Commitments and Contingencies

Leases

The Company leases a portion of its convenience store properties under non-cancellable operating leases, whose initial terms are typically 10 to 20 years, along with options that permit renewals for additional periods. Minimum rent is expensed on a straight-line basis over the term of the lease. In addition to minimum rental payments, certain leases require additional contingent payments based on sales or motor fuel volume. The Company is typically responsible for payment of real estate taxes, maintenance expenses and insurance.

During 2010 and 2011, Stripes sold 12 and six retail stores, respectively, to unrelated parties and entered into leaseback agreements for each of the stores. The leases contain primary terms typically of 20 years with annual escalation. The leases are being accounted for as operating leases. We have no continuing involvement in the property with respect to these leases. Any gains on sale leaseback transactions are deferred and amortized to rent expense over the primary term of the lease and losses are recognized at the time of the sale.

The components of net rent expense are as follows:



	Year Ended
	January 3, 2010			January 2, 2011			January 1, 2012
	(in thousands)
Cash rent:
Store base rent	$	37,077		$	42,165		$	45,117
Equipment rent	664			1,651			2,078
Contingent rent	203			235			285
Total cash rent	37,944			44,051			47,480
Non-cash rent:
Straight-line rent	1,017			744			489
Amortization of deferred gain	(2,062		)	(2,172		)	(2,231		)
Net rent expense	$	36,899		$	42,623		$	45,738

Equipment rent consists primarily of store equipment and vehicles. Sublease rental income for 2009, 2010 and 2011 was $1.3 million, $2.6 million and $3.0 million, respectively, and is included in other income.

Rent expense by segment is as follows:



	Year Ended
	January 3, 2010			January 2, 2011			January 1, 2012
	(in thousands)
Retail segment	$	35,580		$	39,785		$	42,494
Wholesale segment	1,490			3,795			4,310
Intercompany eliminations and all other	(171		)	(957		)	(1,066		)
Net rent expense	$	36,899		$	42,623		$	45,738

Future minimum lease payments for future fiscal years are as follows:



	(in thousands)
2012	$	46,407
2013	45,933
2014	44,762
2015	43,589
2016	42,866
Thereafter	411,799
Total	$	635,356

Letters of Credit

We were contingently liable for $18.7 million related to irrevocable letters of credit required by various insurers and suppliers at January 1, 2012.

Environmental Remediation

We are subject to various federal, state and local environmental laws and make financial expenditures in order to comply with regulations governing underground storage tanks adopted by federal, state and local regulatory agencies. In particular, at the federal level, the Resource Conservation and Recovery Act of 1976, as amended, requires the EPA to establish a comprehensive regulatory program for the detection, prevention and cleanup of leaking underground storage tanks (e.g. overfills, spills and underground storage tank releases).

Federal and state regulations require us to provide and maintain evidence that we are taking financial responsibility for corrective action and compensating third parties in the event of a release from our underground storage tank systems. In order to comply with these requirements, we have historically obtained private insurance for Texas, New Mexico and Oklahoma. These policies provide protection from third party liability claims. For 2011, our coverage was $1.0 million per occurrence, with a $2.0 million aggregate and $0.5 million self-insured retention. Additionally, we rely on state trust funds that cover certain claims.

We are currently involved in the remediation of gasoline store sites where releases of regulated substances have been detected. We accrue for anticipated future costs and the related probable state reimbursement amounts for its remediation activities. Accordingly, we have recorded estimated undiscounted liabilities for these sites totaling $1.8 million and $0.7 million, of which $1.3 million and $0.5 million are classified as accrued expenses and other current liabilities as of January 2, 2011 and January 1, 2012, respectively, with the balance included in other noncurrent liabilities. As of January 1, 2012, approximately $0.4 million of the total environmental reserve is for the investigation and remediation of contamination at 16 sites that qualify for reimbursement under state funds. Reimbursement will depend upon the continued maintenance and solvency of the state fund through August 31, 2012 at which time all claims must be paid due to the expiration of the fund on August 31, 2011. We currently have seven sites that have been transferred to the state lead 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 eight sites have state reimbursement payments directly assigned to remediation contractors for which Susser has no out of pocket expenses and maintains no reserve and may or may not have responsibility for contamination. The remaining $0.3 million represents our estimate of deductibles under insurance policies that we anticipate being required to pay with respect to six additional sites. We have additional reserves of $4.1 million that represent our estimate for future asset retirement obligations for underground storage tanks.

Under state reimbursement programs, we are eligible to receive reimbursement for certain future remediation costs, as well as the remediation costs previously paid. Accordingly, we have recorded a net receivable of $1.1 million and $0.2 million for the estimated probable state reimbursements, of which $0.5 million and $40,000 are included in current receivables as of January 2, 2011 and January 1, 2012, respectively. The remaining $0.6 million and $0.2 million are included in other assets as of January 2, 2011 and January 1, 2012, respectively. The Texas Petroleum Storage Tank Remediation fund, which was covering releases that occurred prior to December 23, 1998, expired on August 31, 2011. All eligible claims from this fund must be paid by August 31, 2012. Remaining open cases were transferred to the State

Lead Remediation Program, of which we have six sites. 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.

Self-Insurance

We are partially self-insured for our general liability and employee health insurance. We maintain insurance coverage at levels that are customary and consistent with industry standards for companies of similar size. We are a nonsubscriber under the Texas Workers’ Compensation Act and maintain an ERISA-based employee injury plan, which is partially self insured. As of January 1, 2012, there are a number of outstanding claims that are of a routine nature. The estimated incurred but unpaid liabilities relating to these claims are included in other accrued expenses. Additionally, there are open claims under previous policies that have not been resolved as of January 1, 2012. While the ultimate outcome of these claims cannot presently be determined, management believes that the accrued liability of $7.6 million will be sufficient to cover the related liability and that the ultimate disposition of these claims will have no material effect on our financial position and results of operations.

Deferred Branding Incentives

We receive deferred branding incentives and other incentive payments from a number of our fuel suppliers. A portion of the deferred branding incentives may be passed on to our wholesale branded dealers under the same terms as required by our fuel suppliers. Many of the agreements require repayment of all or a portion of the amount received if we (or our branded dealers) elect to discontinue selling the specified brand of fuel at certain locations. As of January 1, 2012, the estimated amount of deferred branding incentives that would have to be repaid upon de-branding at these locations was $22.3 million. Of this amount, approximately $10.9 million would be the responsibility of SPC’s branded dealers under reimbursement agreements with the dealers. In the event a dealer were to default on this reimbursement obligation, SPC would be required to make this payment. No liability is recorded for the amount of dealer obligations which would become payable upon de-branding. We have $7.7 million recorded on the balance sheet as of January 1, 2012, of which $0.8 million is included in accrued expenses and other current liabilities and $6.9 million is included in other noncurrent liabilities. The Company amortizes its retained portion of the incentives to income on a straight-line basis over the term of the agreements.