Susser (SUSS) 10-Q 2010 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended: October 3, 2010

or

¨ 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)

(361) 884-2463

(Registrant’s telephone number, including area code)

N/A

(Former Name, former address and former fiscal year, if changed since last report)

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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

COMMON STOCK, $0.01 PAR VALUE	17,361,406 SHARES
(Class)	(Outstanding at November 8, 2010)

SUSSER HOLDINGS CORPORATION

FORM 10-Q

TABLE OF CONTENTS

	Page
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements		1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3. Quantitative and Qualitative Disclosures About Market Risk		34
Item 4. Controls and Procedures		35
PART II – OTHER INFORMATION
Item 1. Legal Proceedings		36
Item 1A. Risk Factors		36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		36
Item 3. Defaults Upon Senior Securities		36
Item 4. (Removed and Reserved)		36
Item 5. Other Information		36
Item 6. Exhibits		36

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Susser Holdings Corporation

Consolidated Balance Sheets

	January 3, 2010			October 3, 2010
				unaudited
	(in thousands)
Assets
Current assets:
Cash and cash equivalents	$	17,976		$	63,672
Accounts receivable, net of allowance for doubtful accounts of $903 at January 3, 2010 and $1,014 at October 3, 2010		65,510			65,910
Inventories, net		78,788			80,164
Other current assets		9,507			8,207
Total current assets		171,781			217,953
Property and equipment, net		410,574			411,740
Other assets:
Goodwill		242,295			240,158
Intangible assets, net		33,144			33,929
Other noncurrent assets		15,224			13,686
Total other assets		290,663			287,773
Total assets	$	873,018		$	917,466
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	129,425		$	134,637
Accrued expenses and other current liabilities		26,565			52,169
Current maturities of long-term debt		10,545			543
Deferred gain, short-term portion		2,067			2,104
Deferred purchase price – TCFS acquisition		5,180			5,180
Total current liabilities		173,782			194,633
Long-term debt		384,574			430,714
Revolving line of credit		25,800			—
Deferred gain, long-term portion		33,786			34,899
Deferred tax liability, long-term portion		28,846			26,513
Other noncurrent liabilities		15,812			15,955
Total long-term liabilities		488,818			508,081
Commitments and contingencies:
Shareholders’ equity:
Susser Holdings Corporation shareholders’ equity:
Common stock, $.01par value; 125,000,000 shares authorized; 17,158,717 issued and 17,141,393 outstanding as of January 3, 2010; 17,398,735 issued and 17,360,919 outstanding as of October 3, 2010		170			172
Additional paid-in capital		183,880			185,771
Retained earnings		25,956			28,006
Accumulated other comprehensive loss		(358	)		—
Total Susser Holdings Corporation shareholders’ equity		209,648			213,949
Noncontrolling interest		770			803
Total shareholders’ equity		210,418			214,752
Total liabilities and shareholders’ equity	$	873,018		$	917,466

See accompanying notes.

1

Susser Holdings Corporation

Consolidated Statements of Operations

Unaudited

	Three Months Ended						Nine Months Ended
	September 27, 2009			October 3, 2010			September 27, 2009			October 3, 2010
	(dollars in thousands, except per share amounts)
Revenues:
Merchandise sales	$	201,190		$	207,018		$	583,049		$	606,332
Motor fuel sales		668,477			749,196			1,771,805			2,285,180
Other income		12,433			10,203			31,220			31,569
Total revenues		882,100			966,417			2,386,074			2,923,081
Cost of sales:
Merchandise		134,883			136,968			387,830			403,226
Motor fuel		627,476			699,815			1,673,331			2,157,118
Other		(20	)		257			75			1,837
Total cost of sales		762,339			837,040			2,061,236			2,562,181
Gross profit		119,761			129,377			324,838			360,900
Operating expenses:
Personnel		38,008			39,514			110,260			112,390
General and administrative		8,814			8,915			25,905			27,666
Other operating		31,610			32,837			86,700			95,121
Rent		9,135			11,004			27,178			31,597
Loss on disposal of assets		884			22			1,042			864
Depreciation, amortization and accretion		11,484			10,514			31,996			33,087
Total operating expenses		99,935			102,806			283,081			300,725
Income from operations		19,826			26,571			41,757			60,175
Other income (expense):
Interest expense, net		(9,444	)		(9,985	)		(28,533	)		(53,945	)
Other miscellaneous		(46	)		(60	)		(28	)		(125	)
Total other expense, net		(9,490	)		(10,045	)		(28,561	)		(54,070	)
Income before income taxes		10,336			16,526			13,196			6,105
Income tax expense		(3,823	)		(7,563	)		(5,430	)		(4,021	)
Net income		6,513			8,963			7,766			2,084
Less: Net income attributable to noncontrolling interests		10			11			29			33
Net income attributable to Susser Holdings Corporation	$	6,503		$	8,952		$	7,737		$	2,051
Net income per share attributable to Susser Holdings Corporation:
Basic	$	0.38		$	0.53		$	0.46		$	0.12
Diluted	$	0.38		$	0.52		$	0.45		$	0.12
Weighted average shares outstanding:
Basic		16,937,013			17,022,362			16,930,903			17,010,840
Diluted		17,030,021			17,278,898			17,005,231			17,147,511

See accompanying notes.

2

Susser Holdings Corporation

Consolidated Statements of Cash Flows

Unaudited

	Nine Months Ended
	September 27, 2009			October 3, 2010
	(in thousands)
Cash flows from operating activities:
Net income	$	7,766		$	2,084
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		31,996			33,087
Loss on disposal of property		1,042			864
Non-cash stock based compensation		2,509			1,771
Deferred income tax		9			3,633
Early extinguishment of debt		—			21,449
Amortization of debt premium and discount, net		(457	)		31
Changes in operating assets and liabilities:
Receivables		(1,305	)		(689	)
Inventories		(10,370	)		(1,376	)
Other current assets		(458	)		(4,207	)
Intangible assets, net		1,908			(268	)
Other noncurrent assets		(95	)		2,797
Accounts payable		13,427			5,211
Accrued liabilities		5,020			25,187
Other noncurrent liabilities		(906	)		(122	)
Net cash provided by operating activities		50,086			89,452
Cash flows from investing activities:
Capital expenditures		(52,383	)		(54,091	)
Proceeds from disposal of property and equipment		1,585			7,161
Proceeds from sale/leaseback transactions		8,043			16,966
Net cash used in investing activities		(42,755	)		(29,964	)
Cash flows from financing activities:
Proceeds from issuance of long-term debt		—			431,241
Change in notes receivable		(135	)		400
Payments on long-term debt		(5,295	)		(408,139	)
Revolving line of credit, net		300			(25,800	)
Loan origination costs		(227	)		(11,615	)
Proceeds from issuance of equity		201			121
Net cash used in financing activities		(5,156	)		(13,792	)
Net increase in cash		2,175			45,696
Cash and cash equivalents at beginning of year		8,284			17,976
Cash and cash equivalents at end of period	$	10,459		$	63,672

See accompanying notes.

3

Susser Holdings Corporation

Notes to Consolidated Financial Statements

Unaudited

1. Organization and Principles of Consolidation

The consolidated financial statements are composed of Susser Holdings Corporation (“Susser” or the “Company”), a Delaware corporation, and its consolidated subsidiaries, which operate convenience stores and distribute motor fuels in Texas, New Mexico, Oklahoma and Louisiana. The Company was formed in May 2006, and in October 2006 completed an initial public offering (IPO). Susser, through its subsidiaries and predecessors, has been acquiring, operating, and supplying motor fuel to service stations and convenience stores since the 1930’s.

The consolidated financial statements include the accounts of the Company and all of its subsidiaries. The Company’s primary operations are conducted by the following consolidated subsidiaries:

• Stripes LLC (“Stripes”), a Texas Limited Liability Company, operates convenience stores located in Texas, New Mexico, and Oklahoma.

• Susser Petroleum Company LLC (“SPC”), a Texas Limited Liability Company, distributes motor fuels primarily in Texas, New Mexico, Oklahoma and Louisiana. SPC is a wholly owned subsidiary of Stripes.

The Company also offers environmental, maintenance, and construction management services to the petroleum industry (including its own sites) through its subsidiary, Applied Petroleum Technologies, Ltd. (“APT”), a Texas limited partnership. Two wholly owned subsidiaries, Susser Holdings, L.L.C. and Susser Finance Corporation, are the issuers of the $425 million of senior notes outstanding at October 3, 2010, but do not conduct any operations (See Note 8). A subsidiary, C&G Investments, LLC, owns a 50% interest in Cash & Go, Ltd. and Cash & Go Management, LLC. Cash & Go, Ltd. currently operates 39 units, located primarily inside Stripes retail stores, which provide short-term loan services and check cashing services. The Company accounts for this investment under the equity method, and reflects its share of net earnings in other miscellaneous income and its investment in other noncurrent assets.

All significant intercompany accounts and transactions have been eliminated in consolidation. Transactions and balances of other subsidiaries are not material to the consolidated financial statements. The Company’s fiscal year is 52 or 53 weeks and ends on the Sunday closest to December 31. All references to fiscal 2009 refer to the 53-week period ended January 3, 2010. All references to the first nine months and third quarter of 2009 and 2010 refer to the 39-week and 13-week periods ended September 27, 2009 and October 3, 2010, respectively. Stripes and APT follow the same accounting calendar as the Company. SPC uses calendar month accounting periods, and end their fiscal year on December 31.

The consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The interim consolidated financial statements have been prepared from the accounting records of the Company and its subsidiaries, and all amounts at October 3, 2010 and for the three and nine months ended September 27, 2009 and October 3, 2010 are unaudited. Pursuant to Regulation S-X, certain information and note disclosures normally included in annual financial statements have been condensed or omitted. The information furnished reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented, and which are of a normal, recurring nature.

Our results of operations for the three and nine months ended September 27, 2009 and October 3, 2010 are not necessarily indicative of results to be expected for the full fiscal year. Our business is seasonal and we generally experience higher levels of revenues during the summer months than during the winter months.

The interim consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 3, 2010.

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Certain prior year balances have been reclassified for comparative purposes.

2. New Accounting Pronouncements

FASB ASU No. 2010-06.

In January 2010, the FASB issued ASU No. 2010-06,Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements. This guidance will require reporting entities to provide information about movements of assets among Levels 1 and 2 of the three-tier fair value hierarchy established by ASC 820 and provide a reconciliation of purchases, sales, issuance, and settlements of financial instruments valued with a Level 3 method, which is used to price the hardest to value instruments. Entities will have to provide fair value measurement disclosures for each class of financial assets and liabilities. The ASU was generally effective for interim and annual reporting periods beginning after December 15, 2009; however the requirement to disclose separately purchases, sales, issuances and settlements in the Level 3 reconciliation are effective for fiscal years beginning after December 15, 2010 (and for interim period within such years). Our adoption of the applicable sections of this ASU did not have a material impact on our financial statements.

3. Subsequent Events

In preparing the accompanying unaudited condensed consolidated financial statements, the Company has reviewed, as determined necessary by the Company’s management, events that have occurred after October 3, 2010, up until the issuance of these financial statements.

On October 11, 2010, we completed the acquisition of 39 long-term fuel supply agreements to wholesale dealer sites in Texas and Oklahoma. As part of the transaction, we also acquired one retail convenience store in Texas in September 2010, which will be rebranded toStripes^®. This transaction was funded with cash and is expected to be immediately accretive to earnings. The transaction value was not material.

4. Accounts Receivable

Accounts receivable consisted of the following:

	January 3, 2010			October 3, 2010
	(in thousands)
Accounts receivable, trade	$	49,954		$	48,740
Receivable from state reimbursement funds		1,212			1,102
Vendor receivables for rebates, branding and others		6,103			7,434
ATM fund receivables		5,530			6,845
Notes receivable, short-term		325			296
Other receivables		3,289			2,507
Allowance for uncollectible accounts, trade		(609	)		(719	)
Allowance for uncollectible accounts, environmental		(294	)		(295	)
Accounts receivables, net	$	65,510		$	65,910

5

5. Inventories

Inventories consisted of the following:

	January 3, 2010			October 3, 2010
	(in thousands)
Merchandise	$	47,567		$	47,675
Fuel-retail		19,347			20,673
Fuel-wholesale consignment		2,908			2,890
Fuel-wholesale bulk		3,168			1,682
Lottery		1,928			1,981
Equipment and maintenance spare parts		4,534			5,972
Allowance for inventory, shortage and obsolescence		(664	)		(709	)
Inventories, net	$	78,788		$	80,164

6. Property and Equipment

Property and equipment consisted of the following:

	January 3, 2010		October 3, 2010
	(in thousands)
Land	$	127,140	$	129,467
Buildings and leasehold improvements		216,262		225,562
Equipment		175,910		183,054
Construction in progress		11,239		21,114
		530,551		559,197
Less accumulated depreciation		119,977		147,457
Property and equipment, net	$	410,574	$	411,740

7. Goodwill and Other Intangible Assets

Goodwill is not being amortized, but is tested annually for impairment, and is tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. The annual impairment test is performed as of the first day of the fourth quarter of the fiscal year. At January 3, 2010 and October 3, 2010, we had $242.3 million and $240.2 million, respectively, of goodwill recorded in conjunction with past business combinations. The 2009 impairment analysis indicated no impairment in goodwill. As of October 3, 2010 we evaluated potential impairment indicators pursuant to the requirements of ASC 350-20-35-30. We believe no indicators of impairment occurred during the third quarter of 2010, and believe the assumptions used in the analysis performed in 2009 are still relevant and indicative of our current operating environment. As a result, no impairment was recorded to goodwill during the third quarter of 2010 and no additions were recorded during this period. In conjunction with the sale of the Village Market stores, we wrote off $2.1 million of goodwill and $0.6 million of trade names during the second quarter of 2010.

In accordance with ASC 350“Intangibles – Goodwill and Other”, the Company has finite-lived intangible assets recorded that are amortized and indefinite-lived assets that do not amortize. The finite-lived assets consist of supply agreements, favorable/unfavorable leasehold arrangements, loan origination costs, trade names and certain franchise rights, all of which are amortized over the respective lives of the agreements or over the period of time the assets are expected to contribute directly or indirectly to the Company’s future cash flows. Supply agreements are being amortized over a weighted average period of approximately nine years. Favorable/unfavorable leasehold

6

arrangements are being amortized over a weighted average period of approximately eleven years. The Laredo Taco Company trade name is being amortized over fifteen years. The Town & Country Food Stores trade name is being amortized over five years. Loan origination costs are amortized over the life of the underlying debt as an increase to interest expense. The franchise rights acquired in conjunction with the recent acquisition are being amortized over the remaining nine years of the contract.

The following table presents the gross carrying amount and accumulated amortization for each major class of intangible assets, excluding goodwill, at January 3, 2010 and October 3, 2010:

	January 3, 2010						October 3, 2010
	Gross Carrying Amount		Accumulated Amortization		Net Amount		Gross Carrying Amount		Accumulated Amortization		Net Amount
	(in thousands)
Unamortized
Trade name	$	615	$	—	$	615	$	45	$	—	$	45
Franchise rights		389		—		389		389		—		389
Liquor licenses		11,600		—		11,600		12,038		—		12,038
Amortized
Supply agreements		8,772		3,322		5,450		9,550		4,020		5,530
Favorable lease arrangements, net		2,622		2,368		254		2,497		2,357		140
Loan origination costs		18,367		7,623		10,744		14,005		2,239		11,766
Trade names		5,756		1,761		3,995		5,756		2,200		3,556
Franchise rights		—		—		—		448		—		448
Other		520		423		97		319		302		17
Intangible assets, net	$	48,641	$	15,497	$	33,144	$	45,047	$	11,118	$	33,929

8. Long -Term Debt

Long-term debt consisted of the following:

	January 3, 2010		October 3, 2010
	(in thousands)
10 5/8% senior unsecured notes due 2013	$	300,000	$	—
8.5% senior unsecured notes due 2016		—		425,000
Term loan facility, bearing interest at LIBOR plus applicable margin (2.23% at January 3, 2010)		91,875		—
Revolving credit agreement, bearing interest at Prime or LIBOR plus applicable margin, (3.25% at January 3, 2010 and 4.0% at October 3, 2010)		25,800		—
Other notes payable		90		10,915
Unamortized premium (discount)		3,154		(4,658	)
Total debt		420,919		431,257
Less: current maturities		10,545		543
Long-term debt, net of current maturities	$	410,374	$	430,714

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The fair value of debt as of October 3, 2010 is estimated to be approximately $448.7 million, based on the reported trading activity of the senior unsecured notes at that time, and the par value of the revolving credit facility and other notes payable.

Senior Unsecured Notes

On May 7, 2010, the Company, through its subsidiaries Susser Holdings, L.L.C. and Susser Finance Corporation, issued $425 million 8.50% Senior Notes due 2016 (the “2016 Notes”). The 2016 Notes pay interest semi-annually in arrears on May 15 and November 15 of each year, commencing on November 15, 2010. The 2016 Notes mature on May 15, 2016 and are guaranteed by the Company and each existing and future domestic subsidiary of the Company other than certain non-operating subsidiaries and Susser Company, Ltd. The net proceeds from the sale of the 2016 Notes, together with cash on hand and borrowings under the Amended and Restated Credit Agreement, were used to redeem and discharge all of the outstanding 10 ⁵/8% senior unsecured notes due 2013 (the “2013 Notes”) including a call premium of $15.9 million, to repay the outstanding indebtedness under the term credit facility and to pay other related fees and expenses.

At any time prior to May 15, 2013, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of the 2016 Notes at a redemption price of 108.500% of the principal amount, plus accrued and unpaid interest and liquidated damages, if any, to the redemption date, with the net cash proceeds of certain public equity offerings. The 2016 Notes may also be redeemed prior to May 15, 2013, in whole or in part, at the option of the Company at a redemption price equal to 100% of the principal amount of the 2016 Notes redeemed plus a make-whole premium and accrued and unpaid interest and liquidated damages, if any, to the applicable redemption date.

On or after May 15, 2013, the Company may redeem all or any part of the 2016 Notes at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and liquidated damages, if any, to the applicable redemption date, if redeemed during the twelve month period beginning on May 15 of the years indicated below:

Year	Price
2013		104.250	%
2014		102.125	%
2015		100.000	%

The Company must offer to purchase the 2016 Notes at 101% of the aggregate principal amount of the notes, plus accrued and unpaid interest, in the event of certain kinds of changes of control. The Company must offer to purchase the Notes at 100% of the aggregate principal amount of the notes, plus accrued and unpaid interest, if excess proceeds remain after the consummation of asset sales.

The 2016 Notes indenture contains customary covenants that limit, among other things, the ability of the Company and its restricted subsidiaries to: incur additional debt; make restricted payments (including paying dividends on, redeeming or repurchasing their capital stock); dispose of its assets; grant liens on its assets, engage in transactions with affiliates; merge or consolidate or transfer substantially all of its assets; and enter into certain sale/leaseback transactions. The indenture also includes certain customary events of default (subject to customary exceptions, baskets and qualifications) including, but not limited to: failure to pay principal, interest, premium or liquidated damages when due; failure to comply with certain covenants; default on certain other indebtedness; certain monetary judgment defaults; bankruptcy and insolvency defaults; and actual or asserted impairment of any note guarantee.

In accordance with a registration rights agreement with the initial purchasers of the 2016 Notes, the Company filed a registration statement with the Securities and Exchange Commission on July 27, 2010, registering an offer to exchange the 2016 Notes for notes having identical terms in all material respects to the 2016 Notes, but which would generally be freely transferable. The exchange offer was completed on September 15, 2010.

8

Credit Facilities

On May 7, 2010, Susser Holdings, L.L.C. entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with a syndicate of financial institutions providing for a new four year revolving credit facility (the “Revolver”) in an aggregate principal amount of up to $120 million. The Credit Agreement changed certain terms of the existing credit facilities, among others: cancellation of the term loan facility (of which $89.3 million was outstanding) and release of a majority of the real property securing the term loans (with the remainder to continue to secure the new Revolver); addition of a $40 million facility increase option; extension of maturity date from November 2012 until May 2014; reduction in fixed charge coverage ratio; increase in senior secured leverage ratio; and increase in margins and commitment fees, subject, in the case of the margins for loans and letters of credit, to adjustment based on leverage grids. The Company and each of its existing and future direct and indirect subsidiaries (other than (i) any subsidiary that is a “controlled foreign corporation” under the Internal Revenue Code or a subsidiary that is held directly or indirectly by a “controlled foreign corporation,” (ii) Susser Company, Ltd. and (iii) certain future non-operating subsidiaries) will be guarantors under the Credit Agreement.

Availability under the Revolver is subject to a borrowing base equal to the lesser of (x) (a) 85% of eligible accounts receivable plus (b) 55% of eligible inventory plus (c) 60% of the fair market value of certain designated eligible real property, which shall not exceed 45% of the aggregate borrowing base amount, minus (d) such reserves as the administrative agent may establish in its reasonable credit judgment acting in good faith (including, without limitation, reserves for exposure under swap contracts and obligations relating to treasury management products) and (y) the greater of (i) $160 million and (ii) (A) 85% of gross accounts receivable plus (B) 60% of gross inventory.

The interest rates under the Revolver are calculated, at the Company’s option, at either a base rate or a LIBOR rate plus, in each case, a margin. With respect to LIBOR rate loans, interest will be payable at the end of each selected interest period, but no less frequently than quarterly. With respect to base rate loans, interest will be payable quarterly in arrears. The Revolver may be prepaid at any time in whole or in part without premium or penalty, other than breakage costs if applicable, and requires the maintenance of a maximum senior secured leverage ratio and a minimum fixed charge coverage ratio. We were in compliance with the required leverage and fixed charge coverage ratios as of October 3, 2010.

The Revolver contains customary representations, warranties and certain customary covenants (subject to customary exceptions, thresholds and qualifications) that impose certain affirmative obligations upon and restrict the ability of the Company and its subsidiaries 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 permit Stripes Holdings LLC to be other than a passive holding company.

The Revolver also includes certain customary events of default (subject to customary exceptions, baskets and qualifications) including, but not limited to: failure to pay principal, interest, fees or other amounts when due; any representation or warranty proving to have been materially incorrect when made or confirmed; failure to perform or observe covenants set forth in the loan documentation; default on certain other indebtedness; certain monetary judgment defaults and material non-monetary judgment defaults; bankruptcy and insolvency defaults; actual or asserted impairment of loan documentation or security; a change of control; and customary ERISA defaults.

As of October 3, 2010, we had no outstanding borrowings under the Revolver and $17.1 million in standby letters of credit. Our borrowing base in effect at October 3, 2010 allowed a maximum borrowing, including outstanding letters of credit, of $118.1 million. Our unused availability on the revolver at October 3, 2010 was $101.0 million.

9

Losses on Early Extinguishment of Debt

In conjunction with the prepayment of outstanding debt in May 2010, the Company incurred losses on early extinguishment of debt that are non-recurring in nature. Losses on early extinguishment of debt during the second quarter of 2010 totaled $21.4 million and included a $15.9 million call premium, write-off of $7.0 million in unamortized loan costs associated with the call of the 2013 Notes, $2.9 million write off of unamortized premium on the 2013 Notes and $1.4 million write off of unamortized deferred financing costs on the term note. No additional losses on early extinguishment of debt were recorded in the third quarter. These amounts are included in interest expense in the statements of operations. We followed ASC 470“Modifications and Extinguishments” in accounting for this refinancing transaction and its associated deferred debt issuance costs.

In addition to the losses on early extinguishment of debt, the Company also incurred additional interest costs during the second quarter of 2010 that were related to the redemption of debt and were non-recurring in nature. These included $1.0 million to cancel interest rate swaps on the term note and $1.8 million interest for the 20-day period that both the 2013 Notes and 2016 Notes were outstanding. See Note 10 for additional information related to interest expense.

Fair Value Measurements

We use fair value measurements to measure, among other items, purchased assets and investments, leases and derivative contracts. We also use them to assess impairment of properties, equipment, intangible assets and goodwill. Fair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair value is based on observable market prices or parameters, or are derived from such prices or parameters. Where observable prices or inputs are not available, use of unobservable prices or inputs are used to estimate the current fair value, often using an internal valuation model. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the item being valued.

ASC 820 “Fair Value Measurements and Disclosures” prioritizes the inputs used in measuring fair value into the following hierarchy:

Level 1	Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2	Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable;
Level 3	Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

From time to time, the Company enters into interest rate swaps to either reduce the impact of changes in interest rates on its floating rate long-term debt or to take advantage of favorable variable interest rates compared to its fixed rate long-term debt in order to manage interest rate risk exposure. During the second quarter of 2010, in connection with the repayment of the term loan facility, the Company cancelled its outstanding $70 million interest rate swaps at a cost of $1.0 million. The swaps had been designated as cash flow hedges, and the Company recognized $1.4 million in additional interest expense (effective portion) during the first six months of 2010 and recognized a $1.3 million loss, net of tax, in other comprehensive income.

The Company also periodically enters into derivatives, such as futures and options, to manage its fuel price risk, primarily related to bulk purchases of fuel. We hedge this inventory risk through the use of fuel futures contracts which are matched in quantity and timing to the anticipated usage of the inventory. Bulk fuel purchases and fuel hedging positions have not been material to our operations. These positions have been designated as fair value hedges. The fair value of our derivative contracts are measured using Level 2 inputs, and are determined by either market prices on an active market for similar assets or by prices quoted by a broker or other market-corroborated prices. This price does not differ materially from the amount that would be paid to transfer the liability

10

to a new obligor due to the short term nature of these contracts. At January 3, 2010, the Company held fuel futures contracts with a fair value of ($174,000) (22 contracts representing 0.9 million gallons). At October 3, 2010, the Company held fuel futures contracts with a fair value of ($36,000) (16 contracts representing 0.7 million gallons), which is classified in other current assets in the Company’s consolidated balance sheets. The Company recognized a loss during the third quarter of 2010 related to these contracts of less than $0.1 million. The loss realized on hedging contracts is substantially offset by increased profitability on sale of fuel inventory.

9. 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 payments based on sales or motor fuel volume. The Company is typically responsible for payment of real estate taxes, maintenance expenses and insurance.

The components of net rent expense are as follows:

	Three Months Ended						Nine Months Ended
	September 27, 2009			October 3, 2010			September 27, 2009			October 3, 2010
	(in thousands)
Cash rent:
Store base rent	$	9,168		$	10,806		$	27,293		$	31,411
Equipment rent		163			510			510			1,065
Contingent rent		61			53			155			186
Total cash rent	$	9,392		$	11,369		$	27,958		$	32,662
Non-cash rent:
Straight-line rent		258			185			757			559
Amortization of deferred gain		(515	)		(550	)		(1,537	)		(1,624	)
Net rent expense	$	9,135		$	11,004		$	27,178		$	31,597

Letters of Credit

We were contingently liable for $17.1 million related to irrevocable letters of credit required by various insurers and suppliers at October 3, 2010.

10. Interest Expense and Interest Income

The components of net interest expense are as follows:

	Three Months Ended						Nine Months Ended
	September 27, 2009			October 3, 2010			September 27, 2009			October 3, 2010
	(in thousands)
Cash interest expense	$	8,534		$	9,394		$	25,852		$	45,228
Cash paid on interest rate swap		269			—			643			1,397
Capitalized interest		(108	)		(175	)		(209	)		(266	)
Amortization of loan costs and issuance (premium)/discount, net		773			791			2,323			7,672
Cash interest income		(24	)		(25	)		(76	)		(86	)
Interest expense, net	$	9,444		$	9,985		$	28,533		$	53,945

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Included in the amounts above for the nine months ended October 3, 2010, are the following non-recurring charges related to the May 2010 debt refinancing (See Note 8) in thousands:

	Cash		Non-Cash		Total
Call premium on redemption of 10 5/8% notes	$	15,939	$	—	$	15,939
Cancel interest rate swaps on term loan		1,025		—		1,025
Interest overlap on old and new notes from May 7 to May 27		1,771		—		1,771
Write off unamortized premium and loan costs on redeemed debt		—		5,510		5,510
Total non-recurring charges	$	18,735	$	5,510	$	24,245

11. Income Tax

A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the three and nine months ended October 3, 2010 and September 27, 2009 is as follows:

	Three Months Ended October 3, 2010					Nine Months Ended October  3, 2010
	(in thousands)		Tax rate %			(in thousands)		Tax rate %
Tax at statutory federal rate	$	5,780		35.0	%	$	2,125		35.0	%
State and local tax, net of federal benefit		438		2.6			1,026		16.9
Other		1,345		8.2			870		14.3
Tax expense per financial statement	$	7,563		45.8	%	$	4,021		66.2	%
	Three Months  Ended September 27, 2009					Nine Months  Ended September 27, 2009
	(in thousands)		Tax rate %			(in thousands)		Tax rate %
Tax at statutory federal rate	$	3,614		35.0	%	$	4,609		35.0	%
State and local tax, net of federal benefit		143		1.4			742		5.6
Other		66		0.6			79		0.6
Tax expense per financial statement	$	3,823		37.0	%	$	5,430		41.2	%

Included in our provision for income tax is a tax imposed by the state of Texas of 0.5% of gross margin in Texas (“margin tax”). The margin tax accrued for the nine months ended September 27, 2009 and October 3, 2010 was $1.1 million and $1.5 million, respectively.

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During the third quarter of 2010, an analysis of our APIC pool was performed, and it was determined that no APIC pool currently exists. Restricted stock vesting transactions resulted in excess tax benefits of $0.4 million which were adjusted to tax expense during the three months ended October 3, 2010. In addition, during the second quarter 2010, some outstanding stock options were voluntarily forfeited resulting in an excess tax benefit of $0.9 million which was also adjusted to tax expense. These transactions, along with other adjustments, resulted in net additional tax expense of $1.1 million which is reflected in the other category in the rate reconciliation above for both the three months and nine months ended October 3, 2010, and is immaterial to the financial statements.

It is the Company’s policy to recognize interest and penalties related to uncertain tax positions in general and administrative expense. The Company became a taxpayer at October 24, 2006 with the conversion to a “C” corporation, and the statute of limitations remains open on all years since then. The Company files income and gross margin tax returns in the U.S. federal jurisdiction, Texas, Oklahoma, New Mexico and Louisiana. The Company is subject to examinations in all jurisdictions for all returns filed since October 24, 2006.

As of October 3, 2010, all tax positions taken by the Company are considered highly certain. There are no positions the Company reasonably anticipates will significantly increase or decrease within 12 months of the reporting date, and therefore no adjustments have been recorded related to unrecognized tax benefits.

12. Shareholders’ Equity

On October 24, 2006, Susser Holdings Corporation completed an IPO of 7,475,000 shares of its common stock at a price of $16.50 per share. A total of 125,000,000 shares of common stock have been authorized, $0.01 par value, of which 17,158,717 were issued and 17,141,393 were outstanding as of January 3, 2010, and 17,398,735 were issued and 17,360,919 were outstanding as of October 3, 2010, respectively. Included in these amounts are 163,115 and 337,446 shares, respectively, which represent restricted shares that are not yet vested and have no voting rights. Treasury shares consist of 17,324 and 37,816 shares, respectively, issued as restricted shares which were forfeited prior to vesting or were withheld to pay taxes upon vesting. A total of 25,000,000 preferred shares have also been authorized, par value $0.01 per share, although none have been issued. Options to purchase 800,562 shares of common stock are outstanding as of October 3, 2010, 52,972 of which are vested (See Note 13).

13. Share-Based Compensation

The Company has granted options and restricted stock subject to vesting requirements under its 2006 Equity Incentive Plan. Vesting of most grants are over two to five years. The Company has also granted restricted stock units which remain subject to performance criteria, in addition to time vesting requirements. Following is a summary of options, restricted stock and restricted stock units which have been granted under the Company’s plan:

	Stock Options
	Number Options Outstanding			Weighted Average Exercise Price
Balances at December 30, 2007		1,550,217		$	18.11
Granted		475,480			17.14
Forfeited or expired		(316,855	)		21.70
Balances at December 28, 2008		1,708,842			17.17
Granted		91,158			12.12
Forfeited or expired		(56,978	)		19.19
Balances at January 3, 2010		1,743,022			16.84
Granted		390,750			11.03
Forfeited or expired		(1,333,210	)		17.98
Balances at October 3, 2010		800,562			12.11
Exercisable at October 3, 2010		52,972		$	16.10

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	Restricted Stock
	Number of Units			Grant Date Average Fair Value Per Unit
Nonvested at December 30, 2007		114,934		$	15.03
Granted		40,000			20.86
Vested		(35,804	)		14.83
Nonvested at December 28, 2008		119,130			17.05
Granted		85,800			12.22
Vested		(35,815	)		14.83
Forfeited		(6,000	)		22.23
Nonvested at January 3, 2010		163,115			14.80
Granted		219,318			9.64
Vested		(29,721	)		12.69
Forfeited		(15,266	)		10.73
Nonvested at October 3, 2010		337,446		$	11.82
	Restricted Stock Units
	Number of Units			Grant Date Average Fair Value Per Unit
Nonvested at January 3, 2010		—		$	—
Granted		121,000			8.75
Vested		—			—
Forfeited		(9,000	)		8.75
Nonvested at October 3, 2010		112,000		$	8.75

In accordance with the stock option exchange program approved by the Shareholders on May 26, 2010, on June 27, 2010, Eligible Optionholders tendered, and the Company accepted for cancellation, Eligible Options to purchase an aggregate of 852,910 shares of the Company’s common stock. On June 27, 2010, the Company granted Exchange Options to purchase an aggregate of 362,250 shares of the Company’s common stock and an aggregate of 75,818 shares of Exchange Stock in exchange for the cancellation of the tendered Eligible Options. The exchange was on an estimated fair value neutral basis, but resulted in $372,000 in incremental compensation expense to be recognized over the requisite service period of the Exchange Options and Exchange Stock related to options that had previously been accounted for under APB No. 25. The exercise price per share of each Exchange Option is $11.19, which was the closing price of the common stock on June 25, 2010. During the second quarter of 2010, Sam L. Susser, voluntarily forfeited his 363,953 outstanding stock options and did not derive any benefit from the stock option exchange program. See Note 11 regarding the impact of this forfeiture on deferred income taxes.

We did not grant any share-based compensation during the third quarter of 2010.

We adopted ASC 718“Compensation – Stock Compensation” at the beginning of fiscal 2006 when we were still a private company. Because we used the minimum value method for pro forma disclosures under ASC 718, we have applied ASC 718 prospectively to newly issued stock options. Stock options granted during 2005 have been accounted for in accordance with APB Opinion No. 25 through June 2010, at which time most of these options were tendered in the stock option exchange program and cancelled. Replacement options and restricted stock are being accounted for in accordance with ASC 718. Stock options initially granted during 2005 that were not tendered will

14

continue to be accounted for under APB Opinion No. 25. We recognized non-cash stock compensation expense of $0.9 million and $0.1 million during the three months ended September 27, 2009 and October 3, 2010, respectively, and $2.5 million and $1.8 million during the nine months ended September 27, 2009 and October 3, 2010, respectively, which is included in general and administrative expense.

Had compensation cost for the options granted in 2005 been determined based on the grant-date fair value of awards consistent with the method set forth in ASC 718 the Company’s net profits and losses for the periods presented would have been affected as follows:

	Three Months Ended						Nine Months Ended
	September 27, 2009			October 3, 2010			September 27, 2009			October 3, 2010
	(in thousands)
Net income attributable to Susser Holdings Corporation, as reported	$	6,503		$	8,952		$	7,737		$	2,051
Deduct:
Compensation expense on options determined under fair value based method for all awards, net of tax		(11	)		(1	)		(32	)		6
Pro forma net income attributable to Susser Holdings Corporation	$	6,492		$	8,951		$	7,705		$	2,057

14. Other Comprehensive Loss:

Accumulated other comprehensive loss is comprised of the following:

	Year Ended			Nine Months Ended
	January 3, 2010			October 3, 2010
	(in thousands)
Balance at the beginning of the period	$	—		$	(358	)
Amount reclassified to income, net of tax expense of $323 as of January 3, 2010 and $489 as of October 3, 2010		(600	)		(908	)
Net change in fair value of interest rate swaps, net of tax benefit of $131 as of January 3, 2010 and $650 as of October 3, 2010		242			1,266
Balance at end of the period	$	(358	)	$	—

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Other comprehensive income is comprised of the following:

	Three Months Ended					Nine Months Ended
	September 27, 2009			October 3, 2010		September 27, 2009			October 3, 2010
	(in thousands)
Net income	$	6,513		$	8,963	$	7,766		$	2,084
Net unrealized loss in fair value of cash flow hedges, net of tax expense (benefit) of ($175), $0, ($198), and ($161), respectively		(326	)		—		(367	)		—
Total comprehensive income, net of tax expense		6,187			8,963		7,399			2,084	��
Less:
Comprehensive income attributable to noncontrolling interest		10			11		29			33
Comprehensive income attributable to Susser Holdings Corporation	$	6,177		$	8,952	$	7,370		$	2,051

15. Segment Reporting

The Company operates its business in two primary operating segments, both of which are included as reportable segments. No operating segments have been aggregated in identifying the two reportable segments. The retail segment, Stripes, operates retail convenience stores in Texas, New Mexico and Oklahoma that sell merchandise, prepared food and motor fuel, and also offer a variety of services including car washes, lottery, ATM, money orders, prepaid phone cards and wireless services, and movie rentals. The wholesale segment, SPC, purchases fuel from a number of refiners and supplies it to the Company’s retail stores, to independently-owned dealer stations under long-term supply agreements and to other end users of motor fuel. Sales of fuel from the wholesale to retail segment are at delivered cost, including tax and freight. This amount is reflected in intercompany eliminations of fuel revenue. There are no customers who are individually material. Amounts in the “All Other” column include APT, corporate overhead and other costs not allocated to the two primary segments.

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Segment Financial Data for the Three Months Ended September 27, 2009

(dollars and gallons in thousands)

	Retail Segment		Wholesale Segment		Intercompany Eliminations			All Other			Totals
Revenue:
Merchandise	$	201,190	$	—	$	—		$	—		$	201,190
Fuel		427,603		566,315		(325,441	)		—			668,477
Other		7,158		7,261		(2,203	)		217			12,433
Total revenue		635,951		573,576		(327,644	)		217			882,100
Gross profit:
Merchandise		66,307		—		—			—			66,307
Fuel		34,613		6,388		—			—			41,001
Other		7,158		5,208		(123	)		210			12,453
Total gross profit		108,078		11,596		(123	)		210			119,761
Selling, general and administrative		82,001		3,321		(123	)		2,368			87,567
Depreciation, amortization and accretion		9,754		1,596		—			134			11,484
Other operating expenses (income)		884		—		—			—			884
Operating income (loss)	$	15,439	$	6,679	$	—		$	(2,292	)	$	19,826
Gallons		175,317		300,738		(175,533	)		—			300,522
Gross capital expenditures	$	22,968	$	5,998	$	—		$	—		$	28,966

Segment Financial Data for the Three Months Ended October 3, 2010

(dollars and gallons in thousands)

	Retail Segment		Wholesale Segment		Intercompany Eliminations			All Other			Totals
Revenue:
Merchandise	$	207,018	$	—	$	—		$	—		$	207,018
Fuel		489,130		639,622		(379,556	)		—			749,196
Other		7,461		5,097		(2,774	)		419			10,203
Total revenue		703,609		644,719		(382,330	)		419			966,417
Gross profit:
Merchandise		70,050		—		—			—			70,050
Fuel		42,133		7,248		—			—			49,381
Other		7,460		2,483		(281	)		284			9,946
Total gross profit		119,643		9,731		(281	)		284			129,377
Selling, general and administrative		86,831		3,526		(281	)		2,194			92,270
Depreciation, amortization and accretion		9,046		1,137		—			331			10,514
Other operating expenses (income)		34		—		—			(12	)		22
Operating income (loss)	$	23,732	$	5,068	$	—		$	(2,229	)	$	26,571
Gallons		185,073		307,771		(185,656	)		—			307,188
Gross capital expenditures	$	27,783	$	3,744	$	—		$	—		$	31,527

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Segment Financial Data for the Nine Months Ended September 27, 2009

(dollars and gallons in thousands)

	Retail Segment		Wholesale Segment			Intercompany Eliminations			All Other			Totals
Revenue:
Merchandise	$	583,049	$	—		$	—		$	—		$	583,049
Fuel		1,142,269		1,485,964			(856,428	)		—			1,771,805
Other		21,833		15,626			(6,682	)		443			31,220
Total revenue		1,747,151		1,501,590			(863,110	)		443			2,386,074
Gross profit:
Merchandise		195,219		—			—			—			195,219
Fuel		82,806		15,668			—			—			98,474
Other		21,833		9,262			(155	)		205			31,145
Total gross profit		299,858		24,930			(155	)		205			324,838
Selling, general and administrative		234,874		8,574			(155	)		6,750			250,043
Depreciation, amortization and accretion		27,974		3,638			—			384			31,996
Other operating expenses (income)		1,048		(6	)		—			—			1,042
Operating income (loss)	$	35,962	$	12,724		$	—		$	(6,929	)	$	41,757
Gallons		532,616		903,526			(530,020	)		—			906,122
Gross capital expenditures	$	44,393	$	7,990		$	—		$	—		$	52,383

Segment Financial Data for the Nine Months Ended October 3, 2010

(dollars and gallons in thousands)

	Retail Segment		Wholesale Segment		Intercompany Eliminations			All Other			Totals
Revenue:
Merchandise	$	606,332	$	—	$	—		$	—		$	606,332
Fuel		1,479,395		1,964,495		(1,158,710	)		—			2,285,180
Other		22,711		14,145		(7,396	)		2,109			31,569
Total revenue		2,108,438		1,978,640		(1,166,106	)		2,109			2,923,081
Gross profit:
Merchandise		203,106		—		—			—			203,106
Fuel		108,287		19,775		—			—			128,062
Other		22,711		6,866		(710	)		865			29,732
Total gross profit		334,104		26,641		(710	)		865			360,900
Selling, general and administrative		248,979		10,809		(710	)		7,696			266,774
Depreciation, amortization and accretion		28,852		3,384		—			851			33,087
Other operating expenses (income)		807		89		—			(32	)		864
Operating income (loss)	$	55,466	$	12,359	$	—		$	(7,650	)	$	60,175
Gallons		553,333		924,043		(553,086	)		—			924,290
Gross capital expenditures	$	49,046	$	5,045	$	—		$	—		$	54,091

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16. Earnings Per Share

The Company is presenting earnings per share for the historical periods using the guidance provided in ASC 260,“Earnings per Share (EPS)”. Under ASC 260, basic EPS, which excludes dilution, is computed by dividing income or loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common units. Dilutive EPS includes in-the-money stock options and unvested stock using the treasury stock method. During a net loss period, the assumed exercise of in-the-money stock options and unvested stock has an anti-dilutive effect, and therefore such options are excluded from the diluted EPS computation.

Per unit information is based on the weighted average number of common shares outstanding during each period for the basic computation and, if dilutive, the weighted average number of potential common shares resulting from the assumed conversion of outstanding stock options for the diluted computation. Units not included in the denominator for basic EPS, but evaluated for inclusion in the denominator for diluted EPS, included options and restricted stock granted under the 2006 Equity Incentive Plan (See Note 13).

A reconciliation of the numerators and denominators of the basic and diluted per share computations is as follows:

	Three Months Ended				Nine Months Ended
	September 27, 2009		October 3, 2010		September 27, 2009		October 3, 2010(1)
	(dollars in thousands, except per share data)
Net income attributable to Susser Holdings Corporation	$	6,503	$	8,952	$	7,737	$	2,051
Denominator for basic earnings per share:
Weighted average number of common shares outstanding during the period		16,937,013		17,022,362		16,930,903		17,010,840
Incremental common shares attributable to exercise of outstanding dilutive options and restricted shares		93,008		256,536		74,328		136,671
Denominator for diluted earnings per common share		17,030,021		17,278,898		17,005,231		17,147,511
Net income per share, attributable to Susser Holdings Corporation:
Per common share – basic	$	0.38	$	0.53	$	0.46	$	0.12
Per common share – diluted	$	0.38	$	0.52	$	0.45	$	0.12
Options and non-vested restricted shares not included in diluted net income attributable to Susser Holdings Corporation common shareholders because the effect would be anti-dilutive		1,732,324		177,064		1,742,357		1,270,637

(1) Excluding the impact of non-recurring interest charges related to the May 2010 refinancing, which was $15.7 million net of tax, we would have reported net income of $17.8 million and diluted EPS of $1.04 for the nine months ended October 3, 2010.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes to consolidated financial statements included elsewhere in this report. Additional discussion and analysis related to our company is contained in our Annual Report on Form 10-K, including the audited consolidated financial statements for the fiscal year ended January 3, 2010. Our fiscal year contains either 52 or 53 weeks and ends on the Sunday closest to December 31. All references to the third quarter of 2009 and 2010 refer to the 13-week periods ended September 27, 2009 and October 3, 2010, respectively. All references to the first nine months of 2009 and 2010 refer to the 39-week periods ended September 27, 2009 and October 3, 2010, respectively. EBITDA and Adjusted EBITDA are non-GAAP financial measures of performance and liquidity that have limitations and should not be considered as a substitute for net income or cash provided by (used in) operating activities. Please see footnote 2 under “Key Operating Metrics” below for a discussion of our use of EBITDA and Adjusted EBITDA in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and a reconciliation to net income and cash provided by (used in) operating activities for the periods presented.

Forward-Looking Statements

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;

• Currently unknown liabilities in connection with the acquisition of Town & Country;

• Wholesale cost increases of tobacco products or future legislation or campaigns to discourage smoking;

• Litigation or adverse publicity concerning food quality, food safety or other health concerns related to our restaurant facilities;

• Intense competition and fragmentation in the wholesale motor fuel distribution industry;

• The operation of our stores in close proximity to stores of our dealers;

• Changes in economic conditions, generally, and in the markets we serve, consumer behavior, and travel and tourism trends;

• Seasonal trends in the industries in which we operate;

• Sensitive economic conditions that impact consumer spending;

• Unfavorable weather conditions;

• Cross-border risks associated with the concentration of our stores in markets bordering Mexico;

• Inability to identify, acquire and integrate new stores;

• Our ability to comply with federal and state regulations including those related to environmental matters and the sale of alcohol and cigarettes;

• Dangers inherent in storing and transporting motor fuel;

• Pending or future consumer or other litigation;

• Our ability to insure our motor fuel operations;

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• Dependence on one principal supplier for merchandise;

• Dependence on two principal suppliers for motor fuel and one principal provider for third-party transportation of motor fuel;

• Dependence on suppliers for credit terms;

• Dependence on senior management and the ability to attract qualified employees;

• Acts of war and terrorism;

• Risks relating to our substantial indebtedness;

• Dependence on our information technology systems;

• Changes in accounting standards, policies or estimates;

• Impairment of goodwill or indefinite lived assets; and

• Other unforeseen factors.

For a full discussion of these and other risks and uncertainties, please refer to “Item 1A– Risk Factors” in our Annual Report on Form 10-K for the year ended January 3, 2010, and in each subsequent quarterly report on Form 10-Q, including this filing. 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 the date hereof. 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

We are the largest non-refining operator in Texas of convenience stores based on store count and we believe we are the largest non-refining motor fuel distributor by gallons in Texas. Our operations include retail convenience stores and wholesale motor fuel distribution. As of October 3, 2010, our retail segment operated 525 convenience stores in Texas, New Mexico and Oklahoma offering merchandise, foodservice, motor fuel and other services.

For the nine months ended October 3, 2010, we sold 924.3 million gallons of branded and unbranded motor fuel. We purchase fuel directly from refiners and distribute it to our retail convenience stores, contracted independent operators of convenience stores (“dealers”), unbranded convenience stores and other end 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 acquired stores while minimizing overhead costs. In addition, we believe our foodservice and merchandising offerings distinguish us from our competition, providing the opportunity for increased traffic in our stores.

On October 11, 2010, we completed the acquisition of 39 long-term fuel supply agreements to wholesale dealer sites in Texas and Oklahoma. As part of the transaction, we also acquired one retail convenience store in Texas in September 2010, which will be rebranded toStripes^® andLaredo Taco Company^®. This transaction was funded with cash and is expected to be immediately accretive to earnings. The transaction value was not material.

We opened four new retail stores during the third quarter, including the one acquired, for a total of 525 retail stores operated at the end of the quarter. Three additional stores have been opened and one smaller store has been closed to date in the fourth quarter, with another five retail stores under construction, four of which are expected to open by year-end. We added three dealer sites and discontinued seven during the third quarter, for a total of 383 dealer sites as of the end of the quarter in our wholesale segment. Following the 39-site acquisition in October, we now supply motor fuel to over 420 wholesale dealer sites under long-term contract, in addition to non-contracted sales to other end users.

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Our total revenues, net income attributable to Susser Holdings Corporation and Adjusted EBITDA were $966.4 million, $9.0 million and $37.2 million, respectively, for third quarter 2010, compared to $882.1 million, $6.5 million and $33.1 million, respectively, for third quarter 2009. Total revenues, net income attributable to Susser Holdings Corporation and Adjusted EBITDA were $2,923.1 million, $2.1 million and $95.9 million, respectively, for the first nine months of 2010, compared to $2,386.1 million, $7.7 million and $77.3 million, respectively, for the first nine months of 2009. Diluted EPS for the first nine months of 2010 and 2009 were $0.12 and $0.45, respectively. Excluding the $15.7 million after-tax impact of non-recurring charges related to our May 2010 debt refinancing, we would have reported net income and diluted EPS for the nine month period ended October 3, 2010, of $17.8 million and $1.04, respectively. 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 winter months. For a description of our results of operations on a quarterly basis see “Quarterly Results of Operations and Seasonality.”

We generally experience lower fuel margins when the cost of fuel is increasing gradually over a longer period and higher fuel margins when the cost of fuel is declining and more volatile over a shorter period of time. Fuel costs were not as volatile during the third quarter as in the second quarter, with crude oil prices ranging from approximately $71 to $83 per barrel. However, our third quarter retail fuel margin of 22.8 cents per gallon was in excess of our five-year average third quarter margin of 19.4 cents.

The economy in Texas, where the majority of our operations are conducted, continues to fare better than many other parts of the nation, partly buoyed by a relatively stable housing market, a healthy regional banking market and relatively strong population growth. Additionally, our business has remained generally more resilient than many other retail formats. After a soft fourth quarter 2009, we began to see stabilization and/or improvement in certain key economic indicators in our markets in early 2010 and have reported positive comparable merchandise results in each quarter of 2010 to date. The strongest markets are benefiting from increased oil and gas drilling, which affects approximately 20% of our retail stores. There has also been an increase in diesel volume, primarily attributable to increased freight driven by manufacturing, agriculture and oil and gas activity. Construction remains very soft across all markets.

We believe we have adequate liquidity and financial flexibility to continue to operate and grow our business. Our liquidity position continued to strengthen during the third quarter. As of October 3, 2010, we had no borrowings outstanding on our $120 million revolving credit facility, and $101.0 million of unused availability. We also have $63.7 million of cash on the Balance Sheet at the end of the quarter, of which $58.5 million was unrestricted. We expect to complete additional long-term financings, either sale-leasebacks or mortgages in the next 120 days to finance some of the dollars invested in 2009 and 2010 on new stores.

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Key Operating Metrics

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

	Three Months Ended						Nine Months Ended
	September 27, 2009			October 3, 2010			September 27, 2009			October 3, 2010
	(13 weeks)			(13 weeks)			(39 weeks)			(39 weeks)
	(dollars in thousands, except motor fuel pricing and gross profit per  gallon)
Revenue:
Merchandise sales	$	201,190		$	207,018		$	583,049		$	606,332
Motor fuel—retail		427,603			489,130			1,142,269			1,479,395
Motor fuel—wholesale		240,874			260,066			629,536			805,785
Other (a)		12,433			10,203			31,220			31,569
Total revenue	$	882,100		$	966,417		$	2,386,074		$	2,923,081
Gross profit:
Merchandise	$	66,307		$	70,050		$	195,219		$	203,106
Motor fuel—retail		34,613			42,133			82,806			108,287
Motor fuel—wholesale		6,388			7,248			15,668			19,775
Other (a)		12,453			9,946			31,145			29,732
Total gross profit	$	119,761		$	129,377		$	324,838		$	360,900
Adjusted EBITDA (b):
Retail	$	26,080		$	32,812		$	64,984		$	85,125
Wholesale		8,272			6,202			16,356			15,832
Other		(1,245	)		(1,778	)		(4,065	)		(5,093	)
Total Adjusted EBITDA	$	33,107		$	37,236		$	77,275		$	95,864
Retail merchandise margin		33.0	%		33.8	%		33.5	%		33.5	%
Merchandise same store sales growth		4.0	%		3.4	%		4.8	%		3.0	%
Average per retail store per week:
Merchandise sales	$	29.8		$	30.5		$	29.0		$	29.7
Motor fuel gallons		26.5			27.5			27.0			27.5
Motor fuel gallons sold:
Retail		175,317			185,073			532,616			553,333
Wholesale		125,205			122,115			373,506			370,957
Average retail price of motor fuel	$	2.44		$	2.64		$	2.14		$	2.67
Motor fuel gross profit cents per gallon:
Retail		19.7	¢		22.8	¢		15.5	¢		19.6	¢
Wholesale		5.1	¢		5.9	¢		4.2	¢		5.3	¢

(a) 2009 reflects reclassifications in operating expense, other revenue and other gross profit.

(b) We define EBITDA as net income attributable to Susser Holdings Corporation before net interest expense, income taxes 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. In addition, those expenses that we have excluded from our presentation of Adjusted EBITDA are also excluded in measuring our covenants under our revolving credit facility and the indenture governing our Senior Notes.

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EBITDA and Adjusted EBITDA are important measures used by management in evaluating our business because:

• Adjusted EBITDA is used as a performance and liquidity measure under our existing revolving credit facility and the indenture governing our existing notes, including for purposes of determining whether we have satisfied certain financial performance maintenance covenants and our ability to borrow additional indebtedness and pay dividends;

• Adjusted EBITDA facilitates 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;

• Adjusted EBITDA is 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

• Adjusted EBITDA is used by our Board and management for determining certain management compensation targets and thresholds.

EBITDA and Adjusted EBITDA are not recognized terms under GAAP and do not purport to be alternatives to net income as measures of operating performance or to cash flows from operating activities as a measure of liquidity. EBITDA and Adjusted EBITDA 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 and Adjusted EBITDA do not reflect cash requirements for such replacements; and

• because not all companies use identical calculations, our presentation of EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

The following table presents a reconciliation of net income to EBITDA and Adjusted EBITDA:

	Three Months Ended				Nine Months Ended
	September 27, 2009		October 3, 2010		September 27, 2009		October 3, 2010
	(in thousands)
Net income attributable to Susser Holdings Corporation	$	6,503	$	8,952	$	7,737	$	2,051
Depreciation, amortization and accretion		11,484		10,514		31,996		33,087
Interest expense, net		9,444		9,985		28,533		53,945
Income tax expense		3,823		7,563		5,430		4,021
EBITDA		31,254		37,014		73,696		93,104
Non-cash stock based compensation		923		140		2,509		1,771
Loss on disposal of assets		884		22		1,042		864
Other miscellaneous expense		46		60		28		125
Adjusted EBITDA	$	33,107	$	37,236	$	77,275	$	95,864

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The following table presents a reconciliation of net cash provided by operating activities to EBITDA and Adjusted EBITDA:

	Nine Months Ended
	September 27, 2009			October 3, 2010
	(in thousands)
Net cash provided by operating activities	$	50,086		$	89,452
Changes in operating assets & liabilities		(7,221	)		(26,533	)
Loss on disposal of assets		(1,042	)		(864	)
Non-cash stock based compensation		(2,509	)		(1,771	)
Noncontrolling interest		(29	)		(33	)
Deferred income tax		(9	)		(3,633	)
Amortization of debt premium and discount, net		457			(31	)
Early extinguishment of debt		—			(21,449	)
Income taxes		5,430			4,021
Interest expense, net		28,533			53,945
EBITDA		73,696			93,104
Non-cash stock based compensation		2,509			1,771
Loss on disposal of assets		1,042			864
Other miscellaneous		28			125
Adjusted EBITDA	$	77,275		$	95,864

Refer to Note 15 of the accompanying Notes to Consolidated Financial Statements for a description of our segment reporting. The following tables present a reconciliation of our segment operating income to EBITDA and Adjusted EBITDA:

	Retail Segment				Wholesale Segment					All Other						Total
	Nine Months Ended				Nine Months Ended					Nine Months Ended						Nine Months Ended
	September 27, 2009		October 3, 2010		September 27, 2009			October 3, 2010		September 27, 2009			October 3, 2010			September 27, 2009			October 3, 2010
	(in thousands)
Operating income (loss)	$	35,962	$	55,466	$	12,724		$	12,359	$	(6,929	)	$	(7,650	)	$	41,757		$	60,175
Depreciation, amortization and accretion		27,974		28,852		3,638			3,384		384			851			31,996			33,087
Other miscellaneous		—		—		—			—		(28	)		(125	)		(28	)		(125	)
Noncontrolling interest		—		—		—			—		(29	)		(33	)		(29	)		(33	)
EBITDA		63,936		84,318		16,362			15,743		(6,602	)		(6,957	)		73,696			93,104
Non-cash stock based compensation		—		—		—			—		2,509			1,771			2,509			1,771
(Gain) loss on disposal of assets and impairment charge		1,048		807		(6	)		89		—			(32	)		1,042			864
Other operating expenses		—		—		—			—		28			125			28			125
Adjusted EBITDA	$	64,984	$	85,125	$	16,356		$	15,832	$	(4,065	)	$	(5,093	)	$	77,275		$	95,864

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Third Quarter 2010 Compared to Third Quarter 2009

The following discussion of results for third quarter 2010 compared to third quarter 2009 compares the 13-week period of operations ended October 3, 2010 to the 13-week period of operations ended September 27, 2009. We added 15 retail stores in 2009 of which 12 opened during the third quarter and therefore did not contribute a full quarter’s results last year. In addition, we opened seven stores during the first nine months of 2010, four of which were in the third quarter.

Total Revenue. Total revenue for third quarter 2010 was $966.4 million, an increase of $84.3 million, or 9.6%, from 2009. The increase in total revenue was driven by a 14.4% increase in retail fuel revenue, an 8.0% increase in wholesale fuel revenue and an increase in merchandise sales of 2.9%, as further discussed below.

Total Gross Profit. Total gross profit for third quarter 2010 was $129.4 million, an increase of $9.6 million, or 8.0% over 2009. The increase was primarily due to the increase in retail fuel gross profit of $7.5 million, the increase in wholesale fuel gross profit of $0.9 million and the increase in merchandise gross profit of $3.7 million, as further described below. Included in these increases is the impact of new stores constructed or acquired during 2009 and 2010 ($2.2 million of growth in retail gross profit).

Merchandise Sales and Gross Profit. Merchandise sales were $207.0 million for third quarter 2010, a $5.8 million, or 2.9% increase over 2009. Our performance was due to a 3.4% merchandise same store sales increase, accounting for $6.6 million of the increase, with the balance due to new stores built or acquired in 2009 and 2010, partly offset by the sale of the seven Village Market grocery stores in May 2010. Merchandise same-store sales include foodservice sales but do not include motor fuel sales. Key categories contributing to the merchandise same store sales increase were foodservice, beer, cigarettes and packaged drinks.

Merchandise gross profit was $70.0 million for the third quarter of 2010, a 5.6% increase over 2009, which was driven by the increase in merchandise sales and the increase in gross profit margin from 33.0% to 33.8%. A portion of the improvement is attributable to reduced shortage expense. Our reported merchandise margins do not include other income from services such as ATM’s, lottery, prepaid phone cards, movie rental and car washes. If our margins did include other retail income from services, merchandise margins for the third quarter 2010 would have been 36.1%, an increase of 88 basis points from third quarter 2009. Key categories contributing to merchandise gross profit were foodservice, packaged drinks and cigarettes.

Retail Motor Fuel Sales, Gallons, and Gross Profit. Retail sales of motor fuel for 2010 were $489.1 million, an increase of $61.5 million, or 14.4% over 2009, primarily driven by an 8.4% increase in the average retail price of motor fuel and a 5.6% increase in retail gallons sold. We sold an average of 27,500 gallons per retail store per week, 3.9% more than last year. Retail motor fuel gross profit increased by $7.5 million or 21.7% over 2009 due to an increase in the gross profit per gallon and an increase in gallons sold. The average retail fuel margin increased

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from 19.7 cents per gallon to 22.8 cents per gallon for 2009 and 2010, respectively. This increase in fuel margin increased retail fuel gross profit by $5.6 million. After deducting credit card fees, the net margin increased from 15.8 cents per gallon to 18.5 cents per gallon from third quarter 2009 to third quarter 2010.

Wholesale Motor Fuel Sales, Gallons, and Gross Profit. Wholesale motor fuel revenues to third parties for the third quarter of 2010 were $260.1 million, an 8.0% increase over 2009. The increase was driven by a 10.7% increase in the wholesale selling price per gallon offset by a 2.5% decrease in gallons sold. Wholesale motor fuel gross profit of $7.2 million increased $0.9 million or 13.5% from 2009, due to a 16.3% increase in the gross profit per gallon from 5.1 cents per gallon to 5.9 cents per gallon (responsible for a $1.0 million increase) offset by the decrease in gallons.

Other Revenue and Gross Profit. Other revenue of $10.2 million for third quarter 2010 decreased by $2.2 million or 17.9% from 2009, with a 20.1% decrease in associated gross profit. This decrease was the result of recognizing $2.8 million in 2009 from sale of rights to operate dealer locations in connection with the Quick Stuff sites acquired.

Personnel Expense. For the third quarter of 2010, personnel expense increased $1.5 million, or 4.0% over 2009. The increase was primarily due to an additional $1.2 million accrual for bonus and discretionary match in our 401(k) plan, based on performance exceeding targets. In addition, $0.8 million was attributable to the new stores acquired and constructed during 2009 and 2010. Retail personnel expense as a percentage of merchandise sales, excluding the additional bonus and 401(k) match, improved from 18.8% in third quarter 2009 to 18.4% in third quarter 2010.

General and Administrative Expenses. For third quarter 2010, general and administrative expenses increased by $0.1 million, or 1.1% from 2009. The accrual of $0.8 million additional bonus expense in third quarter 2010 based on results against internal targets, was offset by a decrease in non-cash stock based compensation expenses, which were $0.9 million for the third quarter 2009 and $0.1 million for the third quarter 2010 due to forfeiture rate adjustments.

Other Operating Expenses. Other operating expenses increased by $1.2 million or 3.9% over 2009. The increase was primarily due to an increase in same store credit card expense of $0.8 million and an increase in maintenance expense of $1.2 million partly offset by a decrease in cash shortages, utilities, supplies and other operating costs. Credit card costs are directly related to the sales price of fuel. Other operating expenses for new stores accounted for $0.4 million of increased costs.

Rent Expense. Rent expense for third quarter 2010 of $11.0 million was $1.9 million or 20.5% higher than 2009 due primarily to rent expense on additional leased stores.

Depreciation, Amortization and Accretion. Depreciation, amortization and accretion expense for third quarter 2010 of $10.5 million was down $1.0 million or 8.5% from 2009 due to the sale of the seven Village Market grocery stores in May 2010, the adjustments to stores sold and leased back since September 2009, offset by additions to fixed assets.

Income from Operations. Income from operations for third quarter 2010 was $26.6 million, compared to $19.8 million for 2009. The increase is primarily attributed to higher retail and wholesale fuel margins ($6.6 million), and a $1.8 million increase in fuel gross profit due to higher retail gallons, partly offset by a $2.5 million decrease in other revenue and gross profit and higher operating expenses, as described above.

Interest Expense, Net. Net interest expense for third quarter 2010 was $10.0 million, compared to $9.4 million for 2009. The increase was primarily attributed to increased debt.

Income Tax. The income tax expense accrued for third quarter 2010 was $7.6 million, which consisted of $0.5 million of expense attributable to the Texas margin tax and $7.1 million of income tax expense related to federal and state income tax. The income tax expense accrued for third quarter 2009 was $3.8 million, which consisted of $0.2 million of expense attributable to the Texas margin tax and $3.6 million of income tax expense related to federal and state income tax. See Note 11 of the accompanying Notes to Consolidated Financial

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Statements for further discussion of our income tax provision, including the recognition of $1.3 million of excess benefits related to stock compensation transactions.

Net Income Attributable to Susser Holdings Corporation. We recorded net income attributable to Susser Holdings Corporation for the third quarter 2010 of $9.0 million, compared to net income attributable to Susser Holdings Corporation of $6.5 million for the third quarter of 2009. The increase was driven by the same factors impacting operating income, as described above.

Adjusted EBITDA. Adjusted EBITDA for third quarter 2010 was $37.2 million, an increase of $4.1 million, or 12.5% compared to 2009. Retail segment Adjusted EBITDA of $32.8 million increased by $6.7 million, or 25.8% compared to 2009, primarily due to higher fuel margins slightly offset by increased operating expense. Wholesale segment Adjusted EBITDA of $6.2 million decreased by $2.1 million, or 25.0% from 2009, primarily due to cycling against the $2.8 million other revenue recognized in 2009. Other segment Adjusted EBITDA reflects net expenses of $1.8 million for the quarter, compared to $1.2 million for the same period in 2009, which primarily is due to the additional bonus accruals.

First Nine Months 2010 Compared to First Nine Months 2009

The following discussion of results for first nine months 2010 compared to first nine months 2009 compares the 39-week period of operations ended October 3, 2010 to the 39-week period of operations ended September 27, 2009. Our retail store count at October 3, 2010 was 525 compared to 527 at September 27, 2009.

Total Revenue. Total revenue for first nine months 2010 was $2.9 billion, an increase of $537.0 million, or 22.5%, from 2009. The increase in total revenue was driven by a 29.5% increase in retail fuel revenue, a 28.0% increase in wholesale fuel revenue and an increase in merchandise sales of 4.0%, as further discussed below.

Total Gross Profit. Total gross profit for first nine months 2010 was $360.9 million, an increase of $36.1 million, or 11.1% over 2009. The increase was primarily due to the increase in retail fuel gross profit of $25.5 million, the increase in wholesale fuel gross profit of $4.1 million and the increase in merchandise gross profit of $7.9 million, as further discussed below. Included in these increases is the impact of new stores constructed or acquired during 2009 and 2010 ($7.5 million of growth in gross profit).

Merchandise Sales and Gross Profit. Merchandise sales were $606.3 million for first nine months 2010, a $23.3 million, or 4.0% increase over 2009. Our performance was due to a 3.0% merchandise same store sales increase, accounting for $17.2 million of the increase, with the balance due to new stores built or acquired in the last 12 months, partly offset by the sale of the seven Village Market grocery stores in May 2010. Merchandise same-store sales include foodservice sales but do not include motor fuel sales. Key categories contributing to the merchandise same store sales increase were beer, cigarettes, foodservice and tobacco.

Merchandise gross profit was $203.1 million for the first nine months of 2010, a 4.0% increase over 2009, which was driven by the increase in merchandise sales. Our reported merchandise margins do not include other income from services such as ATM’s, lottery, prepaid phone cards, movie rentals, and car washes. Key categories contributing to the increase were cigarettes, foodservice and beer.

Retail Motor Fuel Sales, Gallons, and Gross Profit. Retail sales of motor fuel for 2010 were $1.5 billion, an increase of $337.1 million, or 29.5% over 2009, primarily driven by a 24.7% increase in the average retail price of motor fuel and a 3.9% increase in retail gallons sold. We sold an average of 27,500 gallons per retail store per week, 1.8% more than last year. Retail motor fuel gross profit increased by $25.5 million or 30.8% over 2009 due to an increase in the gross profit per gallon and an increase in gallons sold. The average retail fuel margin increased from 15.6 cents per gallon to 19.6 cents per gallon for 2009 and 2010, respectively. This increase in fuel margin increased retail fuel gross profit by $22.3 million. After deducting credit card fees, the net margin increased from 12.1 cents per gallon to 15.3 cents per gallon from first nine months 2009 to first nine months 2010.

Wholesale Motor Fuel Sales, Gallons, and Gross Profit. Wholesale motor fuel revenues to third parties for the first nine months of 2010 were $805.8 million, a 28.0% increase over 2009. The increase was driven by a 28.9% increase in the wholesale selling price per gallon, slightly offset by the decrease in gallons of 2.5 million. Wholesale

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motor fuel gross profit of $19.8 million increased $4.1 million or 26.2% from 2009, due to a 27.1% increase in the gross profit per gallon from 4.2 cents per gallon to 5.3 cents per gallon.

Other Revenue and Gross Profit. Other revenue of $31.6 million for first nine months 2010 increased by $0.3 million or 1.1% from 2009, with a decrease of $1.4 million or 4.5% in associated gross profit. This decrease was the result of recognizing $2.8 million in third quarter of 2009 from sale of rights to operate dealer locations in connection with the Quick Stuff sites acquired.

Personnel Expense. For the first nine months of 2010, personnel expense increased $2.1 million or 1.9% over 2009. Of the increase in personnel expense, $2.7 million was attributable to the new stores acquired and constructed during 2009 and 2010. Included in personnel expense is $1.3 million incremental bonus and 401(k) discretionary match accrual, based on year-to-date financial performance higher than internal targets. Excluding this additional expense, and despite increases to the minimum wage in July 2009 and increased health care costs, personnel expense in existing stores decreased due to focused efforts on labor usage and overtime management. The retail division store personnel expenses, excluding the incremental bonus/401(k) match, were 18.3% to merchandise sales, a 60 basis point decrease from the first nine months 2009.

General and Administrative Expenses. For first nine months 2010, general and administrative expenses increased by $1.8 million, or 6.8% from 2009, primarily due to an increased bonus/401(k) match accrual in 2010 of $2.4 million. Total bonus/401(k) match expense for the first nine months of 2010 was $6.6 million versus $1.5 million for the same period in 2009. G&A expenses include non-cash stock based compensation expenses which were $1.8 million for the first nine months of 2010 and $2.5 million for 2009.

Other Operating Expenses. Other operating expenses increased by $8.4 million or 9.7% over 2009. The increase was primarily due to an increase in credit card expense of $5.4 million from 2009 and an increase in maintenance expense of $2.8 million. Credit card costs are directly related to the cost of fuel. Operating expenses for new stores accounted for $1.3 million of increased costs.

Rent Expense. Rent expense for first nine months 2010 of $31.6 million was $4.4 million or 16.3% higher than 2009 due primarily to rent expense on additional leased stores.

Depreciation, Amortization and Accretion. Depreciation, amortization and accretion expense for first nine months 2010 of $33.1 million increased $1.1 million or 3.4% from 2009, primarily related to an increase in depreciable assets.

Income from Operations. Income from operations for first nine months 2010 was $60.2 million, compared to $41.8 million for 2009. The increase is primarily attributed to the higher gross profit partly offset by higher operating expenses, as described above.

Interest Expense, Net. Net interest expense for first nine months 2010 was $53.9 million, compared to $28.5 million for first nine months 2009. The increase was primarily due to $24.2 million non-recurring charges related to the refinancing completed in May 2010, as follows (in millions):

Call Premium on redemption of 10 5/8% notes (cash)	$	15.9
Cancel interest rate swap on term loan (cash)		1.0
Interest overlap on old and new notes from May 7 to May 27 (cash)		1.8
Write off unamortized premium and loan costs on redeemed debt (non-cash)		5.5
Total non-recurring charges		24.2
Tax effect at 35%		8.5
After-tax impact of non-recurring charges	$	15.7

Income Tax. The income tax expense accrued for first nine months 2010 was $4.0 million, which consisted of $1.5 million of expense attributable to the Texas margin tax and $3.5 million of income tax expense related to federal and state income tax. The income tax expense accrued for first nine months 2009 was $5.4 million, which consisted of $1.1 million of expense attributable to the Texas margin tax and $4.3 million of income tax benefit related to federal and state income tax. See Note 11 of the accompanying Notes to Consolidated Financial

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Statements for further discussion of our income tax provision, including the recognition of $1.3 million of excess benefits related to stock compensation transactions.

Net Income Attributable to Susser Holdings Corporation. We recorded net income attributable to Susser Holdings Corporation for the first nine months 2010 of $2.1 million, compared to net income attributable to Susser Holdings Corporation of $7.7 million for 2009. The decrease is primarily due to the non-recurring interest charges related to the May 2010 refinancing. Excluding these non-recurring charges ($15.7 million after tax) we would have reported net income of $17.8 million.

Adjusted EBITDA. Adjusted EBITDA for first nine months 2010 was $95.9 million, an increase of $18.6 million, or 24.1% compared to 2009. Retail segment Adjusted EBITDA of $85.1 million increased by $20.1 million, or 31.0% compared to 2009, primarily due to higher gross profit slightly offset by increased operating expenses, as discussed above. Wholesale segment Adjusted EBITDA of $15.8 million decreased by $0.5 million, or 3.2% from 2009 primarily due to cycling against the $2.8 million other revenue recognized in 2009. Other segment Adjusted EBITDA reflects net expenses of $5.1 million for first nine months of 2010 compared to $4.1 million for the same period in 2009, which is primarily due to the additional bonus accrual in 2010.

Liquidity and Capital Resources

Cash Flows from Operations. Cash flows from operations are our main source of liquidity. We rely primarily on cash provided by operating activities, supplemented as necessary from time to time by borrowings under our revolving credit facility, sale leaseback transactions, and other financing transactions to finance our operations, to service our debt obligations, and to fund our capital expenditures. Due to the seasonal nature of our business, our operating cash flow is typically the lowest during the first quarter of the year since (i) sales tend to be lower during the winter months; (ii) we are building inventory in preparation for spring break and summer; and (iii) we pay certain annual operating expenses during the first quarter. The summer months are our peak sales months, and therefore our operating cash flow tends to be the highest during the third quarter.

Cash flows from operations were $89.5 million and $50.1 million for the first nine months of 2010 and 2009, respectively. The change in our cash provided from operating activities for the respective periods was primarily attributable to improved operating results and changes in working capital. Our daily working capital requirements fluctuate within each month, primarily in response to the timing of motor fuel tax, sales tax and rent payments. We had $63.7 million of cash and cash equivalents on hand at October 3, 2010 compared to $10.5 million at September 27, 2009, and $18.0 million at January 3, 2010, of which $5.2 million was restricted at January 3, 2010 and October 3, 2010.

Capital Expenditures. Capital expenditures, before any sale/leasebacks were $54.1 million and $52.4 million during the first nine months of 2010 and 2009, respectively. We opened seven new retail stores through October 3, 2010, four of which were in the third quarter. We sold the seven Village Market grocery stores in May 2010, bringing our store count to 525 at the end of the third quarter. We have opened three additional retail stores and closed one retail store to date in the fourth quarter and currently have another five stores under construction. We received proceeds of $17.0 million from sale-leaseback transactions during the first nine months of 2010.

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Following is a summary of our recent operating site additions and closures by segment:

	Three Months Ended  October 3, 2010			Nine Months Ended  October 3, 2010
Retail Stores:
Number at beginning of period		521			525
New stores		4			7
Closed stores		0			(7	)
Number at end of period		525			525
Wholesale dealer locations:
Number at beginning of period		387			390
New locations		3			8
Closed stores		(7	)		(15	)
Number at end of period		383			383

Subsequent to the end of the quarter, we completed the acquisition of 39 long-term fuel supply agreements to wholesale dealer sites in Texas and Oklahoma. As part of the transaction, we also acquired one retail convenience store in September, which will be rebranded toStripes^® and is included in the new retail store counts above. The transaction was funded with cash. Terms were not disclosed and the transaction value was not material.

During fiscal 2010, we plan to invest approximately $45 to $65 million (net of anticipated lease financing and asset sales) in new retail stores, new dealer projects and maintenance, and upgrade of our existing facilities. We plan to finance our capital spending plan with cash flow from operations, cash balances, borrowings under the revolving credit facility, long-term mortgage debt and additional lease financing. We currently expect we will be able to access financing for a portion of our new store program. However, if we are not able to obtain sale/leaseback, long-term mortgage debt or other financing during 2010, or if our actual cash flows from operations are lower than expected, we may defer a portion of our new store expansion program, our planned rebranding of the Town & Country stores, or other discretionary capital spending.

Cash Flows from Financing Activities. At October 3, 2010, our outstanding debt was $435.9 million, excluding $4.7 million unamortized issuance discount. We completed a refinancing of substantially all of our debt in May 2010 which allowed us to reduce the coupon on our unsecured bonds, reduce total principal and interest payments, extend maturities, increase the amount of unencumbered assets and increase flexibility for future operations and growth. As part of that refinancing we redeemed and discharged all outstanding 10 ⁵/8% senior unsecured notes due 2013, we issued $425 million in 8.5% senior unsecured notes due 2016 and we amended and restated our credit facility to, among other things, cancel the term loan facility (of which $89.3 million was outstanding), extend the maturity date to May 2014, add a $40 million facility increase option and modify and, in some cases, reduce covenant requirements. For more information regarding the refinancing, including the terms of the 2016 Notes and the credit facility, please refer to Note 8 of the accompanying Notes to Consolidated Financial Statements.

As of October 3, 2010, we had no outstanding borrowings under the revolving credit facility and $17.1 million in standby letters of credit. Our borrowing base in effect at October 3, 2010, allowed a maximum borrowing, including outstanding letters of credit, of $118.1 million. Our unused availability on the revolver at October 3, 2010 was $101.0 million. Our unrestricted cash on our balance sheet was $58.5 million and total debt was $431.3 million, leaving debt net of cash of $372.8 million as of October 3, 2010.

Long Term Liquidity. We expect that our cash flows from operations, cash on hand, lease financing, and our revolving credit facility will be adequate to provide for our short-term and long-term liquidity needs. Our ability to meet our debt service obligations and other capital requirements, including capital expenditures, as well as the cost of potential acquisitions and new store openings, will depend on our future performance which, in turn, will be subject to general economic, financial, business, competitive, legislative, regulatory and other conditions, many of which are beyond our control. Changes in our operating plans, lower than anticipated sales, increased expenses,

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acquisitions or other events may cause us to need to seek additional debt or equity financing in future periods. There can be no guarantee that financing will be available on acceptable terms or at all. Debt financing, if available, could impose additional cash payment obligations and additional covenants and operating restrictions. In addition, any of the items discussed in detail under “Risk Factors” may also significantly impact our liquidity.

Contractual Obligations and Commitments

Properties. Most of our leases are net leases requiring us to pay taxes, insurance, and maintenance costs. We believe that no individual site is material to us. The following table summarizes the number of owned and leased properties:

	As of
	October 3, 2010
	Fee		Leased
Operating sites:
Retail		237		288
Wholesale		49		30
Total		286		318
Office locations		4		3
Properties currently under construction		7		—
Properties held for future development		24		—
Income producing properties		6		7
Surplus properties		43		0

We lease our corporate and retail segment headquarters facility, which consists of approximately 83,000 square feet of office and warehouse 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 and warehouse space in Houston.

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Quarterly Results of Operations and Seasonality

The following table sets forth certain unaudited financial and operating data for each of the last eleven quarters. Each quarter consists of 13 weeks, unless noted otherwise. Our business is seasonal and we generally experience higher levels of revenues during the summer months than during the winter months.

	2008												2009												2010
	(dollars and gallons in thousands; except per share amounts)
	1st QTR			2nd QTR			3rd QTR			4th QTR			1st QTR			2nd QTR			3rd QTR			4th QTR(c)			1st QTR			2nd QTR			3rd QTR
Merchandise sales	$	168,771		$	187,870		$	189,272		$	183,944		$	181,919		$	199,940		$	201,190		$	201,375		$	191,038		$	208,276		$	207,018
Motor fuel sales:
Retail		519,797			618,037			619,692			393,201			322,072			392,593			427,603			463,266			478,619			511,646			489,130
Wholesale		302,595			415,179			396,952			208,769			167,327			221,336			240,874			246,388			258,195			287,524			260,066
Other income(a)		9,543			9,376			8,253			9,394			9,490			9,297			12,433			10,205			10,273			11,093			10,203
Total revenue		1,000,706			1,230,462			1,214,169			795,308			680,808			823,166			882,100			921,234			938,125			1,018,539			966,417
Merchandise gross profit		56,668			64,416			65,966			63,592			62,416			66,496			66,307			65,865			62,383			70,673			70,050
Motor fuel gross profit:
Retail		20,257			32,165			36,402			31,732			21,204			26,988			34,613			22,216			20,291			45,863			42,133
Wholesale		5,580			7,429			8,888			9,037			4,251			5,030			6,388			4,538			5,028			7,499			7,248
Other gross profit(a)		9,103			8,837			7,921			9,417			9,390			9,302			12,453			9,922			9,919			9,867			9,946
Total gross profit		91,608			112,847			119,177			113,778			97,261			107,816			119,761			102,541			97,621			133,902			129,377
Income from operations		4,972			20,291			21,137			19,499			8,541			13,390			19,826			313			1,692			31,912			26,571
Net income (loss) attributable to Susser Holdings Corporation	$	(3,360	)	$	6,662		$	6,862		$	6,313		$	(931	)	$	2,165		$	6,503		$	(5,669	)	$	(4,985	)	$	(1,916	)	$	8,952
Earnings (loss) per common share:
Basic	$	(0.20	)	$	0.39		$	0.41		$	0.37		$	(0.05	)	$	0.13		$	0.38		$	(0.33	)	$	(0.29	)	$	(0.11	)	$	0.53
Diluted	$	(0.20	)	$	0.39		$	0.40		$	0.37		$	(0.05	)	$	0.13		$	0.38		$	(0.33	)	$	(0.29	)	$	(0.11	)	$	0.52
Merchandise margin, net		33.6	%		34.3	%		34.9	%		34.6	%		34.3	%		33.3	%		33.0	%		32.7	%		32.7	%		33.9	%		33.8	%
Fuel gallons:
Retail		169,313			165,113			163,399			179,483			179,412			177,887			175,317			187,033			183,068			185,192			185,073
Wholesale		114,110			124,329			122,318			125,759			122,469			125,832			125,205			121,314			120,013			128,829			122,115
Motor fuel margin:
Retail (b)		12.0	¢		19.5	¢		22.3	¢		17.7	¢		11.8	¢		15.2	¢		19.7	¢		11.9	¢		11.1	¢		24.8	¢		22.8	¢
Wholesale		4.9	¢		6.0	¢		7.3	¢		7.2	¢		3.5	¢		4.0	¢		5.1	¢		3.7	¢		4.2	¢		5.8	¢		5.9	¢

(a) Reflects reclassifications in operating expense, other income, and other gross profit in 2008 and 2009.

(b) Before deducting credit card, fuel maintenance and other fuel related expenses.

(c) Includes 14 weeks of operation.

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Summary of Significant Accounting Policies

We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Critical accounting policies are those we believe are both most important to the portrayal of our financial condition and results of operations, and require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions. Our significant accounting policies are described in our Annual Report on Form 10-K for the year ended January 3, 2010. As discussed in Note 2 to our Consolidated Financial Statements included elsewhere in this report, certain new financial accounting pronouncements have been issued which either have already been reflected in the accompanying consolidated financial statements, or will become effective for our financial statements at various dates in the future.

Goodwill is not being amortized, but is tested annually for impairment, and is tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. There are no indicators of impairment as of October 3, 2010
(See Note 7).

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are subject to market risk from exposure to changes in interest rates based on our financing, investing, and cash management activities. We currently have a $120.0 million revolving credit facility which bears interest at variable rates, but which had no outstanding borrowings at October 3, 2010. As part of the debt refinancing which occurred on May 7, 2010 (See Note 8), we repaid our term facility and therefore had no balance outstanding on that facility at the end of the quarter. We had $10.9 million outstanding in other notes payable that is subject to a variable interest rate. The annualized effect of a one percentage point change in floating interest rates on our variable rate debt obligations outstanding at October 3, 2010 would be to change interest expense by approximately $0.1million.

Our primary exposure relates to:

• Interest rate risk on short-term borrowings and

• The impact of interest rate movements on our ability to obtain adequate financing to fund future acquisitions.

We manage interest rate risk on our outstanding long-term and short-term debt through the use of fixed and variable rate debt. While we cannot predict or manage our ability to refinance existing debt or the impact interest rate movements will have on our existing debt, management evaluates our financial position on an ongoing basis.

From time to time, we enter into interest rate swaps to either reduce the impact of changes in interest rates on our floating rate long-term debt or to take advantage of favorable variable interest rates compared to our fixed rate long-term debt. During 2009 we entered into interest rate swaps on $70 million notional principal for a six-year term. The swap exchanged a floating to fixed rate against our variable-rate term loan. In conjunction with the prepayment of the term loan on May 7, 2010, we settled the related interest rate swaps.

We also periodically purchase motor fuel in bulk and hold in inventory or transport it to West Texas via pipeline. We hedge this inventory risk through the use of fuel futures contracts which are matched in quantity and timing to the anticipated usage of the pipeline inventory. These fuel hedging positions have not been material to our operations.

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For more information on our hedging activity, please see Note 8 in the accompanying Notes to Consolidated Financial Statements.

Item 4. Controls and Procedures

As required by paragraph (b) of Rules 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our Chief Executive Officer and our Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded, as of the end of the period covered by this report, that our disclosure controls and procedures were effective to ensure that the information required to be disclosed by the Company in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) during the third quarter of 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

From time to time, we make changes to our internal control over financial reporting that are intended to enhance its effectiveness and which do not have a material effect on our overall internal control over financial reporting. We will continue to evaluate the effectiveness of our disclosure controls and procedures and internal control over financial reporting on an ongoing basis and will take action as appropriate.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are parties to various legal actions in the ordinary course of our business. We believe these actions are routine in nature and incidental to the operation of our business. 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.

Item 1A. Risk Factors

You should carefully consider the risks described in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended January 3, 2010, as well as the section within this report entitled “Forward-Looking Statements” under Part I. Financial Information—Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, before making any investment decision with respect to our securities. The risks and uncertainties described in our annual report are not the only ones facing us. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, could negatively impact our results of operations or financial condition in the future. If any of such risks actually occur, our business, financial condition or results of operations could be materially adversely affected.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. (Removed and Reserved)

Item 5. Other Information

None.

Item 6. Exhibits

The list of exhibits attached to this Quarterly Report on Form 10-Q is incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

	SUSSER HOLDINGS CORPORATION
Date: November 12, 2010
	By	/s/Mary E. Sullivan
		Mary E. Sullivan Executive Vice President and Chief Financial Officer (On behalf of the registrant, and in her capacity as principal financial officer and principal accounting officer).

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EXHIBIT INDEX

Exhibit No.	Description
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act.†
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act.†
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.†
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.†

† Filed herewith.

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