CrossAmerica Partners LP — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015; quarterly figures are for the three months ended December 31. CrossAmerica is a master limited partnership focused on wholesale motor-fuel distribution, fuel-site real estate and convenience-store operations. Its Wholesale and Retail segments distributed fuel at nearly 1,100 sites in 25 states. CST Brands controls the general partner.
Financial performance and liquidity
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $2,214.8 million | $2,655.6 million |
| Gross profit | $157.5 million | $115.6 million |
| Operating income | $26.0 million | $8.6 million |
| Net income (loss) attributable to partners | $11.4 million | $(6.2) million |
| Adjusted EBITDA | $90.3 million | $61.4 million |
| Distributable cash flow | $69.7 million | $44.1 million |
| Cash provided by operations | $64.5 million | $28.5 million |
| Cash used in investing | $(311.5) million | $(156.2) million |
| Cash provided by financing | $233.1 million | $138.7 million |
| Year-end cash | $1.2 million | $15.2 million |
Margins and distributions: Wholesale fuel gross margin was 5.6 cents per gallon, down from 6.8 cents; Retail fuel gross profit was 10.0 cents per gallon, up from 5.9 cents. Merchandise gross margin percentage fell to 24.9% from 30.6%. Distributable cash flow coverage was 1.08x against distributions of $2.23 per unit for the year. The fourth-quarter distribution was $0.5925 per unit, declared for payment in February 2016.
Debt and liquidity: Total debt was $385.5 million, including $358.4 million drawn on the revolving facility; this figure excludes lease-financing obligations. The facility had $100.0 million of availability after letters of credit and covenant constraints. Borrowings bore 3.06% interest at year-end, and the Partnership reported compliance with its covenants. Total assets were $853.1 million and total liabilities $584.2 million.
Material changes versus prior period
- Revenue declined 17%, largely because lower fuel prices reduced the reported dollar value of wholesale fuel sales. Gross profit rose 36%, reflecting acquisitions, increased volumes and stronger Retail fuel margins.
- Wholesale gallons distributed increased 18% to 1.051 billion. Wholesale fuel gross profit nevertheless declined by $2.0 million, primarily due to lower supplier payment discounts and incentives.
- Acquisitions and related transactions expanded the business, including Erickson, One Stop, Landmark sites, 29 CST new-to-industry properties and a 17.5% interest in CST Fuel Supply. The Partnership also converted 77 company-operated stores to dealer-operated sites.
- Net investing outflows increased substantially as acquisition spending rose. The Partnership raised $144.9 million net from a public unit offering and used the proceeds to reduce revolving debt; it also borrowed to fund acquisitions.
- Year-end debt increased from $227.6 million to $385.5 million. Common and subordinated unit distributions increased during 2015.
Fourth-quarter results: Revenue was $464.1 million, gross profit $36.4 million, operating income $7.9 million, and net income attributable to partners $4.2 million, or $0.11 per unit. In fourth-quarter 2014, the corresponding figures were $582.0 million, $35.7 million, an operating loss of $6.9 million and a net loss attributable to partners of $13.6 million.
Outlook, risks and unusual items
- Outlook: Management expected 2016 fuel volumes to increase following acquisitions and rental income to rise as more acquired company-operated sites were converted to lessee dealers. No quantified earnings or distribution guidance was provided. Acquisitions remained subject to availability, pricing and financing conditions.
- Fuel-price exposure: Fuel accounted for 90% of 2015 revenue. Falling prices reduce supplier discounts under fixed-markup contracts, while volatility can affect DTW and retail margins; management noted these effects can offset one another.
- Distribution risk: Distributions are discretionary, depend on cash generation and reserves, and may be restricted by the credit facility. The Partnership Agreement does not require distributions. Subordinated units were scheduled to convert one-for-one into common units on February 25, 2016.
- Concentration and governance: ExxonMobil, BP and Motiva together supplied approximately 82% of fuel purchases. DMS accounted for 17% of wholesale volume and 36% of rental income; CST accounted for 7% of wholesale volume and 17% of rental income. CST controls the general partner and holds the incentive distribution rights; related-party transactions and management fees warrant attention.
- Other exposures: Significant risks include leverage and variable interest rates, acquisition integration, environmental and underground-tank liabilities, competition, seasonality, and regulatory and tax changes. A one-percentage-point change in the average borrowing rate was estimated to affect annual interest expense by about $3.6 million.
- Contingencies and controls: Management said pending litigation was not expected to have a material adverse effect. Environmental reserves were $2.8 million; separate predecessor-site liabilities are subject to indemnification arrangements with DMI and associated funding sources. Management and the auditor reported effective internal control, but Erickson and One Stop—15% of assets and 13% of revenue—were excluded from the formal control evaluation during integration.
Important facts for investors to verify
- Reconcile the filing’s Distributable Cash Flow figures: the selected-data section reports $69.639 million, while the detailed reconciliation reports $69.733 million.
- Assess cash available for distributions against the $2.23 annual per-unit distribution, acquisition needs, debt service and the limited $1.2 million year-end cash balance.
- Review the credit agreement, maturity and refinancing exposure: $363.8 million of scheduled principal payments are shown for 2019, when the revolving facility matures.
- Evaluate the economics and related-party terms of CST asset purchases, CST Fuel Supply investments, the management agreement and the DMS relationship, including the fixed management fee increase to $856,000 per month effective January 2016.
- Track acquisition integration, store conversions, environmental exposures and completion of internal-control integration for Erickson and One Stop.