SECOND QUARTER 2014 EARNINGS CONFERENCE CALL SPEAKER NOTES. Tuesday, August 12, 8:00 a.m. Central Time

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1 SECOND QUARTER 2014 EARNINGS CONFERENCE CALL SPEAKER NOTES Tuesday, August 12, 8:00 a.m. Central Time Randy Palmer (Director of Investor Relations) Thank you, Operator. Good morning and thank you for joining our second quarter 2014 earnings call. With me today are Kim Bowers, our Chairman and CEO, Clay Killinger, our CFO, and other members of our Executive Leadership Team. Kim will provide an overview of the operational performance for the second quarter and then we will turn the call over to Clay to discuss our financial results. We will then open the call up to questions. Before we begin, I would like to remind everyone that today's call, 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 Company. 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 1

2 management's expectations, beliefs, and projections, will be achieved or that actual results will not differ from expectations. Accordingly, 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 Please see our 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 U.S. Generally Accepted Accounting Principles, or GAAP. We've provided schedules that 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 our website at Today s call is being webcast and a recording of this conference call will be available there for a period of 60 days. With that, I'll now turn the call over to Kim Bowers. 2

3 Kim Bowers (Chairman and CEO) Thanks, Randy. Good morning, everyone, and welcome to our second quarter 2014 earnings call. This morning we reported second quarter 2014 earnings of $32 million, or $0.43 per share. This compares to net income of $41 million or $0.54 per share for the second quarter of As a reminder, we were not a public company until May first of 2013 and, as such, the second quarter of 2013 results do not include all of the expenses associated with being a public company. Clay will discuss the financial results in more detail later in the call, but I first wanted to discuss our second quarter performance and the activities we currently have underway. In the second quarter, we did experience rising crude oil and wholesale gasoline prices which impacted our overall profitability, especially in the US. Last year we experienced the seasonal market decline of wholesale gasoline prices in June, but this year, that decline did not start to occur until July, which has certainly helped us get off to a good start in the third quarter, but impacted our second quarter results, especially when compared to last year. 3

4 Once again, this fuel impact did not dampen our merchandise sales or profitability. We achieved a five percent increase in merchandise gross profit dollars in the U.S. in the second quarter. Our efforts to focus and improve this part of the business are certainly paying dividends. To further support this effort, we did make an investment in late July to expand our Retail Distribution Center capabilities with the purchase of an existing distribution center in San Antonio, which is significantly larger than our existing center. This new facility will also provide us with future corporate service center office space. Our Canadian business turned in a solid quarter of performance with $29 million in operating income. Absent the effects of foreign exchange, they were able to improve motor fuel and merchandise gross profit during the period, when compared to last year. Our teams in Canada and the U.S. continue to make progress on our goal of 38 New-To-Industry stores this year. To date, we have opened 14 stores, with significant construction occurring throughout the summer. I would like to say a few words about our recently announced acquisition of the incentive distribution rights and general partner of Lehigh Gas Partners LP, which is expected to close early in the fourth quarter of this year. We 4

5 are obviously very excited about the possibilities and opportunities this acquisition brings us. Through this deal, we obtain immediate control and access to a favorable capital structure that will position us for future growth. The access to capital at higher MLP multiples will allow us to be more aggressive in our growth plans while also allowing us to unlock significant value of our existing assets, such as our New-To-Industry properties and our very large wholesale fuel distribution business. While this transaction does not include any limited partner interest in LGP, you can expect that this will change over time as assets are sold, at fair market value, from CST to LGP for cash and limited partner interests. The distributions from that equity interest, in addition to the incentive distribution rights, will generate ongoing cash flow streams back to CST. But acquiring a favorable capital structure is just one aspect of this great transaction. Achieving this with Joe Topper and the talented team he has assembled at Lehigh Gas is what makes this acquisition special. They have accomplished a great deal since their IPO less than two years ago, amassing a wholesale fuel network of over 1,000 stores and over 600 leased locations spread across sixteen states along the U.S. East Coast. This now gives us a coast-to-coast network of assets and diversifies our fuel supply with the 5

6 numerous suppliers of Lehigh Gas Partners. Combining LGP strengths in wholesale fuel distribution dealer networks and acquisitions with CST s operational, merchandising, and new build expertise makes this a terrific acquisition and one that will generate significant, long term value for our shareholders and LGP unitholders. Finally, I wanted to provide you with an update on our network optimization plan or the potential sale of approximately 100 or so stores that we have previously discussed. We have received bids on the properties. However, in light of the recently announced transaction with LGP, we are currently reviewing these bids with the potential impact of including LGP in the process, which will most likely take us a few weeks to complete. After the completion of this review, we should have a good sense for what we will be doing with these sites. With that, I will turn the call over to Clay, to review our second quarter results. 6

7 Clay Killinger (CFO) Thanks Kim. As Kim mentioned this morning, we reported net income of $32 million or $0.43 per share for the second quarter of This compares to net income of $41 million or $0.54 per share for the second quarter of For a portion of the second quarter of 2013 we were not a public company and as such, these results do not include an entire quarter s worth of interest expense or additional general and administrative expenses we are now incurring from being a public company. As I discuss our second quarter highlights in more detail, I will be referring to our U.S. and Canada segment operating results, which were included within our earnings release. In regards to our U.S. segment, second quarter 2014 motor fuel gross margin declined by $12 million or 16 percent when compared to the second quarter of The decrease was primarily attributable to a decline in the cents per gallon fuel margin, net of credit card fees, of almost 3 cents between the periods, falling to 14 cents from 17 cents for the second quarter of Second quarter 2014 prices of crude oil and wholesale gasoline were steadily increasing for most of this quarter. As we have 7

8 mentioned before, during periods of rising crude oil and wholesale gasoline prices, our retail margins are usually reduced. Our U.S. motor fuel gallons sold, per site per day, fell by approximately 2 percent quarter versus quarter impacted by rising fuel costs and competition in some of our markets. Our gross margin from Merchandise sales increased $5 million or 5 percent in the second quarter of 2014 when compared to the same period in 2013, primarily driven by improved food, beverage and snack categories across our networks, particularly from our New-to-Industry stores. Operating expenses increased $8 million quarter versus quarter, driven primarily by our New-to-Industry stores and an, as outlined in our 10-Q filing. Turning to our Canadian segment, second quarter fuel gross margin decreased by $1 million or nearly 2 percent. Most of this decline in fuel gross margin was attributable to the effects of foreign currency exchange, which I will talk about in a minute. Our reported motor fuel gross margin on a cents per gallon basis, net of credit card fees, was 25 cents in both the second quarter of 2014 and

9 Our reported gross margin from our Merchandise sales and our Other category were relatively flat for the second quarter of 2014 compared to As a reminder, Other Revenues in Canada include our Heating Oil business as well as other services such as car wash and ATM fees similar to the U.S. I mentioned earlier that we did see some weakness in the Canadian Dollar relative to the U.S. Dollar during the second quarter of 2014 versus the comparable period in As noted in our earnings release, the exchange rate for the U.S. dollar relative to the Canadian dollar averaged for the second quarter of 2014 versus for the comparable period in This represents a devaluation of the Canadian dollar by approximately five percent between the comparable periods. So keep exchange rates in mind when comparing our reported Canadian results quarter versus quarter. The unfavorable impact to our income statement related to these foreign currency changes was approximately $5 million on gross profit when comparing the second quarter of 2014 to the same period in

10 I ll now make a few comments about our financial position. At the end of the second quarter, we had $428 million of cash and $121 million available under our credit facility after considering letters of credit and our maximum leverage constraint of 3.75 times adjusted EBITDAR. In regards to our capital spending, capital expenditures for the three month period ending June 30, 2014 totaled $45 million. During the second quarter, we completed four new stores in the U.S. Sixteen new stores are currently under construction in the U.S. and 5 are under construction in Canada. We are continuing to target 38 new store builds this year. We now estimate that we will spend between $295 and $320 million in total capital expenditures in 2014 and this includes $12 million of IT infrastructure and our recently acquired regional distribution center. Our 2014 estimated full year sustaining capital expenditures, which includes remodels and renovations, continues to be between $80 and $90 million. I would also like to give you an update on our expected third quarter 2014 non-gross margin items. Operating expenses for the third quarter of 2014 are expected to be in the range of $174 to $178 million, consistent with our previous guidance. We currently expect the same range for the fourth 10

11 quarter as well. Increases from 2013 quarterly levels are directly related to the opening of our New to Industry stores for the remainder of the year. Recurring general and administrative expenses for the third and fourth quarters are expected to be in the range of $25 to $27 million. These general and administrative expense ranges do not include any nonrecurring costs related to the Lehigh Gas transaction. Depreciation, Amortization and Accretion expense continues to be in the range of $30 to $33 million per quarter and our quarterly and annual effective tax rate continues to be in the range of 33 to 35 percent. With that, I will turn it back over to Randy and he will give you more guidance regarding our third quarter gross margin metrics. Randy Palmer (Director of Investor Relations) Thanks Clay. Before we open the call up to questions, we wanted to provide you with some segment guidance for our third quarter of 2014: For our U.S. segment, we expect third quarter 2014 fuel volume, on gallons sold per store per day basis, to be in the 4,900 to 5,000 range. For merchandise sales on a per store per day basis, we expect a range of 11

12 $3,650 to $3,750. For the U.S. segment, we anticipate our merchandise gross margin percentage to be in a range of 29.5 to 30.5 percent. This is after the deduction of credit card fees. In regards to our Canadian segment, the third quarter 2014 volume, on gallons per site per day basis, is expected to be in the range of 3,400 to 3,500. We expect merchandise sales on a per site per day basis to be in a range of $2,700 to $2,800. For merchandise gross margin percentages for the Canadian segment, we expect a 27 to 28 percent 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 U.S. dollar relative to the Canadian dollar. These metrics are subject to the risk factors included in our SEC filings. With that, we will now open it up for questions. 12

13 Randy Palmer (Director of Investor Relations) Okay. That completes today's conference call. We appreciate each of you joining us today. If you do have follow-up questions, please feel free to contact us. Thank you. 13