CrossAmerica Partners(US:CAPL)2020-02-26 01:35Financial Performance - The Wholesale segment generated revenues of $2.0 billion in 2019, distributing motor fuel to approximately 1,300 sites across 31 states[35]. - The Retail segment generated revenues of $456 million in 2019, with no company-operated sites since September 30, 2019[51]. - The total volume of motor fuel distributed in 2019 was 1,004 million gallons, a decrease from 1,047.3 million gallons in 2018[39]. - Motor fuel revenues accounted for 93% of total revenues in 2019, with motor fuel gross profit making up 50% of total gross profit[89]. - Rental income for 2019 was $90.1 million, an increase from $85.6 million in 2018[48]. Contracts and Agreements - The average remaining distribution contract term for independent dealers was 5.3 years as of December 31, 2019[40]. - The average remaining lease term for properties leased to third-party landlords was 5.8 years as of December 31, 2019[47]. - The average remaining term on motor fuel distribution agreements with DMS was 7.8 years as of December 31, 2019[45]. - The company has a weighted-average remaining term of approximately 6.1 years on its supply agreements as of December 31, 2019[62]. Acquisitions and Growth Strategy - The company has completed acquisitions totaling approximately $1.0 billion for about 600 fee and leasehold sites since its IPO[59]. - The company is in the process of acquiring retail and wholesale assets from the Topper Group, expected to close before the end of Q2 2020, which may enhance strategic flexibility[91]. - The company aims to enhance cash flows by owning or leasing sites in prime locations and converting retail sites to lessee dealer sites for stable cash flows[59]. - The company’s growth strategy relies on the ability to make accretive acquisitions, which may be limited by various market conditions[82]. Market and Competition - The company anticipates competition from various retail outlets post-Retail Acquisition, which may impact gross profits[95]. - Intense competition in the wholesale and retail motor fuel industries leads to narrow margins, with potential adverse effects on financial condition if service quality declines[93]. - Seasonal fluctuations in oil prices and motor fuel sales volumes typically result in higher revenues during the second and third quarters of the fiscal year[91]. - The company’s business exhibits substantial seasonality, with sales volumes historically highest in the second and third quarters[66]. Financial Risks and Liabilities - A tightening of credit markets may increase nonpayment risks from wholesale customers and suppliers, adversely affecting financial performance[97]. - The company may incur significant liabilities from litigation related to motor fuel quality and other operational issues, which could negatively impact revenues and consumer behavior[130]. - The company is exposed to variable interest rates on its credit facility, which could increase debt service requirements and adversely affect cash flow and distributions to unitholders[194]. - A significant increase in interest rates could negatively impact the company's ability to service its indebtedness and increase financing costs, potentially affecting financial condition and results of operations[195]. Regulatory and Environmental Risks - Compliance with extensive government regulations regarding store operations and merchandise could materially impact operating results and financial condition[103]. - Environmental laws and potential liabilities related to contamination could lead to significant remediation costs, affecting cash available for distribution[109]. - The company is subject to federal, state, and local laws governing product quality specifications, and changes in these regulations could reduce sales volume and increase handling costs[133]. - Developments aimed at reducing greenhouse gas emissions may decrease demand for petroleum-based motor fuel, potentially affecting the company's financial condition and cash available for distribution to unitholders[115]. Taxation and Unitholder Implications - The company relies on its partnership status for favorable tax treatment; any change in this status could substantially reduce cash available for distribution to unitholders[198]. - Unitholders are required to pay taxes on their share of income even if no cash distributions are made, which may lead to discrepancies between taxable income and actual cash received[211]. - The IRS may challenge the company's valuation methodologies, potentially affecting the allocation of income, gain, loss, and deduction between the General Partner and unitholders[224]. - Unitholders may face limitations on deducting interest expenses due to the Tax Cuts and Jobs Act, which caps the deduction for business interest to 30% of adjusted taxable income[214]. Management and Governance - The Topper Group controls the company and may have conflicts of interest that could impact financial results and cash distributions to unitholders[159]. - The cash distribution policy is subject to modification or revocation at the discretion of the Topper Group or the Board, which may affect distributions to unitholders[163]. - The company relies on the Topper Group for key management services, and termination of the Omnibus Agreement could lead to business interruptions or increased costs[165]. - The Partnership Agreement allows the issuance of unlimited additional units without unitholder approval, potentially diluting existing unitholder ownership interests[183].