3.1 million in deferred rent income related to these same leases, also recorded as a loss on lease terminations during 2020.
In addition, the parties performed Phase I environmental site assessments with respect to certain sites. The Sellers agreed to retain
liability for known environmental contamination or non-compliance at certain sites, and the Partnership agreed to assume liability
for unknown environmental contamination and non-compliance at certain sites.
Further, the Asset Purchase Agreement contains customary representations and warranties of the parties as well as
indemnification obligations by Sellers and the Partnership, respectively, to each other. The indemnification obligations must be
asserted within 18 months of the closing and are limited to an aggregate of $7.2 million for each party.
The terms of the Asset Purchase Agreement were approved by the independent conflicts committee of the Board.
Certain of the Sellers are under common control with the Partnership and thus assets acquired from such entities were recorded at
carryover basis with an adjustment to equity pursuant to ASC 805-50. We recorded the following to reflect the acquisition (in
thousands, except unit price):
Common units issued
Common unit price
Value of common units issued
Purchase price paid in cash
Total purchase price
Portion of purchase price allocated to loss on lease terminations
Net purchase price allocable to net assets acquired
Inventory
Property and equipment, net
Right-of-use assets, net
Intangible assets, net
Total assets
Current portion of operating lease obligations
Operating lease obligations, less current portion
Deferred income taxes
Asset retirement obligations
Other long-term liabilities
Total liabilities
Net assets acquired
Common
Control
Not Common
Control
Total
842,891
10.73
9,044
1,785
10,829
—
10,829
2,086
2,139
17,330
2,646
24,201 $
2,216 $
15,114
89
614
214
18,247 $
5,954 $
$
$
$
$
$
—
— $
—
34,447
34,447
7,988
26,459
13,605
13,648
37,215
690
65,158 $
5,210 $
32,005
—
1,328
156
38,699 $
26,459 $
842,891
10.73
9,044
36,232
45,276
7,988
37,288
15,691
15,787
54,545
3,336
89,359
7,426
47,119
89
1,942
370
56,946
32,413
Contribution to equity for excess of net assets acquired from entities
under common control over portion of purchase price paid in cash
$
4,169
$
4,169
82
Note 6. ASSETS HELD FOR SALE
We have classified 25 and 24 sites as held for sale at December 31, 2020 and 2019, respectively, which are expected to be sold
within one year of such classification. Assets held for sale were as follows (in thousands):
Land
Buildings and site improvements
Equipment
Total
Less accumulated depreciation
Assets held for sale
December 31,
2020
2019
7,889 $
2,784
1,152
11,825
(1,927 )
9,898 $
10,082
5,178
1,383
16,643
(3,412 )
13,231
$
$
The Partnership has reprioritized divesting lower performing assets, which has resulted in an increase in the number of sites
classified as held-for-sale at December 31, 2020. See Note 9 for information regarding impairment charges recorded upon such
classification.
During 2020, we sold 33 properties for $21.2 million in proceeds, resulting in a net gain of $6.4 million. During 2019, we sold
eight properties for $3.9 million in proceeds, resulting in a net gain of $1.4 million. During 2018, we sold 11 properties for $4.9
million, resulting in a net insignificant gain.
Note 7. RECEIVABLES
Changes in the allowance for doubtful accounts consisted of the following (in thousands):
Balance at beginning of year
Increase in allowance charged to expense
Accounts charged against the allowance, net of recoveries
Balance at end of year
2020
Year Ended December 31,
2019
2018
$
$
557 $
1,210
(1,338 )
429 $
607 $
362
(412 )
557 $
277
611
(281 )
607
Notes receivable from lessee dealers totaled $1.3 million and $2.1 million at December 31, 2020 and 2019, respectively, and are
included in other current assets and other noncurrent assets on the consolidated balance sheets.
Note 8. INVENTORIES
Inventories consisted of the following (in thousands):
Retail site merchandise
Motor fuel
Inventories
December 31,
2020
2019
$
$
11,969 $
11,284
23,253 $
—
6,230
6,230
See Notes 4 and 5 for information regarding the CST Fuel Supply Exchange and the acquisition of retail and wholesale assets, in
which we acquired motor fuel and retail site merchandise inventories.
83
Note 9. PROPERTY AND EQUIPMENT
Property and equipment, net consisted of the following (in thousands):
Land
Buildings and site improvements
Leasehold improvements
Equipment
Construction in progress
Property and equipment, at cost
Accumulated depreciation and amortization
Property and equipment, net
December 31,
2020
241,585 $
284,593
10,684
236,420
15,919
789,201
(218,345 )
570,856 $
2019
257,131
296,411
9,350
194,997
4,638
762,527
(196,611 )
565,916
$
$
See Notes 3, 4 and 5 for additional information on the closings of the additional tranches of the asset exchange, the CST Fuel
Supply Exchange and the acquisition of the retail and wholesale assets, respectively, in which we acquired and/or divested
property and equipment.
Approximately $481.9 million of property and equipment, net was used for leasing purposes at December 31, 2020.
As discussed in Note 13, we lease sites under a lease with Getty Realty Corporation, for which the building and equipment
components are classified as a finance lease. The right-of-use asset associated with this finance lease is included in the table above
and totaled $11.7 million and $14.0 million at December 31, 2020 and 2019, respectively, net of accumulated amortization.
Amortization of this right-of-use asset is included in depreciation, amortization and accretion expense on the statements of
income and amounted to $2.2 million and $2.3 million in 2020 and 2019, respectively.
Depreciation expense, including amortization of assets recorded under finance lease obligations, was approximately $51.3
million, $42.8 million and $49.3 million for 2020, 2019 and 2018, respectively. Included in these amounts are impairment
charges primarily related to sites classified within assets held for sale totaling $9.1 million, $4.5 million and $8.1 million during
2020, 2019 and 2018, respectively.
Note 10. INTANGIBLE ASSETS
Intangible assets consisted of the following (in thousands):
December 31, 2020
December 31, 2019
Net
Carrying
Amount
(95,694 ) $ 91,949 $ 124,479 $
Wholesale fuel supply contracts/rights $ 187,643 $
783 1,078
1,898
Trademarks/licenses
4,552
Covenant not to compete
180 4,552
$ 194,093 $ (101,181 ) $ 92,912 $ 130,109 $
Total intangible assets
Accumulated
Amortization
(1,115 )
(4,372 )
Gross
Amount
Gross
Amount
Accumulated
Amortization
Net
Carrying
Amount
(79,791 ) $ 44,688
6
302
(85,113 ) $ 44,996
(1,072 )
(4,250 )
See Note 3, 4 and 5 for information related to the closing of additional tranches of the asset exchange, the CST Fuel Supply
Exchange and the acquisition of retail and wholesale assets, respectively, in which we acquired intangible assets.
Amortization expense was $16.1 million, $10.9 million and $15.4 million (including amortization of above and below market
lease intangible assets, which is classified as rent expense and $2.0 million of impairment primarily related to FTC-required
divestitures) for 2020, 2019 and 2018, respectively. Aggregate amortization expense is expected to be $18.0 million, $17.3
million, $13.3 million, $10.6 million and $8.6 million for 2021, 2022, 2023, 2024 and 2025, respectively.
84
Note 11. GOODWILL
Changes in goodwill during 2020 and 2019 consisted of the following (in thousands):
Wholesale
Segment
Retail
Segment
Balance at December 31, 2018
Reassignment
Balance at December 31, 2019 and 2020
$
$
69,687 $
4,451
$
74,138
Consolidated
88,764
—
88,764
19,077 $
(4,451 )
14,626 $
As a result of converting our remaining company-operated sites to dealer-operated sites in the third quarter of 2019 and the
resulting reduction in future cash flows in the Retail segment and the expected increase in future cash flows that will be received
by the Wholesale segment subsequent to the date of conversion, $4.5 million of the goodwill originally assigned to the Retail
segment was reassigned to the Wholesale segment. See Note 24 for additional information on the conversion of our company
operated sites to dealer operated sites.
Note 12. ACCRUED EXPENSES AND OTHER LONG-TERM LIABILITIES
Accrued expenses and other current liabilities consisted of the following (in thousands):
Taxes other than income
Capital expenditures and maintenance expenses
Current portion of environmental liabilities
Current portion of interest rate swap contracts (a)
Professional fees
Interest
Other
$
Total accrued expenses and other current liabilities
$
December 31,
2020
2019
9,117 $
5,598
1,710
1,028
916
537
4,361
23,267 $
7,881
1,358
1,520
—
880
992
3,751
16,382
Other long-term liabilities consisted of the following (in thousands):
Security deposits
Deferred fuel supplier rebates
Environmental liabilities
Interest rate swap contracts, less current portion (a)
Accounts payable to Circle K (b)
Other
Total other long-term liabilities
December 31,
2020
2019
17,417 $
9,328
2,204
1,427
—
2,199
32,575 $
12,812
9,266
1,870
—
4,616
1,676
30,240
$
$
(a) See Note 14 for information regarding the interest rate swap contracts entered into in 2020.
(b) See Note 16 for information regarding the noncurrent portion of our accounts payable with Circle K.
Asset Retirement Obligations
Environmental laws in the U.S. require the permanent closure of USTs within one to two years after the USTs are no longer in
service, depending on the jurisdiction in which the USTs are located. We have estimated that USTs at our owned retail sites will
remain in service approximately 30 years and that we will have an obligation to remove those USTs at that time. For our leased
retail sites, our lease agreements generally require that we remove certain improvements, primarily USTs and signage, upon
termination of the lease, and so an asset retirement obligation is incurred upon entering the lease. There are no assets that are
legally restricted for purposes of settling our asset retirement obligations.
85
A rollforward of our asset retirement obligation is below (in thousands):
Balance at beginning of year
Recognition of asset retirement obligations
Changes in estimated cash flows or settlement dates
Accretion
Obligations settled
Balance at end of year
$
Current portion, included within accrued expenses and other
current liabilities
Long-term portion
$
December 31,
2020
2019
35,777 $
5,997
(1,086 )
1,394
(315 )
41,767
32,867
3,505
(1,789 )
1,317
(123 )
35,777
317
41,450 $
188
35,589
Note 13. DEBT
Our balances for long-term debt and finance lease obligations are as follows (in thousands):
Revolving credit facility
Finance lease obligations
Total debt and finance lease obligations
Current portion
Noncurrent portion
Deferred financing costs, net
$
Noncurrent portion, net of deferred financing costs
$
December 31,
2020
513,180 $
20,007
533,187
2,631
530,556
3,257
527,299 $
2019
519,000
22,630
541,630
2,471
539,159
4,300
534,859
As of December 31, 2020, future principal payments on debt and future minimum rental payments on finance lease obligations
were as follows (in thousands):
$
2021
2022
2023
2024
2025
Thereafter
Total future payments
Less interest component
Current portion
Long-term portion
$
Debt
Finance Lease
Obligations
Total
— $
—
—
513,180
—
—
513,180
—
513,180
—
513,180 $
3,245 $
3,345
3,446
3,548
3,652
5,019
22,255
2,248
20,007
2,631
17,376 $
3,245
3,345
3,446
516,728
3,652
5,019
535,435
2,248
533,187
2,631
530,556
Our borrowings under the revolving credit facility had a weighted-average interest rate of 1.93% as of December 31, 2020
(LIBOR plus an applicable margin, which was 1.75% as of December 31, 2020). See Note 14 for information related to entering
into interest rate swap contracts.
Letters of credit outstanding at December 31, 2020 and 2019 totaled $4.0 million and $5.4 million, respectively. The amount of
availability under the credit facility at December 31, 2020, after taking into consideration debt covenant restrictions, was $188.1
million.
86
The credit facility is a $750 million senior secured revolving credit facility, maturing in April 2024. The facility can be increased
from time to time upon our written request, subject to certain conditions, up to an additional $300 million. The aggregate amount
of the outstanding loans and letters of credit under the credit facility cannot exceed the combined revolving commitments then in
effect. All obligations under the credit facility are secured by substantially all of the Partnership’s assets.
Borrowings under the credit facility bear interest, at the Partnership’s option, at (1) a rate equal to LIBOR for interest periods of
one, two, three or six months (or, if consented to by all lenders, for such other period that is twelve months or a period shorter than
one month), plus a margin ranging from 1.50% to 2.50% per annum depending on our consolidated leverage ratio (as defined in
the credit facility) or (2) (a) a base rate equal to the greatest of, (i) the federal funds rate, plus 0.5% per annum, (ii) LIBOR for one
month interest periods, plus 1.00% per annum or (iii) the rate of interest established by the agent, from time to time, as its prime
rate, plus (b) a margin ranging from 0.50% to 1.50% per annum depending on our consolidated leverage ratio. In addition, we
incur a commitment fee based on the unused portion of the credit facility at a rate ranging from 0.25% to 0.45% per annum
depending on our consolidated leverage ratio.
We also have the right to borrow swingline loans under the credit facility in an amount up to $35.0 million. Swingline loans will
bear interest at the base rate plus the applicable base rate margin.
Standby letters of credit are permissible under the credit facility up to an aggregate amount of $65.0 million. Standby letters of
credit are subject to a 0.125% fronting fee and other customary administrative charges. Standby letters of credit will accrue a fee
at a rate based on the applicable margin of LIBOR loans.
The credit facility contains certain financial covenants. We are required to maintain a consolidated leverage ratio for the most
recently completed four fiscal quarters of 4.75 to 1.00. Such threshold is increased to 5.50 to 1.00 for the quarter during a
specified acquisition period (as defined in the credit facility). Upon the occurrence of a qualified note offering (as defined in the
credit facility), the consolidated leverage ratio when not in a specified acquisition period is increased to 5.25 to 1.00, while the
specified acquisition period threshold remains 5.50 to 1.00. Upon the occurrence of a qualified note offering, we are also required
to maintain a consolidated senior secured leverage ratio (as defined in the credit facility) for the most recently completed four
fiscal quarter period of not greater than 3.75 to 1.00. Such threshold is increased to 4.00 to 1.00 for the quarter during a specified
acquisition period. We are also required to maintain a consolidated interest coverage ratio (as defined in the credit facility) of at
least 2.50 to 1.00. As of December 31, 2020, we were in compliance with these financial covenants.
The credit facility prohibits us from making cash distributions to our unitholders if any event of default occurs or would result
from the distribution.
Finance Lease Obligations
In May 2012, the Predecessor Entity entered into a 15-year master lease agreement with renewal options of up to an additional 20
years with Getty Realty Corporation. Since then, the agreement has been amended from time to time to add or remove retail sites.
As of December 31, 2020, we lease 113 sites under this lease with a weighted-average remaining lease term of 6.3 years. We pay
fixed rent, which increases 1.5% per year. In addition, the lease requires variable lease payments based on gallons of motor fuel
sold.
Because the fair value of the land at lease inception was estimated to represent more than 25% of the total fair value of the real
property subject to the lease, the land element of the lease was analyzed for operating or capital treatment separately from the rest
of the property subject to the lease. The land element of the lease was classified as an operating lease and all of the other property
was classified as a capital lease. This assessment was not required to be reassessed upon adoption of ASC 842. As such, future
minimum rental payments are included in both the finance lease obligations table above as well as the operating lease table in
Note 15.
The weighted-average discount rate for this finance lease obligation at December 31, 2020 was 3.5%. Interest on this finance
lease obligation amounted to $0.7 million and $0.8 million for 2020 and 2019, respectively.
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Note 14. INTEREST RATE SWAP CONTRACTS
The interest payments on our credit facility vary based on monthly changes in the one-month LIBOR and changes, if any, in the
applicable margin, which is based on our leverage ratio as further discussed in Note 13. To hedge against interest rate volatility on
our variable rate borrowings under the credit facility, on March 26, 2020, we entered into an interest rate swap contract. The
interest rate swap contract has a notional amount of $150 million, a fixed rate of 0.495% and matures on April 1, 2024. On April
15, 2020, we entered into two additional interest rate swap contracts, each with notional amounts of $75 million, a fixed rate of
0.38% and that mature on April 1, 2024. All of these interest rate swap contracts have been designated as cash flow hedges and are
expected to be highly effective.
The fair value of these interest rate swap contracts, which is included in accrued expenses and other current liabilities and other
long-term liabilities, totaled $2.5 million at December 31, 2020. See Note 19 for additional information on the fair value of the
interest rate swap contracts.
We report the unrealized gains and losses on our interest rate swap contracts designated as highly effective cash flow hedges as a
component of other comprehensive income and reclassify such gains and losses into earnings in the same period during which the
hedged interest expense is recorded. Realized gains and losses from settlements of the interest rate swap contracts netted to a $0.4
million charge for 2020.
We currently estimate that a loss of $1.0 million will be reclassified from accumulated other comprehensive loss into interest
expense during the next 12 months; however, the actual amount that will be reclassified will vary based on changes in interest
rates
Note 15. OPERATING LEASES
Operating Leases of Retail Sites as Lessee
We lease 465 retail sites from third parties under certain non-cancelable operating leases that expire from time to time through
2033. The weighted-average remaining lease term was 5.6 years as of December 31, 2020.
Lease expense as measured under ASC 842 was classified in the statement of income as follows (in thousands):
Cost of sales
Operating expenses
General and administrative expenses
Total
For the Year Ended December 31,
2020
2019
$
$
25,214
9,067
1,081
35,362
$
$
27,493
379
685
28,557
Variable lease payments included in the above table are based on inflation, revenues or volumes and totaled $2.3 million and $1.8
million for 2020 and 2019, respectively. Short-term lease payments included in the table above that are excluded from the lease
liability amounted to $0.8 million and $0.6 million for 2020 and 2019, respectively. Cash paid for amounts included in the
measurement of lease liabilities under operating leases totaled $33.1 million and $25.8 million for 2020 and 2019, respectively.
Lease expense as measured under ASC 840 was $21.5 million for 2018. Contingent rent expense, based on gallons sold, as
measured under ASC 840 was $1.9 million for 2018.
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As of December 31, 2020, future minimum rental payments under operating leases, excluding variable lease payments or
short-term payments, were as follows (in thousands). The weighted-average discount rate as of December 31, 2020 was 6.7%.
2021
2022
2023
2024
2025
Thereafter
Total future payments
Less impact of discounting
Current portion
Long-term portion
$
$
33,118
31,350
29,141
26,224
23,961
81,043
224,837
51,499
173,338
31,958
141,380
Most lease agreements include provisions for renewals. We generally do not include renewal options in our lease term for
purposes of measuring our lease liabilities and right-of-use assets unless the sublease to our customer extends beyond the term of
the head lease.
See Note 5 for information regarding the acquisition of leasehold interests in connection with the acquisition of retail and
wholesale assets.
Of our leased sites, we operate 108 of them as company operated sites. Substantially all the remaining leased sites are subleased to
lessee dealers or commission agents under leases with terms generally ranging from one to ten years and which may include
renewal options. Sublease rental income amounted to $34.8 million, $38.2 million and $37.1 million for 2020, 2019 and 2018,
respectively.
Operating Leases of Retail Sites as Lessor
Motor fuel stations are leased to tenants under operating leases with various expiration dates ranging through 2032. Most lease
agreements include provisions for renewals. We generally do not include renewal options in our lease term. Future minimum
rental payments under non-cancelable operating leases with third parties as of December 31, 2020 were as follows (in thousands):
2021
2022
2023
2024
2025
Thereafter
Total future minimum lease payments
$
$
48,667
39,367
27,646
22,288
17,505
38,902
194,375
The future minimum rental payments presented above do not include contingent rent based on future inflation, future revenues or
volumes of the lessee, or non-lease components for amounts that may be received as tenant reimbursements for certain operating
costs.
Deferred rent income from straight-line rent relates to the cumulative amount by which straight-line rental income recorded to
date exceeds cash rents billed to date under the lease agreement and totaled $5.3 million and $7.1 million at December 31, 2020
and 2019, respectively. See Note 5 for information regarding the write-off of deferred rent income as a result of terminating leases
in connection with the acquisition of retail and wholesale assets.
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Note 16. RELATED PARTY TRANSACTIONS
Transactions with Affiliates of Members of the Board
Wholesale Motor Fuel Sales and Real Estate Rentals
Revenues from motor fuel sales and rental income from DMS were as follows (in thousands):
Revenues from motor fuel sales to DMS
Rental income from DMS
$
2020
For the Year Ended December 31,
2019
142,236 $
6,326
27,127
1,395
$
2018
241,151
12,569
As a result of the acquisition of retail and wholesale assets, as of April 14, 2020, we no longer have any revenue or rental income
from DMS. See Note 5 for additional information.
Accounts receivable from DMS totaled $4.1 million at December 31, 2019.
In March 2019, we entered into an amendment of the master lease and master fuel supply agreements with DMS. These
amendments resulted in the following:
DMS severed 17 sites from the master lease. Since April 1, 2019, DMS has not been charged rent on these sites. We
transitioned substantially all of these sites to other dealers by June 30, 2019.
Rental income from DMS for the remainder of the lease term was reduced effective April 1, 2019 by $0.5 million
annually.
The markup charged on fuel deliveries to the remaining 85 DMS sites covered by the master fuel supply agreement was
reduced effective April 1, 2019 by $0.01 per gallon and by an additional $0.005 per gallon effective January 1, 2020.
During 2019, DMS gave notice to sever 12 sites effective in January 2020 from the master lease and master fuel supply
agreements, resulting in the write-off of deferred rent income of $0.6 million, classified within the loss on dispositions and lease
terminations, net line item of the statement of income.
During 2018, in connection with the transition of 43 sites in Florida from DMS to a third-party multi-site operator of retail motor
fuel stations, we paid a $3.8 million contract termination payment to DMS. This payment was approved by the independent
conflicts committee of our Board. Additionally, we recorded a $2.4 million charge primarily to write off deferred rent income
related to our recapture of these sites from the master lease agreement with DMS. These charges are included in loss on
dispositions and lease terminations, net in the statements of income.
Revenues from TopStar, an entity affiliated with Joseph V. Topper, Jr., were $21.0 million. $0.3 million and $0.3 million for
2020, 2019 and 2018, respectively. Accounts receivable from TopStar were $0.7 million at December 31, 2020. As discussed in
Note 5, effective April 14, 2020, we acquired wholesale fuel supply rights, including this supply contract, as part of the
acquisition of retail and wholesale assets. Prior to April 14, 2020, we only leased motor fuel stations to TopStar.
CrossAmerica leases real estate from the Topper Group. Rent expense paid under these lease agreements, including rent paid
under the leases entered into in connection with the acquisition of retail and wholesale assets as further discussed in Note 5, was
$6.6 million, $1.1 million and $1.0 million for 2020, 2019 and 2018, respectively.
Topper Group Omnibus Agreement
On January 15, 2020, the Partnership entered into an Omnibus Agreement, effective as of January 1, 2020 (the “Topper Group
Omnibus Agreement”), 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 agreed, among other things, to provide, or cause to be provided, to the
General Partner for the benefit of the Partnership, at cost without markup, certain management, administrative and operating
services, which services were previously provided by Circle K under the Transitional Omnibus Agreement, dated as of November
19, 2019, among the Partnership, the General Partner and Circle K.
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The Topper Group Omnibus Agreement will continue in effect until terminated in accordance with its terms. The Topper Group
has the right to terminate the Topper Group Omnibus Agreement at any time upon 180 days’ prior written notice, and the General
Partner has the right to terminate the Topper Group Omnibus Agreement at any time upon 60 days’ prior written notice.
We incurred expenses under the Topper Group Omnibus Agreement, including costs for store level personnel at our company
operated sites since our April 2020 acquisition of retail and wholesale assets, totaling $38.4 million for 2020. Such expenses are
included in operating expenses and general and administrative expenses in the statements of income. Amounts payable to the
Topper Group related to expenses incurred by the Topper Group on our behalf in accordance with the Topper Group Omnibus
Agreement totaled $3.7 million at December 31, 2020.
IDR and Common Unit Distribution
We distributed $37.1 million, $16.0 million and $16.6 million to the Topper Group related to its ownership of our common units
during 2020, 2019 and 2018, respectively. We distributed $0.1 million to the Topper Group related to its ownership of our IDRs
during 2020. See Note 23 for information regarding the elimination of the IDRs.
Maintenance and Environmental Costs
Certain maintenance and environmental monitoring and remediation activities are performed by an entity affiliated with Joseph
V. Topper, Jr., a member of the Board, as approved by the independent conflicts committee of the Board. We incurred charges
with this related party of $0.6 million, $1.0 million and $1.8 million for 2020, 2019 and 2018, respectively. Accounts payable to
this related party amounted to $0.1 million and $0.1 million at December 31, 2020 and 2019, respectively.
Environmental Compliance and Inventory Management Costs
We use certain environmental monitoring and inventory management equipment and services provided by an entity affiliated
with the Topper Group, as approved by the independent conflicts committee of the Board. We incurred charges with this related
party of $0.2 million for 2020.
Convenience Store Products
We purchase certain convenience store products from an affiliate of John B. Reilly, III and Joseph V. Topper, Jr., members of the
Board, as approved by the independent conflicts committee of the Board in connection with the April 2020 acquisition of retail
and wholesale assets. Merchandise costs amounted to $14.4 million for 2020. Amounts payable to this related party amounted to
$1.5 million at December 31, 2020.
Vehicle Lease
In connection with the services rendered under the Topper Group Omnibus Agreement, we lease certain vehicles from an entity
affiliated with Joseph V. Topper, Jr., a member of the Board, as approved by the independent conflicts committee of the Board.
Lease expense was $0.1 million for 2020.
Principal Executive Offices
Our principal executive offices are in Allentown, Pennsylvania. We sublease office space from the Topper Group that the Topper
Group leases from an affiliate of John B. Reilly, III and Joseph V. Topper, Jr., members of our board, as approved by the
independent conflicts committee of the Board. Rent expense amounted to $1.1 million, $0.7 million and $0.7 million for 2020,
2019 and 2018, respectively.
Public Relations and Website Consulting Services
We have engaged a company affiliated with a member of the Board for public relations and website consulting services. The cost
of these services amounted to $0.1 million for 2020, 2019 and 2018.
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Transactions with Circle K
As a result of the GP Purchase, Circle K is no longer a related party and we are independent of Circle K from November 19, 2019
forward. However, for comparability purposes, we have disclosed balance sheet disclosures as of December 31, 2020 and
December 31, 2019 and income statement amounts for transactions with Circle K for the full years of 2020, 2019 and 2018.
Fuel Sales and Rental Income
As of December 31, 2020, we sell wholesale motor fuel under a master fuel distribution agreement to 45 Circle K retail sites and
lease real property on 11 retail sites to Circle K under a master lease agreement each having initial 10-year terms. The fuel
distribution agreement provides us with a fixed wholesale mark-up per gallon. The master lease agreement is a triple net lease. As
a result of the asset exchanges with Circle K (see Note 3 for additional information), we have sold most of the sites previously
leased to Circle K, resulting in the reduction of rental income over the periods in the table below.
Revenues from wholesale fuel sales and real property rental income from Circle K were as follows (in thousands):
Revenues from motor fuel sales to Circle K
Rental income from Circle K
$
$ 153,055 $ 162,974
16,791
13,898
For the Year Ended December 31,
2019
2018
2020
97,040
5,641
Accounts receivable from Circle K for fuel amounted to $2.1 million and $3.1 million at December 31, 2020 and 2019,
respectively.
CST Fuel Supply Equity Interests
CST Fuel Supply provides wholesale motor fuel distribution to the majority of CST’s legacy U.S. retail sites at cost plus a fixed
markup per gallon. From July 1, 2015 through the closing of the CST Fuel Supply Exchange, we owned a 17.5% total interest in
CST Fuel Supply. We accounted for the income derived from our equity interest of CST Fuel Supply as “Income from CST Fuel
Supply equity interests” on our statements of income, which amounted to $3.2 million, $14.8 million and $14.9 million for 2020,
2019 and 2018, respectively. See Note 4 for information regarding the CST Fuel Supply Exchange.
CST Fuel Supply purchases gasoline for immediate distribution to specified retail locations through a supply contract with
Valero. Fuel purchases are priced at the prevailing daily rack rates at terminals serving the specified locations. Revenues of CST
Fuel Supply represent a $0.05 fixed markup on cost of gallons purchased. As a result of the pass-through nature of the fuel supply
operations of CST Fuel Supply, we have presented supplemental income statement information beginning with gross profit as the
most meaningful measure relevant to users. CST Fuel Supply does not enter into any other transactions beyond the purchase and
resale activities described above. Supplemental income statement information for CST Fuel Supply was as follows (in
thousands):
Gross profit
Net income
Purchase of Fuel from Circle K
2020
$ 17,820
17,476
Period from
January 1
through
March 25,
For the Year Ended
December 31,
2019
2018
$ 87,010 $ 85,998
85,310 84,305
We purchased $40.1 million, $263.5 million and $191.0 million of motor fuel from Circle K in 2020, 2019 and 2018, respectively.
Effective February 1, 2018, Couche-Tard began renegotiating fuel carrier agreements, including our wholesale transportation
agreements, with third-party carriers. The independent conflicts committee of our Board approved an amendment to the Circle K
Omnibus Agreement effective February 1, 2018 providing for the payment by us to an affiliate of Couche-Tard of a commission
based on the volume purchased by us on the renegotiated wholesale transportation contracts. This commission is to compensate
such affiliate of Couche-Tard for its services in connection with the renegotiations of our fuel carrier agreements with third-party
carriers, which resulted in overall reductions in transportation costs to us. In January 2020, this service was no longer provided by
Circle K and the Topper Group has provided this service since (under the Topper Group Omnibus Agreement as further described
below). This commission was insignificant, $0.9 million and $0.5 million for 2020, 2019 and 2018, respectively.
Amounts payable to Circle K related to these fuel purchases and freight commissions totaled $13.9 million at December 31, 2019.
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Transitional Omnibus Agreement, Circle K Omnibus Agreement and Management Fees
Upon the closing of the GP Purchase, the Partnership entered into a Transitional Omnibus Agreement, dated as of November 19,
2019 (the “Transitional Omnibus Agreement”), among the Partnership, the General Partner and Circle K. Pursuant to the
Transitional Omnibus Agreement, Circle K agreed, among other things, to continue to provide, or cause to be provided, to the
Partnership certain management, administrative and operating services, as provided under the Circle K Omnibus Agreement
through June 30, 2020 with respect to certain services, unless earlier terminated.
We incurred expense under the Transitional Omnibus Agreement and Circle K Omnibus Agreement, including non-cash
stock-based compensation expense, totaling $11.6 million and $11.8 million for 2019 and 2018, respectively. In addition, the
Partnership recognized charges for severance, benefit and retention costs allocated by Circle K of $0.1 million and $0.8 million
for 2019 and 2018, respectively. Such costs are included in general and administrative expenses in the statements of income.
On October 29, 2019, the Circle K Omnibus Agreement was amended and restated, effective as of April 29, 2019, to: a) remove
references to fixed and variable management fees and call for a simplified quarterly settlement based on actual underlying costs
incurred by Circle K; and b) permit for a one-time charge of $183,000 from Circle K to us related to costs incurred by Circle K in
connection with the strategic review of our fuel supply.
Amounts payable to Circle K related to expenses incurred by Circle K on our behalf in accordance with the Transitional Omnibus
Agreement totaled $4.6 million and $11.5 million at December 31, 2020 and 2019, respectively. The liability balance at
December 31, 2020 includes omnibus charges that will be paid in quarterly payments through December 31, 2021.
In addition, from January 1, 2020 until the closing of the CST Fuel Supply Exchange, we provided Circle K with certain
administrative and operational services, on the terms and conditions set forth in the Transitional Omnibus Agreement. We
recorded $0.5 million of income from such services as a reduction of operating expenses on our statement of operations for the
period from January 1, 2020 through the closing of the CST Fuel Supply Exchange.
Common Units Issued to Circle K as Consideration for Amounts due Under the Circle K Omnibus Agreement
As approved by the independent conflicts committee of the Board, the Partnership and Circle K mutually agreed to settle, from
time to time, some or all of the amounts due under the terms of the Circle K Omnibus Agreement in newly issued common units
representing limited partner interests in the Partnership. We issued 292,118 common units to Circle K during 2018 as
consideration for amounts due under the terms of the Circle K Omnibus Agreement.
IDR and Common Unit Distributions
We distributed $0.5 million and $1.6 million to Circle K related to its ownership of our IDRs and $15.7 million and $16.2 million
related to its ownership of our common units during 2019 and 2018, respectively.
Other Transactions with Circle K
As part of Circle K’s acquisition of Holiday, the FTC issued a decree in which nine Upper Midwest sites were required to be
divested to FTC approved third-party buyers. Since this was a forced divestiture of assets for us, Circle K compensated us with an
amount representing the difference between the value of the nine Upper Midwest sites and the proceeds of the sale to FTC
approved third-party buyers, which amounted to $6.3 million. Circle K’s payment to us was received during 2018. This payment
was accounted for as a transaction between entities under common control and thus recorded as a contribution to partners’ capital,
net of income taxes.
Note 17. ENVIRONMENTAL MATTERS
We currently own or lease retail sites where refined petroleum products are being or have been handled. These retail sites and the
refined petroleum products handled thereon may be subject to federal and state environmental laws and regulations. Under such
laws and regulations, we could be required to remove or remediate containerized hazardous liquids or associated generated wastes
(including wastes disposed of or abandoned by prior owners or operators), to remediate contaminated property arising from the
release of liquids or wastes into the environment, including contaminated groundwater, or to implement best management
practices to prevent future contamination.
We maintain insurance of various types with varying levels of coverage that is considered adequate under the circumstances to
cover operations and properties. The insurance policies are subject to deductibles that are considered reasonable and not
excessive. In addition, we have entered into indemnification and escrow agreements with various sellers in conjunction with
several of their respective acquisitions, as further described below. Financial responsibility for environmental remediation is
negotiated in connection with each acquisition transaction. In each case, an assessment is made of potential environmental
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liability exposure based on available information. Based on that assessment and relevant economic and risk factors, a
determination is made whether to, and the extent to which we will assume liability for existing environmental conditions.
The table below presents a rollforward of our environmental liability (in thousands):
Balance at beginning of year
Provision for new environmental losses
Changes in estimates for previously incurred losses
Payments
Balance at end of year
$
Current portion, included within accrued expenses and other current liabilities
Long-term portion, included within other long-term liabilities
$
2020
2019
3,390 $
210
1,403
(1,089 )
3,914
1,710
2,204 $
3,614
292
354
(870 )
3,390
1,520
1,870
At December 31, 2020, we were indemnified by third-party escrow funds, state funds or insurance totaling $3.1 million, which
are recorded as indemnification assets and included within other noncurrent assets on the balance sheet. State funds represent
probable state reimbursement amounts. Reimbursement will depend upon the continued maintenance and solvency of the state.
Insurance coverage represents amounts deemed probable of reimbursement under insurance policies.
The estimates used in these reserves are based on all known facts at the time and an assessment of the ultimate remedial action
outcomes. We will adjust loss accruals as further information becomes available or circumstances change. Among the many
uncertainties that impact the estimates are the necessary regulatory approvals for, and potential modifications of remediation
plans, the amount of data available upon initial assessment of the impact of soil or water contamination, changes in costs
associated with environmental remediation services and equipment and the possibility of existing legal claims giving rise to
additional claims.
Environmental liabilities related to the sites contributed to the Partnership in connection with our IPO have not been assigned to
us and are still the responsibility of the Predecessor Entity. Under the Circle K Omnibus Agreement, the Predecessor Entity must
indemnify us for any costs or expenses that we incur for environmental liabilities and third-party claims, regardless of when a
claim is made, that are based on environmental conditions in existence prior to the closing of the IPO for contributed sites. Such
indemnification survives the termination of the Circle K Omnibus Agreement. As such, these environmental liabilities and
indemnification assets are not recorded on the balance sheet of the Partnership.
Similarly, Circle K has indemnified us with respect to known contamination at the sites it has transferred to us under the Asset
Exchange Agreement and CST Fuel Supply Exchange Agreement. As such, these environmental liabilities and indemnification
assets are not recorded on the balance sheet of the Partnership.
Note 18. COMMITMENTS AND CONTINGENCIES
Purchase Commitments
We have minimum volume purchase requirements under certain of our fuel supply agreements with a purchase price at prevailing
market rates for wholesale distribution. The following provides total annual future minimum volume purchase requirements (in
thousands of gallons):
2021
2022
2023
2024
2025
Thereafter
Total
580,096
575,686
430,302
322,177
274,469
1,173,385
3,356,115
In the event we fail to purchase the required minimum volume for a given contract year, the underlying third party’s exclusive
remedies (depending on the magnitude of the failure) are either termination of the supply agreement and/or a financial penalty per
gallon based on the volume shortfall for the given year. We did not incur any significant penalties in 2020, 2019 or 2018.
Litigation Matters
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We are from time to time party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of
business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract, property
damages, environmental damages, employment-related claims and damages, punitive damages, civil penalties or other losses, or
injunctive or declaratory relief. With respect to all such lawsuits, claims and proceedings, we record an accrual when it is probable
that a liability has been incurred and the amount of loss can be reasonably estimated. In addition, we disclose matters for which
management believes a material loss is at least reasonably possible. None of these proceedings, separately or in the aggregate, are
expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows. In all
instances, management has assessed the matter based on current information and made a judgment concerning its potential
outcome, giving due consideration to the nature of the claim, the amount and nature of damages sought and the probability of
success. Management’s judgment may prove materially inaccurate, and such judgment is made subject to the known uncertainties
of litigation.
As part of Circle K’s acquisition of Holiday Stationstores, LLC, the FTC issued a decree in which nine sites were required to be
divested. These sites were divested in September 2018, after the June 15, 2018 deadline specified in the FTC orders. On July 6,
2020, the FTC agreed to settle the matter in exchange for, among other things, the respondents’ agreement to pay a $3.5 million
civil penalty. Circle K indemnified us for any such penalties and associated legal costs, and Circle K paid this penalty to the FTC
during 2020.
Note 19. FAIR VALUE MEASUREMENTS
General
We measure and report certain financial and non-financial assets and liabilities on a fair value basis. Fair value is the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date (exit price). U.S. GAAP specifies a three-level hierarchy that is used when measuring and disclosing fair value.
The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the
lowest priority to data lacking transparency (i.e., unobservable inputs). An instrument’s categorization within the fair value
hierarchy is based on the lowest level of significant input to its valuation. The following is a description of the three hierarchy
levels.
Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted
assets or liabilities. Active markets are considered to be those in which transactions for the assets or liabilities occur in
sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2—Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for
substantially the full term of the asset or liability. This category includes quoted prices for similar assets or liabilities in
active markets and quoted prices for identical or similar assets or liabilities in inactive markets.
Level 3—Unobservable inputs are not corroborated by market data. This category is comprised of financial and
non-financial assets and liabilities whose fair value is estimated based on internally developed models or methodologies
using significant inputs that are generally less readily observable from objective sources.
Transfers into or out of any hierarchy level are recognized at the end of the reporting period in which the transfers occurred. There
were no transfers between any levels in 2020 or 2019.
As further discussed in Note 14, we entered into interest rate swap contracts during 2020. We used an income approach to
measure the fair value of these contracts, utilizing a forward LIBOR yield curve for the same period as the future interest rate
swap settlements. These fair value measurements are classified as Level 2.
As further discussed in Note 21, we have accrued for unvested phantom units as a liability and adjust that liability on a recurring
basis based on the market price of our common units each balance sheet date. Such fair value measurements are deemed Level 1
measurements.
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Financial Instruments
The fair value of our accounts receivable, notes receivable, and accounts payable approximated their carrying values as of
December 31, 2020 and 2019 due to the short-term maturity of these instruments. The fair value of the revolving credit facility
approximated its carrying value as of December 31, 2020 and 2019 due to the frequency with which interest rates are reset and the
consistency of the market spread.
Note 20. PARTNERS’ CAPITAL
We issued common units (net of units withheld for income taxes) as a result of the vesting of phantom units previously issued
primarily to Topper Group and Circle K employees who provide services principally to CrossAmerica totaling 2,041 common
units in 2020, 50,328 common units in 2019 and 40,534 common units in 2018. See Note 21 for additional information.
Distributions
Quarterly distribution activity to common unitholders for 2020 was as follows:
Quarter Ended
December 31, 2019
March 31, 2020
June 30, 2020
September 30, 2020
December 31, 2020
Record Date
February 3, 2020
May 5, 2020
August 4, 2020
November 3, 2020
February 2, 2021
Payment Date
February 10, 2020
May 12, 2020
August 11, 2020
November 10, 2020
February 9, 2021
Cash
Distribution
(per unit)
Cash
Distribution
(in thousands)
18,111
19,881
19,887
19,912
19,912
0.5250
0.5250
0.5250
0.5250
0.5250
The amount of any distribution is subject to the discretion of the Board, which may modify or revoke our cash distribution policy
at any time. Our Partnership Agreement does not require us to pay any distributions. As such, there can be no assurance we will
continue to pay distributions in the future.
Note 21. EQUITY-BASED COMPENSATION
Partnership Equity-Based Awards
The maximum number of common units that may be delivered with respect to awards under the Plan is 1,505,000. Generally, the
Plan provides for grants of restricted units, unit options, performance awards, phantom units, unit awards, unit appreciation rights,
distribution equivalent rights, and other unit-based awards, with various limits and restrictions attached to these awards on a
grant-by-grant basis. The Plan is administered by the Board or a committee thereof.
The Board may terminate or amend the Plan at any time with respect to any common units for which a grant has not yet been
made. The Board also has the right to alter or amend the Plan or any part of the Plan from time to time, including increasing the
number of common units that may be granted, subject to unitholder approval as required by the exchange upon which common
units are listed at that time; however, no change in any outstanding grant may be made that would adversely affect the rights of a
participant with respect to awards granted to a participant prior to the effective date of such amendment or termination, except that
the Board may amend any award to satisfy the requirements of Section 409A of the Internal Revenue Code. The Plan will expire
on the tenth anniversary of its approval, when common units are no longer available under the Plan for grants or upon its
termination by the Board, whichever occurs first.
96
The table below summarizes our equity-based award activity:
Employees
Directors
Nonvested at December 31, 2018
Granted
Forfeited
Vested
Nonvested at December 31, 2019
Granted
Vested
Nonvested at December 31, 2020
Phantom
Units
Phantom
Performance
Units
13,607
14,712
(717 )
(27,602 )
—
—
—
—
827
—
—
(827 )
—
48,112
—
48,112
Phantom
Units
15,580
18,481
—
(32,020 )
2,041
12,306
(2,041 )
12,306
Total
30,014
33,193
(717 )
(60,449 )
2,041
60,418
(2,041 )
60,418
The GP Purchase constituted a change in control under the Partnership’s 2012 Incentive Award Plan and accelerated vesting of all
outstanding equity-based awards under the Plan, converting such awards into the same number of common units of the
Partnership.
Phantom Units
In July 2020, the Partnership granted 4,102 phantom units to each of three non-employee directors of the Board as a portion of
director compensation. Such awards will vest in July 2021, conditioned upon continuous service as non-employee directors.
These awards were accompanied by tandem distribution equivalent rights that entitle the holder to cash payments equal to the
amount of unit distributions authorized to be paid to the holders of our common units.
In November 2020, the Partnership granted 48,112 phantom units to employees of the Topper Group. Of these awards, 50% vest
ratably over three years through December 31, 2023 and 50% vest upon the employee’s death, disability or retirement. These
awards were accompanied by tandem distribution equivalent rights that entitle the holder to cash payments equal to the amount of
unit distributions authorized to be paid to the holders of our common units.
Performance-Based Awards
In November 2020, the Partnership granted performance-based awards with an initial target value of $0.9 million. The
performance-based awards vest on December 31, 2023 based on attainment of the performance goals set forth in the award
agreements. The performance-based awards are weighted 65% for the increase of funds flow from operations per unit (as defined
in the award agreements) and 35% for leverage (as defined in the award agreements), with a performance period from January 1,
2021 to December 31, 2023 and the reference period for the year ended December 31, 2020. The payout value for both
performance conditions will be interpolated on a linear basis ranging from 0% to 200%, which will then be multiplied by the
initial target value to determine the value of the units to be issued. The value of the units will then be divided by the 20-day
volume-weighted average closing price of our common units as of the close of trading on the day before the conversion date to
determine the actual number of units to be issued.
Overall
Since we grant awards to employees of the Topper Group who provide services to us under the Topper Group Omnibus
Agreement and non-employee directors of the Board, and since the grants may be settled in cash at the discretion of our Board,
unvested phantom units and unvested performance-based awards receive fair value variable accounting treatment. As such, they
are measured at fair value at each balance sheet reporting date and the cumulative compensation cost recognized is classified as a
liability, which is included in accrued expenses and other current liabilities on the consolidated balance sheet. The balance of the
accrual was insignificant at December 31, 2020 and 2019.
We record equity-based compensation as a component of general and administrative expenses in the statements of income.
Equity-based compensation expense was $0.1 million for 2020 and $0.9 million for 2019, which includes approximately $0.5
million of expense recognized upon the accelerated vesting of awards concurrent with the GP Purchase. Equity-based
compensation expense was insignificant for 2018.
97
CST Equity-Based Awards
Equity-based compensation expense charged to us under the Circle K Omnibus Agreement amounted to $0.3 million for 2019
and 2018.
Note 22. INCOME TAXES
As a limited partnership, we are not subject to federal and state income taxes. However, our corporate subsidiaries are subject to
income taxes. Income tax attributable to our taxable income (including any dividend income from our corporate subsidiaries),
which may differ significantly from income for financial statement purposes, is assessed at the individual limited partner
unitholder level. Individual unitholders have different investment basis depending upon the timing and price at which they
acquired their common units. Further, each unitholder’s tax accounting, which is partially dependent upon the unitholder’s tax
position, differs from the accounting followed in the Partnership’s financial statements. Accordingly, the aggregate difference in
the basis of the Partnership’s net assets for financial and tax reporting purposes cannot be readily determined because information
regarding each unitholder’s tax attributes in the Partnership is not available to the Partnership.
We are subject to a statutory requirement that non-qualifying income, as defined by the Internal Revenue Code, cannot exceed
10% of total gross income for the calendar year. If non-qualifying income exceeds this statutory limit, we would be taxed as a
corporation. The non-qualifying income did not exceed the statutory limit in any period presented.
Certain activities that generate non-qualifying income are conducted through our wholly owned taxable corporate subsidiary,
LGWS. Current and deferred income taxes are recognized on the earnings of LGWS. Deferred income tax assets and liabilities
are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The
Partnership calculates its current and deferred tax provision based on estimates and assumptions that could differ from actual
results reflected in income tax returns filed in subsequent years. Adjustments based on filed returns are recorded when identified.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed on March 27, 2020, which establishes a five-year
carryback of net operating losses (NOLs) generated in 2018, 2019 and 2020 and temporarily suspends the 80% limitation on the
use of NOLs in 2018, 2019 and 2020. The CARES Act also increases the adjusted taxable income limitation from 30% to 50% for
business interest deductions under IRC Section 163(j) for 2019 and 2020. As a result of the CARES Act, we expect to carry back
$16.9 million in net operating tax losses generated in 2020 to tax years 2015 through 2018, which resulted in the recording of an
incremental current benefit of $1.0 million, representing the difference between the tax at the 21% statutory rate in 2020 as
compared the 34% statutory rate at the time for 2015 through 2018.
Components of income tax expense related to net income were as follows (in thousands):
Current
U.S. federal
U.S. state
Total current
Deferred
U.S. federal
U.S. state
Total deferred
Income tax benefit
For the Year Ended December 31,
2018
2019
2020
$
(3,973 ) $
461
(3,512 )
(4,865 ) $
66
(4,799 )
1,117
411
1,528
(491 )
(3,945 )
(4,436 )
(7,948 ) $
4,895
(1,326 )
3,569
(1,230 ) $
(2,737 )
(1,524 )
(4,261 )
(2,733 )
$
98
The difference between the actual income tax provision and income taxes computed by applying the U.S. federal statutory rate to
earnings (losses) before income taxes is attributable to the following (in thousands):
Consolidated income from continuing operations before income
taxes - all domestic
Income from continuing operations before income taxes of
non-taxable entities
Loss from continuing operations before income taxes of
corporate entities
Federal income tax benefit at statutory rate
Increase (decrease) due to:
Rate difference on NOL carryback (a)
Nondeductible expenses
Basis difference of acquired assets
State income taxes, net of federal income tax benefit (b)
Non-taxable refund
Total income tax benefit
For the Year Ended December 31,
2019
2020
2018
$
99,508
$
16,846 $
2,513
(119,457 )
(16,902 )
(8,881 )
(19,949 )
(4,189 )
(1,003 )
1
—
(2,712 )
(45 )
(7,948 )
$
(56 )
(11 )
—
54
—
(995 )
(278 )
(1,230 ) $
(6,368 )
(1,337 )
—
132
(648 )
(880 )
—
(2,733 )
$
(a) The CARES Act allows a 5-year carryback of net operating losses generated in 2020, which resulted in the recognition
of an incremental benefit at the 34% statutory federal rate in effect for 2015 through 2017 relative to the current statutory
federal rate of 21%.
(b) The state tax benefit was primarily driven by changes in apportionment due to a reduction in gross receipts in certain
combined filing states where we were generally in a net deferred tax liability position and an increase in gross receipts in
separate company filing states that do not conform to federal bonus depreciation rules where we are generally in a net
deferred tax asset position. See Note 24 for information regarding the conversion of company operated sites to dealer
operated sites, which resulted in a reduction in gross receipts primarily in combined filing states. See Note 5 for
information regarding the acquisition of retail and wholesale assets, which resulted in an increase in gross receipts
primarily in separate filing states.
The tax effects of significant temporary differences representing deferred income tax assets and liabilities were as follows (in
thousands):
Deferred income tax assets:
Deferred rent expense
Operating and finance lease obligations
Asset retirement obligations
Intangible assets
Other assets
Total deferred income tax assets
Deferred income tax liabilities:
Deferred rent income
Property and equipment
Right-of-use assets
Total deferred income tax liabilities
Net deferred income tax liabilities
December 31,
2020
2019
$
$
175 $
40,274
9,847
9,994
7,361
67,651
1,036
46,174
35,463
82,673
15,022 $
256
26,003
8,075
8,736
2,535
45,605
1,249
44,095
19,630
64,974
19,369
We record an accrual for federal, state and local and uncertain tax positions. The development of these tax positions requires
subjective, critical estimates and judgments about tax matters, potential outcomes and timing. Although the outcome of potential
tax examinations is uncertain, in management’s opinion, adequate provisions for income taxes have been made for potential
liabilities resulting from these reviews. If actual outcomes differ materially from these estimates, they could have a material
impact on our financial condition and results of operations. Differences between actual results and assumptions, or changes in
assumptions in future periods, are recorded in the period they become known. To the extent additional information becomes
available prior to resolution, such accruals are adjusted to reflect probable outcomes.
99
We did not have unrecognized tax benefits at December 31, 2020 or 2019. Our practice is to recognize interest and penalties
related to income tax matters in income tax expense. We had no material interest and penalties for 2020, 2019 and 2018.
We file income tax returns with the U.S. federal government as well as the many state jurisdictions in which we operate. The
statute remains open for tax years 2017 through 2020; therefore, these years remain subject to examination by federal, state and
local jurisdiction authorities.
Note 23. NET INCOME PER LIMITED PARTNER UNIT
In addition to the common units, we have identified the IDRs as participating securities and compute income per unit using the
two-class method under which any excess of distributions declared over net income shall be allocated to the partners based on
their respective sharing of income as specified in the Partnership Agreement. Net income per unit applicable to limited partners is
computed by dividing the limited partners’ interest in net income, after deducting the IDRs, by the weighted-average number of
outstanding common units.
Since February 6, 2020, our common units are the only participating securities. See “Equity Restructuring” below for additional
information.
The following table provides a reconciliation of net income and weighted-average units used in computing basic and diluted net
income per limited partner unit for the following periods (in thousands, except unit and per unit amounts):
Numerator:
Distributions paid
Allocation of distributions in excess of net income
Limited partners’ interest in net income - basic and
diluted
Denominator:
Weighted average limited partnership units
outstanding - basic
Adjustment for phantom units(a)
Weighted average limited partnership units
outstanding - diluted
Net income per limited partnership unit - basic and
diluted
Distributions paid per common unit
Distributions declared (with respect to each
respective period) per common unit
Years Ended December 31,
2019
2018
2020
$
77,791 $
29,532
72,427 $
(54,884 )
75,599
(71,927 )
$
107,323 $
17,543 $
3,672
37,369,487 34,454,369 34,345,298
—
30,432
—
37,369,487 34,484,801 34,345,298
$
$
$
2.87 $
0.51 $
0.11
2.1000 $
2.1000 $
2.2025
2.1000 $
2.1000 $
2.1000
(a) Excludes 13,364 and 19,075 potentially dilutive securities from the calculation of diluted earnings per common unit
because to do so would be antidilutive for 2020 and 2018, respectively.
Equity Restructuring
On January 15, 2020, the Partnership entered into an Equity Restructuring Agreement (the “Equity Restructuring Agreement”)
with the General Partner and Dunne Manning CAP Holdings II LLC (“DM CAP Holdings”), a wholly owned subsidiary of DMP.
Pursuant to the Equity Restructuring Agreement, all of the outstanding IDRs of the Partnership, all of which were held by DM
CAP Holdings, were cancelled and converted into 2,528,673 newly-issued common units representing limited partner interests in
the Partnership based on a value of $45 million and calculated using the volume weighted average trading price of $17.80 per
common unit for the 20-day period ended on January 8, 2020, five business days prior to the execution of the Equity Restructuring
Agreement (the “20-day VWAP”).
This transaction closed on February 6, 2020, after the record date for the distribution payable on the Partnership’s common units
with respect to the fourth quarter of 2019.
100
Simultaneously with the closing of the equity restructuring, the General Partner executed and delivered the Second Amended and
Restated Agreement of Limited Partnership of the Partnership (the “Second Amended and Restated Partnership Agreement”) to
give effect to the Equity Restructuring Agreement.
The Second Amended and Restated Partnership Agreement amended and restated the First Amended and Restated Agreement of
Limited Partnership of the Partnership, dated as of October 30, 2012, as amended, in its entirety to, among other items, (i) reflect
the cancellation of the IDRs and (ii) eliminate certain legacy provisions that no longer apply, including provisions related to the
IDRs and subordinated units of the Partnership that were formerly outstanding.
The terms of the Equity Restructuring Agreement were approved by the independent conflicts committee of the Board.
Note 24. SEGMENT REPORTING
We conduct our business in two segments: 1) the Wholesale segment and 2) the Retail segment. The wholesale segment includes
the wholesale distribution of motor fuel to lessee dealers, independent dealers, commission agents, DMS (through the closing of
the acquisition of retail and wholesale assets), Circle K and company operated retail sites. We have exclusive motor fuel
distribution contracts with lessee dealers who lease the property from us. We also have exclusive distribution contracts with
independent dealers to distribute motor fuel but do not collect rent from the independent dealers. Similar to lessee dealers, we
have motor fuel distribution agreements with DMS (through the closing of the acquisition of retail and wholesale assets) and
Circle K and collect rent from both. The Retail segment includes the retail sale of motor fuel at retail sites operated by commission
agents and the sale of convenience merchandise items and the retail sale of motor fuel at company operated sites. A commission
agent is a retail site where we retain title to the motor fuel inventory and sell it directly to our end user customers. At commission
agent retail sites, we manage motor fuel inventory pricing and retain the gross profit on motor fuel sales, less a commission to the
agent who operates the retail site. Similar to our Wholesale segment, we also generate revenues through leasing or subleasing real
estate in our Retail segment.
Unallocated items consist primarily of general and administrative expenses, depreciation, amortization and accretion expense,
gains on dispositions and lease terminations, net, and the elimination of the Retail segment’s intersegment cost of revenues from
motor fuel sales against the Wholesale segment’s intersegment revenues from motor fuel sales. The profit in ending inventory
generated by the intersegment motor fuel sales is also eliminated. Total assets by segment are not presented as management does
not currently assess performance or allocate resources based on that data.
101
The following table reflects activity related to our reportable segments (in thousands):
Wholesale
Retail
Unallocated Consolidated
Year Ended December 31, 2020
Revenues from fuel sales to external customers
Intersegment revenues from fuel sales
Revenues from food and merchandise sales (a)
Rent income
Other revenue (a)
Total revenues
Income from CST Fuel Supply equity interests
Operating income (loss) (b)
Year Ended December 31, 2019
Revenues from fuel sales to external customers
Intersegment revenues from fuel sales
Revenues from food and merchandise sales (a)
Rent income
Other revenue (a)
Total revenues
Income from CST Fuel Supply equity interests
Operating income (loss) (b)
Year Ended December 31, 2018
Revenues from fuel sales to external customers
Intersegment revenues from fuel sales
Revenues from food and merchandise sales (a)
Rent income
Other revenue (a)
Total revenues
Income from CST Fuel Supply equity interests
Operating income (loss) (b)
— (370,916 )
$ 1,176,943 $ 541,882 $
370,916
— $ 1,718,825
—
— 123,295
—
83,233
—
6,970
$ 1,623,002 $ 680,237 $ (370,916 ) $ 1,932,323
— $
1,328 $
— 123,295
10,434
4,626
3,202
(9,193 ) $ 115,592
3,202 $
$
$ 123,457 $
72,799
2,344
— $
$ 1,609,547 $ 397,474 $
306,070
—
81,427
2,887
— $ 2,007,021
—
47,875
90,139
4,394
$ 1,999,931 $ 455,568 $ (306,070 ) $ 2,149,429
— $
3,189 $
— (306,070 )
—
—
—
47,875
8,712
1,507
$
14,768 $
$ 113,299 $
— $
(73,166 ) $
14,768
43,322
$ 1,713,227 $ 546,061 $
425,610
—
77,404
3,384
— $ 2,259,288
—
93,872
85,642
7,115
$ 2,219,625 $ 651,902 $ (425,610 ) $ 2,445,917
— $
8,429 $
— (425,610 )
—
—
—
93,872
8,238
3,731
14,948 $
$
$ 117,848 $
— $
(91,265 ) $
14,948
35,012
(a) We reclassified revenues related to certain ancillary items such as car wash revenue, lottery commissions and ATM
commissions from revenues from food and merchandise sales to other revenue to conform to the current year
presentation, which amounted to $1.5 million and $3.7 million for 2019 and 2018, respectively.
(b) As discussed in Note 2, as a result of the adoption of ASC 842, operating income for 2020 and 2019 is not comparable to
operating income for 2018. Most significantly, payments on our previous failed sale-leaseback obligations were
characterized as principal and interest expense in periods prior to 2019. Starting in 2019, these payments are
characterized as rent expense and thus reduce operating income. These payments for the Wholesale and Retail segments
amounted to approximately $6.7 million and $0.5 million for 2018, respectively. Of the total payments, $5.5 million was
classified as interest expense in 2018.
Receivables relating to the revenue streams above are as follows (in thousands):
Receivables from fuel and merchandise sales
Receivables for rent and other lease-related charges
Total accounts receivable
December 31,
2020
2019
$
$
23,800 $
5,650
29,450 $
33,032
9,318
42,350
Performance obligations are satisfied as fuel is delivered to the customer and as merchandise is sold to the consumer. Many of our
fuel contracts with our customers include minimum purchase volumes measured on a monthly basis, although such revenue is not
material. Receivables from fuel are recognized on a per-gallon rate and are generally collected within 10 days of delivery.
102
The balance of unamortized costs incurred to obtain certain contracts with customers was $8.3 million and $6.5 million at
December 31, 2020 and 2019, respectively. Amortization of such costs is recorded against operating revenues and amounted to
$1.2 million, $1.0 million and $0.9 million for 2020, 2019 and 2018, respectively
Receivables from rent and other lease-related charges are generally collected at the beginning of the month.
Conversion of Upper Midwest Company Operated Sites to Lessee Dealer Sites
When we convert company owned retail sites from our Retail segment to lessee dealers in our Wholesale segment, we no longer
generate revenues from the retail sale of motor fuel or merchandise at these stores subsequent to the date of conversion and we no
longer incur retail operating expenses related to these retail sites. However, we continue to supply these retail sites with motor
fuel on a wholesale basis pursuant to the fuel supply contract with the lessee dealer. Further, we continue to own or lease the
property and earn rental income under lease/sublease agreements with the lessee dealers under triple net leases. The lessee dealer
owns all motor fuel and convenience merchandise and retains all gross profit on such operating activities.
During the third quarter of 2019, we converted 46 company operated Upper Midwest sites to dealer operated sites. In connection
with the conversion of these company operated sites in our Retail segment to lessee dealer sites in our Wholesale segment, we
recognized a $0.5 million loss on sale of inventory to the multi-site operator, classified within the loss on dispositions and lease
terminations, net line item of the statement of income. As further discussed in Note 11, we also reassigned $4.5 million of
goodwill from the Retail segment to the Wholesale segment.
As a result of this transition, we did not have any company operated sites from September 30, 2019 through April 14, 2020. See
Note 5 for information regarding the acquisition of retail and wholesale assets from the Topper Group and certain other parties.
Note 25. SUPPLEMENTAL CASH FLOW INFORMATION
In order to determine net cash provided by operating activities, net income is adjusted by, among other things, changes in
operating assets and liabilities as follows (in thousands):
For the Year Ended December 31,
2019
2018
2020
Decrease (increase):
Accounts receivable
Accounts receivable from related parties
Inventories
Other current assets
Other assets
Increase (decrease):
Accounts payable (a)
Accounts payable to related parties (b)
Motor fuel taxes payable
Accrued expenses and other current liabilities
Other long-term liabilities
Changes in operating assets and liabilities, net of
acquisitions
$
7,497 $
3,368
(777 )
(5,593 )
(2,338 )
(10,997 ) $
(1,951 )
7,244
(868 )
(2,697 )
6,559
4,517
7,260
900
(2,183 )
12,404
(12,923 )
1,871
(7,896 )
7,180
12,514
4,271
362
(66 )
(137 )
(3,157 )
(1,853 )
(1,637 )
1,364
(1,645 )
$
19,210 $
(8,633 ) $
10,016
(a) Change in 2020 driven by newly acquired company operated activity and initial build of accounts payable balance
(b) Change in 2019 includes a $14.2 million payment to Circle K as partial settlement of omnibus charges
The above changes in operating assets and liabilities may differ from changes between amounts reflected in the applicable
balance sheets for the respective periods due to acquisitions.
Supplemental disclosure of cash flow information (in thousands):
Cash paid for interest
Cash paid for income taxes, net of refunds received
$
103
For the Year Ended December 31,
2019
26,344 $
3,296
2020
16,000 $
759
2018
31,201
1,580
Supplemental schedule of non-cash investing and financing activities (in thousands):
Lease liabilities arising from obtaining right-of-use assets $
Net assets acquired in connection with the asset exchange
tranches with Circle K
Net assets acquired in connection with the CST Fuel
Supply Exchange with Circle K
Net assets acquired in connection with the acquisition of
retail and wholesale assets
Circle K Omnibus Agreement fees settled in our
common units
For the Year Ended December 31,
2019
2018
2020
70,905 $
2,879 $
(75,935 )
(35,740 )
(54,920 )
(17,092 )
—
—
—
—
—
—
—
—
6,518
Note 26. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes quarterly financial data for 2020 and 2019 (in thousands, except per unit amounts):
2020 Quarter Ended
Operating revenues
Gross profit
Operating income
Net income attributable to limited partners
Basic and diluted earnings per common unit (a)
Operating revenues
Gross profit
Operating income
Net income attributable to limited partners
Basic and diluted earnings per common unit (a)
March 31
$
391,695 $
35,729
77,432
72,061
2.00
March 31
$
471,786 $
37,077
7,612
212
0.00
June 30
398,402 $
57,648
6,329
5,230
0.14
September 30 December 31
551,204
56,478
8,139
8,960
0.24
591,022 $
62,272
23,692
21,205
0.56
2019 Quarter Ended
June 30
605,528 $
41,370
13,920
6,441
0.18
September 30 December 31
512,379
35,045
9,441
4,258
0.12
559,736 $
41,145
12,349
7,165
0.20
(a) Earnings (loss) per common unit amounts are computed independently for each of the quarters presented. Therefore, the
sum of the quarterly earnings per share amounts may not equal the annual earnings per share amounts.
104
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Our management has evaluated, with the participation of our principal executive officer and principal financial officer, the
effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934)
as of the end of the period covered by this report, and has concluded that our disclosure controls and procedures were effective as
of December 31, 2020.
Internal Control over Financial Reporting
(a) Management's Report on Internal Control over Financial Reporting
The management report on our internal control over financial reporting appears in Item 8 and is incorporated herein by
reference.
(b) Attestation Report of the Independent Registered Public Accounting Firm
Grant Thornton LLP’s report on our internal control over financial reporting appears in Item 8 and is incorporated herein
by reference.
(c) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2020, that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Management of CrossAmerica Partners LP
Our General Partner manages our operations and activities on our behalf. DMP indirectly owns all of the membership interests in
our General Partner. The Topper Group has sole and exclusive authority over our General Partner. All of our executive officers
are employed by an affiliate of the Topper Group.
Our General Partner has a Board that oversees our management, operations and activities. Our unitholders are not entitled to elect
the directors of the Board or participate in our management or operations. The Topper Group, as the indirect owner of our General
Partner, has the right to appoint and remove all members of the Board. Our General Partner owes a fiduciary duty to our
unitholders. However, our Partnership Agreement contains provisions that limit the fiduciary duties that our General Partner owes
to our unitholders. Our General Partner is liable, as general partner, for all of our debts (to the extent not paid from our assets),
except for indebtedness or other obligations that are made specifically nonrecourse to it. Whenever possible, our General Partner
intends to incur indebtedness or other obligations that are nonrecourse. Except as described in our Partnership Agreement and
subject to its fiduciary duty to act in good faith, our General Partner has exclusive management power over our business and
affairs.
Our General Partner does not have any employees. All of the personnel who conduct our business are employed by an affiliate of
the Topper Group, and their services are provided to us pursuant to the Topper Group Omnibus Agreement.
Directors and Executive Officers
The Partnership does not directly employ any of the persons responsible for managing or operating the Partnership. We are
managed and operated by the Board and the executive officers appointed by our General Partner who are employees of an affiliate
of the Topper Group. The following table shows information for the directors of our General Partner and our executive officers
appointed by our General Partner.
Directors and Executive Officers of the General Partner
Current Directors and Executive Officers
Joseph V. Topper, Jr.
John B. Reilly, III
Justin A. Gannon
Mickey Kim
Keenan D. Lynch
Charles M. Nifong, Jr.
Maura Topper
Kenneth G. Valosky
Eric M. Javidi (2)
Jonathan E. Benfield (3)
David F. Hrinak (4)
(1)
as of December 31, 2020
Age (1)
65
59
71
62
32
47
34
60
44
45
64
Position with our General Partner
Chairman of the Board
Vice Chairman of the Board
Director
Director
Director, General Counsel and Corporate Secretary
Director, President and Chief Executive Officer
Director
Director
Chief Financial Officer
Chief Accounting Officer
Executive Vice President of Wholesale
(2) Mr. Javidi was elected Chief Financial Officer effective November 5, 2020.
(3) Mr. Benfield resigned as Interim Chief Financial Officer and was appointed Chief Accounting Officer effective November
5, 2020.
(4) Mr. Hrinak was elected Executive Vice President of Wholesale effective February 24, 2020. Prior to that he was Vice
President of Operations.
Our General Partner’s directors hold office until the earlier of their death, resignation, removal or disqualification or until their
successors have been elected and qualified. Our executive officers serve at the discretion of the Board. In selecting and appointing
directors to the Board, DMP, as the indirect owner of the sole member of our General Partner, does not apply a formal diversity
policy or set of guidelines. However, when appointing new directors, the Topper Group as the owner of the sole member of our
General Partner, will consider each individual director’s qualifications, skills, business experience and capacity to serve as a
director, as described below for each director, and the diversity of these attributes for the Board as a whole.
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Joseph V. Topper, Jr. has served as a director on the Board since October 2012 and was elected Chairman of the Board effective
November 19, 2019. Mr. Topper has been the President of Dunne Manning Inc. (“DMI”), a diversified portfolio of companies
operating in the wholesale and retail gasoline, real estate and investing industries, since 2015. Mr. Topper served as President and
Chief Executive Officer of the General Partner from October 2012 to March 2015. Mr. Topper resigned as President effective
March 2015 and his term as Chief Executive Officer ended in September 2015. Mr. Topper also served as Chairman of the Board
from October 28, 2012 through September 30, 2014. Mr. Topper has over 25 years of management experience in the wholesale
and retail fuel distribution business. In 1987, Mr. Topper purchased his family’s retail fuel business and five years later founded
DMI (formerly known as Lehigh Gas Corporation), where he has served as the Chief Executive Officer since 1992. He served on
the board of directors of CST Brands, Inc. from October 2014 until December 2016. He is the past President/Chairman of the
board of directors for Villanova University, Lehigh Valley PBS and the Lehigh Valley PBS Foundation. He also served as a board
member for the Good Shepherd Rehabilitation Hospital in Allentown. Mr. Topper holds a Masters degree of Business
Administration from Lehigh University and a bachelor’s degree in Accounting from Villanova University. Mr. Topper also
previously held the designation of Certified Public Accountant.
John B. Reilly, III has served as a director on the Board since May 2012 and was elected Vice Chairman of the Board effective
November 19, 2019. He was a member of the Partnership’s audit and conflicts committee from October 2014 through November
2019. Mr. Reilly has served as the President of City Center Investment Corp since May 2011. Prior to then, he was President of
Landmark Communities and Managing Partner of Traditions of America since 1998. Mr. Reilly has thirty years of experience in
commercial and residential real estate development and planning, finance management and law. Mr. Reilly serves as a trustee of
Lafayette College and also served as the chairman of the board of trustees for the Lehigh Valley Health Network. He holds a Juris
Doctor degree from Fordham University Law School and a bachelor’s degree in economics from Lafayette College. He is a
Certified Public Accountant and a member of the Pennsylvania Bar Association.
Justin A. Gannon has served as a director on the Board and Chairman of its audit committee and member of its conflicts
committee since October 2014. Mr. Gannon has acted as an independent consultant and private investor since September 2013.
From February 2003 through August 2013, He served in various roles at Grant Thornton LLP, including as National Leader of
Merger and Acquisition Development from June 2011 through August 2013, Central Region Managing Partner from January
2010 through June 2011, Office Managing Partner in Houston, Texas from August 2007 through June 2011 and Office Managing
Partner in Kansas City, Missouri from August 2005 to July 2007. From 1971 through 2002, Mr. Gannon worked at Arthur
Andersen LLP, the last 21 years as an audit partner. From December 2014 until October 2020, Mr. Gannon served on the board of
directors of California Resources Corporation (NYSE: CRC) and as chair of the audit committee and member of the
compensation committee. Mr. Gannon also served on the board of directors of Vantage Energy Acquisition Corp. (NASDAQ:
VEACU) and as chairman of the audit committee and a member of the compensation committee from April 2017 until its
dissolution in April 2019. He is a former chairman of the board of directors of American Red Cross Chapters in the Tulsa,
Oklahoma and San Antonio, Texas areas. Mr. Gannon received a bachelor’s degree in Accounting from Loyola Marymount
University and is a Certified Public Accountant licensed in California (inactive) and Texas.
Mickey Kim has served as a director on the Board and Chairman of its conflicts committee and member of its audit committee
since June 2017. Mr. Kim is a Member, Chief Operating Officer and Chief Compliance Officer of Kirr, Marbach & Company,
LLC (“KM”), a registered investment adviser. Mr. Kim joined KM in 1986 and has been KM’s Chief Operating Officer since
1996 and Chief Compliance Officer since 2004. Mr. Kim has also served as Vice President, Treasurer and Secretary of Kirr,
Marbach Partners Funds, Inc., a registered investment company, since 1998. Prior to his position with KM, Mr. Kim was a Senior
Research Analyst at Driehaus Capital Management, a Chicago investment management firm, from 1982 to 1985. Mr. Kim has
been a Chartered Financial Analyst (CFA) charterholder since 1985 and passed the Certified Public Accountant examination in
1980. He holds a bachelor’s degree in Accounting from the University of Illinois (1980) and a Masters degree in Business
Administration from the University of Chicago (1982).
Keenan D. Lynch was appointed as a director of the Board and Corporate Secretary of the General Partner, effective November
19, 2019 and General Counsel, effective February 24, 2020. Since 2017, he has served as Vice President and General Counsel of
DMI, a diversified portfolio of companies operating in the wholesale and retail gasoline, real estate and investing industries.
Before joining DMI, from 2015 to 2017, he was an associate at Skadden, Arps, Slate, Meagher & Flom LLP. He holds a Bachelor
of Arts from Villanova University, a Juris Doctor from the University of Pennsylvania Law School and an L.L.M. in Taxation
from the Villanova University Charles Widger School of Law.
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Charles M. Nifong, Jr. was appointed as a director of the Board and President and Chief Executive Officer of the General
Partner, effective November 19, 2019. Prior to assuming his current position, Mr. Nifong was the President of Dunne Manning
Stores, Inc., a convenience store operator and wholesale fuel provider. Mr. Nifong served as the Chief Investment Officer and
Vice President of Finance for the Partnership from 2013 through 2015. Before joining the Partnership, Mr. Nifong worked for
more than nine years in investment banking as a Director at Bank of America Merrill Lynch where he worked on an extensive
range of capital markets and mergers and acquisitions advisory assignments. Prior to his career in investment banking, Mr.
Nifong served as a Captain in the United States Army in armor and reconnaissance units. Mr. Nifong holds a Bachelor of
Chemical Engineering with Highest Honor from the Georgia Institute of Technology and Master of Business Administration from
the University of Virginia.
Maura Topper was appointed as a director of the Board effective November 19, 2019. She is currently Vice President and Chief
Financial Officer of Dunne Manning, a diversified portfolio of companies operating in the real estate and investing industries.
Prior to joining Dunne Manning in 2014, Ms. Topper graduated from the Masters of Business Administration program at
Columbia Business School. Prior to that, she served as a Marketing Account Executive at MSG Promotions, Inc. and a senior
accountant in the audit practice of Deloitte & Touche LLP in New York. Ms. Topper graduated from Villanova University in
2008 with a Bachelor of Science degree in Accounting and a Bachelor of Science in Business (Finance). From 2012 to 2014, she
served as a director on the Board.
Kenneth G. Valosky was appointed director on the Board and a member of its audit committee and conflicts committee effective
November 19, 2019. He is Executive Vice President of Villanova University. He joined Villanova University in 2000 as the Chief
Financial Officer and has served as its Vice President for Finance, Acting Senior Vice President for Administration and Vice
President for Administration and Finance before assuming his current role in 2014. He previously held several senior financial
positions at Thomas Jefferson University prior to joining the University in 2000. These positions included Director of Internal
Audit and Controller. He began his career as a public accountant with Touche Ross & Co. (a predecessor to Deloitte). Mr.
Valosky also served as a trustee and chair of the Stewardship Committee of the Mercy Health System of Southeastern
Pennsylvania, trustee and chair of the Finance Committee of Merion Mercy Academy and as a member of the Auditing and
Accounting Committee of the Archdiocese of Philadelphia. He received a B.S. in Accountancy, cum laude from Villanova
University and an M.S. in Organizational Dynamics from the University of Pennsylvania. He is a Certified Public Accountant,
inactive status in the Commonwealth of Pennsylvania.
Eric M. Javidi was appointed Chief Financial Officer of the General Partner effective November 5, 2020. Prior to joining the
Partnership, Mr. Javidi was the President and CEO of Southcross Holdings GP, LLC, the general partner of Southcross Holdings
LP, from June 2019 to July 2020. Southcross Holdings was an energy infrastructure company focused on natural gas gathering,
treating, processing and transportation services. Southcross Holdings owned the general partner of Southcross Energy Partners,
L.P., a publicly traded Delaware limited partnership. Mr. Javidi led the separation of Southcross Holdings from Southcross
Energy and, ultimately, the dissolution and termination of Southcross Holdings. From April 2015 to March 2019, Mr. Javidi was
a Managing Director at Kayne Anderson Capital Advisors, L.P., an alternative investment management firm focused on real
estate, credit, infrastructure/energy, renewables and growth equity. At Kayne Anderson, Mr. Javidi focused primarily on private
and public equity investments in the energy infrastructure space. Prior to Kayne Anderson, Mr. Javidi worked as an investment
banker in various capacities at UBS, Barclays and Lehman Brothers, most recently as an Executive Director in UBS’ energy
investment banking group. As an investment banker, Mr. Javidi focused on mergers and acquisitions activity and capital markets
activity in the energy infrastructure space. From August 2020 to October 2020, Mr. Javidi was a private investor and consultant,
providing strategic and financial consulting services for private equity portfolio companies. Mr. Javidi holds a bachelor’s degree
with majors in Economics and Psychology from the University of California, Davis and a Master of Business Administration
from Duke University, with emphases in Finance & Accounting as well as Financial Analysis.
Jonathan E. Benfield was appointed Chief Accounting Officer of the General Partner effective November 5, 2020. Prior to that
he held the position of Interim Chief Financial Officer of the General Partner from November 19, 2019 through November 5,
2020. Mr. Benfield has over 20 years of public and corporate accounting experience and has served in a variety of roles since
joining CrossAmerica in 2012, most recently as Director of Finance. Before joining CrossAmerica, Mr. Benfield worked for four
years at PPL Corporation, most recently as Manager of Financial Reporting. He also worked for nine years at Ernst & Young,
most recently as Senior Manager in the audit practice. He served on the Board of Trustees of Bally Savings Bank from 2004 to
2012, including as chairman of the board from 2009 to 2012. Mr. Benfield is a Certified Public Accountant and holds a bachelor’s
degree in Accounting and Finance from Kutztown University.
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David F. Hrinak was appointed Executive Vice President of Wholesale of the General Partner effective February 24, 2020. Prior
to that he was Vice President of Operations from November 19, 2019 through February 23, 2020. Mr. Hrinak previously served as
Executive Vice President and Chief Operating Officer of the General Partner from 2014 until June 2017 and served as President
of the General Partner from May 2012 to October 2014. He previously served as an officer of DMI from 2005 until the founding
of the General Partner and was DMI’s President from September 2010 until May 2012. Mr. Hrinak has more than 36 years of
experience in the wholesale and retail fuel distribution business. Prior to joining DMI, Mr. Hrinak was the Branded Wholesale
Manager at ConocoPhillips.
Family Relationships
Mr. Topper, Chairman of the Board, is the father of Ms. Topper, a director of our General Partner, and the father-in-law of Mr.
Lynch, a director of our General Partner and General Counsel and Corporate Secretary, and Ms. Topper is the sister-in-law of Mr.
Lynch. There are no other family relationships between any of the directors or executive officers of the Partnership.
Director Independence
Section 303A of the NYSE Listed Company Manual provides that limited partnerships are not required to have a majority of
independent directors. The Board has adopted a policy that the Board has at all times at least three independent directors or such
higher number as may be necessary to comply with the applicable federal securities law requirements. For the purposes of this
policy, “independent director” has the meaning set forth in Section 10A(m)(3) of the Exchange Act, any applicable stock
exchange rules and the rules and regulations promulgated in the Partnership governance guidelines available on its
website www.crossamericapartners.com.
The Board has determined Messrs. Gannon, Kim and Valosky to be independent as defined under the independence standards
established by the NYSE and the Exchange Act. These directors, whom we refer to as independent directors, are not officers or
employees of our General Partner or its affiliates and have been determined by the Board to be otherwise independent of the
Topper Group and its affiliates.
Composition of the Board
The Board consists of eight members. The Board holds regular and special meetings at any time as may be necessary. Regular
meetings may be held without notice on dates set by the Board from time to time. Special meetings of the Board or meetings of
any committee of the Board may be held at the request of the Chairman of the Board or a majority of the Board (or a majority of
the members of such committee) upon at least two days (if the meeting is to be held in person) or 24 hours (if the meeting is to be
held telephonically) prior oral or written notice to the other members of the Board or committee or upon such shorter notice as
may be approved by the directors or members of such committee. A quorum for a regular or special meeting will exist when a
majority of the members are participating in the meeting either in person or by telephone conference. Any action required or
permitted to be taken at a meeting of the Board or at any committee may be taken without a meeting if such action is evidenced in
writing and signed by a majority of the members of the Board. During 2020, the Board held six meetings in which each director
attended 100% of the Board meetings. Management also provided two updates to the Board in which each director attended both
updates.
Committees of the Board
The Board has an audit committee and a conflicts committee. The charter for each of the committees can be found in its entirety
on the Partnership’s website at www.crossamericapartners.com under the “Corporate Governance” tab in the “Investors” section.
As a limited partnership, we are not required by NYSE rules to have a compensation committee or a nominating and corporate
governance committee. All committee members attended all committee meetings.
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Audit Committee
The members of the Audit Committee are Messrs. Gannon, Kim and Valosky. Mr. Gannon serves as chair. The audit committee
is comprised entirely of directors who meet the financial literacy standards of the NYSE and the Exchange Act. The rules and
regulations established by the NYSE and the Exchange Act also generally require that our audit committee consist entirely of
independent directors. The Board has determined that Messrs. Gannon, Kim and Valosky meet the independence standards
required of audit committee members by the NYSE and the Exchange Act and that they meet the financial literacy standards of
directors who serve on the audit committee, and Mr. Gannon is an “audit committee financial expert” as defined by SEC rules.
The audit committee assists the Board in its oversight of the integrity of our financial statements and our compliance with legal
and regulatory requirements, Partnership policies and controls, the independent auditor’s qualifications and independence, the
performance of the Partnership’s internal audit function and risk assessment and risk management. The audit committee has sole
authority with respect to the appointment, retention, compensation, evaluation, oversight of the work and termination of our
independent auditors and has the authority to obtain advice and assistance from outside legal, accounting or other advisors as the
audit committee deems necessary to carry out its duties and receives appropriate funding, as determined by the audit committee,
from the Partnership for such advice and assistance. In 2020, the audit committee held 6 meetings.
Conflicts Committee
The members of the Conflicts Committee are Messrs. Gannon, Kim and Valosky. Mr. Kim serves as chair. Pursuant to our
Partnership Agreement, the members of the conflicts committee may not be officers or employees of our General Partner or
directors, officers or employees of its affiliates, must not be holders of any ownership interest in the General Partner or any of its
affiliates, other than Partnership units, that is determined by the Board of Directors, after reasonable inquiry, to be likely to have
an adverse impact on the ability of such director to fulfill his or her obligations as a member of the conflicts committee, and must
meet the independence standards established by the NYSE and the Exchange Act to serve on an audit committee of a board of
directors. The Board has determined that Messrs. Gannon, Kim and Valosky qualify to serve on the conflicts committee. The
conflicts committee is responsible for reviewing specific matters that the Board believes may involve conflicts of interest between
the General Partner and its affiliates and the Partnership. The conflicts committee determines if the resolution of such conflict is
fair and reasonable to the Partnership. In 2020, the conflicts committee held 12 meetings.
Meeting of Independent Directors and Communications with Directors
The independent members of the audit committee have met in executive sessions without members of management. The chairman
presides over each executive session of the independent directors. Any independent director may request that additional executive
sessions of the independent directors be held, and the presiding independent director for the previous session will determine
whether to call any such meeting.
Unitholders or interested parties may communicate directly with the Board, any committee of the Board, any independent
director, or any one director, by sending written correspondence by mail addressed to the Board, committee or director to the
attention of our Corporate Secretary at the following address: c/o Corporate Secretary, CrossAmerica Partners LP, 600 Hamilton
Street, Suite 500, Allentown, PA 18101. Communications are distributed to the Board, committee of the Board, or director, as
appropriate, depending on the facts and circumstances outlined in the communication. Commercial solicitations or
communications will not be forwarded.
Meetings of Unitholders
Our Partnership Agreement provides that the General Partner manages and operates us and that, unlike holders of common stock
in a corporation, unitholders only have limited voting rights on matters affecting our business or governance as set forth in our
Partnership Agreement. Accordingly, we do not hold annual meetings of unitholders.
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Code of Ethics and Business Conduct
The Board has adopted a Code of Ethics and Business Conduct that applies to directors of the General Partner and our executive
officers. Our General Partner also expects all employees of the Topper Group providing services to or for the benefit of the
Partnership and its operating subsidiaries to adhere to the Code of Ethics and Business Conduct. The Code of Ethics and Business
Conduct can be found on CrossAmerica Partners’ website at www.crossamericapartners.com under the “Corporate Governance”
tab in the “Investors” section. The Board has also adopted Corporate Governance Guidelines that outline important policies and
practices regarding our governance, which can also be found in its entirety on CrossAmerica Partners’ website at
www.crossamericapartners.com under the “Corporate Governance” tab in the “Investors” section. Requests for print copies of the
Code of Ethics and Business Conduct and/or the Corporate Governance Guidelines may be directed to Investor Relations at
info@crossamericapartners.com or to Investor Relations, CrossAmerica Partners LP, 600 Hamilton Street, Suite 500, Allentown,
PA 18101 or made by telephone at (610) 625-8005. The information contained on, or connected to, our website is not
incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this or any other report that
we file with or furnish to the SEC.
Reimbursement of Expenses of Our General Partner
Except as otherwise set forth in our Topper Group Omnibus Agreement, our Partnership Agreement requires us to reimburse our
General Partner for all direct and indirect expenses it incurs or payments it makes on our behalf and all other expenses reasonably
allocable to us or otherwise incurred by our General Partner in connection with operating our business. The Partnership
Agreement does not limit the amount of expenses for which our General Partner and its affiliates may be reimbursed. These
expenses include (without limitation) salary, bonus, incentive compensation and other amounts paid to persons who perform
services for us or on our behalf and expenses allocated to our General Partner by its affiliates. Our General Partner is entitled to
determine in good faith the expenses that are allocable to us. Please read “Item 13. Certain Relationships and Related Party
Transactions and Director Independence - Topper Group Omnibus Agreement.”
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Overview
We do not directly employ or compensate any of our executive officers, including our named executive officers who were serving
as our executive officers at the end of the fiscal year ended December 31, 2020 (“NEOs”), or other employees who provide
services necessary for managing our business. Under our Partnership Agreement, the General Partner manages our operations and
activities on our behalf. Our General Partner also does not directly employ any of its executive officers or other employees. For
our fiscal year ending December 31, 2020, our executive officers, including our NEOs, as more fully described below, were
employed and compensated by an affiliate of the Topper Group.
For 2020, the provision of management services by, and payment to, the Topper Group was governed by the Topper Group
Omnibus Agreement.
Named Executive Officers
For 2020, our NEOs were:
Charles M. Nifong, Jr. – Mr. Nifong has served as our Chief Executive Officer and President since November 19, 2019.
Eric M. Javidi – Mr. Javidi has served as our Chief Financial Officer since November 5, 2020.
Jonathan E. Benfield – Mr. Benfield served as our Interim Chief Financial Officer from November 19, 2019 through
November 4, 2020 and is currently serving as our Chief Accounting Officer effective November 5, 2020.
David F. Hrinak – Mr. Hrinak has served as our Vice President of Operations from November 19, 2019 through February
24, 2020 and is currently serving as our Executive Vice President of Wholesale. During 2020, 90% of Mr. Hrinak’s time
was allocated to the Partnership.
Keenan D. Lynch – Mr. Lynch has served as our Corporate Secretary since November 19, 2019 and our General Counsel
since February 24, 2020. During 2020, 80% of Mr. Lynch’s time was allocated to the Partnership.
The Partnership does not determine the compensation for its NEOs. For 2020, the compensation philosophy and practices of the
Topper Group were used to determine the compensation of the NEOs and all compensation decisions were in the sole discretion
of the Topper Group. The compensation philosophy and practices of the Topper Group were used to determine the total
compensation of the NEOs and all compensation decisions were in the sole discretion of the Topper Group.
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The compensation philosophies and practices of the Topper Group during 2020 are described below in this Compensation
Discussion and Analysis, and the compensation actually awarded by the Topper Group to the NEOs for their services to the
Partnership during 2020 is set out in the accompanying Summary Compensation Table and related compensation tables that
follow this Compensation Discussion and Analysis.
Compensation
Objectives and Philosophy
The compensation philosophy of the Topper Group is based on performance and the achievement of predetermined objectives
and it is a reflection of the entrepreneurial culture of the Topper Group, which is a culture where the financial interests of its
executives are aligned with the performance of the company and the investors they represent. The compensation strategy includes
variable components linked to short term, medium term and long-term performance. The Topper Group compensation plans and
programs for executives are designed to (i) recruit, develop and retain talented executives; (ii) reward exceptional performance as
measured by predetermined and quantifiable objectives; (iii) establish a direct relation between the interests of the executives and
those of the shareholders of the Topper Group and the unitholders of the Partnership by favoring the creation of value in the short,
medium and long term; (iv) encourage teamwork and promote company values; and (v) support the company’s business strategy.
The Topper Group’s compensation plans and programs are established based on internal principles of equity that take into
consideration the role, nature and level of each of the executives as well as external principles of equity such as fair, equitable and
competitive compensation terms in comparison to peers as well as those of the market in general.
Elements of Executive Compensation
The three main components of the remuneration of the Topper Group’s executive compensation program are base salary, annual
incentive plan and long-term incentive plan, as shown in the table below.
Element
Base salary
Topper Group 2020 Performance Based
Compensation Policy (the “Bonus
Policy”)
Description
Annual base salary is based on the functional
responsibilities and competences of the
executives
Performance based bonus compensation
policy ranging from 35% to 100% of base
salary, which payment is determined by
financial objectives
Objectives
Attract, retain and motivate executives
Motivate executives to achieve objectives
with a higher degree of difficulty and
thereby achieve or exceed the business
plan of the Partnership
Long-term incentive compensation
Phantom stock unit plan with grants varying
according to position held
Create accountability among executives
for the achievement of these financial
objectives
Align the short-term interests of
executives with those of the company and
its shareholders
Align long-term interests of executives
with those of the company and its
shareholders
Performance payouts also vary depending on
the achievement of special measurable
objectives that are key to the financial
success of the company
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Base Salary
The human resources department of the Topper Group approved the following annualized base salaries for the 2020 fiscal year:
Name
Charles M. Nifong, Jr.
Eric M. Javidi
Jonathan E. Benfield(2)
David F. Hrinak
Keenan D. Lynch
2020
Annual
Base
Salary(1)
$ 500,000
300,000
190,000
273,000
269,440
(1) The amount shown represents annualized base salary, not the portion allocated to the Partnership.
(2) Mr. Benfield received a salary increase on February 10, 2020 from $168,910 to $190,000 to bring his salary more in
line with his job description.
The Summary Compensation Table reflects the portion of the annualized base salary allocated to the Partnership.
Short-Term Incentive Compensation
2020 Performance-Based Bonus Compensation Policy
The 2020 Performance-Based Bonus Compensation Policy (the “2020 Bonus Plan”) is one of the key components of the “at-risk”
compensation. The 2020 Bonus Plan is utilized to reward short-term performance achievements and to motivate and reward
executives for their contributions toward meeting financial and strategic goals.
For the NEOs, the Topper Group determined to include, as part of their compensation, the 2020 Bonus Plan for the fiscal year
ending on December 31, 2020. As approved by the Board in May 2020, the 2020 Bonus Plan included financial objectives, each
with a specified percentage weighting, based on the achievement of (i) Adjusted EBITDA (35%); (ii) distributable cash flow
(15%); wholesale contract conversion (20%); wholesale volume conversion (20%); and non-core real estate asset divestiture
(10%). As set forth in the 2020 Bonus Plan, if the objective’s target was met between the minimum and maximum target, the
bonus would be paid on a sliding scale between 75% and 100%. The weight of the metrics is 100% and the payout range is
0-100%.
Under the 2020 Bonus Plan, Mr. Nifong could achieve earnings of 100% of base salary. Mr. Javidi could achieve earnings of 50%
(prorated) of his base salary. Mr. Benfield could achieve earnings of 35% of his base salary. Mr. Hrinak could achieve earnings of
75% of his base salary. Mr. Lynch could achieve earnings of 40% of his base salary.
The purpose of the 2020 Bonus Plan is to motivate executives to achieve objectives with a higher degree of difficulty and thereby
achieve or exceed the business plan of the Partnership.
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Under the 2020 Bonus Plan, the attainment of performance metrics and the achievement factor are determined once the
measurement period ends on December 31, 2020. The bonus plan metrics and weightings were finalized in January 2020, before
the severity and impact of the COVID-19 Pandemic were known or could be reasonably estimated. Based on the metrics and
weightings assigned, the payout under the 2020 Bonus Plan for executive officers would have been 12% of the target bonus
amount. In evaluating the performance of personnel under the plan and making its determination of payment amounts, the Board
considered the extraordinary efforts of personnel in the successful execution of the transformational transactions of 2020 during
the depths of the global COVID-19 Pandemic. Furthermore, the Board also considered the exceptional efforts of personnel in
ensuring the operational continuity of the Partnership throughout the year despite the immense challenges of the pandemic. In
light of these factors, the Board approved an additional discretionary bonus component for the incentive plan to bring senior
leadership to 47.5% of target bonus and most other plan participants to 47.5% of target bonus, with select exceptions both higher
and lower for non-senior leadership personnel.
Name
Charles M. Nifong, Jr.
Eric M. Javidi
Jonathan E. Benfield
David F. Hrinak
Keenan D. Lynch
2020 Annual
Base Salary(1)
Target Bonus
Plan
as a % of
Base Salary
Bonus Plan
Target
at 100%
2020 Bonus
Plan
Payment
Approved
(2)(3)
$
500,000
300,000
190,000
273,000
269,440
100 % $
50 %
35 %
75 %
40 %
500,000 $ 237,500
150,000 11,875
66,500 31,587
204,750 97,256
107,776 51,193
(1) The amounts shown represent annualized base salary, not the portion allocated to the Partnership.
(2) The amounts shown will be paid in 2021.
(3) For Messrs. Nifong, Benfield, Hrinak and Lynch the amounts will be paid as follows: the first $25,000 in cash and
the remainder of the bonus will be paid 50% in cash and 50% in fully vested common units. The number of common
units will be determined on a 20-day volume weighted average price through March 11, 2021 with a payment date of
March 12, 2021. For Mr. Javidi, the amount will be paid in all cash.
Couche-Tard Annual Incentive Plan
The Couche-Tard Annual Incentive Plan (“AIP”) was one of the key components of the “at-risk” compensation in 2019. It was
utilized to reward short-term performance, achievements and to motivate and reward executives for their contributions toward
meeting financial and strategic goals. Amounts received for the 2019 AIP short-term incentive plan reflect net earnings of the
Plan that were allocated to the Partnership under the Circle K Omnibus Agreement and the Transitional Omnibus Agreement. Mr.
Benfield received a prorated payment in December 2019 and the remaining portion of his payment in June 2020.
Make-Whole Bonus Distribution
On November 10, 2020 Messrs. Nifong, Javidi and Lynch received a one-time make-whole bonus in the amounts of $8,880,
$3,197, and $3,589, respectively, which equates to the dividend equivalents they would have received had their equity awards
(granted on November 9, 2020) been granted prior to November 3, 2020, the record date for the November distribution.
Long-Term Incentive Compensation
Grants of Equity Awards
Under the Lehigh Gas Partners LP 2012 Incentive Award Plan, in 2020, an aggregate of 29,841 equity awards were granted to
Messrs. Nifong, Javidi, and Lynch in the form of Time Based Phantom Units with associated Distribution Equivalent Rights
(“DERs”) (“TBUAs”). Of the total number of TBUAs granted, 50% will vest one-third on each December 31 over three years
until December 31, 2023 if the executive remains employed over the vesting term, and 50% will vest upon death, disability or
retirement, as long as such retirement is not adverse to the interests of the Partnership, as determined by the Board in its sole
discretion.
In addition, Performance Based Awards were granted to Messrs. Nifong, Javidi and Lynch with a target dollar value of $375,000,
$135,000 and $101,040, respectively, and will be calculated in dollar amounts and then converted into common units representing
limited partner interests in the Partnership or cash, or both, at the discretion of the Board, based on attainment of the Performance
Goals as described below. The Performance Based Awards vest on December 31, 2023. The Performance Based Awards are
weighted 65% for Increase of Funds Flow from Operations per Unit and 35% for Partnership Leverage, with a performance
period from January 1, 2021 to December 31, 2023 (“Measurement Period”) and the reference period ending on December 31,
2020.
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Increase in Funds Flow from Operations per Unit
The target value with respect to Increase in Funds Flow from Operations per Unit is determined as follows. First, the average
Funds Flow from Operations per Unit will be calculated for the Measurement Period. Next, that number will be divided by the
Funds Flow from Operations per Unit for the twelve-month period ending on December 31, 2020 as the reference period. The
payout percentage for Increase in Funds Flow from Operations per Unit will range from 0-200% of 65% of the Initial Dollar
Target Amount.
“Funds Flow From Operations per Unit” is defined as distributable cash flow per Unit, excluding maintenance capital
expenditures or any other such capital expenditures typically included in calculating distributable cash flow.
Partnership Leverage
The target value associated with Partnership Leverage is determined as follows. First, Partnership Leverage will be calculated for
each of the respective twelve-month periods ending on December 31, 2021, 2022 and 2023. Next, “Average Partnership
Leverage” will be calculated as the sum of three times the Leverage for the year ending December 31, 2023, plus two times the
Leverage for the year ending December 31, 2022, plus the Leverage for the year ending December 31, 2021, divided by six (i.e.,
Average Partnership Leverage will be a weighted average with greater emphasis given to the latter years in the Measurement
Period). The payout percentage for Partnership Leverage will range from 0-200% of 35% of the Initial Dollar Target Amount.
“Partnership Leverage” is defined as the ratio of the Partnership’s total debt as of a specified date (as determined in accordance
with the Partnership’s GAAP financial statements) divided by EBITDA for the twelve-month period prior to such specified date.
In case of acquisitions, EBITDA will be calculated on a pro forma basis for such acquisitions, providing that the debt incurred for
such acquisitions is reflected in the total debt amount.
Distributable cash flow per Unit and EBITDA are calculated consistent with the Partnership’s financial information filed with the
Securities and Exchange Commission.
Other Benefits
All NEOs were eligible after completing one year of service to participate in the Dunne Manning 401(k) plan, a qualified safe
harbor plan with 100% match of employee contributions up to 4% of the executive’s base salary. All NEOs were eligible to
receive voluntary benefit programs, including medical, dental, vision, life and disability insurance.
Other Compensation Policies and Practices
Restrictions on Hedging, Pledging and Other Transactions
Our Insider Trading Policy prohibits “Covered Persons” from (a) speculative transactions such as short sales, puts, calls or other
similar derivative transactions, hedging or monetization transactions with respect to Partnership securities; (b) holding securities
of the Partnership in a margin account; and (c) pledging Partnership securities as collateral for loans. For purposes of the Insider
Trading Policy, Covered Persons are directors of the Partnership and our General Partner, executive officers of the Partnership or
DMI or their affiliates, including our General Partner and those employees who have, or have access to, certain financial
information regarding the Partnership and are designated as Covered Persons (and in each case their family members and
controlled entities within the meaning of the Insider Trading Policy). Transactions that are otherwise prohibited by our Insider
Trading Policy may be approved by the Corporate Secretary of the General Partner, as the compliance officer of our Insider
Trading Policy. Compliance with these policies is monitored by the Board. A copy of our Insider Trading Policy is available in its
entirety on the CrossAmerica Partners’ website at www.crossamericapartners.com under the “Corporate Governance” tab in the
“Investors” section.
115
Clawback Policy
We have adopted a “clawback” policy that applies to any bonuses and other incentive and equity compensation awarded to our
executive officers. This policy provides that, in the event of a material restatement of the Partnership’s financial results due to
material noncompliance with certain financial reporting requirements, the Board, or the appropriate committee of the Board, will
review all such incentive compensation and, if such incentive compensation would have been lower had it been calculated based
on the restated results, the Board, or the appropriate committee of the Board, will (to the extent permitted by law and as
appropriate under the circumstances) use reasonable efforts to seek to recover for the benefit of the Partnership all or a portion of
such incentive compensation, subject to a three-year look-back period. In July 2015, the SEC proposed new Rule 10D-1 under the
Exchange Act to implement the provisions of Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of
2012, or the Dodd-Frank Act, which requires the SEC to adopt rules relating to the disclosure of a company’s compensation
recovery, or “clawback,” policies in connection with an accounting restatement. Once the SEC issues final rules regarding
clawback policies, we intend to review and, if necessary, amend our policy to comply with such rules.
Impact of Regulatory Requirements
Internal Revenue Code—We believe we are a limited partnership and not a corporation for U.S. federal income tax purposes. It is
not entirely clear whether the compensation paid to the NEOs is subject to the deduction limitations under Section 162(m) of the
Internal Revenue Code. If we are required to be treated as a corporation for U.S. federal income tax purposes, however, the
limitations of Section 162(m) would apply. In any event, compensation decisions in respect of the NEOs will be made in a manner
designed to best incentivize appropriate performance.
Non-Qualified Deferred Compensation—Certain payments under the Partnership’s Executive Income Continuity Plan (the
“EICP”) may be subject to the tax rules applicable to non-qualified deferred compensation arrangements of the American Jobs
Creation Act of 2004.
Accounting for Stock-Based Compensation—We account for stock-based compensation in accordance with the requirements of
ASC 718 for all of our stock-based compensation plans. See Note 21 to the financial statements for a discussion of all
assumptions made in the calculation of stock awards to our NEOs.
Compensation Committee Report*
The members of the Board have reviewed and discussed the Compensation Discussion and Analysis included in this Annual
Report on Form 10-K with management and, based on such review and discussions and such other matters the Board deemed
relevant and appropriate, the Board has approved the inclusion of the Compensation Discussion and Analysis in this Annual
Report on Form 10-K.
Members of the Board:
Joseph V. Topper, Jr.
John B. Reilly, III
Justin A. Gannon
Mickey Kim
Keenan D. Lynch
Charles M. Nifong, Jr.
Maura Topper
Kenneth G. Valosky
* As a publicly traded limited partnership, we are not required to and do not have a compensation committee. Accordingly, the
Compensation Committee Report required by Item 407(e)(5) of Regulation S-K is given by the Board as specified by Item
407(e)(5)(i) of Regulation S-K.
The foregoing compensation committee report is not “soliciting material,” is not deemed filed with the SEC, and is not to be
incorporated by reference into any of the Partnership’s filings under the Securities Act, or the Exchange Act, respectively,
whether made before or after the date of this annual report on Form 10-K and irrespective of any general incorporation language
therein.
116
Summary Compensation Table
The following table sets forth certain information with respect to compensation of our NEOs. Except for the management fee we
paid to the Topper Group under the Topper Group Omnibus Agreement, we did not pay or reimburse any cash compensation
amounts to or for our NEOs in 2020. The amounts shown for Messrs. Hrinak and Lynch represent only that portion allocable to
the Partnership.
Name and Principal Position
Charles M. Nifong, Jr.,
President and Chief Executive Officer
Eric M. Javidi,
Chief Financial Officer (2)
Jonathan E. Benfield,
Chief Accounting Officer (3)
David F. Hrinak,
Executive Vice President Wholesale
Keenan D. Lynch, General Counsel
and Corporate Secretary
Year
Salary
($) (1)
Bonus
($) (4)
Stock
Awards
($) (5)(6)
Options
Awards
($) (7)
Non-Equity
Incentive Plan
Compensation
($) (8)
All Other
Compensation
($) (9)
Total
($) (10)
2020
528,846 186,380 250,004 —
60,000
12,575 1,037,805
2020
2020
2019
46,154 12,072 90,010 —
— —
186,267 24,868
145,864 8,636 5,270 —
3,000
7,980
28,263
158 151,394
8,987 228,102
10,530 198,563
2020
255,150 72,686
— —
24,570
1,174 353,580
2020
223,843 41,849 101,036 —
12,933
77 379,738
(1) Amount exceeds base salary due to timing of payroll payments.
(2) Mr. Javidi was appointed Chief Financial Officer effective November 5, 2020 and as such, the salary reflected is
prorated for 2020.
(3) Mr. Benfield received a salary increase on February 10, 2020.
(4) For Mr. Nifong, the amount represents a one-time make-whole bonus in the amount of $8,880 and a discretionary
bonus under the 2020 Bonus Plan in the amount of $177,500. For Mr. Javidi, the amount represents a one-time
make-whole bonus in the amount of $3,157 and a discretionary bonus under the 2020 Bonus Plan in the amount of
$8,875. For Mr. Benfield, the amount represents the remaining cash payment earned under the 2019 Couche-Tard AIP
short-term incentive plan allocated to the Partnership under the Transitional Omnibus Agreement in the amount of
$11,261 and a discretionary bonus under the 2020 Bonus Plan in the amount of $23,607. For Mr. Hrinak, the amount
represents a discretionary bonus under the 2020 Bonus Plan. For Mr. Lynch, the amount represents a one-time
make-whole bonus in the amount of $3,589 and a discretionary bonus under the 2020 Bonus Plan in the amount of
$38,260.
(5) The amounts shown represent the grant date fair value of awards for each of the years shown computed in accordance
with ASC 718, Compensation-Stock Compensation. See Note 21 to the financial statements for a discussion of all
assumptions made in the calculation of this amount. The grant date fair value for the Performance Based Awards was
$0 because the performance period commenced on January 1, 2021. The maximum amount payable pursuant to the
Performance Based Awards is $750,000 for Mr. Nifong, $270,000 for Mr. Javidi and $202,080 for Mr. Lynch.
(6) See the Grants of Plan-Based Awards table for more information regarding TBUAs and the Performance Based
Awards granted in 2020.
(7) There were no stock options granted to NEOs in 2018, 2019 or 2020.
(8) The amounts represent the earned portion of the Bonus Policy.
(9) The amounts listed as “All Other Compensation” for 2020 are composed of 401(k) company match, cell phone
reimbursement and premiums for group term life insurance. For Mr. Nifong, the amount includes $11,400 in 401(k)
company match, $935 in cell phone reimbursement and $240 in group-term life insurance premiums. For Mr. Javidi,
the amount includes $138 in cell phone reimbursement and $20 in group-term life insurance premiums. For Mr.
Benfield, the amount includes $7,847 in 401(k) company match, $900 in cell phone reimbursement and $240 in
group-term life insurance premiums. For Mr. Hrinak, the amount includes $934 in cell phone reimbursement and $240
in group-term life insurance premiums. For Mr. Lynch, this amount includes $77 in group-term life insurance
premiums.
(10) Represents amounts allocated to the Partnership under the Topper Group Omnibus Agreement.
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The following table provides information regarding grants of plan-based awards to our NEOs during 2020. All equity awards
shown were in the form of TBUAs or Performance Based Awards.
Grants of Plan-Based Awards
Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards
Target
($)
Maximum
($)
Threshold
($)
Estimated Future Payouts
Under Equity
Incentive Plan Awards (1)
Target
($)
Maximum
($)
Threshold
($)
All Other
Stock Awards:
Number of
Shares of
Stock or Units
(2)
All Other
Option Awards:
Number of
Securities
Underlying
Options
Exercise
or Base
Price of
Option
Awards
Grant Date
Fair Value
of Stock
and Option
Awards (3)
(#)
(#)
($/Sh)
($)
60,000 500,000 500,000
—
—
—
—
— —
—
—
—
—
— 375,000 750,000
16,915
— — 250,004
18,000 150,000 150,000
—
—
—
—
— —
—
—
—
—
— 135,000 270,000
6,090
— — 90,010
7,980 66,500 66,500
24,570 204,750 204,750
12,933 107,776 107,776
—
—
—
—
— —
—
—
—
—
—
— —
—
—
—
—
—
— —
—
—
—
—
— 101,040 202,080
6,836
— — 101,036
Grant
Date
11/9/2020
Name
Charles M. Nifong, Jr.
CAPL 2020
Bonus Plan
CAPL LTI
Plan
Eric M. Javidi
CAPL 2020
Bonus Plan
CAPL LTI
Plan
Jonathan E. Benfield
CAPL 2020
Bonus Plan
David F. Hrinak
CAPL 2020
Bonus Plan
Keenan D. Lynch
CAPL 2020
Bonus Plan
CAPL LTI
Plan
11/9/2020
11/9/2020
(1) Represents an award of Performance Based Awards under the long-term incentive plan. The Performance Based Awards are
granted and calculated in dollar amounts and then will convert into common units or cash, or both, at the discretion of the
Board, based on attainment of the performance goals. Therefore, the columns in this table represent the dollar amounts and
not the number of units. The Performance Based Awards vest on December 31, 2023. The Performance Based Awards are
weighted 65% for Increase of Funds Flow from Operations per Unit and 35% for Partnership Leverage, with a performance
period from January 1, 2021 to December 31, 2023 and the reference period ending on December 31, 2020.
(2) Represents an award of TBUAs under the long-term incentive plan. Of this award, 50% will vest a third each on December
31, 2021, 2022 and 2023. The remaining 50% will vest upon death, disability or retirement with board approval. The
threshold amount represents the 50% of the award that will vest over the three-year period if the executive remains employed
over the vesting term.
(3) The amounts shown represent the grant date fair value of the TBUAs computed in accordance with ASC 718,
Compensation-Stock Compensation. See Note 21 to the financial statements for a discussion of all assumptions made in the
calculation of this amount. The grant date fair value for the Performance Based Awards was $0 because the performance
period commenced on January 1, 2021.
118
Outstanding Equity Awards at Year End
The following table provides information regarding the number of outstanding equity awards held by our NEOs at December 31,
2020.
Stock Awards (1)
Number of
Shares or Units
of Stock That
Have Not
Vested (2)
(#)
16,915
6,090
6,836
Name
Charles M. Nifong, Jr.
Eric M. Javidi
Keenan D. Lynch
Market Value
of Shares or
Units of Stock
That Have Not
Vested (2)
($)
290,431
104,565
117,374
Equity
Incentive Plan
Awards
Number
of Unearned
Shares, Units,
or Other Rights
That Have Not
Vested
(#)
Equity
Incentive Plan
Awards: Market
or Payout
Value of
Unearned
Shares, Units
or Other Rights
That Have Not
Vested (3)
($)
375,000
135,000
101,040
—
—
—
(1) The amounts below include TBUAs and Performance Based Awards.
(2) Fifty percent of the TBUAs will vest a third each on December 31, 2021, 2022 and 2023. The remaining 50% will vest upon
death, disability or retirement with board approval. The market value is based on the December 31, 2020 closing unit price of
our common units.
(3) Represents the target dollar amount of the Performance Based Awards that will convert into common units or cash, or both,
at the discretion of the Board, based on attainment of the Performance Goals. The Performance Based Awards vest on
December 31, 2023. The Performance Based Awards are weighted 65% for Increase of Funds Flow from Operations per
Unit and 35% for Partnership Leverage, with a performance period from January 1, 2021 to December 31, 2023 and the
reference period ending on December 31, 2020.
No equity awards to our NEOs vested during 2020.
Option Exercises and Equity Vested
Potential Payments upon Termination or Change in Control
Our executive officers may be entitled to certain payments upon termination of their employment under certain circumstances, in
each case, as more fully described below. Any such payments that are to be made in cash will be subject to reimbursement under
the Topper Group Omnibus Agreement.
Executive Income Continuity Plan
The Partnership originally adopted the EICP in 2014 and further amended it in 2016. Effective November 5, 2020, the Board
terminated the EICP with the consent of all participants which included all of the present NEOs other than Mr. Javidi. As further
explained below, however, Mr. Benfield remains entitled to the compensation and benefits that otherwise would have been
payable under the EICP had it not been terminated.
119
As in effect before its termination, the EICP had provided certain cash severance, medical/life benefits continuation, equity
incentive award vesting and outplacement and relocation assistance benefits following a qualifying termination of employment (a
termination other than due to death, disability, retirement, cause or voluntary resignation other than for good reason (all as defined
in the EICP, as applicable)). The benefits were increased if the termination occurred within the two years after a change in control
(within the meaning of the EICP, including the GP Purchase). Notwithstanding the termination of the EICP, Mr. Benfield remains
entitled upon a qualifying termination of employment to the benefits to which he would have become entitled under the EICP as
in effect prior to its termination. Those benefits include: payment of the sum of his salary and target bonus in installments over 12
months (a lump-sum payment equal to 2.99 times the sum of his salary and target bonus if the termination occurs before
November 19, 2021 or after a subsequent change in control); continued medical/life benefits for one year on the same basis as in
effect before the termination (three years if the termination occurs before November 19, 2021 or after a subsequent change in
control); full vesting of equity incentive awards; outplacement assistance for one year; and, in certain circumstances,
reimbursement of relocation expenses incurred by reason of such termination. Had Mr. Benfield experienced a qualifying
termination of employment on December 31, 2020 (which was within two years following the change in control that occurred by
reason of the GP Purchase), the amounts payable to him would have been approximately: a lump-sum cash severance payment
equal to $766,935; continued medical/life benefits valued at $861 based on existing cost levels; and reimbursement for
outplacement assistance services. Mr. Benfield held no unvested equity incentive awards as of such date, and the value of
potential relocation benefits is not meaningfully determinable. The actual amounts payable to Mr. Benfield upon termination of
employment, if any, will depend on the prevailing circumstances at the time (including whether it is before November 19, 2021 or
after a subsequent change in control) and may differ materially from the foregoing.
Lehigh Gas Partners LP 2012 Incentive Award Plan
Under the Lehigh Gas Partners LP 2012 Incentive Award Plan and the award agreements, in the event an NEO’s employment is
terminated for any reason, all outstanding TBUAs and Performance Based Awards will be forfeited without payment, except that
upon an NEO’s death or disability, the TBUAs will vest in full and the Performance Based Awards will be determined in
accordance with its terms, subject to adjustments as the Board may make in its reasonable discretion. Upon a change in control of
the Partnership, the Board in its sole discretion may determine the treatment. If, upon death or disability of any of Messrs. Nifong,
Javidi and Lynch as of December 31,2020, their TBUAs will vest in full in the amounts of $290,431, $104,565 and $117,374,
respectively. The Performance Based Awards will be valued at zero as the performance period commences on January 1, 2021.
Principal Executive Officer Pay Ratio
We are providing the following information about the relationship of the annual total compensation of individuals providing
services in respect to the Partnership and the annual total compensation of Charles M. Nifong, Jr., our Principal Executive Officer
(our “PEO”):
For the year ended December 31, 2020:
the median of the annual total compensation of all individuals providing services in respect of the Partnership (other
than our PEO) was $78,377; and
the annual total compensation of our PEO was $1,037,805.
Based on this information for 2020, we have determined that the ratio of our PEO’s annual total compensation to the annual total
compensation of our median employee was 13:1. Our pay ratio figure was calculated in a manner consistent with Item 40(u) of
Regulation S-K.
As of December 31, 2020, there were 107 employees of an affiliate of the Topper Group who provided substantial management
services to us for the full year. As discussed in this Form 10-K, our PEO is an employee of an affiliate of the Topper Group, but we
are including his annual total compensation in the determination of the PEO pay ratio, as required under SEC rules.
The date we used to identify our median employee changed from October 30, 2019 last year to December 31, 2020 this year to
capture a full year of salary.
We identified our median employee based on the aggregate salary actually paid during 2020 to these employees.
120
For purposes of determining aggregate salary, we included the amount of base salary and overtime the employee received during
the year and all other pay elements related to base salary including, but not limited to, cash bonuses, holiday pay, vacation pay and
other paid time off, if any. Aggregate salary amounts did not include any commissions or other compensation. In making this
determination, we excluded any full-time and part-time permanent employees who were hired in 2020 but were not employed by
us for the entire year ended December 31, 2020.
Once we identified our median employee, we then determined that employee’s annual total compensation, including any
perquisites and other benefits, in the same manner that we determine the annual total compensation of our NEOs for purposes of
the Summary Compensation Table disclosed above. The annual total compensation of our median employee was determined to be
$78,377. This annual total compensation amount for our median employee was then compared to the total compensation of our
PEO for 2020 of $1,037,805. The elements included in the PEO’s annual total compensation are fully discussed above in the
footnotes to the Summary Compensation Table.
Director Compensation
Overview
Set out below is a discussion of compensation paid for 2020 to individuals who served as non-employee members of our Board
during any portion of 2020. Board members who were employees providing services in respect of the Partnership did not receive
any separate compensation for their Board service.
Director Compensation for 2020
Each non-employee director received cash compensation of $45,000 per year (paid on a quarterly basis). The chairman of each of
the audit committee and conflicts committee received additional cash compensation of $10,000 for 2020 (paid on a quarterly
basis). In addition, each non-employee director received $1,000 per each Board meeting attended or $500 per each Committee
meeting attended.
Messrs. Gannon, Kim, and Valosky received an award of 4,102 phantom units in an amount equal to $55,000 based on the closing
price of the Partnership’s common units on the date of grant as compensation for their service from June 28, 2020 until June 27,
2021. Such phantom units vest one year from date of award and include the payment made by the Partnership of distribution
equivalent rights equal to the amount of distributions authorized to be paid to holders of common units of the Partnership.
Our directors are reimbursed for all out-of-pocket expenses in connection with attending meetings of the Board or its committees.
To the extent permitted under Delaware law, each director is fully indemnified by us for actions associated with being a director.
The following table provides the compensation amounts for each of our non-employee directors for 2020.
Directors
Justin A. Gannon (3)(4)
Mickey Kim (3)(4)
Kenneth D. Valosky (3)
Fees
Earned or
Paid in
Cash ($) (1)
67,000
67,000
57,000
Stock or Unit
Awards and Option
Awards ($) (2)
All Other
Compensation ($) Total ($)
— 122,000
— 122,000
— 112,000
55,000
55,000
55,000
(1) Non-employee directors received a cash retainer of $45,000 (paid quarterly) and an additional $10,000 for chairs of the
Committees. In addition, each non-employee director received $1,000 per each Board meeting attended and $500 per each
Committee meeting attended.
(2) Under the Lehigh Gas Partners LP 2012 Incentive Award Plan, the directors will receive phantom units that can be
converted to common units or cash, at the discretion of the Board. The amounts shown represent the grant fair value of
awards for each of the years shown computed in accordance with ASC 718, Compensation-Stock Compensation
(3) As part of the compensation to non-employee directors for the period June 28, 2020 to June 27, 2021, each of Messrs.
Gannon, Kim and Valosky received an equity grant of 4,102 phantom units of the Partnership based upon a fair market
value of $13.41 per unit, which was the NYSE closing price of our common units on July 22, 2020. These phantom unit
awards were accompanied by tandem distribution equivalent rights that entitled the holder to cash payments equal to the
amount of unit distributions authorized to be paid to the holders of Partnership common units. There are no other
outstanding equity awards.
(4) Messrs. Kim and Gannon received additional cash compensation of $10,000 per year for their service as chairman of the
conflicts committee and audit committee, respectively.
121
Compensation Committee Interlocks and Insider Participation
None of the directors or executive officers of our General Partner served as members of the compensation committee of another
entity that has or had an executive officer who served as a member of our Board during 2020. We do not have a separate
compensation committee. Decisions regarding the compensation of our NEOs for 2020 were made, as applicable, by the Topper
Group as the owner of our General Partner prior to the GP Purchase.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
UNITHOLDER MATTERS
As of February 22, 2021, the following table sets forth the beneficial ownership of our common units of:
Each person known by us to be a beneficial owner of more than 5% of our outstanding common units;
Each NEO and director of the Board; and
All of the executive officers and directors of the Board, as a group.
Name of Beneficial Owner
Greater than 5% Stockholders**
Invesco
Patricia Dunne Topper Trust
Dunne Manning Inc.
DM Partners Management Co LLC
Dunne Manning Partners LLC
Dunne Manning CAP Holdings I LLC
Dunne Manning CAP Holdings II LLC
Directors
Joseph V. Topper, Jr.
John B. Reilly, III
Justin A. Gannon
Mickey Kim
Keenan D. Lynch
Charles M. Nifong, Jr.
Maura Topper
Kenneth G. Valosky
Named Executive Officers
Eric M. Javidi
Jonathan E. Benfield
David F. Hrinak
Directors and executive officers as a group (11 persons)**
Beneficial Ownership of Common Units
Number of
Percent of
Units
Class
5,832,920 (1)
16,563,826 (2)
3,782,216 (3)
10,014,804 (4)
10,014,804 (4)
7,486,131 (4)
2,528,673 (4)
18,521,871 (5)
951,675 (6)
17,465
11,781
6,956 (7)
10,327
8,601 (8)
6,741
—
3,365
40,446
19,579,228
15.4 %
43.7 %
10.0 %
26.4 %
26.4 %
19.8 %
6.7 %
48.9 %
2.5 %
*
*
*
*
*
*
*
*
*
51.7 %
*
The percentage of common units beneficially owned does not exceed one percent of the common units outstanding
** The address for each of our officers and directors listed below is 600 Hamilton Street, Suite 500 Allentown, PA 18101. The
address for the entities listed under “greater than 5% stockholders” other than Invesco is 645 Hamilton St., Suite 500,
Allentown, PA 18101.
(1)
(2)
Invesco has (i) sole power to vote 5,832,920 common units and (ii) sole power to dispose of 5,832,920 common units, based
on its Schedule 13F-HR filed as of February 16, 2021. The address for Invesco is 1555 Peachtree Street, N.E., Suite 1800,
Atlanta, GA 30309.
68,972 common units are held directly by the Patricia Dunne Topper Trust for the Family of Joseph V. Topper, Jr. (the
"Trust"). The Trust is controlled by Mr. Topper, the Chairman of the Board of the General Partner. All common units
owned directly by the Trust are pledged to secure certain indebtedness. The remaining common units listed here are directly
owned by each of Dunne Manning, Inc., Energy Realty Partners, LLC, Nova8516 LP, Dunne Manning Wholesale LLC,
Dunne Manning CAP Holdings I LLC and Dunne Manning CAP Holdings II LLC, all entities controlled by Mr. Topper and
the Trust.
(3) All 3,782,216 common units are held directly by Dunne Manning Inc., which is owned 100% by the Trust and Mr. Topper
is its sole director. Mr. Topper may be deemed to beneficially own these common units.
122
(5)
(4) DM Partners Management Co LLC ("DM Management") is a wholly owned subsidiary of the Trust, which is controlled by
Mr. Topper. DM Management controls Dunne Manning Partners, LLC, the 100% owner of each of Dunne Manning CAP
Holdings I LLC ("CAP Holdings I") and Dunne Manning CAP Holdings II LLC ("CAP Holdings II"). Each of CAP
Holdings I and CAP Holdings II directly holds 7,486,131 and 2,528,673 common units, respectively. As a result, each of
DM Management and Dunne Manning Partners LLC may be deemed to beneficially own an aggregate of 10,014,804
common units. The Trust indirectly owns a majority of the member interests in Dunne Manning Partners LLC.
Includes 374,453 common units held by The Topper Foundation, a 501(c)(3) non-profit corporation. Mr. Topper, who
makes investment and voting decisions with respect to the common units held by The Topper Foundation, has no pecuniary
interest in these common units. 65,395 units are held directly by Mr. Topper in his individual capacity. 637,264 common
units held by MMSCC-2, LLC (Mr. Topper controls 100% of the voting shares), and 880,933 common units are held by
JVT-JMG EROP Holdings, LP (Mr. Topper controls the general partner and the Trust holds a 44.91% limited partner
interest). The remaining common units listed here are deemed to be beneficially owned by Mr. Topper as the trustee of the
Trust (see note 2 above). Mr. Topper disclaims beneficial ownership of the common units not held by him directly except to
the extent of his pecuniary interest therein, and the inclusion of these common units herein shall not be deemed an
admission of beneficial ownership of all of the reported common units for purposes of Section 16 or for any other purpose.
Mr. Topper and entities controlled by Mr. Topper have pledged a total of 3,540,427 common units (representing
approximately 9.3% of outstanding common units) pursuant to a loan. Mr. Topper retains beneficial ownership of the
pledged shares in the absence of a default. Prior to entering into the pledge, the Board granted Mr. Topper a waiver from the
Insider Trading Policy’s prohibition against unit pledges by any director or officer.
(6) Mr. Reilly may be deemed to share beneficial ownership of 738,501 common units beneficially owned by the 2008
Irrevocable Agreement of Trust of John B. Reilly, Jr. (the “Reilly Trust”) in his capacity as one of two trustees of the Reilly
Trust.
(7) These 6,956 units are held by Mr. Lynch’s wife and as a result, Mr. Lynch may be deemed to be the beneficial owner of
such units.
(8) Of the 8,601 units held, 5,356 are directly owned and 3,245 are held by the Joseph V. Topper, Jr. Irrevocable Agreement of
Trust No. 1 f/b/o Maura E. Topper.
Securities Authorized for Issuance under Equity Compensation Plans
The following table summarizes information about our equity compensation plans as of December 31, 2020:
Plan Category
Equity compensation plans approved by security holders:
Lehigh Gas Partners LP 2012 Incentive Award Plan
Number of
securities to
be issued upon
exercise
of outstanding
options,
warrants and
rights (1)
Weighted-average
exercise price of
outstanding
options,
warrants and
rights
Number of
securities
remaining
available
for future
issuance
under equity
compensation
plans
60,418
n/a
642,826
(1) excludes performance based awards, for which the number of units is not determinable
See Note 21 to the financial statements for a discussion of the material terms of the Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
As of February 22, 2021, the Topper Group beneficially owned or controlled 48.9% of the Partnership’s common units.
As of February 22, 2021, John B. Reilly, III owned or controlled 2.5% of the Partnership’s common units.
123
The following is a description of related party transactions since January 1, 2020 to which the Partnership was or is a party, in
which the amount involved exceeds $120,000 and in which a director, executive officer, holder of more than 5% of our common
units or any member of their immediate family had or will have a direct or indirect material interest, other than the arrangements
that are described under “Item 12-Potential Payments Upon Termination or Change in Control.” The terms of the transactions and
agreements disclosed in this section were determined by and among related parties and, consequently, are not the result of arm’s
length negotiations. Such terms are not necessarily at least as favorable to the parties to these transactions and agreements as the
terms that could have been obtained from unrelated third parties.
Distributions and Payments to our General Partner and Certain Related Parties
The following table summarizes the distributions and payments to be made by us to our General Partner and certain related parties
in connection with the ongoing operation of our business and distributions and payments that would be made by us if we were to
liquidate in accordance with the terms of our Partnership Agreement.
Operational Stage
Distributions
We will generally make cash distributions to the unitholders, including the Topper Group
and Mr. Reilly and their respective affiliates.
Assuming we have sufficient cash available for distribution to pay the full minimum
quarterly distribution on all of our outstanding units for four quarters, the Topper Group
and Mr. Reilly and their respective affiliates would receive an annual distribution of
$34.1 million, collectively, on their common units.
Cash distributions to the Topper Group and Mr. Reilly and their respective affiliates
amounted to $39.1 million in 2020.
In addition, we paid IDRs to the Topper Group amounting to $0.1 million in 2020.
Payments to our General Partner
and its affiliates
The Topper Group and CrossAmerica have the right to negotiate the amount of the
management fee on an annual basis, or more often as circumstances require.
The Partnership incurred $38.4 million in management fees under the Topper Group
Omnibus Agreement for 2020.
Liquidation Stage
Liquidation
Upon our liquidation, the partners, including our General Partner, is entitled to receive
liquidating distributions according to their particular capital account balances.
Ownership of Our General Partner
Since November 19, 2019, the Topper Group has indirectly owned all of the membership interests of our General Partner.
Agreements with the Topper Group and Affiliates
Topper Group Omnibus Agreement
On January 15, 2020, the Partnership entered into an Omnibus Agreement, effective as of January 1, 2020 (the “Topper Group
Omnibus Agreement”), 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 agreed, among other things, to provide, or cause to be provided, to the
General Partner for the benefit of the Partnership, at cost without markup, certain management, administrative and operating
services.
124
We incurred expenses under the Topper Group Omnibus Agreement, including costs for store level personnel at our company
operated sites since our April 2020 acquisition of retail and wholesale assets totaling $38.4 million for 2020. Amounts payable to
the Topper Group related to these transactions were $3.7 million at December 31, 2020. See Note 16 to the financial statements
for more information.
Management Services and Term. Pursuant to the Topper Group Omnibus Agreement, DMI provides us, or causes to be provided
to us, and our General Partner with management, administrative and operating services. These services include accounting, tax,
legal, internal audit, risk management and compliance, environmental compliance and remediation management oversight,
treasury, information technology and other administrative functions. The Topper Group provides the Partnership and our General
Partner with personnel necessary to carry out these services and any other services necessary to operate the Partnership’s business
as requested by the Partnership. We do not have any obligation to directly compensate the officers of our General Partner or
employees of the Topper Group; however, the Partnership reimburses the Topper Group under the Topper Group Omnibus
Agreement for its services to the General Partner and Partnership, as described in this section.
The Topper Group Omnibus Agreement will continue in effect until terminated in accordance with its terms. The Topper Group
has the right to terminate the Topper Group Omnibus Agreement at any time upon 180 days’ prior written notice, and the General
Partner has the right to terminate the Topper Group Omnibus Agreement at any time upon 60 days’ prior written notice.
Fees and Reimbursements. As indicated previously, we pay the Topper Group a management fee for providing services at cost
without markup. Services provided by, or on behalf of, the Topper Group, not outsourced to an independent third party, include
accounting; administrative; billing and invoicing; books and record keeping; budgeting, forecasting, and financial planning and
analysis; management (including the management and oversight of the MLP’s wholesale motor fuel distribution and real estate
business consistent with past practice); operations; payroll; contract administration; maintenance of internal controls; financial
reporting, including SEC reporting and compliance; office space; purchasing and materials management; risk management and
administration of insurance programs; information technology (includes hardware and software existing or acquired in the future
for which title is retained by the Topper Group); in-house legal; compensation, benefits and human resources administration; cash
management; corporate finance, treasury credit and debt administration; employee training; and miscellaneous administration
and overhead expenses. In addition, the Partnership is required to reimburse the Topper Group for certain outsourced services to
be provided by the Topper Group to or on behalf of the Partnership, as set forth in the Topper Group Omnibus Agreement.
General Indemnification; Limitation of Liability. Pursuant to the Topper Group Omnibus Agreement, we are required to
indemnify the Topper Group for any liabilities incurred by the Topper Group attributable to the management, administrative and
operating services provided to us under the agreement, other than liabilities resulting from the Topper Group’s bad faith, fraud or
willful misconduct. In addition, the Topper Group is required to indemnify us for any liabilities we incur as a result of the Topper
Group’s bad faith, fraud or willful misconduct in providing management, administrative and operating services under the Topper
Group Omnibus Agreement. Other than indemnification claims based on the Topper Group’s bad faith, fraud or willful
misconduct, the Topper Group’s liability to us for services provided under the Topper Group Omnibus Agreement cannot exceed
$5,000,000 in the aggregate.
Equity Restructuring
On January 15, 2020, the Partnership entered into an Equity Restructuring Agreement (the “Equity Restructuring Agreement”)
with the General Partner and Dunne Manning CAP Holdings II LLC (“DM CAP Holdings”), a wholly owned subsidiary of DMP,
which is controlled by Joseph V. Topper, Jr., the Chairman of the Board.
Pursuant to the Equity Restructuring Agreement, all of the outstanding IDRs of the Partnership, all of which were held by DM
CAP Holdings, were cancelled and converted into 2,528,673 newly-issued common units representing limited partner interests in
the Partnership based on a value of $45 million and calculated using the 20 business day volume weighted average trading price of
our common units ended five business days prior to the execution of the Equity Restructuring Agreement (the “20-day VWAP”).
This transaction closed on February 6, 2020, after the record date for the distribution payable on the Partnership’s common units
with respect to the fourth quarter of 2019.
The terms of the Equity Restructuring Agreement were approved by the independent conflicts committee of the Board.
125
Retail and Wholesale Acquisition
In connection with the Partnership’s strategic reorientation to add retail capability, also on January 15, 2020, the Partnership
entered into an asset purchase agreement (“Asset Purchase Agreement”) with the sellers (“Sellers”) signatories thereto, including
DMS and certain of DMS’s affiliates, with respect to the acquisition (the “Retail Acquisition”) by the Partnership from the Sellers
of the retail operations at 172 sites, wholesale fuel distribution to 114 sites, including 55 third-party wholesale dealer contracts,
and leasehold interests in at least 53 sites, for an aggregate consideration of $21 million in cash and 842,891 in newly-issued
common units valued at $15 million and calculated based on the 20-day VWAP. The Partnership will also acquire for cash the
inventory related to the sites. The Partnership expects to finance the aggregate cash consideration with borrowings under its credit
facility.
The closing of the transactions contemplated by the Asset Purchase Agreement is expected to occur prior to the end of the second
quarter of 2020 (such date, the “Retail Acquisition Closing”) and is subject to closing conditions and purchase price adjustments
customary in comparable transactions. In addition, the Asset Purchase Agreement contains customary representations and
warranties of the parties as well as indemnification obligations by Sellers and the Partnership, respectively, to each other. The
indemnification obligations must be asserted within 18 months of the Retail Acquisition Closing and are limited to an aggregate
of $7.2 million for each party.
In connection with the Retail Acquisition Closing, the Partnership will assume certain contracts with third parties and affiliates
necessary for the continued operation of the sites, including agreements with dealers and franchise agreements. Further, the
Partnership will enter into ten-year master leases with certain affiliates of the Topper Group, with an aggregate annual rent of $6.5
million payable by the Partnership. Additionally, DMS will no longer be a customer or lessee of the Partnership as we will
terminate the contracts with DMS upon closing on this transaction.
The terms of the Asset Purchase Agreement were approved by the independent conflicts committee of the Board.
We anticipate our costs under the Topper Group Omnibus Agreement will increase upon the closing of the Asset Purchase
Agreement, at which time the costs of additional employees (both above store as well as store level) will begin to be allocated to
the Partnership.
Lease Agreements for our Principal Executive Offices
Our principal executive offices are in Allentown, Pennsylvania. We sublease office space from the Topper Group that the Topper
Group leases from an affiliate of John B. Reilly, III and Joseph V. Topper, Jr., members of our Board, as approved by the
independent conflicts committee of the Board. Rent expense amounted to $1.1 million for 2020.
Agreements with DMS
DMS is an entity affiliated with the family of Mr. Topper.
DMS was an operator of convenience stores that purchased a significant portion of its motor fuel requirements from us on a
wholesale basis. Motor fuel was sold to DMS at our cost plus a fixed mark-up per gallon. DMS also leased certain retail site real
estate from us in accordance with a master lease agreement. See Note 5 to the financial statements for information regarding the
termination of the master fuel supply and lease agreements with DMS in connection with the acquisition of wholesale and retail
assets.
Revenues from fuel sales and rental income from DMS for 2020 were as follows (in thousands):
Revenues from motor fuel sales to DMS
Rental income from DMS
$
27,127
1,395
Maintenance and Environmental Costs
Certain maintenance and environmental monitoring and remediation activities are undertaken by Synergy Environmental, Inc., an
entity affiliated with Mr. Topper, as approved by the conflicts committee of the Board. We incurred charges with this related party
of $0.6 million for 2020. Accounts payable to this related party amounted to $0.1 million at December 31, 2020.
126
Environmental Compliance and Inventory Management Costs
We use certain environmental monitoring and inventory management equipment and services provided by an entity affiliated
with the Topper Group, as approved by the independent conflicts committee of the Board. We incurred charges with this related
party of $0.2 million for 2020.
Convenience Store Products
We purchase certain convenience store products from an affiliate of John B. Reilly, III and Joseph V. Topper, Jr., members of the
Board, as approved by the independent conflicts committee of the Board in connection with the April 2020 acquisition of retail
and wholesale assets. Merchandise costs amounted to $14.4 million for 2020. Amounts payable to this related party amounted to
$1.5 million at December 31, 2020.
Vehicle Lease
In connection with the services rendered under the Topper Group Omnibus Agreement, we lease certain vehicles from an entity
affiliated with Joseph V. Topper, Jr., a member of the Board, as approved by the independent conflicts committee of the Board.
Lease expense payable to this related party was $0.1 million for 2020.
Other Related Party Transactions
Revenues from TopStar, an entity affiliated with Joseph V. Topper, Jr., were $21.0 million for 2020. As discussed in Note 5 to the
financial statements, effective April 14, 2020, we acquired wholesale fuel supply rights, including this supply contract, as part of
the acquisition of retail and wholesale assets. Prior to April 14, 2020, we only leased motor fuel stations to TopStar.
The Partnership leases certain motor fuel stations from the Topper Group under cancelable operating leases. Rent expense under
these agreements, including rent paid under the leases entered into in connection with the acquisition of retail and wholesale
assets as further discussed in Note 5 to the financial statements, was $6.6 million for 2020.
Review, Approval and Ratification of Related Person Transactions
The Board has adopted a Code of Ethics and Business Conduct that provides that the Board or its authorized committee will
periodically review all related person transactions that are required to be disclosed under SEC rules and, when appropriate,
initially authorize or ratify all such transactions. In the event that the Board or its authorized committee considers ratification of a
related person transaction and determines not to so ratify, the Code of Ethics and Business Conduct provides that our management
will make all reasonable efforts to cancel or annul the transaction.
The Code of Ethics and Business Conduct provides that, in determining whether or not to recommend the initial approval or
ratification of a related person transaction, the Board or its authorized committee should consider all of the relevant facts and
circumstances available, including (if applicable) but not limited to: (i) whether there is an appropriate business justification for
the transaction; (ii) the benefits that accrue to us as a result of the transaction; (iii) the terms available to unrelated third parties
entering into similar transactions; (iv) the impact of the transaction on a director’s independence (in the event the related person is
a director, an immediate family member of a director or an entity in which a director or an immediately family member of a
director is a partner, shareholder, member or executive officer); (v) the availability of other sources for comparable products or
services; (vi) whether it is a single transaction or a series of ongoing, related transactions; and (vii) whether entering into the
transaction would be consistent with the Code of Ethics and Business Conduct.
Director Independence
For a discussion of the independence of the Board, please see “Item 10. Directors, Executive Officers and Corporate Governance
Management.”
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The audit committee of the board of directors of our General Partner selected Grant Thornton LLP, or Grant Thornton, an
independent registered public accounting firm, to audit our consolidated financial statements for 2020. The audit committee’s
charter requires the audit committee to approve in advance all audit and non-audit services to be provided by our independent
registered public accounting firm. All services reported in the audit, audit-related, tax and all other fees categories below with
respect to this 2020 Annual Report on Form 10-K were approved by the audit committee.
127
The following table summarizes the aggregate Grant Thornton fees that were allocated to us for independent auditing, tax and
related services for each of the last two fiscal years (in thousands):
Audit fees (1)
Audit-related fees (2)
Tax fees (3)
All other fees (4)
Total
Year Ended December 31,
2020
2019
$
$
1,234 $
—
—
—
1,234 $
1,191
—
—
—
1,191
(1) Audit fees represent amounts billed for each of the years presented for professional services rendered in connection with
those services normally provided in connection with statutory and regulatory filings or engagements including comfort
letters, consents and other services related to SEC matters.
(2) Audit-related fees represent amounts billed in each of the years presented for assurance and related services that are
reasonably related to the performance of the annual audit or quarterly reviews.
(3) Tax fees represent amounts billed in each of the years presented for professional services rendered in connection with tax
compliance, tax advice and tax planning.
(4) All other fees represent amounts billed in each of the years presented for services not classifiable under the other categories
listed in the table above.
Audit Committee Approval of Audit and Non-audit Services
The audit committee of the board of directors of our General Partner has adopted a pre-approval policy with respect to services
which may be performed by Grant Thornton. This policy lists specific audit-related services as well as any other services that
Grant Thornton is authorized to perform and sets out specific dollar limits for each specific service, which may not be exceeded
without additional audit committee authorization. The audit committee reviews the policy at least annually in order to approve
services and limits for the current year. Any service that is not clearly enumerated in the policy must receive specific pre-approval
by the audit committee prior to engagement.
128
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
1. Financial Statements. The following consolidated financial statements of CrossAmerica Partners, LP are
included in Part II, Item 8 of this Form 10-K:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019
Consolidated Statements of Income for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Equity and Comprehensive Income for the Years Ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
PAGE
64
67
68
69
70
71
2. Financial Statement Schedules and Other Financial Information. No financial statement schedules are submitted because
either they are inapplicable or because the required information is included in the financial statements or notes thereto.
3. EXHIBITS. Filed as part of this Form 10-K are the following exhibits:
Exhibit No.
2.1
2.2
2.3
2.4
2.5
2.6
2.7
3.1
3.2
3.3
Description
Fuel Supply Contribution Agreement, dated as of June 15, 2015, by and among CST Brands, Inc., CST Services
LLC and CrossAmerica Partners LP (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K for
CrossAmerica Partners LP, filed with the Securities and Exchange Commission on June 15, 2015)
Real Estate Contribution Agreement, dated as of June 15, 2015, by and among CST Brands, Inc., CST Diamond
Holdings LLC, Big Diamond, LLC, Skipper Beverage Company, LLC, CST Shamrock Stations, Inc., CST Arizona
Stations, Inc., CrossAmerica Partners LP and Lehigh Gas Wholesale Services, Inc. (incorporated by reference to
Exhibit 2.2 to the Current Report on Form 8-K for CrossAmerica Partners LP, filed with the Securities and
Exchange Commission on June 15, 2015)
Master Lease Agreement, dated October 1, 2014, by and among Lehigh Gas Wholesale Services, Inc., as Landlord,
and CAPL Operations I, LLC and CST Services LLC, as Tenants, as subsequently amended by Amendment to
Master Lease Agreement, dated April 13, 2015, and Second Amendment to Master Lease Agreement, dated June 15,
2015 (incorporated by reference to Exhibit 2.3 to the Current Report on Form 10-Q for CrossAmerica Partners LP,
filed with the Securities and Exchange Commission on August 8, 2015)
Form of Addendum to Master Lease Agreement (incorporated by reference to Exhibit 2.4 to the Quarterly Report on
Form 10-Q for CrossAmerica Partners LP, filed with the Securities and Exchange Commission on August 8, 2015)
Fuel Distribution Agreement, dated January 1, 2015, by and among CST Marketing and Supply LLC, and certain
subsidiaries of CST Services LLC (incorporated by reference to Exhibit 2.5 to the Quarterly Report on Form 10-Q
for CrossAmerica Partners LP, filed with the Securities and Exchange Commission on August 8, 2015)
Asset Exchange Agreement, dated December 17, 2018 between Circle K Stores Inc. and CrossAmerica Partners LP
(incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K for CrossAmerica Partners LP, filed
with the Securities and Exchange Commission on December 17, 2018)
Exchange Agreement, dated as of November 19, 2019, between Circle K Stores, Inc. and CrossAmerica Partners LP
(incorporated by reference to Exhibit 2.1 to the Current Report on 8-K for CrossAmerica Partners LP, filed with the
Securities and Exchange Commission on November 21, 2019) **+
Certificate of Limited Partnership of Lehigh Gas Partners LP (incorporated herein by reference to Exhibit 3.1 to the
Registration Statement on Form S-1 for CrossAmerica Partners LP, filed with the Securities and Exchange
Commission on May 11, 2012)
Certificate of Amendment to Certificate of Limited Partnership of Lehigh Gas Partners LP (incorporated by
referenced to Exhibit 3.1 to the Current Report on Form 8-K for CrossAmerica Partners LP, filed with the Securities
and Exchange Commission on October 3, 2014)
First Amended and Restated Agreement of Limited Partnership of Lehigh Gas Partners LP, dated October 30, 2012,
by and among Lehigh Gas Partners LP, Lehigh Gas GP LLC and Lehigh Gas Corporation (incorporated herein by
reference to Exhibit 3.1 to the Current Report on Form 8-K for CrossAmerica Partners LP, filed with the Securities
and Exchange Commission on October 30, 2012)
129
Exhibit No.
3.4
3.5
3.6
3.7
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Description
First Amendment to First Amended and Restated Agreement of Limited Partnership of Lehigh Gas Partners LP,
dated as of October 1, 2014 (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K for
CrossAmerica Partners LP, filed with the Securities and Exchange Commission on October 3, 2014)
Second Amendment to First Amended and Restated Agreement of Limited Partnership of CrossAmerica Partners
LP, dated as of December 3, 2014 (incorporated by reference herein to Exhibit 3.1 to the Current Report on
Form 8-K for CrossAmerica Partners LP, filed with the Securities and Exchange Commission on December 9,
2014)
Third Amendment to First Amended and Restated Agreement of Limited Partnership of CrossAmerica Partners LP,
dated as of January 1, 2018 (incorporated by reference herein to Exhibit 3.1 to the Current Report on Form 8-K for
CrossAmerica Partners LP, filed with the Securities and Exchange Commission on January 24, 2018)
Second Amended and Restated Agreement of Limited Partnership of CrossAmerica Partners LP, dated February 6,
2020 (incorporated by reference herein to Exhibit 3.1 to the Current Report on Form 8-K for CrossAmerica Partners
LP, filed with the Securities and Exchange Commission on February 7, 2020)
Description of Common Units (incorporated by reference to Exhibit 4.1 to the Annual Report on Form 10-K for
CrossAmerica Partners LP, filed with the Securities and Exchange Commission on February 26, 2020)
Amendment to PMPA Franchise Agreement, dated as of October 1, 2014, by and between Lehigh Gas Wholesale
LLC and Lehigh Gas-Ohio, LLC (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K for
CrossAmerica Partners LP, filed with the Securities and Exchange Commission on October 3, 2014)
Lehigh Gas Partners LP 2012 Incentive Award Plan, dated as of July 27, 2012 (incorporated by reference to Exhibit
10.11 to the Annual Report on Form 10-K for CrossAmerica Partners LP, filed with the Securities and Exchange
Commission on February 19, 2016)
Form of Lehigh Gas Partners LP 2012 Incentive Award Plan Award Agreement for Phantom Units granted to
executive officers from March 15, 2013 (incorporated herein by reference to Exhibit 10.6(b) to the Annual Report
on Form 10-K for CrossAmerica Partners LP, filed with the Securities and Exchange Commission on March 28,
2013)
Form of Lehigh Gas Partners LP 2012 Incentive Award Plan Award Agreement for Profits Interests with immediate
vesting, granted to directors from March 14, 2014 (incorporated by reference to Exhibit 10.6(b) to the Current
Report on Form 8-K for CrossAmerica Partners LP, filed with the Securities and Exchange Commission on
March 10, 2014)
Form of Lehigh Gas Partners LP 2012 Incentive Award Plan Award Agreement for Profits Interests, with one-year
vesting, granted to directors from March 14, 2014 (incorporated by reference to Exhibit 10.6(c) to the Current
Report on Form 8-K for CrossAmerica Partners LP, filed with the Securities and Exchange Commission on
March 10, 2014)
Form of Lehigh Gas Partners LP 2012 Incentive Award Plan Award Agreement for Profits Interests granted to
executive officers from March 14, 2014 (incorporated by reference to Exhibit 10.6(d) to the Current Report on
Form 8-K for CrossAmerica Partners LP, filed with the Securities and Exchange Commission on March 10, 2014)
Form of Lehigh Gas Partners LP 2012 Incentive Award Plan Award Agreement for Phantom Units for Executive
Officers with distribution equivalent rights (incorporated by reference to Exhibit 10.1 to the Quarterly Report on
Form 10-Q for CrossAmerica Partners LP, filed with the Securities and Exchange Commission on August 8, 2015)
Form of Lehigh Gas Partners LP 2012 Incentive Award Plan Award Agreement for Phantom Units for
Non-Employee Directors with distribution equivalent rights from December 10, 2015 (incorporated by reference to
Exhibit 10.17 to the Annual Report on Form 10-K for CrossAmerica Partners LP, filed with the Securities and
Exchange Commission on February 19, 2016)
Form of Lehigh Gas Partners LP 2012 Incentive Award Plan Award Agreement for Phantom Performance Units for
Executive Officers and Employees with distribution equivalent rights from December 20, 2015 (incorporated by
reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for CrossAmerica Partners LP, filed with the
Securities and Exchange Commission on November 7, 2018)
10.10
Lehigh Gas Partners LP Executive Income Continuity Plan (incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K for CrossAmerica Partners LP, filed with the Securities and Exchange Commission on May 30,
2014)
130
Exhibit No.
10.11
Description
Lehigh Gas Partners LP Executive Income Continuity Plan (as amended) (incorporated by reference to Exhibit 10.2
to the Quarterly Report on Form 10-Q for CrossAmerica Partners LP, filed with the Securities and Exchange
Commission on November 7, 2014)
10.12
10.13
10.14
10.15
10.16
10.17
10.18
First Amendment to Amended and Revised CrossAmerica Partners LP Executive Income Continuity Plan, dated
September 14, 2016 (incorporated by reference as Exhibit 10.21 to the Annual Report on Form 10-K for
CrossAmerica Partners LP, filed with the Securities and Exchange Commission on February 28, 2017)
Master Lease Agreement, dated May 28, 2014, by and among LGP Realty Holdings LP, Lehigh Gas Wholesale
Services, Inc. and Lehigh Gas-Ohio, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K for CrossAmerica Partners LP, filed with the Securities and Exchange Commission on May 30, 2014)
Contribution Agreement, dated as of December 16, 2014, by and among CST Brands, Inc., CST Services LLC and
CrossAmerica Partners LP (incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K for
CrossAmerica Partners LP, filed with the Securities and Exchange Commission on February 27, 2015)
Form of Indemnification Agreement for directors of the Board and certain officers of CrossAmerica GP LLC
(incorporated by reference to Exhibit 10.27 to the Quarterly Report on Form 10-Q for CrossAmerica Partners LP,
filed with the Securities and Exchange Commission on August 8, 2017)
Second Amendment to the Amended and Revised CrossAmerica Partners LP Executive Income Continuity Plan,
dated June 26, 2017 (incorporated by reference to Exhibit 10.28 to the Quarterly Report on Form 10-Q for
CrossAmerica Partners LP, filed with the Securities and Exchange Commission on August 8, 2017)
Award Agreement for Phantom Units for Non-Employee Directors with distribution equivalent rights (incorporated
by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for CrossAmerica Partners LP, filed with the
Securities and Exchange Commission on November 8, 2017)
Credit Agreement, dated as of April 1, 2019, among CrossAmerica Partners LP, as borrower, Lehigh Gas Wholesale
Services, Inc., as borrower, certain domestic subsidiaries of CrossAmerica Partners LP and Lehigh Gas Wholesale
Services, Inc. from time to time party thereto, as guarantors, the lenders from time to time party thereto, and Citizens
Bank, N.A., as administrative agent, swing line lender and L/C issuer (incorporated by reference to Exhibit 10.1 to
the Current Report on 8-K for CrossAmerica Partners LP, filed with the Securities and Exchange Commission on
April 2, 2019).
10.19
Amendment to PMPA Franchise Agreement, dated January 1, 2019, by and between Lehigh Gas Wholesale LLC
and Lehigh Gas-Ohio, LLC (incorporated by reference to Exhibit 10.2 to the Quarterly Report on 10-Q for
CrossAmerica Partners LP, filed with the Securities and Exchange Commission on May 7, 2019)
10.20
Amendment to Master Lease Agreement, dated January 1, 2019, by and among LGP Realty Holdings LP, Lehigh
Gas Wholesale Services, Inc. and Lehigh Gas-Ohio, LLC (incorporated by reference to Exhibit 10.3 to the Quarterly
Report on 10-Q for CrossAmerica Partners LP, filed with the Securities and Exchange Commission on May 7, 2019)
10.21
Sub-Jobber Agreement, dated as of May 21, 2019, between Circle K Stores Inc. and Lehigh Gas Wholesale LLC
(incorporated by reference to Exhibit 10.1 to the Current Report on 8-K for CrossAmerica Partners LP, filed with the
Securities and Exchange Commission on May 22, 2019) **+
10.22
Second Amended and Restated Omnibus Agreement effective as of April 29, 2019, by and among CrossAmerica
Partners LP, CrossAmerica GP LLC, Dunne Manning Inc., CST Services, LLC, Circle K Stores Inc. and Dunne
Manning Stores, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on 8-K for CrossAmerica
Partners LP, filed with the Securities and Exchange Commission on October 31, 2019) +
10.23
Amendment to Credit Agreement, dated as of November 19, 2019, among CrossAmerica Partners LP 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, swing line lender and L/C issuer (incorporated
by reference to Exhibit 10.1 to the Current Report on 8-K for CrossAmerica Partners LP, filed with the Securities
and Exchange Commission on November 21, 2019)
10.24
Transitional Omnibus Agreement, effective as of November 19, 2019, by and among CrossAmerica Partners LP,
CrossAmerica GP LLC and Circle K Stores Inc. (incorporated by reference to Exhibit 10.2 to the Current Report on
8-K for CrossAmerica Partners LP, filed with the Securities and Exchange Commission on November 21, 2019) **+
10.25
Termination Agreement, dated as of November 19, 2019, by and among CrossAmerica Partners LP, CrossAmerica
GP LLC, Dunne Manning Inc., CST Services, LLC, Circle K Stores Inc., Dunne Manning Stores, LLC and Joseph
V. Topper, Jr. (incorporated by reference to Exhibit 10.3 to the Current Report on 8-K for CrossAmerica Partners
LP, filed with the Securities and Exchange Commission on November 21, 2019)
131
Exhibit No.
10.26
Description
Termination Agreement, dated as of November 19, 2019, by and among CST Brands, LLC, Joseph V. Topper, Jr.,
2004 Irrevocable Agreement of Trust of Joseph V. Topper, Sr. and Dunne Manning Inc. (incorporated by reference
to Exhibit 10.4 to the Current Report on 8-K for CrossAmerica Partners LP, filed with the Securities and Exchange
Commission on November 21, 2019)
10.27
Equity Restructuring Agreement, dated January 15, 2020, among CrossAmerica Partners LP, CrossAmerica GP
LLC, and Dunne Manning CAP Holdings II LLC (incorporated by reference to Exhibit 10.1 to the Current Report
on 8-K for CrossAmerica Partners LP, filed with the Securities and Exchange Commission on January 16, 2020)
10.28
Asset Purchase Agreement, dated January 15, 2020, among CrossAmerica Partners LP, with the sellers signatories
thereto, including Dunne Manning Stores LLC, and certain of its affiliates (incorporated by reference to Exhibit 10.2
to the Current Report on 8-K for CrossAmerica Partners LP, filed with the Securities and Exchange Commission on
January 16, 2020)
10.29
Omnibus Agreement, effective as of January 1, 2020, by and among CrossAmerica Partners LP, CrossAmerica GP
LLC and Dunne Manning Inc. (incorporated by reference to Exhibit 10.1 to the Current Report on 8-K for
CrossAmerica Partners LP, filed with the Securities and Exchange Commission on January 16, 2020) +
List of Subsidiaries of CrossAmerica Partners LP
Consent of Grant Thornton LLP
Certification of Principal Executive Officer of CrossAmerica GP LLC as required by Rule 13a-14(a) of the
Securities Exchange Act of 1934
21.1 *
23.1 *
31.1 *
31.2 *
Certification of Principal Financial Officer of CrossAmerica GP LLC as required by Rule 13a-14(a) of the
Securities Exchange Act of 1934
Certification of Principal Executive Officer of CrossAmerica GP LLC pursuant to 18 U.S.C. §1350
32.1*†
32.2*†
Certification of Principal Financial Officer of CrossAmerica GP LLC pursuant to 18 U.S.C. §1350
101.INS * Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL document.
101.SCH * Inline XBRL Taxonomy Extension Schema Document
101.CAL * Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB * Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE * Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF * Inline XBRL Taxonomy Extension Definition Linkbase Document
104 *
Cover Page Interactive Data File, formatted in Inline XBRL and contained in Exhibit 101
*
†
Filed herewith
Not considered to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the
liabilities of that section.
+ Non-material schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Partnership hereby
undertakes to furnish supplemental copies of any of the omitted schedules upon request by the SEC.
** Certain identified information has been omitted pursuant to Item 601(b)(10) of Regulation S-K. The Partnership hereby
undertakes to furnish supplemental copies of the unredacted exhibit upon request by the SEC.
ITEM 16. FORM 10-K SUMMARY
None.
132
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
CROSSAMERICA PARTNERS LP
By: CROSSAMERICA GP LLC, its General Partner
By: /s/ Charles M. Nifong, Jr.
Charles M. Nifong, Jr.
President and Chief Executive Officer
(On behalf of the registrant, and in the capacity of Principal
Executive Officer)
Date: March 1, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated on March 1, 2021.
Signature
/s/ Joseph V. Topper, Jr.
Joseph V. Topper, Jr.
/s/ John B. Reilly, III
John B. Reilly, III
/s/ Charles M. Nifong, Jr.
Charles M. Nifong, Jr.
/s/ Eric M. Javidi
Eric M. Javidi
/s/ Jonathan E. Benfield
Jonathan E. Benfield
/s/ Keenan D. Lynch
Keenan D. Lynch
/s/ Justin A. Gannon
Justin A. Gannon
/s/ Mickey Kim
Mickey Kim
/s/ Maura Topper
Maura Topper
/s/ Kenneth G. Valosky
Kenneth G. Valosky
Title
Chairman of the Board of Directors
Vice Chairman of the Board of Directors
President, Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
Chief Accounting Officer
(Principal Accounting Officer)
General Counsel, Corporate Secretary and Director
Director
Director
Director
Director
133