10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 001-35711
CROSSAMERICAPARTNERSLP
(Exact name of registrant as specified in its charter)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Units CAPL New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐No☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐Accelerated filer☒ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of our common units based on the closing price on the New York Stock Exchange on June 30, 2024, the last business day of the registrant’s most recently completed second fiscal quarter, held by non-affiliates of the registrant was approximately $364.4 million.
As of February 21, 2025, the registrant had outstanding 38,059,702 common units.
Documents Incorporated by Reference: None.
TABLE OF CONTENTS
PAGE
PART I 1
Commonly Used Defined Terms 1
Cautionary Statement Regarding Forward-Looking Statements 4
Item 1. Business 6
Item 1A. Risk Factors 10
Item 1B. Unresolved Staff Comments 36
Item 1C. Cybersecurity 36
Item 2. Properties 37
Item 3. Legal Proceedings 38
Item 4. Mine Safety Disclosures 38
Item 6. [Reserved] 39
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 52
Item 8. Financial Statements and Supplementary Data 53
Item 9A. Controls and Procedures 88
Item 9B. Other Information 88
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 88
PART III 89
Item 10. Directors, Executive Officers and Corporate Governance 89
Item 11. Executive Compensation 94
Item 14. Principal Accountant Fees and Services 112
Item 15. Exhibits and Financial Statement Schedules 113
PART I
COMMONLY USED DEFINED TERMS
The following is a list of certain acronyms and terms generally used in the industry and throughout this document:
CrossAmerica Partners LP and subsidiaries:
CrossAmerica CrossAmerica Partners LP, the Partnership, CAPL, we, us, our
LGPR LGP Realty Holdings LP, an indirect wholly-owned subsidiary of CrossAmerica
CAPL JKM Partners CAPL JKM Partners LLC, a wholly-owned subsidiary of Holdings
CrossAmerica Partners LP related parties:
Other Defined Terms:
7-Eleven 7-Eleven, Inc.
ASC Accounting Standards Codification
AOCI Accumulated other comprehensive income
ASU Accounting Standards Update
Board Board of Directors of our General Partner
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BP BP p.l.c.
CSS Community Service Stations, Inc.
Exchange Act Securities Exchange Act of 1934, as amended
ExxonMobil ExxonMobil Corporation
FASB Financial Accounting Standards Board
Internal Revenue Code Internal Revenue Code of 1986, as amended
IPO Initial public offering of CrossAmerica Partners LP on October 30, 2012
IRS Internal Revenue Service
Marathon Marathon Petroleum Company LP
Motiva Motiva Enterprises, LLC
NYSE New York Stock Exchange
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SEC U.S. Securities and Exchange Commission
Shell Equilon Enterprises LLC dba Shell Oil Products US
SOFR Secured Overnight Financing Rate
U.S. GAAP U.S. Generally Accepted Accounting Principles
UST Underground storage tank
Valero Valero Energy Corporation
WTI West Texas Intermediate crude oil
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, credit ratings, distribution growth, potential growth opportunities, potential operating performance improvements, potential improvements in return on capital employed, the effects of competition and the effects of future legislation or regulations. You can identify our forward-looking statements by the words “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “guidance,” “outlook,” “effort,” “target” and similar expressions. Such statements are based on our current plans and expectations and involve risks and uncertainties that could potentially affect actual results. These forward-looking statements include, among other things, statements regarding:
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future retail and wholesale gross profits, including gasoline, diesel and convenience store merchandise gross profits;
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our anticipated level of capital investments, including through acquisitions, and the effect of these capital investments on our results of operations;
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anticipated trends in the demand for, and volumes sold of, gasoline, diesel and convenience merchandise products in the regions where we operate;
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volatility in the equity and credit markets limiting access to capital markets;
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our ability to integrate acquired businesses;
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expectations regarding environmental, tax and other regulatory initiatives; and
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the effect of general economic and other conditions on our business.
In general, we based the forward-looking statements included in this report on our current expectations, estimates and projections about our company and the industry in which we operate. We caution you that these statements are not guarantees of future performance and involve risks and uncertainties we cannot predict. We anticipate that subsequent events and market developments will cause our estimates to change. In addition, we based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecasted in the forward-looking statements. Any differences could result from a variety of factors, including the following:
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the Topper Group’s business strategy and operations and the Topper Group’s conflicts of interest with us;
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availability of cash flow to pay the current quarterly distributions on our common units;
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the availability and cost of competing motor fuel resources;
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motor fuel price volatility, including as a result of the conflict in Ukraine or in the Middle East;
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a reduction in demand for motor fuels;
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competition in the industries and geographical areas in which we operate;
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the consummation of financing, acquisition or disposition transactions and the effect thereof on our business;
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environmental compliance and remediation costs;
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our existing or future indebtedness and the related interest expense and our ability to comply with debt covenants;
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our liquidity, results of operations and financial condition;
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failure to comply with applicable tax and other regulations or governmental policies;
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future legislation and changes in regulations, governmental policies, immigration laws and restrictions or changes in enforcement or interpretations thereof;
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future regulations and actions that could expand the non-exempt status of employees under the Fair Labor Standards Act;
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future income tax legislation;
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changes in energy policy;
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technological advances;
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the impact of worldwide economic and political conditions;
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the impact of wars and acts of terrorism;
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weather conditions or catastrophic weather-related damage;
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earthquakes and other natural disasters;
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hazards and risks associated with transporting and storing motor fuel;
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unexpected environmental liabilities;
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the outcome of pending or future litigation; and
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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 and immigration.
You should consider the risks and uncertainties described above, and elsewhere in this report, including under Part I. Item 1A “Risk Factors” and Part II. Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in this Form 10-K, in connection with considering any forward-looking statements that may be made by us and our businesses generally. We cannot assure you that anticipated results or events reflected in the forward-looking statements will be achieved or will occur. The forward-looking statements included in this report are made as of the date of this report. We undertake no obligation to publicly release any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events after the date of this report, except as required by law.
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ITEM 1. BUSINESS
Overview
We were formed as a Delaware limited partnership in 2011 engaged in the wholesale distribution of motor fuel and the ownership and leasing of real estate used in the retail distribution of motor fuel. We also generate revenues from the operation of company operated retail sites.
The Topper Group controls the sole member of our General Partner and has the ability to appoint all of the members of the Board and to control and manage the operations and activities of the Partnership. As of February 21, 2025, the Topper Group also has beneficial ownership of a 38.6% limited partner interest in the Partnership.
Our principal executive office address is 645 Hamilton Street, Suite 400, Allentown, PA 18101, and our telephone number is (610) 625-8000. Our common units trade on the NYSE under the ticker symbol “CAPL.”
We conduct our business through two operating segments – retail and wholesale. As of December 31, 2024, we own or lease approximately 1,100 sites, of which we operate 365 as company operated sites. In all, including our company operated sites, we distributed motor fuel to approximately 1,600 sites located in 34 states.
We are one of the ten largest independent distributors by motor fuel volume in the United States for ExxonMobil, BP and Marathon, and we also distribute Shell, Valero and Phillips 66-branded motor fuels (approximately 94% of the motor fuel we distributed during 2024 was branded). For approximately 55% of gallons sold, we receive a per gallon rate equal to the posted rack price, less any applicable discounts, plus transportation costs, taxes and a fixed rate per gallon of motor fuel. The remaining gallons are either retail sales or wholesale DTW contracts that provide for variable, market-based pricing.
The following table highlights the aggregate volume of motor fuel distributed to each of our principal customer groups (in millions). See Item 7—Results of Operations for additional information on the drivers of the fluctuations in the volume and site counts below.
(a)
Gallons distributed to independent dealers include gallons distributed to sub-wholesalers and commercial accounts, which are not included in the site counts reported above.
(b)
Includes independent commission sites owned or leased by the commission agent.
At our company operated sites, we also generate revenues from the retail sale of convenience merchandise. Such revenues amounted to (in millions):
Year Ended December 31,
We also generate revenues through leasing or subleasing our real estate. We own or lease real and personal property and we lease or sublease that property to tenants, the substantial majority of which are wholesale customers as described above. We own approximately 60% of our properties that we lease to our dealers or utilize in our retail business. Our lease agreements with third-party landlords have an average remaining lease term of 3.9 years as of December 31, 2024.
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The following table presents rental income (in millions) and the number of sites from which rental income was generated:
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:
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LGW and CAPL JKM Wholesale, which distribute motor fuels on a wholesale basis and generate Qualifying Income under Section 7704(d) of the Internal Revenue Code;
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LGPR, which functions as the real estate holding company and holds assets that generate Qualifying Income under Section 7704(d) of the Internal Revenue Code;
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LGWS, which owns and leases (or leases and sub-leases) real estate and personal property used in the retail sale of motor fuels, as well as provides maintenance and other services to its customers. In addition, LGWS sells motor fuel on a retail basis at sites operated by commission agents. LGWS also sells motor fuels on a retail basis and sells convenience merchandise to end customers at company operated retail sites. Income from LGWS generally is not Qualifying Income under Section 7704(d) of the Internal Revenue Code; and
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Joe’s Kwik Marts, which owns and leases real estate and personal property at certain of our company operated sites. Joe’s Kwik Marts also sells motor fuels on a retail basis and sells convenience merchandise to end customers. Income from Joe’s Kwik Marts generally is not Qualifying Income under Sections 7704(d) of the Internal Revenue Code.
Available Information
Our internet website is www.crossamericapartners.com. Information on this website is not part of this Form 10-K. Annual reports on our Form 10-K, quarterly reports on our Form 10-Q and our current reports on Form 8-K filed with (or furnished to) the SEC are available on this website under the “Investor Relations” tab and are free of charge, soon after such material is filed or furnished. In this same location, we also post our corporate governance guidelines, code of ethics and business conduct and the charters of the committees of our Board. These documents are available in print to any unitholder that makes a written request to CrossAmerica Partners L.P. Attn: Corporate Secretary, 645 Hamilton Street, Suite 400, Allentown, Pennsylvania 18101.
Operations
Below is a summary of our revenues and operating income by segment (in millions):
Wholesale Retail
Retail Segment
The retail segment includes the sale of convenience merchandise at company operated sites and the retail sale of motor fuel at company operated and commission sites. Below is a description of the retail segment's principal customer groups.
Company Operated
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We own or lease the property, operate the retail site and retain all profits from motor fuel and retail site operations.
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We own the merchandise inventory and retain the profits from the sale of convenience merchandise.
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We own the motor fuel inventory and set the motor fuel pricing.
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We maintain inventory from the time of the purchase of motor fuel from third-party suppliers until the retail sale to the end customer. On average, we maintain approximately 5-days’ worth of motor fuel sales in inventory at each site.
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LGW and CAPL JKM Wholesale distribute all of the motor fuel required by our company operated sites to LGWS and Joe’s Kwik Marts, respectively, which owns the motor fuel inventory and sells motor fuel to retail customers. LGW and CAPL JKM Wholesale record qualifying wholesale motor fuel distribution gross income and LGWS and Joe’s Kwik Marts record the non-qualifying retail sale.
Commission
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We own or lease the property and then lease or sublease the site to the commission agent, who pays rent to us and operates all the non-fuel related operations at the sites for its own account.
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We own the motor fuel inventory, set the motor fuel pricing and generate revenue from the retail sale of motor fuels to the end customer.
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We pay the commission agent a commission for each gallon of motor fuel sold.
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LGW distributes motor fuel to LGWS, which owns the motor fuel inventory and sells motor fuel to retail customers. LGW records qualifying wholesale motor fuel distribution gross income and LGWS records the non-qualifying retail sale.
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As of December 31, 2024, the average remaining motor fuel distribution and lease agreement term for our commission agents was 1.2 years.
Wholesale Segment
The wholesale segment includes the wholesale distribution of motor fuel to lessee dealers and independent dealers. 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. Below is a description of the wholesale segment's principal customer groups.
Independent Dealer
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The independent dealer owns or leases the property and owns all motor fuel and convenience store inventory.
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We contract to exclusively distribute motor fuel to the independent dealer at rack-plus pricing or, in some cases, DTW.
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Under our distribution contracts, we agree to supply a particular branded motor fuel or unbranded motor fuel to a site or group of sites and arrange for all transportation.
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Distribution contracts with independent dealers are typically seven to 15 years in length.
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As of December 31, 2024, the average remaining distribution contract term was 4.9 years.
Lessee Dealer
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We own or lease the property and then lease or sublease the site to a dealer.
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The lessee dealer owns all motor fuel and retail site inventory and sets its own pricing and gross profit margins.
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We collect wholesale motor fuel margins at rack-plus pricing or, in some cases, DTW.
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Under our distribution contracts, we agree to supply a particular branded motor fuel or unbranded motor fuel to a site or group of sites and arrange for all transportation.
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Exclusive distribution contracts with dealers who lease property from us run concurrent in length to the retail site’s lease period (generally three to 10 years).
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Leases are generally triple net leases.
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As of December 31, 2024, the average remaining lease agreement term was 2.5 years.
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Business Strategy and Objective
Our primary business objective is to generate sufficient cash flows from operations to make quarterly cash distributions to our unitholders and, over time, to increase our quarterly cash distributions while maintaining discipline with leverage. The amount of any distribution is subject to the discretion of the Board, and the Board may modify or revoke the cash distribution policy at any time. Our Partnership Agreement does not require us to pay any distributions.
Our business strategy to achieve our objective of paying and, over time, increasing our quarterly cash distributions, is focused on the following key initiatives:
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Expand within and beyond our existing markets through acquisitions. Since our IPO and through February 21, 2025, we have completed acquisitions for a total of approximately 1,000 fee and leasehold sites and 700 wholesale fuel supply contracts for total consideration of approximately $1.5 billion;
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Enhance our real estate business’ cash flows by owning or leasing sites in prime locations;
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Increase cash flows from our retail segment by operating our retail sites efficiently with a focus on providing excellent value and service;
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Increase cash flows from our wholesale segment by expanding market share and growing rental income over time;
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Maintain strong relationships with major integrated oil companies and refiners; and
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Optimize the operations of our assets to the most appropriate format (lessee dealer, independent dealer, company operated, or commission) to maximize our investment return.
We believe our competitive strengths will allow us to capitalize on our strategic opportunities, including:
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Stable cash flows from diversified operations of our portfolio of assets, including rental income, motor fuel distribution and retail convenience store sales;
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Established history of acquiring sites and successfully integrating these sites and operations into our existing business;
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Long-term relationships with major integrated oil companies and other key suppliers, which support our negotiations with and enable us to collaboratively work with our suppliers to maximize benefits to the Partnership; and
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Prime real estate locations in areas with high traffic and considerable motor fuel consumption.
Subsequent to an acquisition and throughout the life cycle of a site, we evaluate the optimal operation of each site as company operated, commission or lessee dealer, or we consider strategic alternatives, including divesting the site, which can result in the site becoming an independent dealer site if we continue to supply fuel to it after its divestiture.
Supplier Arrangements
We distribute branded motor fuel under the Exxon, Mobil, BP, Shell, Marathon, Valero and Phillips 66 brands to our customers. Branded motor fuels are purchased from major integrated oil companies and refiners under supply agreements. For 2024, we purchased approximately 81% of our motor fuel from four suppliers. Certain suppliers offer volume rebates or incentive payments to drive volumes and provide an incentive for branding new locations. Certain suppliers require that all or a portion of any such incentive payments be repaid to the supplier in the event that the sites are rebranded within a stated number of years. We also purchase unbranded motor fuel for distribution. As of December 31, 2024, our supply agreements had a weighted-average remaining term of approximately 6.0 years.
Competition
The convenience store industry is highly competitive, fragmented and characterized by constant change in the number and type of retailers offering products and services of the type sold at our sites. We compete with other retail site chains, independently owned sites, motor fuel stations, supermarkets, drugstores, discount stores, dollar stores, club stores and hypermarkets. Major competitive factors include, among others, location, ease of access, product and service selection, motor fuel brands, pricing, customer service, store appearance and cleanliness.
Our wholesale segment competes with other motor fuel distributors. Major competitive factors for us include, among others, customer service, reliability and availability of products and price.
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Seasonality
Our business exhibits significant 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.
Trade Names, Service Marks and Trademarks
We are a wholesale distributor of motor fuel for various major integrated oil companies and are licensed to market/resell motor fuel under their respective motor fuel brands. We are not aware of any facts that would negatively affect our continuing use of any trademarks, trade names or service marks.
Environmental Laws and Regulations
We are subject to extensive federal, state and local environmental laws and regulations, including those relating to USTs, the release or discharge of materials into the air, water and soil, waste management, pollution prevention measures, storage, handling, use and disposal of hazardous materials, the exposure of persons to hazardous materials, greenhouse gas emissions, and characteristics, composition, storage and sale of motor fuel and the health and safety of Topper Group employees. We incorporate by reference into this section our disclosures included in Note 2 under the captions “Environmental Matters” and “Asset Retirement Obligations” as well as Note 10 under the caption “Asset Retirement Obligations” and Note 15 to the financial statements.
Other Regulatory Matters
Our retail sites are subject to regulation by federal, state, and/or local agencies and to licensing and regulations by state and local health, sanitation, safety, fire and other departments relating to the development and operation of retail sites, including regulations relating to zoning and building requirements and the preparation and sale of food. Our retail sites are also subject to federal, state and/or local laws governing such matters as wage rates, overtime, working conditions and citizenship requirements. At the federal, state and local levels, there are proposals under consideration from time to time to increase minimum wage rates and modify or restrict immigration policies.
Human Capital
The Partnership has no direct employees. As of December 31, 2024, 257 employees of the Topper Group provided management services to us under the Omnibus Agreement. In addition, 2,896 store employees of the Topper Group provided services at our company operated sites.
Our human capital resources objectives include identifying, recruiting, retaining, incentivizing and integrating our existing and new employees. As a customer-centric company with a strong service culture, we constantly work to maintain our position as an employer of choice. This requires a commitment to workplace inclusion and safety, as well as competitive total compensation that meets the needs of Topper Group employees. Our talent management and succession plan process includes the identification of key positions based on current and future business strategies, the identification of potential successors and a plan for talent development.
ITEM 1A. RISK FACTORS
If any of the following risks were to occur, our business, financial condition or results of operations could be materially and adversely affected. In that case, we might not be able to pay distributions on our common units, the trading price of our common units could decline and you could lose all or part of your investment. Also, please read “Cautionary Statement Regarding Forward-Looking Statements.”
Limited partner interests are inherently different from the capital stock of a corporation although many of the business risks to which we are subject are similar to those that would be faced by a corporation engaged in a similar business.
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Risk Factor Summary
Below is a summary of our risk factors:
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We may not have sufficient distributable cash from operations to enable us to pay our quarterly distributions.
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If we are unable to make acquisitions on economically acceptable terms, our future growth and ability to increase distributions to unitholders will be limited, and any acquisitions are subject to substantial risks.
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Volatility in crude oil and wholesale motor fuel costs affect our business, financial condition and results of operations and our ability to make distributions to unitholders.
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Seasonality in wholesale motor fuel costs and sales, as well as merchandise sales, affect our business, financial condition and results of operations and our ability to make distributions to unitholders.
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Both the wholesale motor fuel distribution and the retail motor fuel industries are characterized by intense competition and fragmentation.
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Changes in credit or debit card expenses could reduce our gross profit, especially on motor fuel sold at company-operated retail sites.
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New entrants or increased competition in the convenience store industry could result in reduced gross profits.
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General economic, financial and political conditions that are largely out of our control could adversely affect our business, financial condition and results of operations and reduce our ability to make distributions to unitholders.
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Changes in consumer behavior, preferences and travel as a result of changing economic conditions, labor strikes or otherwise could adversely affect our business, financial condition and results of operations and reduce our ability to make distributions to unitholders.
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Broad-based business or economic disruptions caused by health crises could adversely affect our business, financial condition, results of operations or cash available for distribution to our unitholders.
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A shortage of qualified labor could have a material adverse effect on our business and results of operations.
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We are subject to extensive government laws and regulations concerning store merchandise, operations, Topper Group employees, environmental matters and product quality specifications of motor fuel that we distribute and sell. The cost of compliance with such laws and regulations may be material.
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A significant decrease in demand for motor fuel, including increased consumer preference for alternative motor fuels or improvements in fuel efficiency, in the areas we serve would reduce our ability to make distributions to our unitholders.
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Changes in U.S. trade policy, including the imposition of tariffs and the resulting consequences, may have a material adverse impact on our business, operating results and financial condition.
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Increased attention to environmental, social and governance (“ESG”) matters and conservation measures may adversely impact our business.
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Unfavorable weather conditions could adversely affect our business, financial condition and results of operations and reduce our ability to make distributions to unitholders.
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We depend on four principal suppliers for the majority of our motor fuel and one principal supplier for our merchandise.
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Negative events or developments associated with our branded suppliers could have an adverse impact on our revenues.
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We rely on our suppliers to provide trade credit to adequately fund our ongoing operations.
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We could be adversely affected by the creditworthiness and performance of our customers, suppliers and contract counterparties.
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Pending or future litigation could adversely affect our financial condition and results of operations.
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The dangers inherent in the storage and transport of motor fuel could cause disruptions and could expose us to potentially significant losses, costs or liabilities.
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We depend on third-party transportation providers for the transportation of all of our motor fuel.
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Our motor fuel sales are generated under contracts that must be renegotiated or replaced periodically.
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We rely on our information technology systems, network infrastructure and software as a service providers to manage numerous aspects of our business and could be adversely affected by the failure to protect sensitive customer, Topper Group employee or the Partnership's vendor data.
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Our debt levels and debt covenants may limit our flexibility in obtaining additional financing and in pursuing other business opportunities and our ability to make distributions to unitholders.
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An increase in interest rates may cause the market price of our common units to decline and a significant increase in or prolonged period of relatively higher interest rates could adversely affect our ability to service our indebtedness.
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We do not own all of the land on which our sites and certain facilities are located, which could result in increased costs and disruptions to our operations.
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We may not be able to lease sites we own or sub-lease sites we lease on favorable terms.
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We rely on DMI and other third parties to indemnify us for any costs or expenses that we incur for certain environmental liabilities and third-party claims.
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The Topper Group controls us and may have conflicts of interest with us. Further, our General Partner and its affiliates, including the Topper Group, may have conflicts of interest with us and limited fiduciary duties and they may favor their own interests to the detriment of our unitholders and us.
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The Topper Group or the Board may modify or revoke our cash distribution policy at any time at their discretion. Our Partnership Agreement does not require us to pay any distributions at all.
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We rely on the employees of the Topper Group to provide key management services to our business pursuant to the Omnibus Agreement.
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Our General Partner has limited liability regarding our obligations.
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If we distribute a significant portion of our cash available for distribution to our partners, our ability to grow and make acquisitions could be limited.
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Our Partnership Agreement replaces, eliminates and modifies, as applicable, the duties, including the fiduciary duties, of our General Partner, the Board or any committee thereof, and modifies the burden of proof in any action brought against the General Partner, the Board or any committee thereof.
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Our General Partner’s affiliates, including the Topper Group, may compete with us.
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Holders of our common units have limited voting rights.
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Our General Partner interest or the control of our General Partner may be transferred to a third party without unitholder consent, and our General Partner has a call right that may require unitholders to sell their common units at an undesirable time or price.
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The market price of our common units could be adversely affected by sales of substantial amounts of our common units in the public or private markets, including sales by the Topper Group or other large holders.
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We may issue unlimited additional units without unitholder approval, which would dilute existing unitholder ownership interests, and our General Partner’s discretion in establishing cash reserves may reduce the amount of cash available for distribution to unitholders.
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Our Partnership Agreement restricts the voting rights of unitholders owning 20% or more of our common units.
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Management fees and cost reimbursements due to our General Partner and the Topper Group for services provided to us or on our behalf will reduce cash available for distribution to our unitholders.
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Our tax treatment depends in large part on our status as a partnership for U.S. federal income tax purposes.
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We have subsidiaries that are treated as corporations for U.S. federal income tax purposes and are subject to entity-level U.S. federal, state and local income and franchise tax.
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The tax treatment of publicly traded partnerships or an investment in our common units could be subject to potential legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis.
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Our unitholders are required to pay taxes on their share of income from us even if they do not receive any cash distributions from us.
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Unitholders may be subject to limitation on their ability to deduct interest expense incurred by us.
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Tax gain or loss on the disposition of our common units could be more or less than expected.
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Tax-exempt organizations and non-U.S. persons face unique tax issues from owning common units that may result in adverse tax consequences to them.
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Our unitholders are subject to state and local income taxes and return filing requirements in states and localities where they do not live as a result of investing in our common units.
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We will treat each purchaser of our common units as having the same tax characteristics on a per-unit basis without regard to the actual common units purchased.
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We prorate our items of income, gain, loss and deduction for U.S. federal income tax purposes and allocate them between transferors and transferees of our common units each month based upon the ownership of our common units on the first business day of each month and as of the opening of the applicable exchange on which our common units are listed, instead of on the basis of the date a particular common unit is transferred.
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If a unitholder loans their common units to a short seller to cover a short sale of common units, they may be considered to have disposed of those common units for U.S. federal income tax purposes.
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We have adopted certain valuation methodologies that may result in a shift of income, gain, loss and deduction between our General Partner and the unitholders.
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If the IRS makes audit adjustments to our income tax returns for tax years beginning after 2017, it (and some states) may assess and collect any resulting taxes (including any applicable penalties and interest) directly from us, in which case we may require our unitholders and former unitholders to reimburse us for such taxes (including any applicable penalties or interest) or, if we are required to bear such payment, our cash available for distribution to our unitholders might be substantially reduced.
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Risks Relating to Our Industry and Our Business
We may not have sufficient distributable cash from operations to enable us to pay our quarterly distribution following the establishment of cash available for distribution and payment of fees and expenses.
We may not have sufficient cash each quarter to pay quarterly distribution at current levels or at all.
The amount of cash we can distribute on our common units principally depends upon the amount of cash we generate from our operations, which will fluctuate from quarter to quarter based on, among other things:
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demand for motor fuel products in the markets we serve, including seasonal fluctuations, and the margin per gallon we earn selling and distributing motor fuel;
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the wholesale price of motor fuel and its impact on the payment discounts we receive and the fees we pay on credit and debit card sales;
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demand for merchandise and services in the markets we serve, including seasonal fluctuations, and the margin percentage we earn;
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seasonal trends in the industries in which we operate;
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supply, and the impact that severe storms could have to our suppliers’ and customers’ operations;
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competition from other companies that sell motor fuel products or operate retail sites in our targeted market areas;
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the inability to identify and acquire suitable sites or to negotiate acceptable leases for such sites;
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the potential inability to obtain adequate financing to fund our expansion;
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the level of our operating costs, including payments to the Topper Group under the Omnibus Agreement;
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prevailing economic conditions;
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regulatory actions affecting the supply of or demand for motor fuel, our operations, our existing contracts or our operating costs; and
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volatility of prices for motor fuel.
In addition, the actual amount of cash we will have available for distribution will depend on other factors such as:
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the level and timing of capital expenditures we make;
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the level and timing of sales of sites in connection with our real estate optimization plan;
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the restrictions contained in our credit facilities;
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our debt service requirements and other liabilities;
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the cost of acquisitions, if any;
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fluctuations in our working capital needs;
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our ability to borrow under the CAPL Credit Facility and access capital markets on favorable terms, or at all; and
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the amount, if any, of cash reserves established by our General Partner in its discretion.
Incurring additional debt may significantly increase our interest expense and financial leverage and issuing additional limited partner interests may result in significant unitholder dilution and would increase the aggregate amount of cash required to maintain the cash distribution rate, which could materially decrease our ability to pay distributions. Consequently, there is no guarantee that we will distribute quarterly cash distributions to our unitholders in any quarter.
The amount of cash we have available for distribution to unitholders depends primarily on our cash flow rather than on our profitability, which may prevent us from making cash distributions, even during periods when we record net income.
The amount of cash we have available for distribution depends primarily on our cash flow, and not solely on profitability, which will be affected by non-cash items. As a result, we may make cash distributions during periods when we record losses for financial accounting purposes and may not make cash distributions during periods when we record net income for financial accounting purposes.
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If we are unable to make acquisitions on economically acceptable terms, our future growth and ability to increase distributions to unitholders will be limited.
Our strategy to grow our business and increase distributions to unitholders is dependent in part on our ability to make acquisitions that result in an increase in cash flow. Our growth strategy is based, in large part, on our expectation of ongoing divestitures of retail and wholesale fuel distribution assets by industry participants. We may be unable to make accretive acquisitions for any of the following reasons:
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we are unable to identify attractive acquisition candidates or negotiate acceptable purchase contracts for them;
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we are unable to raise financing for such acquisitions on economically acceptable terms, for example, if the market price for our common units declines;
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we are outbid by competitors; or
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we or the seller are unable to obtain any necessary consents.
If we are unable to make acquisitions on economically acceptable terms, our future growth and ability to increase distributions to unitholders will likely be limited. In addition, if we consummate any future acquisitions, our capitalization and results of operations maychange significantly. We may also consummate acquisitions, which at the time of consummation we believe will be accretive, but ultimately may not be accretive and may in fact result in a decrease in distributable cash flow per unit as a result of incorrect assumptions in our evaluation of such acquisitions, unforeseen consequences, or other external events beyond our control. If any of these events occurred, our future growth could be adversely affected.
Any acquisitions are subject to substantial risks that could adversely affect our business, financial condition and results of operations and reduce our ability to make distributions to unitholders.
Any acquisitions involve potential risks, including, among other things:
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the validity of our assumptions about revenues, demand, capital expenditures and operating costs of the acquired business or assets, as well as assumptions about achieving synergies with our existing business;
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the incurrence of substantial unforeseen environmental and other liabilities arising out of the acquired businesses or assets, including liabilities arising from the operation of the acquired businesses or assets prior to our acquisition, for which we are not indemnified or for which the indemnity is inadequate;
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the costs associated with additional debt or equity capital, which may result in a significant increase in our interest expense and financial leverage resulting from any additional debt incurred to finance the acquisition, or the issuance of additional common units on which we will make distributions, either of which could offset the expected accretion to our unitholders from any such acquisition and could be exacerbated by volatility in the equity or debt capital markets;
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a failure to realize anticipated benefits, such as increased available distributable cash flow, an enhanced competitive position or new customer relationships;
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the inability to timely and effectively integrate the operations of recently acquired businesses or assets, particularly those in new geographic areas or in new lines of business;
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unforeseen difficulties operating in new and existing product areas or new and existing geographic areas;
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a decrease in our liquidity by using a significant portion of our available cash or borrowing capacity to finance the acquisition;
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the incurrence of other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges;
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performance from the acquired assets and businesses that is below the forecasts we used in evaluating the acquisition;
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a significant increase in our working capital requirements;
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competition in our targeted market areas;
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customer or key employee loss from the acquired businesses and the inability to hire, train or retain qualified personnel to manage and operate such acquired businesses; and
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diversion of our management’s attention from other business concerns.
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In addition, our ability to purchase or lease additional sites involves certain potential risks, including the inability to identify and acquire suitable sites or to negotiate acceptable leases or subleases for such sites and difficulties in adapting our distribution and other operational and management systems to an expanded network of sites.
Our reviews of businesses or assets proposed to be acquired are inherently imperfect because it generally is not practicable to perform a perfect review of businesses and assets involved in each acquisition. Even a detailed review of assets and businesses may not necessarily reveal existing or potential problems, nor will it permit a buyer to become sufficiently familiar with the assets or businesses to fully assess their deficiencies and potential. For example, inspections may not always be performed on every asset, and environmental problems, such as groundwater contamination, are not necessarily observable even when an inspection is undertaken. Unitholders will not have the opportunity to evaluate the economic, financial and other relevant information that we will consider in determining the application of our funds and other resources toward the acquisition of certain businesses or assets.
Volatility in crude oil and wholesale motor fuel costs affect our business, financial condition and results of operations and our ability to make distributions to unitholders.
For 2024, motor fuel revenues accounted for 88% of our total revenues and motor fuel gross profit accounted for 54% of total gross profit. Wholesale motor fuel costs are directly related to, and fluctuate with, the price of crude oil. Volatility in the price of crude oil, and subsequently wholesale motor fuel prices, is caused by many factors, including general political, regulatory and economic conditions, acts of war, including as a result of the conflict in Ukraine or in the Middle East, terrorism or armed conflict, instability in oil producing regions, particularly in the Middle East and South America, and the value of U.S. dollars relative to other foreign currencies, particularly those of oil producing nations. In addition, the supplyof motor fuel and our wholesale purchase costs could be adversely affected in the event of a shortage or oversupply of product, which could result from, among other things, interruptions of fuel production at oil refineries, new supply sources, sustained increases or decreases in global demand or the fact that our motor fuel contracts do not guarantee an uninterrupted, unlimited supply of motor fuel.
Significant increases and volatility in wholesale motor fuel costs could result in lower gross profit dollars, as an increase in the retail price of motor fuel could impact consumer demand for motor fuel and convenience merchandise and could result in lower wholesale motor fuel gross profit dollars. As the market prices of crude oil, and, correspondingly, the market prices of wholesale motor fuel, experience significant and rapid fluctuations, we attempt to pass along wholesale motor fuel price changes to our customers through retail price changes; however, we are not always able to do so immediately. The timing of any related increase or decrease in sales prices is affected by competitive conditions in each geographic market in which we operate. As such, our revenues and gross profit for motor fuel can increase or decrease significantly and rapidly over short periods of time and potentially adversely impact our business, financial condition, results of operations and ability to make distributions to our unitholders. The volatility in crude oil and wholesale motor fuel costs and sales prices makes it extremely difficult to forecast future motor fuel gross profits or predict the effect that future wholesale costs and sales price fluctuations will have on our operating results and financial condition.
Seasonality in wholesale motor fuel costs and sales, as well as merchandise sales, affect our business, financial condition and results of operations and our ability to make distributions to unitholders.
Oil prices, wholesale motor fuel costs, motor fuel sales volumes, motor fuel gross profits and merchandise sales often experience seasonal fluctuations. For example, consumer demand for motor fuel typically increases during the summer driving season and typically falls during the winter months. Travel, recreation and construction are typically higher in these months in the geographic areas in which we operate, increasing the demand for motor fuel and merchandise that we sell. Therefore, our revenues are typically higher in the second and third quarters of our fiscal year. A significant change in any of these factors, including a significant decrease in consumer demand (other than typical seasonal variations), could materially affect our motor fuel and merchandise volumes, motor fuel gross profit and overall customer traffic, which in turn could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders.
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Both the wholesale motor fuel distribution and the retail motor fuel industries are characterized by intense competition and fragmentation, and our failure to effectively compete could adversely affect our business, financial condition and results of operations and reduce our ability to make distributions to unitholders.
The markets for distribution of wholesale motor fuel and the sale of retail motor fuel are highly competitive and fragmented, which results in narrow margins. We have numerous competitors, and some may have significantly greater resources and name recognition than we do. We rely on our ability to provide value added reliable services and to control our operating costs to maintain our margins and competitive position. If we were to fail to maintain the quality of our services, any or all of our wholesale customers could choose alternative distribution sources and expected retail customers could purchase from other retailers, each decreasing our margins. Furthermore, major integrated oil companies may decide to distribute their own products in direct competition with us, or large wholesale customers may attempt to buy directly from the major integrated oil companies. The occurrence of any of these events could have a material adverse effect on our business, results of operations and our ability to make distributions to our unitholders.
Changes in credit or debit card expenses could reduce our gross profit, especially on motor fuel sold at company-operated retail sites.
A significant portion of sales at our company-operated retail sites typically involve payment using credit or debit cards. We are assessed fees as a percentage of transaction amounts and not as a fixed dollar amount or percentage of our gross profits. Higher motor fuel prices result in higher credit and debit card expenses, and an increase in credit or debit card use or an increase in fees have a similar effect. Therefore, credit and debit card fees charged on motor fuel purchases that are more expensive as a result of higher motor fuel prices are not necessarily accompanied by higher gross profits. In fact, such fees may cause lower gross profits. Lower gross profits on motor fuel sales caused by higher fees may decrease our overall gross profit and could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders.
New entrants or increased competition in the convenience store industry could result in reduced gross profits.
At our company operated retail sites, we compete with numerous other convenience store chains, independent convenience stores, supermarkets, drugstores, discount warehouse clubs, motor fuel service stations, mass merchants, fast food operations and other similar retail outlets. In addition, several non-traditional retailers, including supermarkets and club stores, compete directly with convenience stores. An increase in competition from such competitors, or the entrance of additional competitors, could result in reduced gross profits and have a material adverse effect on our business, financial condition or results of operations.
General economic, financial and political conditions that are largely out of our control could adversely affect our business, financial condition and results of operations and reduce our ability to make distributions to unitholders.
Recessionary economic conditions, higher interest rates, higher motor fuel and other energy costs, inflation, increases in commodityprices, higher levels of unemployment, higher consumer debt levels, higher tax rates and other changes in tax laws or other economic factors may affect consumer spending or buying habits, and could adversely affect the demand for motor fuel and convenience merchandise we sell at our retail sites. Unfavorable economic conditions, higher motor fuel prices and unemployment levels can affect consumer confidence, spending patterns and miles driven, with many customers “trading down” to lower priced products in certain categories when unfavorable conditions exist. These factors could lead to sales declines in both motor fuel and general merchandise, and in turn could have an adverse impact on our business, financial condition and results of operations.
A tightening of credit in the financial markets or an increase in or prolonged period of higher interest rates may make it more difficult for wholesale customers and suppliers to obtain financing and, depending on the degree to which it occurs, may cause a material increase in nonpayment or other nonperformance by our customers and suppliers. Even if our credit review and analysis mechanisms work properly, we may experience financial losses in our dealings with these third parties. A material increase in nonpayment or other nonperformance by our wholesale customers and/or suppliers could adversely affect our business, financial condition, results of operations and cash available for distribution to our unitholders.
Examples of other general economic, financial and political risks include:
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a general or prolonged decline in, or shocks to, regional or broader macro-economics;
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regulatory changes that could impact the markets in which we operate, which could reduce demand for our goods and services or lead to pricing, currency, or other pressures; and
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deflationary economic pressures, which could hinder our ability to operate profitably in view of the challenges inherent in making corresponding deflationary adjustments to our cost structure.
The nature of these types of risks, which are often unpredictable, makes them difficult to plan for, or otherwise mitigate, and they are generally uninsurable, which compounds their potential impact on our business. Any such event could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders.
Terrorist attacks and threatened or actual war or armed conflict may adversely affect our business.
Our business is affected by general economic conditions and fluctuations in consumer confidence and spending, which can decline as a result of numerous factors outside of our control. Terrorist attacks or threats, whether within the United States or abroad, rumors or threats of war, actual conflicts involving the United States or its allies, or military or trade disruptions impacting our suppliers or our customers may adversely impact our operations. Specifically, strategic targets such as energy related assets may be at greater risk of future terrorist attacks than other targets in the United States. These occurrences could have an adverse impact on energy prices, including prices for motor fuels, and an adverse impact on our operations. Any or a combination of these occurrences could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders.
Changes in consumer behavior, preferences and travel as a result of changing economic conditions, labor strikes or otherwise could adversely affect our business, financial condition and results of operations and reduce our ability to make distributions to unitholders.
In the retail motor fuel industry, customer traffic is generally driven by consumer preferences and spending trends, growth rates for commercial truck traffic and trends in travel and weather. Changes in economic conditions generally, or in the regions in which we operate, could adversely affect consumer spending patterns and travel in our markets. In particular, weakening economic conditions may result in decreases in miles driven and discretionary consumer spending and travel, which affect spending on motor fuel and convenience merchandise. In addition, changes in the types of products and services demanded by consumers may adversely affect our sales and gross profit. Further, labor strikes in the construction industry or other industries that employ customers who visit sites may adversely affect our sales and gross profit. Additionally, negative publicity or perception surrounding motor fuel suppliers could adversely affect reputation and brand image, which may negatively affect our motor fuel sales and gross profit. Similarly, advanced technology and increased use of electric or hybrid cars or cars using alternative fuels would reduce demand for motor fuel. Our success depends on our ability to anticipate and respond in a timely manner to changing consumer demands and preferences while continuing to sell products and services that remain relevant to the consumer and thus generally have a positive impact on our overall merchandise gross profit.
Broad-based business or economic disruptions caused by health crises could adversely affect our business, financial condition, results of operations or cash available for distribution to our unitholders.
Global health concerns could result in social, economic and labor instability that adversely affect employee, customer, vendor, distribution channel and other business partner relationships, and in so doing could adversely affect our business, financial condition, results of operations and cash flows. For example, federal, state and local governmental actions restricting the ability of our customers to essential travel only, would adversely impact consumption of fuel. Sustained limitation on travel, or a general reluctance to travel due to a health crisis, would adversely impact our fuel volumes. Sustained fuel volume decreases and less foot traffic would adversely impact our dealer operated locations which could potentially pose increased credit risks or trigger a default under our fuel supply and lease agreements. Also, we do not have fleet operations but rather rely on common carriers to distribute and deliver our products. If these distribution channels are adversely impacted by a health crisis, delivery of our products could be jeopardized.
We may incur costs related to the implementation of prescribed safety protocols related to a health crisis. For example, we may incur substantial costs in connection with staffing impacted stores and the closing and subsequent cleaning of impacted stores resulting from a continued spread of a health crisis. We may also temporarily lose the services of employees or experience interruptions in our business which could lead to inefficiencies, interruptions in our regular operations and potential reputational harm. If we do not respond appropriately to a health crisis, or if customers do not perceive our response to be adequate for a particular region or our business as a whole, we could suffer damage to our reputation.
There can be no assurances that these and other scenarios resulting from a health crisis will not have a material and adverse impact on our business, financial condition, results of operations or cash available for distribution to our unitholders.
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A continued prolonged shortage of qualified labor could have a material adverse effect on our business and results of operations.
Due to general macroeconomic factors, the Topper Group has from time to time experienced labor shortages in certain geographies. Outside suppliers that we rely on have also experienced shortages of qualified labor. The future success of our operations depends on our ability, and the ability of third parties on which we rely, to identify, recruit, develop and retain qualified and talented individuals in order to supply and deliver our products. A continued prolonged shortage of qualified labor could decrease our ability to effectively operate our retail locations, which would negatively impact our business and could have a material adverse effect on our results of operations. A shortage would also likely result in increased costs from higher overtime, the need to hire temporary help to meet demand, higher wage rates to attract and retain employees, and higher costs to purchase raw materials or services from such third parties, all of which would negatively impact our results of operations.
We are subject to extensive government laws and regulations concerning store merchandise and operations, and the cost of compliance with such laws and regulations can be material.
Our business and properties are subject to extensive local, state and federal governmental laws and regulations relating to, among other things, the sale of alcohol and tobacco and public accessibility requirements. The cost of compliance with these laws and regulations can have a material adverse effect on our operating results and financial condition. In addition, failure to comply with local, state and federal laws and regulations to which our operations are subject may result in penalties and costs that could adversely affect our business and our operating results.
In certain areas where our retail sites are located, state or local laws limit the retail sites’ hours of operation or their sale of alcoholic beverages, tobacco products, inhalants, skills games and lottery tickets, in particular to minors. Failure to comply with these laws could adversely affect our revenues and results of operations because these state and local regulatory agencies have the power to revoke, suspend or deny applications for and renewals of permits and licenses relating to the sale of these products or to seek other remedies, such as the imposition of fines or other penalties. Moreover, these laws may impact our sales volumes in general, as customers who purchase certain products such as alcoholic beverages typically buy other products when they shop. Laws that curtail the consumer’s ability to buy certain products at our retail sites may curtail consumer demand for other products that we sell.
We are subject to extensive government laws and regulations concerning our Topper Group employees, and the cost of compliance with such laws and regulations can be material.
Regulations related to wages and other compensation affect our business. Any appreciable increase in applicable employment laws and regulations, including the statutory minimum wage, exemption levels or overtime regulations could result in an increase in labor costs and such cost increase, or the penalties for failing to comply with such statutory minimums, could adversely affect our business, financial condition, results of operations and cash available for distribution to our unitholders.
In addition, we are directly and indirectly affected by new tax legislation and regulation and the interpretation of tax laws and regulations. This includes potential changes in tax laws or the interpretation of tax laws relating to incentive compensation. Changes in such legislation, regulation or interpretation could have an adverse effect on our incentive compensation structures, which could affect our ability to recruit, develop and retain talented executives and could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders.
Any changes in the employment, benefit plan, tax or labor laws or regulations described above or new regulations proposed from time to time, could have a material adverse effect on our employment practices, our business, financial condition, results of operations and cash available for distribution to our unitholders.
We are subject to extensive federal, state and local environmental laws, and the cost of complying with such laws may be material.
Our operations are subject to a variety of environmental laws and regulations, including those relating to emissions to the air (such as the federal Clean Air Act), discharges into water (such as the federal Clean Water Act), releases of hazardous and toxic substances and remediation of contaminated sites (such as the Comprehensive Environmental Response Compensation and Liability Act of 1980 (“CERCLA”)), and similar state and local laws and regulations.
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Under CERCLA, we may, as the owner or operator, be liable for the costs of removal or remediation of contamination at our current locations or our former locations, whether or not we knew of, or were responsible for, the presence of such contamination. In particular, as an owner and operator of motor fueling stations, we face risks relating to petroleum product contamination that other retail site operators not engaged in such activities would not face. The remediation costs and other costs required to clean up or treat contaminated sites could be substantial. Contamination on and from our current or former locations may subject us to liability to third parties or governmental authorities for injuries to persons, property or natural resources and may adversely affect our ability to sell or rent our properties or to borrow money using such properties as collateral.
CERCLA also provides that persons who dispose of or arrange for the disposal or treatment of hazardous or toxic substances at third-party sites may also be liable for the costs of removal or remediation of such substances at these disposal sites although such sites are not owned by such persons. Our historic and current operation of many locations and the disposal of contaminated soil and groundwater wastes generated during cleanups of contamination at such locations could expose us to such liability.
Pursuant to the Resource Conservation and Recovery Act of 1976, as amended, the EPA has established a comprehensive regulatory program for the detection, prevention, investigation and cleanup of leaking underground storage tanks. State or local agencies are often delegated the responsibility for implementing the federal program or developing and implementing equivalent state or local regulations. Compliance with existing and future environmental laws regulating such tanks and systems may require significant expenditures. We pay fees to state “leaking UST” trust funds in states where they exist. These state trust funds are expected to pay or reimburse us for remediation expenses related to contamination associated with USTs subject to their jurisdiction. Such payments are always subject to a deductible paid by us, specified per incident caps and specified maximum annual payments, which vary among the funds.
Additionally, such funds may have eligibility requirements that not all of our current or anticipated sites will meet. To the extent state funds or other responsible parties do not pay or delay payments for remediation, we will be obligated to make these payments, which, in the aggregate, could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders. We can give no assurance that these funds or responsible third parties are or will continue to remain viable.
Motor fuel operations present risks of soil and groundwater contamination. In the future, we may incur substantial expenditures for remediation of contamination that has not been discovered at locations which we may acquire. We regularly monitor our facilities for environmental contamination and record liabilities on our financial statements to cover potential environmental remediation and compliance costs when probable to occur and reasonably estimable. However, we can make no assurance that the liabilities we have recorded are the only environmental liabilities relating to our current and former locations, that material environmental conditions not known to us do not exist, that future laws or regulations will not impose material environmental liability on us or that our actual environmental liabilities will not exceed our reserves. In addition, failure to comply with environmental regulations, including the Clean Air Act, the Clean Water Act or CERCLA, or an increase in regulations could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders.
A significant decrease in demand for motor fuel, including increased consumer preference for alternative motor fuels or improvements in fuel efficiency, in the areas we serve would reduce our ability to make distributions to our unitholders.
Developments aimed at reducing greenhouse gas emissions’ contribution to climate change may decrease the demand or increase the cost for our major product, petroleum-based motor fuel. Attitudes toward this product and its relationship to the environment may significantly affect our effectiveness in marketing our product and sales. Efforts to steer the public toward non-petroleum-based fuel dependent modes of transportation such as electric, hybrid, battery powered, hydrogen or other alternative fuel-powered motor vehicles may foster a negative perception toward motor fuel or increase costs for our product, thus affecting the public’s attitude toward our primary product. Further, changing consumer preferences or driving habits could lead to new forms of fueling destinations or potentially fewer customer visits to our sites, resulting in a decrease in gasoline sales and/or sales of merchandise and food at our company operated sites. In addition, higher prices could reduce the demand for gasoline and the products and services we offer at our convenience stores and adversely impact our sales. New technologies that increase fuel efficiency or offer alternative vehicle power sources or laws or regulations to increase fuel efficiency, reduce consumption or offer alternative vehicle power sources may result in decreased demand for petroleum-based motor fuel. A number of new legal incentives, regulatory requirements and executive initiatives, including the Clean Power Plan (“CPP”), the Affordable Clean Energy (“ACE”) rule that the Environmental Protection Agency (the “EPA”) has proposed to replace the CPP, and various government subsidies such as the extension of certain tax credits for renewable energy, have made these alternative forms of energy and electric vehicles more competitive. We may also incur increased costs for our product, which we may not be able to pass along to our customers. These developments could potentially have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders.
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Changes in U.S. trade policy, including the imposition of tariffs and the resulting consequences, may have a material adverse impact on our business, operating results and financial condition.
The U.S. government imposes tariffs on certain foreign goods from time to time and has raised the possibility of imposing significant, additional tariff increases or expanding the tariffs to capture other types of goods.
Changes in U.S. trade policy, including due to the change in the U.S. presidential administration, could result in one or more foreign governments adopting responsive trade policies that make it more difficult or costly for us to do business in or import our products from those countries. For example, the new U.S. administration announced tariffs on products manufactured in several jurisdictions, including China, Mexico and Canada, and has made announcements regarding the potential imposition of tariffs on other jurisdictions. While certain of the announced tariffs have been delayed, the U.S. government may in the future pause, reimpose or increase tariffs, and countries subject to such tariffs have and in the future may impose reciprocal tariffs or other restrictive trade measures in response. This in turn could require us to increase prices to our customers, which may reduce demand, or, if we are unable to increase prices, result in lowering our margin on products sold.
We cannot predict the extent to which the U.S. or other countries will impose quotas, duties, tariffs, taxes or other similar restrictions upon the import or export of our products in the future, nor can we predict future trade policy or the terms of any renegotiated trade agreements and their impact on our business. The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the U.S. economy, which in turn could have a material adverse effect on our business, operating results and financial condition.
Increased attention to environmental, social and governance matters and conservation measures may adversely impact our business.
Increasing attention to climate change, societal expectations on companies to address climate change and other ESG matters, investor and societal expectations regarding voluntary or required ESG disclosures, and consumer demand for alternative forms of energy may result in increased costs, reduced demand for our products, reduced profits, increased investigations and litigation, and negative impacts on our unit price and access to capital markets. Increasing attention to climate change and environmental conservation, for example, may result in reduced demand for fossil fuel products and additional governmental investigations and private litigation against us. To the extent that societal pressures or political or other factors are involved, it is possible that such liability could be imposed without regard to our causation of or contribution to climate change or asserted damage to the environment, or to other mitigating factors.
Moreover, while we may create and publish voluntary disclosures regarding ESG matters from time to time, many of the statements in those voluntary disclosures may be based on expectations and assumptions. Such expectations and assumptions are necessarily uncertain and may be prone to error or subject to misinterpretation given the long timelines involved and the lack of an established single approach to identifying, measuring and reporting on many ESG matters.
In addition, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters. Such ratings are used by some investors to inform their investment and voting decisions. Unfavorable ESG ratings and recent activism directed at shifting funding away from companies with fossil fuel-related assets could lead to increased negative investor sentiment toward us and our industry and to the diversion of investment to other industries, which could have a negative impact on our unit price and our access to and costs of capital. Also, institutional lenders may decide not to provide funding for fossil fuel companies based on climate change related concerns, which could affect our access to capital.
Unfavorable weather conditions could adversely affect our business, financial condition and results of operations and reduce our ability to make distributions to unitholders.
Our company operated retail sites are located in regions throughout the U.S. that are susceptible to certain severe weather events, such as hurricanes, flooding, severe thunderstorms, snowstorms, tornadoes and extreme heat and cold. Inclement weather conditions could damage our facilities or those of our suppliers or could have a significant impact on consumer behavior, travel and retail site traffic patterns as well as our ability to operate our retail sites. We could also be affected by regional occurrences, such as energy shortages or increases in energy prices, fires or other natural disasters. Further, our ability to insure these locations and the related cost of such insurance coverage could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders.
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Additionally, many studies have discussed the relationship between greenhouse gas emissions and climate change. One consequence of climate change noted in many of these reports is the increased severity of extreme weather, such as increased hurricanes and floods. Such events could adversely affect our operations through water damage, powerful winds or increased costs for insurance. Climate change also continues to attract considerable public and scientific attention. Litigation has been filed against companies in the energy industry related to climate change. Should such suits succeed, we could face additional compliance costs or litigation risks.
We could be adversely affected if we are not able to attract and retain a strong management team.
We are dependent on our ability to attract and retain a strong management team. If, for any reason, we are not able to attract and retain qualified senior personnel, our business, financial condition, results of operations and cash flows could be adversely affected. We also are dependent on our ability to recruit qualified retail site and field managers. Failure to attract and retain these individuals at reasonable compensation levels could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders.
We depend on four principal suppliers for the majority of our motor fuel and one principal supplier for our merchandise. A disruption in supply or a change in our relationship with any one of them could adversely affect our business, financial condition and results of operations and reduce our ability to make distributions to unitholders.
In 2024, our wholesale business purchased approximately 81% of its motor fuel from four suppliers and our retail business purchased approximately 50% of its merchandise from one supplier. A change of supplier, a disruption in supply or a significant change in pricing with any of these suppliers could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders.
Negative events or developments associated with our branded suppliers could have an adverse impact on our revenues.
We believe that the success of our operations is dependent, in part, on the continuing favorable reputation, market value and name recognition associated with the branded motor fuel sold through our retail and wholesale segments. Erosion of the value of those brands could have an adverse impact on the volumes of motor fuel we sell, which in turn could have a material adverse effect on our business, financial condition, results of operations and ability to make distributions to our unitholders.
We rely on our suppliers to provide trade credit to adequately fund our ongoing operations.
Our business is impacted by the availability of trade credit to fund motor fuel purchases and inventory purchases of our retail sites. An actual or perceived downgrade in our liquidity or operations could cause our suppliers to seek credit support in the form of additional collateral, limit the extension of trade credit or otherwise materially modify their payment terms. Any material changes in payment terms, including payment discounts, or availability of trade credit provided by our principal suppliers, could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders.
We could be adversely affected by the creditworthiness and performance of our customers, suppliers and contract counterparties.
We are exposed to risk related to the creditworthiness and performance of our customers, suppliers and contract counterparties. As of December 31, 2024, we had outstanding accounts receivable totaling $32 million. This amount primarily consisted of vendor rebates due from our suppliers, credit card receivables, receivables arising from the sale of fuel and other products to independent franchised or licensed fuel station operators as well as amounts receivable from other industrial and commercial clients. Contracts with longer payment cycles or difficulties in enforcing contracts or collecting accounts receivable could lead to material fluctuations in our cash flows and could adversely impact our business, financial condition and results of operations.
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Pending or future litigation could adversely affect our financial condition and results of operations. Litigation and publicity concerning motor fuel or food quality, health and other issues could result in significant liabilities or litigation costs and cause consumers to avoid our retail sites.
Retail site businesses can be adversely affected by litigation and complaints from customers or government agencies resulting from motor fuel or food quality, illness or other health or environmental concerns or operating issues stemming from one or more locations. Additionally, we may become a party to litigation pertaining to individual personal injury, off-specification motor fuel, product liability, consumer protection laws, contract disputes, wage and hour unemployment claims and other legal actions in the ordinary course of our business and we are occasionally exposed to industry-wide or class-action claims arising from the products we carry or industry-specific business practices. Adverse publicity about these allegations may negatively affect us, regardless of whether the allegations are true, by discouraging customers from purchasing motor fuel, merchandise or food at one or more of our retail sites. We could also incur significant liabilities if a lawsuit or claim results in a decision against us. Even if we are successful in defending such litigation, our litigation costs could be significant, and the litigation may divert time and money away from our operations and adversely affect our performance. Our defense costs and any resulting damage awards may not be fully covered by our insurance policies.
The dangers inherent in the storage and transport of motor fuel could cause disruptions and could expose us to potentially significant losses, costs or liabilities.
We store motor fuel in storage tanks at our retail sites. These operations are subject to significant hazards and risks inherent in storing and transporting motor fuel. These hazards and risks include, but are not limited to, fires, explosions, traffic accidents, spills, discharges and other releases, any of which could result in distribution difficulties and disruptions, environmental pollution, governmentally imposed fines or cleanup obligations, personal injury or wrongful death claims and other damage to our properties and the properties of others.
We are not fully insured against all risks incident to our business. We may be unable to maintain or obtain insurance of the type and amount we desire at reasonable rates. As a result of market conditions, premiums and deductibles for certain of our insurance policies have increased and could escalate further. In some instances, certain insurance could become unavailable or available only for reduced amounts of coverage. If we were to incur a significant liability for which we were not fully insured, it could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders.
We depend on third-party transportation providers for the transportation of all of our motor fuel. Thus, a significant change or shortage of drivers and/or providers or a significant change in our relationship or commercial terms with any of these providers could adversely affect our business, financial condition and results of operations and reduce our ability to make distributions to unitholders.
All of the motor fuel we distribute is transported from motor fuel terminals to gas stations by third-party carriers. A change or shortage of transportation providers, a disruption in service or a significant change in our relationship or commercial terms with any of these transportation carriers could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders.
We are subject to federal, state and local laws and regulations that govern the product quality specifications of the motor fuel that we distribute and sell.
Various federal, state and local agencies have the authority to prescribe specific product quality specifications to the sale of commodities. Changes in product quality specifications, such as reformulated fuels mandates, reduced sulfur content in refined petroleum products or other more stringent requirements for fuels, could reduce our ability to procure products and result in a decrease to our sales volume, require us to incur additional handling costs, and/or require the expenditure of capital. If we are unable to procure product or recover these costs through increased sales, our ability to meet our financial obligations could be adversely affected. Failure to comply with these regulations could result in substantial penalties.
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Our motor fuel sales are generated under contracts that must be renegotiated or replaced periodically. If we are unable to successfully renegotiate or replace these contracts, then our business, financial condition and results of operations and ability to make distributions to unitholders could be adversely affected.
Our motor fuel sales are generated under contracts that must be periodically renegotiated or replaced. We may be unable to renegotiate or replace these contracts when they expire, and the terms of any renegotiated contracts may not be as favorable as the contracts they replace. Whether these contracts are successfully renegotiated or replaced is often times subject to factors beyond our control. Such factors include fluctuations in motor fuel prices, counterparty ability to pay for or accept the contracted volumes and a competitive marketplace for the services offered by us. If we cannot successfully renegotiate or replace our contracts or must renegotiate or replace them on less favorable terms, sales from these arrangements could decline, which could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders.
We rely on our information technology ("IT") systems, network infrastructure and software as a service providers to manage numerous aspects of our business, and a disruption of these systems could adversely affect our business, financial condition and results of operations and reduce our ability to make distributions to unitholders.
We depend on our IT systems, network infrastructure and software as a service providers to manage numerous aspects of our business and provide analytical information to management. These systems are an essential component of our business and growth strategies, and a serious disruption to them could significantly limit our ability to manage and operate our business efficiently. These systems may be vulnerable to, among other things, damage and interruption from power loss or natural disasters, computer system and network failures, loss of telecommunications services, physical and electronic loss of data, security breaches and computer viruses, which could result in a loss of sensitive business information, systems interruption or the disruption of our business operations. To protect against unauthorized access or attacks, we have implemented infrastructure protection technologies and disaster recovery plans, but there can be no assurance that a technology systems breach or systems failure, which may nonetheless occur and go undetected, will not have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders.
Our business and our reputation could be adversely affected by the failure to protect sensitive customer, Topper Group employee or the Partnership's vendor data, whether as a result of cyber security attacks or otherwise, or to comply with applicable regulations relating to data security and privacy.
In the normal course of our business as a motor fuel and merchandise retailer, we obtain large amounts of personal data, including banking information from our customers. While we have invested significant amounts in the protection of our IT systems and maintain what we believe are adequate security controls over individually identifiable customer, employee and vendor data provided to us, a breakdown or a breach in our systems that results in the unauthorized release of individually identifiable customer or other sensitive data could nonetheless occur.
Cyber-attacks are rapidly evolving and becoming increasingly sophisticated. A successful cyber-attack resulting in the loss of sensitive customer, Topper Group employee or the Partnership's vendor data could adversely affect our reputation, results of operations, financial condition and liquidity, and could result in litigation against us or the imposition of penalties. Moreover, a security breach could require that we expend significant additional resources to further upgrade the security measures that we employ to guard against cyber-attacks.
Further, complying with continually evolving regulations associated with the protection of credit and debit card information is costly and taking these measures does not necessarily provide an offsetting financial benefit to us. Failure to comply with these regulations could subject us or our dealers to fines or other regulatory sanctions (potentially including discontinuing operations) and potentially to lawsuits. Additionally, if we acquire a company that has violated or is not in compliance with applicable data protection laws, we may incur significant liabilities and penalties as a result. The cost of compliance and the ramifications of non-compliance could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders.
Any significant disruption to our service or access to our systems could adversely affect our business and results of operations. Further, a penetration of our systems or a third-party’s systems or other misappropriation or misuse of personal information could subject us to business, regulatory, litigation and reputation risk, which could have a negative effect on our business, financial condition and results of operations.
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Our debt levels and debt covenants may limit our flexibility in obtaining additional financing and in pursuing other business opportunities.
We have a significant amount of debt. As of December 31, 2024, we had $767.5 million of total debt and $68.9 million of availability under our revolving CAPL Credit Facility. Our level of indebtedness could have important consequences to us, including the following:
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our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired, or such financing may not be available on favorable terms;
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covenants contained in our credit facilities will require us to meet financial tests that may affect our flexibility in planning for and reacting to changes in our business, including possible acquisition opportunities;
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we will need a substantial portion of our cash flow to make interest payments on our indebtedness, reducing the funds that would otherwise be available for operations, future business opportunities and distributions to unitholders;
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