Crossamerica Partners LP (CAPL) 2014 Q4 法說會逐字稿

Welcome to the CST Brands and CrossAmerica Partners yearend fourth-quarter 2014 earnings call. My name is Christine and I will be the operator for today's call. (Operator Instructions). Please note that this conference is being recorded. I will now turn the call over to Randy Palmer, Director of Investor Relations. Mr. Palmer, you may begin.

Thank you, operator. And good morning and thank you for joining our joint 2014 yearend and fourth-quarter 2014 earnings call with CrossAmerica. With me today are Kim Lubel, our Chairman and CEO; Clay Killinger, CST Brands' CFO; Joe Topper, CEO of CrossAmerica Partners; Mark Miller, CFO of CrossAmerica Partners; and other members of our executive leadership team.

Kim will provide an overview of the operational performance for CST for the year and fourth quarter and then we will turn the call over to Clay to discuss CST's financial results. Joe will then provide an overview of the operational performance for CrossAmerica Partners and then he will turn the call over to Mark to discuss the CrossAmerica financial results. At the end we will open the call up to questions for both companies.

Before I begin I would like to remind everyone that today's call includes -- including the question-and-answer session, may include forward-looking statements regarding expected revenue, future plans, future operational metrics and opportunities and expectations of the companies.

These estimates and plans and other forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied on the call. There can be no assurance that management's expectations, beliefs and projections will be achieved or that actual results will not differ from expectations.

Importantly, for these forward-looking statements we claim the protection of the Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Please see filings with the Securities and Exchange Commission including our annual report on Form 10-K and quarterly reports on Form 10-Q for a discussion of important factors that could affect our actual results.

Forward-looking statements represent the judgment of the Company's management as of today's date and the Company disclaims any intent or obligation to update any forward-looking statements.

During today's call we may also provide certain performance measures that do not conform to US generally accepted accounting principles, or GAAP. We provided schedules to reconcile these non-GAAP measures with our reported results on a GAAP basis as part of our earnings press release which can be found on the Investors section of the Company's websites at cstbrands.com or CrossAmericaPartners.com.

We should also note that the results provided today by CST represent the business operations of CST on a standalone basis before the consolidation of CrossAmerica Partners LP. But including the income associated with CST owning the IDRs of CrossAmerica since October 1 of 2014.

Full consolidating information is included in footnote number 24 of our 2014 Form 10-K which will enable you to arrive at our complete consolidated financial results. Today's call is being webcast and a recording of this call will be available for a period of 60 days. With that I will now turn the call over to Kim Lubel.

Well thanks, Randy, and good morning, everyone. And welcome to our yearend and fourth-quarter 2014 earnings call. This is our first joint earnings call with CrossAmerica Partners.

This morning we reported net income of $94 million or $1.21 per share for the fourth quarter of 2014. This compares to net income of $34 million or $0.44 per share for the fourth quarter of 2013. For both periods we had certain one-time expenses that included asset impairments; transaction, legal and professional fees; and gains on the sale of assets as outlined in our earnings release.

The income effect of these items was approximately $15 million for the fourth quarter of 2014 and approximately $4 million for the fourth quarter of 2013. Excluding these items our earnings would have been $79 million or $1.02 per share for the fourth quarter of 2014 compared to $36 million or $0.48 for the fourth quarter of 2013.

Clay will discuss the financial results in more detail later in the call, but I first wanted to summarize our fourth-quarter and full-year performance and outline some of our thoughts for 2015.

During the first half of 2014 we experienced a rising crude oil it wholesale gasoline price environment. This changed dramatically in the back half of the year, especially during the fourth quarter, when we experienced steadily declining crude oil and wholesale gasoline prices that positively impacted our fuel margins and our overall profitability especially in the US.

Our US fuel gross profit dollars increased $87 million or 123% for the fourth quarter of 2014 compared to the fourth quarter of 2013. We were able to achieve a $0.32 per gallon net margin for the quarter in the US driven primarily by the declining crude oil and wholesale gasoline pricing environment. For the full year our net fuel margin was $0.20 per gallon in the US and $0.24 per gallon in Canada.

As we look at our merchandise operations in the US, we experienced another good quarter in both revenues and margin dollar growth. Our revenues increased 9% with a margin dollar increase of 8% or $8 million across our network. For the year we achieved a revenue increase of 5% and a margin dollar increase of 6% or $23 million.

We do hope to build on these positive trends in 2015 particularly through our contributions from our continued new to industry store growth. And while we are pleased with our strong full-year 2014 results due to exceptional third- and fourth-quarter fuel margins, we are realistic and understand that fuel margins will most likely retreat back to the historical norm. Although crude oil prices continued to fall in January, the price of crude oil in February has stabilized.

I wanted to briefly talk about our network optimization plan or the potential sale of approximately 100 or so stores that we have previously discussed.

In the fourth quarter we closed on the sale of 71 sites for a total net gain of $32 million. We expect to close on the sale of an additional 10 stores in the first quarter. You should expect that we will always be evaluating the performance of our sites; this should conclude this particular more focused sales process.

Our teams in both the US and Canada did a great job in 2014 as they achieved our goal of opening up 38 new to industry stores. We have now opened 60 new to industry stores in just the last two years. As we previously stated, our new larger format stores in the US generate on average almost twice the inside store sales and fuel sales compared to our legacy stores.

We also noted on our last call that we plan on building more new stores in 2015 and, after working through our budget for 2015, we currently project that we will build between 35 to 40 new stores in the US and another 10 to 12 new stores in Canada this year. We expect this level of organic growth to continue in future years supported by our partnership with CrossAmerica as we expand into new markets.

In addition to strong organic growth, together with CrossAmerica, we will continue to look for opportunistic acquisitions. We are pleased with the early operational results come the Nice N Easy stores that we acquired in the fourth quarter and have made great strides in integrating the 22 Shell branded San Antonio and Austin area stores that, with CrossAmerica, we acquired earlier this year.

We are also excited about the potential growth opportunities in our newest operating footprint following the acquisition by CrossAmerica of the 64 stores from Erickson Oil which are predominantly branded Freedom Valu and located in the Minneapolis-St. Paul area.

Each of these three acquisitions brought to us a strong operating culture, innovative best practices and, in the case of Nice N Easy and Erickson Oil, new markets to possibly expand our new store development efforts. Furthermore, our dedicated integrations team, comprised of strong team members from both CST and CrossAmerica, will continue to focus on making each acquisition and subsequent integration as successful and seamless as possible.

These acquisitions helped showcase the combined strength of CST's retail operations and CrossAmerica's wholesale operations and this advantaged financial structure. We believe that our relationship with CrossAmerica further strengthens our overall growth strategy and that both the shareholders of CST Brands and the unitholders of CrossAmerica will benefit from this symbiotic relationship.

As of January this year we completed our first drop-down transaction with CrossAmerica as we dropped down or sold a 5% limited partner interest in CST Fuel in exchange for approximately 1.5 million common units representing limited partner interest in CrossAmerica.

I also wanted to note that we have opened our new distribution center, the Corner Store distribution center, in San Antonio on February 22. This is the first phase of utilization of the previously announced purchase of the site where our new CST service center will also reside sometime in mid-2016. The distribution center serves approximately 600 of our Corner Stores, making deliveries to those stores three times a week.

And finally, I want to say thank you to our 13,500 team members across the US and Canada for making 2014 a successful year, including our newest team members from CrossAmerica, Nice N Easy, Landmark and Erickson Oil. I am looking forward to 2015 to build upon our current footprint, continue to refine and strengthen our existing operations and delight more customers every day across our networks.

We are excited about the future of our Company and to the opportunities that lie ahead. And with that I'll turn the call over to Clay to review our fourth-quarter results.

Thanks, Kim. Before I begin I'd like to remind everyone that the financial results that I will be presenting for CST today do not consolidate CrossAmerica and reflect CST standalone results. The income associated with CrossAmerica's IDRs, which CST purchased on October 1, 2014, are in these results but were immaterial for the fourth quarter.

Today we reported net income of $94 million or $1.21 per share for the fourth quarter of 2014. This compares to net income of $34 million or $0.44 per share for the fourth quarter of 2013. For both periods we had certain one-time expenses that included asset impairments, transaction, legal and professional fees and gains on the sales of assets as outlined in our earnings release.

The after-tax income effect of these items was approximately $15 million for the fourth quarter of 2014 and approximately $4 million for the fourth quarter of 2013. Excluding these items our earnings would have been $79 million or $1.02 per share for the fourth quarter of 2014 compared to $36 million or $0.48 for the fourth quarter of 2013.

As I discuss our fourth-quarter highlights in more detail I will be referring to our US and Canadian segment operating results which were included within our earnings release.

Beginning this quarter, associated with our CrossAmerica transaction and our subsequent joint acquisitions of Nice N Easy and Landmark, we have introduced a core versus non-core store classification concept into our joint operations. Core stores represent convenience stores that are fully integrated into our existing convenience store network.

All acquired convenience store operations are first classified as non-core until our dedicated integration team completes its assessment and evaluation of each store for it eventual transfer into core stores, conversion to wholesale dealers or other strategic alternatives. Operating statistics for our segments, including our same-store information, present information for our core stores only. As of December 31, 2014 our CST non-core stores consisted of the 32 Nice N Easy sites we recently acquired.

In regards to our US segment, fourth-quarter 2014 motor fuel gross profit increased by $87 million or 123% when compared to the fourth quarter of 2013. The year-over-year improvement was primarily attributable to an increase in the cents per gallon fuel margin net of credit card fees of nearly $0.17 between the periods rising to $0.32 from $0.15 for the fourth quarter of 2013.

Fourth-quarter 2014 prices of crude oil and wholesale gasoline were steadily declining for most of this quarter. As we have mentioned before, during periods of falling crude oil and wholesale gasoline prices, our retail margins are usually increased.

For our core stores our US motor fuel gallons sold per site per day increased by approximately 1% quarter versus quarter. Our gross profit for merchandise sales increased $8 million or 8% in the fourth quarter of 2014 when compared to the same period in 2013, primarily driven by improved packaged beverages, perishable foods and fresh foods categories across our network, particularly from our new to industry stores. Operating expenses increased $8 million quarter versus quarter driven primarily by our new to industry stores.

Turning to our Canadian segment, fourth-quarter fuel gross profit declined by [CAD]2 million or 3%. This decrease in fuel gross profit was attributable to a relatively flat cents-per-gallon fuel margin net of credit card fees of $0.24 for both the 2013 and 2014 periods, combined with a decline of nearly 4% in motor fuel gallons sold. Motor fuel gross profit was also negatively affected by $5 million associated by the effects of foreign currency exchange.

Our reported gross profit from merchandise sales and our other category was down slightly for the fourth quarter of 2014 compared to 2013. The slight decline was primarily attributable to foreign currency exchange as merchandise gross profit was negatively impacted by $1 million. As a reminder, other revenues in Canada include our heating oil business as well as other services such as carwash and ATM fees, similar to the US.

The Canadian dollar continued to devalue relative to the US dollar during the fourth quarter of 2014 versus the comparable period in 2013. As noted in our earnings release, the exchange rate for the US dollar relative to the Canadian dollar averaged approximately $0.88 for the fourth quarter of 2014 versus approximately $0.95 for the comparable quarter in 2013. This represents a devaluation of the Canadian dollar by approximately 8% between the comparable periods. Subsequent to yearend the Canadian dollar has further weakened and as of Wednesday it was at approximately CAD0.80 to the US dollar.

I will now make a few comments about our financial position. At the end of the year we had $353 million of cash and $297 million available under our credit facility after considering letters of credit and our maximum leverage constraint of 3.75 times adjusted EBITDAR. We have [CAD]205 million of cash in Canada and presently have no intentions of repatriating any amounts back to the US.

In regards to our capital spending, capital expenditures for the full year of 2014 totaled $282 million. Most of this went towards our NTI builds that totaled $159 million. Also included in our 2014 capital expenditures was $43 million related to the purchase of an existing distribution center and office facility and $10 million of IT infrastructure expenses.

During the fourth quarter we completed 14 new stores in the US and seven in Canada. For the full year 2014 we completed 38 stores and, as Kim mentioned earlier, we plan to open an additional 35 to 40 new stores in the US and 10 to 12 in Canada in 2015.

As we look forward to 2015 we currently estimate that we will spend between $350 million and $400 million for CST-related capital expenditures. CST's 2015 estimated full-year sustaining capital expenditures, which includes remodels and renovations, is expected to be between $90 million and $110 million. This estimate also includes $15 million to $25 million in spending associated with the finish out of our recently purchased distribution center and office facility.

For your 2015 modeling purposes I would like to provide you with some guidance on CST-related non-gross margin items. Operating expenses for the first quarter of 2015 are expected to be in the range of $167 million to $172 million. As we move through 2015 and open additional NTIs these quarterly amounts are expected to increase by $2 million to $5 million per quarter.

Recurring general and administrative expenses are expected to average in the range of $27 million to $30 million per quarter for 2015. Depreciation, amortization and accretion expense is expected to be in the range of $32 million to $34 million per quarter. With that I will turn it back over to Randy and he will give you more guidance regarding our first-quarter metrics.

Thanks, Clay. And before I turn the call over to Joe to discuss the CrossAmerica performance, we wanted to provide you with some gross profit segment guidance for CST for the first quarter of 2015.

For our US segment we expect first-quarter 2015 fuel volumes on gallons sold per store per day basis to be in the 4,850 to 4,950 range. For merchandise sales on a per store per day basis we expect a range of 3,400 to 3,500. And for the US segment we anticipate our merchandise gross profit percentage to be in a range of 29% to 30%, this is after the deduction of credit card fees.

And then looking at our Canadian segment, the first-quarter 2015 volume on gallons per site per day basis is expected to be in the range of 3,000 to 3,100. We expect merchandise sales in US dollars on a per site per day basis to be in the range of $1,850 to $1,950. And for merchandise gross profit percentages for the Canadian segment we expect a 26.5% to 27.5% range, this is after the deduction of credit card fees.

All dollar-related guidance that has been provided regarding our Canadian segment could change if we see any further weakening or strengthening of the US dollar relative to the Canadian dollar. And these metrics are subject to the risk factors included in our SEC filings. And with that I will turn the call over to Joe, CEO of CrossAmerica Partners.

Thank you, Randy. For our portion of the call today, Mark and I will cover it as much as we have in the past. I will provide a brief overview and some initial commentary on our fourth-quarter results followed by a review of our fourth-quarter distribution increase and then review of the over $230 million in acquisitions announced or completed during the quarter.

I will then turn it over to Mark for a more detailed walk-through of the financial results. Once we have completed our prepared remarks we will turn it back over to Randy to open up the question-and-answer session.

The net loss for the fourth quarter of 2014 totaled $13.6 million or $0.60 per common unit. For the quarter EBITDA totaled $4.7 million. Adjusted EBITDA totaled $12.7 million in distributable cash flow amounted to $7.9 million or $0.34 per common unit.

As we touch on in our press release, included in these figures are $1.4 million in acquisition expenses and $7 million in expense due to the accelerated vesting of equity awards and severance costs following the completion of the general partners acquisition by CST. If you adjust for these items, adjusted EBITDA would have been approximately $16.5 million and distributable cash flow would have been $11.7 million or $0.51 per common unit.

Our wholesale gross margin for the quarter was $0.071 per gallon. The wholesale fuel environment for the quarter continued to be strong. As we have discussed before for our variable price fuel supply contracts, our margin typically improves as oil prices and rack fuel prices declined.

For the quarter, in addition to approximately 42 million gallons that we distributed through our retail segment approximately [15] million gallons of our third-party wholesale supply business was under variable price contracts. The margin associated with these variable price gallons benefited from the decline in rack fuel prices for the quarter.

For most of our wholesale gallons that we supply we also receive a terms discount from the product supplier that is a percentage of the partnership's purchase price of the fuel. The dollar value of this discount will vary as the price of fuel varies.

For the fourth quarter our purchase of the price of fuel in the wholesale segment declined by approximately $0.86 per gallon or approximately 31% relative to the third quarter. As a result the dollar value of the purchase discounts from our suppliers decreased relative to the prior quarter.

The decrease of the purchase discount due to the drop in fuel prices during the quarter was the primary driver of the decline in the wholesale segment margin per gallon for the quarter on a sequential basis. Notwithstanding the positive margin environment for the variable price gallons during the quarter.

The partnership declared a fourth-quarter distribution of $0.5425 per unit based upon our distributable cash flow of $0.51 per common unit, which is adjusted for the acquisition and severance expense that I mentioned previously. The coverage ratio for the declared fourth quarter distribution is approximately 0.9 times based upon a weighted average unit for the quarter.

There are two important things to note in reviewing the coverage ratio for the quarter. One, as we have discussed previously, we look at the coverage ratio of the course of a full year, with the fourth and the first quarter of the year typically being the weaker quarters in our business. Two, we issued equity in the third quarter in order to position the partnership balance sheet to support future growth as though we had a full pipeline of opportunity.

We were able to deploy substantial amounts of capital raised, but subsequent to the end of the fourth quarter you will see the third-quarter equity that reflected as well as the coverage ratio for the quarter, but not anticipated benefits of the acquisitions closed in early 2015.

The distribution increase represents our seventh increase in the eight full quarters in which we have been public. As we have stated many times before, our objective is to return cash to our unitholders in a prudent, sustainable manner and to grow that distribution over time. We, and our partners at CST, remain committed to that goal.

Moving on to the acquisitions, the partnership had an extremely active quarter with over $230 million in announced or completed acquisitions during the quarter. The announced acquisitions run the range of joint acquisitions with CST to a fuel drop-down from CST to a third-party acquisition done solely by the partnership.

We think that both the volume and the variety of acquisitions done by the partnership this quarter are a strong indication of the growth potential of the partnership and the power of the partnership's relationship with CST.

The partnership acquired 23 [C-sites] in connection with CST's previously announced acquisition of Nice N Easy. In addition to the real estate, the partnership also acquired certain wholesale fuel supply-related assets. The partnership entered into a long-term rental agreement with CST for the acquired real estate and a long-term fuel supply agreement.

The total consideration paid for the assets was $53.8 million which represents the adjusted purchase price of the assets after review and approval of the transaction by the [conflicts] committee of the partnership and the executive committee of CST.

When we spoke last time we were in the early stages of the review process for this transaction. We went through a rigorous process for this acquisition both at the partnership and at CST to ensure both sets of equity holders were fairly treated. The conflicts committee of the partnership had both external legal and financial advisors to assist it in its review of the acquisition.

It was our first time through the process for both sides, so we took extra care to ensure that the process was transparent and fair. I am certain that we will continue to refine the approval process that we use for transactions between the partnership and CST, but our commitment to you as equity holders to run a rigorous approval process won't change, nor will our commitment to ensure a fair outcome for the transactions between CST and the partnership change.

We went back through the approval process for two additional transactions during the quarter. The first transaction was the acquisition of 22 [feed] properties and related wholesale fuel supply assets located primarily in the San Antonio market from Landmark Industries for $43.5 million, which was done jointly with CST. As in the Nice N Easy transaction, the partnership leases the stores to CST and wholesale fuel supplies to the site under a long-term agreement. The transaction closed in early January.

The second transaction was a first fuel supply drop-down. The partnership acquired 5% of the limited partner interest in CST Fuel Supply LP, which is CST's US fuel supply business, in exchange for approximately $1.5 million CrossAmerica common units. The CST fuel supply business supplies substantially all of CST's US locations at an approximate net profit margin of $0.05 per gallon.

For 2014 the total domestic US gallons distributed was approximately 1.9 million -- billion, I'm sorry. The net effect of this transaction is that the partnership will get its pro rata share of the fuel margin from the fuel distribution associated with substantially all of CST's current US locations. This transaction closed effective January 1.

Finally the partnership announced acquisition of all of the stock of Erickson Oil products for $85 million, the largest acquisition to date of the partnership since it became public. Erickson operates 54 sites with a concentration in the Minneapolis-St. Paul region of Minnesota.

The partnership will operate the convenience stores within the partnership initially, much as it has done with the PMI acquisition completed earlier in 2014. Over time we expect that the retail operations at certain sites will be transferred over to CST with real property lease and fuel supply arrangements similar to those that were announced over the past few months such as Landmark and Nice N Easy. The transaction closed in mid February.

I will now turn it over to Mark for a more detailed review of the financial results of the quarter.

Thank you, Joe. During the fourth quarter of 2014 we distributed on a wholesale basis 241 million gallons of motor fuels, resulting in a $0.071 average wholesale margin per gallon. Wholesale gross profit for motor fuel sales for the quarter totaled $17.1 million in our retail segment, which represents our commission agent sites and a significant portion of our PMI operations.

We distributed 42.5 million gallons resulting in an $0.085 average retail margin per gallon that of credit card fees and commissions. Retail gross profit for motor fuel sales for the quarter totaled $3.6 million. The total gallons distributed for the quarter was 241.7 million gallons and a total gross profit from sales was $20.6 million, representing a margin of $0.085 per gallon.

As a reminder, the partnership wholesale segment distributes substantially all the fuel sold by the retail segment, which is why the total gallons distributed for the quarter is not simply the sum of the wholesale and retail segments. For the same period in 2013 the partnership wholesale distributed 167 million gallons at a $0.063 average margin per gallon. Gross profit from wholesale fuel sales for the fourth quarter 2013 totaled $10.5 million.

Relative to the results of the fourth quarter 2013, our wholesale fuel volume increase by approximately 44% and the wholesale fuel margin per gallon increased by 13% for the fourth quarter 2014. Overall gross profit from wholesale fuel sales increased by $6.6 million with the increase in gross profit doing driven both by the higher margin per gallon and volume for the fourth quarter compared to last year.

On the retail side, for the same period in 2013, the partnership distributed 15.3 million gallons in the quarter at a retail fuel margin net of credit card fees and commissions of $0.026 per gallon. Total retail gross profit for the fourth quarter of 2013 was $400,000.

The increase in the retail segment in both average margin per gallon and gross profit was driven by the PMI acquisition completed in 2014 and the overall favorable pricing environment. The PMI acquisition increased the volume of the retail segment and also added straight retail sites to the portfolio as opposed to commission agent's retail locations which the segment consisted solely of in 2013.

Net rental income, which is -- we define as rental income less rent expense for the fourth quarter totaled $5.9 million. For the same period in 2013 the partnership recorded $6.9 million in rent -- net rental income.

Overall net rental income decreased relative to the fourth quarter of 2013 primarily due to the increased rent expense of the leasehold sites in the PMI portfolio, which was not offset by increased rental income from the sites since the partnership operates the sites directly and does not lease the sites to third-party as it has done in previous acquisitions.

On the expense side, operating expenses in the fourth quarter 2014 totaled $11.5 million and selling, general and administrative expenses totaled $18.1 million. For the same period in 2013 operating expenses totaled $1.4 million and selling, general and administrative expenses totaled $4.6 million.

Operating expenses increased by $10.1 million for the quarter relative to 2013 primarily due to the direct store retail operations of PMI that are now included in the partnership, and to a lesser extent the overall increase in the number of sites in the portfolio relative to last year.

Selling, general and administrative expenses increased in the fourth quarter 2014 relative to 2013 by approximately $13.6 million. Approximately $8.1 million of the increase relative to the prior year was due to $1.4 million of acquisition expenses related to acquisitions closed or announced during the quarter and approximately $7 million in accelerated equity awards vesting and severance costs following the completion of the general partner acquisition by CST.

In addition, approximately $1.7 million is due to the increase in expenses associated with PMI. The remainder of the increase is primarily due to the pre-lease announced change in the partnership's management fee structure under the omnibus agreement.

This quarter continued the trend of decrease in oil and rack motor fuel prices that began in the second quarter of 2014. On a sequential basis our wholesale fuel margin per gallon was down approximately 9% relative to the third quarter as the dollar value of the purchase discount associated with fuel price decreased due to the material drop in absolute fuel prices in the quarter.

A decrease in the dollar value of the purchase discount offset the positive margin environment for our variable price wholesale gallons. The retail pricing environment continues to be strong with approximately 60% increase in retail fuel margin per gallon for the quarter on a sequential basis. Overall it was a strong quarter from a fuel perspective and we were pleased with our fuel margin results.

On the financing side it was a relatively quieter quarter. Acquisitions completed during the quarter and subsequent to the quarter and were financed through the partnership's credit facility, with the exception of the fuels drop-down from CST. The $50.4 million purchase price for the fuels drop was financed through the issuance of equity to CST on the transaction closing date of January 1, 2015.

The partnership issued approximately 1.5 million common units to CST, which is based on a 20-day weighted average common unit price for the period immediately preceding the announcement of the transaction on December 16, 2014.

As of December 31, 2014 the partnership had $200.4 million in outstanding borrowings in its credit facility and the partnership had a nominal $333.2 million available for our borrowings net of outstanding borrowings and letters of credit. At this time I'll turn the call back over to Randy.

Thanks, Mark. And at this time, operator, we will open it up for questions.

(Operator Instructions). Ben Brownlow, Raymond James.

Kim, Clay, can you give a little bit of color on the store divestiture, the 81 for the fourth quarter and first quarter combined that are expected to be -- or the 10 that are expected to be divested in the first quarter? Is there any sort of ongoing fuel relationship with those stores?

Yes, for about one-third of those we have got -- continue to have a fuel relationship with them.

Okay. Any details that you can provide on that relationship?

Steve.

In terms of we have got a branding relationship with them for a 15-year supply agreement for each one of those accounts.

Okay. And on the CST service center, is that going to be managed in-house or by a third party?

The distribution center, right?

Yes.

We are continuing a relationship with Cormark. They ran our former distribution centers well, and so they have helped us bring the new one up to speed.

Oh, good to hear. And any comments on sort of what you are seeing with the same store -- on a same-store sales basis in terms of Foodservice?

Sure, I will let Hal answer that question.

So thanks for asking, Ben, and we are enthused about the increased momentum we have in same-store sales. And food, I think it is fair to say, is traveling along the same tangent as the total store.

Ben, I think this is -- food brings up the great opportunity in particular to talk about the Nice N Easy acquisition and our opportunities with bringing in some of their best practices from their food operations and their grocery.

And we are already looking to bring in some of their models and concepts on the food side into some of our new NTIs this year in our program. So it has been a really nice collaboration, I think, between some of the expertise that we acquired with CrossAmerica and the Nice N Easy assets.

Great, thanks for the color. And just one for Joe or Mark. Accounting for the recent acquisitions, it sounds like if I heard correctly that about 15 million gallons of the volume were on a variable versus fixed margin. Did I hear that correctly?

The gallons that we have acquired from CST are all on a fixed margin.

But on a consolidated basis are the -- what was the variable fuel margin on volume?

That 15 million gallons you are referring to is our existing dealer -- third-party dealer business. That is the amount of gallons of their business in that quarter.

Okay. Is that the total (multiple speakers).

That's not the total.

Okay what -- can you give us an idea of the total consolidated volume or percentage that is on a variable versus fixed?

On a -- about 20% of the total Company's volume is variable. Part of it goes through the PMI still, yes.

Great, thank you, guys.

Bonnie Herzog, Wells Fargo.

I was hoping you could give us a sense as to where your fuel margins are trending now given they're likely trending quite a bit below historical averages based on the data we have actually seen from OPIS. I guess I'd also like to hear your current views on how you are going to manage or really balance the retail price and then gallon growth to sustain fuel profitability going forward.

Sure, well maybe I can tackle the second question first. We are going to continue to approach balancing (inaudible) margins and volumes as we have since we spun out.

We have spoken now for the last several calls about our approach to fuel pricing and it is really about each corner and it is a corner-by-corner analysis and making sure that we are maximizing the gross profit dollars from fuel on those corners. And so there is -- looking at each corner there's going to be different competition and different factors that go into that decision process.

In terms of where we are seeing first quarter, as I said in my remarks, clearly third and fourth quarter last year were on the historical high levels and the old adage of what goes up must come down is certainly around there. But we are just seeing we are [trending] more to historical norms at this point in time.

Do you think by the end of Q1 you will be at the historical norm because they are quite a bit below based on OPIS data? I am just trying to get a sense by the end of this quarter, Q1 I should say, they will be back up in line with historical averages?

We typically aren't going to give you any kind of forecast and guidance on our margins. But first quarter is typically a lower quarter of all the quarters anyway. And one of the things you try not to get caught up in is the quarter-to-quarter margin fluctuations.

Okay, fair enough. And then I actually have a question on your merchandise margins and why they didn't expand. Even ex-cigs they actually contracted. So I guess on one hand this suggests cigs actually helped your margins in the quarter. So I wanted to just hear from you is that stemming from the up trading for instance to premium cigs?

Maybe address that and then could you also talk about the behavior you are seeing from the consumer given the lower gas prices? Maybe touch on their purchasing patterns and really confirm that you are seeing the higher traffic in ticket sales, for instance.

Sure, I will let Hal address that for you.

Good morning, Bonnie. So we are seeing a couple of things going on -- many things go on inside the store, as you would expect. First I will address the margin. And I would say that in the last quarter we have been doing very targeted daypart promoting to drive our traffic count. And that has affected the percent margin.

But we are keeping a close eye on the fact that we make sure we expand our gross profit dollars with the incremental customers that we are driving into the store. So we wanted to make sure that we were attacking the traffic side of the store so we kept the inside of the store healthy. So that is where you are seeing a little bit of a decline or at least a flattening out of the margin percent inside the store.

And then I would say that we are certainly benefiting on the customer traffic side from our fuel customer count kind of evening -- leveling out. And as Kim said, for the last few quarters we have talked about the readjustment of our fuel pricing strategy. So now our customer counts are improving on the total site and so we are definitely seeing an increasing customer count from the fuel island inside -- into the stores.

So, yes, we do watch our customer count on a regular basis. And I can tell you that we are seeing an expansion in the number of customers we are driving inside the store.

Okay, that is helpful. And then I just wanted to clarify something too in terms of the guidance for Q1. On the margin I think you guys stated that it is going to be below -- lower both sequentially and then year over year. So a decline. So I just wanted to make sure I understand that as well. Does it have to do with what you just discussed?

It's exactly what I just said. So we do have some continuing promotional traffic driving opportunities that we are using to make sure that our traffic count continues to grow. And so, we are giving you the guidance that we expect the result of that to be.

Okay, and then just maybe one final quick one for me just in terms of the expenses which have been increasing. You guys touched on this a little bit in your prepared remarks. Your G&A expense was up a lot. And then on a per store basis operating expenses increased I think around 8% in the quarter. So could you maybe drill down a little bit on that and why you are realizing I guess higher expenses? And maybe what you are doing to bring those expenses down going forward.

Bonnie, actually the majority of those expense increases are due -- really due to NTIs that came in in December. Actually I think we had eight of them that entered the field in December alone in the US and we had four in Canada. So the bulk of what you are seeing there is just that.

We are not -- other than that we are getting a little bit of wage inflation, but nothing to worry about yet or nothing that is bothering me. But that is really most of it. It is mostly for the NTIs.

And on the expense side, Bonnie, this is Clay, obviously the large -- as disclosed in the release -- the large increase was due to some one-time transaction fees related to the deal. And we also had a short-term incentive compensation adjustment in the fourth quarter with respect to our short-term bonus plan, which reflects the earnings of the Company. So excluding those two things we were kind of maybe on the high end of our range, but it was within what our guidance was -- had provided.

Okay, thank you, everyone.

Matthew Boss, JPMorgan.

So several retailers have announced wage increases for their workers. Have you guys made any changes to the plans and how would this impact profitability of the stores at both CST and CrossAmerica's network?

I think it is safe to say everyone is experiencing some wage pressures and certainly some markets are probably hotter than others from an employment standpoint and we are very carefully looking at that. We have in our budget for this year anticipated some wage pressures and adjusted for that in our budget as well.

Okay, great. And then, so merchandise sales per store were the strongest we seen in years, but did miss your guidance by about 2%. So you have the tailwind from the lower gas prices at the pump, I mean -- so what are you seeing in the stores? Any changes that you are seeing with the core consumer spending habits?

So we continue to see robust traffic and at the stores and an increase in the market basket that we are selling inside the store. But I will say that we also are targeting very specific customer types and dayparts to make sure that we are taking advantage of the most profitable dayparts and customer that we can. So we continue to be encouraged by our ring and by our customer count.

Great. And then last quick one, your spin-off instructions roll off in May. What, if any, changes or strategic options would this open up for the Company as we look ahead?

We are just going to continue to focus on our strategy of growth particularly with our relationship with CrossAmerica, both organic growth and then also acquisition growth and then focusing on continuing to improve our operations inside our stores. So we are keeping our head down and keep moving ahead.

Great. Do the restrictions prohibit you from anything today?

As we have said before on our calls and in some of our 8-K filings as well, there is the magic event May 1, 2015 date in terms of some of the restrictions under our spin-off agreements with Valero that do go away in May of 2015.

Yes, the restrictions, Matt, primarily were due to limiting the amount of assets we could sell. So if we wanted to sell a significant portion of our assets we would be prohibited from doing so, but that is not in our strategic plan anyway.

Great, best of luck, guys.

(Operator Instructions). Damian Witkowski, Gabelli & Company.

Congratulations on a strong year, first year as a -- first full year I guess as a publicly traded company. A question on the total gallons that you have dropped down, the 5%. So what were the actual total gallons in the US in 2014?

The 5% covers about 1.9 billion gallons.

Okay.

The 5% of that 1.9 billion gallons.

Okay. And then I keep asking that question on the same-store sales on the fuel volume side. And I know the strategy that continues that was announced when you guys spun off was that you want to maximize the value not the volume.

But if you look at -- I think if you look at your core stores during the quarter, you had another almost 3% drop in same-store sales volume. I mean is that the -- is it the market itself? I mean is that part of it? Or is it simply that you are sort of charging higher prices than your competitors?

Some of it, I think you are seeing OPIS data that reflects the same-store decreases over time, about 2% is sort of what we are seeing kind of on a market wide basis. I think we are seeing a stabilization in that decrease. We had higher decreases on a same-store basis earlier in the year and that's leveled out. And I think it is absorbing our pricing approach that we implemented shortly after the spin. So I don't think any of us are concerned about where we are on volumes on a same-store basis.

Okay. And then if you look at your geographies, are there any discernible differences between -- and I'm I guess trying to focus on Texas in particular with crude where it is -- are you actually seeing any -- you talk about wage pressure, but I mean you're probably seeing some less wage pressure in Texas than you are somewhere else. But are you really seeing any pull back on demand in Texas? Are there differences in geographies within the US?

We are not seeing much of an impact yet in Texas in terms of our exposure. The only really true kind of oilfield area where we are is the Eagle Ford and it is only about 2% of our total store base in the Eagle Ford. And we are not seeing that impact at this point in time.

The Texas economy has diversified quite a bit over the years. Houston, if you think of it as an energy group, is still doing well for us. And then we are in places like Austin and Dallas that don't have the same sort of impacts from the pull back in oil prices.

Okay. And then just lastly, the 71 stores that were divested or closed, how many were actually closed?

The 71 are all divested.

Oh they were all -- so it was closed or divested, okay. Congrats again and thank you.

Sharon Liu, Wells Fargo.

Just wondering if you could maybe comment on the M&A environment given the favorable current backdrop for distributors and C-store operators. Maybe some color on maybe the multiples and the opportunity set.

Well, this is Joe Topper, I am assuming that is for me. But Kim will help me if I am -- there is still ample supply of companies that are interested in selling. The process is still vigorous out there. Obviously what you saw is a very active less -- almost six months of activity within the Company.

We still are maintaining our model of a 6 to 8 multiple for acquisitions and there still is a number of transactions that are available to us in that marketplace. There are multiples that are selling at a higher multiple, but we have not I would say moved away from our model and our discipline of doing transactions.

And we find accretive transactions in that marketplace that work for us both for CST and for CrossAmerica. So there was a -- more than 1 and less than 20 transactions that we are looking at right now (multiple speakers) working with the M&A department.

Right, right. And Sharon I will just echo what Joe is saying. I think one of the strategic benefits of CrossAmerica and CST coming together is just that in the M&A market. And the fact that we had three deals announced in the fourth quarter and December alone really reflects the opportunities that we have together.

And I think you can see by the acquisitions that we ended up with as combined, CrossAmerica and CST, really reflects sort of our approach to it from a filter standpoint. We are getting strong retail network so kind of leveraging the CST strength. But from the fuel and wholesale supply clearly bringing in the CrossAmerica piece.

I think it is a consolidating marketplace and I think between the strengths that CrossAmerica and CST bring to the table together really positions us well to be very disciplined in our approach and there's plenty of opportunities. And I think we have the opportunity to be disciplined and choose the ones that fit us best.

Sharon I'd also add that -- I'd like to say that the teams that have done the acquisitions and integrated them have led to a number of the sellers recommending calling us to other of their friends and family to say we are a good partner. So I think that has opened up a new window in the relationship with CST.

Okay. And I guess in terms of the opportunity set, do you think that the level of acquisitions in the fourth quarter is indicative of the pace going forward or how should we think about that?

I'll answer that. Historically I have said somewhere between $75 million and $150 million a year. So the fourth quarter was an extraordinary quarter. The first quarter we have already done $85 million, so I think we are opportunistic. We will buy what fits within our model and if it's $200 million we will buy $200 million, if it is $50 million we will buy $50 million, so --.

Right. And I think, Sharon, Joe touched on it too. The integration team that we have that is combined, both CST and CrossAmerica folks on it, lets us kind of take things in chunks. So we are able to do three acquisitions in that December timeframe and now integrate those and sort of lets us kind of adjust to the lumpiness of how the M&A works.

Okay, great, thank you.

John Lawrence, Stephens.

Can you -- Clay, you might -- could you clarify a couple things when you look at this presentation of the core and the non-core? Just help us a little bit as far as obviously gross margins are getting helped across the franchise with the NTIs.

Help us a little bit with that non-core bucket. What is in there and how does that impact as they either move forward, when do they move into the core and how do you define that if you will? Just a little clarity there.

Sure. As we outlined in the footnote, all stores that we acquire are first going to go into this non-core classification. And as of the end of the year in the US retail segment, which is the CST segment, the difference between the total Company operated retail sites at the end of the period, which is 1,021, and the number of core stores operating in that period, which is 989, the difference there is 32 and those stores represent the Nice N Easy stores we acquired in New York.

We anticipate that those stores will probably be -- the completion of the evaluation of whether they're core, they go to core or whether they trans -- we try to transform them into a dealer network which would then go over to the CrossAmerica side or other type of strategic alternatives for those sites -- those will be done very rapidly, probably within the next three months.

With respect to the CrossAmerica side, they do have some retail operations. All of those are currently non-core and they are not in the US retail segment, they are in the CrossAmerica segment. They will -- the valuation has just basically started commencing shortly after our acquisition. Those may take a little bit longer.

I think we have disclosed between 3 months and 12 months in terms of the valuation periods. As we get up to speed and we do more acquisitions it's possible that timeframe shortens a little bit but we want to give time to -- in the valuation period there.

But most of the stores in the US retail segment are core. And so those core operating statistics are very similar to what the rest of the -- obviously what the entire portfolio is. And I do want to mention that in Canada they are all core. The expansion has typically been through NTIs and so all stores are currently core.

And the only thing I would add to that, John, it is non-core shouldn't be meant to -- read anything negative about it. It just is simply kind of the anteroom to becoming a CST store going into the dealer side. So it is not meant to have a negative connotation to it, it is just our way of kind of absorbing the stores that we acquire with CrossAmerica.

I guess the point is just a little different schedule than just saying on the 13th month it goes into the comp base, just a different timeframe.

Exactly, exactly.

Yes.

Secondly there, on the Nice -- just to follow that, Nice N Easy, would it be profitable, dilutive, accretive at this point?

Well obviously -- so, John, this is Jeremy. We don't typically comment on different segments of the business in that way. But I will say certainly that it has been a very positive integration effort with the team up there. Things are going well and obviously the tailwinds we received on the fuel margin environment at all of our stores are certainly witnessed up in the Northeast as well. And we are very excited about the positive momentum we have on going into this year as well.

Right. And I said in my opening remarks that we are pleased with kind of the early signs in the operation results on our Nice N Easy stores. So it has been positive.

Great. I always have to ask, Hal, new product development, you mentioned promotions. Some of those new products, what is the feedback and the level of sort of traffic on some of that new development?

Yes, that is great, thanks for asking, John. And as you know, I have been talking about developing our afternoon daypart for some time and we are making some great strides in that, getting ready to roll out an afternoon (technical difficulty) offering that is more targeted to lunch.

We are very excited in San Antonio next week, we are finishing a roll out of Coke Freestyle fountain machines in 160 of our locations in San Antonio which is going to make us the first chain to have an entire market with Coca-Cola Freestyle which offers over 120 flavors to fountain drinkers and, together with Coca-Cola, CST will be talking a lot about that the summer in the marketplace.

And San Antonio happens to be a very robust fountain market for us, so we expect to see good things from that. So that is definitely targeted to our afternoon daypart. And we expect to see good results in our food program for that. So we continue to work on our lunch.

Kim mentioned integrating the Nice N Easy food program into the CST network and we are well underway to have a good amount of our NTI stores that we build in this year to have a Nice N Easy food offering (multiple speakers) particularly here in the Southwest and we are excited to see that impact down in this end of the woods and building on that. So lots going on in food.

Yes, thanks for that clarity. And lastly on that point, you had mentioned over time possibly another partnership on a foodservice provider. Any progress there or does the Nice N Easy food sort of deployment sort of take the place of that at this point?

I don't know that it takes the place, but we are definitely putting our energy towards that because it is an easy transfer and it is something that we own. And so we are excited to see the impact we can have of that Nice N Easy food program here in the Southwest.

Great, thanks for your help. Good luck.

Betty Chen, Mizuho Securities.

Congrats on a nice quarter. I was wondering, Kim, if you or Hal could give us a little bit more color -- I think you mentioned earlier a lot of guys learnings from the Nice N Easy (inaudible) program. Can you give us some additional details on what we can see happen in the CST NTI from that front?

And then my second question is on the -- in terms of the M&A market, following Landmark and Nice N Easy acquisitions should we think that geographically those are some of the markets you find most attractive right now or could we see further diversification? Thanks.

Sure, good morning, Betty. I will let Hal handle the Nice N Easy food question.

Okay, so, thanks, Betty, and good morning. So once again, we are working -- we have just completed redoing some of our NTI store plans that we are going to build in 2015 to accommodate the Nice N Easy food program here in the Southwest. So we will have a number of our NTI stores open with exactly the same food program that we have there -- pizza, made to order sandwiches and their breakfast offering. So we are very excited about that.

In addition to that I would say that the food champion at Nice N Easy is now responsible for our Eastern United States food program going up into Canada and we are very excited about the fact that he is going to have an influence on what we are doing in food in Canada as well. So we definitely are leveraging that strength in their program.

In terms of grocery and what we are doing with our NTI stores from our learnings of Nice N Easy, I think we have mentioned before that we have been concentrating on perishable groceries for some time in a number of our larger store formats here in San Antonio.

Preparing for a larger role out to our large-format stores and we have learned a lot from Nice N Easy in terms of grocery, in particular produce and perishable groceries. And we are very happy with the five test stores that we've been running here in San Antonio.

And I think you will see that that will be a good leverage for us as we build more larger stores selling more milk, or deli items, more produce in those stores and making them more attractive to the fill-in grocery shopper. Since we have the space in those stores we are leveraging that learning and being able to expand that merchandise mix in those large-format stores. So definitely getting our fair share of strength from Nice N Easy.

And then, Betty, on the question of M&A, I think that the acquisitions certainly tell a story of how we are looking at them. The Landmark stores in particular since they are in our marketplace were a fairly easy integration process. I say that because I wasn't the one up 24 hours straight for two weeks as we converted them to be Corner Stores.

But nonetheless, in terms of a support and operational infrastructure, we had it in place. We were able to mention the new store managers and bring them into the Corner Store system relatively quickly and easily, but we are excited about the new geographies as well.

The upper Midwest is certainly, from an economic standpoint and a gross standpoint, attractive to us. The stores that came along with Erickson Oil and just their business and their culture I think certainly align well with the CrossAmerica/CST culture and particularly in customer service and community support.

And I think we are also excited about the upper state New York area as well. So what we get with Nice N Easy, as we have said before, is some very strong retail bases there and I think there is more opportunities for growth there as well.

Okay, thanks, Kim.

Thank you. I will now turn the call back over to Randy Palmer for closing remarks.

Okay, well that completes today's conference call. We appreciate each of you joining us today. If you follow-up questions please feel free to contact us. Thank you very much for joining us today.

Thanks, everybody.

Thank you. And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.