10-K 1 suss-20121230x10k.htm FORM 10-K SUSS-2012.12.30-10K


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-K
_________________
(Mark one)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended: December 30, 2012
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File Number: 001-33084

SUSSER HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
 
01-0864257
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
4525 Ayers Street
Corpus Christi, Texas 78415
(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (361) 884-2463

Securities registered pursuant to Section 12(b) of the Act:

  
 
 
Title of each class
 
Name of each exchange on which registered
Common Stock, $.01 par value
 
New York Stock Exchange (NYSE)
Securities registered pursuant to Section 12(g) of the Act: NONE
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o Nox

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted to its corporate Web site, if any, every Interactive     Data File required to be submitted and posted pursuant to Rule 405 of Registration S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
 
 
Accelerated filer x
Non-accelerated filer o (Do not check if a smaller reporting company)
 
 
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes o     No x

The aggregate market value of voting common stock held by non-affiliates of the registrant as of July 1, 2012 was $420,884,533
As of March 8, 2013 there were issued and outstanding 21,285,061 shares of the registrant’s common stock.

Documents Incorporated by Reference
                                                
Document                                        Where Incorporated

1.    Proxy Statement for the Annual Meeting of Stockholders to be held May 21, 2013……………………………Part III 





SUSSER HOLDINGS CORPORATION
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS

 
 
 
Page
 
 
 
Item 1.
1
Item 1A.
12
Item 1B.
21
Item 2.
21
Item 3.
22
Item 4.
22
 
 
 
 
 
 
 
Item 5.
23
Item 6.
24
Item 7.
27
Item 7A.
45
Item 8.
46
Item 9.
46
Item 9A.
46
Item 9B.
48
 
 
 
 
 
 
 
Item 10.
49
Item 11.
49
Item 12.
49
Item 13.
49
Item 14.
49
 
 
 
 
 
 
 
Item 15.
50
 
 
51
 
 
 
 

 

i


PART I
Item 1.    Business


General

We are a leading operator of convenience stores in Texas based on store count and one of the largest distributors of motor fuel by volume in Texas. Our operations include retail convenience stores and wholesale motor fuel distribution. For the fiscal year ended December 30, 2012, we purchased 1.4 billion gallons of branded and unbranded motor fuel from refiners for distribution to our retail convenience stores, contracted independent operators of convenience stores, unbranded convenience stores and other end users. We believe our unique retail/wholesale business model, scale, food service and merchandising offerings, combined with our highly productive new store model and selective acquisition opportunities, position us for long-term growth in sales and profitability.

Our principal executive offices are located at 4525 Ayers Street, Corpus Christi, Texas 78415. Our telephone number is (361) 884-2463. Our internet address is http://www.susser.com. We make available through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission, or the SEC. The SEC maintains an internet site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

References in this annual report to "SUSS", “Susser,” “Company,” “we,” “us,” and “our,” refer to Susser Holdings Corporation, our predecessors and our consolidated subsidiaries. References to "SUSP" or the "Partnership" are to Susser Petroleum Partners LP, a Delaware limited partnership. References to years are to our fiscal years, which end on the last Sunday closest to December 31. References to “2012” are to the 52 weeks ending December 30, 2012; references to “2011” are to the 52 weeks ending January 1, 2012; references to “2010” are to the 52 weeks ending January 2, 2011. Our common stock trades under the ticker symbol "SUSS". On December 21, 2012, we moved the listing of our common stock from the NASDAQ Global Select Market to the New York Stock Exchange.

History

The Susser family entered the motor fuel retailing and distribution business in the 1930’s. Sam L. Susser, our President and Chief Executive Officer, joined us in 1988, when we operated five stores and had revenues of $8.4 million. We have demonstrated a strong track record of organic growth while also successfully completing 13 significant acquisitions since 1988. We have constructed 147 large-format convenience stores since 1999 and developed our propriety Laredo Taco Company® in-house restaurant concept. On October 24, 2006, we completed an initial public offering, or “IPO” of our common stock, broadening our ownership base with new public stockholders.

On September 25, 2012, we contributed the majority of the net assets in our wholesale segment to the Partnership, which closed its initial public offering of its common units on that date and trades on the New York Stock Exchange under the ticker symbol “SUSP.” Following the Partnership's IPO, we continue to own a 50.1% limited partner interest in SUSP as well as 100% of its general partner and we consolidate the operations of SUSP in our financial statements as part of the wholesale fuel distribution segment.

Retail Operations

As of December 30, 2012, our retail segment operated 559 convenience stores in Texas, New Mexico and Oklahoma, offering merchandise, food service, motor fuel and other services. Our retail stores operate under our proprietary Stripes® convenience store brand. Our business experiences substantial seasonality due to consumer purchase patterns in the geographic area our stores are concentrated. Historically, sales and operating income are highest in the second and third quarters during the summer activity months and lowest during the winter months.

The retail segment produced revenues and gross profit of $4.0 billion and $0.6 billion, respectively, for fiscal 2012 and had total assets of $1.2 billion as of December 30, 2012. For further detail of our segment results refer to “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 19 Segment Reporting.” The following table sets forth retail revenues and gross profit for 2012.


1


 
Revenues
 
% of Total
 
Gross Profit
 
% of Total
 
(dollars in thousands)
Merchandise (excluding food service)
$
766,803

 
19.1
%
 
$
226,411

 
40.8
%
Food service
209,649

 
5.3
%
 
104,541

 
18.9
%
Total merchandise
976,452

 
24.4
%
 
330,952

 
59.7
%
Other
37,618

 
0.9
%
 
37,618

 
6.8
%
Motor fuel
2,995,840

 
74.7
%
 
186,041

 
33.5
%
Total retail segment
$
4,009,910

 
100.0
%
 
$
554,611

 
100.0
%

Merchandise Operations. Our stores carry a broad selection of food, beverages, snacks, grocery and non-food merchandise. The following table highlights certain information regarding merchandise sales for the last five years:

 
Year Ended
 
December 28, 2008
 
January 3, 2010
 
January 2, 2011
 
January 1, 2012
 
December 30, 2012
 
(dollars in thousands)
Merchandise sales
$
729,857

 
$
784,424

 
$
806,252

 
$
881,911

 
$
976,452

Average merchandise sales per store per week
$
27.6

 
$
28.6

 
$
29.6

 
$
31.9

 
$
34.5

Merchandise same store sales growth (1) (2)
6.6
%
 
3.3
%
 
4.0
%
 
6.0
%
 
6.6
%
Merchandise margin, net of shortages
34.3
%
 
33.3
%
 
33.6
%
 
33.7
%
 
33.9
%
 
 
 
 
 
 
 
 
 
 
(1)
Adjusted to eliminate the impact of the 53rd week in 2009.
(2)
We include a store in the same store sales base in its thirteenth full month of operation. Closed stores are removed from the same store sales base in the month closed, including sales history.

We stock 2,500 to 3,500 merchandise units on average with each store, offering a customized merchandise mix based on local customer demand and preferences. To further differentiate our merchandise offering, we have developed numerous proprietary offerings and private label items unique to our stores, including Laredo Taco Company® restaurants, Café de la Casa® custom blended coffee, Slush Monkey® frozen carbonated beverages, Quake® energy drink, Smokin’ Barrel® beef jerky and meat snacks, Monkey Loco® candies, Monkey Juice® and our Royal® brand cigarettes. Most of these proprietary offerings and private label items, along with our prominent fountain drink offering, generate higher gross margins than our similar non-proprietary merchandise, and we emphasize these offerings in our marketing campaigns. We own and operate ATM and proprietary money order systems in most of our stores and also provide other services such as lottery, pay telephone, prepaid telephone cards and wireless services, movie rental and car washes. In addition, we own a 50% interest in Cash & Go, Ltd and lease to them 37 kiosks, consisting of approximately 100 square feet per unit within our stores, for check cashing and short-term lending products.

2



As of December 30, 2012, 352 of our stores featured in-store restaurants allowing us to make fresh food on the premises daily. Laredo Taco Company® is our in-house, proprietary restaurant operation featuring breakfast and lunch tacos, a wide variety of handmade authentic Mexican food and other hot food offerings targeted to the local populations in the markets we serve. We also offer other food options in some of our stores, including Subway sandwiches and Godfather pizza, some of which are co-located with Laredo Taco Company® restaurants. These prepared food offerings generate higher margins than most other products and drive the sale of high margin complementary items, such as hot and cold beverages and snacks. We continue to drive same store restaurant sales growth and transaction count through menu innovation, promotions and fine tuning our hours of restaurant operation.

Our retail segment merchandise category sales for the periods presented are as follows:

 
Year Ended
 
January 2, 2011
 
January 1, 2012
 
December 30, 2012
 
Sales
 
% of Total
 
Sales
 
% of Total
 
Sales
 
% of Total
 
(dollars in millions)
Food service
$
166.2

 
20.6
%
 
$
187.9

 
21.3
%
 
$
209.6

 
21.5
%
Cigarettes
163.0

 
20.2

 
174.3

 
19.8

 
187.1

 
19.2

Beer
145.8

 
18.1

 
158.0

 
18.0

 
176.1

 
18.1

Packaged drinks
128.2

 
15.9

 
147.2

 
16.7

 
163.6

 
16.8

Snacks
48.7

 
6.1

 
55.1

 
6.2

 
63.5

 
6.5

Candy
29.3

 
3.6

 
31.3

 
3.5

 
36.5

 
3.7

Nonfoods
24.5

 
3.0

 
26.0

 
2.9

 
29.1

 
3.0

Other
100.6

 
12.5

 
102.1

 
11.6

 
111.0

 
11.2

Total
$
806.3

 
100.0
%
 
$
881.9

 
100.0
%
 
$
976.5

 
100.0
%

We purchase more than 38% of our general merchandise, including most tobacco and grocery items, from McLane Company, Inc., or McLane, a wholly-owned subsidiary of Berkshire Hathaway Inc. McLane has been our primary supplier since 1992 and currently delivers products to all of our retail stores. In January 2011, we entered into a new two-year agreement with McLane with three one-year optional renewal terms. We purchase most of our restaurant products and ingredients from Labatt Food Service LLC, or Labatt, and in January 2011 entered into a new three-year agreement with two one-year optional renewal terms. All merchandise is delivered directly to our stores by McLane, Labatt or other vendors. We do not maintain additional product inventories other than what is in our stores. We do not carry significant levels of customer receivables in the retail segment.

Retail Motor Fuel Operations. We offer Chevron, Conoco, Exxon, Phillips 66, Shamrock, Shell, our own brand Stripes, Texaco and Valero branded motor fuel at 554 of our convenience stores. Approximately 60% of those stores were branded under the Valero name as of December 30, 2012. Following the Partnership's IPO, our retail segment purchases substantially all of its motor fuel from SUSP at a price reflecting product cost plus a profit margin of approximately three cents per gallon on most gallons purchased. Most fuel is purchased by the load as needed to replenish supply at the stores. Prior to the Partnership's IPO, our wholesale operations were conducted by a wholly-owned subsidiary from which our retail segment purchased fuel without an associated profit margin.

Our retail fuel margins per gallon are impacted by the saturation of hypermarkets, supermarkets and mass merchandisers with fuel kiosks in the markets we serve. To address this trend, since 1999 we have invested in more efficient motor fueling facilities designed to handle higher volumes to offset some of the margin pressure, while also improving our higher margin in-store merchandise offerings and focusing on the convenience of our format. We believe that these actions, along with our combined retail and wholesale purchasing leverage and improved technology, have positioned us to effectively compete with these hypermarkets. As the Company grows, we are able to benefit from our more favorable procurement costs, economies of scale and geographic diversification. Credit card costs are an increasing factor to the business and this cost is highly correlated to the retail price of fuel. For the last five years, prior to giving effect to the approximate 3 cent per gallon margin we began paying to SUSP following its IPO in September of 2012, our annual retail fuel margins per gallon have ranged from 14.6 cents to 23.2 cents, or 11.1 cents to 17.7 cents per gallon after deducting credit card costs.


3


The following table highlights certain information regarding our retail motor fuel operations for the last five years:
 
Year Ended
 
December 28, 2008
 
January 3, 2010
 
January 2, 2011
 
January 1, 2012
 
December 30, 2012
 
(dollars and gallons in thousands)
Retail motor fuel sales
$
2,150,727

 
$
1,605,534

 
$
1,987,072

 
$
2,715,279

 
$
2,995,840

Retail motor fuel gallons sold
677,308

 
719,649

 
735,763

 
785,582

 
853,163

Average gallons sold per store per week
26.1

 
26.7

 
27.3

 
28.7

 
30.3

Average retail price per gallon (1)
$
3.18

 
$
2.23

 
$
2.70

 
$
3.46

 
$
3.51

Retail gross profit cents per gallon (2)

17.8
¢
 

14.6
¢
 

18.4
¢
 

23.2
¢
 

21.8
¢
Credit card cents per gallon

4.2
¢
 

3.5
¢
 

4.4
¢
 

5.5
¢
 

5.5
¢
Retail stores selling motor fuel (average)
500

 
509

 
518

 
527

 
541

 
 
 
 
 
 
(1)Includes excise tax.
(2)Before the cost of credit cards, fuel maintenance and environmental expenses. Our 2012 retail segment fuel margin reflects a reduction of 0.75 cents per gallon attributable to the profit margin charged by SUSP effective September 25, 2012 of approximately 3.0 cents per gallon.

Store Locations. As of December 30, 2012, we operated 559 stores, 512 of which were in Texas, 29 of which were in New Mexico, and 18 of which were in Oklahoma. Approximately 83% of our stores are open 24 hours a day, 365 days a year. All but five stores sold motor fuel as of the end of 2012. We seek to provide our customers with a convenient, accessible and clean store environment. Approximately 98% of our convenience stores are freestanding facilities, which average 3,600 square feet. The 141 stores we have built since January 2000 average approximately 5,000 square feet and are built on large lots with much larger motor fueling and parking facilities.

The following table provides the regional distribution of our retail stores as of December 30, 2012:

Region (1)
 
Number of Stores
Rio Grande Valley (2)
 
171
Corpus Christi
 
103
San Angelo/Central Texas
 
65
Laredo
 
44
Lubbock
 
43
Midland/Odessa
 
41
Eastern New Mexico
 
29
Texoma (3)
 
25
Houston
 
22
Victoria
 
16
Total
 
559
__________________
(1)
Each region includes the surrounding areas.
(2)
Includes Brownsville, Harlingen, McAllen, Falfurrias and Riviera.
(3)
Includes Wichita Falls, Texas and Lawton, Duncan and Altus, Oklahoma.

4



The following table provides a history of our retail openings, conversions, acquisitions and closings for the last five years:  

 
Year Ended
 
December 28, 2008
 
January 3, 2010
 
January 2, 2011
 
January 1, 2012
 
December 30, 2012
Number of stores at beginning of period
504

 
512

 
525

 
526

 
541

New stores constructed
8

 
7

 
12

 
17

 
25

Acquired stores
4

 
8

 
2

 
2

 

Closed, relocated or divested stores (1)
(4
)
 
(2
)
 
(13
)
 
(4
)
 
(7)

Number of stores at end of period
512

 
525

 
526

 
541

 
559

 
 
 
 
 
 
(1)
Included in closures for 2010 are the divestiture of seven grocery stores that were acquired from TCFS     Holdings, Inc. in 2007, and the conversion of three stores to the wholesale segment that had been acquired from Jack in the Box, Inc. in 2009. Closures for 2012 include three stores converted to wholesale dealer-operated sites.
Technology and Store Automation. All of our retail convenience stores use computerized management information systems, including point-of-sale scanning, that are designed to improve operating efficiencies, streamline back office functions, provide corporate management with timely access to financial and marketing data, reduce store level and corporate administrative expenses and control shortage. Our information systems platform is highly scalable, which allows new stores to be quickly integrated into our system-wide reporting.

All store level, back office and accounting functions, including our merchandise price book, scanning, motor fuel management, labor and trend reports, are supported by a fully integrated management information and financial accounting system. This system provides us with significant flexibility to continually review and adjust our pricing and merchandising strategies, automates the traditional store paperwork process and improves the speed and accuracy of category management and inventory control. We utilize automated systems for financial reporting, category management, fuel pricing, maintenance, human resources/payroll and fixed asset management. We also leverage our information technology and finance systems to manage proprietary money order and ATM networks. The Company maintains servers at multiple locations and reviews and updates its disaster recovery plans at least once per year.
Wholesale Operations

Overview. We believe our business model of operating both retail convenience stores and wholesale motor fuel distribution provides us with significant advantages over our competitors. Unlike many of our convenience store competitors, we are able to take advantage of combined retail and wholesale motor fuel purchasing volumes to obtain attractive pricing and terms while reducing the variability in motor fuel margins.

Our wholesale segment consists primarily of the fuel distribution operations conducted through SUSP, which purchases branded and unbranded motor fuel from refiners and distributes it to: (1) our Stripes® branded retail convenience stores; (2) over 485 convenience stores and retail fuel outlets operated by independent operators, who have long-term distribution agreements with SUSP, whom we refer to as “dealers”; (3) over 90 other independently operated consignment locations where we sell motor fuel to retail customers and (4) over 1,600 other commercial customers, including unbranded convenience stores, other fuel distributors, school districts and municipalities and other industrial customers. SUSP is a distributor of various brands of motor fuel, as well as unbranded motor fuel, which differentiates us from other wholesale distributors in our markets. We believe SUSP is among the largest distributors of Valero and Chevron branded motor fuel in the United States, and distributes CITGO, Conoco, Exxon, Mobil, Phillips 66, Shamrock, Shell and Texaco branded motor fuel. Our wholesale segment also includes the consignment sales and transportation operations conducted through Susser Petroleum Company LLC, or 'SPC', which is an indirect wholly-owned subsidiary of the Company.

For the year ended December 30, 2012, our wholesale segment, including SUSP, distributed a combined 1.4 billion gallons of motor fuel to our retail stores and third party customers. The wholesale segment produced revenues and gross

5


profit, including from sales to Stripes, of $4.3 billion and $57.0 million, respectively, for fiscal 2012. The wholesale segment had total assets of $341.8 million as of December 30, 2012. The majority of gallons distributed by our wholesale segment are at a fixed fee per gallon, which reduces the overall variability of our consolidated financial results.

Our wholesale segment comprises both the operations of Susser Petroleum Company LLC, which is a wholly-owned subsidiary, and SUSP. Although we are required to consolidate the assets and results of operations of SUSP in our financial statements, our economic interest in SUSP is limited to our ownership of a 50.1% limited partner interest in SUSP and SUSP's incentive distribution rights, which entitle us to specified increasing percentages of cash distributions as SUSP's per-unit cash distributions increase. For further detail on wholesale segment consolidation and segment results refer to “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 1 Organization and Principles of Consolidation and Note 19 Segment Reporting.”

The following table highlights certain information regarding our wholesale motor fuel sales to third parties (excludes sales to retail segment and related gross profit) for the last five years:

 
Year Ended
 
December 28, 2008
 
January 3, 2010
 
January 2, 2011
 
January 1, 2012
 
December 30, 2012
Wholesale motor fuel sales (in thousands) (1) (3)
$
1,323,495

 
$
875,925

 
$
1,094,279

 
$
1,549,143

 
$
1,792,210

Wholesale motor fuel gallons sold (in thousands)
486,516

 
494,821

 
494,209

 
522,832

 
594,909

Average wholesale selling price per gallon (1)
$
2.72

 
$
1.77

 
$
2.21

 
$
2.96

 
$
3.01

Wholesale gross profit cents per gallon (2) (3)

6.4
¢
 

4.1
¢
 

5.3
¢
 

5.9
¢
 

6.2
¢
 
 
 
 
 
 
(1)Excludes excise tax.
(2)After the Company’s portion of credit card fees, but before maintenance and environmental expenses.
(3)Excludes inter-company sales and gross profit related to our retail segment.

Distribution Network. As of December 30, 2012, our third party wholesale motor fuel distribution network consisted of 579 dealer and consignment locations under branded distribution agreements. We maintain fuel inventories at approximately 90 consignment locations and approximately 30 dealer locations as of December 30, 2012. SUSP also distributes unbranded fuel to over 1,600 other customers including unbranded convenience stores, other fuel distributors, school districts and municipalities and other commercial customers.

The following table provides the regional distribution of our wholesale contracted dealers as of December 30, 2012:
    
Region
 
Contracted Dealer and Consignment Locations
Houston MSA
 
342

DFW/East Texas/Louisiana
 
150

San Antonio/Austin
 
66

South Texas
 
21

Total
 
579




6


The following table provides a history of our dealer and consignment location openings, conversions, acquisitions and closings for the last five years:

 
Year Ended
 
December 28, 2008
 
January 3, 2010
 
January 2, 2011
 
January 1, 2012
 
December 30, 2012
Number of dealer and consignment locations at beginning of period
387

 
372

 
390

 
431

 
565

New locations (1)
27

 
34

 
59

 
142

 
39

Closed or divested locations
(42
)
 
(16
)
 
(18
)
 
(8
)
 
(25
)
Number of dealer and consignment locations at end of period
372

 
390

 
431

 
565

 
579

 
 
 
 
 
 
 
 
 
 
(1) Includes the acquisition, conversion of retail stores to wholesale sites and other locations added to our wholesale network. Fiscal 2011 includes the acquisition of 121 dealer supply contracts.

The following table highlights our total motor fuel gallons sold and the percentage of total gallons sold, by principal customer group:
 
Year Ended December 30, 2012
 
Gallons in thousands
 
% of Total
Our retail stores
853,163

 
58.9
%
Contracted dealers
434,854

 
30.0

Other end users
160,055

 
11.1

Total
1,448,072

 
100.0
%

No individual third-party customer is material to our operations.

SUSP Sales to Stripes® Convenience Stores and SPC Consignment Locations.   In connection with SUSP's IPO we entered into a fuel distribution agreement (the “SUSP Distribution Contract”) with an initial term of ten years under which SUSP will be the exclusive distributor of motor fuel purchased by the Stripes® convenience store locations and SPC consignment locations existing as of September 25, 2012, for a fixed profit margin of three cents per gallon. We have also entered into an omnibus agreement with SUSP pursuant to which, among other things, we have provided SUSP the exclusive right to supply substantially all future fuel volumes we purchase for the next ten years.

Sales to Contracted Dealers. SUSP sells motor fuel to over 485 third party operators of convenience stores, who we refer to as "dealers," under long-term fuel distribution agreements. Under those distribution agreements, SUSP agrees to distribute a particular branded motor fuel or unbranded motor fuel to a location or group. SUSP typically receives a per gallon fee equal to the posted purchase price at the fuel supply terminal, plus transportation costs, taxes and a fixed, volume-based fee, which is usually expressed in cents per gallon.

Sales at Consignment Locations. At locations at which we have consignment arrangements we, generally through SPC, provide and control motor fuel inventory and price at the site and receive the actual retail selling price for each gallon sold, less a commission paid to the dealer. Consignment margins per gallon are similar to our retail motor fuel margins, less the commissions paid to the independent operators of those locations.

Sales to Other Commercial Customers. SUSP also distributes unbranded fuel to over 1,600 other customers, including convenience stores, unattended fueling facilities and certain other commercial customers. These customers are primarily commercial, governmental and other parties who buy motor fuel by the load or in bulk. Sales to these customers are typically made at a quoted price based upon SUSP's cost plus taxes, cost of transportation and a margin determined at time of sale and may provide for immediate payment or the extension of credit for up to 30 days.

Sales of Propane, Lube Oil and Other Petroleum Products.   In connection with an acquisition completed in 2007, we acquired two bulk plant facilities, which, in addition to the distribution of motor fuel, were used to distribute propane, lube oil and other petroleum products. Since the acquisition, we have sold, and will continue to sell through SUSP, these products to

7


third-party commercial customers on both a spot and contracted basis. These sales are included in other wholesale revenue and gross profit.
Incentive Program. In addition to motor fuel supply, we and SUSP offer dealers and third party operators of consignment locations the opportunity to participate in merchandise purchase and promotional programs we arrange with retail and other vendors. We believe the vendor relationships we have established through our retail operations and our ability to develop these purchase and promotional programs provides us with an advantage over other distributors for retaining and recruiting new dealers into our network.

As an incentive to our contracted customers, we may provide store equipment or motor fuel distribution equipment for use at designated sites. Generally, this equipment is provided on the condition that the customer continues to comply with the terms of its distribution or consignment agreement with us. For consignment arrangements, we typically own and depreciate these assets on our books.
Fuel Supplier Arrangements.  SUSP distributes branded motor fuel under the Chevron, CITGO, Conoco, Exxon, Mobil, Phillips 66, Shamrock, Shell, Texaco and Valero brands. SUSP purchases this branded motor fuel from major oil companies and refiners under supply agreements. SUSP also distributes unbranded motor fuel. Motor fuel is purchased at the supplier's price at the terminal which typically changes daily. Pricing is typically either on a rack basis based upon prices posted by the refiner at a fuel supply terminal, or on a contract basis with the price tied to one or more market indices.
For fiscal 2012, Valero supplied approximately 35% and Chevron supplied approximately 20% of our wholesale segment's motor fuel purchases, including purchases made by SUSP following its initial public offering. SUSP's supply agreements with Valero and Chevron expire in July 2018 and August 2014, respectively.
SUSP's supply agreements with other suppliers generally have an initial term of three years. In addition, each supply agreement typically contains provisions relating to payment terms, use of the supplier's brand names, credit card processing, compliance with supplier's requirements, insurance coverage and compliance with legal and environmental requirements, among others. As is typical in the industry, SUSP's suppliers generally can terminate the supply contract if it does not comply with any material condition of the contract, including our failure to make payments when due, fraud, criminal misconduct, bankruptcy or insolvency. Generally, SUSP's supply agreements have provisions that obligate the supplier to sell up to an agreed upon number of gallons, subject to certain limitations. Any amount in excess of that agreed upon amount is subject to availability. Due to the large volumes of motor fuel we purchase, we may receive volume rebates or incentive payments to drive volumes and provide an incentive for branding new locations. Certain suppliers require that all or a portion of any such branding incentive payments be repaid to the supplier in the event that the sites are closed or rebranded within a stated number of years. In some cases, SUSP's supply agreements provide that motor fuel suppliers have a right of first refusal to acquire assets used by us to sell their branded motor fuel.
Bulk Fuel Purchases.  We may periodically purchase motor fuel in bulk and hold it in inventory or transport it via pipeline, in which case it mitigates the inventory price risk through the use of commodity futures contracts or other derivative instruments which are matched in quantity and timing to the anticipated usage of the inventory. These fuel hedging positions have not been material to our operations.

Transportation Logistics. Following the Partnership's IPO, SPC provides all transportation logistics for SUSP's motor fuel deliveries. Through third-party transportation providers or its own fleet of fuel transportation vehicles, SPC arranges for motor fuel to be delivered from the storage terminals to the appropriate sites in SUSP's distribution network at prices consistent with those historically charged to third parties for the delivery of fuel.

Technology.  Technology is an important part of our wholesale operations. We utilize a proprietary web-based system that allows SUSP's wholesale customers and our third party operators of consignment locations to access their accounts at any time from a personal computer to obtain prices, place orders and review invoices, credit card transactions and electronic funds transfer notifications. Substantially all customer payments are processed by electronic funds transfer. We and SUSP use an internet-based system to assist with fuel inventory management and procurement and an integrated wholesale fuel system for financial accounting, procurement, billing and inventory management.

Other Operations

We formed Applied Petroleum Technologies, Ltd. (“APT”) in June 1994. Headquartered in Corpus Christi, APT manages our environmental, maintenance and construction activities. In addition, APT sells and installs motor fuel dispensers and tanks and also provides a broad range of environmental consulting services, such as hydrocarbon remediation and Phase I

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and II site assessments for our stores and for a limited number of external customers. APT employs geologists, hydrogeologists and technicians licensed to oversee the installation and removal of underground storage tank systems. APT’s revenues and net income are not material to Susser, and are included in “all other” in our segment reporting disclosures included in our audited consolidated financial statements.
Competition

The retail convenience store industry is highly competitive and marked by ease of entry and constant change in the number and type of retailers offering products and services of the type we sell in our stores. Our retail segment competes with other convenience store chains, independently owned convenience stores, motor fuel stations, supermarkets, drugstores, discount stores, dollar stores, club stores, hypermarkets and local restaurants. Major competitive factors for our retail segment include, among others, location, ease of access, product and service selection, motor fuel brands, pricing, customer service, store appearance, cleanliness and safety. Over the past fifteen years, many non-traditional retailers, such as supermarkets, club stores and hypermarkets, have impacted the convenience store industry, particularly in the geographic areas in which we operate, by entering the retail motor fuel business. These non-traditional motor fuel retailers have captured a significant share of the retail motor fuel market, and we expect their market share will continue to grow. In addition, some large retailers, drugstores and supermarkets are adjusting their store layouts and product prices in an attempt to appeal to convenience store customers. We have employed several strategies to counteract the impact of competition from these non-traditional retailers including (1) focusing our new store development on larger format stores, on superior tracts of land, which helps drive additional volume, (2) adding more immediately consumable products such as food service and cold beverages, and (3) emphasizing the convenient quick service aspect of our stores which cannot be filled by the hypermarkets and supermarkets. We plan to continue to focus on ways to differentiate our offerings from other convenience stores as well as other retail formats.
Our wholesale segment competes primarily with independent motor fuel distributors. Major competitive factors for our wholesale segment include, among others, availability of major brands, customer service, price, range of services offered and quality of service.

Trade Names, Service Marks and Trademarks

We have registered, acquired the registration of, applied for the registration of and claim ownership of a variety of trademarks, trade names and service marks for use in our business, including Stripes® and Laredo Taco Company®. We are not aware of any facts which would negatively affect our continuing use of any of our trademarks, trade names or service marks.

Government Regulation and Environmental Matters

Many aspects of our operations are subject to regulation under federal, state and local laws. A violation or change in the enforcement or terms of these laws could have a material adverse effect on our business, financial condition and results of operations. We describe below the most significant of the regulations that impact all aspects of our operations.

Environmental Laws and Regulations. We are subject to various federal, state and local environmental laws and regulations, including those relating to underground storage tanks; the release or discharge of hazardous materials into the air, water and soil; the generation, storage, handling, use, transportation and disposal of regulated materials; the exposure of persons to regulated materials; remediation of contaminated soil and groundwater and the health and safety of our employees.

Certain environmental laws, including Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), impose strict, and under certain circumstances, joint and several, liability on the owner and operator as well as former owners and operators of properties for the costs of investigation, removal or remediation of contamination and also impose liability for any related damages to natural resources without regard to fault. In addition, under CERCLA and similar state laws, as persons who arrange for the transportation, treatment or disposal of hazardous substances, we also may be subject to similar liability at sites where such hazardous substances come to be located. Based on currently available information, we do not believe our liability, if any, will be material. We may also be subject to third-party claims alleging property damage and/or personal injury in connection with releases of or exposure to hazardous substances at, from or in the vicinity of our current or former properties or off-site waste disposal sites.

We are required to make financial expenditures to comply with regulations governing underground storage tanks adopted by federal, state and local regulatory agencies. Pursuant to the Resource Conservation and Recovery Act of 1976, as amended, the Environmental Protection Agency, or EPA, has established a comprehensive regulatory program for the detection,

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prevention, investigation and cleanup of leaking underground storage tanks. State or local agencies are often delegated the responsibility for implementing the federal program or developing and implementing equivalent state or local regulations. We have a comprehensive program in place for performing routine tank testing and other compliance activities which are intended to promptly detect and investigate any potential releases. We spent approximately $2.4 million on these compliance activities for the fiscal year ended December 30, 2012. In addition, the Federal Clean Air Act and similar state laws impose requirements on emissions to the air from motor fueling activities in certain areas of the country, including those that do not meet state or national ambient air quality standards. These laws may require the installation of vapor recovery systems to control emissions of volatile organic compounds to the air during the motor fueling process. We believe we are in compliance in all material respects with applicable environmental requirements, including those applicable to our underground storage tanks.

We are in the process of investigating and remediating contamination at a number of our sites as a result of recent or historic releases of petroleum products. At many sites, we are entitled to reimbursement from third parties for certain of these costs under third-party contractual indemnities and insurances policies, in each case, subject to specified deductibles, per incident, annual and aggregate caps and specific eligibility requirements. To the extent third parties (including insurers) fail to pay for remediation as we anticipate, and/or insurance is unavailable, we will be obligated to pay these additional costs. We recorded expenses of $0.3 million during fiscal 2012 for remediation activities for which we do not expect to receive reimbursement.

We are required to comply with federal and state financial responsibility requirements to demonstrate that we have the ability to pay for remediation or to compensate third parties for damages incurred as a result of a release of regulated materials from our underground storage tank systems. We meet these requirements by maintaining insurance which we purchase from private insurers and in certain circumstances, rely on applicable state trust funds, which are funded by underground storage tank registration fees and taxes on wholesale purchase of motor fuels. More specifically, in Texas, for 2012 and prior years we met our financial responsibility requirements by state trust fund coverage for claims asserted prior to December 1998 (claims reported after that date are ineligible for reimbursement and all claims covered by the fund were paid by August 31, 2012 when the fund expired) and met such requirements for claims asserted after that date through private insurance. In Oklahoma and New Mexico, we meet our financial responsibility requirements by state trust fund coverage for cleanup liability and meet the requirements for third-party liability through private insurance. The coverage afforded by each fund varies and is dependent upon the continued solvency of each fund.

Environmental Reserves. As of December 30, 2012, Susser had environmental reserves of $0.4 million for estimated costs associated with investigating and remediating known releases of regulated materials, including overfills, spills and releases from underground storage tanks. We have 38 currently and formerly owned and operated sites that we have remediation activities occurring. At 12 sites we have already met our insurance deductible and expect the insurance company to begin or continue paying for the remediation costs. There are seven sites covered by the fund that remained open when the Texas Petroleum Storage Tank Remediation funded ended in August 2012 that were transferred to the State Lead Remediation Program. This program will complete the remediation at no out-of-pocket cost to the responsible party. However, the responsible party remains liable for any third party claims. An additional eleven sites are being remediated by third parties or have state reimbursement payments directly assigned to remediation contractors for which Susser has no out of pocket expenses and maintains no reserves and may or may not have responsibility for contamination. The reserve of $0.4 million represents our estimate of deductibles under insurance policies that we anticipate being required to pay with respect to eight additional sites for which we expect to receive insurance coverage over the deductible amount, subject to per occurrence and aggregate caps contained in the policies. We have additional reserves of $4.0 million that represent our estimate for future asset retirement obligations for underground storage tanks.
Sale of Alcoholic Beverages and Tobacco Products. In certain areas where our stores are located, state or local laws limit the hours of operation for the sale of alcoholic beverages, or prohibit the sale of alcoholic beverages, and restrict the sale of alcoholic beverages and cigarettes to persons older than a certain age. State and local regulatory agencies have the authority to approve, revoke, suspend or deny applications for and renewals of permits and licenses relating to the sale of alcoholic beverages, as well as to issue fines to stores for the improper sale of alcoholic beverages and cigarettes. Failure to comply with these laws may result in the loss of necessary licenses and the imposition of fines and penalties on us. Such a loss or imposition could have a material adverse effect on our business, liquidity and results of operations. In many states, retailers of alcoholic beverages have been held responsible for damages caused by intoxicated individuals who purchased alcoholic beverages from them. While the potential exposure for damage claims as a seller of alcoholic beverages and cigarettes is substantial, we have adopted procedures intended to minimize such exposure. In addition, we maintain general liability insurance that may materially mitigate the effect of any liability.

Safety. We are subject to comprehensive federal, state and local safety laws and regulations. These regulations address issues ranging from facility design, equipment specific requirements, training, hazardous materials, record retention, self-

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inspection, equipment maintenance and other worker safety issues, including workplace violence. These regulatory requirements are fulfilled through health, environmental and safety programs.

Store Operations. Our stores are subject to regulation by federal agencies and to licensing and regulations by state and local health, sanitation, safety, fire and other departments relating to the development and operation of convenience stores, including regulations relating to zoning and building requirements and the preparation and sale of food. Difficulties in obtaining or failures to obtain the required licenses or approvals could delay or prevent the development or operation of a new store in a particular area.

Our operations are also subject to federal and state laws governing such matters as wage rates, overtime, working conditions and citizenship requirements. At the federal level, there are proposals under consideration from time to time to increase minimum wage rates. In January 2014, as an employer with more than 50 employees, under current laws we will be subject to a system of mandated health insurance, which could affect our results of operations.

Employees

As of December 30, 2012, we employed 8,697 persons, of which approximately 74% were full-time employees. Approximately 92% of our employees work in our retail stores, approximately 2% in our wholesale segment and 6% in our corporate or field offices. Our corporate office and retail segment are headquartered in Corpus Christi, Texas. Our business is seasonal and as a result the number of employees fluctuates from a high in the spring and summer to a low in the fall and winter. Our wholesale segment is headquartered in Houston, Texas and employs dealer brand managers, commercial sales representatives and support staff. None of our employees are subject to collective bargaining agreements.

Executive Officers

The following table sets forth the names and ages (as of March 1, 2013) of each of our executive officers and a brief account of their business experience

Name
Age
Position
Sam L. Susser
49
President, Chief Executive Officer and Director
E.V. Bonner, Jr.
57
Executive Vice President, Secretary and General Counsel
Steven C. DeSutter
59
Executive Vice President and President/Chief Executive Officer – Retail Operations
Rocky B. Dewbre
47
Executive Vice President and President/Chief Operating Officer – Wholesale
Mary E. Sullivan
56
Executive Vice President, Chief Financial Officer and Treasurer

Sam L. Susser has served as our President and Chief Executive Officer since 1992. From 1988 to 1992, Mr. Susser served as our General Manager and Vice President of Operations. From 1985 through 1987, Mr. Susser served in the corporate finance division and the mergers and acquisitions group with Salomon Brothers Inc, an investment bank. Mr. Susser currently serves as a director of a number of charitable, educational and civic organizations. Sam L. Susser is the son of Sam J. Susser, who is also a member of Susser Holdings Corporation’s Board of Directors. Mr. Susser also serves as Chairman of the Board and Chief Executive Officer of SUSP.

E.V. Bonner, Jr. has served as our Executive Vice President and General Counsel since March 2000. Prior to joining us, Mr. Bonner was a stockholder in the law firm of Porter, Rogers, Dahlman & Gordon, P.C. from 1986 to 2000. He is board certified in commercial real estate law by the Texas Board of Legal Specialization. Mr. Bonner has been involved in numerous charitable, educational and civic organizations. Mr. Bonner also serves as Executive Vice President and General Counsel of SUSP.

Steven C. DeSutter has served as Executive Vice President of the Company and President and Chief Executive Officer of Retail Operations since June 2008. Prior to joining the Company, Mr. DeSutter served as Executive Vice President of TurnWorks, Inc., a business advisory and private equity firm, from September 2006 to June 2008 where in an advisory role he also served as Interim Executive Vice President of Operations for QIP Holder, LLC (parent company of Quiznos, a multinational sandwich franchise) from July 2007 to January 2008. Prior to that, Mr. DeSutter was with Burger King Corporation where he served as Executive Vice President and President of Europe and Middle East operations from December 2005 to August 2006, EVP and President of Europe, Middle East and Asia Pacific from December 2004 to November 2005, and Senior Vice President Corporate Communications from August 2004 to November 2004. Prior to joining Burger King, Mr. DeSutter was Senior Vice President with TurnWorks, Inc. from July 2001 until July 2004. Mr. DeSutter began his career at

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British Petroleum, where he worked in a variety of different operations, marketing and finance roles during his 18 years at the company.

Rocky B. Dewbre has served as our Executive Vice President and President/Chief Operating Officer-Wholesale since January 2005. Mr. Dewbre served as our Executive Vice President and Chief Operating Officer-Wholesale from 1999 to 2005, as Vice President from 1995 to 1999 and as Manager of Finance and Administration from 1992 to 1995. Before joining us in 1992, Mr. Dewbre was a corporate internal auditor with Atlantic Richfield Corporation, a petroleum/chemical company, from 1991 to 1992 and an auditor and consultant at Deloitte & Touche LLP from 1988 to 1991. Mr. Dewbre serves as a director of Tank Owner Members Insurance Company and the Society of Independent Gasoline Marketers of America. Mr. Dewbre also serves as President and Chief Operating Officer of SUSP.

Mary E. Sullivan has served as our Executive Vice President, Chief Financial Officer and Treasurer since November 2005 and as our Vice President of Finance from February 2000 to 2005. Prior to joining us in 2000, Ms. Sullivan served as Director of Finance for the City of Corpus Christi from 1999 to 2000. Ms. Sullivan’s previous experience includes serving as the Controller and member of the board of directors of Elementis Chromium, a producer of chromium chemicals, from 1993 to 1999, and various positions with Central Power and Light Company, culminating in Treasurer, over the 13 year period from 1979 to 1992. Ms. Sullivan also serves as Executive Vice President, Chief Financial Officer and Treasurer of SUSP.


Item 1A. Risk Factors

The convenience store industry is highly competitive and impacted by new entrants and our failure to effectively compete could result in lower sales and lower margins.

The geographic areas in which we operate are highly competitive and marked by ease of entry and constant change in the number and type of retailers offering products and services of the type we sell in our stores. We compete with other convenience store chains, independently owned convenience stores, motor fuel stations, supermarkets, drugstores, discount stores, dollar stores, club stores, mass merchants and local restaurants. Over the past 15 years, several non-traditional retailers, such as supermarkets, club stores and mass merchants, have impacted the convenience store industry, particularly in the geographic areas in which we operate, by entering the motor fuel retail business. These non-traditional motor fuel retailers have captured a significant share of the motor fuels market, and we expect their market share will continue to grow. In some of our markets, our competitors have been in existence longer and have greater financial, marketing and other resources than we do. As a result, our competitors may be able to respond better to changes in the economy and new opportunities within the industry. To remain competitive, we must constantly analyze consumer preferences and competitors’ offerings and prices to ensure that we offer a selection of convenience products and services at competitive prices to meet consumer demand. We must also maintain and upgrade our customer service levels, facilities and locations to remain competitive and attract customer traffic to our stores. We may not be able to compete successfully against current and future competitors, and competitive pressures faced by us could have a material adverse effect on our business and results of operations.

Historical prices for motor fuel have been volatile and significant changes in such prices in the future may adversely affect our profitability.

For the fiscal year ended December 30, 2012, our consolidated motor fuel revenue accounted for 82.3% of total revenues and motor fuel gross profit accounted for 37.9% of total gross profit. For the same period, motor fuel accounted for 33.5% of our retail division’s gross profit. Crude oil and domestic wholesale petroleum markets are volatile. General economic and political conditions, acts of war or terrorism and instability in oil producing regions, particularly in the Middle East and South America, could significantly impact crude oil supplies and wholesale petroleum costs. Significant increases and volatility in wholesale petroleum costs could result in significant increases in the retail price of petroleum products and in lower motor fuel gross margin per gallon. Increases in the retail price of petroleum products could impact consumer demand for motor fuel and convenience merchandise. This volatility makes it extremely difficult to predict the impact future wholesale cost fluctuations will have on our operating results and financial condition. In addition, a sudden shortage in the availability of motor fuel could adversely affect our business because our retail stores typically have a three to four day supply of motor fuel and our motor fuel supply contracts do not guarantee an uninterrupted, unlimited supply of motor fuel. A significant change in any of these factors could materially impact our motor fuel gallon volumes, motor fuel gross profit and overall customer traffic, which in turn could have a material adverse effect on our business and results of operations.

Increasing consumer preferences for alternative motor fuels, or improvements in fuel efficiency, could adversely impact our business.


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Sales of refined motor fuels account for approximately 80% of our total revenues and over one-third of our gross profit.  Any technological advancements, regulatory changes or changes in consumer preferences causing a significant shift toward alternative motor fuels, or non-fuel dependent means of transportation, could reduce demand for the conventional petroleum based motor fuels we currently sell.  Additionally, a shift toward electric, hydrogen, natural gas or other alternative or non fuel-powered vehicles could fundamentally change our customers' shopping habits or lead to new forms of fueling destinations or new competitive pressures.  Finally, new technologies developed to improve fuel efficiency or governmental mandates to improve fuel efficiency may result in decreased demand for petroleum-based fuel.  Any of these outcomes could potentially result in fewer visits to our convenience stores, a reduction in demand from our wholesale customers, decreases in both fuel and merchandise sales revenue or reduced profit margins, any of which could have a material adverse effect on our business, financial condition and results of operations.   

Our growth depends in part on our ability to open and profitably operate new retail convenience stores and to successfully integrate acquired sites and businesses in the future.

We may not be able to open all of the convenience stores discussed in our expansion strategy and any new stores we open may be unprofitable. Additionally, acquiring sites and businesses in the future involves risks that could cause our actual growth or operating results to fall short of expectations. If these events were to occur, each would have a material adverse impact on our financial results. There are several factors that could affect our ability to open and profitably operate new stores or to successfully integrate acquired sites and businesses. These factors include:
Competition in targeted market areas;
Difficulties during the acquisition process in discovering some of the liabilities of the businesses that we     acquire;
The inability to identify and acquire suitable sites or to negotiate acceptable leases for such sites;
Difficulties associated with the growth of our existing financial controls, information systems, management     resources and human resources needed to support our future growth;
Difficulties with hiring, training and retaining skilled personnel, including store managers;
Difficulties in adapting distribution and other operational and management systems to an expanded network     of stores;
The potential inability to obtain adequate financing to fund our expansion;
Limitations on capital expenditures or debt levels contained in our revolving credit facility;
Difficulties in obtaining governmental and other third-party consents, permits and licenses needed to operate additional stores;
Difficulties in obtaining the cost savings and financial improvements we anticipate from future acquired stores;
The potential diversion of our senior management’s attention from focusing on our core business due to an     increased focus on acquisitions; and
Challenges associated with the consummation and integration of any future acquisition.

We depend on cash flow generated by our subsidiaries, including the Partnership.

We are a holding company with no material assets other than the equity interests of our subsidiaries. Our subsidiaries conduct substantially all of our operations and own substantially all of our assets. Each of our subsidiaries is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries and our subsidiaries may not be able to, or be permitted to, make distributions to us. In the event that we do not receive distributions from our subsidiaries, we may be unable to meet our financial obligations. Importantly, even though we own 50.1% of the Partnership, our rights to receive cash distributions from the Partnership are subordinate to those of the Partnership's public unitholders and if the Partnership does not have sufficient available cash to make its minimum quarterly distribution we will not receive our pro-rata share of distributed cash. Additionally, the Partnership's cash available for distributions to us is subject to certain tax risks discussed below. In the event that we do not receive distributions from the Partnership or our other subsidiaries, we may be unable to meet our financial obligations.


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Our significant relationships with the Partnership may expose us to the risks associated with the Partnership's business and operations.

In addition to the risk that a material decline in the Partnership's operations or financial condition could cause us to lose some or all of the economic benefit of our 50.1% limited partner interest in the Partnership, we are party to certain contractual and/or commercial arrangements undertaken to effectuate the Partnership's initial public offering that may indirectly expose us to risks associated with the Partnership's business and operations. Among other things, we are a guarantor of up to $180.7 million of the Partnership's debt as well as certain of the Partnership's accounts payable with fuel suppliers. Consequently, in the event the Partnership experiences a material adverse effect to its business or financial condition that causes it to become insolvent, we may be required to satisfy the Partnership's repayment obligations in connection with that debt or those accounts payable. Moreover, because we rely exclusively upon the Partnership for our motor fuel requirements, a material downturn in the Partnership's business or operations, or inability to procure or distribute supplies of motor fuel on commercially viable terms, could materially and adversely affect our retail convenience store operations. The risks associated with the Partnership's business are described in detail in its filings with the U.S. Securities and Exchange Commission including its final prospectus for the initial public offering as well as any subsequently filed annual reports on Form 10-K and quarterly reports on Form 10-Q, and include, but are not limited to, those summarized below:
Risks associated with renewal or renegotiation of its long-term distribution contracts with its customers;
Risks relating to changes in the price of and demand for the motor fuel that it distributes;
Fuel supply risks, including the Partnership's dependence on two principal fuel suppliers, and ability to renew fuel supply agreements on attractive terms;
Competition in the wholesale motor fuel distribution industry;
Impacts of seasonal trends;
Increased costs;
Risks relating to the Partnership's ability to make acquisitions;
Changes in environmental laws and regulations;
Dangers inherent in the storage of motor fuel.

Our agreements with the Partnership may limit our operational flexibility.

In connection with the Partnership's initial public offering, we entered into an Omnibus Agreement and a ten year fuel distribution agreement pursuant to which we agreed, among other things: (i) to purchase our motor fuel requirements exclusively from the Partnership, (ii) to grant the Partnership a 3 year option to purchase up to 75 new or recently constructed Stripes convenience stores, and to lease those stores back to us on specified rental terms and (iii) to allow the Partnership to participate in acquisition opportunities (including offering the Partnership the right to acquire any wholesale assets constituting or included in such opportunities). These, and similar, provisions in our agreements with the Partnership may limit our operational flexibility including our ability to improve fuel supply economics or logistics by pursuing alternative fuel supply sources, our ability to capitalize on alternative financing arrangements for newly constructed Stripes convenience stores subject to the Partnership's purchase option (including sale lease back arrangements with third parties) and our flexibility in pursuing acquisition opportunities.

Our substantial indebtedness may impair our financial condition or limit future growth opportunities.
On December 30, 2012, we had $610.3 million in outstanding indebtedness on a consolidated basis. $184.9 million of this debt is the responsibility of SUSP, for which we have guaranteed a maximum of $180.7 million. Our substantial indebtedness could have important consequences, including:

Making it more difficult for us to satisfy our obligations with respect to our 8.5% senior notes or our credit agreement governing our revolving credit facility;
Limiting our ability to borrow additional amounts to fund working capital, capital expenditures, acquisitions, debt service requirements or other general corporate purposes, execution of our growth strategy and other purposes;

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Requiring us to dedicate a substantial portion of our cash flow from operations to pay interest on our debt, which would reduce availability of our cash flow to fund working capital, capital expenditures, acquisitions, execution of our growth strategy and other general corporate purposes;
Making us more vulnerable to adverse changes in general economic, industry and government regulations and in our business by limiting our flexibility in planning for, and making it more difficult for us to react quickly to, changing conditions; and
Placing us at a competitive disadvantage compared with our competitors that have less debt.

In addition, we may not be able to generate sufficient cash flow from our operations to repay our indebtedness when it becomes due and to meet our other cash needs. If we are not able to pay our debts as they become due, we will be required to pursue one or more alternative strategies, such as selling assets, refinancing or restructuring our indebtedness or selling additional debt or equity securities. We may not be able to refinance our debt or sell additional debt or equity securities or our assets on favorable terms, if at all, and if we must sell our assets, it may negatively affect our ability to generate revenues.

The restrictive covenants in our credit facilities and the indenture governing our 8.5% senior notes may affect our ability to operate our business successfully.

The indenture governing our 8.5% senior notes and the terms of our revolving credit facility will, and our future debt instruments may, contain various provisions that limit our ability to, among other things:
incur liens;
incur additional indebtedness, guarantees or other contingent obligations;
engage in mergers and consolidations;
make sales, transfers and other dispositions of property and assets;
make loans, acquisitions, joint ventures and other investments;
declare dividends;
redeem and repurchase shares of equity holders;
create new subsidiaries;
become a general partner in any partnership;
prepay, redeem or repurchase debt;
make capital expenditures;
grant negative pledges;
change the nature of business;
amend organizational documents and other material agreements;
change accounting policies or reporting practices; and
create a passive holding company.

These covenants could adversely affect our ability to finance our future operations or capital needs and pursue available business opportunities. In the event we or SUSP are not able to raise additional debt financing on reasonable terms, our ability to execute our future growth plans could be negatively impacted.

In addition, our and SUSP's credit facilities require us or SUSP, as applicable, to maintain specified financial ratios and satisfy certain financial condition tests. Events beyond our control, including changes in general economic and business conditions, may affect our ability to meet those financial ratios and financial condition tests. We cannot assure you that we will meet those tests or that our lenders will waive any failure to meet those tests. A breach of any of these covenants or any other restrictive covenants contained in our credit facilities or the indenture governing our 8.5% senior notes would result in an event of default. If an event of default under our revolving credit facility or the indenture occurs, the holders of the affected indebtedness could declare all amounts outstanding, together with accrued interest, to be immediately due and payable, which,

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in turn, could cause the default and acceleration of the maturity of our other indebtedness. If we were unable to pay such amounts, the lenders under our credit facilities could proceed against the collateral pledged to them. We have pledged a portion of our assets to the lenders under our revolving credit facilities. See “Management's Discussion of Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” and Note 10 of the accompanying Notes to Consolidated Financial Statements for additional information.

Compliance with and liability under state and federal environmental regulation, including those that require investigation and remediation activities, may require significant expenditures or result in liabilities that could have a material adverse effect on our business.
Our business is subject to various federal, state and local environmental laws and regulations, including those relating to underground storage tanks, the release or discharge of regulated materials into the air, water and soil, the generation, storage, handling, use, transportation and disposal of hazardous materials, the exposure of persons to regulated materials, and the health and safety of our employees. A violation of, liability under or compliance with these laws or regulations or any future environmental laws or regulations, could have a material adverse effect on our business and results of operations.

Certain environmental laws, including CERCLA, impose strict, and under certain circumstances, joint and several, liability on the owner and operator as well as former owners and operators of properties for the costs of investigation, removal or remediation of contamination and also impose liability for any related damages to natural resources without regard to fault. In addition, under CERCLA and similar state laws, as persons who arrange for the transportation, treatment or disposal of hazardous substances, we also may be subject to similar liability at sites where such hazardous substances come to be located. We may also be subject to third-party claims alleging property damage and/or personal injury in connection with releases of or exposure to hazardous substances at, from or in the vicinity of our current or former properties or off-site waste disposal sites. The costs associated with the investigation and remediation of contamination, as well as any associated third party claims, could be substantial, and could have a material adverse effect on our business and results of operations and our ability to service our outstanding indebtedness. In addition, the presence or failure to remediate identified or unidentified contamination at our properties could potentially materially adversely affect our ability to sell or rent such property or to borrow money using such property as collateral.
 
We are required to make financial expenditures to comply with regulations governing underground storage tanks adopted by federal, state and local regulatory agencies. Compliance with existing and future environmental laws regulating underground storage tank systems of the kind we use may require significant capital expenditures in the future. These expenditures may include upgrades, modifications, and the replacement of underground storage tanks and related piping to comply with current and future regulatory requirements designed to ensure the detection, prevention, investigation and remediation of leaks and spills.

In addition, the Federal Clean Air Act and similar state laws impose requirements on emissions to the air from motor fueling activities in certain areas of the country, including those that do not meet state or national ambient air quality standards. These laws may require the installation of vapor recovery systems to control emissions of volatile organic compounds to the air during the motor fueling process. While we believe we are in material compliance with all applicable regulatory requirements with respect to underground storage tank systems of the kind we use, the regulatory requirements may become more stringent or apply to an increased number of underground storage tanks in the future, which would require additional, potentially material, expenditures.
We are required to comply with federal and state financial responsibility requirements to demonstrate that we have the ability to pay for cleanups or to compensate third parties for damages incurred as a result of a release of regulated materials from our underground storage tank systems. We seek to comply with these requirements by maintaining insurance which we purchase from private insurers and in certain circumstances, rely on applicable state trust funds, which are funded by underground storage tank registration fees and taxes on wholesale purchase of motor fuels. The coverage afforded by each fund varies and is dependent upon the continued maintenance and solvency of each fund. More specifically, in Texas we met our financial responsibility requirements by state trust fund coverage for claims asserted prior to December 1998 (claims reported after that date are ineligible for reimbursement) and all claims covered by the fund were paid by August 31, 2012 when the fund expired. We meet such requirements for claims asserted after that date through insurance. In Oklahoma and New Mexico, we meet our financial responsibility requirements by state trust fund coverage for cleanup liability and meet the requirements for third-party liability through private insurance.
We are currently responsible for investigating and remediating contamination at a number of our current and former properties. We are entitled to reimbursement for certain of these costs under various third-party contractual indemnities, and insurance policies, subject to eligibility requirements, deductibles, per incident, annual and aggregate caps. To the extent third

16


parties (including insurers) do not pay for investigation and remediation as we anticipate, and/or insurance is not available, we will be obligated to make these additional payments, which could materially adversely affect our business, liquidity and results of operations.
We believe we are in material compliance with applicable environmental requirements; however, we cannot ensure that violations of these requirements will not occur. Although we have a comprehensive environmental, health and safety program, we may not have identified all of the environmental liabilities at all of our current and former locations; material environmental conditions not known to us may exist; future laws, ordinances or regulations may impose material environmental liability or compliance costs on us; or we may be required to make material environmental expenditures for remediation of contamination that has not been discovered at existing locations or locations that we may acquire.
Furthermore, new laws, new interpretations of existing laws, increased governmental enforcement of existing laws or other developments could require us to make additional capital expenditures or incur additional liabilities. The occurrence of any of these events could have a material adverse effect on our business and results of operations.
The dangers inherent in the storage and transport of motor fuel could cause disruptions and could expose us to potentially significant losses, costs or liabilities.
We store motor fuel in underground and above ground storage tanks. Additionally, we transport a portion of our motor fuel in our own trucks, instead of by third-party carriers. Our operations are subject to significant hazards and risks inherent in transporting and storing motor fuel. These hazards and risks include, but are not limited to, fires, explosions, traffic accidents, spills, discharges and other releases, any of which could result in distribution difficulties and disruptions, environmental pollution, governmentally-imposed fines or clean-up obligations, personal injury or wrongful death claims and other damage to our properties and the properties of others. As a result, any such event not covered by our insurance could have a material adverse effect on our business, financial condition and results of operations.
Pending or future consumer or other litigation could adversely affect our financial condition and results of operations.
Our retail operations are characterized by a high volume of customer traffic and by transactions involving a wide array of product selections. These operations carry a higher exposure to consumer litigation risk when compared to the operations of companies operating in many other industries. Consequently, we are frequently party to individual personal injury, bad fuel, products liability and other legal actions in the ordinary course of our business. While we believe these actions are generally routine in nature, incidental to the operation of our business and immaterial in scope, if our assessment of any action or actions should prove inaccurate our financial condition and results of operations could be adversely affected.
Additionally, we are occasionally exposed to industry-wide or class-action claims arising from the products we carry, the equipment or processes we use or employ or industry-specific business practices. For example, various petroleum marketing retailers, distributors and refiners are currently defending class-action claims alleging that the sale of unadjusted volumes of fuel in temperatures in excess of 60 degrees Fahrenheit violates various state consumer protection laws due to the expansion of the fuel with the increase of fuel temperatures. Additionally, in recent years several retailers have experienced data breaches resulting in exposure of sensitive customer data, including payment card information. Any such breach of our systems, or any failure to secure our systems against such a breach, could expose us to customer litigation, as well as sanctions from the payment card industry. In recent years, retailers have also increasingly become targets of certain types of patent litigation by “non practicing entities” who acquire intellectual property rights solely for purposes of instituting mass litigation. While industry-specific or class action litigation of this type is less frequent in occurrence than individual consumer claims, the cost of defense and ultimate disposition may be material to our financial condition and results of operation.

We may incur costs or liabilities as a result of litigation or adverse publicity resulting from concerns over food quality, health or other issues that could cause consumers to avoid our restaurants.

We may be the subject of complaints or litigation arising from food-related illness or injury in general which could have a negative impact on our business. Additionally, negative publicity, regardless of whether the allegations are valid, concerning food quality, food safety or other health concerns, restaurant facilities, employee relations or other matters related to our operations may materially adversely affect demand for our food and could result in a decrease in customer traffic to our restaurants.

It is critical to our reputation that we maintain a consistent level of high quality at our restaurants and other franchise or fast food offerings. Health concerns, poor food quality or operating issues stemming from one store or a limited number of

17


stores could materially and adversely affect the operating results of some or all of our stores and harm our Laredo Taco Company® and /or Stripes® brands.
Wholesale cost increases in tobacco products, including excise tax increases on cigarettes, could adversely impact our revenues and profitability.

For the fiscal year ended December 30, 2012, sales of cigarettes accounted for approximately 4.9% of our retail division’s gross profit. Significant increases in wholesale cigarette costs and tax increases on cigarettes may have an adverse effect on unit demand for cigarettes. Cigarettes are subject to substantial and increasing excise taxes on both a state and federal level. We cannot predict whether this trend will continue into the future. Increased excise taxes may result in declines in overall sales volume as well as reduced gross profit percent, due to lower consumption levels and to a shift in consumer purchases from the premium to the non-premium or discount segments or to other lower-priced tobacco products or to the import of cigarettes from countries with lower, or no, excise taxes on such items.

Currently, major cigarette manufacturers offer rebates to retailers. We include these rebates as a component of our gross margin from sales of cigarettes. In the event these rebates are no longer offered, or decreased, our wholesale cigarette costs will increase accordingly. In general, we attempt to pass price increases on to our customers. However, due to competitive pressures in our markets, we may not be able to do so. These factors could materially impact our retail price of cigarettes, cigarette unit volume and revenues, merchandise gross profit and overall customer traffic, which could in turn have a material adverse effect on our business and results of operations.
Failure to comply with state laws regulating the sale of alcohol and cigarettes may result in the loss of necessary licenses and the imposition of fines and penalties on us, which could have a material adverse effect on our business.
State laws regulate the sale of alcohol and cigarettes. A violation or change of these laws could adversely affect our business, financial condition and results of operations because state and local regulatory agencies have the power to approve, revoke, suspend or deny applications for, and renewals of, permits and licenses relating to the sale of these products or to seek other remedies. Such a loss or imposition could have a material adverse effect on our business and results of operations.

Future legislation and campaigns to discourage smoking may have a material adverse effect on our revenues and gross profit.
Future legislation and national, state and local campaigns to discourage smoking could have a substantial impact on our business, as consumers adjust their behaviors in response to such legislation and campaigns. Reduced demand for cigarettes could have a material adverse effect on sales of, and margins for, the cigarettes we sell.
Healthcare reform legislation could have a negative impact on our business.
The Patient Protection and Affordable Care Act (the “Patient Act”) as well as other healthcare reform legislation being considered by Congress and state legislatures may have an impact on our business. Although many of the rules, reforms and regulations required to implement the Patient Act have not yet been adopted, and consequently the precise costs of complying with the Patient Act remain unknowable, based on our review of the likely impact of the Patient Act with our insurers, an increase in our employee healthcare-related costs appears likely and that increase could be extensive. While the significant costs of the recent healthcare legislation enacted will occur after 2013 due to provisions of the legislation being phased in over time, changes to our healthcare cost structure could have a significant, negative impact on our business.

Failure to comply with the employment wage, other state and federal regulations to which we are subject to may result in penalties or costs that could have a material adverse effect on our business.
Our business is subject to various other state and federal regulations including, but not limited to, employment laws and regulations, minimum wage requirements, overtime requirements, working condition requirements, citizenship requirements and other laws and regulations. While the potential costs of future legislation is inherently unknowable, any appreciable increase in the statutory minimum wage, income or overtime rates would likely result in an increase in our labor costs and such cost increase, or the penalties for failing to comply with such statutory minimums or regulations, could have a material adverse effect on our business and results of operations.



18


Changes in, or our failure to comply with, tax laws could adversely affect our business.

We are subject to extensive tax laws and regulations, including federal and state income taxes and transactional taxes such as excise, sales/use, payroll, franchise, and ad valorem taxes. New tax laws and regulations and changes in existing tax laws and regulations are continuously being enacted that could result in increased tax expenditures in the future. Many of these tax liabilities are subject to audits by the respective taxing authority. These audits may result in additional taxes as well as interest and penalties.

The value of our ownership interests in the Partnership depends on its status as a partnership for U.S. federal income tax purposes, which could be subject to potential legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis. Additionally, the Partnership's cash available for distribution could decrease if it becomes subject to a material amount of entity-level taxation by individual states.

The value of our investment in the Partnership depends largely on the Partnership being treated as a partnership for U.S. federal income tax purposes. The present federal income tax treatment of publicly traded partnerships, including the Partnership, or our investment in the Partnership, may be modified by administrative, legislative or judicial interpretation at any time. For example, from time to time, members of the U.S. Congress propose and consider substantive changes to the existing federal income tax laws that affect publicly traded partnerships. We are unable to predict whether any legislation will ultimately be enacted. However, it is possible that a change in law could affect us or the Partnership and may, if enacted, be applied retroactively.

In addition, despite the fact that the Partnership is organized as a limited partnership under Delaware law, a publicly traded partnership such as the Partnership will be treated as a corporation for U.S. federal income tax purposes unless 90% or more of its gross income from its business activities are “qualifying income” under Section 7704(d) of the Internal Revenue Code. “Qualifying income” includes income and gains derived from the exploration, development, production, processing, transportation, storage and marketing of natural resources and natural resource products or other passive types of income such as interest and dividends. Although we do not believe, based upon its current operations, that the Partnership will be so treated, a change in its business (or a change in current law) could cause it to be treated as a corporation for federal income tax purposes or otherwise subject to taxation as an entity.

Any change in law or interpretation thereof, or the failure by the Partnership to have enough “qualifying income,” that causes the Partnership to be treated as a corporation for U.S. federal income tax purposes, or otherwise subject to taxation as an entity, would likely materially and adversely impact the value of our investment in the Partnership.

The Partnership is also subject to the entity-level Texas franchise tax. An increase in that tax, or the imposition of similar state-level taxes on the Partnership, would reduce the cash available for distribution to its unitholders, including us.

We depend on two principal suppliers for a substantial portion of our merchandise inventory and our restaurant products and ingredients. A disruption in supply or a change in either relationship could have a material adverse effect on our business.

We purchase more than 38% of our general merchandise, including most tobacco and grocery items, from a single wholesale grocer, McLane. McLane has been a supplier of ours since 1992. In January 2011, we entered into a new two-year agreement with McLane with three one-year optional renewal terms. However, the agreement may be terminated by either party upon six months notice. We have exercised the first renewal option which runs through January 1, 2014. Similarly, we purchase most of our restaurant products and ingredients from Labatt, pursuant to an agreement that runs through December 2013, with two one-year optional renewal terms. A disruption in supply or a significant change in our relationship with either of these suppliers could have a material adverse effect on our business and results of operations.

We rely on our suppliers to provide trade credit terms to adequately fund our on-going operations and product purchases.

Our business is impacted by the availability of trade credit to fund inventory purchases. An actual or perceived downgrade in our liquidity or operations (including any credit rating downgrade by a rating agency) could cause our suppliers or vendors to seek credit support in the form of additional collateral, limit the extension of trade credit, or otherwise materially modify their payment terms. Any material changes in the payments terms, including payment discounts, or availability of trade credit provided by our principal suppliers could impact our liquidity or results of operations.

The industries in which we operate are subject to seasonal trends, which may cause our operating costs to fluctuate, affecting our cash flow.

19


We experience more demand for our merchandise, food and motor fuel during the late spring and summer months than during the fall and winter. Travel, recreation and construction are typically higher in these months in the geographic areas in which we operate, increasing the demand for the products that we sell and distribute. Additionally, our retail fuel margins have historically been higher in the second and third quarters of the year. Therefore, our revenues and cash flows are typically higher in the second and third quarters of our fiscal year. As a result, our results from operations may vary widely from period to period, affecting our cash flow.

Because we depend on our senior management’s experience and knowledge of our industry, we could be adversely affected were we to lose key members of our senior management team.
We are dependent on the continued efforts of our senior management team. If, for any reason, our senior executives do not continue to be active in management, our business, financial condition or results of operations could be adversely affected. In addition, other than Sam L. Susser, we do not maintain key man life insurance on our senior executives and other key employees.

We compete with other businesses in our market with respect to attracting and retaining qualified employees.

Our continued success depends on our ability to attract and retain qualified personnel in all areas of our business. We compete with other businesses in our market with respect to attracting and retaining qualified employees. A tight labor market, increased overtime and a higher full-time employee ratio may cause labor costs to increase. A shortage of qualified employees may require us to enhance wage and benefits packages in order to compete effectively in the hiring and retention of qualified employees or to hire more expensive temporary employees. No assurance can be given that our labor costs will not increase, or that such increases can be recovered through increased prices charged to customers. We are especially vulnerable to labor shortages in oil and gas drilling areas when energy prices are high by historical standards.

Terrorist attacks and threatened or actual war may adversely affect our business.

Our business is affected by general economic conditions and fluctuations in consumer confidence and spending, which can decline as a result of numerous factors outside of our control. Terrorist attacks or threats, whether within the United States or abroad, rumors or threats of war, actual conflicts involving the United States or its allies, or military or trade disruptions impacting our suppliers or our customers may adversely impact our operations. As a result, there could be delays or losses in the delivery of supplies to us, decreased sales of our products and extension of time for payment of accounts receivable from our customers. Specifically, strategic targets such as energy related assets (which could include refineries that produce the motor fuel we purchase or ports in which crude oil is delivered) may be at greater risk of future terrorist attacks than other targets in the United States. These occurrences could have an adverse impact on energy prices, including prices for our products, and an adverse impact on the margins from our operations. In addition, disruption or significant increases in energy prices could result in government imposed price controls. Any or a combination of these occurrences could have a material adverse effect on our business and results of operations.

We rely on our information technology systems to manage numerous aspects of our business, and a disruption of these systems could adversely affect our business.

We depend on our information technology (IT) systems to manage numerous aspects of our business transactions and provide analytical information to management. Our IT systems are an essential component of our business and growth strategies, and a serious disruption to our IT systems could significantly limit our ability to manage and operate our business efficiently. These systems are vulnerable to, among other things, damage and interruption from power loss or natural disasters, computer system and network failures, loss of telecommunications services, physical and electronic loss of data, security breaches and computer viruses. Any disruption could cause our business and competitive position to suffer and cause our operating results to be reduced.

Severe weather could adversely affect our business by damaging our facilities, our communications network, or our suppliers or lowering our sales volumes.

Approximately one-third of our stores are located on the Texas gulf coast. Although South Texas is generally known for its mild weather, the region is susceptible to severe storms, including hurricanes. A severe storm could damage our facilities, our communications networks, or our suppliers' distribution capabilities or could have a significant impact on consumer behavior, travel and convenience store traffic patterns, as well as our ability to operate our locations. If warmer temperatures, or other climate changes, lead to changes in extreme weather events (increased frequency, duration and severity), these weather-related risks could become more pronounced. Any weather-related catastrophe or disruption could have a material

20


adverse effect on our business and results of operations, potentially causing losses beyond the limits of the insurance we currently carry.

Our concentration of stores along the U.S.-Mexico border increases our exposure to certain cross-border risks that could adversely affect our business and financial condition by lowering our sales revenues.

More than one-third of our convenience stores are located in close proximity to Mexico. These stores rely heavily upon cross-border traffic and commerce to drive sales volumes. Sales volumes at these stores could be impaired by a number of cross-border risks, any one of which could have a material adverse effect on our business and results of operations, including the following:
A devaluation of the Mexican peso could negatively affect the exchange rate between the peso and the U.S. dollar, which would result in reduced purchasing power in the U.S. on the part of our customers who are citizens of Mexico;
The imposition of tighter restrictions by the U.S. government on the ability of citizens of Mexico to cross the border into the United States, or the imposition of tariffs upon Mexican goods entering the United States or other restrictions upon Mexican-borne commerce, could reduce revenues attributable to our convenience stores regularly frequented by citizens of Mexico;
Future subsidies for motor fuel by the Mexican government could lead to wholesale cost and retail pricing differentials between the U.S. and Mexico that could divert fuel customer traffic to Mexican fuel retailers and;
The escalation of drug-related violence along the border could deter tourist and other border traffic, which could likely cause a decline in sales revenues at these locations.

If future characteristics indicate that goodwill or indefinite lived tangible assets are impaired, there could be a requirement to write down amounts of goodwill and indefinite lived intangible assets and record impairment charges.

Goodwill and indefinite lived intangible assets are initially recorded at fair value and are not amortized, but are reviewed for impairment at least annually or more frequently if impairment indicators are present. In assessing the recoverability of goodwill and indefinite lived intangible assets, we made estimates and assumptions about sales, operating margin, growth rates, consumer spending levels, general economic conditions and the market prices for our common stock. There are inherent uncertainties related to these factors and management’s judgment in applying these factors. We could be required to evaluate the recoverability of goodwill and indefinite lived intangible assets prior to the annual assessment if we experience, among others, disruptions to the business, unexpected significant declines in our operating results, divestiture of a significant component of our business changes in operating strategy or sustained market capitalization declines. These types of events and the resulting analyses could result in goodwill and indefinite lived intangible asset impairment charges in the future. Impairment charges could substantially affect our financial results in the periods of such charges. In addition, impairment charges could negatively impact our financial ratios and could limit our ability to obtain financing on favorable terms, or at all, in the future.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

At December 30, 2012, we owned 262 of our operating retail stores and leased the real property of 297 of our stores. We also own 57 sites for future stores and 51 properties we consider surplus properties. In addition, our wholesale segment owns 56 dealer locations and leases the property at 33 locations, which we lease or sublease to independent operators. Most of our leases are net leases requiring us to pay taxes, insurance and maintenance costs. We believe that we will be able to negotiate acceptable extensions of the leases for those locations that we intend to continue operating. We believe that no individual site is material to us. The following table provides summary information of our owned and leased real property as of December 30, 2012, inclusive of executed renewal options:

21


 
 
 
Leased Locations by Expirations
 
 
 
Owned
 
0-5 Years
 
6-10 Years
 
11-15 Years
 
16 + Years
 
Total
Retail
262

 
68

 
49

 
133

 
47

 
559

Wholesale - third party operated
56

 
7

 
13

 
12

 
1

 
89

Wholesale - Stripes operated
8

 

 

 

 

 
8

Inter segment leases

 

 

 
(8
)
 

 
(8
)
Total (1)
326

 
75

 
62

 
137

 
48

 
648

 
 
 
 
 
 
 
 
 
 
 
 
(1)
Does not include our properties held for store development, office/warehouse facilities or properties held for sale. Includes properties owned or leased by SUSP and its subsidiaries.

We lease our corporate and retail segment headquarters facility, which consists of approximately 83,000 square feet of office space located in Corpus Christi. The annual lease expense is approximately $144,000 net of taxes, insurance and maintenance. We own the headquarters of our wholesale segment, which consists of approximately 43,000 square feet of office space in Houston.


Item 3. Legal Proceedings


We are party to various legal actions in the ordinary course of our business. We believe these actions are generally routine in nature and incidental to the operation of our business or are otherwise immaterial. While the outcome of these actions cannot be predicted with certainty, we believe that the ultimate resolutions of these matters will not have a material adverse effect on our business, financial condition or prospects.

We make routine applications to state trust funds for the sharing, recovering and reimbursement of certain cleanup costs and liabilities as a result of releases of motor fuels from storage systems. For more information about these cleanup costs and liabilities, see “Item 1. Business—Government Regulation and Environmental Matters.”

Item 4. Mine Safety Disclosures

Not applicable.
 

22


Part II

Item 5. Market for Our Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock, $.01 par value, represents our only voting securities, and had been listed on the NASDAQ Global Market under the symbol “SUSS” since trading of our stock began on October 19, 2006 in connection with our IPO until December 21, 2012, at which time we transferred the listing of our common stock to the New York Stock Exchange (NYSE). Prior to October 2006, there was no established trading market for our securities. There were 21,619,700 shares of common stock issued and 21,229,499 shares outstanding as of December 30, 2012. The high and low closing prices of our common stock for each quarterly period over the last two years were as follows:

 
 
Fiscal 2011
 
Fiscal 2012
Quarter
 
High
 
Low
 
High
 
Low
First
 
$
15.86

 
$
12.98

 
$
27.70

 
$
21.95

Second
 
16.55

 
12.90

 
37.17

 
25.35

Third
 
23.04

 
15.94

 
39.26

 
34.02

Fourth
 
25.17

 
19.01

 
37.26

 
33.08


As of March 1, 2013, there were 98 holders of record of our common stock. This number does not include beneficial owners of our common stock whose stock is held in nominee or street name accounts through brokers.

We have never declared or paid cash dividends on our common stock. We have historically retained earnings to support operations, to finance expansion, to reduce debt and to opportunistically repurchase shares. The payment of cash dividends or the repurchase of shares in the future is at the discretion of our Board of Directors, and any decision to declare a dividend will be based on a number of factors, including, but not limited to, earnings, financial condition, applicable covenants under our credit facility and other contractual restrictions, and other factors deemed relevant by our Board of Directors. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” and “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements Note 10. Long-Term Debt.”


Item 6. Selected Financial Data

The following table sets forth selected consolidated financial data and store operating data for the periods indicated for Susser Holdings Corporation and its subsidiaries. The selected consolidated financial data for each of the fiscal years ended on and as of the Sunday nearest to December 31, 2008, 2009, 2010, 2011 and 2012, respectively, are derived from our audited consolidated financial statements. Historical results are not necessarily indicative of the results to be expected in the future. Unless specifically noted, all amounts are consolidated to include SUSP results. You should read the following summary consolidated financial information together with “Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and related notes appearing elsewhere in this report.


23


 
Fiscal Year Ended
 
December 28, 2008
 
January 3, 2010 (1)
 
January 2, 2011
 
January 1, 2012
 
December 30, 2012
 
(dollars in thousands, except per share data)
Statement of Operations Data:
Revenues:
Merchandise sales
$
729,857

 
$
784,424

 
$
806,252

 
$
881,911

 
$
976,452

Motor fuel sales
3,474,222

 
2,481,459

 
3,081,351

 
4,264,422

 
4,788,050

Other
36,566

 
41,425

 
43,027

 
47,835

 
53,625

Total revenues
4,240,645

 
3,307,308

 
3,930,630

 
5,194,168

 
5,818,127

Gross profit:
 
 
 
 
 
 
 
 
 
Merchandise
250,642

 
261,084

 
270,683

 
297,601

 
330,952

Motor fuel
151,490

 
125,228

 
161,629

 
213,563

 
231,640

Other
35,278

 
41,067

 
40,790

 
45,822

 
48,802

Total gross profit
437,410

 
427,379

 
473,102

 
556,986

 
611,394

Selling, general and administrative expenses (2)
330,660

 
338,525

 
355,915

 
393,556

 
432,834

Depreciation, amortization and accretion
40,842

 
44,382

 
43,998

 
47,320

 
51,434

Other operating and miscellaneous (income) expense (3)
(269
)
 
2,457

 
3,367

 
1,566

 
1,165

Interest expense, net (4)
39,256

 
38,103

 
64,039

 
40,726

 
41,019

Income tax expense
10,396

 
1,805

 
4,994

 
26,347

 
33,645

Noncontrolling interest
48

 
39

 
3

 
14

 
4,572

Net income attributable to Susser Holdings Corporation
$
16,477

 
$
2,068

 
$
786

 
$
47,457

 
$
46,725

Net income per share attributable to Susser Holdings Corporation:
 
 
 
 
 
 
 
 
 
Basic
$
0.98

 
$
0.12

 
$
0.05

 
$
2.74

 
$
2.25

Diluted
$
0.97

 
$
0.12

 
$
0.05

 
$
2.68

 
$
2.19


24


 
Fiscal Year Ended
 
December 28, 2008
 
January 3, 2010 (1)
 
January 2, 2011
 
January 1, 2012
 
December 30, 2012
 
(dollars in thousands)
Other Financial Data:
EBITDA (9)
$
107,019

 
$
86,397

 
$
113,820

 
$
161,864

 
$
177,395

Adjusted EBITDA (9)
110,696

 
92,287

 
120,012

 
167,018

 
182,897

Cash provided by (used in):
 
 
 
 
 
 
 
 
 
Operating activities
51,206

 
50,043

 
96,978

 
108,454

 
125,756

Investing activities
(43,459
)
 
(53,319
)
 
(52,737
)
 
(124,112
)
 
(323,419
)
Financing activities
(7,294
)
 
12,967

 
(14,274
)
 
88,279

 
363,331

Capital expenditures, net (5)
33,458

 
48,499

 
49,105

 
122,181

 
177,962

Operating Data:
 
 
 
 
 
 
 
 
 
Number of retail stores (end of period)
512

 
525

 
526

 
541

 
559

Number of contracted wholesale locations supplied (end of period)
372

 
390

 
431

 
565

 
579

Average per retail store per week:
 
 
 
 
 
 
 
 
 
Merchandise sales
$
27.6

 
$
28.6

 
$
29.6

 
$
31.9

 
$
34.5

Motor fuel gallons sold
26.1

 
26.7

 
27.3

 
28.7

 
30.3

Merchandise same store sales growth (6)
6.6
%
 
3.3
%
 
4.0
%
 
6.0
%
 
6.6
%
Merchandise margin, net of shortages
34.3
%
 
33.3
%
 
33.6
%
 
33.7
%
 
33.9
%
Motor fuel gallons sold-retail
677,308

 
719,649

 
735,763

 
785,582

 
853,163

Motor fuel gallons sold-wholesale third party (7)
486,516

 
494,821

 
494,209

 
522,832

 
594,909

Average retail motor fuel price per gallon
$
3.18

 
$
2.23

 
$
2.70

 
$
3.46

 
$
3.51

Retail motor fuel gross profit cents per gallon (8)

17.8
¢
 

14.6
¢
 

18.4
¢
 

23.2
¢
 

21.8
¢
Retail credit card cents per gallon

4.2
¢
 

3.5
¢
 

4.4
¢
 

5.5
¢
 

5.5
¢
Wholesale motor fuel gross profit cents per gallon, third party (7)

6.4
¢
 

4.1
¢
 

5.3
¢
 

5.9
¢
 

6.2
¢

 
December 28, 2008
 
January 3, 2010
 
January 2, 2011
 
January 1, 2012
 
December 30, 2012
 
(dollars in thousands)
Balance Sheet Data:
Cash and cash equivalents
$
8,284

 
$
17,976

 
$
47,943

 
$
120,564

 
$
286,232

Marketable securities

 

 

 

 
148,264

Total assets
824,356

 
873,018

 
914,339

 
1,095,970

 
1,571,383

Total debt
408,599

 
420,919

 
431,306

 
451,329

 
607,275

Susser Holdings Corporation Shareholders’ equity
204,247

 
209,648

 
213,790

 
334,148

 
389,186

 
 
 
 
 
 
(1)
Fiscal 2009 contained 53 weeks of operations for the retail segment, while all other fiscal years reported and referenced contain 52 weeks.
(2)
Includes non-cash stock-based compensation expense.
(3)
Other operating and miscellaneous expenses include loss (gain) on disposal of assets and impairment charges and other miscellaneous non-operating income.

25


(4)
Interest expense for 2010 includes non-recurring pre-tax charges of $24.2 million related to debt refinancing.
(5)
Gross capital expenditures include acquisitions and purchase of intangible assets, including accrued capital expenditures. Net capital spending is gross capital spending less proceeds from sale leaseback transactions and asset dispositions.
(6)
We include a store in the same store sales base in its thirteenth full month of operation. Closed stores are removed from the same store sales in the month closed.
(7)
Excludes inter-company sales to our retail segment.
(8)
2012 average retail fuel margin reflects a reduction of 0.75 cents per gallon attributable to the profit margin charged by SUSP effective September 25, 2012, of approximately three cents per gallon.
(9)
We define EBITDA as net income (loss) attributable to Susser Holdings Corporation before net interest expense, income taxes, net income attributable to noncontrolling interest, and depreciation, amortization and accretion. Adjusted EBITDA further adjusts EBITDA by excluding non-cash stock-based compensation expense and certain other operating expenses that are reflected in our net income that we do not believe are indicative of our ongoing core operations, such as significant non-recurring transaction expenses and the gain or loss on disposal of assets and impairment charges. Adjusted EBITDAR adds back rent to Adjusted EBITDA. In addition, those expenses that we have excluded from our presentation of Adjusted EBITDA and Adjusted EBITDAR are also excluded in measuring our covenants under our debt agreement and indentures.

We believe that EBITDA, Adjusted EBITDA and Adjusted EBITDAR are useful to investors in evaluating our operating performance because:
securities analysts and other interested parties use such calculations as a measure of financial performance     and debt service capabilities;
they facilitate management’s ability to measure the operating performance of our business on a consistent basis by excluding the impact of items not directly resulting from our retail convenience stores and wholesale motor fuel distribution operations;
they are used by our management for internal planning purposes, including aspects of our consolidated operating budget, capital expenditures, as well as for segment and individual site operating targets; and
they are used by our Board and management for determining certain management compensation targets and thresholds.

EBITDA, Adjusted EBITDA and Adjusted EBITDAR are not recognized terms under GAAP and do not purport to be alternatives to net income as measures of operating performance. EBITDA, Adjusted EBITDA and Adjusted EBITDAR have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. Some of these limitations include:
they do not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
they do not reflect changes in, or cash requirements for, working capital;
they do not reflect significant interest expense, or the cash requirements necessary to service interest or principal payments on our existing revolving credit facility or existing notes;
they do not reflect payments made or future requirements for income taxes;
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA, Adjusted EBITDA and Adjusted EBITDAR do not reflect cash requirements for such replacements, and;
because not all companies use identical calculations, our presentation of EBITDA, Adjusted EBITDA and Adjusted EBITDAR may not be comparable to similarly titles measures of other companies.
Subsequent to the SUSP IPO, we have revised our definition of EBITDA to exclude the impact of noncontrolling interest, in order to present a consolidated amount for EBITDA, Adjusted EBITDA and Adjusted EBITDAR which is consistent with the metrics used by our management and in our credit agreement covenants. Prior to the SUSP IPO, the amount of noncontrolling interest was not material.
The following table presents a reconciliation of net income attributable to Susser Holdings Corporation to EBITDA, Adjusted EBITDA and Adjusted EBITDAR:


26


 
Fiscal Year Ended
 
December 28, 2008
 
January 3, 2010 (1)
 
January 2, 2011
 
January 1, 2012
 
December 30, 2012
 
(dollars in thousands)
Net income attributable to Susser Holdings Corporation
$
16,477

 
$
2,068

 
$
786

 
$
47,457

 
$
46,725

Net income attributable to noncontrolling interest
48

 
39

 
3

 
14

 
4,572

Depreciation, amortization and accretion
40,842

 
44,382

 
43,998

 
47,320

 
51,434

Interest expense, net
39,256

 
38,103

 
64,039

 
40,726

 
41,019

Income tax expense
10,396

 
1,805

 
4,994

 
26,347

 
33,645

EBITDA
$
107,019

 
$
86,397

 
$
113,820

 
$
161,864

 
$
177,395

Non-cash stock-based compensation
3,946

 
3,433

 
2,825

 
3,588

 
4,337

Loss on disposal of assets and impairment charge
9

 
2,402

 
3,193

 
1,220

 
694

Other miscellaneous expense (income)
(278
)
 
55

 
174

 
346

 
471

Adjusted EBITDA
110,696

 
92,287

 
120,012

 
167,018

 
182,897

Rent
34,620

 
36,899

 
42,623

 
45,738

 
46,407

Adjusted EBITDAR
$
145,316

 
$
129,186

 
$
162,635

 
$
212,756

 
$
229,304


Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion and analysis of our financial condition and results of operations should be read in conjunction with “Item 6. Selected Financial Data” and our consolidated financial statements and the related notes referenced in “Item 8. Financial Statements and Supplementary Data.” The fiscal years 2010, 2011 and 2012 presented herein each include 52 weeks.

Safe Harbor Discussion

This report, including without limitation, our discussion and analysis of our financial condition and results of operations, contains statements that we believe are “forward-looking statements” under the Private Securities Litigation Reform Act of 1995 and are intended to enjoy protection under the safe harbor for forward-looking statements provided by that Act. These forward-looking statements generally can be identified by use of phrases such as “believe,” “plan,” “expect,” “anticipate,” “intend,” “forecast” or other similar words or phrases. Descriptions of our objectives, goals, targets, plans, strategies, costs, anticipated capital expenditures, expected cost savings and benefits are also forward-looking statements. These forward-looking statements are based on our current plans and expectations and involve a number of risks and uncertainties that could cause actual results and events to vary materially from the results and events anticipated or implied by such forward-looking statements, including:

Competitive pressures from convenience stores, gasoline stations, other non-traditional retailers located in our markets and other wholesale fuel distributors;
Volatility in crude oil and wholesale petroleum costs;
Increasing consumer preferences for alternative motor fuels, or improvements in fuel efficiency;
Inability to build or acquire and successfully integrate new stores;
Dependence on our subsidiaries, including the Partnership, for cash flow generation;
Indirect exposure to the Partnership's business risks, by virtue of our significant relationships with the Partnership;
Operational limitations arising from our contractual agreements with the Partnership;
Our substantial indebtedness, and the restrictions imposed by the covenants in respect of that indebtedness;

27


Our ability to comply with federal and state regulations including those related to environmental matters and the sale of alcohol and tobacco;
Dangers inherent in storing and transporting motor fuel;
Pending or future consumer or other litigation or adverse publicity concerning food quality, food safety or other health concerns related to our restaurant facilities;
Wholesale cost increases of tobacco products or future legislation or campaigns to discourage smoking;
Healthcare reform legislation and regulation;
Compliance with, or changes in, tax laws-including those impacting the tax treatment of the Partnership;
Dependence on two principal suppliers for merchandise;
Dependence on suppliers for credit terms;
Seasonal trends in the industries in which we operate;
Dependence on senior management and the ability to attract qualified employees;
Acts of war and terrorism;
Dependence on our information technology systems;
Severe or unfavorable weather conditions;
Cross-border risks associated with the concentration of our stores in markets bordering Mexico;
Impairment of goodwill or indefinite lived assets; and
Other unforeseen factors.

For a discussion of these and other risks and uncertainties, please refer to “Part 1. Item 1A. Risk Factors.” The list of factors that could affect future performance and the accuracy of forward-looking statements is illustrative but by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty. The forward-looking statements included in this report are based on, and include, our estimates as of March 15, 2013. We anticipate that subsequent events and market developments will cause our estimates to change. However, while we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if new information becomes available in the future.


Overview
Our operations include retail convenience stores and wholesale motor fuel distribution. We are a leading operator of convenience stores and one of the largest motor fuel distributors in Texas based on store count and motor fuel volumes sold. As of December 30, 2012, our retail segment operated 559 convenience stores in Texas, New Mexico and Oklahoma offering merchandise, food service, motor fuel and other services.
On September 25, 2012, our subsidiary SUSP completed its initial public offering of common units representing limited partner interests. In connection with the initial public offering, substantially all of our wholesale motor fuel distribution business (other than our motor fuel consignment business and transportation assets) and certain owned and leased convenience store properties were contributed to the Partnership. We own 50.1% of SUSP's limited partner interests through common and subordinated units, the general partner of SUSP as well as all of SUSP's incentive distribution rights, which entitle us to specified increasing percentages of cash distributions as SUSP's per-unit cash distributions increase. SUSP received net proceeds from the offering of $206 million, after underwriter discounts, fees and offering expenses. We will continue to consolidate the operations of the Partnership in our financial statements, with the 49.9% share of the Partnership's net income allocated to public limited partners reflected as attributable to noncontrolling interest.
For the year ended December 30, 2012, we sold 1.4 billion gallons of branded and unbranded motor fuel. We purchase fuel directly from refiners and distribute it to our Stripes® convenience stores, contracted independent operators of convenience stores (“dealers”), unbranded convenience stores and other commercial users.  We believe our combined retail/wholesale business model makes it possible for us to pursue strategic acquisition opportunities and operate acquired properties under either format, providing an optimized return on investment.  Our market share and scale allows the integration of new or

28


acquired stores while minimizing overhead costs. In addition, we believe our food service and merchandising offerings distinguish us from our competition, providing the opportunity for increased traffic in our stores.
Our business is seasonal, and we generally experience higher sales and profitability in the second and third quarters during the summer activity months and lowest during the first and fourth quarters.  For a description of our results of operations on a quarterly basis see “Quarterly Results of Operations and Seasonality.”
During 2012, we continued to expand and upgrade our operating portfolio. We opened 25 new retail stores and closed seven, including three retail stores converted to wholesale dealer sites. We expect to open a total of 29 to 35 new retail stores during 2013. We added 39 dealer sites and discontinued 25, for a total of 579 dealer sites as of the end of 2012 in our wholesale segment. We expect to add a total of 25 to 40 new dealer sites during 2013.
Our total revenues, net income attributable to Susser Holdings Corporation and Adjusted EBITDA were $5.8 billion, $46.7 million and $182.9 million, respectively, for fiscal 2012 compared to $5.2 billion, $47.5 million and $167.0 million, respectively, for fiscal 2011. Net income attributable to Susser Holdings Corporation for 2012 was reduced by a non-cash deferred income tax charge of $3.6 million ($0.17 per diluted share) recorded during the third quarter solely related to Susser Holdings' contribution of net assets to SUSP in connection with SUSP's IPO.
We believe we have adequate liquidity and financial flexibility to continue to operate and grow our business. As of December 30, 2012, we had total revolver borrowings of $35.6 million and $15.9 million in standby letters of credit. On our $250.0 million SUSP revolver, we had borrowings of $35.6 million and $12.8 million in standby letters of credit, leaving unused availability of $201.6 million. On our $100.0 million SUSS revolver, we had no outstanding borrowings and $3.1 million in standby letters of credit, leaving unused availability of $96.9 million. We had combined cash on the balance sheet of $286.2 million. Additionally, SUSP has $148.3 million of marketable securities which serve as collateral for the SUSP term loan. Marketable securities were reflected in current assets in the Form 10-Q for the third quarter of 2012. In the consolidated balance sheets at December 30, 2012, marketable securities have been classified as long term assets to better match the debt that they collateralize.

Market and Industry Trends
The economy in Texas, where the majority of our operations are conducted, continues to fare better than many other parts of the nation.  Additionally, our business has remained generally more resilient through economic cycles than many other retail formats. We have reported positive comparable merchandise results in 19 of the last 20 quarters, and 2012 was our 24th consecutive annual increase in same-store merchandise sales, with growth of 6.6% over the prior year. We also achieved a 5.8% increase in average gallons sold per retail store for 2012, driven partly by growth in diesel volume, which we believe is primarily attributable to increased manufacturing, oil and gas activity, increased construction and continued improvement in the number of people working in the markets in which we operate. Diesel volumes are also growing as we add new stores and add diesel to selected older stores.
We typically experience lower fuel margins in periods when the cost of fuel increases gradually, and higher fuel margins in periods when the cost of fuel declines or is more volatile. We report retail fuel margins before credit card fees, but higher fuel prices result in higher credit card costs, which tends to drive fuel margins higher to cover the additional credit card fees. Additionally, our fuel margins have historically exhibited seasonal differences, with lower fuel margins during the first and fourth quarters and the highest fuel margins in the second or third quarter of the year. Our cost of motor fuel generally follows the movements in the price of crude oil. Crude oil prices ranged from approximately $78 to $109 per barrel during 2012, with an average of approximately $94, compared to a range of $75 to $113 per barrel for 2011 and an average of approximately $95, based on West Texas Intermediate ("WTI") spot prices.
Our retail fuel margin for 2012 of 21.8 cents per gallon was 1.4 cents lower than 2011, partly due to slightly less volatility in fuel prices during 2012 compared to the prior year. Concurrent with the completion of the SUSP IPO in September 2012, SUSP began charging the retail segment a three-cent per gallon profit margin on gallons sold to it. The impact of this mark-up was a reduction of our reported retail fuel margin by 0.75 cents per gallon. However, this reduction in retail gross profit is offset by an increase in wholesale segment gross profit, resulting in no change to consolidated gross profit. After deducting credit card fees, our retail fuel margin for 2012 was 16.3 cents per gallon compared to 17.7 cents a year ago. Fuel gross profit represented 37.9% of our consolidated gross profit for 2012 versus 38.7% in the 2011. For our retail division, fuel represented 33.5% of retail gross profit for 2012.

Although we are unable to anticipate future trends in energy prices, in general, greater volatility in energy prices provide opportunities to enhance fuel margins. Despite future movements in energy prices, we believe our growth in scale, geographic diversification, strong technology, combined retail/wholesale format and larger format retail stores offering more fueling

29


stations provide us the ability to minimize the negative impacts of periods with lower fuel margins. Higher crude oil prices may also increase our working capital needs. We believe we have adequate liquidity to operate our business with significantly higher crude oil prices.

Other significant trends in the retail convenience store industry include a national decline in the number of cigarettes sold, the expansion of food service categories as an increased percentage of merchandise sales, the continued increase of motor fuel competition from hypermarkets and additional competition from other retail formats, such as drug and dollar stores. We believe that our larger format stores, more efficient motor fueling facilities and Laredo Taco Company® offerings position us strongly to competitively address these industry trends in our retail segment. Our larger format stores with expanded parking facilities allow us to handle more customers during peak times and to provide more product variety and enhanced offerings such as food service, and leverage variety, thereby increasing store traffic. These additional offerings result in a lower overall percentage of our sales and gross profit resulting from cigarettes than the industry average, which reduces our dependence on cigarette sales to drive operating results. Our larger and more efficient fueling facilities provide more fueling positions to increase customer traffic during peak drive times and during periods of intense local price competition.


Description of Revenues and Expenses

Revenues and Cost of Sales. Our revenues and cost of sales consist primarily of the following:

Retail. Retail revenues are primarily derived from sales of merchandise, motor fuel and services through our company-operated convenience stores. Sales from our proprietary Laredo Taco Company® restaurants and other food service items are included in merchandise sales. Merchandise and motor fuel revenue is recorded at gross selling price, including any excise taxes, but excluding sales taxes. Cost of sales for merchandise and motor fuel includes excise taxes, which are paid to the vendors as part of the cost of product, and any delivery fees, net of any rebates received.

We also offer a number of ancillary products and services to our customers including lottery tickets, ATM services, proprietary money orders, prepaid phone cards and wireless services, movie rentals and pay phones. The income for these ancillary products and services is recorded in other revenues in our consolidated statements of operations. There is minimal cost of sales associated with other revenue, and therefore other retail revenue is recorded on a net basis.
Wholesale. Wholesale revenues are derived primarily from sales of motor fuel to branded dealers, unbranded convenience stores and other end users. Prior to the SUSP IPO on September 25, 2012, sales of motor fuel from our wholesale to retail segment were at delivered cost without any profit margin. Effective with the SUSP IPO, the retail segment began paying a profit mark-up of approximately 3 cents per gallon on purchases from SUSP pursuant to our fuel distribution agreement with SUSP. All of the SUSP operations are included in our wholesale segment operations. With respect to management’s discussion and analysis, wholesale operations data presented represents third-party transactions, excluding sales to our retail segment, unless otherwise noted. The wholesale cost of motor fuel includes delivery costs, purchase discounts and other related costs, but excludes excise taxes, which are billed on a pass-through basis to the retailer/consumer.
    
The wholesale business also receives rental income from convenience store properties it leases to Stripes and third parties, sale of rights to operate dealer locations and nominal commission income on various programs, which we refer to as "value-added programs" and we offer to our branded dealers. These programs allow dealers to take advantage of products and services that they would not likely be able to obtain on their own, or at discounted rates. Rent and value-added program income is recorded in other revenues in our consolidated statements of operations. There is minimal cost of sales associated with other revenue.
Other. APT derives revenues from environmental remediation, environmental compliance, and motor fuel construction services it provides to our retail stores and wholesale locations, as well as to third parties. Cost of sales includes the direct labor, materials and supplies required to provide the services and indirect costs, such as supervision.

Operating Expenses. Our operating expenses consist primarily of the following:
Selling, general and administrative expenses consist primarily of store personnel costs, benefits, utilities, property and equipment maintenance, credit card fees, advertising, environmental compliance and remediation, rent, insurance, property taxes, administrative costs and non-cash stock-based compensation charges.

30


Other operating expenses include depreciation, amortization, loss (gain) on disposal of assets and impairment charges.


Key Measures Used to Evaluate and Assess Business

Key measures we use to evaluate and assess our business include the following:
Merchandise same store sales. This reflects the change in year-over-year merchandise sales for comparable stores. This measure includes all merchandise and food service sales, but does not include motor fuel sales due to the volatility in the retail price of motor fuels. We include a store in the same store sales base in its thirteenth full month of operation. A store that is closed is removed from the same store calculation base. A store that is razed and rebuilt is treated as a closed store when it is razed, and then as a new store when it is rebuilt. Remodeled stores are included in our same store sales base, even if the store is temporarily closed for the remodel. Although we believe this calculation is generally comparable to that used by others in our industry, this calculation may differ from that used by other companies.
Merchandise gross profit and margin. Merchandise gross profit represents gross sales price of merchandise sold less the direct cost of goods and shortages. Included in shortages are bad merchandise and theft. Merchandise margin represents merchandise gross profit as a percentage of merchandise sales. We do not include other gross profit from ancillary products and services in the calculation of merchandise gross profit.
Average gallons per store per week. This reflects the average motor fuel gallons sold per location per week for a specific period, and includes all stores in operation during the period that sell fuel.
Gross profit cents per gallon. Our retail gross profit cents per gallon reflects the gross profit on motor fuel before credit card expenses divided by the number of retail gallons sold. Our wholesale gross profit cents per gallon reflects the gross profit on motor fuel sold to third parties after credit card expenses divided by the number of wholesale gallons sold to third parties.
EBITDA, Adjusted EBITDA and Adjusted EBITDAR. EBITDA, Adjusted EBITDA and Adjusted EBITDAR are important measures used by management in evaluating our business. We monitor EBITDA, Adjusted EBITDA and Adjusted EBITDAR on a site, segment and consolidated basis as key performance measures.

We define EBITDA as net income (loss) attributable to Susser Holdings Corporation before net interest expense, income taxes, net income attributable to noncontrolling interest and depreciation, amortization and accretion. Adjusted EBITDA further adjusts EBITDA by excluding non-cash stock-based compensation expense and certain other operating expenses that are reflected in our net income that we do not believe are indicative of our ongoing core operations, such as significant non-recurring transaction expenses and the gain or loss on disposal of assets and impairment charges. Adjusted EBITDAR adds back rent to Adjusted EBITDA.

Subsequent to the SUSP IPO, we have revised our definition of EBITDA to exclude the impact of noncontrolling interest, in order to present a consolidated amount for EBITDA, Adjusted EBITDA and Adjusted EBITDAR which is consistent with the metrics used by our management and in our credit agreement covenants. Prior to the SUSP IPO, the amount of noncontrolling interest was not material.

EBITDA, Adjusted EBITDA and Adjusted EBITDAR are not recognized terms under GAAP and do not purport to be alternatives to net income as measures of operating performance. EBITDA, Adjusted EBITDA and Adjusted EBITDAR have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. Please see Note 9 to "Item 6. Selected Financial Data."



31


Key Operating Metrics     

The following table sets forth, for the periods indicated, information concerning key measures we rely on to gauge our operating performance:

 
Year Ended
 
January 2,
2011
 
January 1,
2012
 
December 30,
2012
 
(dollars in thousands, except per gallon items)
Revenue:
 
 
 
 
 
Merchandise sales
$
806,252

 
$
881,911

 
$
976,452

Motor fuel – retail
1,987,072

 
2,715,279

 
2,995,840

Motor fuel – wholesale to third parties
1,094,279

 
1,549,143

 
1,792,210

Other
43,027

 
47,835

 
53,625

Total revenue
$
3,930,630

 
$
5,194,168

 
$
5,818,127

Gross Profit:
 
 
 
 
 
Merchandise
$
270,683

 
$
297,601

 
$
330,952

Motor fuel – retail (1)
135,611

 
182,521

 
186,041

Motor fuel – wholesale to third parties (2)
26,018

 
31,042

 
37,091

Motor fuel – wholesale to Stripes (2)

 

 
6,472

Other, including intercompany eliminations
40,790

 
45,822

 
50,838

Total gross profit
$
473,102

 
$
556,986

 
$
611,394

Adjusted EBITDA (3):
 
 
 
 
 
Retail
$
104,027

 
$
148,549

 
$
154,205

Wholesale
21,499

 
24,942

 
35,833

Other
(5,514
)
 
(6,473
)
 
(7,141
)
Total Adjusted EBITDA
$
120,012

 
$
167,018

 
$
182,897

Retail merchandise margin
33.6
%
 
33.7
%
 
33.9
%
Merchandise same store sales growth
4.0
%
 
6.0
%
 
6.6
%
Average per retail store per week:
 
 
 
 
 
Merchandise sales
$
29.6

 
$
31.9

 
$
34.5

Motor fuel gallons sold
27.3

 
28.7

 
30.3

Motor fuel gallons sold:
 
 
 
 
 
Retail
735,763

 
785,582

 
853,163

Wholesale - third party
494,209

 
522,832

 
594,909

Average retail price of motor fuel per gallon
$
2.70

 
$
3.46

 
$
3.51

Motor fuel gross profit cents per gallon:
 
 
 
 
 
Retail (1)

18.4
¢
 

23.2
¢
 

21.8
¢
Wholesale - third party (2)

5.3
¢
 

5.9
¢
 

6.2
¢
Retail credit card cents per gallon

4.4
¢
 

5.5
¢
 

5.5
¢
 
 
 
 
 
 
(1)
Effective September 25, 2012, the retail fuel margin reflects a reduction of approximately three cents per gallon as SUSP began charging a profit mark-up on gallons sold to our retail segment. Prior to this date, no gross profit mark-up was charged by the wholesale segment to the retail segment. Excluding the impact of this profit mark-up to SUSP for fiscal 2012, the average retail margin would have been reported as 22.6 cents per gallon, or 0.75 cents higher.
(2)
The wholesale margin from third parties excludes sales and gross profit to the retail segment. Wholesale margin to Stripes reflects the markup of approximately 3 cents per gallon beginning September 25, 2012. Prior to this date, no profit margin was recognized in the wholesale segment on sales to Stripes stores.
(3))
We define EBITDA as net income (loss) attributable to Susser Holdings Corporation before net interest expense, income taxes, net income attributable to noncontrolling interest and depreciation, amortization and accretion. Adjusted EBITDA further adjusts EBITDA by excluding non-cash stock-based compensation expense and certain other operating expenses that are reflected in our net income that we do not believe are indicative of our ongoing core operations, such as significant

32


non-recurring transaction expenses and the gain or loss on disposal of assets and impairment charges. Adjusted EBITDAR adds back rent to Adjusted EBITDA. In addition, those expenses that we have excluded from our presentation of Adjusted EBITDA and Adjusted EBITDAR are also excluded in measuring our covenants under our revolving credit facility and the indenture governing our debt agreements and indentures. EBITDA, Adjusted EBITDA and Adjusted EBITDAR are not presented in accordance with GAAP. Please see Note 9 to "Item 6. Selected Financial Data."

The following tables present a reconciliation of our segment operating income (loss) to EBITDA, Adjusted EBITDA and Adjusted EBITDAR:

 
Year Ended January 2, 2011
 
Retail Segment
 
Wholesale Segment
 
All Other (a)
 
Total (b)
 
(dollars in thousands)
Operating income (loss)
$
62,765

 
$
16,695

 
$
(9,464
)
 
$
69,996

Depreciation, amortization and accretion
38,191

 
4,664

 
1,143

 
43,998

Other miscellaneous

 

 
(174
)
 
(174
)
EBITDA
100,956

 
21,359

 
(8,495
)
 
113,820

Non-cash stock-based compensation

 

 
2,825

 
2,825

Loss (gain) on disposal of assets and impairment charge
3,071

 
140

 
(18
)
 
3,193

Other operating expenses

 

 
174

 
174

Adjusted EBITDA
104,027

 
21,499

 
(5,514
)
 
120,012

Rent
39,785

 
3,795

 
(957
)
 
42,623

Adjusted EBITDAR
$
143,812

 
$
25,294

 
$
(6,471
)
 
$
162,635



 
Year Ended January 1, 2012
 
Retail Segment
 
Wholesale Segment
 
All Other (a)
 
Total (b)
 
(dollars in thousands)
Operating income (loss)
$
107,553

 
$
18,515

 
$
(11,178
)
 
$
114,890

Depreciation, amortization and accretion
39,973

 
6,197

 
1,150

 
47,320

Other miscellaneous

 

 
(346
)
 
(346
)
EBITDA
147,526

 
24,712

 
(10,374
)
 
161,864

Non-cash stock-based compensation

 

 
3,588

 
3,588

Loss (gain) on disposal of assets and impairment charge
1,023

 
230

 
(33
)
 
1,220

Other operating expenses

 

 
346

 
346

Adjusted EBITDA
148,549

 
24,942

 
(6,473
)
 
167,018

Rent
42,494

 
4,310

 
(1,066
)
 
45,738

Adjusted EBITDAR
$
191,043

 
$
29,252

 
$
(7,539
)
 
$
212,756




33


 
Year Ended December 30, 2012
 
Retail Segment
 
Wholesale Segment
 
All Other (a)
 
Total (b)
 
(dollars in thousands)
Operating income (loss)
$
110,480

 
$
27,590

 
$
(11,638
)
 
$
126,432

Depreciation, amortization and accretion
42,714

 
7,989

 
731

 
51,434

Other miscellaneous

 

 
(471
)
 
(471
)
EBITDA
153,194

 
35,579

 
(11,378
)
 
177,395

Non-cash stock-based compensation

 
101

 
4,236

 
4,337

Loss (gain) on disposal of assets and impairment charge
1,011

 
153

 
(470
)
 
694

Other operating expenses

 

 
471

 
471

Adjusted EBITDA
154,205

 
35,833

 
(7,141
)
 
182,897

Rent
43,015

 
4,190

 
(798
)
 
46,407

Adjusted EBITDAR
$
197,220

 
$
40,023

 
$
(7,939
)
 
$
229,304

 
 
 
 
 
 
 
 
(a)
Other includes APT, corporate overhead and other costs not allocated to the two primary segments, and intercompany eliminations.
(b)
Reference is made to Note 9 in “Item 6. Selected Financial Data” for a reconciliation of total EBITDA, Adjusted EBITDA and Adjusted EBITDAR to net income (loss) attributable to Susser Holdings Corporation.
Another key metric we use to measure our performance is “Fuel-Neutral Adjusted EBITDAR”. This metric reflects Adjusted EBITDAR assuming a consistent fuel margin in each period being compared, to eliminate variability in performance due to fuel price volatility, credit card expenses (which increase or decrease with the absolute price of fuel), fluctuating fuel margins and changes in short-term competitive conditions. Growth in Fuel-Neutral Adjusted EBITDAR is therefore achieved through increasing merchandise sales and margins, increasing fuel gallons sold and controlling expenses. This metric is currently used to determine one-half of our management bonus compensation and is a primary performance criteria for equity awards. As shown in the table below, our Fuel-Neutral Adjusted EBITDAR, based on our latest five-year average fuel margin, has grown in each of the last five annual periods, and grew by 13% for 2012 compared to fiscal 2011.

 
December 28, 2008
 
January 3, 2010
 
January 2, 2011
 
January 1, 2012
 
December 30, 2012
 
(dollars, except per share amounts, in thousands)
Adjusted EBITDAR, Actual (1)
$
145,316

 
$
129,186

 
$
162,635

 
$
212,756

 
$
229,304

Adjustments:
 
 
 
 
 
 
 
 
 
CPG neutral adjustment - retail (2)
6,360

 
25,058

 
3,107

 
(25,331
)
 
(15,091
)
CPG neutral adjustment - wholesale (3)
(3,996
)
 
7,192

 
1,347

 
(2,093
)
 
(3,816
)
Bonus & 401(k) match adjustment (4)
3,787

 
1,077

 
8,558

 
9,927

 
9,617

Fuel-Neutral Adjusted EBITDAR
$
151,467

 
$
162,513

 
$
175,647

 
$
195,259

 
$
220,014

Percent change from prior year
53
 %
 
7
%
 
8
%
 
11
 %
 
13
 %
 
 
 
 
 
 
 
 
 
 
CPG adjustment - retail fuel (2)

0.9
 ¢
 

3.5
¢
 

0.4
¢
 

(3.2
 

(1.8
CPG adjustment - wholesale fuel (3)

(0.8
 

1.5
¢
 

0.3
¢
 

(0.4
 

(0.6
 
 
 
 
 
 
 
 
 
 
(1)
Adjusted EBITDAR is defined and reconciled to net income (loss) attributable to Susser Holdings Corporation in Note 9 in "Item 6. Selected Financial Data.".
(2)
The retail segment adjustment was derived by taking the difference between the five-year average margin per gallon after credit cards (which for the five year period 2008 - 2012 was 14.5 cents per gallon) and the actual margin per gallon after credit cards, and multiplying it by the actual retail gallons sold. The difference between the 5-year average and actual fuel margin is shown above. A positive adjustment indicates the actual margin was less than the 5-year average, while a negative adjustment indicates the actual margin was greater than the 5-year average.

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(3)
The wholesale segment adjustment was derived by taking the difference between the five-year average third-party margin per gallon after credit cards (which for the five year period 2008 - 2012 was 5.5 cents per gallon) and the actual margin per gallon after credit cards, and multiplying it by the actual wholesale gallons sold to third parties.
(4)
Since our management bonus and discretionary 401(k) match are partly based on results including actual fuel margins, we also exclude these amounts to eliminate volatility related to fuel margins.

Fiscal 2012 Compared to Fiscal 2011
The following discussion of results for fiscal 2012 compared to fiscal 2011 compares the 52-week period of operations ended December 30, 2012 to the 52-week period of operations ended January 1, 2012. During fiscal 2012 we operated an average of 545 retail stores, 14 more than in fiscal 2011.
On September 25, 2012, we contributed substantially all of our wholesale motor fuel distribution business to SUSP. We continue to consolidate the operations of SUSP in our financial results within our wholesale segment. Intercompany revenue and cost of sales continues to be eliminated in our consolidated results. Effective with the SUSP IPO, SUSP began charging a profit margin, which is currently three cents per gallon on gallons sold to our retail segment and to gallons we sell on consignment at independently operated locations. The profit mark-up on sales at consignment locations is eliminated within the wholesale segment. The mark-up to the retail segment transfers fuel gross profit from the retail to the wholesale segment, but does not change our consolidated fuel gross profit amount.
Total Revenue. Total revenue for 2012 was $5.8 billion, an increase of $624.0 million, or 12.0%, from 2011. The increase in total revenue was driven by a 10.3% increase in retail fuel revenue, a 15.7% increase in wholesale fuel revenue to third parties and an increase in merchandise sales of 10.7%, as further discussed below.
Total Gross Profit. Total gross profit for 2012 was $611.4 million, an increase of $54.4 million, or 9.8% from 2011. The increase was primarily due to, the increase in merchandise gross profit of $33.4 million, an increase in wholesale fuel gross profit of $12.5 million and the increase in retail fuel gross profit of $3.5 million, as further discussed below. Included in these increases are the impact of new retail stores constructed or acquired during 2011 and 2012 ($25.2 million increase in gross profit).
Merchandise Sales and Gross Profit. Merchandise sales were $976.5 million for 2012, a $94.5 million, or 10.7% increase over 2011. The increase was due to a 6.6% merchandise same-store sales increase, accounting for $57.3 million of the increase, with the balance due to new stores built or acquired in 2011 and 2012. Merchandise same-store sales include food service sales but do not include motor fuel sales. Key categories contributing to the merchandise same-store sales increase were beer, packaged drinks, food service, cigarettes and snacks. Our strong merchandise sales performance is partly due to the strength of the economy in our markets, performance of our newer stores which are at least one-year old, our continued investment in our older stores, and increasing use of technology to manage our operations.
Merchandise gross profit was $331.0 million for 2012, an 11.2% increase over 2011, which was driven primarily by the increase in merchandise sales. Merchandise margin as a percent of sales was 33.9% for 2012 compared to 33.7% in 2011. Key categories contributing to the merchandise gross profit dollar growth were food service, packaged drinks, snacks, beer and candy. Food service includes sales from restaurant operations, hot dogs, fountain beverages, coffee and other food and beverages prepared in the store. The gross profit increase was partly offset by a decline in cigarette gross profit, as cigarette margins were 150 basis points lower than 2011, primarily due to the impact of manufacturer pricing programs initiated in the second quarter of 2011. Our reported merchandise margins do not include other income from services such as ATM’s, lottery, prepaid phone cards, car washes and movie rentals.
Retail Motor Fuel Sales, Gallons and Gross Profit. Retail sales of motor fuel for 2012 were $3.0 billion, an increase of $280.6 million, or 10.3% over 2011, driven primarily by an 8.6% increase in retail gallons sold. The increase was also due to a 1.6% increase in the average retail price of motor fuel, to $3.51 per gallon. We sold an average of approximately 30,300 gallons per retail store per week, 5.8% more than last year. Retail motor fuel gross profit increased by $3.5 million or 1.9% from 2011 due to the increase in gallons sold ($15.7 million), mostly offset by a decrease in the gross profit per gallon. The average retail fuel margin decreased from 23.2 cents per gallon to 21.8 cents per gallon for 2011 and 2012, respectively. This decrease in fuel margin decreased retail fuel gross profit by $12.2 million. After deducting credit card fees, the net margin decreased from 17.7 cents per gallon to 16.3 cents per gallon from 2011 to 2012, respectively.
Beginning September 25, 2012, in connection with the SUSP IPO, our retail segment began paying a profit margin on gallons it purchased from SUSP. This increase in the fuel cost to the retail segment for 2012 was approximately $6.4 million, or three cents per gallon for gallons purchased. The impact on average retail segment fuel margin for the year was a reduction of approximately 0.75 cents per gallon. Wholesale segment gross profit was increased by $6.4 million, or a corresponding amount, therefore consolidated SUSS fuel gross profit is not impacted.

35


Wholesale Motor Fuel Sales, Gallons and Gross Profit. Wholesale motor fuel revenues to third parties for 2012 were $1.8 billion, a 15.7% increase over 2011. The increase was primarily driven by a 13.8% increase in gallons sold to third parties and a 1.7% increase in the wholesale selling price per gallon. Wholesale motor fuel gross profit of $43.6 million increased $12.5 million or 40.3% from 2011, due to the additional gallons sold, a 4.1% increase in the gross profit per gallon from 5.9 cents to 6.2 cents per gallon on third party sales (responsible for a $1.4 million increase), and the $6.4 million profit margin charged to the retail segment subsequent to September 25, 2012, pursuant to the fuel distribution agreement between us and SUSP.
Other Revenue and Gross Profit. Other revenue of $53.6 million for 2012 increased by $5.8 million or 12.1% from 2011, with a 10.9% increase in associated gross profit. This increase was primarily due to increases in ATM income, carwash income, lottery income, and redbox income ($2.9 million), sale of rights to operate dealer locations in the fourth quarter of 2012 ($1.0 million), money order fee income ($0.5 million), and lubricant oil sales ($0.5 million).
Personnel Expense. Personnel expense consists primarily of retail store labor and overhead costs. For 2012, personnel expense increased $19.6 million or 12.2% over 2011. Of the increase in personnel expense, $11.4 million was attributable to the new stores acquired or constructed during 2011 and 2012. The balance of the increase was primarily attributed to supporting the additional customer transactions associated with our 6.6% increase in same-store merchandise sales. On a same-store basis, personnel expense, as