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CST Brands, Inc. Reports Fourth Quarter and Year-End 2016 Results

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CST Brands, Inc. (NYSE:CST):

  • Fourth Quarter Highlights:
    • Fourth Quarter 2016 Net Income of $18 million, or $0.23 per
      diluted share
    • U.S. and Canadian Merchandise and Services Gross Profit increased
      19% and 5%, respectively
    • Core Same Store Merchandise and Services Gross Margin Percent in
      the U.S. increased by 60 basis points in the Fourth Quarter 2016
      when compared to Fourth Quarter 2015
    • Opened a total of 21 New-to-Industry stores in the Fourth Quarter
      2016 with 16 in the U.S. and 5 in Canada
  • Full Year Highlights:
    • 2016 Net Income of $324 million, or $4.24 per diluted share; $1.41
      excluding certain items, which are discussed below
    • U.S. and Canadian Merchandise and Services Gross Profit increased
      22% and 4%, respectively
    • Core Same Store Merchandise and Services Gross Margin Percent in
      the U.S. increased by 100 basis points in 2016 when compared to
      2015
    • Opened a total of 50 New-to-Industry stores in 2016 with 38 in the
      U.S. and 12 in Canada

CST Brands, Inc. (NYSE:CST), one of the largest independent retailers
of motor fuels and convenience merchandise in North America, today
reported financial results for the fourth quarter and year ended
December 31, 2016.

Kim Lubel, Chairman and CEO of CST Brands, said, "2016 was a year of
significant growth and change for CST, beginning with the Flash Foods
acquisition in February, the completion of 50 new-to-industry stores
across the U.S. and Canada, and our shareholder approval of the pending
merger with Circle K Stores, Inc., a wholly-owned subsidiary of
Alimentation Couche-Tard Inc. The merger is on track to close during the
second quarter 2017. I am grateful to the entire CST team for their
continued commitment to the Company and to our mission to Delight More
Customers Every Day."

Three Months Results

For the three month period ended December 31, 2016, the Company reported
net income of $18 million, or $0.23 per diluted share compared to net
income of $25 million, or $0.34 per diluted share, for the same period
in 2015. Included in net income for the fourth quarter of 2015 is
approximately $16 million, net of tax, related to asset impairment
charges, acquisition expenses, legal expenses, professional fees and net
tax effects on repatriation. Excluding these items, net income would
have been $42 million, or $0.55 per diluted share, for the three month
period ended December 31, 2015. During the fourth quarter of 2016, the
Company incurred acquisition expenses, legal expenses and professional
fees. However, these items were not substantial, were offsetting and did
not affect net income or earnings per share for the period (Non-GAAP
measures, including EBITDA, Adjusted Net Income and Adjusted Net Income
Per Share, are described and are reconciled to the corresponding GAAP
measures in the Supplemental Disclosure section of this release).

The decline in net income was primarily driven by a 25% decrease in U.S.
motor fuel gross profit, as the Company experienced very strong fuel
margins in the fourth quarter of 2015. Motor fuel gross profit in the
U.S. for the fourth quarter of 2016 was $66 million versus $88 million
in the same quarter of 2015. The decline in motor fuel gross profit was
primarily attributable to a 31% decline in motor fuel gross profit, on a
per gallon basis ("cents per gallon" or "CPG") decreasing from 19.4 CPG
in the fourth quarter of 2015 to 13.4 CPG in the fourth quarter of 2016.
The decline in fuel margins was partially offset by a 10% increase in
total motor fuel gallons sold, resulting from the Company's expanded
core network. This volume increase was achieved despite the divestment
of stores in California and Wyoming that was completed earlier in the
year.

U.S. merchandise and services gross profit increased 19% when compared
to the fourth quarter of 2015, primarily driven by an overall increase
in merchandise and services sales and gross profits in the Company's
U.S. core and New-to-Industry ("NTI") store sales, aided by acquisition
and organic growth. Core same store merchandise and services sales per
store per day declined 3% during the fourth quarter of 2016, primarily
due to continued softness in parts of South Texas caused by a decrease
in economic activity in the energy related sector. Core same store
merchandise and services gross profit dollars were relatively flat when
compared to the same period in 2015, as a result of a 60 basis point
improvement in gross margin capture during the quarter.

In Canada, motor fuel gross profit increased 4% and merchandise and
services gross profit increased 5% when compared to the fourth quarter
of 2015, primarily driven by an increase in volume of motor fuel sold
along with an improvement in merchandise and services sales driven by an
increase in the average number of retail sites. On a same-store basis,
merchandise and services sales per site per day increased 2% in Canada
when compared to the fourth quarter of 2015, primarily due to growth in
the grocery and packaged beverage business.

Twelve Months Results

For the year ended December 31, 2016, the Company reported net income of
$324 million, diluted earnings per common share of $4.24 and EBITDA of
$717 million. For the year ended December 31, 2015, the Company reported
net income of $149 million, diluted earnings per common share of $1.95
and EBITDA of $422 million.

Included in 2016 net income are certain special items totaling
approximately $217 million, net of tax, or $2.83 per share, consisting
of a gain from the Company's sale of its California and Wyoming
convenience stores, offset by certain acquisition expenses,
merger-related expenses, legal expenses and professional fees. Included
in 2015 net income are asset impairment charges, acquisition expenses,
legal expenses, professional fees, a gain on the sale of assets and net
tax effects on repatriation totaling approximately $18 million, net of
tax, or $0.24 per share. Excluding these items, net income would have
been $107 million, or $1.41 per diluted share, and $167 million, or
$2.19 per diluted share, for the year ended December 31, 2016 and 2015,
respectively.

The 70% growth in EBITDA in 2016 over 2015 was driven by a gain on the
sale of the Company's California and Wyoming convenience stores during
the third quarter and by continued improvement in the Company's
merchandise and services gross profits (Non-GAAP measures, including
EBITDA, Adjusted Net Income and Adjusted Net Income Per Share, are
described and are reconciled to the corresponding GAAP measures in the
Supplemental Disclosure section of this release).

For the full year 2016, motor fuel gross profit in the U.S. was $309
million versus $360 million in the same period of 2015. The decline in
motor fuel gross profit was primarily attributable to a decline in motor
fuel gross profit on a CPG basis, which was partially offset by a 12%
increase in total motor fuel gallons sold, due to the Company's expanded
core network, despite the divestment of stores in California and Wyoming
that was completed during the summer.

U.S. merchandise and services gross profit increased 22% when compared
to 2015, primarily driven by an overall increase in merchandise and
services sales and gross profits in the Company's U.S. core and NTI
store sales, aided by acquisition and organic growth. Core same store
merchandise and services sales per store per day declined 1% during
2016. However, core same store merchandise and services gross profits
grew by 2% in 2016, resulting from a 100 basis point improvement in
margin capture.

In Canada, motor fuel gross profit increased slightly and merchandise
and services gross profit increased 4% when compared to 2015, primarily
driven by an increase in volume of motor fuel sold along with an
improvement in merchandise and services sales driven by an increase in
the average number of retail sites. On a same-store basis, merchandise
and services sales per site per day and merchandise and services gross
profits increased 4% in Canada when compared to 2015, primarily due to
growth in the grocery and packaged beverage business.

Liquidity and Capital Resources

For the year ended December 31, 2016, cash flow provided by operating
activities totaled $211 million. Cash flow used in investing activities
was $411 million, primarily related to capital expenditures and the
Flash Foods acquisition. Total capital expenditures, excluding
acquisitions, for the year ended December 31, 2016 and 2015 were $349
million and $341 million, respectively. Cash flow provided by financing
activities was $19 million, including net payments on CST Brands'
revolving credit facility of $90 million, dividends paid of $15 million
and payments of $69 million on CST Brands' term loan. The effect of
foreign currency translation changes was an increase in cash of $4
million. Overall, cash decreased by $177 million. Cash, as of
December 31, 2016, was $136 million.

As of February 24, 2017, approximately $112 million was available for
future borrowings under CST Brands' revolving credit facility.

Basis of Presentation

The CST Brands Statements of Income are presented on a consolidated
basis; however, the amounts presented account for CST's investment in
CrossAmerica under the equity method of accounting. CrossAmerica is a
consolidated variable interest entity; however, management reviews the
results of operations of CrossAmerica under the equity method of
accounting because of CST's limited ownership interest of CrossAmerica's
outstanding units. Net income and earnings per share attributable to CST
are unchanged under the equity method of accounting from consolidating
CrossAmerica. CST's operating segments on the following pages are
presented before intercompany eliminations with CrossAmerica. Therefore,
the U.S. Retail segment includes in cost of sales the wholesale fuel
costs for sites supplied by CrossAmerica and operating expenses include
rent from sites leased from CrossAmerica. Consolidated financial
statements that include CrossAmerica are provided in CST Brands'
December 31, 2016 Form 10-K.

Withdrawal of Guidance and Conference Call

As previously reported, on August 21, 2016, CST Brands entered into an
Agreement and Plan of Merger with Circle K Stores Inc., a Texas
corporation ("Circle K"). Under the terms of the merger agreement, CST
will be merged with a subsidiary of Circle K. Circle K is a wholly owned
subsidiary of Alimentation Couche-Tard Inc. The closing of the merger is
subject to certain conditions, including, among others, the expiration
or termination of applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and receipt of clearance under the
Canadian Competition Act. CST stockholders approved the merger on
November 16, 2016. The merger is expected to close in the second quarter
of 2017.

In light of the pending merger, CST will not be issuing financial
guidance regarding the Company's projected financial performance and
will not be hosting a fourth quarter/year-end earnings conference call.

         
 
CST BRANDS, INC.

CONSOLIDATED STATEMENTS OF INCOME(a)

(Millions of Dollars, Except per Share Amounts)
(Unaudited)
 
Three Months Ended Year Ended
December 31, December 31,
2016     2015 2016     2015
Operating revenues $ 2,374 $ 2,107 $ 9,392 $ 9,375
Cost of sales   2,069     1,807     8,107     8,151  
Gross profit   305     300     1,285     1,224  
Operating expenses:
Operating expenses 196 178 795 694
General and administrative expenses 27 34 133
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