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EX-32.1 - EXHIBIT 32.1 - CrossAmerica Partners LPcaplq2-16exhibit321.htm
EX-32.2 - EXHIBIT 32.2 - CrossAmerica Partners LPcaplq2-16exhibit322.htm
EX-31.2 - EXHIBIT 31.2 - CrossAmerica Partners LPcaplq2-16exhibit312.htm
EX-31.1 - EXHIBIT 31.1 - CrossAmerica Partners LPcaplq2-16exhibit311.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10–Q
(Mark One)
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016

OR
o
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)
 
45-4165414
(I.R.S. Employer Identification No.)
515 Hamilton Street, Suite 200
Allentown, PA
(Address of Principal Executive Offices)
18101
(Zip Code)
(610) 625-8000
(Registrant’s telephone number, including area code)
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 þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes þ No ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o
(do not check if a smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
As of August 3, 2016, there were 33,402,652 common units outstanding.



TABLE OF CONTENTS




Commonly Used Defined Terms
The following is a list of certain acronyms and terms generally used in the industry and throughout this document:
 
CrossAmerica Partners LP and subsidiaries:
the Partnership, we, us, our
CrossAmerica Partners LP
LGW
Lehigh Gas Wholesale LLC
LGPR
LGP Realty Holdings LP
LGWS
Lehigh Gas Wholesale Services, Inc. and subsidiaries
 
 
Lehigh Gas Wholesale Services, Inc. and subsidiaries:
PMI
Petroleum Marketers, Inc., acquired in April 2014
Erickson
Erickson Oil Products, Inc., acquired in February 2015
One Stop
M&J Operations, LLC, acquired in July 2015
 
 
CrossAmerica Partners LP related and affiliated parties:
CST
CST Brands, Inc.
DMS
Dunne Manning Stores LLC (formerly known as Lehigh Gas-Ohio, LLC), an entity associated with Joseph V. Topper, Jr., a member of the Board and related party. DMS is an operator of retail motor fuel stations. DMS purchases substantially all of its motor fuel requirements from us on a wholesale basis under rack plus pricing. DMS leases retail sites from us in accordance with a master lease agreement with us
General Partner
CrossAmerica GP LLC. CST owns 100% of the equity interests in the sole member of the General Partner
CST Fuel Supply
CST Fuel Supply LP, the Parent of CST Marketing and Supply, CST’s wholesale motor fuel supply business, which provides wholesale fuel distribution to the majority of CST’s U.S. retail convenience stores on a fixed markup per gallon
 
 
Other Defined Terms:
 
Amended Omnibus
   Agreement
The Amended and Restated Omnibus Agreement, dated October 1, 2014, by and among CrossAmerica, the General Partner, Dunne Manning Inc., DMS, CST Services and Joseph V. Topper, Jr., which amends and restates the original omnibus agreement that was executed in connection with CrossAmerica’s initial public offering on October 30, 2012
ASU
Accounting Standards Update
the Board
Board of Directors of our General Partner
DTW
Dealer tank wagon contracts, which are variable cent per gallon priced wholesale motor fuel distribution or supply contracts; DTW also refers to the pricing methodology under such contracts
EBITDA
Earnings before interest, taxes, depreciation and amortization, a non-GAAP financial measure
Exchange Act
Securities Exchange Act of 1934, as amended
FASB
Financial Accounting Standards Board
Form 10-K
CrossAmerica's Annual Report on Form 10-K for the year ended December 31, 2015
Holiday
The franchise Holiday Stationstores acquired by CrossAmerica from S/S/G Corporation in January 2016
IDRs
Incentive Distribution Rights, which are partnership interests that provide for special distributions associated with increasing partnership distributions. CST is the owner of 100% of the outstanding IDRs of CrossAmerica
Internal Revenue Code
Internal Revenue Code of 1986, as amended
IPO
Initial public offering of CrossAmerica Partners LP
LIBOR
London Interbank Offered Rate
MD&A
Management’s Discussion and Analysis of Financial Condition and Results of Operations

3




NTI
CST’s new to industry stores opened after January 1, 2008, which is generally when CST began designing and operating its larger format stores that accommodate broader merchandise categories and food offerings and have more fuel dispensers than its legacy stores
Partnership Agreement
the First Amended and Restated Agreement of Limited Partnership of CrossAmerica Partners LP, dated as of October 1, 2014, as amended
Predecessor Entity
Wholesale distribution business of Lehigh Gas-Ohio, LLC and real property and leasehold interests contributed in connection with the IPO
SEC
Securities and Exchange Commission
U.S. GAAP
United States Generally Accepted Accounting Principles
Valero
Valero Energy Corporation and, where appropriate in context, to one or more of its subsidiaries, or all of them taken as a whole




PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CROSSAMERICA PARTNERS LP
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars, except unit data)
 
 
June 30,
 
December 31,
 
 
2016
 
2015
ASSETS
 
(Unaudited)
 
 
Current assets:
 
 
 
 
Cash
 
$
3,255

 
$
1,192

Accounts receivable, net of allowances of $1,073 and $1,090, respectively
 
26,134

 
21,953

Accounts receivable from related parties
 
10,375

 
7,345

Inventories
 
13,166

 
15,739

Assets held for sale
 
2,271

 
3,288

Other current assets, net
 
7,238

 
4,944

Total current assets
 
62,439

 
54,461

Property and equipment, net
 
648,513

 
628,564

Intangible assets, net
 
81,999

 
82,315

Goodwill
 
89,109

 
80,821

Other assets
 
15,402

 
11,625

Total assets
 
$
897,462

 
$
857,786

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Current portion of debt and capital lease obligations
 
$
2,785

 
$
8,342

Accounts payable
 
35,189

 
32,577

Accounts payable to related parties
 
3,060

 
4,692

Accrued expenses and other current liabilities
 
18,191

 
15,811

Motor fuel taxes payable
 
11,145

 
9,818

Total current liabilities
 
70,370

 
71,240

Debt and capital lease obligations, less current portion
 
481,850

 
430,632

Deferred tax liabilities
 
42,688

 
43,609

Asset retirement obligations
 
25,327

 
23,165

Other long-term liabilities
 
43,208

 
20,284

Total liabilities
 
663,443

 
588,930

Commitments and contingencies
 

 


Equity:
 
 
 
 
CrossAmerica Partners’ Capital
 
 
 
 
Common units—(33,300,415 and 25,585,922 units issued and outstanding at June 30, 2016 and December 31, 2015, respectively)
 
234,209

 
374,458

Subordinated units—affiliates (0 and 7,525,000 units issued and outstanding at June 30, 2016 and December 31, 2015, respectively)
 

 
(105,467
)
Total CrossAmerica Partners’ Capital
 
234,209

 
268,991

Noncontrolling interests
 
(190
)
 
(135
)
Total equity
 
234,019

 
268,856

Total liabilities and equity
 
$
897,462

 
$
857,786

See Condensed Notes to Consolidated Financial Statements.

5




CROSSAMERICA PARTNERS LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of Dollars, Except Unit and Per Unit Amounts)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Operating revenues(a)
$
512,644

 
$
650,136

 
$
880,384

 
$
1,130,593

Costs of sales(b)
472,129

 
608,965

 
802,679

 
1,051,695

Gross profit
40,515

 
41,171

 
77,705

 
78,898

 
 
 
 
 
 
 
 
Income from CST Fuel Supply equity
4,245

 
1,177

 
8,296

 
2,275

Operating expenses:
 
 
 
 
 
 
 
Operating expenses
16,119

 
20,071

 
31,530

 
37,411

General and administrative expenses
4,921

 
7,614

 
11,926

 
18,060

Depreciation, amortization and accretion expense
14,262

 
11,411

 
27,162

 
22,913

Total operating expenses
35,302

 
39,096

 
70,618

 
78,384

Gain (loss) on sales of assets, net
(102
)
 
422

 
(106
)
 
452

Operating income
9,356

 
3,674

 
15,277

 
3,241

Other income, net
316

 
190

 
434

 
249

Interest expense
(5,704
)
 
(4,743
)
 
(10,769
)
 
(9,021
)
Income (loss) before income taxes
3,968

 
(879
)
 
4,942

 
(5,531
)
Income tax expense (benefit)
338

 
(907
)
 
(457
)
 
(2,588
)
Consolidated net income (loss)
3,630

 
28

 
5,399

 
(2,943
)
Net income (loss) attributable to noncontrolling interests
4

 
(2
)
 
6

 
(7
)
Net income (loss) attributable to CrossAmerica limited
   partners
3,626

 
30

 
5,393

 
(2,936
)
Distributions to CST as holder of the incentive distribution
   rights
(820
)
 
(195
)
 
(1,579
)
 
(365
)
Net income (loss) available to CrossAmerica limited
   partners
$
2,806

 
$
(165
)
 
$
3,814

 
$
(3,301
)
Net income (loss) per CrossAmerica limited partner unit:
 
 
 
 
 
 
Basic earnings per common unit
$
0.08

 
$
(0.01
)
 
$
0.11

 
$
(0.13
)
Diluted earnings per common unit(c)
$
0.08

 
$
(0.01
)
 
$
0.11

 
$
(0.13
)
Basic and diluted earnings per subordinated unit
$

 
$
(0.01
)
 
$
0.11

 
$
(0.13
)
Weighted-average CrossAmerica limited partner units:
 
 
 
 
 
 
 
Basic common units
33,283,489

 
17,582,365

 
30,879,426

 
17,260,533

 
 
 
 
 
 
 
 
Diluted common units(c)
33,292,023

 
17,629,855

 
30,928,204

 
17,354,742

Basic and diluted subordinated units

 
7,525,000

 
2,315,385

 
7,525,000

Total diluted common and subordinated units(c)
33,292,023
 
25,154,855
 
33,243,589
 
24,879,742
 
 
 
 
 
 
 
 
Distribution paid per common and subordinated units
$
0.5975

 
$
0.5475

 
$
1.1900

 
$
1.0900

Distribution declared (with respect to each respective
period) per common and subordinated units
$
0.6025

 
$
0.5625

 
$
1.2000

 
$
1.1100

 
 
 
 
 
 
 
 
Supplemental information:
 
 
 
 
 
 
 
(a) Includes excise taxes of:
$
20,311

 
$
26,714

 
$
40,204

 
$
47,224

(a) Includes revenues from fuel sales to related parties of:
$
107,131

 
$
139,216

 
$
180,439

 
$
238,140

(a) Includes income from rentals of:
$
20,351

 
$
14,608

 
$
39,882

 
$
29,028

(b) Includes expenses from fuel sales to related parties of:
$
103,513

 
$
135,431

 
$
173,765

 
$
231,471

(b) Includes expenses from rentals of:
$
5,019

 
$
4,408

 
$
9,767

 
$
7,930

(c) Diluted common units are not used in the calculation of diluted earnings per common unit for the three and six months ended June 30, 2015 because to do so would be antidilutive.
See Condensed Notes to Consolidated Financial Statements.

6




CROSSAMERICA PARTNERS LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
 
 
Six Months Ended June 30,
 
 
2016
 
2015
Cash flows from operating activities:
 
 
 
 
Consolidated net income (loss)
 
$
5,399

 
$
(2,943
)
Adjustments to reconcile net income (loss) to net cash flows provided by operating activities:
 
 
 
 
Depreciation, amortization and accretion expense
 
27,162

 
22,913

Amortization of deferred financing fees
 
738

 
738

Amortization of below market leases, net
 
93

 
338

Provision for losses on doubtful accounts
 
67

 
412

Deferred income taxes
 
(921
)
 
(4,075
)
Equity-based employees and directors compensation expense
 
1,875

 
3,444

Amended Omnibus Agreement fees to be settled in CrossAmerica units
 
4,750

 
2,748

(Gain) loss on sales of assets, net
 
106

 
(452
)
Gain on settlement of capital lease obligations
 

 
(25
)
Inventory valuation adjustment
 
91

 
706

Changes in working capital, net of acquisitions
 
(2,319
)
 
(7,343
)
Net cash provided by operating activities
 
37,041

 
16,461

Cash flows from investing activities:
 
 
 
 
Proceeds from sale of property and equipment
 
98

 
1,709

Capital expenditures
 
(5,524
)
 
(5,359
)
Principal payments received on notes receivable
 
192

 
616

Cash paid in connection with acquisitions, net of cash acquired
 
(52,350
)
 
(123,137
)
Cash paid to CST in connection with acquisitions
 
(2,900
)
 

Net cash used in investing activities
 
(60,484
)
 
(126,171
)
Cash flows from financing activities:
 
 
 
 
Borrowings under the revolving credit facility
 
121,445

 
150,652

Repayments on the revolving credit facility
 
(49,856
)
 
(164,143
)
Proceeds (costs) from issuance of common units
 

 
138,546

Repurchases of common units
 
(3,252
)
 

Payments of long-term debt and capital lease obligations
 
(1,639
)
 
(1,257
)
Repayments from related party
 

 
2,465

Distributions paid on distribution equivalent rights
 
(24
)
 

Distributions paid to CST as holder of the incentive distribution rights
 
(1,579
)
 
(365
)
Distributions paid to noncontrolling interests
 
(61
)
 
(54
)
Distributions paid on common and subordinated units
 
(39,528
)
 
(26,714
)
Net cash provided by financing activities
 
25,506

 
99,130

Net increase (decrease) in cash
 
2,063

 
(10,580
)
Cash at beginning of period
 
1,192

 
15,170

Cash at end of period
 
$
3,255

 
$
4,590

See Condensed Notes to Consolidated Financial Statements.

7



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1.    DESCRIPTION OF BUSINESS AND OTHER DISCLOSURES
Description of Business
Our business consists of:
the wholesale distribution of motor fuels;
the retail distribution of motor fuels to end customers at sites operated by commission agents or us;
the owning or leasing of sites used in the retail distribution of motor fuels and, in turn, generating rental income from the lease or sublease of the sites; and
the operation of convenience stores.
The financial statements reflect the consolidated results of CrossAmerica and its wholly owned subsidiaries. CrossAmerica’s primary operations are conducted by the following consolidated wholly owned subsidiaries:
LGW, which distributes motor fuels on a wholesale basis and generates qualified income under Section 7704(d) of the Internal Revenue Code;
LGPR, which functions as the real estate holding company of CrossAmerica and holds the assets that generate rental income that is qualifying 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 distributes motor fuels on a retail basis and sells convenience merchandise items to end customers at company-operated retail sites and sells motor fuel on a retail basis at sites operated by commission agents. Income from LGWS generally is not qualifying income under Section 7704(d) of the Internal Revenue Code.
CST, a Delaware corporation, owns 100% of the membership interest in the General Partner of CrossAmerica and 100% of our IDRs. The General Partner manages our operations and business activities. The General Partner is managed and operated by the executive officers of the General Partner, under the oversight of the Board. As a result of its ownership of all of the membership interests in the General Partner, CST has the right to appoint all members of the Board and therefore controls our operations even though CST does not own a majority of our common units.
As part of our business strategy with CST, we intend, when favorable market conditions exist and pending approval by the General Partner’s independent conflicts committee and the approval of the executive committee of the Board of Directors of CST and mutual agreement upon terms and other conditions, to purchase interests at fair market value in CST Fuel Supply, over time. As of June 30, 2016 our total equity interest in CST Fuel Supply was 17.5%. See Note 9 for discussion of the July 2016 refund of a portion of the purchase price paid in 2015 by the Partnership to CST Fuel Supply associated with the reduction in wholesale distribution volume resulting from CST’s sale of its California and Wyoming assets.
Additionally, we have previously issued common units as consideration in the purchase of equity interests in CST Fuel Supply and the real property associated with some of CST’s NTI convenience stores. We have previously issued, and may continue to issue, common units as payment for charges incurred under the Amended Omnibus Agreement. Pursuant to a unit purchase program announced in September 2015, CST has also acquired our common units through open market purchases. Through June 30, 2016, after giving effect to these transactions, CST owned 19.3% of our limited partner interests.
Interim Financial Statements
These unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and the Exchange Act. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature unless disclosed otherwise. Management believes that the disclosures made are adequate to keep the information presented from being misleading. The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in our Form 10-K. Financial information as of June 30, 2016 and for the three and six months ended June 30, 2016 and 2015 included in the consolidated financial statements has been derived from our unaudited financial statements.

8



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financial information as of December 31, 2015 has been derived from our audited financial statements and notes thereto as of that date.
Operating results for the three and six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. Our business exhibits seasonality due to our wholesale and retail sites being located in certain geographic areas that are affected by seasonal weather and temperature trends and associated changes in retail customer activity during different seasons. Historically, sales volumes have been highest in the second and third quarters (during the summer activity months) and lowest during the winter months in the first and fourth quarters.
Reclassifications
Certain reclassifications were made to prior year amounts to conform to the current year presentation, as discussed further in Note 16. Such reclassifications had no effect on net income or total equity.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results and outcomes could differ from those estimates and assumptions. On an ongoing basis, management reviews its estimates based on currently available information. Changes in facts and circumstances could result in revised estimates and assumptions.
Significant Accounting Policies
There have been no material changes to the significant accounting policies described in our Form 10-K.
New Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02—Leases (Topic 842). This standard modifies existing guidance for reporting organizations that enter into leases to increase transparency by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective for fiscal years and interim periods within those years beginning after December 15, 2018, and requires a modified retrospective approach to adoption. Early adoption is permitted. Management is currently evaluating the impact of this new guidance in addition to the timing of adoption.
In March 2016, the FASB issued ASU 2016-09—Compensation–Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This standard is issued as part of a simplification initiative involving several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years and interim periods within those years beginning after December 15, 2016. The approach to adoption is dependent upon which amendments are applicable. Early adoption is permitted. Management is currently evaluating the impact of this new guidance in addition to the timing of adoption.
Certain other new financial accounting pronouncements have become effective for our financial statements but the adoption of these pronouncements will not affect our financial position or results of operations, nor will they require any additional disclosures.
Concentration Risk
DMS is an operator of retail sites that purchases a significant portion of its motor fuel requirements from us on a wholesale basis and then re-sells motor fuel on a retail basis. DMS also leases real estate from us. The financial results of DMS are not consolidated with ours. For the three and six months ended June 30, 2016, CrossAmerica distributed approximately 17% of its total wholesale distribution volumes to DMS and DMS accounted for approximately 30% of our rental income. For more information regarding transactions with DMS, see Note 9 of the Condensed Notes to Consolidated Financial Statements.
As of June 30, 2016, CrossAmerica’s total equity interest in CST Fuel Supply is 17.5%. CST Fuel Supply provides wholesale fuel distribution to the majority of CST’s U.S. retail convenience stores. Valero supplied substantially all of the motor fuel purchased by CST Fuel Supply during all periods presented. During the three and six months ended June 30, 2016, CST Fuel Supply purchased approximately 0.5 billion and 1.0 billion gallons of motor fuel from Valero.
For the three and six months ended June 30, 2016, CrossAmerica distributed 8% of its total wholesale distribution volume to CST convenience stores that are not supplied by CST Fuel Supply and received 22% of its rental income from CST.
For the three months ended June 30, 2016, CrossAmerica received 10% of its rental income from a third party dealer that operates many of the sites acquired through the PMI and One Stop acquisitions.

9



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2. ACQUISITIONS
Acquisition of franchise Holiday Stationstores
On March 29, 2016, we closed on the acquisition of 31 franchise Holiday stores and 3 company-operated liquor stores from S/S/G Corporation for approximately $52.4 million, including working capital. Of the 34 company-operated stores, 31 are located in Wisconsin and 3 are located in Minnesota. The acquisition was funded by borrowings under our credit facility.
The preliminary fair value of the assets acquired and liabilities assumed on the date of acquisition were as follows (in thousands):
Current assets (excluding inventories)
$
41

Inventories
3,536

Property and equipment
33,055

Intangibles
7,710

Goodwill
9,126

Current liabilities
(56
)
Asset retirement obligations
(1,062
)
   Total consideration, net of cash acquired
$
52,350

The fair value of inventory was estimated at retail selling price less estimated costs to sell and a reasonable profit allowance for the selling effort.
The fair value of property and equipment, which consisted of land, buildings and equipment, was based on a cost approach. The buildings and equipment are being depreciated on a straight-line basis, with estimated remaining useful lives of 20 years for the buildings and 5 to 10 years for equipment.
The $6.5 million fair value of the wholesale fuel distribution rights included in intangibles was based on an income approach and management believes the level and timing of cash flows represent relevant market participant assumptions. The wholesale fuel distribution rights are being amortized on a straight-line basis over an estimated useful life of approximately 10 years.
The $1.0 million fair value of the discount related to lease agreements with below average market value was based on an income approach, and management believes the level and timing of cash flows represent relevant market participant assumptions. These intangible assets are being amortized on a straight-line basis over the term of the respective lease agreements, with an estimated weighted average useful life of 5 years.
Goodwill recorded is primarily attributable to the end-customer relationships not eligible for recognition as an intangible asset. Of the goodwill recorded, $1.8 million was assigned to the Wholesale segment and $7.3 million was assigned to the Retail segment. Goodwill deductible for tax purposes amounted to $29.0 million.
Operating revenues since the date of acquisition were $27.9 million and $28.7 million for the three and six months ended June 30, 2016, respectively.
Management is reviewing the valuation and confirming the result to determine the final purchase price allocation.
Finalization of Purchase Accounting associated with the Erickson Acquisition
In the first quarter of 2016, we recorded a $1.1 million receivable for a working capital settlement as agreed to with the sellers, reducing net consideration and resulting goodwill. We finalized the purchase accounting for this acquisition with the receivable related to the working capital settlement being the only adjustment recorded in 2016.
Purchase of Wholesale Fuel Supply Contracts from CST
In February 2016, CrossAmerica purchased 21 independent dealer contracts and 11 subwholesaler contracts from CST for $2.9 million. This transaction was approved on behalf of CrossAmerica by the independent conflicts committee of the Board and by the executive committee of the board of directors of CST. See Note 9 of the Condensed Notes to Consolidated Financial Statements for additional information.

10



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Pro Forma Results
Our pro forma results, giving effect to the Holiday acquisition as well as the February 2015 Erickson and July 2015 One Stop acquisitions and assuming an acquisition date of January 1, 2015 for each, would have been (in thousands, except per unit amounts):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
Total revenues
 
$
512,644

 
$
760,444

 
$
902,682

 
$
1,315,939

Net income (loss)
 
$
3,582

 
$
166

 
$
5,082

 
$
(3,515
)
Net income (loss) per limited partnership unit
 
$
0.08

 
$

 
$
0.11

 
$
(0.16
)
Subsequent Event—Acquisition of State Oil
On July 15, 2016, we entered into a definitive agreement to acquire certain assets of State Oil Company, consisting of 55 lessee dealer accounts, 25 independent dealer accounts, three company-operated locations, two non-fuel sites and certain other assets located in the greater Chicago market for approximately $45 million, including working capital. The acquisition is subject to customary conditions to closing and is expected to close in the third quarter of 2016.
Note 3. ASSETS HELD FOR SALE
CrossAmerica has classified three and seven sites as held for sale at June 30, 2016 and December 31, 2015, respectively, as they did not fit the Partnership's strategy and are expected to be sold within a year of the date they were initially classified as held for sale. Assets held for sale were as follows (in thousands):
 
 
June 30,
 
December 31,
 
 
2016
 
2015
Land
 
$
942

 
$
1,695

Buildings and site improvements
 
1,073

 
1,558

Equipment and other
 
1,009

 
1,225

Total
 
3,024

 
4,478

Less accumulated depreciation
 
(753
)
 
(1,190
)
Assets held for sale
 
$
2,271

 
$
3,288

Note 4. INVENTORIES
Inventories consisted of the following (in thousands):
 
 
June 30,
 
December 31,
 
 
2016
 
2015
Convenience store merchandise
 
$
9,360

 
$
11,354

Motor fuel
 
3,806

 
4,385

Inventories
 
$
13,166

 
$
15,739


11



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5. PROPERTY AND EQUIPMENT
Property and equipment, net consisted of the following (in thousands):
 
 
June 30,
 
December 31,
 
 
2016
 
2015
Land
 
$
258,473

 
$
251,632

Buildings and site improvements
 
328,893

 
318,530

Leasehold improvements
 
9,256

 
8,867

Equipment and other
 
161,190

 
140,264

Construction in progress
 
3,423

 
3,666

Property and equipment, at cost
 
761,235

 
722,959

Accumulated depreciation and amortization
 
(112,722
)
 
(94,395
)
Property and equipment, net
 
$
648,513

 
$
628,564

PMI’s transportation assets were sold in May 2015 for $0.9 million, resulting in a gain of $0.5 million.
Note 6. GOODWILL
Changes in goodwill during the six months ended June 30, 2016 consisted of the following (in thousands):
 
Wholesale
Segment
 
Retail 
Segment 
 
Consolidated
Balance at December 31, 2015
$
61,548

 
$
19,273

 
$
80,821

Acquisitions
1,720

 
6,568

 
8,288

Reassignment
5,341

 
(5,341
)
 

Balance at June 30, 2016
$
68,609

 
$
20,500

 
$
89,109

Our business model includes the conversion of retail sites from company-operated sites to dealer-operated sites. As a result of these conversions, there is a reduction in future cash flows in the Retail segment and an expected increase in future cash flows that will be received by the Wholesale segment subsequent to the date of conversion. The effect of these conversions, for the period ended June 30, 2016, is a $5.3 million reassignment of goodwill originally assigned to the Retail segment to the Wholesale segment.
Note 7. INTANGIBLE ASSETS
Intangible assets consisted of the following (in thousands):
 
 
June 30, 2016
 
December 31, 2015
 
 
Gross Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Amount
 
Accumulated Amortization
 
Net Carrying Amount
Wholesale fuel supply contracts/rights
 
$
111,671

 
$
(38,310
)
 
$
73,361

 
$
105,181

 
$
(32,498
)
 
$
72,683

Trademarks
 
1,204

 
(600
)
 
604

 
2,494

 
(1,264
)
 
1,230

Covenant not to compete
 
4,131

 
(2,045
)
 
2,086

 
3,911

 
(1,600
)
 
2,311

Below market leases
 
12,081

 
(6,133
)
 
5,948

 
11,181

 
(5,090
)
 
6,091

Total intangible assets
 
$
129,087

 
$
(47,088
)
 
$
81,999

 
$
122,767

 
$
(40,452
)
 
$
82,315


12



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8. DEBT
Our balances for long-term debt and capital lease obligations are as follows (in thousands):
 
 
June 30,
 
December 31,
 
 
2016
 
2015
$550 million revolving credit facility
 
$
430,000

 
$
358,412

Financing obligation associated with Rocky Top acquisition
 

 
26,250

Note payable
 
850

 
876

Lease financing obligations
 
58,454

 
58,842

Total debt and lease financing obligations
 
489,304

 
444,380

Current portion
 
2,785

 
8,342

Noncurrent portion
 
486,519

 
436,038

Deferred financing fees
 
(4,669
)
 
(5,406
)
Total
 
$
481,850

 
$
430,632

The following represents principal payments due on our revolving credit facility and note payable for the next five years, excluding lease financing obligations (in thousands):
Remainder of 2016
 
$
28

2017
 
57

2018
 
765

2019
 
430,000

Total
 
$
430,850

Our $550 million revolving credit facility is secured by substantially all of the assets of CrossAmerica and its subsidiaries. Letters of credit outstanding at June 30, 2016 and December 31, 2015 totaled $14.9 million and $16.0 million, respectively. The amount of availability at June 30, 2016 under the revolving credit facility, after taking into account debt covenant constraints, was $80.4 million. In connection with future acquisitions, the revolving credit facility requires, among other things, that we have, after giving effect to such acquisition, at least $20.0 million, in the aggregate, of borrowing availability under the revolving credit facility and unrestricted cash on the balance sheet on the date of such acquisition.
Renegotiation of Rocky Top Purchase Obligation
In connection with the Rocky Top acquisition completed in September 2013, we entered into a deferred seller financing arrangement, which obligated CrossAmerica to purchase certain sites in approximately equal parts over a 5-year period for an average of $5.2 million per year beginning in 2016 at an approximate 7.7% capitalization rate. In June 2016, we renegotiated the terms with the sellers, eliminating the deferred seller financing obligation and agreeing to terms of a new lease of the assets for an initial term of 15 years and 8 months with four renewal options of five years each. Under the triple net lease, annual rent is initially $1.8 million based on a 6.5% capitalization rate and increases 1.5% per year. However, because of the continuing involvement CrossAmerica has with the sites through the lease and sublease of the properties, CrossAmerica is required to continue to carry the liability on its balance sheet at its current fair value, estimated to be its carrying value. CrossAmerica reclassified the liability from debt and capital lease obligations to accrued expenses and other current liabilities and other noncurrent liabilities on the consolidated balance sheet.
Financial Covenants and Interest Rate
Our revolving credit facility contains financial covenants consisting of a total leverage ratio (as defined in the credit facility) for the most recently completed four fiscal quarters of less than or equal to 5.00 to 1.00 and a consolidated interest coverage ratio (as defined in the credit facility) of greater than or equal to 2.75 to 1.00. As of June 30, 2016, CrossAmerica was in compliance with these covenants. The total leverage ratio covenant is 5.00 to 1.00 for the two quarters following a material acquisition (as defined in the credit facility). As such, the total leverage ratio steps down to 4.50 to 1.00 on December 31, 2016 assuming there are no material acquisitions for the remainder of 2016.
Outstanding borrowings under the revolving credit facility bear interest at the LIBOR plus a margin of 3.00%. Our borrowings had an interest rate of 3.46% as of June 30, 2016.

13



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9. RELATED-PARTY TRANSACTIONS
Transactions with CST
Fuel Sales and Rental Income
CrossAmerica sells wholesale motor fuel under a master fuel distribution agreement to 43 CST convenience stores and leases real property on 74 retail sites to CST under a master lease agreement each having initial 10-year terms. The fuel distribution agreement provides CrossAmerica with a fixed wholesale mark-up per gallon. The master lease agreement is a triple net lease.
Revenues from wholesale fuel sales and real property rental income from CST were as follows (in thousands):
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
Revenues from motor fuel sales to CST
 
$
32,825

 
$
41,134

 
$
56,082

 
$
69,674

Rental income from CST
 
$
4,317

 
$
1,406

 
$
8,634

 
$
2,787

Receivables from CST were $3.1 million and $2.3 million at June 30, 2016 and December 31, 2015, respectively, related to these transactions.
CST Fuel Supply Equity Interests
CST Fuel Supply provides wholesale motor fuel distribution to the majority of CST’s U.S. Retail convenience stores on a fixed markup per gallon. CrossAmerica owned a 17.5% and 5% total interest in CST Fuel Supply at June 30, 2016 and 2015, respectively. CrossAmerica accounts for the income derived from its 17.5% equity interest of CST Fuel Supply as “Income from CST Fuel Supply” on its statement of operations, which amounted to $4.2 million and $1.2 million for the three months ended June 30, 2016 and 2015 and $8.3 million and $2.3 million for the six months ended June 30, 2016 and 2015, respectively.
Purchase of Wholesale Fuel Supply Contracts from CST
In February 2016, CrossAmerica purchased 21 independent dealer contracts and 11 subwholesaler contracts from CST for $2.9 million with historic annual volumes of approximately 20 million gallons. This transaction was approved on behalf of CrossAmerica by the independent conflicts committee of the Board and by the executive committee of the board of directors of CST. Since this was a transaction between entities under common control, the $2.9 million purchase price was accounted for as a distribution recorded in partners’ capital.
CrossAmerica purchases the fuel supplied to these 32 sites from CST Fuel Supply, of which CrossAmerica owns a 17.5% interest, and resells the wholesale motor fuel to the independent dealers and subwholesalers. CrossAmerica purchased $6.0 million and $9.0 million of fuel from CST Fuel Supply for the three and six months ended June 30, 2016, respectively, in connection with these 32 sites.
Subsequent Event—Refund payment related to CST sale of California and Wyoming Assets
On July 7, 2016, we announced that CST provided a refund payment to the purchase price paid by us for our 17.5% interest in CST Fuel Supply resulting from the sale by CST of 79 retail sites in California and Wyoming to 7-Eleven, Inc. and its wholly-owned subsidiary, SEI Fuel Services, Inc., to which CST Fuel Supply no longer supplies motor fuel. The purpose of the refund payment was to make CrossAmerica whole for the decrease in the value of its interest in CST Fuel Supply arising from sales volume decreases. The total refund payment received by the Partnership, as approved by the independent conflicts committee of the Board and by the executive committee of the board of directors of CST, was approximately $18.2 million.
IDR and Common Unit Distributions
We distributed $2 million to CST related to its ownership of our IDRs and $8 million related to its 19.3% investment in our common units during the six months ended June 30, 2016. CST received cash distributions of $0.3 million related to its investment in our IDRs and $1.6 million related to its 6.04% ownership of our common units during the six months ended June 30, 2015.
Wholesale Motor Fuel Sales and Real Estate Rentals
DMS is an entity affiliated with Joseph V. Topper, Jr., a member of the Board. DMS is an operator of convenience stores that purchases motor fuel from us on a wholesale basis in accordance with a master fuel purchase agreement between DMS and

14



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CrossAmerica. DMS also leases certain retail site real estate from us in accordance with a master lease agreement between DMS and CrossAmerica.
Revenues from motor fuel sales and rental income from DMS were as follows (in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
Revenues from motor fuel sales to DMS
 
$
74,306

 
$
98,082

 
$
124,357

 
$
168,466

Rental income from DMS
 
$
5,488

 
$
5,962

 
$
11,223

 
$
11,888

Motor fuel is sold to DMS at our cost plus a fixed mark-up per gallon. Receivables from DMS totaled $10.4 million and $7.3 million at June 30, 2016 and December 31, 2015, respectively.
Topstar Enterprises is an entity affiliated with Joseph V. Topper, Jr. Topstar is an operator of convenience stores that leases retail site real estate from us, but does not purchase fuel from us. Revenues from rental income from Topstar Enterprises was $0.1 million and $0.2 million for both the three and six months ended June 30, 2016 and 2015, respectively.
CrossAmerica leases real estate from certain entities affiliated with Joseph V. Topper, Jr. Rent expense paid to these entities was $0.2 million and $0.3 million for the three months ended June 30, 2016 and 2015 and $0.4 million and $0.5 million for the six months ended June 30, 2016 and 2015, respectively.
Amended Omnibus Agreement and Management Fees
CrossAmerica incurred $3.6 million and $2.9 million in charges for the three months ended June 30, 2016 and 2015 and $8.1 million and $7.2 million for the six months ended June 30, 2016 and 2015, respectively, including incentive compensation costs and non-cash stock-based compensation expense under the Amended Omnibus Agreement, which are recorded as a component of operating expenses and general and administrative expenses in the statement of operations. Amounts payable to CST related to these transactions were $7.4 million and $8.3 million at June 30, 2016 and December 31, 2015, respectively. Effective January 1, 2016, the fixed billing component of the management fee was increased to $856,000 per month, which was approved on behalf of CrossAmerica by the independent conflicts committee of the Board and by the executive committee of the board of directors of CST. CST and CrossAmerica have the right to negotiate the amount of the management fee on an annual basis, or more often as circumstances require. See Note 12 of the Condensed Notes to Consolidated Financial Statements for additional information.
Maintenance and Environmental Costs
Certain maintenance and environmental monitoring and remediation activities are performed by a related party of Joseph V. Topper, Jr. as approved by the independent conflicts committee of the Board. CrossAmerica incurred charges with this related party of $0.2 million and $0.6 million for the three months ended June 30, 2016 and 2015 and $0.8 million and $0.7 million in charges with this related party for the six months ended June 30, 2016 and 2015, respectively.
Aircraft Usage Costs
From time to time, CrossAmerica leases, on a non-exclusive basis, an aircraft owned by a group of individuals that includes Joseph V. Topper, Jr. and John B. Reilly, III, members of our Board, as previously approved in August 2013 by the independent conflicts committee of the Board. Lease costs incurred by CrossAmerica for use of these aircrafts were insignificant for the three and six months ended June 30, 2016 and 2015.
Principal Executive Offices
The principal executive offices of CrossAmerica are in Allentown, Pennsylvania in an office space leased by CST from a related party of Joseph V. Topper, Jr. and John B. Reilly, III. Rent expense charged by CST to the Partnership was $0.2 million and $0.1 million for the three months ended June 30, 2016 and 2015 and $0.3 million and $0.2 million for the six months ended June 30, 2016 and 2015, respectively.

15



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10. COMMITMENTS AND CONTINGENCIES
Litigation Matters
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 and/or 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.
Environmental Matters
Environmental liabilities related to the sites contributed to CrossAmerica in connection with our IPO have not been assigned to CrossAmerica, and are still the responsibility of the Predecessor Entities. Under the Amended Omnibus Agreement, certain of the Predecessor Entities must indemnify CrossAmerica for any costs or expenses that it incurs 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. The Predecessor Entities’ environmental liabilities and indemnification assets associated with contributed sites amounted to $6.6 million and $5.3 million at June 30, 2016, respectively.
Note 11. FAIR VALUE MEASUREMENTS
General
CrossAmerica measures and reports 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 2016 or 2015.
As further discussed in Note 13 of the Condensed Notes to Consolidated Financial Statements, CrossAmerica has accrued for unvested phantom units and vested and unvested profits interests as a liability and adjusts that liability on a recurring basis based on the market price of CrossAmerica’s common units each balance sheet date. Such fair value measurements are deemed Level 1 measurements.
Financial Instruments
The fair value of CrossAmerica’s accounts receivable, notes receivable, and accounts payable approximated their carrying values as of June 30, 2016 and December 31, 2015 due to the short-term maturity of these instruments. The fair value of the revolving credit facility approximated its carrying values of $430.0 million as of June 30, 2016 and $358.4 million as of December 31, 2015,

16



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

due to the frequency with which interest rates are reset and the consistency of the market spread. The fair value of debt, classified as a Level 2 measurement, was estimated using an income approach by discounting future cash flows at estimated current cost of funding rates.
Note 12. PARTNERS’ CAPITAL
On February 25, 2016, the first business day after the payment of the previously announced distribution of $0.5925 per common unit for the fourth quarter of 2015, the Board determined that the subordination period under the Partnership Agreement had ended. At that time, each of the 7,525,000 outstanding subordinated units converted into one common unit.
For the three and six months ended June 30, 2016, CrossAmerica issued 884 and 94,601 common units (net of units withheld for income taxes) as a result of the vesting of phantom units and conversion of profit interests previously issued primarily to CST employees who provide services principally to CrossAmerica. See Note 13 of the Condensed Notes to Consolidated Financial Statements for additional information.
As approved by the independent conflicts committee of the Board and the executive committee of CST’s board of directors, CrossAmerica and CST mutually agreed to settle, from time to time, the amounts due under the terms of the Amended Omnibus Agreement in newly issued common units representing limited partner interests in CrossAmerica. On March 31 and May 9, 2016, CrossAmerica issued 145,137 and 83,218 common units as partial payment for the amounts incurred for the fourth quarter of 2015 and first quarter of 2016, respectively, under the terms of the Amended Omnibus Agreement. See Note 9 of the Condensed Notes to Consolidated Financial Statements for additional information.
On August 2, 2016, CrossAmerica issued 101,087 common units to CST Services as payment for a portion of the second quarter 2016 management fee.
Common Unit Repurchase Program
In November 2015, the Board approved a common unit repurchase program under Rule 10b-18 of the Exchange Act authorizing us to repurchase up to an aggregate of $25.0 million of the common units representing limited partner interests in the Partnership. Under the program, CrossAmerica may make purchases in the open market in accordance with Rule 10b-18 of the Exchange Act, or in privately negotiated transactions, pursuant to a trading plan under Rule 10b5-1 of the Exchange Act or otherwise. Any purchases will be funded from available cash on hand. The common unit repurchase program does not require CrossAmerica to acquire any specific number of common units and may be suspended or terminated by us at any time without prior notice. The purchases will not be made from any officer, director or control person of CrossAmerica or CST. The following table shows the purchases during the six months ended June 30, 2016:
Period
 
Total Number of Units Purchased
 
Average Price Paid per Unit
 
Total Cost of Units Purchased
 
Amount Remaining under the Program
January 1 - March 31, 2016
 
112,492

 
$
24.47

 
$
2,752,240

 
$
18,644,689

April 1 - June 30, 2016
 
20,971

 
$
23.86

 
$
500,413

 
$
18,144,276

January 1 - June 30, 2016
 
133,463

 
$
24.37

 
$
3,252,653

 
$
18,144,276


17



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Distributions
Quarterly distribution activity for 2016 was as follows:
Quarter Ended
 
Record Date
 
Payment Date
 
Cash Distribution (per unit)
 
Cash Distribution (in thousands)
December 31, 2015
 
February 12, 2016
 
February 24, 2016
 
$
0.5925

 
$
19,618

March 31, 2016
 
May 19, 2016
 
May 31, 2016
 
$
0.5975

 
$
19,910

The Board approved a quarterly distribution of $0.6025 per unit attributable to the second quarter of 2016. The distribution is payable on August 15, 2016 to all unitholders of record on August 8, 2016.
Distributions to CST as holder of the IDRs were $0.8 million and $1.6 million for the three and six months ended June 30, 2016, respectively. Payments on the IDRs increased due to an increase in the distribution paid per unit and an increase in the number of units outstanding on which the distribution is based.
Partners’ Capital
The following table is a rollforward of our equity for the six months ended June 30, 2016 (in thousands):
 
 
Limited Partners’ Interest
 
 
 
 
 
 
 
 
Common
Unitholders
 
Subordinated
Units - Affiliates
 
Incentive
Distribution
Rights
 
Noncontrolling
Interest
 
Total Equity
 
 
Units
 
Dollars
 
Units
 
Dollars
 
Dollars
 
Dollars
 
Dollars
Balance at December 31, 2015
 
25,585

 
$
374,458

 
7,525

 
$
(105,467
)
 
$

 
$
(135
)
 
$
268,856

Net income and comprehensive income
 
 
 
3,548

 
 
 
266

 
1,579

 
6

 
5,399

Distributions paid
 
 
 
(35,093
)
 
 
 
(4,459
)
 
(1,579
)
 
(61
)
 
(41,192
)
Conversion of subordinated units
 
7,525

 
(109,660
)
 
(7,525
)
 
109,660

 

 

 

Distribution to CST in connection with the purchase of dealer contracts
 
 
 
(2,900
)
 
 
 

 

 

 
(2,900
)
Repurchase of common units
 
(133
)
 
(3,253
)
 
 
 

 

 

 
(3,253
)
Issuance of units to CST for the payment of management fees
 
228

 
5,255

 
 
 

 

 

 
5,255

Issuance of units for vesting of equity based award and profits interests
 
95

 
2,281

 
 
 

 

 

 
2,281

Other
 
 
 
(427
)
 
 
 

 

 

 
(427
)
Balance at June 30, 2016
 
33,300

 
$
234,209

 

 
$

 
$

 
$
(190
)
 
$
234,019

Note 13. EQUITY-BASED COMPENSATION
Overview
We record equity-based compensation as a component of general and administrative expenses in the statement of operations. Compensation expense was $0.6 million and $0.5 million for the three months ended June 30, 2016 and 2015, and $1.9 million and $3.4 million for the six months ended June 30, 2016 and 2015, respectively.
CrossAmerica Equity-Based Awards
CrossAmerica grants equity-based awards to employees of CST who perform services for CrossAmerica pursuant to the Amended Omnibus Agreement. As these grants may be settled in cash, unvested phantom units and vested and unvested profits interests 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 at June 30, 2016 and December 31, 2015 totaled $1.2 million and $3.3 million, respectively.

18



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CST Awards
CST equity-based awards of approximately 102,000 and 155,000 for the six months ended June 30, 2016 and 2015, respectively, were granted to certain employees of CST for services rendered on behalf of CrossAmerica. Expense associated with these awards that was charged to CrossAmerica under the Amended Omnibus Agreement was $0.3 million and $0.1 million for the three months ended June 30, 2016 and 2015 and $1.0 million and $1.7 million for the six months ended June 30, 2016 and 2015, respectively.
Awards to Members of the Board
In December 2015, the Partnership issued 11,476 non-vested phantom units to non-employee directors of the Board as a portion of director compensation. Such awards vest in December 2016.
The liability for these awards at June 30, 2016 and December 31, 2015, including previously issued fully vested profits interests that have not been converted into common units, was $0.2 million and $0.4 million, respectively. The associated compensation expense was not significant for the three and six months ended June 30, 2016 and 2015.
Note 14. NET INCOME PER LIMITED PARTNER UNIT
Under the Partnership Agreement, a subsidiary of CST, as the holder of CrossAmerica’s IDRs, has a contractual interest in distributions from CrossAmerica that are increasing percentages starting at 15% of quarterly distributions out of the operating surplus (as defined in our Partnership Agreement) in excess of $0.5031 per limited partner unit.
In addition to the common units, CrossAmerica has identified the IDRs as participating securities and computes 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 (including common and subordinated unitholders) is computed by dividing the limited partners’ interest in net income (loss), after deducting the IDRs, by the weighted-average number of outstanding common units.

19



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables provide a reconciliation of net income (loss) and weighted-average units used in computing basic and diluted net income (loss) per limited partner unit for the following periods (in thousands, except unit and per unit amounts):
 
 
Three Months Ended June 30,
 
 
2016
 
2015
 
 
Common Units
 
Subordinated Units
 
Common Units
 
Subordinated Units
Numerator:
 
 
 
 
 
 
 
 
Distributions paid(a)
 
$
19,921

 
$

 
$
9,324

 
$
4,120

Allocation of distributions in excess of net income(b)
 
(17,115
)
 

 
(9,452
)
 
(4,157
)
Limited partners’ interest in net income - basic
 
2,806

 

 
(128
)
 
(37
)
Adjustment for phantom units
 

 

 

 

Limited partners’ interest in net income - diluted
 
$
2,806

 
$

 
$
(128
)
 
$
(37
)
 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
Weighted average limited partnership units outstanding - basic
 
33,283,489

 

 
17,582,365

 
7,525,000

Adjustment for phantom units
 
8,534

 

 

 

Weighted average limited partnership units outstanding - diluted(c)
 
33,292,023

 

 
17,582,365

 
7,525,000

 
 
 
 
 
 
 
 
 
Net income (loss) per limited partnership unit - basic
 
$
0.08

 
$

 
$
(0.01
)
 
$
(0.01
)
Net income (loss) per limited partnership unit - diluted
 
$
0.08

 
$

 
$
(0.01
)
 
$
(0.01
)
 
 
Six Months Ended June 30,
 
 
2016
 
2015
 
 
Common Units
 
Subordinated Units
 
Common Units
 
Subordinated Units
Numerator:
 
 
 
 
 
 
 
 
Distributions paid(a)
 
$
35,093

 
$
4,459

 
$
18,512

 
$
8,202

Allocation of distributions in excess of net income(b)
 
(31,545
)
 
(4,193
)
 
(20,811
)
 
(9,204
)
Limited partners’ interest in net income - basic
 
3,548

 
266

 
(2,299
)
 
(1,002
)
Adjustment for phantom units
 
1

 
(1
)
 

 

Limited partners’ interest in net income - diluted
 
$
3,549

 
$
265

 
$
(2,299
)
 
$
(1,002
)
 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
Weighted average limited partnership units outstanding - basic
 
30,879,426

 
2,315,385

 
17,620,533

 
7,525,000

Adjustment for phantom units
 
48,778

 

 

 

Weighted average limited partnership units outstanding - diluted(c)
 
30,928,204

 
2,315,385

 
17,620,533

 
7,525,000

 
 
 
 
 
 
 
 
 
Net income (loss) per limited partnership unit - basic
 
$
0.11

 
$
0.11

 
$
(0.13
)
 
$
(0.13
)
Net income (loss) per limited partnership unit - diluted
 
$
0.11

 
$
0.11

 
$
(0.13
)
 
$
(0.13
)

20



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(a)
Distributions paid per unit were $0.5975 and $0.5475 during the three months ended June 30, 2016 and 2015, respectively. Distributions paid per unit were $1.1900 and $1.0900 during the six months ended June 30, 2016 and 2015, respectively.
(b)
Allocation of distributions in excess of net income is based on a pro rata proportion to the common and subordinated units as outlined in the Partnership Agreement.
(c)
Excludes 47,490 and 94,209 potentially dilutive securities from the calculation of diluted earnings per common unit because to do so would be antidilutive for the three and six months ended June 30, 2015, respectively.
Note 15. 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 CrossAmerica’s taxable income, which may differ significantly from income for financial statement purposes, is assessed at the individual limited partner unit holder level. CrossAmerica is 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, CrossAmerica 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 LGWS. LGWS is a tax paying corporate subsidiary of CrossAmerica that is subject to federal and state income taxes. 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.
CrossAmerica recorded income tax expense of $0.3 million for the three months ended June 30, 2016 and income tax benefits of $0.9 million for the three months ended June 30, 2015 and $0.5 million and $2.6 million for the six months ended June 30, 2016 and 2015, respectively, as a result of earnings generated and losses incurred by its corporate subsidiaries. The effective tax rate differs from the combined federal and state statutory rate because only LGWS is subject to income tax.
The tax benefit for the three and six months ended June 30, 2015 included a $0.4 million decrease in the valuation allowance.
Note 16. 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 the lessee dealer, independent dealer, DMS and CST customer groups. 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 and CST and collect rent from both. The Retail segment includes the sale of convenience merchandise items, the retail sale of motor fuel at company-operated sites and the retail sale of motor fuel at sites operated by commission agents. 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 sites, we manage motor fuel inventory pricing and retain the gross profit on motor fuel sales. We pay a commission to the agent who operates the retail site.
As part of our evaluation of the economic performance of our retail sites, we will from time to time convert company-owned convenience stores from our Retail segment to our lessee dealer customer group in our Wholesale segment. During the first six months of 2016, we converted 70 company-operated convenience stores from our Retail segment to our lessee dealer customer group in our Wholesale segment. As such, 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 sites. However, we continue to supply these sites with motor fuel on a wholesale basis pursuant to the fuel supply contract with the lessee dealer. Further, we continue to own/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.
Prior to 2016, CrossAmerica netted lease executory costs such as real estate taxes, maintenance, and utilities that CrossAmerica paid and re-billed to customers on its statement of operations. During the first quarter of 2016, CrossAmerica began accounting for such amounts as rent income and operating expenses and reflected this change in presentation retrospectively. This change resulted in a $2.5 million and $5.1 million increase in rent and other income and operating expenses for the wholesale segment for the three and six months ended June 30, 2015, respectively.

21



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unallocated items consist primarily of general and administrative expenses, depreciation, amortization and accretion expense, gains on sales of assets, 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.

22



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table reflects activity related to our reportable segments (in thousands):
 
 
Wholesale
 
Retail
 
Unallocated
 
Consolidated
Three Months Ended June 30, 2016
 
 
 
 
 
 
 
 
Revenues from fuel sales to external customers
 
$
366,838

 
$
91,701

 
$

 
$
458,539

Intersegment revenues from fuel sales
 
67,209

 

 
(67,209
)
 

Revenues from food and merchandise sales
 

 
33,297

 

 
33,297

Rent income
 
18,997

 
1,354

 

 
20,351

Other revenue
 
457

 

 

 
457

Total revenues
 
$
453,501

 
$
126,352

 
$
(67,209
)
 
$
512,644

 
 
 
 
 
 
 
 
 
Income from CST Fuel Supply Equity
 
$
4,245

 
$

 
$


$
4,245

Operating income (loss)
 
$
25,900

 
$
2,728

 
$
(19,272
)
 
$
9,356

 
 
 
Three Months Ended June 30, 2015
 
 
 
 
 
 
 
 
Revenues from fuel sales to external customers
 
$
445,576

 
$
147,207

 
$

 
$
592,783

Intersegment revenues from fuel sales
 
109,195

 

 
(109,195
)
 

Revenues from food and merchandise sales
 

 
42,397

 

 
42,397

Rent income
 
13,230

 
1,378

 

 
14,608

Other revenue
 
225

 
123

 

 
348

Total revenues
 
$
568,226

 
$
191,105

 
$
(109,195
)
 
$
650,136

 
 
 
 
 
 
 
 
 
Income from CST Fuel Supply Equity
 
$
1,177

 
$

 
$

 
$
1,177

Operating income (loss)
 
$
17,682

 
$
4,595

 
$
(18,603
)
 
$
3,674

 
 
 
 
 
 
 
 
 
 
 
Wholesale
 
Retail
 
Unallocated
 
Consolidated
Six Months Ended June 30, 2016
 
 
 
 
 
 
 
 
Revenues from fuel sales to external customers
 
$
610,241

 
$
165,739

 
$

 
$
775,980

Intersegment revenues from fuel sales
 
115,646

 

 
(115,646
)
 

Revenues from food and merchandise sales
 

 
63,746

 

 
63,746

Rent income
 
37,196

 
2,686

 

 
39,882

Other revenue
 
776

 

 

 
776

Total revenues
 
$
763,859

 
$
232,171

 
$
(115,646
)
 
$
880,384

 
 
 
 
 
 
 
 
 
Income from CST Fuel Supply Equity
 
$
8,296

 
$

 
$

 
$
8,296

Operating income (loss)
 
$
49,941

 
$
4,398

 
$
(39,062
)
 
$
15,277

 
 
 
Six Months Ended June 30, 2015
 
 
 
 
 
 
 
 
Revenues from fuel sales to external customers
 
$
776,111

 
$
253,400

 
$

 
$
1,029,511

Intersegment revenues from fuel sales
 
176,534

 

 
(176,534
)
 

Revenues from food and merchandise sales
 

 
71,026

 

 
71,026

Rent income
 
26,294

 
2,734

 

 
29,028

Other revenue
 
905

 
123

 

 
1,028

Total revenues
 
$
979,844

 
$
327,283

 
$
(176,534
)
 
$
1,130,593

 
 
 
 
 
 
 
 
 
Income from CST Fuel Supply Equity
 
$
2,275

 
$

 
$

 
$
2,275

Operating income (loss)
 
$
35,284

 
$
8,640

 
$
(40,683
)
 
$
3,241


23



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 17. SUPPLEMENTAL CASH FLOW INFORMATION
In order to determine net cash provided by operating activities, net income is adjusted by, among other things, changes in current assets and current liabilities as follows (in thousands):
 
Six Months Ended June 30,
 
2016
 
2015
Decrease (increase):
 
 
 
Accounts receivable
$
(2,711
)
 
$
(7,053
)
Accounts receivable from related parties
(3,030
)
 
(594
)
Inventories
4,914

 
1,597

Other current assets
(1,136
)
 
2,046

Other assets
(3,234
)
 
322

Increase (decrease):
 
 
 
Accounts payable
2,467

 
5,708

Accounts payable to related parties
(2,374
)
 
(3,603
)
Motor fuel taxes payable
(1,698
)
 
380

Accrued expenses and other current liabilities
1,327

 
(6,431
)
Other long-term liabilities
3,156

 
285

Changes in working capital, net of acquisitions
$
(2,319
)
 
$
(7,343
)
The above changes in current assets and current 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):
 
Six Months Ended June 30,
 
2016
 
2015
Cash paid for interest
$
10,049

 
$
8,273

Cash paid for income taxes
$
1,241

 
$
547

Supplemental schedule of non-cash investing and financing activities (in thousands):
 
Six Months Ended June 30,
 
2016
 
2015
Sale of property and equipment in Section 1031 like-kind exchange transactions
$
1,300

 
$

Removal of property and equipment and capital lease obligation for sales terminated from Getty lease
$

 
$
(1,333
)
Acquisition of equity investment in CST Fuel Supply funded by issuance of common units
$

 
$
60,352

Issuance of capital lease obligations and recognition of asset
     retirement obligation related to Getty lease
$
1,240

 
$

Amended Omnibus Agreement fees settled in CrossAmerica
     common units
$
4,750

 
$
2,748

Note 18. TERMINATION BENEFITS
As a result of the continued integration of certain processes and systems for our recently acquired businesses, CrossAmerica committed to a workforce reduction in 2015 affecting certain employees in our Retail segment and has accrued substantially all termination costs as of June 30, 2016.

24



CROSSAMERICA PARTNERS LP
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A rollforward of the liability for severance and other termination benefits is as follows (in thousands):
Balance at December 31, 2015
 
$
1,665

Provision for termination benefits (included in general and administrative expenses)
 
317

Termination benefits paid
 
(1,751
)
Balance at June 30, 2016
 
$
231


25




ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report includes forward-looking statements, including in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 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 management’s current views and assumptions, and involve risks and uncertainties that could affect expected 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 and to transition retail sites to dealer operated sites;
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 quarterly 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 as they involve assumptions that, while made in good faith, may prove to be incorrect, and involve risks and uncertainties we cannot predict. 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:
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;
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;
our existing or future indebtedness;
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 or governmental policies 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;

26


technological advances;
the impact of worldwide economic and political conditions;
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;
our ability to comply with federal and state regulations, including those related to environmental matters, the sale of alcohol, cigarettes and fresh foods, and employment laws and health benefits;
the outcome of CST’s exploration of strategic alternatives; and
CST’s business strategy and operations and CST’s conflicts of interest with us.
You should consider the areas of risk described above, as well as those set forth in the section entitled “Risk Factors” included in our Form 10-K for the year ended December 31, 2015 and our Form 10-Q for the quarterly period ended March 31, 2016, in connection with considering any forward-looking statements that may be made by us and our businesses generally. We cannot assure you that projected 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.

27


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis (“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, our consolidated financial statements and the accompanying notes to these financial statements contained elsewhere in this report, and the MD&A section and the consolidated financial statements and accompanying notes to those financial statements in our Form 10-K. Our Form 10-K contains a discussion of other matters not included herein, such as disclosures regarding critical accounting policies and estimates and contractual obligations.
MD&A is organized as follows:
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, for the three and six months ended June 30, 2016 and 2015, an outlook for our business 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 and other matters impacting our liquidity and capital resources.
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.
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 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 87% 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 below). The increase in DTW gross profit results from the acquisition cost of wholesale motor fuel declining at a faster rate as compared to the rate retail motor fuel prices decline. Alternatively, our DTW motor fuel gross profit declines when the cost of wholesale motor fuel increases at a faster rate as compared to the rate retail motor fuel prices increase.
Regarding our supplier relationships, a majority of our total gallons purchased are subject to discounts for prompt payment and other rebates and incentives. Prompt payment discounts are based on a percentage of the purchase price of motor fuel. As such, the dollar value of these discounts increase and decrease 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 $2.1 million related to these payment discounts.
Retail segment
The prices we pay for wholesale motor fuel are closely correlated to the price of crude oil. The crude oil commodity markets are highly volatile, and the market prices of crude oil and wholesale motor fuel experience significant and rapid fluctuations. 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

28


and rapidly over short periods of time.
Changes in our average motor fuel selling price per gallon and gross margin for the periods ended June 30, 2016 and 2015 are directly related to the changes in crude oil and wholesale motor fuel prices over the same period. 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 rapidly.
Seasonality Effects on Volumes
Our business is subject to 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 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 discount as a result of higher fuel costs, inflation could negatively impact our Retail segment as a result of higher fuel and merchandise costs. 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.
Acquisition and Financing Activity
Our results of operations and financial condition are also impacted by our acquisition and financing activities as summarized below.
2016
On July 15, 2016, we entered into a definitive agreement to acquire certain assets of State Oil Company located in the greater Chicago market for approximately $45 million. The acquisition is subject to customary conditions to closing and is expected to close in the third quarter of 2016. See Note 2 of the Condensed Notes to Consolidated Financial Statements for additional information.
On July 7, 2016, we announced that CST provided a refund payment to the purchase price paid by us for our 17.5% interest in CST Fuel Supply as a result of the sale by CST of 79 retail sites in California and Wyoming to 7-Eleven, to which CST Fuel Supply will no longer supply motor fuel. The purpose of the refund payment was to make CrossAmerica whole for the decrease in the value of its interest in CST Fuel Supply arising from sales volume decreases. The total refund payment received by the Partnership, as approved by the independent conflicts committee of the Board and by the executive committee of the board of directors of CST, was approximately $18.2 million. See Note 2 of the Condensed Notes to Consolidated Financial Statements for additional information.
On March 29, 2016, CrossAmerica closed on the acquisition of franchise Holiday Stationstores and company-operated liquor stores from S/S/G Corporation for approximately $52.4 million, including working capital. See Note 2 of the Condensed Notes to Consolidated Financial Statements for additional information.
On February 5, 2016, CrossAmerica purchased independent dealer and subwholesaler contracts from CST for $2.9 million. See Notes 2 and 9 of the Condensed Notes to Consolidated Financial Statements for additional information.
2015
In July 2015, we closed on the purchase of a 12.5% limited partner equity interest in CST Fuel Supply for aggregate consideration of 3.3 million common units and cash in the amount of $17.5 million, with an aggregate consideration of $110.9 million on the date of closing.
In July 2015, we closed on the purchase of convenience stores from One Stop and associated fee properties for $44.6 million.

29


In July 2015, we completed the purchase of real property at 29 NTIs from CST in exchange for an aggregate consideration of approximately 0.3 million common units and cash in the amount of $124.4 million, with an aggregate consideration of $134.0 million on the date of closing.
In June 2015, we closed on the sale of 4.6 million common units for net proceeds of approximately $138.5 million. In July 2015, we closed on the sale of an additional 0.2 million common units for net proceeds of approximately $6.4 million in accordance with the underwriters’ option to purchase additional common units associated with the June offering. We used the proceeds to reduce indebtedness outstanding under our credit facility.
In February 2015, we closed on the purchase of all of the outstanding capital stock of Erickson and certain related assets for an aggregate purchase price of $83.8 million, including working capital. See Note 2 of the Condensed Notes to Consolidated Financial Statements for additional information.
In January 2015, in connection with the joint acquisition by CST and CrossAmerica of 22 convenience stores from Landmark Industries, we acquired the real property of the 22 fee sites for $41.2 million. In addition, we distribute wholesale motor fuel to these sites.
In January 2015, we closed on the purchase of a 5% limited partner equity interest in CST Fuel Supply for aggregate consideration of 1.5 million common units valued at $60.4 million at closing. See Notes 1 and 9 of the Condensed Notes to Consolidated Financial Statements for additional information.

30


Results of Operations
Consolidated Income Statement Analysis
Below is an analysis of our consolidated statements of operations 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 operations are as follows (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Operating revenues
$
512,644

 
$
650,136

 
$
880,384

 
$
1,130,593

Cost of sales
472,129

 
608,965

 
802,679

 
1,051,695

Gross profit
40,515

 
41,171

 
77,705

 
78,898