For Aplus, how is the excess of distributions declared over net income allocated to the partners?
Aplus Franchise · 2024 FDDAnswer from 2024 FDD Document
| Year Ended December 31, 2021 | |||||||
|---|---|---|---|---|---|---|---|
| Fuel Distribution and Marketing | All Other | Intersegment Eliminations | Totals | ||||
| Revenue | |||||||
| Motor fuel sales | $ 16,569 | $ | 583 | $ | 17,152 | ||
| Non-motor fuel sales | 82 | 224 | 306 | ||||
| Lease income | 127 | 11 | 138 | ||||
| Intersegment sales | 412 | — | (412) | — | |||
| Total revenue | $ 17,190 | $ | 818 | $ | (412) | $ | 17,596 |
| Net income and comprehensive income | $ | 524 | |||||
| Depreciation, amortization and accretion | 177 | ||||||
| Interest expense, net | 163 | ||||||
| Income tax expense | 30 | ||||||
| Non-cash unit-based compensation expense | 16 | ||||||
| Gain on disposal of assets | (14) | ||||||
| Unrealized gain on commodity derivatives | (14) | ||||||
| Loss on extinguishment of debt | 36 | ||||||
| Inventory adjustments | (190) | ||||||
| Equity in earnings of unconsolidated affiliates | (4) | ||||||
| Adjusted EBITDA related to unconsolidated affiliates | 9 | ||||||
| Other non-cash adjustments | 21 | ||||||
| Adjusted EBITDA | $ 672 | $ | 82 | $ | 754 | ||
| Capital expenditures | $ 131 | $ | 26 | $ | 157 | ||
| Total assets, end of period | $ 4,825 | $ | 990 | $ | 5,815 | ||
20. Net Income per Common Unit
Net income per common unit is computed by dividing common unitholders' interest in net income by the weighted average number of outstanding common units. Our net income is allocated to common unitholders in accordance with their respective partnership percentages, after giving effect to any priority income allocations for incentive distributions and distributions on employee unit awards. Earnings in excess of distributions are allocated to common unitholders based on their respective ownership interests.
Payments made to our common unitholders are determined in relation to actual distributions declared and are not based on the net income allocations used in the calculation of net income per unit.
In addition to the common units, we identify the IDRs as participating securities and use the two-class method when calculating net income per unit applicable to limited partners, which is based on the weighted average number of common units outstanding during the period. Diluted net income per unit includes the effects of potentially dilutive units on our common units, consisting of unvested phantom units.
Source: Item 22 — CONTRACTS (FDD page 68)
What This Means (2024 FDD)
According to Aplus's 2024 Franchise Disclosure Document, earnings exceeding distributions are allocated to common unitholders based on their respective ownership interests. This means that if Aplus distributes less cash than it earns as net income, the excess earnings are not simply retained by the company but are instead allocated to the unitholders (partners) in proportion to their ownership stake.
For a prospective Aplus franchisee, this allocation method has significant implications. It suggests that the value of their units can increase not only through cash distributions but also through the accumulation of retained earnings that are credited to their ownership stake. This could lead to a higher valuation of their investment over time.
However, it's important to note that the actual cash distributions are determined separately from these net income allocations. The payments to unitholders are based on declared distributions, not directly on the net income allocated to each unit. Therefore, while excess earnings enhance the value of the units, the immediate cash return depends on the distribution decisions made by Aplus.
In 2023, 2022, and 2021, Aplus had distributions declared less than net income. The distributions declared were $284, $277 and $275 respectively. The distributions (in excess of) less than net income were $27 in 2023, $120 in 2022 and $171 in 2021. The common unitholders' interest in net income was $311 in 2023, $397 in 2022 and $446 in 2021.