CrossAmerica Partners LP - Quarter Report: 2017 September (Form 10-Q)

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Accelerated filer

Non-accelerated filer

☐ (do not check if a smaller reporting company)

Smaller reporting company

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10–Q

(Mark One)

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

For the quarterly period ended September 30, 2017

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

For the transition period from to

Commission file No. 001-35711

CROSSAMERICA PARTNERS LP

(Exact name of registrant as specified in its charter)

Delaware		45-4165414
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

515 Hamilton Street, Suite 200 Allentown, PA		18101
(Address of Principal Executive Offices)		(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 ☑ 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 ☑ No ☐

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

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

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

As of November 3, 2017, the registrant had outstanding 33,984,970 common units.

TABLE OF CONTENTS

		PAGE

Commonly Used Defined Terms		i
PART I - FINANCIAL INFORMATION		1
Item 1. Financial Statements		1
Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016		1
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 and 2016		2
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016		3
Condensed Notes to Consolidated Financial Statements		4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3. Quantitative and Qualitative Disclosures about Market Risk		37
Item 4. Controls and Procedures		37
PART II - OTHER INFORMATION		38
Item 1. Legal Proceedings		38
Item 1A. Risk Factors		38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		38
Item 6. Exhibits		38
SIGNATURE		39

COMMONLY USED DEFINED TERMS

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

CrossAmerica Partners LP and subsidiaries:

CrossAmerica, 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

CrossAmerica Partners LP related and affiliated parties:

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

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

CST		CST Brands, LLC, a wholly owned subsidiary of Circle K.

DMR		Dunne Manning Realty LP, an entity affiliated with Joseph V. Topper, Jr., a member of the Board.

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

General Partner		CrossAmerica GP LLC, the General Partner of CrossAmerica, a Delaware limited liability company.

CST Fuel Supply		CST Fuel Supply LP is the parent of CST Marketing and Supply LLC, 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. As of September 30, 2017, our total limited partner interest in CST Fuel Supply was 17.5%.

CST Marketing and Supply		CST Marketing and Supply, LLC, 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. As of September 30, 2017, our total limited partner interest in CST Marketing and Supply was 17.5%.

CST Services		CST Services, LLC, a wholly owned subsidiary of Circle K

Topstar		Topstar Enterprises, an entity associated with Joseph V. Topper, Jr. Topstar is an operator of convenience stores that leases retail sites from us, but does not purchase fuel from us.

Recent Acquisitions:

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

Franchised Holiday Stores		The franchised Holiday stores acquired from S/S/G Corporation in March 2016

State Oil Assets		The assets acquired from State Oil Company in September 2016

Other Defined Terms:

Amended Omnibus Agreement		The Amended and Restated Omnibus Agreement, dated October 1, 2014, as amended on February 17, 2016 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 issued by the FASB to communicate changes to the FASB codification.

Board		Board of Directors of our General Partner


BP		BP p.l.c.

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

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

EICP		The Partnership’s Executive Income Continuity Plan, as amended

Exchange Act		Securities Exchange Act of 1934, as amended

ExxonMobil		ExxonMobil Corporation

FASB		Financial Accounting Standards Board

Form 10-K		CrossAmerica’s Annual Report on Form 10-K for the year ended December 31, 2016

Getty lease		In May 2012, the Predecessor Entity, which represents the portion of the business of Dunne Manning Inc. and its subsidiaries and affiliates contributed to the Partnership in connection with the IPO, entered into a 15-year master lease agreement with renewal options of up to an additional 20 years with Getty Realty Corporation. The Partnership pays fixed rent, which increases 1.5% per year. In addition, the lease requires contingent rent payments based on gallons of motor fuel sold. The Partnership leases sites under the lease in Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, Pennsylvania and Rhode Island.

IDRs		Incentive Distribution Rights, which are interests in the Partnership that provide for special distributions associated with increasing partnership distributions. Couche-Tard is the indirect 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 on October 30, 2012

LIBOR		London Interbank Offered Rate

Merger		The merger of Ultra Acquisition Corp. with CST, with CST surviving the merger as a wholly owned subsidiary of Circle K Stores Inc., which closed on June 28, 2017. See Merger Agreement below.

Merger Agreement		CST’s Agreement and Plan of Merger (the “Merger Agreement”) entered into on August 21, 2016 with Circle K and Ultra Acquisition Corp., a Delaware corporation and an indirect, wholly owned subsidiary of Circle K (“Merger Sub”). Under and subject to the terms and conditions of the Merger Agreement, on June 28, 2017, Merger Sub was merged with and into CST, with CST surviving the Merger as a wholly owned subsidiary of Circle K.

Merger Sub		Ultra Acquisition Corp., a Delaware corporation and an indirect, wholly owned subsidiary of Circle K

MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations

Motiva		Motiva Enterprises LLC

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

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

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

SEC		U.S. Securities and Exchange Commission

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


U.S. GAAP		United States Generally Accepted Accounting Principles

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

WTI		West Texas Intermediate crude oil

iii

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CROSSAMERICA PARTNERS LP

CONSOLIDATED BALANCE SHEETS

(Thousands of Dollars, except unit data)

	September 30,			December 31,
	2017			2016
	(Unaudited)
ASSETS
Current assets:
Cash	$	1,566			1,350
Accounts receivable, net of allowances of $476 and $487, respectively		23,930			29,251
Accounts receivable from related parties		14,994			12,975
Inventories		12,020			13,164
Assets held for sale		2,496			2,111
Other current assets		7,168			6,556
Total current assets		62,174			65,407
Property and equipment, net		634,718			677,329
Intangible assets, net		68,989			80,760
Goodwill		89,109			89,109
Other assets		22,499			19,384
Total assets	$	877,489		$	931,989

LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt and capital lease obligations	$	2,884		$	2,100
Accounts payable		37,785			34,903
Accounts payable to related parties		16,289			9,958
Accrued expenses and other current liabilities		19,210			15,705
Motor fuel taxes payable		12,081			12,467
Total current liabilities		88,249			75,133
Debt and capital lease obligations, less current portion		454,773			465,119
Deferred tax liabilities, net		39,952			42,923
Asset retirement obligations		28,155			27,750
Other long-term liabilities		97,085			100,253
Total liabilities		708,214			711,178

Commitments and contingencies

Equity:
Partners’ Capital
Common units—(33,984,970 and 33,524,952 units issued and outstanding at September 30, 2017 and December 31, 2016, respectively)		169,569			221,044
General Partner’s interest		—			—
Total Partners’ Capital		169,569			221,044
Noncontrolling interests		(294	)		(233	)
Total equity		169,275			220,811
Total liabilities and equity	$	877,489		$	931,989

See Condensed Notes to Consolidated Financial Statements.

CROSSAMERICA PARTNERS LP

CONSOLIDATED STATEMENTS OF OPERATIONS

(Thousands of Dollars, Except Unit and Per Unit Amounts)

(Unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2017			2016			2017			2016
Operating revenues^(a)	$	544,092		$	487,950		$	1,542,167		$	1,368,334
Costs of sales^(b)		502,517			448,812			1,421,524			1,251,491
Gross profit		41,575			39,138			120,643			116,843

Income from CST Fuel Supply equity interests		3,752			4,022			11,185			12,318
Operating expenses:
Operating expenses		15,371			14,224			46,853			45,754
General and administrative expenses		5,994			6,142			23,731			18,068
Depreciation, amortization and accretion expense		14,049			13,432			42,675			40,594
Total operating expenses		35,414			33,798			113,259			104,416
Gain on sales of assets, net		2,371			631			2,013			525
Operating income		12,284			9,993			20,582			25,270
Other income (expense), net		121			(59	)		366			375
Interest expense		(7,102	)		(5,634	)		(20,599	)		(16,403	)
Income before income taxes		5,303			4,300			349			9,242
Income tax expense (benefit)		966			1,308			(1,686	)		851
Net income		4,337			2,992			2,035			8,391
Less: net income (loss) attributable to noncontrolling interests		4			3			(1	)		9
Net income attributable to limited partners		4,333			2,989			2,036			8,382
IDR distributions		(1,115	)		(877	)		(3,162	)		(2,456	)
Net income (loss) available to limited partners	$	3,218		$	2,112		$	(1,126	)	$	5,926

Net income (loss) per limited partner unit:
Basic earnings per common unit	$	0.09		$	0.06		$	(0.03	)	$	0.18
Diluted earnings per common unit	$	0.09		$	0.06		$	(0.03	)	$	0.18
Basic and diluted earnings per subordinated unit	n/a			n/a			n/a			$	0.18

Weighted-average limited partner units:
Basic common units		33,931,056			33,366,380			33,773,964			31,714,462
Diluted common units^(c)		33,937,702			33,391,096			33,773,964			31,766,802
Basic and diluted subordinated units		—			—			—			1,537,956
Total diluted common and subordinated units		33,937,702			33,391,096			33,773,964			33,304,758

Distribution paid per common and subordinated unit	$	0.6225		$	0.6025		$	1.8525		$	1.7925
Distribution declared (with respect to each respective period) per common and subordinated unit	$	0.6275		$	0.6075		$	1.8675		$	1.8075
Supplemental information:
(a) Includes excise taxes of:	$	19,704		$	19,698		$	58,351		$	59,902
(a) Includes revenues from fuel sales to related parties of:		101,190			99,891			281,611			280,330
(a) Includes rental income of:		21,644			19,752			65,090			59,634
(b) Includes rental expense of:		4,876			5,103			14,593			14,870
(c) Diluted common units were not used in the calculation of diluted earnings per common unit for the nine months ended September 30, 2017 because to do so would have been antidilutive.

See Condensed Notes to Consolidated Financial Statements.

CROSSAMERICA PARTNERS LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands of Dollars)

(Unaudited)

	For the Nine Months Ended September 30,
	2017			2016
Cash flows from operating activities:
Net income	$	2,035		$	8,391
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation, amortization and accretion expense		42,675			40,594
Amortization of deferred financing fees		1,278			1,106
Amortization of below market leases, net		57			150
Provision for losses on doubtful accounts		46			93
Deferred income taxes		(2,971	)		69
Equity-based employees and directors compensation expense		1,889			2,597
Amended Omnibus Agreement fees settled in common units		9,900			7,600
Gain on sales of assets, net		(2,013	)		(525	)
Erickson working capital adjustment		—			335
Changes in working capital, net of acquisitions		13,542			3,288
Net cash provided by operating activities		66,438			63,698

Cash flows from investing activities:
Proceeds from sale of property and equipment		23,900			610
Capital expenditures		(10,175	)		(11,567	)
Principal payments received on notes receivable		345			214
Refund payment related to the sale by CST of California and Wyoming assets		—			17,528
Cash paid in connection with acquisitions, net of cash acquired		(2,779	)		(94,173	)
Cash paid to CST in connection with acquisitions		—			(2,900	)
Net cash provided by (used in) investing activities		11,291			(90,288	)

Cash flows from financing activities:
Borrowings under the revolving credit facility		88,840			178,270
Repayments on the revolving credit facility		(98,856	)		(82,182	)
Repurchases of common units		—			(3,252	)
Payments of long-term debt and capital lease obligations		(1,509	)		(1,772	)
Payments of sale leaseback obligations		(635	)		(541	)
Payment of deferred financing fees		(6	)		—
Contributions from parent company		329			—
Distributions paid on distribution equivalent rights		(15	)		(34	)
Distributions paid to holders of the IDRs		(3,162	)		(2,456	)
Distributions paid to noncontrolling interests		(60	)		(85	)
Distributions paid on common and subordinated units		(62,439	)		(59,653	)
Net cash (used in) provided by financing activities		(77,513	)		28,295
Net increase in cash		216			1,705
Cash at beginning of period		1,350			1,192
Cash at end of period	$	1,566		$	2,897

See Condensed Notes to Consolidated Financial Statements.

CROSSAMERICA PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.DESCRIPTION OF BUSINESS AND OTHER DISCLOSURES

CST’s Merger

CST entered into the Merger Agreement dated as of August 21, 2016, with Circle K and Merger Sub. On June 28, 2017, Merger Sub merged with and into CST, at which time the separate corporate existence of Merger Sub ceased, and CST survived the Merger as an indirect, wholly owned subsidiary of Circle K.

As a result of the Merger, Circle K indirectly owns all of the membership interests in our General Partner, as well as a 20.8% limited partner interest in the Partnership and all of the IDRs of the Partnership. Circle K, through its indirect ownership interest in the sole member of our General Partner, has the ability to appoint all of the members of the Board and to control and manage our operations and activities.

Description of Business

Our business consists of:

•

the wholesale distribution of motor fuels;

•

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

•

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

•

the operation of retail sites.

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

•

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

•

LGPR, which functions as the real estate holding company of CrossAmerica and holds 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.

In 2015, we issued our common units as consideration in the purchase of equity interests in CST Fuel Supply and the real property associated with certain of CST’s NTI retail sites. In addition, we also issued, and may continue to issue, our common units as payment to Circle K for charges and expenses incurred by us under the Amended Omnibus Agreement. There is no obligation for CST or our General Partner to accept common units representing limited partner interests in lieu of cash for amounts due under the Amended Omnibus Agreement. CST also acquired our common units through open market purchases from September 2015 through December 2015. At September 30, 2017, Circle K indirectly owned 20.8% 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 September 30, 2017 and for the three and nine months ended September 30, 2017 and 2016 included in the consolidated financial statements has been derived from our unaudited financial statements. Financial information as of December 31, 2016 has been derived from our audited financial statements and notes thereto as of that date.

CROSSAMERICA PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Operating results for the nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. 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.

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 May 2014, the FASB issued ASU 2014-09–Revenue from Contracts with Customers (Topic 606), which results in comprehensive new revenue accounting guidance, requires enhanced disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized, and develops a common revenue standard under U.S. GAAP and International Financial Reporting Standards. Specifically, the core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. With the issuance of ASU 2015-14, which deferred the effective date by one year, this guidance is effective January 1, 2018. The guidance can be applied either retrospectively to each prior reporting period presented, or as a cumulative-effect adjustment as of the date of adoption. Although management continues to evaluate the impact of adopting this new guidance, we have completed an assessment and to date, have not identified any material impact on the financial statements, although it will affect disclosures. This guidance is expected to apply to over 90% of our revenues as the only primary revenue stream outside the scope of this guidance is rental income. We anticipate using the modified retrospective method of adoption.

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 continues to evaluate the impact of this new guidance, but the adoption will have a material impact on our balance sheet as we will be required to recognize right-of-use assets and lease liabilities for operating leases. We do not anticipate adopting this guidance early. We intend to apply each of the practical expedients in adopting this new guidance.

In October 2016, the FASB issued ASU 2016-16–Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This standard requires companies to account for income tax effects of intercompany transactions other than inventory in the period in which the transfer occurs. This guidance is effective January 1, 2018 and requires a modified retrospective application through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We have chosen to early adopt the standard effective January 1, 2017, which had no impact as of the date of adoption but could impact us in the future.

In January 2017, the FASB issued ASU 2017-01–Business Combinations (Topic 805): Clarifying the Definition of a Business. This standard clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. ASU 2017-01 is effective for fiscal years and interim periods within those years beginning after December 15, 2017. We have chosen to early adopt this standard effective January 1, 2017. Although there was no impact upon adoption, among other things, this guidance will result in the capitalization rather than expensing of acquisition costs in future transactions that will be accounted for as asset acquisitions rather than business combinations under the new definition of a business.

CROSSAMERICA PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In January 2017, the FASB issued ASU 2017-04–Intangibles–Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This standard removes Step 2 of the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for a company's annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Management has elected to early adopt this guidance effective January 1, 2017, which had no impact upon adoption but could result in a change in the measurement of an impairment loss if an impairment was required to be recorded in the future.

Certain other new financial accounting pronouncements have become effective for our financial statements but the adoption of these pronouncements did not materially impact our financial position, results of operations or disclosures.

Concentration Risk

For the nine months ended September 30, 2017 and 2016, we distributed approximately 14% and 17% of our total wholesale distribution volumes to DMS and its affiliates and DMS and its affiliates accounted for approximately 23% and 27% of our rental income, respectively.

For the nine months ended September 30, 2017 and 2016, we distributed 8% of our total wholesale distribution volume to CST retail sites that are not supplied by CST Fuel Supply and received 22% and 21% of our rental income from CST, respectively.

For more information regarding transactions with DMS and its affiliates and CST, see Note 8.

For the nine months ended September 30, 2017 and 2016, we received 9% of our rental income from a lessee dealer that operates certain of the retail sites acquired through the PMI and One Stop acquisitions.

For the nine months ended September 30, 2017, our wholesale business purchased approximately 28%, 27% and 17% of its motor fuel from ExxonMobil, BP and Motiva, respectively. For the nine months ended September 30, 2016, our wholesale business purchased approximately 29%, 24% and 23% of its motor fuel from ExxonMobil, BP and Motiva (Shell), respectively. No other fuel suppliers accounted for 10% or more of our motor fuel purchases during the nine months ended September 30, 2017 and 2016.

Valero supplied substantially all of the motor fuel purchased by CST Fuel Supply during all periods presented. During the nine months ended September 30, 2017 and 2016, CST Fuel Supply purchased approximately 1.3 billion and 1.4 billion gallons of motor fuel from Valero, respectively.

Note 2. ACQUISITIONS

On August 4, 2017, we entered into a definitive asset purchase agreement (the “Purchase Agreement”), by and among (i) CrossAmerica, (ii) Jet-Pep, Inc., and (iii) other persons listed as signatories in the Purchase Agreement (collectively the “Sellers”). Pursuant to the Purchase Agreement, we have agreed to purchase the real property and the fuel supply business of 92 fee simple sites, and the leasehold interest in 5 leased real property sites; and the fuel supply business to four independent dealers, all located in Alabama (“Acquired Assets”), for an aggregate cash consideration of $72.3 million (the “Purchase Price”), subject to certain closing adjustments. We also agreed to assume certain liabilities and pay for the value of the petroleum inventory contained in the retail sites. Circle K also entered into a definitive asset purchase agreement with the Sellers. The closing of the purchase of the Acquired Assets and the closing of the purchase by Circle K of certain related retail and terminaling assets from the Sellers (the “Circle K Agreements”), are mutually conditioned upon each other. We paid a deposit of $2.8 million in the third quarter of 2017.

The closing of the transaction is expected to occur in the fourth quarter of 2017, and is subject to the satisfaction or waiver of customary closing conditions. The Purchase Agreement contains customary representations, warranties, agreements and obligations of the parties, and termination and closing conditions. We and the Sellers have generally agreed to indemnify each other for breaches of the representations, warranties and covenants contained in the Purchase Agreement, subject to survival period limitations and a general indemnification cap for the Sellers in the amount of $6.5 million in the aggregate for Sellers’ liabilities under the Purchase Agreement and the Circle K Agreements.

CROSSAMERICA PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3. ASSETS HELD FOR SALE

We have classified four sites as held for sale at September 30, 2017 and December 31, 2016. These assets 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):

	September 30,			December 31,
	2017			2016
Land	$	1,741		$	882
Buildings and site improvements		1,608			1,054
Equipment and other		489			702
Total		3,838			2,638
Less accumulated depreciation		(1,342	)		(527	)
Assets held for sale	$	2,496		$	2,111

During the three and nine months ended September 30, 2017, as approved by the conflicts committee of our Board, we sold 28 properties to DMR for $16.6 million, resulting in a $0.5 million loss. Three additional properties and approximately $3.0 million of proceeds remain in escrow, as of September 30, 2017 until certain conditions are met. These sites were generally sites at which we did not supply fuel or represented vacant land.

During the three and nine months ended September 30, 2017, we sold 2 properties as a result of the FTC’s requirements associated with the Merger for $6.7 million, resulting in a gain of $2.2 million. In addition, Couche-Tard agreed to reimburse us for the tax liability incurred on the required sale, resulting in additional proceeds of $0.3 million, which was accounted for as a contribution to partners’ capital.

During the three and nine months ended September 30, 2017, DMS renewed its contract with one of its customers, triggering a $0.8 million earn-out payment by DMS to us under a contract entered into with DMS at the time of CST acquiring our General Partner in October 2014, which was recorded as a gain.

Note 4. INVENTORIES

Inventories consisted of the following (in thousands):

	September 30,		December 31,
	2017		2016
Retail site merchandise	$	7,715	$	8,374
Motor fuel		4,305		4,790
Inventories	$	12,020	$	13,164

Note 5. PROPERTY AND EQUIPMENT

Property and equipment, net consisted of the following (in thousands):

	September 30,			December 31,
	2017			2016
Land	$	270,740		$	280,400
Buildings and site improvements		334,705			346,834
Leasehold improvements		9,721			9,095
Equipment and other		171,208			169,245
Construction in progress		3,720			3,173
Property and equipment, at cost		790,094			808,747
Accumulated depreciation and amortization		(155,376	)		(131,418	)
Property and equipment, net	$	634,718		$	677,329

CROSSAMERICA PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6. INTANGIBLE ASSETS

Intangible assets consisted of the following (in thousands):

	September 30, 2017							December 31, 2016
	Gross Amount		Accumulated Amortization			Net Carrying Amount		Gross Amount		Accumulated Amortization			Net Carrying Amount
Wholesale fuel supply contracts/rights	$	118,201	$	(53,607	)	$	64,594	$	118,201	$	(44,298	)	$	73,903
Trademarks		1,094		(807	)		287		1,094		(685	)		409
Covenant not to compete		4,131		(3,095	)		1,036		4,131		(2,503	)		1,628
Below market leases		11,401		(8,329	)		3,072		12,081		(7,261	)		4,820
Total intangible assets	$	134,827	$	(65,838	)	$	68,989	$	135,507	$	(54,747	)	$	80,760

Note 7. DEBT

Our balances for long-term debt and capital lease obligations are as follows (in thousands):

	September 30,			December 31,
	2017			2016
$550 million revolving credit facility	$	431,484		$	441,500
Note payable		779			822
Capital lease obligations		27,728			28,455
Total debt and capital lease obligations		459,991			470,777
Current portion		2,884			2,100
Noncurrent portion		457,107			468,677
Deferred financing fees		(2,334	)		(3,558	)
Noncurrent portion, net of deferred financing fees	$	454,773		$	465,119

Our $550 million revolving credit facility is secured by substantially all of our assets. Letters of credit outstanding at September 30, 2017 and December 31, 2016 totaled $6.5 million, which reduce our availability under the credit facility. The amount of availability at September 30, 2017 under the revolving credit facility, after taking into account debt covenant restrictions, was $53.7 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.

Financial Covenants and Interest Rate

We are required to comply with certain financial covenants under the credit facility. We are required to maintain a total leverage ratio (as defined in the credit facility) for the most recently completed four fiscal quarters of less than or equal to 4.50 : 1.00, except for periods following a material acquisition, generally defined as an acquisition with a purchase price of at least $30.0 million. The total leverage ratio shall not exceed 5.00 : 1.00 for the first three full fiscal quarters following the closing of a material acquisition. If we issued Qualified Senior Notes (as defined in the credit facility) in the aggregate principal amount of $175.0 million or greater, the ratio shall not exceed 5.50 : 1.00. If we issued Qualified Senior Notes of $175.0 million or greater, we are also required to maintain a senior leverage ratio (as defined in the credit facility) of less than or equal to 3.00 : 1.00 and a consolidated interest coverage ratio (as defined in the credit facility) of at least 2.75 : 1.00. As of September 30, 2017, we were in compliance with these financial covenants.

Outstanding borrowings under the revolving credit facility bear interest at LIBOR plus a margin of 3.00%. Our borrowings had an effective interest rate of 4.24% as of September 30, 2017.

CROSSAMERICA PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8. RELATED-PARTY TRANSACTIONS

Transactions with CST

Fuel Sales and Rental Income

We sell wholesale motor fuel under a master fuel distribution agreement to 48 CST retail sites and lease real property on 73 retail sites to CST under a master lease agreement each having initial 10-year terms. The fuel distribution agreement provides us with a fixed wholesale mark-up per gallon. The master lease agreement is a triple net lease.

Revenues from wholesale fuel sales and real property rental income from CST were as follows (in thousands):

	For the Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Revenues from motor fuel sales to CST	$	36,449	$	31,738	$	100,683	$	87,819
Rental income from CST	$	4,262	$	4,207	$	12,823	$	12,841

Accounts receivable from CST for fuel amounted to $3.5 million and $3.2 million at September 30, 2017 and December 31, 2016, respectively.

Amended Omnibus Agreement and Management Fees

We incurred $2.9 million and $3.9 million for the three months ended September 30, 2017 and 2016 and $11.5 million and $12.1 million for the nine months ended September 30, 2017 and 2016, 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 were $16.3 million and $10.0 million at September 30, 2017 and December 31, 2016, respectively. The amounts payable at September 30, 2017 include separation benefits associated with the Merger and equity compensation expense associated with CST stock-based awards. See Note 15 for additional information.

Common Units Issued to CST as Consideration for Amounts Due Under the Terms of the Amended Omnibus Agreement

As approved by the independent conflicts committee of the Board, the Partnership and CST mutually agreed to settle, from time to time, some or all of the amounts due under the terms of the Amended Omnibus Agreement in newly issued common units representing limited partner interests in the Partnership. We issued the following common units to CST as consideration for amounts due under the terms of the Amended Omnibus Agreement:

Period	Date of Issuance	Number of Common Units Issued
Quarter ended December 31, 2016	February 28, 2017		171,039
Quarter ended March 31, 2017	May 10, 2017		128,983
Quarter ended June 30, 2017	August 9, 2017		124,003
Quarter ended September 30, 2017	*		126,491

*	Expected to be issued on November 10, 2017

CST Fuel Supply Equity Interests

CST Fuel Supply provides wholesale motor fuel distribution to the majority of CST’s legacy U.S. retail sites at cost plus a fixed markup per gallon. We owned a 17.5% total interest in CST Fuel Supply at September 30, 2017 and 2016. We account for the income derived from our equity interest of CST Fuel Supply as “Income from CST Fuel Supply equity” on our statement of operations, which amounted to $3.8 million and $4.0 million for the three months ended September 30, 2017 and 2016, respectively, and $11.2 million and $12.3 million for the nine months ended September 30, 2017 and 2016, respectively.

CROSSAMERICA PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In connection with the Merger, the Federal Trade Commission (FTC) approved a final order requiring the divestiture by CST of certain retail fuel stations. As a result, in September 2017, 61 sites were sold to a third party and removed from the fuel distribution agreement between CST Marketing and Supply, a wholly-owned subsidiary of CST Fuel Supply, and CST Services, a wholly owned subsidiary of Circle K, and CST Marketing and Supply no longer supplies fuel to such sites. To compensate for the decrease in the amount of motor fuels sold by CST Marketing and Supply, CST Services agreed to purchase at least 114.9 million gallons annually (the “Annual Commitment”) in addition to the volumes continued to be sold under the fuel distribution agreement to retail fuel stations that remain with CST after the divestiture. In addition, should CST Services fail to purchase all or a portion of the Annual Commitment, CST Services has agreed to make monthly payments to CST Marketing and Supply in the amount of the seller’s margin of 5 cents per gallon under the fuel distribution agreement multiplied by the number of gallons not physically sold pursuant to the Annual Commitment. Consequently, the Partnership, by virtue of its 17.5% ownership interest in CST Fuel Supply, the 100% owner of CST Marketing and Supply, will continue to receive its share from the volumes sold to the 61 retail sites prior to the FTC mandated divestiture. This agreement continues until the fuel distribution agreement between CST Marketing and Supply and CST Services is terminated, which had an initial term of 10 years expiring in December 2024.

In July 2016, CST provided a refund payment to us related to 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 us whole for the decrease in the value of our interest in CST Fuel Supply arising from sales volume decreases. The total refund payment received by us, 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 ($17.5 million in cash with the remainder in CrossAmerica common units owned by CST) and was accounted for as a contribution to equity.

Purchase of Fuel from CST

We purchase the fuel supplied to 32 retail sites from CST Fuel Supply of which we own a 17.5% interest, and resell the wholesale motor fuel to independent dealers and sub-wholesalers. We purchased $6.2 million and $5.7 million of motor fuel from CST Fuel Supply for the three months ended September 30, 2017 and 2016, and $17.9 million and $14.7 million for the nine months ended September 30, 2017 and 2016, respectively, in connection with these retail sites.

IDR and Common Unit Distributions

We distributed $1.1 million and $0.9 million to CST related to its ownership of our IDRs and $4.3 million and $3.9 million related to its ownership of our common units during the three months ended September 30, 2017 and 2016, respectively. We distributed $3.2 million and $2.5 million to CST related to its ownership of our IDRs and $12.6 million and $11.5 million related to its ownership of our common units during the nine months ended September 30, 2017 and 2016, respectively.

Income Tax Reimbursement

As discussed in Note 3, we sold 2 properties during the three and nine months ended September 30, 2017 as a result of the FTC’s requirements associated with Couche-Tard’s acquisition of CST. Couche-Tard agreed to reimburse us for the tax liability incurred on the required sale, resulting in additional proceeds of $0.3 million, which was accounted for as a contribution to partners’ capital.

Wholesale Motor Fuel Sales and Real Estate Rentals

Revenues from motor fuel sales and rental income from DMS and its affiliates were as follows (in thousands):

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2017		2016		2017		2016
Revenues from motor fuel sales to DMS and its affiliates	$	64,741	$	68,153	$	180,928	$	192,511
Rental income from DMS and its affiliates	$	4,739	$	5,037	$	14,472	$	16,250

Accounts receivable from DMS and its affiliates totaled $10.3 million and $8.6 million at September 30, 2017 and December 31, 2016, respectively.

Revenues from rental income from Topstar were $0.2 million and $0.4 million for the three and nine months ended September 30, 2017 and 2016, respectively.

CROSSAMERICA PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CrossAmerica leases real estate from certain entities affiliated with Joseph V. Topper, Jr., director of the Board. Rent expense paid to these entities was $0.2 million for the three months ended September 30, 2017 and 2016 and $0.7 million and $0.6 million for the nine months ended September 30, 2017 and 2016, respectively.

As discussed in Note 3, DMS renewed its contract with one of its customers, triggering a $0.8 million earn-out payment by DMS to us under a contract entered into with DMS at the time of CST acquiring our General Partner in October 2014.

Also as discussed in Note 3, we sold 28 properties to DMR during the three and nine months ended September 30, 2017 for $16.6 million.

Maintenance and Environmental Costs

Certain maintenance and environmental monitoring and remediation activities are performed by a related party of Joseph V. Topper, Jr., a member of the Board, as approved by the independent conflicts committee of the Board. We incurred charges with this related party of $0.4 million and $0.3 million for the three months ended September 30, 2017 and 2016 and $1.3 million and $1.2 million for the nine months ended September 30, 2017 and 2016, respectively.

Principal Executive Offices

Our principal executive offices are in Allentown, Pennsylvania. We sublease office space from CST that CST leases from an affiliate of John B. Reilly, III and Joseph V. Topper, Jr., members of our Board. The management fee charged by CST to us under the Amended Omnibus Agreement incorporates this rental expense, which amounted to $0.2 million for the three months ended September 30, 2017 and 2016 and $0.5 million and $0.4 million for the nine months ended September 30, 2017 and 2016, respectively.

Note 9. 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, 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.

We were a co-defendant, together with our General Partner, CST and CST Services, in a lawsuit brought by Charles Nifong, a former employee of CST Services who, until March 2015, provided services to us as Chief Investment Officer and Vice President of Finance (Court of Common Pleas, Lehigh County, Pennsylvania, case number 2015-1003). Following CST’s acquisition of our General Partner, the plaintiff alleged breach of contract and associated claims relating to his termination of employment and claimed severance benefits under the EICP. The trial occurred in early October and the decision by the jury was to award Mr. Nifong a total of $1.7 million. Such amount was recorded in general and administrative expenses for the three and nine months ended September 30, 2017. Under the EICP, we were also obligated to pay reasonable legal expenses incurred by the plaintiff in connection with this dispute, which we expensed as incurred. The Partnership incurred total legal fees related to this case of $0.6 million for the nine months ended September 30, 2017.

Environmental Matters

Environmental liabilities related to the sites contributed to the Partnership in connection with our IPO have not been assigned to us, and are still the responsibility of the Predecessor Entity. Under the Amended Omnibus Agreement, the Predecessor Entity must indemnify us 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 Entity’s environmental liabilities and indemnification assets associated with contributed sites amounted to $4.4 million and $2.8 million at September 30, 2017 and $6.1 million and $5.1 million at December 31, 2016, respectively.

CROSSAMERICA PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10. FAIR VALUE MEASUREMENTS

General

We measure and report certain financial and non-financial assets and liabilities on a fair value basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). U.S. GAAP specifies a three-level hierarchy that is used when measuring and disclosing fair value. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. The following is a description of the three hierarchy levels.

Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Active markets are considered to be those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2—Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in inactive markets.

Level 3—Unobservable inputs are not corroborated by market data. This category is comprised of financial and non-financial assets and liabilities whose fair value is estimated based on internally developed models or methodologies using significant inputs that are generally less readily observable from objective sources.

Transfers into or out of any hierarchy level are recognized at the end of the reporting period in which the transfers occurred. There were no transfers between any levels in 2017 or 2016.

As further discussed in Note 11, we have accrued for unvested phantom units and vested and unvested profits interests as a liability and adjust that liability on a recurring basis based on the market price of our common units each balance sheet date. Such fair value measurements are deemed Level 1 measurements.

Financial Instruments

The fair value of our accounts receivable, notes receivable, and accounts payable approximated their carrying values as of September 30, 2017 and 2016 due to the short-term maturity of these instruments. The fair value of the revolving credit facility approximated its carrying values of $431.5 million as of September 30, 2017 and $441.5 million as of December 31, 2016, due to the frequency with which interest rates are reset and the consistency of the market spread.

Note 11. EQUITY-BASED COMPENSATION

Overview

We record equity-based compensation as a component of general and administrative expenses in the statements of operations. Compensation expense was $0.2 million and $0.7 million for the three months ended September 30, 2017 and 2016, and $1.9 million and $2.6 million for the nine months ended September 30, 2017 and 2016, respectively.

Partnership Equity-Based Awards

Under the Plan, the Partnership granted 1,233 phantom units in June 2017 to an employee of CST who provides services to the Partnership; such phantom units will vest in equal annual installments on the first, second and third anniversaries of the date of grant and this award was accompanied by tandem distribution equivalent rights that entitle the holder to cash payments equal to the amount of unit distributions authorized to be paid to the holders of our common units

Since we grant awards to employees of CST who provide services to us under the Amended Omnibus Agreement, and since the 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 September 30, 2017 and December 31, 2016 totaled $0.8 million and $1.8 million, respectively.

CROSSAMERICA PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CST Awards

CST granted equity-based awards of approximately 47,000 and 102,000 in the form of time vested restricted stock units of CST, stock options of CST and market share units of CST for the nine months ended September 30, 2017 and 2016, respectively, which were granted to certain employees of CST for services rendered on our behalf. Expense associated with these awards that was charged to us under the Amended Omnibus Agreement was $0.1 million and $0.3 million for the three months ended September 30, 2017 and 2016 and $1.6 million and $1.3 million for the nine months ended September 30, 2017 and 2016, respectively.

At the completion of the Merger, each CST stock option, restricted stock unit and market share unit that was outstanding immediately prior to the completion of the Merger, excluding the CST restricted stock units granted in February 2017, whether vested or unvested, became fully vested and converted into the right to receive a cash payment as defined in the Merger Agreement. The Partnership was allocated a $0.4 million charge upon the accelerated vesting of these awards, included in the expense amounts for the nine months ended September 30, 2017 set forth above.

At the completion of the Merger, each award of CST restricted stock units that was granted in February 2017 converted into the right to receive a cash payment as defined in the Merger Agreement, but such award will remain subject to the same vesting terms and payment schedule as those set forth in the original restricted stock unit award agreement; provided that such award will vest in full upon an involuntary termination of employment without cause, or termination for “Good Reason,” or termination due to death, “Disability” or “Retirement.” Unrecognized compensation expense associated with CST restricted stock units granted in February 2017 amounted to $0.7 million as of September 30, 2017, which will be recognized over the vesting term through January 2020.

Awards to Members of the Board

In November 2016, the Partnership granted 5,364 phantom units to non-employee directors of the Board as a portion of director compensation. Such awards vested upon the Merger.

In August 2017, the Partnership granted 10,539 phantom units to non-employee directors of the Board as a portion of director compensation. Such awards vest over one year and this award was accompanied by tandem distribution equivalent rights that entitle the holder to cash payments equal to the amount of unit distributions authorized to be paid to the holders of our common units.

The liability for these awards at September 30, 2017 and December 31, 2016 was not significant. The associated compensation expense was not significant for the three months ended September 30, 2017 and 2016 and $0.2 million for the nine months ended September 30, 2017 and 2016.

Note 12. NET INCOME PER LIMITED PARTNER UNIT

In addition to the common units, we have identified the IDRs as participating securities and compute income per unit using the two-class method under which any excess of distributions declared over net income shall be allocated to the partners based on their respective sharing of income as specified in the Partnership Agreement. Net income per unit applicable to limited partners is computed by dividing the limited partners’ interest in net income (loss), after deducting the IDRs, by the weighted-average number of outstanding common units.

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):

	For the Three Months Ended September 30,
	2017					2016
	Common Units			Subordinated Units		Common Units			Subordinated Units
Numerator:
Distributions paid^(a)	$	21,079		$	—	$	20,125		$	—
Allocation of distributions in excess of net income^(b)		(17,861	)		—		(18,013	)		—
Limited partners’ interest in net income - basic and diluted	$	3,218		$	—	$	2,112		$	—
Denominator:
Weighted average limited partnership units outstanding - basic		33,931,056			—		33,366,380			—
Adjustment for phantom units		6,646			—		24,716			—
Weighted average limited partnership units outstanding - diluted		33,937,702			—		33,391,096			—
Net income per limited partnership unit - basic	$	0.09		$	—	$	0.06		$	—
Net income per limited partnership unit - diluted	$	0.09		$	—	$	0.06		$	—

	For the Nine Months Ended September 30,
	2017					2016
	Common Units			Subordinated Units		Common Units			Subordinated Units
Numerator:
Distributions paid^(a)	$	62,439		$	—	$	55,194		$	4,459
Allocation of distributions in excess of net income (loss)^(b)		(63,565	)		—		(49,542	)		(4,185	)
Limited partners’ interest in net income (loss) - basic and diluted	$	(1,126	)	$	—	$	5,652		$	274
Denominator:
Weighted average limited partnership units outstanding - basic		33,773,964			—		31,714,462			1,537,956
Adjustment for phantom units		—			—		52,340			—
Weighted average limited partnership units outstanding - diluted^(c)		33,773,964			—		31,766,802			1,537,956
Net income (loss) per limited partnership unit - basic	$	(0.03	)	$	—	$	0.18		$	0.18
Net income (loss) per limited partnership unit - diluted	$	(0.03	)	$	—	$	0.18		$	0.18

(a)	Distributions paid per unit were $0.6225 and $0.6025 during the three months ended September 30, 2017 and 2016, and $1.8525 and $1.7925 during the nine months ended September 30, 2017 and 2016, 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 18,217 potentially dilutive securities from the calculation of diluted earnings per common unit because to do so would be antidilutive for the nine months ended September 30, 2017.

Distributions

Distribution activity for 2017 was as follows:

Quarter Ended	Record Date	Payment Date	Cash Distribution (per unit)		Cash Distribution (in thousands)
December 31, 2016	February 6, 2017	February 13, 2017	$	0.6125	$	20,534
March 31, 2017	May 8, 2017	May 15, 2017	$	0.6175	$	20,826
June 30, 2017	August 7, 2017	August 14, 2017	$	0.6225	$	21,079
September 30, 2017	November 6, 2017	November 13, 2017	$	0.6275	$	21,326

CROSSAMERICA PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The amount of any distribution is subject to the discretion of the Board, which may modify or revoke our cash distribution policy at any time. Our Partnership Agreement does not require us to pay any distributions. As such, there can be no assurance we will continue to pay distributions in the future.

Note 13. INCOME TAXES

As a limited partnership, we are not subject to federal and state income taxes, however our corporate subsidiaries are subject to income taxes. Income tax attributable to our taxable income, which may differ significantly from income for financial statement purposes, is assessed at the individual limited partner unit holder level. We are subject to a statutory requirement that non-qualifying income, as defined by the Internal Revenue Code, cannot exceed 10% of total gross income for the calendar year. If non-qualifying income exceeds this statutory limit, we would be taxed as a corporation. The non-qualifying income did not exceed the statutory limit in any period presented.

Certain activities that generate non-qualifying income are conducted through LGWS. LGWS is a tax paying corporate subsidiary of ours 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.

We recorded income tax expense of $1.0 million and $1.3 million for the three months ended September 30, 2017 and 2016 and an income tax benefit of $1.7 million and income tax expense of $0.9 million for the nine months ended September 30, 2017 and 2016, respectively, as a result of the income generated or losses incurred by our corporate subsidiaries. The effective tax rate differs from the combined federal and state statutory rate primarily because only LGWS is subject to income tax.

Note 14. SEGMENT REPORTING

We conduct our business in two segments: 1) the Wholesale segment and 2) the Retail segment. The wholesale segment includes the wholesale distribution of motor fuel to lessee dealers, independent dealers, commission agents, DMS, CST and company operated retail sites. We have exclusive motor fuel distribution contracts with lessee dealers who lease the property from us. We also have exclusive distribution contracts with independent dealers to distribute motor fuel but do not collect rent from the independent dealers. Similar to lessee dealers, we have motor fuel distribution agreements with DMS 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 retail sites and the retail sale of motor fuel at retail 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 retail sites, we manage motor fuel inventory pricing and retain the gross profit on motor fuel sales, less a commission to the agent who operates the retail site. Similar to our Wholesale segment, we also generate revenues through leasing or subleasing real estate in our Retail segment.

As part of our evaluation of the economic performance of our retail sites, we will from time to time convert company owned retail sites from our Retail segment to lessee dealers in our Wholesale segment. As a result, we no longer generate revenues from the retail sale of motor fuel or merchandise at these stores subsequent to the date of conversion and we no longer incur retail operating expenses related to these retail sites. However, we continue to supply these retail sites with motor fuel on a wholesale basis pursuant to the fuel supply contract with the lessee dealer. Further, we continue to own/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.

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.

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 September 30, 2017
Revenues from fuel sales to external customers	$	400,296	$	93,285	$	—		$	493,581
Intersegment revenues from fuel sales		69,504		—		(69,504	)		—
Revenues from food and merchandise sales		—		28,366		—			28,366
Rent income		20,008		1,636		—			21,644
Other revenue		501		—		—			501
Total revenues	$	490,309	$	123,287	$	(69,504	)	$	544,092

Income from CST Fuel Supply Equity	$	3,752	$	—	$	—		$	3,752
Operating income (loss)	$	27,533	$	2,409	$	(17,658	)	$	12,284

Three Months Ended September 30, 2016
Revenues from fuel sales to external customers	$	348,702	$	87,318	$	—		$	436,020
Intersegment revenues from fuel sales		63,126		—		(63,126)			—
Revenues from food and merchandise sales		—		31,507		—			31,507
Rent income		18,344		1,408		—			19,752
Other revenue		671		—		—			671
Total revenues	$	430,843	$	120,233	$	(63,126	)	$	487,950

Income from CST Fuel Supply Equity	$	4,022	$	—	$	—		$	4,022
Operating income (loss)	$	27,030	$	1,893	$	(18,930	)	$	9,993

	Wholesale		Retail		Unallocated			Consolidated
Nine Months Ended September 30, 2017
Revenues from fuel sales to external customers	$	1,122,903	$	272,289	$	—		$	1,395,192
Intersegment revenues from fuel sales		200,147		—		(200,147	)		—
Revenues from food and merchandise sales				80,077		—			80,077
Rent income		60,008		5,082		—			65,090
Other revenue		1,808		—		—			1,808
Total revenues	$	1,384,866	$	357,448	$	(200,147	)	$	1,542,167

Income from CST Fuel Supply Equity	$	11,185	$	—	$	—		$	11,185
Operating income (loss)	$	80,863	$	4,092	$	(64,373	)	$	20,582

Nine Months Ended September 30, 2016
Revenues from fuel sales to external customers	$	958,943	$	253,057	$	—		$	1,212,000
Intersegment revenues from fuel sales		178,772		—		(178,772)			—
Revenues from food and merchandise sales		—		95,253		—			95,253
Rent income		55,540		4,094		—			59,634
Other revenue		1,447		—		—			1,447
Total revenues	$	1,194,702	$	352,404	$	(178,772	)	$	1,368,334

Income from CST Fuel Supply Equity	$	12,318	$	—	$	—			12,318
Operating income (loss)	$	76,971	$	6,291	$	(57,992	)	$	25,270

CROSSAMERICA PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15. 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):

	For the Nine Months Ended September 30,
	2017			2016
Decrease (increase):
Accounts receivable	$	5,183		$	941
Accounts receivable from related parties		(1,492	)		(2,281	)
Inventories		674			5,515
Other current assets		166			(1,249	)
Other assets		(2,509	)		(3,484	)
Increase (decrease):
Accounts payable		2,882			2,055
Accounts payable to related parties		5,576			(1,021	)
Motor fuel taxes payable		(386	)		1,117
Accrued expenses and other current liabilities		3,270			(1,644)
Other long-term liabilities		178			3,339
Changes in working capital, net of acquisitions	$	13,542		$	3,288

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):

	For the Nine Months Ended September 30,
	2017		2016
Cash paid for interest	$	19,185	$	15,355
Cash paid for income taxes, net of refunds received	$	822	$	1,366

Supplemental schedule of non-cash investing and financing activities (in thousands):

	For the Nine Months Ended September 30,
	2017		2016
Sale of property and equipment in Section 1031 like-kind exchange transactions	$	260	$	1,300
Issuance of capital lease obligations and recognition of asset retirement obligation related to Getty lease	$	740	$	1,240
Amended Omnibus Agreement fees settled in our common units	$	10,880	$	8,290

CROSSAMERICA PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16. SEPARATION BENEFITS

During the nine months ended September 30, 2017, the Partnership recognized a $5.3 million charge for severance and benefit costs associated with certain officers and other employees of CST Services who provided services to the Partnership and who terminated employment upon the consummation of the Merger, which constituted a change in control, as defined in the EICP and CST’s severance plans. Such costs are included in general and administrative expenses and were paid by CST in the third quarter of 2017. Accounts payable to related parties includes these costs as we will reimburse CST.

In addition, certain participants in the EICP received retention bonuses that will be paid in annual installments that began in July 2017 and will continue through July 2019. The Partnership recorded a $1.0 million charge during the nine months ended September 30, 2017 in connection with the payments made by CST in July 2017, which were included in general and administrative expenses. In addition, the Partnership recognized a $0.3 million charge for the three and nine months ended September 30, 2017 for the payments expected to be made in July 2018 and July 2019. The Partnership anticipates recognizing future charges totaling $1.2 million over the remaining retention period, of which $0.3 million, $0.8 million and $0.1 million is anticipated to be recognized in 2017, 2018 and 2019, respectively.

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:

•

Couche-Tard’s business strategy and operations and Couche-Tard’s conflicts of interest with us;

•

availability of cash flow to pay the current quarterly distributions on our common units;

•

the availability and cost of competing motor fuels;

•

motor fuel price volatility or a reduction in demand for motor fuels;

•

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, governmental policies, immigration laws and restrictions or changes in enforcement or interpretations thereof;

•

future regulations and actions that could expand the non-exempt status of employees under the Fair Labor Standards Act;

•

future income tax legislation;

•

changes in energy policy;

•

increases in energy conservation efforts;

•

technological advances;

•

the impact of worldwide economic and political conditions;

•

the impact of wars and acts of terrorism;

•

weather conditions or catastrophic weather-related damage;

•

earthquakes and other natural disasters;

•

hazards and risks associated with transporting and storing motor fuel;

•

unexpected environmental liabilities;

•

the outcome of pending or future litigation; and

•

our ability to comply with federal and state laws and regulations, including those related to environmental matters, the sale of alcohol, cigarettes and fresh foods, employment, and health benefits, including the Affordable Care Act.

You should consider the areas of risk described above, as well as those set forth herein and in the section entitled “Risk Factors” included in our Form 10-K, in connection with considering any forward-looking statements that may be made by us and our businesses generally. We cannot assure you that 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.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following MD&A is intended to help the reader understand our results of operations and financial condition. This section is provided as a supplement to, and should be read in conjunction with, 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:

•

CST’s Merger—This section provides information on the Merger.

•

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 nine months ended September 30, 2017 and 2016 and non-GAAP financial measures.

•

Liquidity and Capital Resources—This section provides a discussion of our financial condition and cash flows. It also includes a discussion of our debt, capital requirements, other matters impacting our liquidity and capital resources and an outlook for our business.

•

New Accounting Policies—This section describes new accounting pronouncements that we have already adopted, those that we are required to adopt in the future, and those that became applicable in the current year as a result of new circumstances.

•

Critical Accounting Policies Involving Critical Accounting Estimates—This section describes the accounting policies and estimates that we consider most important for our business and that require significant judgment.

CST’s Merger

As a result of the Merger, Circle K indirectly owns all of the membership interests in our General Partner, as well as a 20.8% limited partner interest in the Partnership and all of the IDRs of the Partnership. Circle K, through its indirect ownership interest in the sole member of our General Partner, has the ability to appoint all of the members of the Board of our General Partner and to control and manage the operations and activities of the Partnership.

Significant Factors Affecting our Profitability

The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit

Wholesale segment

The prices paid to our motor fuel suppliers for wholesale motor fuel (which affects our cost of sales) are highly correlated to the price of crude oil. The crude oil commodity markets are highly volatile, and the market prices of crude oil, and, correspondingly, the market prices of wholesale motor fuel, experience significant and rapid fluctuations. We receive a fixed mark-up per gallon on approximately 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 in our Retail segment 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. Conversely, our DTW motor fuel gross profit declines when the cost of wholesale motor fuel increases at a faster rate as compared to the rate retail motor fuel prices increase.

Regarding our supplier relationships, a majority of our total gallons purchased are subject to Terms Discounts. The dollar value of these discounts increases and decreases corresponding to motor fuel prices. Therefore, in periods of lower wholesale motor fuel prices, our gross profit is negatively affected and, in periods of higher wholesale motor fuel prices, our gross profit is positively affected (as it relates to these discounts).

Retail segment

We attempt to pass along wholesale motor fuel price changes to our retail customers through “at the pump” retail price changes; however, market conditions do not always allow us to do so immediately. The timing of any related increase or decrease in “at the pump” retail prices is affected by competitive conditions in each geographic market in which we operate. As such, the prices we charge our customers for motor fuel and the gross profit we receive on our motor fuel sales can increase or decrease significantly and rapidly over short periods of time.

Changes in our average motor fuel selling price per gallon and gross margin for the periods ended September 30, 2017 and 2016 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 seasonality due to our wholesale and retail sites being located in certain geographic areas that are affected by seasonal weather and temperature trends and associated changes in retail customer activity during different seasons. Historically, sales volumes have been highest in the second and third quarters (during the summer months) and lowest during the winter months in the first and fourth quarters.

Impact of Inflation

Inflation affects our financial performance by increasing certain of our operating expenses and cost of goods sold. Operating expenses include labor costs, leases, and general and administrative expenses. While our Wholesale segment benefits from higher Terms Discounts as a result of higher fuel costs, inflation could negatively impact our Retail segment as a result of higher motor fuel, merchandise and operating 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.

•

On February 5, 2016, we purchased independent dealer and sub-wholesaler contracts from CST for $2.9 million.

•

On March 29, 2016, we closed on the acquisition of Franchised Holiday Stores and company operated liquor stores from S/S/G Corporation for approximately $52.4 million, including working capital.

•

On September 27, 2016, we acquired the State Oil Assets located in the greater Chicago market for approximately $41.9 million, including working capital.

•

On December 21, 2016, we sold the real property at 17 fee sites acquired in the State Oil Assets acquisition for $25.0 million in proceeds, which were used to repay borrowings under the credit facility. We subsequently leased these sites back under a triple net lease agreement.

•

On September 6, 2017, we sold two properties as a result of the FTC’s requirements associated with the Merger for $6.7 million.

•

On September 27, 2017, as approved by the conflicts committee of our Board, we sold 28 properties to DMR for $16.6 million. These sites were generally sites at which we did not supply fuel or represented vacant land.

Separation Benefits and Retention Bonuses

In addition, certain participants in the EICP received retention bonuses that will be paid in annual installments that began in July 2017 and will continue through July 2019. The Partnership recorded a $1.0 million charge during the nine months ended September 30, 2017 in connection with the payments made by CST in July 2017, which were included in general and administrative expenses. In addition, the Partnership recognized a $0.3 million charge for the three and nine months ended September 30, 2017 the payments expected to be made in July 2018 and July 2019. The Partnership anticipates recognizing future charges totaling $1.2 million over the remaining retention period, of which $0.3 million, $0.8 million and $0.1 million is anticipated to be recognized in 2017, 2018 and 2019, respectively.

Acquisition of Jet-Pep Assets

On August 4, 2017, we entered into a definitive asset purchase agreement (the “Purchase Agreement”), by and among (i) CrossAmerica, (ii) Jet-Pep, Inc., and (iii) other persons listed as signatories in the Purchase Agreement (collectively the “Sellers”). Pursuant to the Purchase Agreement, we have agreed to purchase the real property and the fuel supply business of 92 fee simple sites, and the leasehold interest in 5 leased real property sites; and the fuel supply business to five independent dealers, all located in Alabama (“Acquired Assets”), for an aggregate cash consideration of $72.3 million (the “Purchase Price”), subject to certain closing adjustments. We also agreed to assume certain liabilities and pay for the value of the petroleum inventory contained in the retail sites. Circle K also entered into a definitive asset purchase agreement with the Sellers. The closing of the purchase of the Acquired Assets and the closing of the purchase by Circle K of certain related retail and terminaling assets from the Sellers (the “Circle K Agreements”), are mutually conditioned upon each other.

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 September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Operating revenues	$	544,092		$	487,950		$	1,542,167		$	1,368,334
Cost of sales		502,517			448,812			1,421,524			1,251,491
Gross profit		41,575			39,138			120,643			116,843
Income from CST Fuel Supply equity interests		3,752			4,022			11,185			12,318
Operating expenses:
Operating expenses		15,371			14,224			46,853			45,754
General and administrative expenses		5,994			6,142			23,731			18,068
Depreciation, amortization and accretion expense		14,049			13,432			42,675			40,594
Total operating expenses		35,414			33,798			113,259			104,416
Gain on sales of assets, net		2,371			631			2,013			525
Operating income		12,284			9,993			20,582			25,270
Other income, net		121			(59)			366			375
Interest expense		(7,102	)		(5,634	)		(20,599	)		(16,403	)
Income before income taxes		5,303			4,300			349			9,242
Income tax expense (benefit)		966			1,308			(1,686	)		851
Net income		4,337			2,992			2,035			8,391
Net income (loss) attributable to noncontrolling interests		4			3			(1	)		9
Net income attributable to limited partners		4,333			2,989			2,036			8,382
IDR distributions		(1,115	)		(877	)		(3,162	)		(2,456	)
Net income (loss) available to limited partners	$	3,218		$	2,112		$	(1,126	)	$	5,926

Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016

Consolidated Results

Operating revenues increased $56.1 million, or 12%, while gross profit increased $2.4 million, or 6%.

Operating revenues

Significant items impacting these results prior to the elimination of intercompany revenues were:

•

A $59.5 million, or 14%, increase in our Wholesale segment revenues primarily attributable to the increase in crude oil prices. The average daily spot price of WTI crude oil increased 7% to $48.15 per barrel for the third quarter of 2017, compared to $44.85 per barrel for the third quarter of 2016. The wholesale price of motor fuel is highly correlated to the price of crude oil, although our average selling price increased 14% from the third quarter of 2016 to the third quarter of 2017. See “Significant Factors Affecting our Profitability—The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit.”

•

A $3.1 million, or 3%, increase in our Retail segment revenues primarily attributable to an increase in crude oil prices, partially offset by the conversion of company operated retail sites to lessee dealer sites. See “Significant Factors Affecting our Profitability—The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit.”

Intersegment revenues

We present the results of operations of our segments on a consistent basis with how our management views the business. Therefore, our segments are presented before intersegment eliminations (which consist of motor fuel sold by our Wholesale segment to our Retail segment). As a result, in order to reconcile to our consolidated change in operating revenues, a discussion of the change in intersegment revenues is included in our consolidated MD&A discussion.

•

Our intersegment revenues increased $6.4 million or 10%, primarily attributable to the increase in wholesale motor fuel prices discussed above.

Cost of sales

Cost of sales increased $53.7 million or 12% as a result of the increase in wholesale motor fuel prices. See “Results of Operations—Segment Results” for additional gross profit analyses.

Operating expenses

See “Results of Operations—Segment Results” for additional operating expenses analyses.

General and administrative expenses

General and administrative expenses decreased $0.1 million primarily attributable to a $1.1 million reduction in costs as a result of headcount and salary reductions effective at the time of the Merger, a $0.5 million reduction in equity compensation expense as a result of fewer awards outstanding, and a $0.5 million reduction in acquisition costs, partially offset by a $1.7 million charge recorded in the third quarter of 2017 related to a court ruling in favor of a former executive’s claim to benefits under the EICP change in control provisions and a $0.2 million increase in severance expense.

Gain on sales of assets, net

During the third quarter of 2017, we recorded a $2.2 million gain on the sale of two properties as required by the FTC in connection with the Merger and a $0.5 million loss on the sale of 28 properties to DMR. We also recorded an $0.8 million gain related to the renewal of a contract by DMS with one of its customers, which triggered an earn out payment to be paid by DMS to us in connection with a contract entered into with DMS at the time of CST’s acquisition of our General Partner in October 2014.

Interest expense

Interest expense increased $1.5 million due to an increase in the average interest rate charged on our credit facility borrowings from 3.5% to 4.3% and additional borrowings to fund the State Oil Assets acquisition in September 2016. In addition, we incurred $0.4 million of interest expense in the third quarter of 2017 related to our sale leaseback executed in December 2016.

Income tax expense

We recorded income tax expense of $1.0 million and $1.3 million for the three months ended September 30, 2017 and 2016, respectively. The decrease in income tax expense was primarily due to a decline in the income generated by our corporate subsidiaries.

Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016

Consolidated Results

Operating revenues increased $173.8 million, or 13%, while gross profit increased $3.8 million, or 3.3%.

Operating revenues

Significant items impacting these results prior to the elimination of intercompany revenues were:

•

A $190.2 million, or 16%, increase in our Wholesale segment revenues primarily attributable to the increase in crude oil prices. The average daily spot price of WTI crude oil increased 19% to $49.28 per barrel for the nine months ended September 30, 2017, compared to $41.35 per barrel for the nine months ended September 30, 2016. The wholesale price of motor fuel is highly correlated to the price of crude oil. See “Significant Factors Affecting our Profitability—The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit.”

•

A $5.0 million, or 1%, increase in our Retail segment revenues primarily attributable to the increase in crude oil prices, largely offset by conversion of company operated retail sites to lessee dealer sites. See “Significant Factors Affecting our Profitability—The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit.”

Intersegment revenues

Our intersegment revenues increased $21.4 million or 12%, primarily attributable to the increase in wholesale motor fuel prices discussed above.

Cost of sales

Cost of sales increased $170.0 million or 14% as a result of the increase in wholesale motor fuel prices. See “Results of Operations—Segment Results” for additional gross profit analyses.

Operating expenses

See “Results of Operations—Segment Results” for additional operating expenses analyses.

General and administrative expenses

General and administrative expenses increased $5.7 million primarily attributable to a $6.8 million charge recorded upon closing of the Merger for severance and benefit costs for certain terminated officers and other employees of CST Services who provided services to the Partnership and retention bonuses to certain EICP participants and a $1.7 million charge related to a court ruling in favor of a former executive’s claim to benefits under the EICP change in control provisions, partially offset by a $1.5 million decrease driven by the integration of prior year acquisitions and other cost savings initiatives and a $1.3 million decrease in management fees charged by CST as a result of headcount and salary reductions effective at the time of the Merger.

Depreciation, amortization and accretion expense

Depreciation, amortization and accretion expense increased $1.7 million primarily driven by our recent acquisitions.

Gain on sales of assets, net

During the nine months ended September 30, 2017, we recorded a $2.2 million gain on the sale of two properties as required by the FTC in connection with the Merger and a $0.5 million loss on the sale of 28 properties to DMR. We also recorded a $0.8 million gain related to the renewal of a contract by DMS with one of its customers, which triggered an earn out payment to be paid by DMS to us in connection with a contract entered into with DMS at the time of CST’s acquisition of our General Partner in October 2014.

Interest expense

Interest expense increased $4.2 million due to an increase in the average interest rate charged on our credit facility borrowings from 3.5% to 4.1% and additional borrowings to fund our recent acquisitions. In addition, we incurred $1.2 million of interest expense in 2017 related to our sale leaseback executed in December 2016.

Income tax benefit

We recorded an income tax benefit of $1.7 million and income tax expense of $0.9 million for the nine months ended September 30, 2017 and 2016, respectively. The benefit in 2017 was primarily due to an increase in the loss generated by our corporate subsidiaries.

Segment Results

We present the results of operations of our segments consistent with how our management views the business. Therefore, our segments are presented before intersegment eliminations (which consist of motor fuel sold by our Wholesale segment to our Retail segment). These comparisons are not necessarily indicative of future results.

Wholesale

The following table highlights the results of operations and certain operating metrics of our Wholesale segment. The narrative following these tables provides an analysis of the results of operations of that segment (thousands of dollars, except for the number of distribution sites and per gallon amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Gross profit:
Motor fuel–third party	$	8,757		$	8,157		$	25,659		$	21,283
Motor fuel–intersegment and related party		6,485			6,086			17,820			19,004
Motor fuel gross profit		15,242			14,243			43,479			40,287
Rent and other		16,074			14,263			48,740			43,162
Total gross profit		31,316			28,506			92,219			83,449
Income from CST Fuel Supply equity^(a)		3,752			4,022			11,185			12,318
Operating expenses		(7,535	)		(5,498	)		(22,541	)		(18,796	)
Adjusted EBITDA^(b)	$	27,533		$	27,030		$	80,863		$	76,971
Motor fuel distribution sites (end of period):^(c)
Motor fuel–third party
Independent dealers^(d)		384			404			384			404
Lessee dealers^(e)		439			420			439			420
Total motor fuel distribution–third party sites		823			824			823			824
Motor fuel–intersegment and related party
DMS (related party)^(f)		146			179			146			179
CST (related party)		43			43			43			43
Commission agents (Retail segment)^(g)		82			67			82			67
Company operated retail sites (Retail segment)		70			75			70			75
Total motor fuel distribution–intersegment and related party sites		341			364			341			364
Motor fuel distribution sites (average during the period):
Motor fuel-third party distribution		823			749			822			724
Motor fuel-intersegment and related party distribution		344			366			355			387
Total motor fuel distribution sites		1,167			1,115			1,177			1,111
Volume of gallons distributed (in thousands)
Third party		169,877			163,558			491,471			461,474
Intersegment and related party		96,312			103,563			279,649			307,720
Total volume of gallons distributed		266,189			267,121			771,120			769,194

Wholesale margin per gallon	$	0.057		$	0.053		$	0.056		$	0.052

(a)	Represents income from our equity interest in CST Fuel Supply.

(b)	Please see the reconciliation of our segment’s Adjusted EBITDA to consolidated net income (loss) under the heading “Results of Operations—Non-GAAP Financial Measures.”

(c)	In addition, as of September 30, 2017 and 2016, respectively, we distributed motor fuel to 15 and 14 sub-wholesalers who distributed to additional sites.

(d)	The decrease in the independent dealer site count from September 30, 2016 to September 30, 2017 was primarily attributable to a net 20 terminated motor fuel supply contracts that were not renewed.

(e)	The increase in the lessee dealer site count was partially attributable to converting 5 company operated retail sites in our Retail segment to lessee dealers in our Wholesale segment.

(f)	During the fourth quarter of 2016, the Partnership recaptured 25 sites from DMS and operated them as commission agent sites. During the second quarter of 2017, CrossAmerica converted some of these recaptured sites to lessee dealers.

(g)	The decrease in the company operated retail site count was primarily attributable to company operated retail sites being converted to lessee dealer sites.

Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016

The results were driven by:

Motor fuel gross profit

The $1.0 million or 7% increase in motor fuel gross profit was primarily due to a higher margin per gallon realized primarily due to higher DTW margins as a result of the movements in crude prices throughout both periods and increased payment discounts and incentives due to the increase in motor fuel prices as a result of the increase in crude oil prices. The average daily spot price of WTI crude oil increased 7% to $48.15 per barrel for the third quarter of 2017, compared to $44.85 per barrel for the third quarter of 2016. See “Significant Factors Affecting our Profitability—The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit.”

Rent and other gross profit

Rent and other gross profit increased $1.8 million primarily as a result of our September 2016 acquisition of the State Oil Assets, as well as converting company operated retail sites to lessee dealer sites throughout 2016 and 2017, partially offset by 25 DMS sites being converted to commission agent sites in the fourth quarter of 2016, which resulted in the rent income from these 25 sites being included in the retail segment rather than the wholesale segment.

Income from CST Fuel Supply equity

The decline of $0.3 million was primarily attributable to a decrease in volume driven the impacts of Hurricane Harvey.

Operating expenses

Operating expenses increased $2.0 million primarily as a result of our September 2016 State Oil Assets acquisition, which is substantially offset by an increase in rent income, as well as our conversion of company operated retail sites to lessee dealer sites throughout 2016 and 2017.

Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016

The results were driven by:

Motor fuel gross profit

The $3.2 million increase in motor fuel gross profit was primarily due to a higher margin per gallon realized primarily due to higher DTW margins as a result of the movements in crude prices throughout both periods and increased payment discounts and incentives due to the increase in motor fuel prices as a result of the increase in crude oil prices. The average daily spot price of WTI crude oil increased 19% to $49.28 per barrel for the nine months ended September 30, 2017, compared to $41.35 per barrel for the nine months ended September 30, 2016. See “Significant Factors Affecting our Profitability—The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit.”

Rent and other gross profit

Rent and other gross profit increased $5.6 million primarily as a result of our September 2016 acquisition of the State Oil Assets, as well as converting company operated retail sites to lessee dealer sites throughout 2016 and 2017, partially offset by 25 DMS sites being converted to commission agent sites in the fourth quarter of 2016, which resulted in the rent income from these 25 sites being included in the retail segment rather than the wholesale segment.

Income from CST Fuel Supply equity

The decline of $1.1 million was primarily attributable to CST’s July 2016 divestiture of its California and Wyoming retail sites and a decrease in volume driven the impacts of Hurricane Harvey.

Operating expenses

Operating expenses increased $3.7 million primarily as a result of our September 2016 State Oil Assets acquisition, which is substantially offset by an increase in rent income, as well as our conversion of company operated retail sites to lessee dealer sites throughout 2016 and 2017.

Retail

The following table highlights the results of operations and certain operating metrics of our Retail segment. The narrative following these tables provides an analysis of the results of operations of that segment (thousands of dollars, except for the number of retail sites and per gallon amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Gross profit:
Motor fuel	$	2,042		$	1,948		$	5,281		$	6,838
Merchandise and services		7,008			7,614			19,558			23,362
Rent and other		1,195			1,057			3,565			3,049
Total gross profit		10,245			10,619			28,404			33,249
Operating expenses		(7,836	)		(8,726	)		(24,312	)		(26,958	)
Acquisition-related costs		—			142			—			142
Inventory fair value adjustments^(a)		—			—			—			91
Adjusted EBITDA^(b)	$	2,409		$	2,035		$	4,092		$	6,524

Retail sites (end of period):
Commission agents^(c)		82			67			82			67
Company operated retail sites^(d)		71			78			71			78
Total system sites at the end of the period		153			145			153			145

Total system operating statistics:
Average retail fuel sites during the period^(c)(d)		153			142			162			155
Motor fuel sales (gallons per site per day)		2,778			3,002			2,632			2,828
Motor fuel gross profit per gallon, net of credit card fees and commissions	$	0.052		$	0.050		$	0.045		$	0.057

Commission agents statistics:
Average retail fuel sites during the period^(c)		82			66			90			66
Motor fuel gross profit per gallon, net of credit card fees and commissions	$	0.013		$	0.014		$	0.011		$	0.016

Company operated retail site statistics:
Average retail fuel sites during the period^(d)		71			76			72			89
Motor fuel gross profit per gallon, net of credit card fees	$	0.093		$	0.082		$	0.083		$	0.090
Merchandise and services gross profit percentage, net of credit card fees		24.7	%		24.2	%		24.4	%		24.5	%

(a)	The inventory fair value adjustment represents the expensing of the step-up in value ascribed to inventory acquired in the Franchised Holiday Stores acquisition.

(b)	Please see the reconciliation of our segment’s Adjusted EBITDA to consolidated net income under the heading “Results of Operations—Non-GAAP Financial Measures” below.

(c)	During the fourth quarter of 2016, we recaptured 25 sites from DMS and operated them as commission agent sites. During the second quarter of 2017, we converted some of these recaptured sites to lessee dealers.

(d)	The decrease in company operated retail sites relates to the conversion of company operated retail sites to lessee dealer sites.

Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016

Gross profit declined $0.4 million, while operating expenses declined $0.9 million.

These results were impacted by:

Gross profit

•

Our motor fuel gross profit increased $0.1 million attributable to a 5% increase in margin per gallon as a result of the movements in crude oil prices throughout the two periods. See “Significant Factors Affecting our Profitability—The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit.”

•

Our merchandise and services gross profit declined $0.6 million as a result of the conversion of company operated retail sites to lessee dealer sites.

•

Our rent and other gross profit increased $0.1 million primarily from 25 DMS sites being converted to commission agent sites in the fourth quarter of 2016, which resulted in the rent income from these sites being included in the retail segment rather than the wholesale segment. In the second quarter of 2017, some of these 25 sites were converted to lessee dealer sites, which resulted in the rent income being included in the wholesale segment rather than the retail segment.

Operating expenses

•

The $0.9 million decline in operating expenses was attributable to the conversion of company operated retail sites to lessee dealer sites, partially offset by the impact of the 25 DMS sites being converted to commission agent sites in the fourth quarter of 2016. In the second quarter of 2017, some of these 25 sites were converted to lessee dealer sites, which resulted in the operating expenses being included in the wholesale segment rather than the retail segment.

Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016

Gross profit declined $4.8 million, while operating expenses declined $2.6 million.

These results were impacted by:

Gross profit

•

Our motor fuel gross profit decreased $1.6 million attributable to a 20% decrease in margin per gallon as a result of the movement in crude oil prices throughout the two periods. See “Significant Factors Affecting our Profitability—The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit.”

•

Our merchandise and services gross profit declined $3.8 million or 16% as a result of the conversion of company operated retail sites to lessee dealer sites, partially offset by the incremental gross profit generated by the March 2016 Franchised Holiday Stores acquisition.

•

Our rent and other gross profit increased $0.5 million primarily from 25 DMS sites being converted to commission agent sites in the fourth quarter of 2016, which resulted in the rent income from these sites being included in the retail segment rather than the wholesale segment. In the second quarter of 2017, some of these 25 sites were converted to lessee dealer sites, which resulted in the rent income being included in the wholesale segment rather than the retail segment.

Operating expenses

•

The $2.6 million decline in operating expenses was attributable to the conversion of company operated retail sites to lessee dealer sites, partially offset by the impact of the March 2016 Franchised Holiday Stores acquisition and the 25 DMS sites being converted to commission agent sites in the fourth quarter of 2016. In the second quarter of 2017, some of these 25 sites were converted to lessee dealer sites, which resulted in the operating expenses being included in the wholesale segment rather than the retail segment.

Non-GAAP Financial Measures

We use non-GAAP financial measures EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio. EBITDA represents net income available to us before deducting interest expense, income taxes, depreciation, amortization and accretion. Adjusted EBITDA represents EBITDA as further adjusted to exclude equity funded expenses related to incentive compensation and the Amended Omnibus Agreement, gains or losses on sales of assets, certain discrete acquisition related costs, such as legal and other professional fees and severance expenses associated with recently acquired companies, and certain other discrete non-cash items arising from purchase accounting. Distributable Cash Flow represents Adjusted EBITDA less cash interest expense, sustaining capital expenditures and current income tax expense. Distribution Coverage Ratio is computed by dividing Distributable Cash Flow by the weighted average diluted common and subordinated units and then dividing that result by the distributions paid per limited partner unit.

EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio are used as supplemental financial measures by management and by external users of our financial statements, such as investors and lenders. EBITDA and Adjusted EBITDA are used to assess our financial performance without regard to financing methods, capital structure or income taxes and the ability to incur and service debt and to fund capital expenditures. In addition, Adjusted EBITDA is used to assess the operating performance of our business on a consistent basis by excluding the impact of items which do not result directly from the wholesale distribution of motor fuel, the leasing of real property, or the day to day operations of our retail site activities. EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio are also used to assess the ability to generate cash sufficient to make distributions to our unitholders.

We believe the presentation of EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio provides useful information to investors in assessing the financial condition and results of operations. EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio should not be considered alternatives to net income or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP. EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio have important limitations as analytical tools because they exclude some but not all items that affect net income. Additionally, because EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio may be defined differently by other companies in our industry, our definitions may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

The following table presents reconciliations of EBITDA, Adjusted EBITDA, and Distributable Cash Flow to net income, the most directly comparable U.S. GAAP financial measure, for each of the periods indicated (in thousands, except for per unit amounts):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017			2016		2017			2016
Net income available to limited partners	$	3,218		$	2,112	$	(1,126	)	$	5,926
Interest expense		7,102			5,634		20,599			16,403
Income tax expense (benefit)		966			1,308		(1,686	)		851
Depreciation, amortization and accretion		14,049			13,432		42,675			40,594
EBITDA		25,335			22,486		60,462			63,774
Equity funded expenses related to incentive compensation and the Amended Omnibus Agreement (a)		3,479			3,572		11,789			10,197
Gain on sales of assets, net		(2,371	)		(631)		(2,013	)		(525)
Acquisition-related costs (b)		2,570			1,659		10,279			2,882
Inventory fair value adjustments		—			—		—			91
Adjusted EBITDA		29,013			27,086		80,517			76,419
Cash interest expense		(6,674	)		(5,306)		(19,319	)		(15,355	)
Sustaining capital expenditures (c)		(565	)		(209)		(1,287	)		(538	)
Current income tax expense		(267	)		(317)		(387	)		(782	)
Distributable Cash Flow	$	21,507		$	21,254	$	59,524		$	59,744
Weighted average diluted common and subordinated units		33,938			33,391		33,792			33,305
Distributions paid per limited partner unit (d)	$	0.6225		$	0.6025	$	1.8525		$	1.7925
Distribution Coverage Ratio (e)	1.02x			1.06x		0.95x			1.00x

(a)	As approved by the independent conflicts committee of the Board, the Partnership and CST mutually agreed to settle certain amounts due under the terms of the Amended Omnibus Agreement in limited partner units of the Partnership.

(b)

Relates to certain discrete acquisition related costs, such as legal and other professional fees, severance expenses and purchase accounting adjustments associated with recently acquired businesses. Acquisition-related costs for the three and nine months ended September 30, 2017 include severance and benefit expense and retention bonuses paid to certain EICP participants associated with the Merger. See “Significant Factors Affecting our Profitability—Separation Benefits and Retention Bonuses” for additional information. Acquisition-related costs for the three and nine months ended September 30, 2017 also includes a $1.7 million charge related to a court ruling in favor of a former executive’s claim to benefits under the EICP in connection with CST’s acquisition of our General Partner.

(c)

Under the Partnership Agreement, sustaining capital expenditures are capital expenditures made to maintain our long-term operating income or operating capacity. Examples of sustaining capital expenditures are those made to maintain existing contract volumes, including payments to renew existing distribution contracts, or to maintain our sites in conditions suitable to lease, such as parking lot or roof replacement/renovation, or to replace equipment required to operate the existing business.

(d)	On October 24, 2017, the Board approved a quarterly distribution of $0.6275 per unit attributable to the third quarter of 2017. The distribution is payable on November 13, 2017 to all unitholders of record on November 6, 2017.

(e)	The distribution coverage ratio is computed by dividing Distributable Cash Flow by the weighted average diluted common and subordinated units and then dividing that result by the distributions paid per limited partner unit.

The following table reconciles our segment Adjusted EBITDA to Consolidated Adjusted EBITDA presented in the table above (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Adjusted EBITDA - Wholesale segment	$	27,533		$	27,030		$	80,863		$	76,971
Adjusted EBITDA - Retail segment		2,409			2,035			4,092			6,524
Adjusted EBITDA - Total segment	$	29,942		$	29,065		$	84,955		$	83,495
Reconciling items:
Elimination of intersegment profit in ending inventory balance		14			13		20				145
General and administrative expenses		(5,994	)		(6,142	)		(23,731	)		(18,068	)
Other income, net		121			(59	)		366			375
Equity funded expenses related to incentive compensation and the Amended Omnibus Agreement		3,479			3,572			11,789			10,197
Working capital adjustment		—			335			—			335
Acquisition-related costs		2,570			1,182			10,279			2,405
Net (income) loss attributable to noncontrolling interests		(4	)		(3	)		1			(9	)
IDR distributions		(1,115	)		(877	)		(3,162	)		(2,456	)
Consolidated Adjusted EBITDA	$	29,013		$	27,086		$	80,517		$	76,419

Liquidity and Capital Resources

Liquidity

Our principal liquidity requirements are to finance our operations, fund acquisitions, service our debt and pay distributions to our unitholders and IDR distributions. We expect our ongoing sources of liquidity to include cash generated by our operations and borrowings under the revolving credit facility and, if available to us on acceptable terms, issuances of equity and debt securities. We regularly evaluate alternate sources of capital, including sale-leaseback financing of real property with third parties, to support our liquidity requirements.

Our ability to meet our debt service obligations and other capital requirements, including capital expenditures, acquisitions, and partnership distributions, will depend on our future operating performance, which, in turn, will be subject to general economic, financial, business, competitive, legislative, regulatory and other conditions, many of which are beyond our control. As a normal part of our business, depending on market conditions, we will, from time to time, consider opportunities to repay, redeem, repurchase or refinance our indebtedness. Changes in our operating plans, lower than anticipated sales, increased expenses, acquisitions or other events may cause us to seek additional debt or equity financing in future periods.

We believe that we will have sufficient cash flow from operations, borrowing capacity under the revolving credit facility and access to capital markets and alternate sources of funding to meet our financial commitments, debt service obligations, contingencies, anticipated capital expenditures, and partnership distributions. However, we are subject to business and operational risks that could adversely affect our cash flow. A material decrease in our cash flows would likely produce an adverse effect on our borrowing capacity as well as our ability to issue additional equity and/or debt securities.

Cash Flows

The following table summarizes cash flow activity (in thousands):

	Nine Months Ended September 30,
	2017			2016
Net cash provided by operating activities	$	66,438		$	63,698
Net cash provided by (used in) investing activities	$	11,291		$	(90,288	)
Net cash (used in) provided by financing activities	$	(77,513	)	$	28,295

Operating Activities

Net cash provided by operating activities increased $2.7 million for the nine months ended September 30, 2017 compared to the same period in 2016, driven primarily by incremental cash flow generated by our acquisitions. In addition, we settled $2.3 million more in management fees related to the services provided under the Amended Omnibus Agreement in equity with CST for the nine months ended September 30, 2017 compared to the same period in 2016.

Investing Activities

For the nine months ended September 30, 2017, we received $23.9 million of proceeds on sales, largely driven by the sale of 28 properties to DMR and two properties sold as a result of the FTC’s requirements associated with Couche-Tard’s acquisition of CST. We also incurred $10.2 million in capital expenditures and paid a $2.8 million deposit on the Jet-Pep acquisition. For the nine months ended September 30, 2016, we received a $17.5 million refund payment on our investment in CST Fuel Supply in connection with CST’s sale of sites in California and Wyoming. In addition, we spent $97.1 million on the acquisitions of the Franchised Holidays Stores, State Oil Assets, and independent dealer and sub-wholesaler contracts from CST. We also incurred $11.6 million in capital expenditures.

Financing Activities

For the nine months ended September 30, 2017, we paid $65.7 million in distributions and made net repayments on our credit facility of $10.0 million. For the nine months ended September 30, 2016, we paid $62.2 million in distributions, made net borrowings of $96.1 million primarily to fund our Franchised Holiday Stores and State Oil Assets acquisitions, and purchased $3.3 million in common units under our common unit purchase program.

Distributions

Distribution activity for 2017 was as follows:

Quarter Ended	Record Date	Payment Date	Cash Distribution (per unit)		Cash Distribution (in thousands)
December 31, 2016	February 6, 2017	February 13, 2017	$	0.6125	$	20,534
March 31, 2017	May 8, 2017	May 15, 2017	$	0.6175	$	20,826
June 30, 2017	August 7, 2017	August 14, 2017	$	0.6225	$	21,079
September 30, 2017	November 6, 2017	November 13, 2017	$	0.6275	$	21,326

IDRs

During the three and nine months ended September 30, 2017, we distributed $1.1 million and $3.2 million to CST / Couche-Tarde with respect to the IDRs, respectively.

Expiration of the Subordination Period

In accordance with the terms of the Partnership Agreement, on February 25, 2016, the first business day after the payment of the fourth quarter 2015 distribution of $0.5925 per unit, the subordination period under the Partnership Agreement ended. At that time, each of the 7,525,000 outstanding subordinated units converted into one common unit and now participates in distributions pro rata with other common units.

Debt

As of September 30, 2017, our consolidated debt and capital lease obligations consisted of the following (in thousands):

$550 million revolving credit facility	$	431,484
Note payable		779
Capital lease obligations		27,728
Total debt and capital lease obligations		459,991
Current portion		2,884
Noncurrent portion		457,107
Deferred financing fees		(2,334	)
Noncurrent portion, net of deferred financing fees	$	454,773

Our revolving credit facility is secured by substantially all of our assets. Our borrowings under the revolving credit facility had a weighted-average interest rate of 4.24% as of September 30, 2017 (LIBOR plus an applicable margin, which was 3.00% as of September 30, 2017). Letters of credit outstanding at September 30, 2017 totaled $6.5 million. The amount of availability under the revolving credit facility at November 3, 2017, after taking into consideration debt covenant restrictions, was $55.2 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 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. We are required to maintain a total leverage ratio (as defined in the revolving credit facility) for the most recently completed four fiscal quarters of less than or equal to 4.50: 1.00, except for the first three full fiscal quarters following a material acquisition, generally defined as an acquisition with a purchase price of at least $30.0 million, with a ratio of 5.00: 1.00, and a consolidated interest coverage ratio (as defined in the revolving credit facility) of greater than or equal to 2.75: 1.00. The computation of our total leverage ratio allows for a pro forma application of the EBITDA (as defined in the revolving credit facility) of acquired entities and was 4.03: 1.00 as of September 30, 2017. As of September 30, 2017, we were in compliance with these financial covenant ratios.

Capital Expenditures

We make investments to expand, upgrade and enhance existing assets. We categorize our capital requirements as either sustaining capital expenditures, growth capital expenditures or acquisition capital expenditures. Sustaining capital expenditures are those capital expenditures required to maintain our long-term operating income or operating capacity. Acquisition and growth capital expenditures are those capital expenditures that we expect will increase our operating income or operating capacity over the long term. We have the ability to fund our capital expenditures by additional borrowings under our revolving credit facility or, if available to us on acceptable terms, issuing additional equity, debt securities or other options, such as the sale of assets. With the significant decline in energy prices since 2014, access to the capital markets has tightened for the energy and MLP industries as a whole, which has impacted our cost of capital and our ability to raise equity and debt financing at favorable terms. Our ability to access the capital markets may have an impact on our ability to fund acquisitions. We may not be able to complete any offering of securities or other options on terms acceptable to us, if at all.

The following table outlines our consolidated capital expenditures and acquisitions for the nine months ended September 30, 2017 and 2016 (in thousands):

	Nine Months Ended September 30,
	2017		2016
Sustaining capital	$	1,287	$	538
Growth		8,888		11,029
Acquisitions		2,779		97,073
Total capital expenditures and acquisitions	$	12,954	$	108,640

Other Matters Impacting Liquidity and Capital Resources

Concentration of Customers

For the nine months ended September 30, 2017, we distributed approximately 14% of our total wholesale distribution volumes to DMS and its affiliates and DMS and its affiliates accounted for approximately 23% of our rental income. For the nine months ended September 30, 2017, we distributed 8% of our total wholesale distribution volume to CST retail sites that are not supplied by CST Fuel Supply and received 22% of our rental income from CST. For more information regarding transactions with DMS and its affiliates and CST, see Note 8 of the Condensed Notes to Consolidated Financial Statements.

For the nine months ended September 30, 2017, we received 9% of our rental income from a lessee dealer that operates certain of the retail sites acquired through the PMI and One Stop acquisitions.

Outlook

As noted previously, the prices paid to our motor fuel suppliers for wholesale motor fuel (which affects our costs of sales) are highly correlated to the price of crude oil. The crude oil commodity markets are highly volatile, and the market prices of crude oil, and, correspondingly, the market prices of wholesale motor fuel, experience significant and rapid fluctuations, which affect our motor fuel gross profit. See “Significant Factors Affecting our Profitability—The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit” for additional information.

We expect our rent income to increase in 2017 based on our recent acquisitions and our expectation that we will continue to convert company operated retail sites to lessee dealers.

We will continue to evaluate acquisitions on an opportunistic basis. Additionally, we will pursue acquisition targets that fit into our strategy. Whether we will be able to execute acquisitions will depend on market conditions, availability of suitable acquisition targets at attractive terms, acquisition related compliance with customary regulatory requirements, and our ability to finance such acquisitions on favorable terms and in compliance with our debt covenant restrictions.

New Accounting Policies

In January 2017, the FASB issued ASU 2017-01–Business Combinations (Topic 805): Clarifying the Definition of a Business. This standard clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. ASU 2017-01 is effective for public fiscal years and interim periods within those years beginning after December 15, 2017. We have chosen to early adopt this standard effective January 1, 2017. Although there was no impact upon adoption, among other things, this guidance will result in the capitalization rather than expensing of acquisition costs in future transactions that will be accounted for as asset acquisitions rather than business combinations under the new definition of a business.

Critical Accounting Policies Involving Critical Accounting Estimates

The preparation of financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Actual results could differ from those estimates.

There have been no material changes to the critical accounting policies described in our Form 10-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

We purchase gasoline and diesel fuel from several suppliers at costs that are subject to market volatility. These purchases are generally made pursuant to contracts or at market prices established with the supplier. We do not currently engage in hedging activities for these purchases due to our pricing structure that allows us to generally pass on price changes to our customers and related parties.

Interest Rate Risk

As of September 30, 2017, we had $431.5 million outstanding on our revolving credit facility. Our outstanding borrowings bear interest at LIBOR plus an applicable margin, which was 3.00% at September 30, 2017. Our borrowings had a weighted-average interest rate at September 30, 2017 of 4.24%. A one percentage point change in our average rate would impact annual interest expense by approximately $4.3 million.

Commodity Price Risk

We have not historically hedged or managed our price risk with respect to our commodity inventories (gasoline and diesel fuel), as the time period between the purchases of our motor fuel inventory and the sales to our customers is very short.

Regarding our supplier relationships, a majority of our total gallons purchased are subject to Terms Discounts. We have not historically hedged or managed our price risk with respect to these Terms Discounts. Based on our current volumes, we estimate a $10 per barrel change in the price of crude oil would impact our annual wholesale motor fuel gross profit by approximately $2.2 million related to these Terms Discounts.

Foreign Currency Risk

Our operations are located in the U.S., and therefore are not subject to foreign currency risk.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Our management has evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act) as of the end of the period covered by this report, and based on their evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of September 30, 2017.

(b) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) under the Exchange Act) that occurred during the three months ended September 30, 2017, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We hereby incorporate by reference into this Item our disclosures made in Part I, Item 1 of this quarterly report included in Note 9 of the Condensed Notes to Consolidated Financial Statements.

ITEM 1A. RISK FACTORS

There were no material changes in risk factors for the company in the period covered by this report. See the risk factors disclosed in the section entitled “Risk Factors” in our Form 10-K for the year ended December 31, 2016.

ITEM 2. UNRESGISTERED SALES OF EQUITY SECURITIES

Management Fee Issuance

As discussed in Note 8 to Item 1 in Part I above, on February 28, 2017, May 10, 2017 and August 9, 2017, CrossAmerica issued 171,039, 128,983, and 124,003 common units to a subsidiary of CST/Couche-Tard as partial payment for the amounts incurred for the fourth quarter of 2016, the first quarter of 2017 and the second quarter of 2017 respectively, under the terms of the Amended Omnibus Agreement. This issuance of common units was made in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended.

ITEM 6. EXHIBITS.

Exhibit No.		Description

10.1		Award Agreement for Phantom Units for Non-Employee Directors with distribution equivalent rights

10.2		Asset Purchase Agreement dated August 4, 2017, by and among CrossAmerica Partners LP and Jet-Pep, Inc. and other persons listed as signatories in the Purchase Agreement

31.1 *		Certification of Principal Executive Officer of CrossAmerica GP LLC as required by Rule 13a-14(a) of the Securities Exchange Act of 1934

31.2 *		Certification of Principal Financial Officer of CrossAmerica GP LLC as required by Rule 13a-14(a) of the Securities Exchange Act of 1934

32.1*†		Certification of Principal Executive Officer of CrossAmerica GP LLC pursuant to 18 U.S.C. §1350

32.2*†		Certification of Principal Financial Officer of CrossAmerica GP LLC pursuant to 18 U.S.C. §1350

101.INS *		XBRL Instance Document

101.SCH *		XBRL Taxonomy Extension Schema Document

101.CAL *		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB *		XBRL Taxonomy Extension Label Linkbase Document

101.PRE *		XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF *		XBRL Taxonomy Extension Definition Linkbase Document

*	Filed herewith

†	Not considered to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section.

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CROSSAMERICA PARTNERS LP

By:		CROSSAMERICA GP LLC, its General Partner

By:		/s/ Evan W. Smith
		Evan W. Smith
		Vice President—Finance and Chief Financial Officer
		(Duly Authorized Officer and Principal Financial and Accounting Officer)

Date: November 7, 2017