Crossamerica Partners Lp's Business Segments

On October 1, 2014, CST completed the GP Purchase and IDR Purchase for $17 million in cash and approximately 2 million shares of CST common stock for aggregate consideration of approximately $90 million. On August 21, 2016, CST, the owner of our General Partner, entered into the Merger Agreement. As a result, Circle K Stores Inc., a subsidiary of Couche-Tard, will, through its acquisition of CST, control CST’s interest in the General Partner and CST’s 19.8% limited partner interest in CrossAmerica as well as all of the IDRs. The Merger was approved by CST’s stockholders on November 16, 2016 and is subject to the receipt of regulatory approvals in the United States and Canada. The Merger is currently expected to close in the second quarter of 2017. The General Partner manages the operations and activities of CrossAmerica. The General Partner is managed and operated by the Board and executive officers of the General Partner. As a result of the GP Purchase, CST controls the General Partner and has the right to appoint all members of the Board. Therefore, CST controls the operations and activities of CrossAmerica even though CST does not own a majority of our outstanding limited partner units.

We conduct our business through two operating segments, Wholesale and Retail. As of December 31, 2016, we distributed motor fuel to nearly 1,200 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).

We are one of the ten largest independent distributors by volume in the United States for ExxonMobil, BP and Motiva (Shell), and we also distribute Chevron, Sunoco, Valero, Gulf, Citgo, Marathon and Phillips 66-branded motor fuels (approximately 83% of the motor fuel we distributed during 2016 was branded). We receive a fixed mark-up per gallon on approximately 87% of gallons sold to our customers. The remaining gallons are primarily DTW priced contracts with our customers. These contracts provide for variable, market based pricing. An 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. Conversely, 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.

We own or lease and operate retail sites. Subsequent to an acquisition, we evaluate the eventual long-term operation of each retail site acquired: (a) to be converted into a lessee dealer or (b) other strategic alternatives, including divestiture or longer term operation as a retail site. By converting retail sites into lessee dealers, we continue to benefit from motor fuel distribution volumes as well as rental income from lease or sublease arrangements while reducing operating expenses. For the year ended December 31, 2016, we converted 77 company operated retail sites in our Retail segment to lessee dealers in our Wholesale segment.

CrossAmerica Partners LP operates through multiple segments, primarily focusing on the wholesale distribution of motor fuel and the retail operation of gas stations. Below is an extensive description of their segments, products, and services based on the information provided.

Wholesale Segment
The Wholesale segment is pivotal to CrossAmericas operations, having generated revenues of approximately $1.6 billion as of 2016. The segment is recognized as one of the largest independent distributors in the U.S. working with major oil brands such as ExxonMobil, BP, Motiva (Shell), Chevron, Sunoco, Valero, Gulf, Citgo, Marathon, and Phillips 66. Notably, approximately 83% of the motor fuel distributed in 2016 was branded fuel.

Distribution Contracts
CrossAmerica primarily earns revenue through distribution contracts, either at a fixed mark-up per gallon (for about 87% of total gallons sold) or through dealer-tankwagen (DTW) priced contracts. These DTW contracts feature market-based pricing, meaning that both wholesale motor fuel costs and retail motor fuel prices fluctuate, affecting profit margins.

- Supplier Relationships: The company benefits from supplier discounts for early payments, which can significantly influence gross profits based on fluctuating crude oil prices. The estimated impact of a $10 per barrel change in crude oil prices is roughly $2.2 million on overall annual wholesale motor fuel gross profit.

Independent Dealer Sites
Independent dealer sites are contracted to receive exclusive motor fuel distributions from CrossAmerica.

- Contract Length: Distribution contracts typically span 7 to 10 years, with an average remaining contract term of about6 years as of the end of 2016.
- Ownership Structure: The independent dealers own or lease the property and control all motor fuel and convenience store inventory.

Lessee Dealer Sites
In this model, CrossAmerica owns or leases the property where motor fuel is sold.

- Dealer Autonomy: Lessee dealers own the fuel and retail inventory, setting their pricing and profit margins while CrossAmerica collects margins based on fixed mark-ups or DTW at delivery.
- Distribution Agreements: Contracts for distribution are tied to the duration of property leases, typically ranging from 3 to 10 years, and are often structured as triple net leases which require lessees to cover property expenses such as taxes and maintenance.

DMS Sites
CrossAmerica manages distribution for DMS through a specific agreement.

- Long-term Agreements: The company has a 15-year motor fuel distribution agreement with DMS and also 15-year triple-net lease agreements for the sites, allowing DMS to operate independently regarding pricing and inventory management.

CST Sites
Following joint acquisitions with CST of Nice N Easy and Landmark, CrossAmerica has established operational and leasing agreements.

- Operational Framework: CST leases the retail sites and manages its pricing independently, while CrossAmerica supplies motor fuel through a 10-year distribution agreement at a fixed mark-up.

Retail Segment
The Retail segment generated $467 million in 2016 and focuses on the operation of retail gas stations, with strategies based on either converting sites into lessee dealers or evaluating other operational choices post-acquisition.

Company Operated Sites
These are entirely owned and managed by CrossAmerica, where all profits from fuel sales are retained.

- Inventory and Pricing Control: The company maintains the fuel inventory and sets pricing strategies, holding an average of approximately five days worth of fuel sales in stock.

LGW and LGWS Structures
CrossAmerica operates through two distinct distribution channels — LGW (retail fuel distribution) and LGWS (wholesale fuel distribution). LGW oversees wholesale distributions to company-operated sites while LGWS manages retail accounting for motor fuel sales.

Commission Sites
In this model, the property is owned by CrossAmerica and leased to commission agents.

- Commission Structure: The agent pays rent and operates non-fuel related activities, while CrossAmerica maintains control over motor fuel inventory and pricing. The commission paid to agents depends on fuel sold, reinforcing the cost-effective operational structure.

Conclusion
CrossAmerica Partners LPs comprehensive approach to the wholesale and retail distribution of motor fuel enables robust operational growth. The inclusion of various contract structures, dealer relationships, and tailored operational strategies ensures flexibility in navigating market fluctuations while maximizing revenue through diversified offerings. Through innovation in their wholesale practices and a strategic shift towards lessee dealer models in their retail segment, CrossAmerica positions itself favorably within a dynamic energy market.