10-K 1 cstq42016form10k.htm 10-K Document


FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______________ to _______________
Commission File No. 001-35743
cst04.jpg
CST BRANDS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
 
46-1365950
(I.R.S. Employer Identification No.)
19500 Bulverde Road
Suite 100
San Antonio, Texas
(Address of Principal Executive Offices)
 
78259
(Zip Code)

(210) 692-5000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: Common stock, $0.01 par value per share listed on the 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 þ No o
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 o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule12b-2 of the Exchange Act. Large accelerated filer þ     Accelerated filer o     Non-accelerated filer o     Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
The aggregate market value of the voting and non-voting common stock held by non-affiliates was approximately $3.3 billion based on the last sales price quoted as of June 30, 2016 on the New York Stock Exchange, the last business day of the registrant’s most recently completed second fiscal quarter.
As of February 24, 2017, there were 75,786,728 common shares outstanding.
Documents Incorporated by Reference: None.





TABLE OF CONTENTS
 
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Commonly Used Defined Terms
The following is a list of certain acronyms and terms generally used in the industry and throughout this document:
 
CST Brands, Inc. and subsidiaries:
CST
CST Brands, Inc., a Delaware corporation and, where appropriate in context, to one or more of CST’s subsidiaries without the inclusion or consolidation of the operations or subsidiaries of CrossAmerica. CST includes CST’s ownership of 100% of the equity interests in the sole member of CrossAmerica GP LLC, 100% of the outstanding IDRs of CrossAmerica (as defined herein) and any common units of CrossAmerica owned by CST
Board of Directors
the Board of Directors of CST
We, us, our, Company
The consolidated results and accounts of CST and CrossAmerica, or individually as the context implies
CrossAmerica
CrossAmerica Partners LP, a Delaware limited partnership, and, where appropriate in context, one or more of its subsidiaries, or all of them taken as a whole
General Partner
CrossAmerica GP LLC, the General Partner of CrossAmerica
GP Board
The board of directors of the General Partner
CST Services
CST Services LLC
Guarantor Subsidiaries
CST’s 100% owned, domestic subsidiaries
CST Fuel Supply
CST Fuel Supply LP is the Parent of CST Marketing and Supply
CST Marketing and Supply
CST Marketing and Supply, LLC, a subsidiary of CST Fuel Supply, which provides wholesale fuel distribution to the majority of CST’s U.S. retail sites on a fixed markup per gallon
 
 
CrossAmerica Partners LP related and affiliated parties:
DMS
Dunne Manning Stores LLC (formerly known as Lehigh Gas-Ohio, LLC), an entity associated with Joseph V. Topper, Jr., a former member of the Board of Directors until his retirement in 2016, a member of the GP Board, and a related party. DMS is an operator of retail motor fuel stations. DMS leases retail sites from CrossAmerica in accordance with a master lease agreement with CrossAmerica and DMS purchases substantially all of its motor fuel for these sites from CrossAmerica on a wholesale basis under rack plus pricing
DMI
Dunne Manning Inc., an entity associated with Joseph V. Topper, Jr.
Predecessor Entities
Wholesale distribution business of Lehigh Gas-Ohio, LLC and real property and leasehold interests contributed to CrossAmerica in connection with its initial public offering
Topper Group
Joseph V. Topper, Jr., collectively with those of his affiliates and family trusts that have ownership interests in the Predecessor Entities, including DMI
Topstar
Topstar Enterprises, an entity associated with Joseph V. Topper, Jr. Topstar is an operator of retail sites that leases retail sites from CrossAmerica, but does not purchase fuel from CrossAmerica
 
 
Recent Acquisitions:
PMI
Petroleum Marketers, Inc., acquired by CrossAmerica in April 2014
Nice N Easy
Nice N Easy Grocery Shoppes, acquired by CrossAmerica and CST in November 2014
Landmark
Landmark Industries, acquired by CrossAmerica and CST in January 2015
Erickson
Erickson Oil Products, Inc., acquired by CrossAmerica in February 2015
One Stop
M&J Operations, LLC, acquired by CrossAmerica in July 2015
Flash Foods
Flash Foods, LLC and other entities acquired by CST from the Jones Company, a Georgia corporation, and certain other sellers in February 2016
Franchised Holiday Stores
The franchised Holiday stores acquired by CrossAmerica from S/S/G Corporation in March 2016
State Oil Assets
The assets acquired by CrossAmerica from State Oil Company in September 2016

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Other Defined Terms:
 
Amended Omnibus Agreement
The Amended and Restated Omnibus Agreement, dated October 1, 2014, as amended on February 17, 2016, by and among CrossAmerica, the General Partner, Dunne Manning Inc., DMS, CST Services and Joseph V. Topper, Jr., which amends and restates the original omnibus agreement that was executed in connection with CrossAmerica’s initial public offering on October 30, 2012
Antitrust Division
Antitrust Division of the United States Department of Justice
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
ATMs
Automated teller machines
Brent
Brent crude oil
BP
BP p.l.c.
Code
Internal Revenue Code of 1986, as amended
Conversion
The conversion of all outstanding subordinated units representing limited partner interests in CrossAmerica into common units on a one-for-one basis
Core-Mark
Core-Mark International
Couche-Tard
Alimentation Couche-Tard Inc. (TSX: ATD.A ATD.B)
CPG
Cents per gallon
CrossAmerica Plan
The Lehigh Gas Partners LP 2012 Incentive Award Plan
CST Plan
The 2013 CST Brands, Inc. Amended and Restated Omnibus Stock Incentive Plan
DTW
Dealer tank wagon contracts, which are variable cent per gallon priced wholesale motor fuel distribution or supply contracts; DTW also refers to the pricing methodology under such contracts
EBITDA
Earnings before interest, taxes, depreciation and amortization, a non-GAAP financial measure
Exchange Act
Securities Exchange Act of 1934, as amended
ExxonMobil
ExxonMobil Corporation
FASB
Financial Accounting Standards Board
Form 10-K
CST’s Annual Report on Form 10-K for the year ended December 31, 2016
FTC
United States Federal Trade Commission
GCC
U.S. Gulf Coast conventional gasoline
GP Purchase
CST’s purchase from Lehigh Gas Corporation of 100% of the membership interests in the sole member of Lehigh Gas GP LLC (now known as CrossAmerica GP LLC), the general partner of Lehigh Gas Partners LP, a publicly traded limited partnership, now known as CrossAmerica Partners LP (NYSE:CAPL), which occurred October 1, 2014
HSR Act
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
IDRs
Incentive Distribution Rights, which are partnership interests on CrossAmerica’s common units that provide for special distributions associated with increasing distributions. CST is the owner of 100% of the outstanding IDRs of CrossAmerica
IDR Purchase
CST’s purchase of all of the membership interests in limited liability companies formed by the 2004 Irrevocable Agreement of Trust of Joseph V. Topper, Sr. and the 2008 Irrevocable Agreement of Trust of John B. Reilly, Jr., which owned all of the IDRs in Lehigh Gas Partners LP
IRS
Internal Revenue Service
LIFO
The dollar-value, last-in, first-out method of accounting for motor fuel inventory in our U.S. Retail Segment
MD&A
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Merger
The merger of Ultra Acquisition Corp. with CST, with CST surviving the merger as a wholly owned subsidiary of Circle K Stores Inc. See Merger Agreement below

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Merger Agreement
Our Agreement and Plan of Merger (the “Merger Agreement”) entered into on August 21, 2016 with Circle K Stores Inc., a Texas corporation (“Parent”), and Ultra Acquisition Corp., a Delaware corporation and an indirect, wholly owned subsidiary of Parent (“Merger Sub”). Under and subject to the terms and conditions of the Merger Agreement, Merger Sub will be merged with and into CST, with CST surviving the Merger as a wholly owned subsidiary of Parent. Parent is a wholly owned subsidiary of Couche-Tard Inc.
Motiva
Motiva Enterprises LLC
NOL
Net operating loss
NTI
Our new to industry stores in our U.S. Retail and Canadian Retail segments opened after January 1, 2008, which is generally when we began designing and operating our larger format stores that accommodate broader merchandise categories and food offerings and have more fuel dispensers than our legacy stores
NYSE
New York Stock Exchange
NYHC
New York Harbor conventional gasoline
Partnership Agreement
the First Amended and Restated Agreement of Limited Partnership of CrossAmerica Partners LP, dated as of October 1, 2014, as amended
Plan Administrator
The CrossAmerica Plan is administered by the GP Board or a committee thereof
QSR
Quick service restaurants
Rack
The price at which a wholesale distributor generally purchases motor fuel from an integrated oil company or refiner at the terminal
Retail site
A general term to refer to convenience stores, including those operated by commission agents / dealers, independent dealers or lessee dealers and company operated sites, as well as cardlock locations
SEC
U.S. Securities and Exchange Commission
Securities Act
Securities Act of 1933, as amended
Second Request
A request for additional information and documentary material from the FTC received by us on November 16, 2016
Sobeys
Sobeys Québec Inc.
Spin-off
The separation and distribution of the retail business from Valero’s other businesses and the creation of an independent publicly traded company, CST, on May 1, 2013, to hold the assets and liabilities associated with Valero’s retail business from and after the distribution
U.S. GAAP
United States Generally Accepted Accounting Principles
UST
Underground storage tanks
Valero
Valero Energy Corporation (NYSE: VLO) and, where appropriate in context, one or more of its subsidiaries, or all of them taken as a whole
Valero Fuel Supply Agreements
The Branded Distributor Marketing Agreement, Petroleum Product Sale Agreement and Master Agreement CST entered into with Valero in connection with the Spin-off for the supply of motor fuel for its U.S. operations, and all amendments thereto
WTI
West Texas Intermediate crude oil

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CAUTIONARY STATEMENT FOR THE PURPOSE OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act, are made throughout this Form 10-K report. This Form 10-K report includes forward-looking statements, including in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, credit ratings, dividend growth, potential growth opportunities, potential operating performance improvements, potential improvements in return on capital employed, the effects of competition and the effects of future legislation or regulations. You can identify our forward-looking statements by the words “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “guidance,” “outlook,” “effort,” “target” and similar expressions. Such statements are based on management’s current views and assumptions, and involve risks and uncertainties that could affect expected results. These forward-looking statements include, among other things, statements regarding:
future retail gross profits, including gasoline, diesel, heating oil and convenience store merchandise gross profits;
our anticipated level of capital investments and the effect of these capital investments on our results of operations;
anticipated trends in the demand for, and volumes sold, of gasoline, diesel and heating oil globally and in the regions where we operate;
expectations regarding environmental, tax and other regulatory initiatives; and
the effect of general economic and other conditions on retail fundamentals.
The following factors related to the Merger or our Merger Agreement, among others, could cause actual results and events to differ materially from those expressed or implied in the forward-looking statements:
the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement;
the inability to satisfy the conditions specified in the Merger Agreement, including, without limitation, the receipt of necessary governmental or regulatory approvals required to complete the transactions contemplated by the Merger Agreement;
the risk that the Merger or covenants contained in the Merger Agreement disrupt current plans and operations, increase operating costs and the potential difficulties in customer loss and employee retention as a result of the announcement and consummation of such transactions;
the interim operating covenants and their limitations on incurrence of debt, capital expenditures, acquisitions and divestitures; and
the possibility that the Company may be adversely affected by other economic, business, and/or competitive factors.
Unless stated otherwise, all forward-looking information contained in this report does not take into account or give any effect to the impact of the proposed Merger but do take into account the restrictions and covenants of the Merger Agreement on our operations. In general, we based the forward-looking statements on our current expectations, estimates and projections about our company and the industry in which we operate. We caution you that these statements are not guarantees of future performance as they involve assumptions that, while made in good faith, may prove to be incorrect, and involve risks and uncertainties we cannot predict. In addition, we based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecasted in the forward-looking statements. Any differences could result from a variety of factors, including the following:
volatility and seasonality in crude oil, wholesale motor fuel costs and motor fuel sales;
political conditions in oil producing regions and global demand for oil;
competitive pressures from retail sites and other non-traditional retailers located in our markets;
changes in our customers’ behavior and travel as a result of changing economic conditions, labor strikes or otherwise;
increasing consumer preference for alternative motor fuel and improvements in fuel efficiency;
future legislation or campaigns to discourage smoking;

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our ability to comply with federal, provincial and state laws and regulations, including those related to environmental matters, the sale of alcohol, cigarettes and fresh foods, employment, health benefits, including the Affordable Care Act, immigration, and international trade;
significant increases in statutory minimum wage;
future regulations and actions that could expand the non-exempt status of employees under the Fair Labor Standards Act;
severe or unfavorable weather conditions;
dependence on senior management and the ability to attract and retain qualified employees;
inability to build or acquire and successfully integrate new retail sites;
fluctuations in the exchange rate between the United States and Canadian currencies;
dependence on Valero and other suppliers for motor fuel and merchandise;
dependence on suppliers, including Valero, for credit terms;
supply chain disruptions;
litigation or adverse publicity concerning food quality, food safety, other health concerns or compliance with franchise agreements related to our food product merchandise or restaurant facilities;
dangers inherent in storing and transporting motor fuel;
pending or future consumer, environmental or other litigation;
dependence on our IT systems and maintaining data security;
acts of terrorism or war;
our and CrossAmerica’s access to capital, credit ratings, debt and ability to raise additional debt or equity financing;
impairment of long-lived assets, intangible assets or goodwill;
our ability to comply with covenants in any credit agreements or other debt instruments and availability, terms and deployment of capital;
our business strategy and operations and potential conflicts of interest with CrossAmerica;
our ability to successfully integrate any acquisition we may make;
future income tax legislation;
a determination by the IRS that the Spin-off or certain related transactions should be treated as a taxable transaction;
the Merger or our Merger Agreement and the terms and conditions thereof;
regulatory review of the Merger in the U.S. and Canada;
litigation associated with the Merger Agreement; and
other unforeseen factors.
You should consider the areas of risk described above, as well as those set forth in the section entitled “Risk Factors” included elsewhere 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 projected results or events reflected in the forward-looking statements will be achieved or will occur. The forward-looking statements included in this report are made as of the date of this report. We undertake no obligation to publicly release any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events after the date of this report.

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ITEMS 1., 1A., and 2. BUSINESS, RISK FACTORS AND PROPERTIES
Overview
CST is a holding company and conducts substantially all of its operations through its subsidiaries. CST was incorporated in Delaware in 2012, formed solely in contemplation of the Spin-off and, prior to May 1, 2013, had not commenced operations and had no material assets, liabilities or commitments.
The address of CST’s principal executive offices is 19500 Bulverde Rd, Suite 100, San Antonio, Texas 78259, and our telephone number is (210) 692-5000. Our common stock trades on the NYSE under the symbol “CST.”
CST is one of the largest independent retailers of motor fuel and convenience merchandise in the U.S. and eastern Canada. Our retail operations include (i) the sale of motor fuel at retail sites, commission sites and cardlocks, (ii) the sale of food, convenience merchandise items and services at retail sites, and (iii) the sale of heating oil to residential customers and heating oil and motor fuel to small commercial customers in Canada.
On October 1, 2014, CST completed the GP Purchase and the IDR Purchase for $17 million in cash and approximately 2.0 million shares of CST common stock for an aggregate consideration of approximately $90 million. CST controls the General Partner of CrossAmerica and has the right to appoint all members of the GP Board. CrossAmerica is a separate publicly traded Delaware limited partnership primarily engaged in the wholesale distribution of motor fuel and the ownership and leasing of real estate used in the retail distribution of motor fuel. CrossAmerica also generates revenues from the operation of retail sites.
We are required to consolidate the financial results of CrossAmerica (see “CrossAmerica Segment” below). CST receives distributions from CrossAmerica as a result of its ownership of common units and the IDRs. As of February 24, 2017, we owned an approximate 19.8% limited partner interest in CrossAmerica.
The address of the principal executive offices of CrossAmerica is 515 Hamilton Street, Suite 200, Allentown, Pennsylvania 18101 and the telephone number is (610) 625-8000. CrossAmerica units trade on the NYSE under the symbol “CAPL.”
On a consolidated basis, we have three operating segments, U.S. Retail, Canadian Retail and CrossAmerica. The U.S. Retail, Canadian Retail and CrossAmerica segments are managed as individual strategic business units. Each segment experiences different operating income margins due to geographic supply and demand attributes, specific country and local regulatory environments, and are exposed to variability in gross profit from the volatility of crude oil prices.
Our segments consisted of the following sites as of December 31, 2016:
U.S. Retail1,167 company operated retail sites located in Arkansas, Arizona, Colorado, Florida, Georgia, Louisiana, New Mexico, New York, Oklahoma and Texas;
Canadian Retail884 retail sites located in New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island and Québec, which consisted of 314 company operated retail sites, 498 commission sites and 72 cardlocks; and
CrossAmerica—1,187 distribution sites located in 29 states (Arizona, Arkansas, Colorado, Delaware, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Virginia, West Virginia and Wisconsin), which consisted of 403 independent dealer sites, 153 sites operated by DMS, 420 sites operated by lessee dealers, 95 commission sites, 73 CrossAmerica company operated retail sites and 43 CST company operated retail sites in the U.S. Retail segment.
Recent Developments
Merger Agreement
On August 21, 2016, our Board of Directors unanimously approved, and we entered into, a definitive Merger Agreement with a subsidiary of Couche-Tard, under which, subject to the terms and conditions thereof, a U.S. subsidiary of Couche-Tard will acquire all of the shares of CST for $48.53 per share in cash, representing a total enterprise value of approximately $4.4 billion, including the assumption of net debt. CST’s stockholders approved the Merger Agreement at a special meeting of stockholders held November 16, 2016. The transaction is currently expected to close in the second quarter of 2017, subject to regulatory approvals in the United States and Canada. The Merger Agreement provides for interim operating covenants as set forth therein, which limit certain activities and operations of CST. On September 16, 2016, each of CST and Couche-Tard filed a premerger notification and report

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form under the HSR Act with the FTC and the Antitrust Division in connection with the Merger. Couche-Tard voluntarily withdrew its premerger notification and report form under the HSR Act on October 14, 2016, and re-filed its premerger notification and report form on October 17, 2016. The waiting period imposed by the HSR Act will expire 45 days after substantial compliance with the Second Request has been certified by all parties to the transaction that received a Second Request, unless that period is extended by court order or terminated earlier by the FTC.
On December 21, 2016, we entered into a timing agreement with the FTC pursuant to which we agreed, among other things, (i) not to consummate the Merger prior to 45 days after both we and Couche-Tard have substantially complied with the FTC’s Second Request, unless we and Couche-Tard have received prior written notice that the FTC has closed its investigation and (ii) not to certify compliance with the Second Request before January 31, 2017. Couche-Tard has informed us that it also entered into a timing agreement with the FTC on the same terms. We and Couche-Tard are continuing to work cooperatively with the FTC in its review of the proposed Merger.
See our Current Reports on Form 8-K filed with the SEC on August 23, 2016 and October 18, 2016, and our Definitive Proxy Statement filed with the SEC on October 11, 2016 for additional information, including risks associated with the Merger.
U.S. Retail—Acquisition of Flash Foods
In February 2016, we closed on the acquisition of Flash Foods for approximately $425 million plus working capital, assets under construction and other closing adjustments. Flash Foods operates 165 Flash Foods-branded retail sites located in Georgia and Florida (which sell Flash Foods-branded fuel), 21 branded QSRs, a land bank of 15 real estate sites to build NTIs, on which we have completed the construction of 3 NTIs, a merchandise distribution company with a 90,000 square foot distribution center that it operates in Georgia and a fuel supply company with access to the Colonial and Plantation pipelines, leased storage and a company-owned transportation fleet.
U.S. Retail—Sale of California and Wyoming Stores
In July 2016, CST consummated the sale of all 79 stores in the California and Wyoming markets to 7-Eleven, Inc. and its wholly-owned subsidiary, SEI Fuel Services, Inc. and recognized a gain of $347 million, or $220 million net of tax, which is included in our U.S. Retail segment. The closing purchase price for the transaction was $408 million plus adjustments for inventory and working capital.
CrossAmerica—Acquisition of Franchised Holiday Stores
On March 29, 2016, CrossAmerica closed on the acquisition of 31 Franchised Holiday Stores and three company operated liquor stores from S/S/G Corporation for approximately $52 million. Of the 34 company operated retail sites, 31 are located in Wisconsin and three are located in Minnesota.
CrossAmerica—Acquisition of State Oil Assets
In September 2016, CrossAmerica acquired certain assets of State Oil Company located in the greater Chicago market for approximately $42 million.
Available Information
Our internet website is www.CSTBrands.com. Information on our website is not part of this annual report. Annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K filed with (or furnished to) the SEC are available on our website free of charge, soon after such material is filed or furnished. In this same location, CST also posts its corporate governance guidelines, code of ethics and business conduct and the charters of the committees of the Board of Directors. These documents are available in print to any stockholder that makes a written request to CST Brands, Inc. Attn: Corporate Secretary, 19500 Bulverde Road, Suite 100, San Antonio, Texas 78259.
CrossAmerica’s internet website is www.crossamericapartners.com. Information on this website is not part of this annual report. Annual reports on CrossAmerica’s Form 10-K, quarterly reports on its Form 10-Q and its current reports on Form 8-K filed with (or furnished to) the SEC are available on this website free of charge, soon after such material is filed or furnished. In this same location, CrossAmerica also posts its corporate governance guidelines, code of ethics and business conduct and the charters of the committees of the GP Board. These documents are available in print to any unitholder that makes a written request to CrossAmerica Partners L.P. Attn: Corporate Secretary, 515 Hamilton Street, Suite 200, Allentown, Pennsylvania 18101.
Operations
With 2016 revenues of $11.1 billion, we are one of the largest independent retail and wholesale distributors of motor fuel, convenience merchandise and services in North America. Our operations include retail sites and dedicated wholesale motor fuel

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supply businesses in the U.S. and Canada that sell motor fuel primarily to our retail sites. Subsequent to the GP Purchase, we control the operations of CrossAmerica, which is primarily 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 believe CST and CrossAmerica have a strong combined footprint with over 3,200 retail sites throughout 30 states in the U.S. and six provinces in eastern Canada. Our Corner Store and Corner Store Market convenience store brands in the U.S. Retail segment sell primarily Valero branded motor fuel brand and signature products such as Fresh Choices baked goods and Corner Store branded packaged goods. In Canada, we are the exclusive provider of Ultramar motor fuel also primarily purchased from Valero. Our Dépanneur du Coin convenience store brand (in Québec) and Corner Store convenience store brand (in English speaking provinces), sell signature Transit Café coffee and pastries and Corner Store branded packaged goods. CrossAmerica distributes motor fuel at approximately 1,200 retail sites located in 29 states.
CST’s retail sites in the U.S. and Canada sold approximately 2.1 billion and 1.0 billion gallons of branded and unbranded motor fuel, respectively, directly to the public during 2016. Our CrossAmerica segment distributed approximately 1.0 billion gallons during 2016.
We maintain wholesale motor fuel supply businesses in our U.S. Retail and Canadian Retail segments, which purchase motor fuel under long-term supply contracts, primarily from Valero. These businesses primarily sell motor fuel to our retail sites, where it is sold primarily under the Valero, Diamond Shamrock and Ultramar brands. CrossAmerica also sells motor fuel to a limited number of retail sites in our U.S. Retail segment. CrossAmerica purchases branded and unbranded motor fuel from major integrated oil companies, refiners and unbranded motor fuel suppliers, which provide diversity to our overall motor fuel supply.
Our business strategy is focused on the following key initiatives:
growing organically through the construction of NTIs;
We intend to build a substantial number of NTIs over the next five years as part of our organic growth plan.
To help fund the NTI organic growth program, we expect to leverage our “sponsored MLP” relationship with CrossAmerica, whereby certain CST assets, such as its U.S. Retail wholesale motor fuel supply business, can be sold to CrossAmerica for cash and/or limited partner equity consideration when favorable market conditions exist and pending approval by the GP Board independent conflicts committee and the approval of the executive committee of the Board of Directors and mutual agreement upon terms and other conditions. The Merger Agreement prohibits, among other things, CST from selling its tangible and intangible properties or assets to CrossAmerica between August 21, 2016 and completion of the Merger. As such, there can be no assurance we will be able to sell equity interests in CST Fuel Supply in the future.
growing our business in existing and new geographic locations through third party acquisitions;
We have completed $784 million of combined acquisition growth with CrossAmerica since the GP Purchase.
In addition, the closing of the Flash Foods transaction represents CST’s largest acquisition to date and provides us with access to new markets while growing our business in Georgia and Florida.
developing and expanding our wholesale fuel distribution business;
improving our convenience store profits by developing our convenience store brands in order to grow the number of customers in our stores and maximizing our merchandise gross profit margin.



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Our Ownership Structure of CrossAmerica
The following condensed and summarized organization chart depicts the ownership structure between CST and CrossAmerica. This chart is not meant to be a complete depiction of the legal structure of CST’s entities. Ownership interests are as of December 31, 2016.
caplownership2016a01.jpg
Sale of CST Fuel Supply Equity Interests
In January 2015 and July 2015, we closed on the sale of a 5% and 12.5%, respectively, limited partner equity interest in CST Fuel Supply to CrossAmerica in exchange for aggregate consideration of $171 million, including 4.8 million common units of CrossAmerica and cash in the amount of $18 million. As of February 24, 2017, CrossAmerica’s total equity interest in CST Fuel Supply is 17.5%.
Sale and Lease Back of NTIs
In July 2015, we completed the contribution and sale of 29 NTIs to CrossAmerica in exchange for an aggregate consideration of $134 million on the date of closing, including 0.3 million common units of CrossAmerica and cash in the amount of $124 million. CrossAmerica leased the real property associated with the NTIs back to us and we continue to operate the sites pursuant to a triple net lease at a lease rate of 7.5%, per annum, of the fair value of the property at lease inception.
U.S. Retail Segment
Our U.S. Retail segment operations are substantially a company-owned and operated convenience store business. We generate profit on motor fuel sales, food sales and sales of convenience merchandise and services (car wash, lottery, money orders, air/water/vacuum services, video and game rentals, and access to ATMs). Our retail sites are operated by CST employees.

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The following chart depicts how motor fuel and convenience merchandise items are procured and distributed to our retail sites:
usretail2016.jpg
Wholesale Fuel Business
Within the U.S. Retail segment, we have a wholesale fuel business created principally to supply our company owned and operated retail sites. Our U.S. Retail segment sold 2.1 billion, 1.9 billion and 1.9 billion gallons of motor fuel (purchased primarily from Valero) during the years ended December 31, 2016, 2015 and 2014, respectively. We are the general partner of CST Fuel Supply and control it. CST Fuel Supply owns 100% of the issued and outstanding membership interests in CST Marketing and Supply LLC, which is a party to the Valero Fuel Supply Agreements. CST Marketing and Supply LLC purchased over 99% of its motor fuel from Valero in 2016. As of February 24, 2017, CrossAmerica owns 17.5% of CST Fuel Supply.
Our retail sites purchase substantially all of their motor fuel from CST Fuel Supply at a price reflecting product delivered cost plus a profit margin of approximately $0.05 per gallon. Our retail sites will purchase, for at least 8 years, no less than 1.57 billion gallons annually of branded and unbranded motor fuel from CST Fuel Supply. Motor fuel is purchased as needed to replenish supply at our retail sites. In addition to Valero branded motor fuel, CST Fuel Supply also supplies Phillips 66 branded motor fuel to six of our retail sites and Exxon branded motor fuel to one of our retail sites. CST Fuel Supply provides unbranded motor fuel to seven of our retail sites.
CrossAmerica supplies motor fuel to certain of our retail sites in New York state acquired in the Nice N Easy acquisition and 22 of our retail sites in San Antonio under the Shell brand acquired in the Landmark acquisition.
Company Operated Retail Sites
As of December 31, 2016, our company operated retail sites consisted of 1,167 retail sites, of which 880 were owned sites and 287 were leased sites. Our convenience store buildings average approximately 2,900 square feet and carry a broad selection of food, beverages, snacks, grocery and non-food merchandise. In 2016, CST took a strategic approach to executing many new marketing initiatives as well as building on existing successful programs to differentiate the Corner Store brand. With the growth of our large store format NTI program, we introduced an expanded fresh food offering (fresh pizza, salads, wraps and sandwiches)

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to 10 new builds in the U.S. and 5 in Canada in 2016. We also widened our private label packaged food offering in both the U.S. and Canadian networks and updated the entire line of products with fresh and relevant brand packaging. At the end of 2015, we piloted the new Corner Store brand image and operational value proposition in a group of legacy stores in a micro market in South San Antonio. Each of these marketing efforts is aimed at increasing top line revenues, expanding margins, and providing a long term growth opportunity for the Company. We continue to offer automated car wash services at 257 of our retail sites and also have QSRs at 60 of our retail sites.
We have an agreement with Core-Mark, which is a leading grocery and merchandise wholesale distributor, to provide us with merchandising expertise, purchasing power and efficient distribution services in our U.S. Retail segment. We own a 426,000 square-foot distribution center in San Antonio, Texas, of which we use 249,000 square feet and lease the remainder, that supplies 636 of our retail sites in Texas, provides us with improved inventory management, allows us to handle a greater product variety, and supports the development and growth of our private label packaged goods and fresh food programs. Core-Mark operates our distribution center on our behalf under a management agreement and we own the distribution center’s inventory. We also pay Core-Mark a license fee for use of proprietary software used in operating the center.
We own a 90,000 square-foot distribution center in Alma, Georgia, that supplies 167 Flash Foods retail sites, provides us with improved inventory management, allows us to handle a greater product variety, and supports the development and growth of our private label merchandise offerings. Our employees manage and operate the distribution center and we own the distribution center’s inventory. In addition, we own proprietary software used in operating the center.

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Canadian Retail Segment
Our Canadian Retail segment includes company operated retail sites, commission sites, cardlocks and business and home energy operations located in Canada. Our Canadian Retail segment sold 1.0 billion gallons of Ultramar branded motor fuel (purchased primarily from Valero) during each of the years ended December 31, 2016, 2015 and 2014. Most of our retail sites are located in metropolitan areas where there are high concentrations of consumers and daily commuters. Of these retail sites, 304 are owned and 580 are leased under leases that generally contain renewal options for periods ranging from five to ten years.
The following chart depicts how motor fuel and convenience merchandise items are procured and distributed to our retail sites:
canadaretail2016a01.jpg
Wholesale Fuel Business
Within our Canadian Retail segment, we have a wholesale fuel business that purchases substantially all of our motor fuel from Valero at “per-terminal,” market-based prices. Our wholesale motor fuel business in Canada purchased approximately 93.5% of its fuel from Valero in 2016. In addition to Valero, we purchase motor fuel from other suppliers including Shell and Imperial Oil. Motor fuel is purchased as needed to replenish supply at our retail locations. The cost of motor fuel purchased and used by the downstream operators of the segment does not include a mark-up because 100% of the purchased motor fuel is sold to wholly owned and controlled related entities.

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Company Operated Retail Sites
As of December 31, 2016, our Canadian company operated retail sites consisted of 314 retail sites, of which 193 were owned sites and 121 were leased sites. In this network, we retain the gross profits on motor fuel sales, food sales and merchandise sales and services, and the retail sites are operated by Company employees. Our Company owned and operated convenience store buildings average approximately 2,100 square feet.
Our Canadian retail operation sells primarily Ultramar-branded motor fuel, food and convenience merchandise items and other services through retail sites operated predominantly under the Corner Store brand (in English speaking provinces) and Dépanneur du Coin brand (in Québec). We operate in six provinces in eastern Canada, with a significant concentration in Québec.
Our retail sites carry a broad selection of immediately consumable and take-home items, including beverages, tobacco products, snacks, freshly prepared and pre-packaged foods (including sandwiches, salads, pastries and coffee), motor oils and automotive products and general convenience merchandise items. At some of our retail sites, we offer a variety of additional products and services, such as car wash, lottery, air/water/vacuum services for motor vehicles and access to ATMs. We offer automated car wash services at 95 of our retail sites. We have QSRs at 50 of our retail sites.
For grocery supply, we have an agreement with Sobeys, which is a leading grocery wholesale distributor in eastern Canada. Sobeys provides our Canadian Retail segment with merchandising expertise, purchasing power and efficient distribution services.
Commission Sites
As of December 31, 2016, we had 498 commission sites. At these locations, we own and control the retail motor fuel activity at the site and we retain the gross profits on motor fuel sales. The convenience store operations at commission sites are owned by third parties. We pay these operators a “commission” based on gallons sold to compensate the operator for their motor fuel selling costs. Our commission sites consist of the following:
413 dealers, where each retail site is typically owned and operated by an independent dealer, and
85 agents, where each retail site is generally owned by us but leased and operated by an independent agent.
Cardlock
As of December 31, 2016, we had 72 cardlock sites. Cardlocks are unattended self-service fueling stations that provide motor fuel to fleet customers, such as trucking and other commercial customers. Generally, we own or lease the site and we retain the gross profit on motor fuel sales at these retail sites.
Business and Home Energy
We supply heating oil to residential customers and heating oil and motor fuel to commercial customers under the Ultramar and Esso brands. Operating revenues from these sales were less than 5% of consolidated operating revenues for the years ended December 31, 2016, 2015 and 2014. These operations are immaterial to our overall results; therefore, they are included within the Canadian Retail segment.
CrossAmerica Segment
As a result of the GP Purchase, we control CrossAmerica’s General Partner and have the right to appoint all members of the GP Board. CrossAmerica is managed and operated by the GP Board and executive officers appointed by the General Partner. Therefore, we control the operations and activities of CrossAmerica even though we do not own a majority of CrossAmerica’s outstanding limited partner units. Under U.S. GAAP, per the guidance in ASC 805–Consolidation, we consolidate the financial results of CrossAmerica with our financial results.
CrossAmerica’s primary business objective is to generate sufficient cash flows from operations to make quarterly cash distributions to its unitholders and, over time, to increase its quarterly cash distributions. The amount of any distribution however, is subject to the discretion of the GP Board, and the GP Board may modify or revoke the cash distribution policy at any time. CrossAmerica’s partnership agreement does not require it to pay any distributions.
CrossAmerica generates cash flows primarily from the wholesale distribution of motor fuel. Gross profits are generated primarily by a per gallon mark-up that is either fixed or variable per gallon, depending on the contract terms. A component of CrossAmerica’s motor fuel gross profit is the discount for prompt payment and other rebates and incentives offered by its suppliers. Prompt payment discounts from suppliers are based on a percentage of the purchase price of motor fuel and the dollar value of the discounts varies with motor fuel prices. CrossAmerica distributes motor fuel to lessee dealers, independent dealers, DMS, CST’s U.S. Retail Segment and sub-wholesalers, as well as its retail commission sites and company operated retail sites. CrossAmerica distributes

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branded motor fuel under the Exxon, Mobil, BP, Shell, Chevron, Sunoco, Valero, Gulf, Citgo, Marathon and Phillips 66 brands to its customers. Branded motor fuels are purchased from major integrated oil companies and refiners under supply agreements. CrossAmerica receives a fixed mark-up per gallon with its dealer customers on approximately 87% of its gallons sold (based on 2016 volumes) while receiving a variable mark-up on remaining gallons sold. CrossAmerica receives a variable rate mark-up per gallon on the remaining gallons sold.
CrossAmerica owns and leases real and personal property that it leases or subleases to related parties and third parties to generate cash flows (collectively “real estate activities”). CrossAmerica also generates revenues from the retail sale of motor fuel and the operation of retail sites.
The following chart depicts how motor fuel is procured and distributed to CrossAmerica’s customer groups and how convenience merchandise items are procured and distributed to its company owned and operated retail sites. The chart also depicts the relationship of CrossAmerica’s real estate business to its retail sites.
caplwholesale2016cst.jpg
For the year ended December 31, 2016, our CrossAmerica segment distributed motor fuel through the following customer groups:
Independent dealers—CrossAmerica contracts to exclusively distribute motor fuel to the dealer. The dealer owns the property, all motor fuel and convenience store inventory.
DMS—sites owned or leased by CrossAmerica and operated by DMS, where CrossAmerica owns or leases the property and then leases or subleases the site to DMS. CrossAmerica collects rent income from DMS and DMS owns all motor fuel and convenience store inventory and owns retail motor fuel profits and convenience store profits.
Lessee dealers—sites owned or leased by CrossAmerica and operated by lessee dealers, where CrossAmerica owns or leases the property and then leases or subleases the site to a dealer. The dealer owns all motor fuel and convenience store items and retains retail motor fuel profits and convenience store profits.
Commission sites—sites owned or leased by CrossAmerica and operated by commission agents, where CrossAmerica owns or leases the site to the commission agent, who pays rent to CrossAmerica and operates all the non-fuel related operations at the sites for its own account. CrossAmerica owns the motor fuel inventory at the sites and generates revenue from the retail sale of motor fuel to the end customer. CrossAmerica pays the commission agent a commission for each gallon of motor fuel sold at the site.
Company operated retail sites—convenience stores owned or leased and operated by CrossAmerica.

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CST’s U.S. Retail Segment (Nice N Easy and Landmark)—43 sites operated by CST, all of which are owned by CrossAmerica.
CrossAmerica also generates revenues through leasing or subleasing real estate (real estate activities). CrossAmerica owns or leases real and personal property and it leases or subleases to tenants, the substantial majority of which are wholesale customers as described above. Approximately 57% of the sites to which CrossAmerica distributes motor fuel are owned or leased by CrossAmerica. In addition, CrossAmerica has agreements requiring the operators of these sites to purchase motor fuel from CrossAmerica.
Market and Industry Trends
We operate within the large and growing convenience store industry, which is highly fragmented. We believe we benefit from several key market and industry trends and characteristics, including:
“small box” retailers, such as convenience stores, meet consumers’ demand for speed and convenience in daily shopping needs;
continuing shift of consumer food and general merchandise purchases away from traditional supermarkets and QSRs to convenience stores, hypermarkets and drug stores;
changing consumer demographics and eating patterns resulting in more food consumed away from home;
highly fragmented nature of the industry providing larger chain operators with significant scale advantage; and
continued opportunities to compete more effectively and grow through acquisitions as a result of continued industry consolidation.
Supplier Arrangements
Merchandise Supply
We have strong relationships with merchandise suppliers resulting from our high volume purchases, allowing us to negotiate preferred prices. Through our distribution center and private label products, we believe we have a strategic advantage over our peers in terms of product knowledge and pricing.
Motor Fuel Supply
Under the Valero Fuel Supply Agreements and the Petroleum Product Supply Agreement in Canada, we purchase a substantial portion of our motor fuel from Valero at “per-terminal,” market based prices.
CrossAmerica purchases branded and unbranded motor fuel from major integrated oil companies, refiners and unbranded fuel suppliers.
We take legal title to the motor fuel when we receive it at the rack and generally arrange for a third-party transportation provider to take delivery of the motor fuel at the rack and deliver it to the appropriate retail sites in our network.
Competition
The convenience store industry is highly competitive and marked by ease of entry and constant change in the number and type of retailers offering products and services of the type we sell in our retail sites. We compete with other convenience store chains, independently owned retail sites, motor fuel stations, supermarkets, drugstores, discount stores, dollar stores, club stores and hypermarkets. Over the past ten years, several non-traditional retailers, such as dollar stores, supermarkets, club stores and hypermarkets, have impacted the convenience store industry, particularly in the geographic areas in which we operate, by entering the motor fuel retail business. These non-traditional motor fuel retailers have captured a significant share of the retail motor fuel market, and we expect their market share will continue to grow. In addition, some retailers in other channels are adjusting their store layouts and product prices in an attempt to appeal to convenience store customers. Major competitive factors include, among others, location, ease of access, product and service selection, motor fuel brands, pricing, customer service, store appearance, cleanliness and perception of safety.
CrossAmerica’s wholesale motor fuel distribution business competes with other motor fuel distributors, which is also highly competitive. CrossAmerica may encounter more significant competition if major integrated oil companies alter their current business strategies and decide to re-enter the wholesale motor fuel distribution business, thereby reducing and/or eliminating their need to rely on wholesale motor fuel distributors. In addition, independent dealers or sub-wholesalers may choose to purchase

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their motor fuel supplies directly from the major integrated oil companies in certain geographic regions. Major competitive factors for CrossAmerica include, among others, customer service, price and quality of service.
Seasonality
Our business exhibits substantial seasonality due to the concentration of our retail sites in certain geographic areas, as well as changes in consumer behaviors during different seasons. In general, sales volumes and operating income are highest in the second and third quarters during the summer activity months and lowest during the winter months.
Trade Names, Service Marks and Trademarks
Our U.S. Retail and Canadian Retail segments sell motor fuel primarily under the Valero and Diamond Shamrock brands in the U.S. and primarily under the Ultramar brand in Canada, all of which are trademarks owned by Valero. The Valero Fuel Supply Agreements contain customary language granting us the right of non-exclusive use of the Valero-owned trademarks throughout the terms of those agreements. The fuel supply agreements in Canada provide for exclusive use of the Ultramar trademarks.
The Corner Store trademark and a number of other registered trademarks and service marks used in this annual report are the sole property of CST or its subsidiaries. Each trademark, trade name or service mark of any other company appearing in this Form 10-K is owned by such company.
CrossAmerica is a wholesale distributor of motor fuel for various major integrated energy companies and is licensed to resell/market 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, provincial, 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, the generation, storage, handling, use, transportation 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 our employees. We incorporate by reference into this section our disclosures included in Note 2 under the captions “Environmental Matters” and “Asset Retirement Obligations” and Note 11 under the caption “Asset Retirement Obligations” of the notes to the consolidated financial statements included elsewhere in this annual report.
Employees
As of December 31, 2016, we employed 10,700 persons in our U.S. Retail segment, of which approximately 62% were full-time employees. Approximately 93% of our U.S. employees work in our retail sites and 7% work in our corporate or field offices.
As of December 31, 2016, we employed 3,711 persons in our Canadian Retail segment, of which approximately 60% were full-time employees. Approximately 85% of our Canadian employees work in our retail sites and 15% work in our corporate or field offices.
The General Partner manages the operations and activities of CrossAmerica. Pursuant to the Amended Omnibus Agreement, employees of CST provide management services to CrossAmerica. As of December 31, 2016, pursuant to the Amended Omnibus Agreement, 87 employees of CST provide management services to CrossAmerica.
As of December 31, 2016, CrossAmerica employed 744 persons who provide services to its retail operations.



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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, the trading price of our common stock could decline and you could lose all or part of your investment. Also, please read “Cautionary Statement For the Purpose of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995” included elsewhere in this Form 10-K.
Risks Relating to Our Pending Merger Agreement
Risks associated with the pending Merger may adversely affect our business, financial performance and stock price. Potential risks and uncertainties related to the Merger include, among others:
the inability to consummate the Merger in a timely manner or at all, including due to the inability to obtain or delays in obtaining the necessary regulatory approvals, or satisfaction of other conditions to the closing of the Merger;
the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement;
potential adverse effects on our vendor and customer relationships, operating results and business generally resulting from the announcement and pendency of the Merger;
risks related to our ability to retain or recruit key talent as a result of the Merger;
costs, fees, expenses and charges related to or triggered by the Merger;
the initiation or outcome of any legal proceedings or regulatory proceedings that have or may be instituted against us relating to the Merger;
limitations on the operation and management of the business due to the interim operating covenants in the Merger Agreement including the payment of dividends and issuance or repurchases of common stock (other than for equity plans of the Company); and
other risks detailed in our Definitive Proxy Statement filed with the SEC on October 11, 2016.
Failure to comply with the covenants and agreements in the Merger Agreement may adversely affect our business, financial performance and stock price. The Merger Agreement contains covenants and agreements, including, among others:
conduct of the business pending the Merger;
access to our facilities;
no solicitation of alternative proposals;
financing of the Merger;
employee matters;
efforts to complete the Merger;
indemnification and insurance;
coordination on litigation; and
public announcements relating to the Merger.
Risks Relating to Our Industry and Our Business
Volatility in crude oil and wholesale motor fuel costs, seasonality in those costs and seasonality in motor fuel sales volumes and merchandise sales affect our operating results and cash flows.
For the year ended December 31, 2016, motor fuel revenue accounted for 77% of total revenues and motor fuel gross profit accounted for 43% of total gross profit. The retail sales prices for our motor fuel are substantially impacted by the price we pay for wholesale motor fuel. Wholesale motor fuel costs are directly related to the price of crude oil and are volatile. General political conditions, acts of war or terrorism, instability in oil producing regions, particularly in the Middle East and South America, and the value of U.S. or Canadian dollars relative to other foreign currencies, particularly those of oil producing nations, could significantly affect crude oil prices and, consequently, wholesale motor fuel costs. In addition, the supply of motor fuel and our wholesale purchase costs could be adversely affected in the event of a shortage, which could result from, among other things, interruptions of fuel production at oil refineries, sustained increase or decrease in global demand or the fact that our motor fuel contracts do not guarantee an uninterrupted, unlimited supply of motor fuel.

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Significant increases and volatility in wholesale motor fuel costs could result in an increase in the retail price of motor fuel. Increases in the retail price of motor fuel could impact consumer demand for motor fuel and convenience merchandise. Dramatic increases in oil prices reduce retail motor fuel gross profits, because wholesale motor fuel costs typically increase faster than retailers are able to pass them along to customers. Correspondingly, significant decreases in oil prices and the corresponding decreases in wholesale motor fuel sales prices can result in higher fuel margins. 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. 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.
Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Overview—The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit” and “—Results of Operations.”
Furthermore, oil prices, wholesale motor fuel costs, motor fuel sales volumes, motor fuel gross profits and merchandise sales can be subject to 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 motor fuel volumes 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 flows.
The convenience store industry is highly competitive, and new entrants or increased competition could result in reduced gross profits.
The convenience store industry in the geographic areas in which we operate is highly competitive and marked by ease of entry and constant change in the number and type of retailers offering the products and services found at our 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 recent years, several non-traditional retailers, including supermarkets and club stores, have begun to compete directly with convenience stores, particularly in the sale of motor fuel. These non-traditional motor fuel retailers have obtained a significant share of the motor fuel market, and their market share is expected to grow, and these retailers may use promotional pricing or discounts, both at the fuel pump and in the store, to encourage in-store merchandise sales and motor fuel sales. Some of our competitors have been in existence longer than us and have greater financial, marketing and other resources than we do. Some of our competitors operate under a different business model than we do. As a result, our competitors may be able to respond better to changes in the economy and new opportunities within the industry.
Changes in credit or debit card expenses could reduce our gross profit, especially on motor fuel.
A significant portion of our sales 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 would have a similar effect. Therefore, credit and debit card fees charged on motor fuel purchases are more expensive as a result of higher motor fuel prices. Such fees may cause even 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 and results of operations.
General economic conditions that are largely out of our control may adversely affect our financial condition and results of operations.
Recessionary economic conditions, higher interest rates, higher motor fuel and other energy costs, inflation, increases in commodity prices, 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 products 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 can lead to sales declines in both motor fuel and general merchandise, and in turn have an adverse impact on our business, financial condition and results of operations.

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Changes in our consumer behavior and travel as a result of changing economic conditions, labor strikes or otherwise could affect our business.
In the convenience store 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 items. In addition, changes in the types of products and services demanded by consumers or labor strikes in the construction industry or other industries that employ customers who visit our stores, may adversely affect our sales and gross profit. Additionally, negative publicity or perception surrounding motor fuel suppliers could adversely affect their reputation and brand image, which may negatively affect our motor fuel sales and gross profit. Similarly, advanced technology and increased use of “green” automobiles (e.g., those automobiles that do not use petroleum-based motor fuel or that are powered by hybrid engines) 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 will positively impact overall gross profit.
Legal, technological, political and scientific developments regarding climate change and fuel efficiency may decrease demand for motor fuel.
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. Government efforts to steer the public toward non-petroleum-based fuel dependent modes of transportation may foster a negative perception toward motor fuel or increase costs for our product, thus affecting the public’s attitude toward our major product. 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. 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 and results of operations.
Future tobacco legislation, campaigns to discourage smoking, increased use of tobacco alternatives, increases in tobacco taxes and wholesale cost increases of tobacco products could have a material adverse impact on our operating revenues and gross profit.
Sales of tobacco products have historically accounted for a significant portion of our total sales of convenience store merchandise. Increases in wholesale cigarette costs and tax increases on tobacco products, as well as future legislation, national and local campaigns to discourage smoking in the U.S. and Canada, and increased use of tobacco alternatives such as electronic cigarettes, may have an adverse effect on the demand for tobacco products, and therefore reduce our revenues and profits. Competitive pressures in our markets can make it difficult to pass price increases on to our customers. These factors could materially and adversely affect our retail price of cigarettes, cigarette unit volume and sales, merchandise gross profit and overall customer traffic. Reduced sales of tobacco products or smaller gross profits on the sales we make could have a material adverse effect on our business, financial condition and results of operations.
Currently, major cigarette manufacturers offer substantial rebates to retailers. We include these rebates as a component of our gross profit. In the event these rebates are no longer offered, or decreased, our profit from cigarette sales will decrease accordingly. In addition, reduced retail display allowances on cigarettes offered by cigarette manufacturers negatively affect gross profits. These factors could materially affect our retail price of cigarettes, cigarette unit volume and revenues, merchandise gross profit and overall customer traffic, which could in turn have a material adverse effect on our business, financial condition and results of operations.
We are subject to extensive government laws and regulations, and the cost of compliance with such laws and regulations can be material.
Our business and properties are subject to extensive local, state, provincial and federal governmental laws and regulations relating to, among other things, environmental conditions, the sale of alcohol, tobacco and money orders, employment conditions, including minimum wage requirements, and public accessibility requirements. The cost of compliance with these laws and regulations could have a material adverse effect on our operating results and financial condition. In addition, failure to comply with local, state, provincial 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, provincial, state or local laws limit the retail sites’ hours of operation or restrict the sale of alcoholic beverages, tobacco products, possible inhalants and lottery tickets, in particular to minors. Moreover, in

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some markets, we are subject to price regulation on products such as gasoline, heating oil, milk, beer and wine. Failure to comply with these laws could adversely affect our revenues and results of operations because these provincial, 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.
Regulations related to wages also affect our business. In addition, if a portion of our workforce were to create or become part of a labor union, we could be forced to increase our compensation levels in order to avoid work disruptions or stoppages. Any appreciable increase in the statutory minimum wage, unionization or changes in qualified/non-qualified criteria of our workforce could result in an increase in our labor costs and such cost increase, or the penalties for failing to comply with such statutory minimums, could adversely affect our business, financial condition and results of operations.
Further, U.S. health care reform legislation requires us to provide additional health insurance benefits to our employees, or health insurance coverage to additional employees, and has increased our costs.
Any changes in the laws or regulations described above that are adverse to us, our operations, or our properties could affect our operating and financial performance. In addition, new regulations are proposed from time to time which, if adopted, could have a material adverse effect on our operating results and financial condition.
We are subject to extensive federal, provincial, state and local environmental laws.
Our operations are subject to a variety of environmental laws and regulations, including those relating to emissions to the air, discharges into water, releases of hazardous and toxic substances and remediation of contaminated sites. Under various federal, provincial, state and local laws and regulations, 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 convenience store 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.
In the U.S., 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 current and historic 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.
We are subject to extensive environmental laws and regulations regulating USTs and vapor recovery systems. Compliance with existing and future environmental laws regulating such tanks and systems may require significant expenditures. In the U.S., 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 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 could materially, adversely affect our financial condition and results of operations. We can make no assurance that these funds or responsible third parties are or will continue to remain viable. See Note 14 of the notes to consolidated financial statements included elsewhere in this Form 10-K under the caption “Litigation Matters” for a discussion of certain allegations made against us related to the remediation activities of USTs.
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 existing locations or locations that 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 any environmental regulations or an increase in regulations could materially and adversely affect our operating results and financial condition.

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Severe or unfavorable weather conditions in the regions in which we operate could adversely affect our business.
Our retail sites are located in regions throughout the U.S. and Canada, with a concentration of company operated retail sites in Texas and Quebec. Certain regions are susceptible to certain severe weather events, such as hurricanes, severe thunderstorms, snowstorms, tornadoes and extreme heat and cold. Inclement weather conditions could damage our facilities, our suppliers or could have a significant impact on consumer behavior, travel and convenience store 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. Besides these more obvious consequences of severe weather, our ability to insure these locations and the related cost of such insurance may also affect our business, financial condition and results of operations.
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 convenience store and field managers. If we fail to attract and retain these individuals at reasonable compensation levels, our operating results may be adversely affected.
Our convenience store growth and improvement strategies require significant resources, which, if they are not completed successfully, may divert our resources from more productive uses and harm our financial results.
In order to meet our growth objectives, we will need to secure an adequate number of suitable new or expanded convenience store sites, many of which are in competitive locations in their local markets. We require that all proposed convenience store sites satisfy our criteria regarding cost and location. In addition, we may experience further increased competition for convenience store sites. We can provide no assurance that we will be able to find a sufficient number of suitable new convenience store sites for any planned expansion in any future period.
Additionally, our expectations regarding financial performance are based on our new retail sites opening on expected dates. It is possible that events such as construction delays caused by permitting or licensing issues, material shortages, labor issues, weather delays or other acts of God, discovery of contaminants or accidents could delay planned new convenience store openings beyond their expected dates or force us to abandon planned openings altogether.
We also expect to devote significant resources to development of NTIs and store improvement, which may include developing new stores and remodeling and/or re-branding certain stores and divesting of less productive stores. There can be no assurance that these initiatives will be successful or that they will represent the most productive use of our resources or that they will be completed on expected dates.
Valero is our principal supplier of motor fuel in our U.S. Retail and Canadian Retail segments. A disruption in supply or a change in that relationship could have a material adverse effect on our business.
In connection with the Spin-off, we entered into long-term fuel supply agreements with Valero pursuant to which Valero supplies a substantial portion of our retail sites with motor fuel. As a result, we depend on Valero as a material supplier of our motor fuel. A change of motor fuel suppliers, a disruption in supply or a significant change in our relationship or payment terms with Valero could have a material adverse effect on our business, cost of sales, financial condition, results of operations and liquidity. Valero, at its sole discretion, can reduce or eliminate the payment terms.
CrossAmerica depends on three principal suppliers for the majority of its motor fuel. A disruption in supply or a change in CrossAmerica’s relationship with any one of them could have a material adverse effect on our business.
ExxonMobil, BP and Motiva (Shell) collectively supplied approximately 79% of CrossAmerica’s motor fuel purchases in 2016. CrossAmerica purchased approximately 30%, 25% and 24% of its motor fuel from ExxonMobil, BP and Motiva (Shell), respectively. A change of motor fuel suppliers, a disruption in supply or a significant change in pricing with any of these suppliers could have a material adverse effect on our business.
Pending or future litigation could adversely affect our financial condition and results of operations. Litigation and publicity concerning motor fuel or food quality, health, cybersecurity and other issues could result in significant liabilities or litigation costs and cause consumers to avoid our retail sites.
Convenience store 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 individual personal injury, off-specification motor fuel, products liability, employee claims, infringement, breach of contract 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 specific business practices.

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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. Additionally, if Valero experienced a major accident or event that resulted in adverse publicity for Valero, we could be similarly affected because Valero supplies substantially all of our motor fuel. 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. Please see Note 14 of the notes to the consolidated financial statements included elsewhere in this Form 10-K.
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. Additionally, we transport a portion of our motor fuel in our own trucks, instead of by third-party carriers. Our 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. Any such event could have a material adverse effect on our business, financial condition and results of operations.
We depend on transportation providers for the transportation of substantially all of our motor fuel. Thus, a change of providers or a significant change in our relationship with any of these providers could have a material adverse effect on our business.
Substantially all of the motor fuel we distribute is transported from motor fuel terminals to gas stations by third party carriers. A change of transportation providers, a disruption in service or a significant change in our relationship with any of these transportation carriers could have a material adverse effect on our business and results of operations.
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 product and 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 to 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.
Our motor fuel sales in our CrossAmerica segment are generated under contracts that must be renegotiated or replaced periodically. If we are unable to successfully renegotiate or replace these contracts, then our results of operations and financial condition could be adversely affected.
Our CrossAmerica segment’s motor fuel sales are generated under contracts that must be periodically renegotiated or replaced. As these contracts expire, they must be 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 and CrossAmerica’s ability to make distributions to its unitholders could be adversely affected.
We rely on our IT systems and network infrastructure to manage numerous aspects of our business, and a disruption of these systems could adversely affect our business.
We depend on our IT systems and network infrastructure 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 are 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 will not have a material adverse effect on our financial condition or results of operations.

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Our business and our reputation could be adversely affected by the failure to protect sensitive customer, employee or 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 credit and debit card 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, employee or 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 upgrade further the security measures that we employ to guard against cyber attacks.
We are subject to currency exchange risk.
A significant portion of our sales are made in Canada. In our consolidated financial statements, we translate the local currency financial results of our Canadian Retail segment into U.S. dollars based on average exchange rates prevailing during a reporting period. During times of a strengthening U.S. dollar, at a constant level of business, our reported Canadian revenues and earnings will be reduced because the local currency will translate into fewer U.S. dollars.
Substantially all of our indebtedness is denominated in U.S. dollars, while a significant portion of our revenue and cash flow is generated from our Canadian operations. To the extent that the cash flow generated from our U.S. operations is not sufficient to satisfy the ongoing payment obligations under our U.S. dollar-denominated debt, we will need to convert Canadian dollars into U.S. dollars in order to make the necessary payments and we may incur additional tax expense. Accordingly, a strengthening of the U.S. dollar against the Canadian dollar could make it more difficult for us to repay our indebtedness.
Given the volatility of exchange rates, we may not be able to manage our currency risks effectively, which could have a material adverse effect on our financial condition or results of operations.
We have comprehensive insurance coverage, but we may incur losses that are not covered by insurance or reserves in whole or in part, and such losses could adversely affect our results of operations and financial position.
We reserve for estimated general liability, workers’ compensation, employee work injury liabilities and property loss. Although, we carry comprehensive insurance policies to cover general liabilities, workers’ compensation liabilities, employee work injury liabilities, auto liability, property losses and directors’ and officers’ liabilities, a significant portion of risk is self-insured where the risk may not be insurable or cannot be insured at a reasonable cost. Some losses, such as those resulting from wars or acts of terrorism may not be insurable at any cost. Self-insured losses and uninsurable losses, if large enough, could have a material impact on our results of operations and financial position. Should an uninsured loss or a loss in excess of insured limits occur, we could lose capital invested in that property, as well as the anticipated future revenues derived from the retailing activities conducted at that property, while remaining obligated for any mortgage debt or other financial obligations related to the property. Any such loss could adversely affect our business, results of operations or financial condition.
Uncertainty and illiquidity in credit and capital markets could impair our ability to obtain credit and financing on acceptable terms.
Our ability to obtain credit and capital depends in large measure on capital markets and liquidity factors that we do not control. Our ability to access credit and capital markets may be restricted at a time when we would like, or need, to access those markets, which could have an impact on our flexibility to react to changing economic and business conditions. In addition, the cost and availability of debt and equity financing may be adversely affected by unstable or illiquid market conditions. Protracted uncertainty and illiquidity in these markets also could have an adverse impact on our lenders, causing them to fail to meet their obligations to us. Our access to credit and capital markets may be affected by the credit ratings assigned to our debt by independent credit rating agencies.
Compliance with and changes in tax laws could adversely affect our performance.
We are subject to extensive tax liabilities imposed by multiple jurisdictions, including income taxes, indirect taxes (excise/duty, sales/use and gross receipts taxes), payroll taxes, franchise taxes, withholding taxes and ad valorem taxes. New tax laws and regulations and changes in existing tax laws and regulations are continuously being enacted or proposed that could result in increased expenditures for tax liabilities in the future. Many of these liabilities are subject to periodic audits by the respective taxing authority. Subsequent changes to our tax liabilities as a result of these audits may subject us to interest and penalties.

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CST has substantial debt, which could have a negative impact on our financial position and prevent us from fulfilling our obligations under our debt agreements and notes.
CST has a significant amount of debt. As of December 31, 2016, we had $1.0 billion of total debt (excluding CrossAmerica debt) and $344 million of availability under the CST revolving credit facility. Our overall leverage and the terms of our financing arrangements could:
limit our ability to obtain additional financing in the future for working capital, capital expenditures and acquisitions;
make it more difficult for us to satisfy our obligations under our senior notes;
limit our ability to refinance our indebtedness on terms acceptable to us or at all;
limit our flexibility to plan for and to adjust to changing business and market conditions in the industry in which we operate, and increase our vulnerability to general adverse economic and industry conditions;
require us to dedicate a substantial portion of our cash flow from operations to make interest and principal payments on our debt, thereby limiting the availability of our cash flow to fund future investments, capital expenditures, working capital, business activities and other general corporate requirements;
limit our ability to obtain additional financing for working capital, for capital expenditures, to fund growth or for general corporate purposes, even when necessary to maintain adequate liquidity, particularly if any ratings assigned to our debt securities by rating organizations were revised downward;
subject us to higher levels of indebtedness than some of our competitors, which may cause a competitive disadvantage and may reduce our flexibility in responding to increased competition; and
limit our ability to make capital expenditures, including to develop NTIs.
 We may not be able to generate sufficient cash to service all of our indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make scheduled payments on, or to refinance, our debt obligations depends, in part, on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business, commodity risks and other factors beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investment decisions and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments may restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. The agreement relating to our senior credit facilities and the indenture governing our senior notes restrict our ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions or to obtain the proceeds that we could realize from them and these proceeds may not be adequate to meet any debt service obligations then due. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. If we breach our covenants under our senior credit facilities and seek a waiver, we may not be able to obtain a waiver from the required lenders. If this occurs, we would be in default under our senior credit facilities, and the lenders could exercise their rights and we could be forced into bankruptcy or liquidation.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
Borrowings under CST’s senior secured revolving credit and term loan facilities and CrossAmerica’s credit facility bear interest at variable rates and expose us to interest rate risk. If interest rates increase and we are unable to effectively hedge our interest rate risk, our debt service obligations on the variable rate indebtedness would increase even if the amount borrowed remained the same, and our net income and cash available for servicing our indebtedness would decrease.

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We are a holding company. Substantially all of our business is conducted through our subsidiaries. Our ability to repay our debt and pay dividends depends on the performance of our subsidiaries and their ability to make distributions to us.
We are a holding company and conduct all of our operations through our subsidiaries. As a result, we rely on dividends, loans and other payments or distributions from our subsidiaries to meet our debt service obligations and enable us to pay interest and dividends. The ability of our subsidiaries to pay dividends or make other payments or distributions to us depends substantially on their respective operating results and is subject to restrictions under, among other things, the laws of their jurisdiction of organization (which may limit the amount of funds available for the payment of financing arrangements of our subsidiaries).
Covenants in the agreements governing CST’s senior secured revolving credit and term loan facilities restrict its ability to engage in certain activities, and also require it to meet financial maintenance tests, failure to comply with which could have a material adverse effect on us.
The indenture governing CST’s senior notes and the agreement governing its senior credit facilities restricts its ability to, among other things:
incur, assume or guarantee additional indebtedness or issue certain preferred stock;
declare or pay dividends, redeem, repurchase or retire our capital stock or subordinated indebtedness or make other distributions to stockholders;
make certain types of investments above certain levels;
limit the amount of capital expenditures we may make in any calendar year;
create liens or use assets as security in other transactions or grant negative pledges;
enter into agreements that restrict dividends or other payments from our restricted subsidiaries to us;
consolidate or merge with or into, or sell, transfer, lease or dispose of all or substantially all of our assets to, another person (unless permitted under an exception as defined in the senior secured revolving credit facility or certain conditions exist as defined in the indenture governing the senior notes);
enter into transactions with affiliates;
designate unrestricted subsidiaries; and
enter into new lines of business.
In addition, the agreement governing CST’s senior credit facilities contains various financial covenants that require it to maintain a maximum total lease adjusted leverage ratio of 3.50 : 1.00 and a minimum fixed charge coverage ratio of 1.30 : 1.00. Such restrictions may limit its ability to successfully execute its business plans, which may have adverse consequences on our operations.
If CST is unable to comply with the restrictions and covenants in such agreements, or in future debt financing agreements, there could be a default under the terms of these agreements. CST’s ability to comply with these restrictions and covenants, including meeting financial ratios and tests, may be affected by events beyond our control. As a result, we cannot make any assurances that we will be able to comply with these restrictions and covenants or meet these tests. Any default under the agreements governing CST’s indebtedness, including a default under the agreement governing our senior credit facilities, that is not waived by the required lenders, and the remedies sought by the holders of such indebtedness, could prevent us from paying principal, premium, if any, and interest on our senior notes and substantially decrease the market value of our senior notes. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants in the instruments governing our indebtedness (including covenants in the agreement governing our senior credit facilities and the indenture governing our senior notes), we could be in default under the terms of the agreements governing such indebtedness, including our senior credit facilities and the indenture governing our senior notes. In the event of such default:
the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest;
the lenders under CST’s senior credit facilities could elect to terminate their commitments thereunder, cease making further loans and institute foreclosure proceedings against our assets; and
we could be forced into bankruptcy or liquidation.

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Moreover, the agreements governing CST’s indebtedness contain cross-default or cross-acceleration provisions that would be triggered by the occurrence of a default or acceleration under other instruments governing CST’s indebtedness. If the payment of CST’s indebtedness is accelerated, there can be no assurance that CST’s assets would be sufficient to repay in full that indebtedness and CST’s other indebtedness that would become due as a result of any acceleration.
CrossAmerica’s credit facility contains operating and financial restrictions that may limit its business and financing activities.
The operating and financial restrictions and covenants in CrossAmerica’s credit agreement and any future financing agreements could adversely affect its ability to finance future operations or capital needs or to engage, expand or pursue its business activities. CrossAmerica’s credit agreement may restrict its ability to:
make distributions if any potential default or event of default occurs;
incur additional indebtedness, including the issuance of certain preferred equity interests, or guarantee other indebtedness;
grant liens or make certain negative pledges;
make certain advances, loans or investments;
make any material change to the nature of its business, including mergers, consolidations, liquidations and dissolutions;
make certain capital expenditures in excess of specified levels;
acquire another company;
enter into a sale-leaseback transaction or certain sales or leases of assets;
enter into certain affiliate transactions; or
make certain repurchases of equity interests.
CrossAmerica is required to maintain a total leverage ratio (as defined in the credit facility) for the most recently completed four fiscal quarters of less than or equal to 4.50 : 1.00 and a consolidated interest coverage ratio (as defined in the credit facility) of greater than or equal to 2.75 : 1.00. The total leverage ratio covenant is 5.00 : 1.00 for the three quarters following a material acquisition (as defined in the credit facility).
CST is not a guarantor of CrossAmerica’s debt obligations; however, CrossAmerica’s ability to comply with the covenants and restrictions contained in its credit agreement may be affected by events beyond its control, including prevailing economic, financial and industry conditions. If market or other economic conditions deteriorate, its ability to comply with these covenants may be impaired. If CrossAmerica violates any of the restrictions, covenants, ratios or tests in its credit agreement, the debt issued under its credit agreement may become immediately due and payable, and CrossAmerica’s lenders’ commitment to make further loans to it may terminate. CrossAmerica might not have, or be able to obtain, sufficient funds to make these accelerated payments. In addition, CrossAmerica’s obligations under its credit agreement will be secured by substantially all of its assets, and if it is unable to repay its indebtedness under its credit agreement, the lenders could seek to foreclose on CrossAmerica’s assets securing its debt.

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Risks Relating to CST’s Common Stock
The market price of our common stock may fluctuate.
We cannot predict the prices at which our common stock may trade in the future. Under the terms of the Merger Agreement, Couche-Tard will acquire all of the common stock of CST for $48.53 per share in cash. The factors described in these “Risk Factors” and elsewhere in this Form 10-K could influence the market price of our common stock.
We are precluded from paying dividends on our common stock under the Merger Agreement.
The Merger Agreement also prohibits, among other things, us from declaring and paying quarterly cash dividends between August 21, 2016 and completion of our Merger.
Risks Relating to CrossAmerica
We act as the General Partner of CrossAmerica, which may involve a greater exposure to legal liability than our historic business operations.
One of our subsidiaries acts as the General Partner of CrossAmerica. Our control of the General Partner of CrossAmerica may increase the possibility of claims of breaches of fiduciary duties including claims of conflict of interest related to CrossAmerica. Any liability resulting from such claims could have a material adverse effect on our future business, financial condition, results of operations and cash flows.
A reduction in CrossAmerica’s distributions will disproportionately affect the amount of cash distributions to which we are entitled.
Our ownership of all of the IDRs in CrossAmerica entitles us to receive specified percentages of the amount of cash distributions made by CrossAmerica to its limited partners only in the event that CrossAmerica distributes more than $0.5031 per unit for such quarter. CrossAmerica’s quarterly distribution for the fourth quarter of 2016 was $0.6125 per common unit. If CrossAmerica were to reduce its quarterly distribution to a level at or below $0.5031 per unit, our IDRs would not receive any distributions.
Our IDRs entitle us to receive increasing percentages, up to 50%, of all cash distributed by CrossAmerica. Because CrossAmerica’s distribution rate is currently above the first target cash distribution level on the IDRs, our marginal percentage in CrossAmerica’s distributions is at 25%. CrossAmerica distributed $3 million and $1 million to us with respect to the IDRs during the years ended December 31, 2016 and 2015. There is no guarantee that CrossAmerica’s financial performance will allow it to increase its quarterly distributions beyond the thresholds required to achieve higher marginal percentages of distributions to our IDRs. Further, any reduction in quarterly cash distributions from CrossAmerica would have the effect of disproportionately reducing the distributions that we receive from CrossAmerica based on our IDRs as compared to the other limited partners in CrossAmerica.
If CrossAmerica’s unitholders remove the General Partner, we would lose our General Partner interest in CrossAmerica and the ability to manage CrossAmerica.
We currently manage CrossAmerica through our ownership interest in the General Partner. CrossAmerica’s partnership agreement, however, gives unitholders of CrossAmerica the right to remove the General Partner upon the affirmative vote of holders of 66⅔% of CrossAmerica’s outstanding units, voting as a single class. If the General Partner is removed as General Partner of CrossAmerica, it loses its ability to manage CrossAmerica. As of February 24, 2017, we own approximately 19.8% of the outstanding units in CrossAmerica and, pursuant to a voting agreement with an affiliate of Joseph V. Topper, Jr., have voting control over an additional approximately 23.0% of the units of CrossAmerica. As a result, we currently have the power to effectively prevent the removal of the General Partner.
Restrictions in CrossAmerica’s credit facility could limit its ability to make distributions to us.
CrossAmerica’s credit agreement contains covenants limiting its ability to incur indebtedness, grant liens, engage in transactions with affiliates and make distributions. The credit agreement also contains covenants requiring CrossAmerica to maintain certain financial ratios. CrossAmerica is prohibited from making any distribution to unitholders if such distribution would cause an event of default or otherwise violate a covenant under the CrossAmerica credit agreement, which in turn will prohibit CrossAmerica from making distributions to us.
The duties of our officers and directors may conflict with those owed to CrossAmerica.
Certain of our officers and members of our Board of Directors are officers and/or directors of the General Partner of CrossAmerica and, as a result, have separate duties that govern their management of CrossAmerica’s business. These officers and directors may

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encounter situations in which their obligations to us, on the one hand, and CrossAmerica, on the other hand, are in conflict. The resolution of these conflicts may not always be in our best interest or that of our stockholders.
The value of our ownership interests in CrossAmerica depends on its status as a partnership for U.S. federal income tax purposes, which could be subject to potential legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis. Additionally, CrossAmerica’s cash available for distribution could decrease if it becomes subject to a material amount of entity-level taxation by individual states.
The value of our investment in CrossAmerica depends largely on CrossAmerica being treated as a partnership for U.S. federal income tax purposes. The present federal income tax treatment of publicly traded partnerships, including CrossAmerica, or our investment in CrossAmerica, may be modified by administrative rules, legislative actions or judicial interpretation at any time. From time to time, members of the U.S. Congress propose and consider substantive changes to the existing federal income tax laws that affect publicly traded partnerships. One such relatively recent legislative proposal would have eliminated the qualifying income exception upon which we rely for our treatment as a partnership for U.S. federal income tax purposes. We are unable to predict whether any legislation will ultimately be enacted. However, it is possible that a change in law could affect us or CrossAmerica and may, if enacted, be applied retroactively.
In addition, despite the fact that CrossAmerica is organized as a limited partnership under Delaware law, a publicly traded partnership such as CrossAmerica will be treated as a corporation for U.S. federal income tax purposes unless 90% or more of its gross income from its business activities is “qualifying income” under Section 7704(d) of the Internal Revenue Code. “Qualifying income” includes income and gains derived from the wholesale marketing of natural resources and natural resource products, the leasing of real estate to unrelated tenants and other passive types of income such as interest and dividends. Although we do not believe, based upon its current operations, that CrossAmerica will be so treated, a change in its business (or a change in current law) could cause CrossAmerica to be treated as a corporation for federal income tax purposes or otherwise subject to taxation as an entity.
Any change in law or interpretation thereof, or the failure by CrossAmerica to have enough “qualifying income,” that causes CrossAmerica to be treated as a corporation for U.S. federal income tax purposes, or otherwise subject to taxation as an entity, would likely materially and adversely impact the value of our investment in CrossAmerica.
If the IRS were to contest the U.S. federal income tax positions CrossAmerica takes, it may adversely impact the market for CrossAmerica’s common units, and the costs of any such contest would reduce distributable cash flow to CrossAmerica unitholders, including CST as holder of common units and the IDRs.
As part of the Bipartisan Budget Act of 2015, legislation was passed requiring large partnerships to pay federal tax deficiencies at the partnership level, unless the partnership elects to take into account any federal tax deficiency by including the adjustment in the Form K-1s of the partners in the year in which the audit is completed. These rules differ from the current rules which require that the IRS to determine the deficiency at the partnership level, but collect the tax deficiency from the partners directly. The new rules are effective for taxable years beginning after December 31, 2017. Partnerships may elect to apply the rules to years beginning after November 2, 2015. CrossAmerica will evaluate the new audit rules and determine at a later date whether or not to elect early application. CrossAmerica will also determine at a later date whether to pay the tax deficiency, if any, at the partnership level or to include the adjustment in the Form K-1s of the partners.
Risks Relating to the Spin-Off
Valero agreed to indemnify us for certain liabilities, and we agreed to indemnify Valero for certain liabilities. If we are required to act on these indemnities to Valero, we may need to divert cash to meet those obligations, and our financial results could be negatively impacted. In the case of Valero’s indemnity, there can be no assurance that the indemnity will be sufficient to insure us against the full amount of such liabilities, or as to Valero’s ability to satisfy its indemnification obligations in the future.
Pursuant to the Separation and Distribution Agreement and other agreements with Valero, Valero agreed to indemnify us for certain liabilities, and we agreed to indemnify Valero for certain liabilities, in each case for uncapped amounts. Indemnities that we may be required to provide Valero are not subject to any cap, may be significant and could negatively impact our business, particularly indemnities relating to our actions that could impact the tax-free nature to Valero of the distribution. Third parties could also seek to hold us responsible for any of the liabilities that Valero has agreed to retain. Further, there can be no assurance that the indemnity from Valero will be sufficient to protect us against the full amount of such liabilities, or that Valero will be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from Valero any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could negatively affect our business, cash flows, results of operations and financial condition.

23




We are subject to continuing contingent liabilities of Valero.
There are several significant areas where the liabilities of Valero may become our obligations. For example, under the Code, and the related rules and regulations, each corporation that was a member of the Valero consolidated U.S. federal income tax reporting group during any taxable period or portion of any taxable period ending on or before the effective time of the distribution is jointly and severally liable for the U.S. federal income tax liability of the entire Valero consolidated tax reporting group for that taxable period. In connection with the spin-off, we entered into a Tax Matters Agreement with Valero that allocated the responsibility for prior period taxes of the Valero consolidated tax reporting group between us and Valero. However, if Valero is unable to pay any prior period taxes for which it is responsible, we could be required to pay the entire amount of such taxes.
If the Spin-off, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, Valero and/or our stockholders could be subject to significant tax liability and, in certain circumstances, we could be required to indemnify Valero for material taxes pursuant to indemnification obligations under the Tax Matters Agreement.
If the spin-off or certain internal transactions undertaken in anticipation of the distribution are determined to be taxable for U.S. federal income tax purposes, then we, Valero and/or our stockholders could be subject to significant tax liability. Valero received a private letter ruling from the IRS to the effect that, for U.S. federal income tax purposes, the distribution, except for cash received in lieu of fractional shares, will qualify as tax-free under Sections 355 and 361 of the Code, and that certain internal transactions undertaken in anticipation of the distribution will qualify for favorable treatment. Notwithstanding the private letter ruling, the IRS could determine on audit that the distribution or the internal transactions should be treated as taxable transactions if it determines that any of the facts, assumptions, representations or undertakings we or Valero have made or provided to the IRS is not correct, or that the distribution or the internal transactions should be taxable for other reasons, including as a result of a significant change in stock or asset ownership after the distribution. If the distribution ultimately is determined to be taxable, the distribution could be treated as a taxable dividend or capital gain to our stockholders for U.S. federal income tax purposes, and they could incur significant U.S. federal income tax liabilities. In addition, Valero would recognize a gain in an amount equal to the excess of the fair market value of shares of our common stock distributed to Valero stockholders on the distribution date over Valero’s tax basis in such shares of our common stock. Moreover, Valero could incur significant U.S. federal income tax liabilities if it is ultimately determined that certain internal transactions undertaken in anticipation of the distribution are taxable.
Under the Tax Matters Agreement between Valero and us, we will be required to indemnify Valero against any tax resulting from the distribution to the extent that such tax resulted from (i) an acquisition of all or a portion of our stock or assets, whether by merger or otherwise, (ii) other actions or failures to act by us, or (iii) any of our representations or undertakings being incorrect. Our indemnification obligations to Valero and its officers and directors will not be limited by any maximum amount. If we are required to indemnify Valero or such other persons under the circumstances set forth in the Tax Matters Agreement, we may be subject to substantial liabilities.
We potentially could have received better terms from unaffiliated third parties than the terms we received in our agreements with Valero.
The agreements entered into with Valero in connection with the separation, including the Separation and Distribution Agreement, the Tax Matters Agreement and other agreements, were negotiated in the context of the separation while we were still a wholly owned subsidiary of Valero. Accordingly, during the period in which the terms of those agreements were negotiated, we did not have an independent Board of Directors or a management team independent of Valero. As a result, the terms of those agreements may not reflect terms that would have resulted from arm’s-length negotiations between unaffiliated third parties. The terms of the agreements negotiated in the context of the separation related to, among other things, the allocation of assets, liabilities, rights and other obligations between Valero and us. Arm’s-length negotiations between Valero and an unaffiliated third party in another form of transaction, such as a buyer in a sale of a business transaction, may have resulted in more favorable terms to the unaffiliated third party.

24




PROPERTIES
We own a distribution warehouse with adjoining office facilities located in San Antonio. These facilities allow us to consolidate our distribution center with our corporate service center office space. The warehouse has approximately 426,000 square feet of space, of which we use approximately 249,000 and lease the remainder. The office facilities have approximately 147,000 square feet of office space.
We own a 90,000 square-foot distribution center in Alma, Georgia.
We believe that our properties and retail sites are generally adequate for our operations and that our retail sites are maintained in a good state of repair.
U.S. Retail Segment
The following table provides the number of our retail sites in the U.S. Retail Segment by state as of December 31, 2016:
 
 
Number of retail sites
Texas
 
677
Georgia
 
152
Colorado
 
137
Arizona
 
60
New Mexico
 
36
New York
 
32
Louisiana
 
30
Arkansas
 
26
Florida
 
15
Oklahoma
 
2
Total
 
1,167

The following table provides a history of our U.S. retail sites opened (reflected as NTIs below), acquired and closed or divested for the last three years:
 
 
Year Ended December 31,
 
 
2016
 
2015
 
2014
Number at beginning of period
 
1,049

 
1,021

 
1,036

NTIs
 
38

 
31

 
28

Acquisitions
 
165

 
22

 
32

Closed or divested
 
(85
)
 
(25
)
 
(75
)
Number at end of period
 
1,167

 
1,049

 
1,021

In our normal course of business, we evaluate our retail sites for profitability and the costs of maintaining these sites in our store portfolio. As such, it is customary to have store closures and divestitures occur each year. In 2014, we conducted a more in-depth network optimization program and identified certain sites that were candidates for divestiture as a result of being smaller and less profitable than the average retail sites in our network. We divested all of these sites by the third quarter of 2015. In July 2016, CST consummated the sale of all 79 stores in the California and Wyoming markets to 7-Eleven, Inc. and its wholly-owned subsidiary, SEI Fuel Services, Inc.

25




Canadian Retail Segment
The following table provides the number and type of our Canadian retail sites by region as of December 31, 2016:
Region
 
Convenience
Stores
 
Commission Sites
 
Cardlock
 
Total
Québec
 
202
 
291
 
39
 
532
Ontario
 
35
 
119
 
17
 
171
Maritimes(a)   
 
53
 
50
 
11
 
114
Newfoundland and Labrador
 
24
 
38
 
5
 
67
Total
 
314
 
498
 
72
 
884
(a)
Includes the provinces of Nova Scotia, New Brunswick and Prince Edward Island.
The following table provides a history of our Canadian retail sites acquired, opened (reflected as NTIs below), closed, divested or de-branded for the last three years:
 
 
 Year Ended December 31,
 
 
2016
 
2015
 
2014
Number at beginning of period
 
869

 
861

 
846

NTIs
 
12

 
11

 
10

Acquisitions and new dealers(a)
 
18

 
14

 
18

Closed, divested or de-branded(b)
 
(15
)
 
(17
)
 
(13
)
Number at end of period
 
884

 
869

 
861

(a)
Includes one cardlock site each that were built in 2016 and 2015 and one store that was re-opened in December 2014 after being closed in 2013.
(b)
“De-branded” is a term we use to refer to commission sites where our relationship with the operators of those retail sites is not renewed. Amounts include one, two, and two cardlock closures in 2016, 2015 and 2014, respectively.
In our normal course of business, we evaluate our retail sites for profitability and the costs of maintaining these sites in our store portfolio. As such, it is customary to have store closures, divestitures and de-branded sites occur.
We lease approximately 69,000 square feet of office space in Montreal, Québec, as well as 6,500 square feet of office space in Dartmouth, Nova Scotia, to support our Canadian operations.
CrossAmerica Segment
The following table shows the aggregate number of sites CrossAmerica owned or leased by customer group at December 31, 2016:
 
Owned
Sites
 
Leased
Sites
 
Total
Sites
 
Percentage of
Total Sites
Lessee dealers
227

 
241

 
468

 
53
%
Independent dealers

 

 

 

CST
74

 

 
74

 
8
%
DMS
90

 
78

 
168

 
19
%
Commission sites
45

 
55

 
100

 
11
%
Company operated
65

 
11

 
76

 
9
%
Total(a)
501

 
385

 
886

 
100
%
(a) This amount excludes 403 independent dealer sites and includes 28 closed sites and 71 sites where CrossAmerica only collects rent.
CrossAmerica conducts business at sites located in Arizona, Arkansas, Colorado, Delaware, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Virginia, West Virginia and Wisconsin.

26




The following table provides a history of CrossAmerica sites acquired, converted to dealer or sold during 2016:
 
Lessee Dealers
 
CST
 
DMS
 
Commission Sites
 
Company Operated
 
Total
Number at beginning of period
337

 
74

 
207

 
73

 
116

 
807

Acquired
57

 

 

 
1

 
37

 
95

Changes between customer groups
85

 

 
(33
)
 
24

 
(76
)
 

Sold
(4
)
 

 

 
(1
)
 

 
(5
)
Other
(7
)
 

 
(6
)
 
3

 
(1
)
 
(11
)
Number at end of period(a)   
468

 
74

 
168

 
100

 
76

 
886

(a) This amount excludes 403 independent dealer sites and includes 28 closed sites and 71 sites where CrossAmerica only collects rent.
The CrossAmerica principal executive offices are in Allentown, Pennsylvania in approximately 27,000 square feet of leased office space.

ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

ITEM 3. LEGAL PROCEEDINGS
We hereby incorporate by reference into this Item our disclosures made in Part II, Item 8 of this Form 10-K included in Note 14 of the notes to the consolidated financial statements under the caption “Litigation Matters”.

27




PART II - OTHER INFORMATION
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock
As of February 24, 2017, we had 75,786,728 shares of our common stock issued and outstanding and approximately 5,100 shareholders of record. Our common stock trades on the NYSE under the symbol “CST.”
The following table sets forth, for the periods indicated, the high and low sales prices for our common stock, as reported by the NYSE, and quarterly cash dividends declared per share. The last reported sales price of our common stock on the NYSE on February 24, 2017 was $48.35 per share.
 
 
Common Stock Price Range
 
Cash Dividends
Declared
Per Share
 
 
High
 
Low
 
2015
 
 
 
 
 
 
First Quarter
 
$
45.25

 
$
40.32

 
$
0.0625

Second Quarter
 
$
44.87

 
$
38.60

 
$
0.0625

Third Quarter
 
$
40.21

 
$
32.61

 
$
0.0625

Fourth Quarter
 
$
40.99

 
$
32.28

 
$
0.0625

2016
 
 
 
 
 
 
First Quarter
 
$
41.40

 
$
29.73

 
$
0.0625

Second Quarter
 
$
45.28

 
$
36.02

 
$
0.0625

Third Quarter
 
$
48.31

 
$
42.32

 
$

Fourth Quarter
 
$
48.43

 
$
47.83

 
$

We paid regular quarterly cash dividends of $0.0625 per common share, or $5 million, each quarter, commencing with the quarter ended September 30, 2013 through the quarter ended June 30, 2016. The Merger Agreement prohibits, among other things, us from declaring and paying quarterly cash dividends between August 21, 2016 and completion of our Merger. Our indebtedness also restricts our ability to pay dividends. It is uncertain that we will pay dividends in the future at previous levels or at all. Dividend activity for 2016 was as follows:
Quarter Ended
 
Record Date
 
Payment Date
 
Cash Distribution (per share)
 
Cash Distribution (in millions)
December 31, 2015
 
December 31, 2015
 
January 15, 2016
 
$
0.0625

 
$
5

March 31, 2016
 
March 31, 2016
 
April 15, 2016
 
$
0.0625

 
$
5

June 30, 2016
 
June 30, 2016
 
July 15, 2016
 
$
0.0625

 
$
5

Issuer Purchases of Equity Securities
On August 5, 2014, our Board of Directors approved a stock repurchase plan under which we are authorized to purchase shares of our common stock up to a maximum dollar amount of $200 million, until such authorization is exhausted or withdrawn by our Board of Directors. We did not repurchase any of our common stock during the year ended December 31, 2016 and have $114 million remaining under the plan. The Merger Agreement prohibits CST from making any further repurchases of CST common stock.

28




The following table contains information about CST’s shares withheld in connection with exercise proceeds and withholding taxes related to the exercise of stock options, the vesting of restricted stock and the vesting of restricted stock units during the three months ended December 31, 2016:
Period
 
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of a Publicly Announced Plan
 
Maximum Dollar Amount that May Yet Be Spent Under the Plan
October 1-31, 2016
 
837

 
$
47.97

 

 
$
114,390,897

November 1-30, 2016
 
512

 
$
48.16

 

 
$
114,390,897

December 1-31, 2016
 
25,569

 
$
48.18

 

 
$
114,390,897

Total
 
26,918

 
 
 

 
$
114,390,897

Through February 24, 2017, we have repurchased 2,094,227 shares totaling $85.6 million under this program.
CST Purchases of CrossAmerica Common Units
On September 21, 2015, CST announced that the independent executive committee of the Board of Directors approved a unit purchase program under Rule 10b-18 of the Exchange Act, authorizing CST to purchase up to an aggregate of $50 million of the common units representing limited partner interests in CrossAmerica. The CrossAmerica common unit purchase program does not have a fixed expiration date and may be modified, suspended or terminated at any time at CST’s discretion.
We made no purchases under the CrossAmerica common unit purchase program during the year ended December 31, 2016. From inception through December 31, 2016, we had purchased $20 million, or 804,667 common units, at an average price of $24.64 per common unit, which common units cannot be transferred absent registration with the SEC or an available exemption from the SEC’s registration requirements. The Merger Agreement prohibits CST from making any further purchases of CrossAmerica common units.

29




Cumulative Stockholder Returns
The following performance graph is not “soliciting material,” is not deemed filed with the SEC, and is not to be incorporated by reference into any of CST’s filings under the Securities Act or the Exchange Act, respectively.
This performance graph and the related textual information are based on historical data and are not indicative of future performance. The following line graph compares the cumulative total return on an investment in our common stock against the cumulative total return of the S&P 500 Index and an index of direct peer companies (that we selected) for the period commencing May 2, 2013 (the day our common stock began trading on the NYSE) and ending December 31, 2016.
The S&P 500 Index includes 500 United States companies in the industrial, transportation, utilities and financial sectors and is weighted by market capitalization. Our peer group consisted of the following six companies: Casey’s General Stores, Inc. (CASY), Alimentation Couche-Tard Inc. (ATD-B.TO), Murphy U.S.A., Inc. (MUSA), Travel Centers of America, L.L.C. (TA), Sunoco LP (SUN) and Global Partners LP (GLP). In 2013, we included Susser Holdings Corporation (SUSS) and Pantry, Inc. (PTRY) in our peer group. During 2014, SUSS was acquired and is no longer publicly traded and has been retroactively removed from our peer group. On December 18, 2014, ATD-B.TO and PTRY announced the signing of a definitive merger agreement, which closed in 2015. As such, PTRY has been retroactively removed from our peer group.
cstq42016f_chart-36887.jpg
The graph and the following table depicts the results of investing $100 in our common stock, the S&P 500 Index and our peer group at closing prices on May 2, 2013, December 31, 2013, December 31, 2014, December 31, 2015 and December 31, 2016 and assumes the reinvestment of dividends.
 
May 2,
2013
 
December 31, 2013
 
December 31, 2014
 
December 31, 2015
 
December 31, 2016
CST Common Stock
$
100.00

 
$
122.05

 
$
145.97

 
$
131.81

 
$
162.65

Peer Group
$
100.00

 
$
112.30

 
$
162.05

 
$
152.65

 
$
147.00

S&P 500 Index
$
100.00

 
$
118.52

 
$
134.73

 
$
136.61

 
$
153.00



30




ITEM 6. SELECTED HISTORICAL CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL DATA
The following selected financial data reflect the combined results of Valero’s retail business for periods prior to the Spin-off (May 1, 2013) and our consolidated results for periods after the Spin-off, and include CrossAmerica effective October 1, 2014 as a result of the GP Purchase and the IDR Purchase. We derived the selected consolidated and combined income statement data for the years ended December 31, 2016, 2015 and 2014 and the selected consolidated balance sheet data as of December 31, 2016 and 2015, from the consolidated financial statements included elsewhere in this Form 10-K. We derived the selected combined income statement data for the year ended December 31, 2013 and 2012, and the selected consolidated and combined balance sheet data as of December 31, 2014, 2013 and 2012, from the consolidated and combined financial statements of CST, which are not included in this Form 10-K.
To ensure a full understanding, you should read the selected financial data presented below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and accompanying notes included elsewhere in this Form 10-K.
The financial data below are presented in millions.
 
 
 Year Ended December 31,
 
 
2016
 
2015
 
2014 (b)
 
2013(a)
 
2012
Operating revenues
 
$
11,106

 
$
11,455

 
$
12,754

 
$
12,777

 
$
13,135

Gross profit
 
1,440

 
1,394

 
1,273

 
1,097

 
1,133

Operating income
 
536

 
267

 
328

 
238

 
313

Interest expense
 
(67
)
 
(58
)
 
(45
)
 
(27
)
 
(1
)
Consolidated net income
 
304

 
139

 
180

 
139

 
208

Net income attributable to CST stockholders
 
324

 
149

 
200

 
139

 
208

Basic earnings per common share
 
$
4.26

 
$
1.95

 
$
2.63

 
$
1.84

 
$
2.76

Diluted earnings per common share
 
$
4.24

 
$
1.95

 
$
2.63

 
$
1.84

 
$
2.76

Dividends declared per common share
 
$
0.125

 
$
0.250

 
$
0.250

 
$
0.125

 
$

 
 
December 31,
 
 
2016
 
2015
 
2014(b)
 
2013(a)
 
2012
Total assets
 
$
4,360

 
$
3,840

 
$
3,606

 
$
2,286

 
$
1,732

Debt and capital lease obligations, less current portion
 
1,427

 
1,290

 
1,204

 
989

 
4

Total stockholders’ equity / net investment
 
1,779

 
1,545

 
1,555

 
627

 
1,270

(a)
The Spin-off resulted in material changes to our consolidated and combined financial statements as of and for the year ended December 31, 2013. See our annual report on Form 10-K for the year ended December 31, 2013 for further discussion of these changes.
(b)
The GP Purchase and IDR Purchase resulted in material changes to our consolidated financial statements. See Note 3 included elsewhere in this Form 10-K for additional information.

31




ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following MD&A is intended to help the reader understand our results of operations and financial condition. This section is provided as a supplement to, and should be read in conjunction with, Items 1., 1A. and 8. (which includes our consolidated financial statements) included elsewhere in this Form 10-K.
MD&A is organized as follows:
Significant Factors Affecting Our Profitability—This section describes the significant impact on our results of operations caused by crude oil commodity price volatility and seasonality.
Recently Acquired Retail Sites—This section describes our operating model related to recently acquired convenience store operations.
Results of Operations—This section provides an analysis of our results of operations, including the results of operations of our business segments, for the years ended December 31, 2016, 2015 and 2014 and an outlook for our business.
Liquidity and Capital Resources—This section provides a discussion of our financial condition and cash flows. It also includes a discussion of our debt, capital requirements and other matters impacting our liquidity and capital resources.
New Accounting Policies—This section describes new accounting pronouncements that we have already adopted, those that we are required to adopt in the future, and those that became applicable in the current year as a result of new circumstances.
Critical Accounting Policies Involving Critical Accounting Estimates—This section describes the accounting policies and estimates that we consider most important for our business and that require significant judgment.

32




Significant Factors Affecting Our Profitability
The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit
CST
The prices paid to our motor fuel suppliers for wholesale motor fuel are closely correlated to the price of crude oil. The crude oil commodity markets are highly volatile, and the market prices of crude oil and wholesale motor fuel experience significant and rapid fluctuations. We attempt to pass along wholesale motor fuel price changes to our retail customers through “at the pump” retail price changes; however, market conditions do not always allow us to do so immediately. The timing of any related increase or decrease in “at the pump” retail prices is affected by competitive conditions in each geographic market in which we operate. As such, the prices we charge our customers for motor fuel and the gross profit we receive on our motor fuel sales can increase or decrease significantly and rapidly over short periods of time.
Changes in our average motor fuel selling price per gallon and gross margin for the years ended December 31, 2016, 2015 and 2014 were directly related to the changes in crude oil and wholesale motor fuel prices over the same period. Variations in our reported revenues and cost of sales are, therefore, primarily related to the price of crude oil and wholesale motor fuel prices and generally not as a result of changes in motor fuel sales volumes, unless otherwise indicated and discussed below.
Approximately 40% of CST’s gross profit is derived from the sale of motor fuel. CST typically experiences lower motor fuel gross profits in periods when the wholesale cost of motor fuel increases, and higher motor fuel gross profits in periods when the wholesale cost of motor fuel declines. A change in gross profit margin of $.01 per gallon affects our gross profit margin by approximately $20 million in our U.S. Retail segment and approximately $10 million in our Canadian Retail segment (on an annualized basis).

33




Historically, the volatility of crude oil and wholesale motor fuel prices has significantly impacted CST’s motor fuel gross profits, and is further discussed in “Results of Operations” below. The following graph provides benchmark information for both crude oil and wholesale motor fuel prices for the thirty-six months ended December 31, 2016:
cstq42016f_chart-38366.jpg
(a) Represents the average monthly spot price per barrel during the periods presented for WTI and Brent crude oil. One barrel represents 42 gallons (source: EIA.gov).
(b)
Represents the average monthly spot price per gallon during the periods presented for GCC gasoline and NYHC gasoline (source: EIA.gov).

34




The following graph shows the volatility of wholesale motor fuel prices and the impact on our U.S. Retail and Canadian Retail segments’ gross profits for the thirty-six months ended December 31, 2016 (U.S. Retail and Canadian Retail CPG gross profits):
cstq42016f_chart-44255.jpg
(a)
Represents the average monthly spot price per gallon during the periods presented for GCC gasoline and NYHC gasoline (source: EIA.gov).
CrossAmerica
As discussed above, our U.S. Retail and Canadian Retail segments typically experience lower motor fuel gross profits in periods when the wholesale cost of motor fuel is increasing, and higher motor fuel gross profits in periods when the wholesale cost of motor fuel is decreasing. As it relates to its retail operations, CrossAmerica generally experiences similar effects on its gross profits from wholesale motor fuel price changes.
The prices paid to CrossAmerica’s motor fuel suppliers for wholesale motor fuel (which affects our cost of sales) are highly correlated to the price of crude oil. The crude oil commodity markets are highly volatile, and the market prices of crude oil, and, correspondingly, the market prices of wholesale motor fuel, experience significant and rapid fluctuations. CrossAmerica receives a fixed mark-up per gallon on approximately 87% of gallons sold to its wholesale customers. The remaining gallons are primarily DTW priced contracts with its other wholesale customers. These contracts provide for variable, market based pricing that results in motor fuel gross profit effects similar to retail motor fuel gross profits (as crude oil prices decline, motor fuel gross profit generally increases). The increase in DTW gross profit results from the acquisition cost of wholesale motor fuel declining at a faster rate as compared to the rate retail motor fuel prices decline. Alternatively, our DTW motor fuel gross profit declines when the cost of wholesale motor fuel increases at a faster rate as compared to the rate retail motor fuel prices increase.
Regarding CrossAmerica’s supplier relationships, a majority of CrossAmerica’s total gallons purchased are subject to discounts for prompt payment and other rebates and incentives, which are recorded within cost of sales. Prompt payment discounts are based on a percentage of the purchase price of motor fuel. As such, the dollar value of these discounts increase and decrease corresponding with motor fuel prices. Therefore, in periods of lower wholesale motor fuel prices, CrossAmerica’s gross profit is negatively affected and, in periods of higher wholesale motor fuel prices, our gross profit is positively affected (as it relates to these discounts). Based on CrossAmerica’s current volumes, we estimate a $10 per barrel change in the price of crude oil

35




would impact CrossAmerica’s overall annual wholesale motor fuel gross profit by approximately $2 million related to these payment discounts.
Seasonality Effects on Volumes
Our business is subject to seasonality due to our wholesale and retail sites being located in certain geographic areas that are affected by seasonal weather and temperature trends and associated changes in retail customer activity during different seasons. Historically, sales volumes and operating income have been highest in the second and third quarters (during the summer months) and lowest during the winter months in the first and fourth quarters.
Impact on Inflation
Inflation affects our financial performance by increasing certain of our operating expenses, cost of goods sold and working capital requirements. Operating expenses include labor costs, leases, and general and administrative expenses. The long term impact of inflation is minimized, as we generally are able to pass along energy cost, merchandise cost and operating expense increases in the form of increased sales prices to our customers over time. Although we believe we have historically been able to pass on increased costs through price increases, there can be no assurance that we will be able to do so in the future.
Recently Acquired Retail Sites
When we acquire wholesale fuel and convenience store operations, we generally do not have a predetermined operating or ownership model for these businesses. Acquisitions can be done by CST or CrossAmerica separately or jointly, with wholesale fuel supply operations generally acquired by CrossAmerica and convenience store operations generally acquired by CST. The Merger Agreement prohibits, among other things, CST from acquiring tangible and intangible properties or assets between August 21, 2016 and completion of the Merger. Subsequent to an acquisition, we have an integration team that evaluates the eventual long-term operation of each convenience store acquired: (a) to be fully integrated into the existing core retail site operations of CST, (b) to be converted into a dealer, or (c) other strategic alternatives, including divestiture or longer-term operation by CrossAmerica. All retail sites we acquire are first categorized as non-core and an evaluation process (which could take up to twelve months) is performed to determine if any of the acquired retail sites are suitable to be converted and integrated into CST’s core store operating model. We believe it is necessary to differentiate the operating performance between core and non-core stores when presenting our operating statistics because non-core stores are not necessarily reflective of our core business practices. Key differentiating factors include the following:
Non-core merchandising strategies are often legacy strategies of the former owner, which may be different from our core store merchandising strategies, including the offering of our proprietary products and food programs.
Non-core retail sites are independently managed by our integration team whereas our President of Retail Operations oversees all core store operations.
Non-core motor fuel pricing, merchandise supply and labor strategies may be different from our core business.
The following is a rollforward of our non-core retail sites in our U.S. Retail segment and company operated retail sites in our CrossAmerica segment:
 
 
Year Ended December 31, 2016
 
 
U.S. Retail
 
CrossAmerica
 
Total
Beginning of period
 

 
116

 
116

Acquisitions
 
165

 
37

 
202

Conversion to core site (a)
 
(165
)
 

 
(165
)
Dealer conversions(b)
 

 
(77
)
 
(77
)
End of period
 

 
76

 
76

(a) Effective April 1, 2016, the 165 retail sites acquired February 1, 2016 in the Flash Foods acquisition are included in our U.S. Retail Segment’s core-store operations. The retail sites acquired by CrossAmerica in the Franchised Holiday Stores and State Oil Assets acquisitions are included in CrossAmerica’s retail operations.
(b) Includes one QSR where CrossAmerica collects rent but does not supply motor fuel. During the year ended December 31, 2016, CrossAmerica converted 77 company operated retail sites to third party dealer operated stores. As of December 31, 2016, CrossAmerica continues to operate 76 retail sites (including three company operated liquor stores) from its recent acquisitions.

36




Results of Operations
Consolidated Income Statement Analysis
Below is an analysis of our consolidated income statements, which provides the primary reasons for significant increases and decreases in the various income statement line items from period to period. Our consolidated income statements are as follows (in millions):
 
 
 Year Ended December 31,
 
 
2016

2015
 
2014
Operating revenues
 
$
11,106

 
$
11,455

 
$
12,754

Cost of sales
 
9,666

 
10,061

 
11,481

Gross profit
 
1,440

 
1,394

 
1,273

Operating expenses:
 
 
 
 
 
 
Operating expenses
 
839

 
752

 
687

General and administrative expenses
 
157

 
175

 
140

Depreciation, amortization and accretion expense
 
257

 
209

 
147

Asset impairments
 
2

 
1

 
3

Total operating expenses
 
1,255

 
1,137

 
977

Gain on sale of assets, net
 
351

 
10

 
32

Operating income
 
536

 
267

 
328

Other income, net
 
11

 
18

 
6

Interest expense
 
(67
)
 
(58
)
 
(45
)
Income before income tax expense
 
480

 
227

 
289

Income tax expense
 
176

 
88

 
109

Consolidated net income
 
304

 
139

 
180

Net loss attributable to noncontrolling interests
 
20

 
10

 
20

Net income attributable to CST stockholders
 
$
324

 
$
149

 
$
200

On February 1, 2016, we completed the acquisition of Flash Foods and began consolidating the financial results of Flash Foods. We have quantified the effects of Flash Foods to specific income statement line items in our consolidated discussion of our results of operations, and any significant increase or decrease in the underlying income statement line items attributable to CST excluding the Flash Foods acquisition are then discussed.










37




Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Consolidated Results
Operating revenues increased $834 million and gross profit increased $114 million as a result of the acquisition of Flash Foods, which was completed on February 1, 2016. Operating revenues declined by $301 million and gross profit declined by $24 million related to the sale of all 79 retail sites in California and Wyoming.
Excluding the effects of the Flash Foods acquisition and the California and Wyoming retail site divestitures, operating revenues declined $882 million, while gross profit declined $45 million.
Operating revenues
Significant items impacting these results (excluding Flash Foods and the divestiture of the California and Wyoming retail sites) were:
A $284 million decrease in our U.S. Retail segment operating revenues primarily attributable to:
A decrease in the retail price per gallon of motor fuel that we sold as a result of a decline in wholesale gasoline prices, as more fully described below under the heading “Segment ResultsU.S. Retail.”
An increase in motor fuel gallons sold, as more fully described below under the heading “Segment ResultsU.S. Retail.”
Our merchandise and services revenues increased primarily from our expanded core network, as more fully described below under the heading “Segment ResultsU.S. Retail.”
A $232 million decline in our Canadian Retail segment operating revenues primarily attributable to:
A decline of $89 million in operating revenues due to the foreign exchange effects of a weakening Canadian dollar relative to the U.S. dollar. On average, Canadian $1 was equal to U.S. $0.75 during 2016, and equal to U.S. $0.78 during 2015, representing a decrease in value of 4%.
A decrease in the retail price of our motor fuel as a result of a decline in wholesale gasoline prices, as more fully described below under the heading “Segment ResultsCanadian Retail.”
Partially offsetting this decline was an increase in the volume of motor fuel we sold as more fully described below under the heading “Segment ResultsCanadian Retail.”
Further offsetting the decline were improvements in merchandise and services revenues as more fully described below under the heading “Segment ResultsCanadian Retail.”
A $355 million decline in our CrossAmerica operating revenues primarily as a result of a decline in motor fuel and merchandise and services revenues, partially offset by increased volumes as a result of recent acquisitions as more fully described below under the heading “Segment ResultsCrossAmerica.”
Cost of sales
Cost of sales increased $442 million as a result of the acquisition of Flash Foods and net of the divestiture of the California and Wyoming retail sites.
Excluding the effects of Flash Foods and the divestiture of the California and Wyoming retail sites, cost of sales declined $837 million.
Excluding Flash Foods, and net of the divestiture of the California and Wyoming retail sites, the decline in crude oil and wholesale gasoline prices, as discussed above under the heading “The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit” drove the decline.
Operating expenses
Operating expenses increased $63 million as a result of the acquisition of Flash Foods and net of the divestiture of the California and Wyoming retail sites.

38




Excluding the effects of Flash Foods and the divestiture of the California and Wyoming retail sites, operating expenses increased by $22 million primarily due to our expanded core network, partially offset by declines in our CrossAmerica segment, as more fully described below. Additionally, we recorded approximately $2 million of severance costs during the third quarter of 2016 primarily related to the sale of our California and Wyoming convenience store operations as more fully described in Note 3.
General and administrative expenses
Excluding the effects of Flash Foods, general and administrative expenses were down $22 million primarily as a result of declines in CrossAmerica’s general and administrative expenses from the integration of prior year acquisitions resulting in the elimination and reduction in duplicative administration costs as well as headcount reductions, partially offset by an increase of $8 million in merger related expenses and legal and professional fees associated with discrete projects in the current year.
Depreciation, amortization and accretion expense
Depreciation, amortization and accretion expense increased $26 million related to the acquisition of Flash Foods and net of the divestiture of the California and Wyoming retail sites.
Excluding the effects of Flash Foods and net of the divestiture of the California and Wyoming retail sites, depreciation, amortization and accretion expense increased $22 million mainly due to our NTIs. We opened 38 NTIs in the U.S. and 12 NTIs in Canada in 2016.
Gain on sale of assets, net
The gain recognized during 2016 primarily relates to the sale of our California and Wyoming convenience store operations as more fully described in Note 3.
Income tax expense
Income tax expense, including CrossAmerica, increased $88 million, primarily as a result of the gain on the sale of our California and Wyoming retail sites. Our effective income tax rate was 37% for the year ended December 31, 2016 compared to an effective rate of 39% for the year ended December 31, 2015. This decrease in our effective income tax rate was due primarily to withholding taxes incurred in 2015 related to the distribution of property from our Canadian subsidiary. CST’s effective tax rate, excluding CrossAmerica, was 36% for the year ended December 31, 2016 compared to 39% for the year ended December 31, 2015.

39




Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Consolidated Results
Operating revenues increased $1.6 billion and gross profit increased $133 million from the acquisition of CrossAmerica, which was completed on October 1, 2014.
Excluding the effects of CrossAmerica, operating revenues declined $2.8 billion, or 23%, while gross profit declined $13 million, or 1%.
Operating revenues
Significant items impacting these results (excluding CrossAmerica) were:
A $1.5 billion, or 20%, decline in our U.S. Retail segment operating revenues primarily attributable to:
A decrease in the retail price per gallon of motor fuel that we sold as a result of a decline in wholesale gasoline prices, as more fully described below under the heading “Segment ResultsU.S. Retail.”
Partially offsetting the decline was an increase in motor fuel gallons sold of 2% from our recent acquisitions and NTIs, as more fully described below under the heading “Segment ResultsU.S. Retail.”
Our merchandise and services revenues increased $120 million primarily from our recent acquisitions and NTIs, as more fully described below under the heading “Segment ResultsU.S. Retail.”
A $1.3 billion, or 28%, decline in our Canadian Retail segment operating revenues primarily attributable to:
A decline of $452 million in operating revenues due to the foreign exchange effects of a weakening Canadian dollar relative to the U.S. dollar. On average, Canadian $1 was equal to U.S. $0.78 during 2015, and equal to U.S. $0.91 during 2014, representing a decrease in value of 14%.
Excluding the effects of foreign currency translation changes, our operating revenues decreased $856 million. This decrease was primarily attributable to:
A $743 million decrease in operating revenues primarily attributable to a decrease in the retail price of our motor fuel as a result of a decline in wholesale gasoline prices, as more fully described below under the heading “Segment ResultsCanadian Retail.”
A $49 million decline attributable to a 1% decrease in the volume of motor fuel we sold mainly related to the timing of certain marketing promotions, competition and reduced volumes associated with a weakening Canadian economy as more fully described below under the heading “Segment ResultsCanadian Retail.”
An increase in our merchandise sales of $26 million primarily from an increase in NTIs as more fully described below under the heading “Segment ResultsCanadian Retail.”
A decline of $101 million primarily related to our business and home energy operations due to a decline in retail motor fuel prices as a result of a decline in wholesale prices.
Cost of sales
Cost of sales increased $1.5 billion from the acquisition of CrossAmerica.
Excluding the effects of CrossAmerica, cost of sales declined $2.8 billion or 26%.
Significant items impacting these results excluding CrossAmerica were:
The decline in crude oil and wholesale gasoline prices, as discussed above under the heading “The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit” drove the remainder of the decline.
A $391 million decline from the foreign exchange effects of the weakening of the Canadian dollar relative to the U.S. dollar as discussed above.

40




Operating expenses
Operating expenses increased $55 million from the acquisition of CrossAmerica.
Excluding the effects of CrossAmerica, operating expenses increased by $20 million primarily due to an increase of $44 million related to our NTIs and the acquisitions of Nice N Easy and the Landmark retail sites, which was partially offset by a $24 million decline in operating expenses primarily from the foreign exchange effects of the weakening of the Canadian dollar relative to the U.S. dollar.
General and administrative expenses
General and administrative expenses increased $23 million related primarily to the acquisition of CrossAmerica.
Excluding the effects of CrossAmerica, general and administrative expenses increased by $12 million primarily as a result of severance for certain CST executives and CST employees who were officers of CrossAmerica who have terminated their employment, acquisition costs related to our recent acquisitions, legal related expenditures, and salaries, incentive compensation and benefits due to an increase in employees.
Depreciation, amortization and accretion expense
Depreciation, amortization and accretion expense increased $55 million related primarily to the acquisition of CrossAmerica.
Excluding the effects of CrossAmerica, depreciation, amortization and accretion expense increased $7 million mainly due to our NTIs. We opened 31 NTIs in the U.S. and 11 NTIs in Canada in 2015.
Gain on sale of assets, net
During the year ended December 31, 2015, CrossAmerica recognized a gain of $3 million primarily related to the sale of individual sites. Additionally, we completed the sale of 25 retail sites in our U.S. Retail segment in 2015 primarily related to our previously announced network optimization program and recognized a gain of $7 million.
Other income, net
Other income, net increased $12 million primarily related to gains on U.S. dollar denominated cash held in Canada.
Interest expense
Interest expense increased $13 million, primarily from the acquisition of CrossAmerica.
Income tax expense
Income tax expense, including CrossAmerica, declined $21 million, primarily as a result in the decline in income before income taxes. Our effective income tax rate was 39% for the year ended December 31, 2015 compared to an effective rate of 38% for the year ended December 31, 2014. CST’s effective tax rate, excluding CrossAmerica, was 39%, for the year ended December 31, 2015 compared to 35% for the year ended December 31, 2014. CST incurred a withholding tax of $18 million related to property distributed from its Canadian subsidiary to a U.S. subsidiary, which increased its effective tax rate for the year ended December 31, 2015.

41




Segment Results
We present the results of operations of our segments consistent with how our management views the business. Therefore, the segments are presented before intercompany eliminations (which consist of motor fuel sold from our CrossAmerica segment to our U.S. Retail segment, CST Fuel Supply distributions and rent expense paid by our U.S. Retail segment to our CrossAmerica segment) and before purchase accounting adjustments related to the acquisition of CrossAmerica (primarily depreciation and amortization).
U.S. Retail
The following tables highlight the results of operations and certain operating metrics of our U.S. Retail segment. The narrative following these tables provides an analysis of the results of operations of that segment (millions of dollars, except for the number of retail sites, per site per day and per gallon amounts):
 
 
 Year Ended December 31,
 
 
2016
 
2015
 
2014
Operating revenues:
 
 
 
 
 
 
Motor fuel
 
$
4,431

 
$
4,464

 
$
6,085

Merchandise and services(a)
 
1,797

 
1,514

 
1,396

Other(b)
 
2

 
3

 
1

Total operating revenues
 
$
6,230

 
$
5,981

 
$
7,482

Gross profit:
 
 
 
 
 
 
Motor fuel–before amounts attributable to CrossAmerica
 
$
331

 
$
376

 
$
383

Motor fuel–amounts attributable to CrossAmerica
 
(22
)
 
(16
)
 

Motor fuel–after amounts attributable to CrossAmerica
 
309

 
360

 
383

Merchandise and services(a)
 
607

 
497

 
460

Other(b)
 
2

 
2

 
1

Total gross profit
 
918

 
859

 
844

Operating expenses:
 
 
 
 
 
 
Operating expenses
 
578

 
482

 
438

Depreciation, amortization and accretion expense
 
129

 
96

 
90

Asset impairments
 

 
1

 
3

Total operating expenses
 
707

 
579

 
531

Gain on sale of assets, net
 
347

 
7

 
32

Operating income
 
$
558

 
$
287

 
$
345

 
 
 
 
 
 
 
Core store operating statistics:(c)
 
 
 
 
 
 
End of period core stores
 
1,167

 
1,049

 
989

Motor fuel sales (gallons per store per day)
 
5,093

 
5,100

 
4,901

Motor fuel sales (per store per day)
 
$
10,254

 
$
11,844

 
$
16,014

 
 
 
 
 
 
 
Motor fuel gross profit per gallon, net of credit card fees
 
$
0.150

 
$
0.195

 
$
0.201

CST Fuel Supply wholesale profit attributable to CrossAmerica(e)
 
(0.009
)
 
(0.006
)
 

Motor fuel gross profit per gallon, net of credit card fees(d), (e)
 
$
0.141

 
$
0.189

 
$
0.201

 
 
 
 
 
 
 
Merchandise and services sales (per store per day)(a)
 
4,161

 
3,991

 
3,655

Merchandise and services gross profit percentage, net
of credit card fees
(a)
 
33.8
%
 
32.9
%
 
33.0
%

42




U.S. Retail (continued)
 
 
 Year Ended December 31,
 
 
2016
 
2015
Company operated retail sites:
 
 
 
 
Beginning of period
 
1,049

 
1,021

NTIs opened
 
38

 
31

Acquisitions
 
165

 
22

Closed or divested
 
(85
)
 
(25
)
End of period
 
1,167

 
1,049

End of period non-core retail stores
 

 

End of period core retail stores
 
1,167

 
1,049

 
 
 
 
 
Core store same-store information(c),(f):
 
 
 
 
Company operated retail sites(g)
 
929

 
929

NTIs included in core same-store information(f)
 
76

 
76

Motor fuel sales (gallons per store per day)
 
4,943

 
4,977

Merchandise and services sales (per store per day)(a)
 
$
4,141

 
$
4,192

Merchandise and services gross profit percent, net of
credit card fees
(a)
 
33.9
%
 
32.9
%
Merchandise and services sales, ex. cigarettes (per store per day)(a)
 
$
3,059

 
$
3,076

Merchandise and services gross profit percent, net of
credit card fees and ex. cigarettes
(a)
 
39.9
%
 
39.0
%
Merchandise and services gross profit dollars(a)
 
$
477

 
$
467


Notes to U.S. Retail Statistical Table
(a)
Includes the results from car wash sales and commissions from lottery, money orders, air/water/vacuum services, video and game rentals and ATM fees.
(b)
Primarily consists of rental income.
(c)
Represents the portfolio of core retail stores and excludes recently acquired retail stores that are being integrated or are under performance evaluation to determine if they are: (a) to be fully integrated into the existing core retail operations of CST, (b) to be converted into a dealer operated site, or (c) other strategic alternatives, including divestiture or longer term operation by CrossAmerica. All NTIs are core stores and, accordingly, are included in the core system operating statistics. For the period of February 1 to March 31, 2016, Flash Foods stores were classified as non-core. Effective April 1, 2016, the Flash Foods stores are included in the U.S. Retail Segment’s core-store operations.  Accordingly, their operations are excluded from the core system operating statistics for a portion of the year ended December 31, 2016.
(d)
Includes $0.05 per gallon of wholesale fuel distribution profit.
(e)
CrossAmerica owns a 17.5% limited partner equity interest in CST Fuel Supply, which is the sole owner of CST Marketing & Supply, which distributes motor fuel to our retail operations at a net $0.05 per gallon margin. A separate entity, Fuel South LLC, distributes motor fuel to the Flash Foods retail operations.
(f)
The same-store information consists of aggregated individual store results for all stores in operation substantially throughout both periods presented. Stores that were temporarily closed for a brief period of time during the periods being compared remain in the same-store sales comparison. If a store is replaced, either at the same location or relocated to a new location, it is removed from the comparison until the new store has been in operation for substantially all of the periods being compared. NTIs are included in the core same-store metrics when they meet this criteria.
(g)
Includes 7 retail sites that do not sell motor fuel, which were acquired in the Nice N Easy acquisition.


43




Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Operating revenues increased $249 million, gross profit increased $59 million and operating expenses increased $96 million.
The results were driven by:
Operating revenues
Excluding the impact of our California and Wyoming retail site divestitures discussed below, we had an increase in motor fuel gallons sold of 19%, which increased motor fuel operating revenues by $748 million. The increase in motor fuel gallons sold resulted primarily from our expanded core network, which includes Flash Foods and NTIs.
Excluding the impact of our California and Wyoming retail site divestitures discussed below, our merchandise and services revenues increased $309 million. This increase was primarily a result of our expanded core network, which includes Flash Foods and NTIs.
Offsetting these increases was a decrease in the retail price per gallon of motor fuel that we sold, which contributed $564 million of the decrease to our motor fuel operating revenues, and was attributable to the volatility in wholesale gasoline prices, as discussed above under the heading “The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit.” The average daily spot price of GCC gasoline decreased to $1.33 per gallon during 2016 compared to $1.55 per gallon during 2015, representing a 14% decrease.
As a result of the divestiture of our convenience store operations in California and Wyoming, motor fuel operating revenues decreased by $217 million due to the decline in motor fuel gallons sold and merchandise and services revenues decreased $27 million.
Gross profit
Excluding the impact of our California and Wyoming retail site divestitures discussed below, our motor fuel gross profit increased $62 million due to an increase in the gallons of motor fuel that we sold from our expanded core network, which includes Flash Foods.
Our motor fuel gross profit decreased $89 million as a result of crude oil prices being more volatile during the second half of 2015 than the second half of 2016 and the resulting impact on our motor fuel gross margin. The daily spot price of WTI crude oil decreased approximately 35% during the last six months of 2015 compared to an increase of approximately 10% during the same period of 2016. See further discussion under the heading “The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit.”
Excluding the impact of our California and Wyoming retail site divestitures discussed below, our merchandise and services gross profit increased $118 million. This increase was primarily from the contribution of the Flash Foods stores and from the contribution of our newly constructed NTIs.
As a result of the divestiture of our convenience store operations in California and Wyoming, motor fuel gross profits decreased by $16 million and merchandise and services gross profits decreased $8 million.
Operating expenses
Operating expenses increased $96 million as a result of our expanded core network, including the 38 NTIs opened in 2016 and the acquisition of Flash Foods.
Depreciation, amortization and accretion expense
Depreciation, amortization and accretion expense increased $33 million as a result of our expanded core network, which includes Flash Foods and NTIs.
Gain on sale of assets, net
The gain recognized during 2016 primarily relates to the sale of our California and Wyoming convenience store operations.

44




Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Operating revenues declined $1.5 billion, or 20%, gross profit increased $15 million, or 2%, operating expenses increased $44 million, or 10%, and operating income declined $58 million, or 17%.
The results were driven by:
Operating revenues
A decrease in the retail price per gallon of motor fuel that we sold, which contributed $1.8 billion of the decrease to our motor fuel operating revenues, and was attributable to the volatility in wholesale gasoline prices, as discussed above under the heading “The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit.” The average daily spot price of GCC gasoline decreased to $1.55 per gallon during 2015 compared to $2.49 per gallon during 2014, representing a 38% decrease.
Partially offsetting the decline was an increase in motor fuel gallons sold of 2%, which increased motor fuel operating revenues by $134 million. The increase in motor fuel gallons sold resulted primarily from our NTIs and the acquisitions of Nice N Easy and the Landmark retail sites. Partially offsetting this increase was a decline in volume attributable to our recently divested retail sites.
Our merchandise and services revenues increased $120 million primarily as a result of our NTIs and the acquisitions of Nice N Easy and the Landmark retail sites as well as an overall increase in our same store merchandise sales. The increase in same store merchandise sales was the result of strategies designed to add business in the packaged beverage and dairy categories as well as continued development of our fresh food programs.
Gross profit
A decrease in motor fuel gross profit of $23 million primarily due to a moderate decline in our motor fuel gross profit per gallon of $0.01 per gallon. The decline in our motor fuel gross profit per gallon was driven by volatility in crude oil and wholesale motor fuel prices, as discussed under the heading “The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit.”
Also contributing to the decrease to motor fuel gross profit was the effect of wholesale fuel mark-up payments to CrossAmerica. As discussed in Note 13 included elsewhere in this Form 10-K, CST paid CrossAmerica $5 million related to fuel purchased under distribution agreements for Nice N Easy and Landmark retail sites and $11 million to CrossAmerica related to its investment in CST Fuel Supply.
Our merchandise and services gross profit increased $37 million primarily from our acquisitions and an increase in our same store sales.
Operating expenses
Operating expenses increased $44 million, primarily as a result of our acquisitions and the impact on rent expense from the NTI sale and lease backs with CrossAmerica as discussed in Note 3 included elsewhere in this Form 10-K.
Depreciation, amortization and accretion expense
Depreciation, amortization and accretion expense increased $6 million as a result of our NTIs.
Gain on sale of assets, net
We completed the sale of 25 retail sites in 2015 primarily related to our previously announced network optimization program and recognized a gain of $7 million.

45




Canadian Retail
The following tables highlight the results of operations and certain operating metrics of our Canadian Retail segment, expressed in U.S. dollars, except for retail site counts and motor fuel gallons. The narrative following these tables provides an analysis of the results of operations of that segment (which are expressed in millions of U.S. dollars, except where indicated and except for the number of retail sites, per site per day and per gallon amounts):
 
 
 Year Ended December 31,
 
 
2016
 
2015
 
2014
Operating revenues:
 
 
 
 
 
 
Motor fuel
 
$
2,568

 
$
2,801

 
$
3,957

Merchandise and services(a)
 
267

 
255

 
271

Other(b)
 
327

 
338

 
474

Total operating revenues
 
$
3,162

 
$
3,394

 
$
4,702

Gross profit:
 
 
 
 
 
 
Motor fuel
 
$
226

 
$
225

 
$
241

Merchandise and services(a)
 
83

 
80

 
84

Other(b)
 
58

 
60

 
68

Total gross profit
 
367

 
365

 
393

Operating expenses:
 
 
 
 
 
 
Operating expenses
 
217

 
212

 
236

Depreciation, amortization and accretion expense
 
42

 
39

 
38

Total operating expenses
 
259

 
251

 
274

Gain on sale of assets, net
 
4

 

 

Operating income
 
$
112

 
$
114

 
$
119

 
 
 
 
 
 
 
Total retail sites (end of period):
 
 
 
 
 
 
Company operated retail sites (fuel and merchandise)
 
314

 
303

 
293

Commission sites (fuel only)
 
498

 
494

 
495

Cardlock (fuel only)
 
72

 
72

 
73

Total retail sites (end of period)
 
884

 
869

 
861

 
 
 
 
 
 
 
Average retail sites during the period:
 
 
 
 
 
 
Company operated retail sites (fuel and merchandise)
 
307

 
293

 
280

Commission sites (fuel only)
 
496

 
495

 
499

Cardlock (fuel only)
 
72

 
72

 
74

Average retail sites during the period
 
875

 
860

 
853

 
 
 
 
 
 
 
Total system operating statistics:
 
 
 
 
 
 
Motor fuel sales (gallons per site per day)
 
3,185

 
3,166

 
3,230

Motor fuel sales (per site per day)
 
$
8,020

 
$
8,918

 
$
12,719

Motor fuel gross profit per gallon, net of credit card fees
 
$
0.222

 
$
0.227

 
$
0.240

 
 
 
 
 
 
 
Company operated retail site statistics:
 
 
 
 
 
 
Merchandise and services sales (per site per day)(a)
 
$
2,378

 
$
2,406

 
$
2,659

Merchandise and services gross profit percentage, net of credit card
   fees(a)
 
31.1
%
 
30.9
%
 
31.0
%

46




Canadian Retail (continued)
 
 
 Year Ended December 31,
Company operated statistics(c)
 
2016
 
2015
Retail sites:
 
 
 
 
Beginning of period
 
303

 
293

NTIs opened
 
12

 
11

Acquisitions
 

 

Conversions, net(d)
 
2

 
3

Closed or divested
 
(3
)
 
(4
)
End of period
 
314

 
303

 
 
 
 
 
Average foreign exchange rate for $1 CAD to USD
 
0.75423

 
0.78284

 
 
 
 
 
Same-store information ($ amounts in CAD)(e), (f):
 
 
 
 
Company operated retail sites
 
286

 
286

NTIs included in same-store information
 
34

 
34

Motor fuel sales (gallons per site per day)
 
3,416

 
3,417

Merchandise and services sales (per site per day)(a)
 
$
3,190

 
$
3,076

Merchandise and services gross profit percent, net of credit card
   fees(a)
 
31.2
%
 
31.2
%
Merchandise and services sales, ex. cigarettes (per site per day)(a)
 
$
1,720

 
$
1,669

Merchandise and services gross profit percent, net of credit card
   fees and ex. cigarettes(a)
 
43.3
%
 
43.1
%
Merchandise and services gross profit dollars(a)
 
$
104

 
$
100

 
 
 
 
 
Commission agent and dealer statistics(c)
 
 
 
 
Retail sites:
 
 
 
 
Beginning of period
 
494

 
495

New dealers
 
17

 
13

Conversions, net(d)
 
(2
)
 
(3
)
Closed or de-branded
 
(11
)
 
(11
)
End of period
 
498

 
494

 
 
 
 
 
Same Site Information(f):
 
 
 
 
Commission agent and dealer retail sites
 
460

 
460

Motor fuel sales (gallons per site per day)
 
2,680

 
2,698

Notes to Canadian Retail Statistical Table
(a)
Includes the results from car wash sales, commissions from lottery and ATM fees.
(b)
Primarily consists of our business and home energy operations.
(c)
Company operated retail sites sell motor fuel and merchandise. The Company sells only motor fuel at commission agent and dealer sites. We do not currently distinguish between core and non-core stores in our Canadian Retail segment. All sites in our Canadian Retail segment are core stores.
(d)
Conversions represent stores that have changed their classification from commission sites to company-owned and operated or vice versa. Changes in classification result when we either take over the operations of commission sites or convert an existing company-owned and operated store to commission sites.
(e)
All amounts presented are stated in Canadian dollars to remove the impact of foreign exchange and all fuel information excludes amounts related to cardlock operations.

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(f)
The same-store and same-site information consists of aggregated individual store results for all sites in operation substantially throughout both periods presented. Stores that were temporarily closed for a brief period of time during the periods being compared remain in the same-store sales comparison. If a store is replaced, either at the same location or relocated to a new location, it is removed from the comparison until the new store has been in operation for substantially all of the periods being compared. NTIs are included in the same-store metrics when they meet this criteria.
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Operating revenues declined $232 million, gross profit increased $2 million, operating expenses increased $5 million, and operating income decreased $2 million.
Significant items impacting these results included:
Operating revenues
A decline of $89 million in operating revenues due to the foreign currency translation effects of a weakening Canadian dollar relative to the U.S. dollar. On average, Canadian $1 was equal to U.S. $0.75 during 2016, and equal to U.S. $0.78 during 2015, representing a decrease in value of 4%.
Excluding the effects of foreign currency translation changes, our operating revenues decreased $143 million. This decrease was primarily attributable to:
A $266 million decrease in operating revenues primarily attributable to a decrease in the retail price of our motor fuel. The average daily spot price of NYHC gasoline decreased to $1.39 per gallon during 2016, compared to $1.61 per gallon during 2015.
Partially offsetting this decline was a $93 million increase attributable to a 3% increase in the volume of motor fuel we sold mainly related to the increase in the average number of retail sites.
Further offsetting the decline was an increase in merchandise and services revenues of $28 million from an increase in the number of company operated retail sites as well as an increase in same-store sales of 3% attributable to growth in the grocery and packaged beverage business, as well as an increase in alcohol sales.
Gross profit
Our motor fuel gross profit increased $12 million driven by slight increases in both price and volume.
Our merchandise and services gross profit increased $9 million as a result of an increase in the number of company operated retail sites during 2016, resulting from NTI openings, as well as growth in same-store merchandise and services as discussed above.
The effects of foreign exchange were to decrease gross profit $18 million during 2016.
Operating expenses
Operating expenses increased $5 million primarily from an increase of 14 stores in the average number of company operated retail sites during 2016.

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Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Operating revenues declined $1.3 billion, or 28%, gross profit declined $28 million, or 7%, operating expenses declined $24 million, or 10%, and operating income declined $5 million, or 4%.
Significant items impacting these results included:
Operating revenues
A decline of $452 million in operating revenues due to the foreign currency translation effects of a weakening Canadian dollar relative to the U.S. dollar. On average, Canadian $1 was equal to U.S. $0.78 during 2015, and equal to U.S. $0.91 during 2014, representing a decrease in value of 14%.
Excluding the effects of foreign currency translation changes, our operating revenues decreased $856 million. This decrease was primarily attributable to:
A $743 million decrease in operating revenues primarily attributable to a decrease in the retail price of our motor fuel. In terms of Canadian dollars, the average daily spot price of NYHC gasoline decreased to $2.06 per gallon during 2015, compared to $2.88 per gallon during 2014.
A $49 million decline attributable to a 1% decrease in the volume of motor fuel we sold mainly related to the timing of certain marketing promotions, competition and reduced volumes associated with a weakening Canadian economy.
An increase in merchandise revenues of $26 million, from an increase of 11 NTIs through 2015 compared to the same period of the prior year as well as an increase in same store sales. We have successfully implemented some of the strategies from our U.S. Retail segment, which has contributed to the increase in same store sales trends.
A decline of $101 million primarily related to our business and home energy operations due to a decline in retail motor fuel prices from a decline in crude oil prices.
Gross profit
The decrease in the value of the Canadian dollar relative to the U.S. dollar resulted in a $60 million gross profit decline.
Excluding the effects of foreign exchange, our motor fuel gross profit increased $24 million driven primarily by volatility in crude oil and wholesale motor fuel prices, as discussed under the heading “The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit,” and our merchandise and services gross profit increase $6 million as a result of an increase in the number of company operated retail sites during 2015 resulting from NTI openings.
Operating expenses
Operating expenses declined $24 million primarily from the foreign exchange effects of a weakening Canadian dollar relative to the U.S. dollar. Excluding the effects of foreign exchange, operating expenses increased $10 million, primarily as a result of an increase in the number of company operated retail sites during 2015 compared to the same period of the prior year resulting from NTI openings.

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CrossAmerica
The following table highlights the results of operations and certain operating metrics of CrossAmerica. CrossAmerica is presented excluding the accounting purchase price adjustments and before elimination of transactions with our U.S. Retail segment to be consistent with how our management reviews its results. The impact of the purchase accounting adjustments is to increase depreciation, amortization and accretion expense by $32 million, $26 million and $7 million for the years ended December 31, 2016, 2015 and 2014, respectively. As discussed in Note 13 included elsewhere in this Form 10-K, transactions with our U.S. Retail segment consisted of a wholesale mark-up on purchased motor fuel, rent income and equity ownership interest in CST Fuel Supply. Additionally, CST provides management and corporate support services to CrossAmerica and charges CrossAmerica a management fee under the terms of the Amended and Restated Omnibus Agreement, as well as an allocation of certain incentive compensation. All transactions between our U.S. Retail segment and CrossAmerica are eliminated from our consolidated financial statements. Approximately 80% and 89% of CrossAmerica’s operating results are attributable to noncontrolling interests for the years ended December 31, 2016 and 2015, respectively. CrossAmerica is a publicly traded Delaware limited partnership and its units are listed for trading on the NYSE under the symbol “CAPL.” As a result, CrossAmerica is required to file reports with the SEC, where additional information about its results of operations can be found and should be read in conjunction with the table below (millions of dollars).
 
 
 Year Ended December 31,
 
 
2016
 
2015
 
2014(a)