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Table of Contents

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 2, 2011

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  x    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

 

17,017,026 SHARES

(Class)   (Outstanding at November 7, 2011)


Table of Contents

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

     19   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     33   

Item 4. Controls and Procedures

     33   

PART II – OTHER INFORMATION

  

Item 1. Legal Proceedings

     34   

Item 1A. Risk Factors

     34   

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

     34   

Item 3. Defaults Upon Senior Securities

     35   

Item 4. (Removed and Reserved)

     35   

Item 5. Other Information

     35   

Item 6. Exhibits

     35   

 

i


Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Susser Holdings Corporation

Consolidated Balance Sheets

 

     January 2,
2011
    October 2,
2011
 
           unaudited  
     (in thousands except shares)  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 47,943      $ 77,487   

Accounts receivable, net of allowance for doubtful accounts of $1,054 at January 2, 2011, and $711 at October 2, 2011

     60,356        82,463   

Inventories, net

     84,140        95,426   

Other current assets

     17,517        15,808   
  

 

 

   

 

 

 

Total current assets

     209,956        271,184   

Property and equipment, net

     409,153        460,236   

Other assets:

    

Goodwill

     240,158        244,398   

Intangible assets, net

     41,365        39,191   

Other noncurrent assets

     13,707        15,488   
  

 

 

   

 

 

 

Total assets

   $ 914,339      $ 1,030,497   
  

 

 

   

 

 

 

Liabilities and shareholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 132,918      $ 155,769   

Accrued expenses and other current liabilities

     44,937        59,004   

Current maturities of long-term debt

     550        1,462   
  

 

 

   

 

 

 

Total current liabilities

     178,405        216,235   

Revolving line of credit

     —          —     

Long-term debt

     430,756        449,554   

Deferred gain, long-term portion

     32,727        31,442   

Deferred tax liability, long-term portion

     39,261        60,987   

Other noncurrent liabilities

     18,627        18,103   
  

 

 

   

 

 

 

Total liabilities

     699,776        776,321   
  

 

 

   

 

 

 

Commitments and contingencies:

    

Shareholders’ equity:

    

Susser Holdings Corporation shareholders’ equity:

    

Common stock, $.01 par value; 125,000,000 shares authorized; 17,402,934 issued and 17,361,406 outstanding as of January 2, 2011; 17,506,187 issued and 17,121,501 outstanding as of October 2, 2011

     172        172   

Additional paid-in capital

     186,921        190,533   

Treasury stock, common shares, at cost; 41,528 as of January 2, 2011; and 384,686 as of October 2, 2011

     (45     (6,205

Retained earnings

     26,742        68,899   

Accumulated other comprehensive income (loss)

     —          —     
  

 

 

   

 

 

 

Total Susser Holdings Corporation shareholders’ equity

     213,790        253,399   

Noncontrolling interest

     773        777   
  

 

 

   

 

 

 

Total shareholders’ equity

     214,563        254,176   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 914,339      $ 1,030,497   
  

 

 

   

 

 

 

See accompanying notes

 

1


Table of Contents

Susser Holdings Corporation

Consolidated Statements of Operations

Unaudited

 

     Three Months Ended     Nine Months Ended  
     October 3,
2010
    October 2,
2011
    October 3,
2010
    October 2,
2011
 
     (dollars in thousands, except share and per share amounts)  

Revenues:

  

Merchandise sales

   $ 207,018      $ 233,464      $ 606,332      $ 662,922   

Motor fuel sales

     749,196        1,108,404        2,285,180        3,199,947   

Other income

     10,203        11,646        31,569        36,166   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     966,417        1,353,514        2,923,081        3,899,035   

Cost of sales:

        

Merchandise

     136,968        155,073        403,226        438,426   

Motor fuel

     699,815        1,044,688        2,157,118        3,030,969   

Other

     257        338        1,837        1,576   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of sales

     837,040        1,200,099        2,562,181        3,470,971   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     129,377        153,415        360,900        428,064   

Operating expenses:

        

Personnel

     39,514        41,427        112,390        120,339   

General and administrative

     8,915        11,202        27,666        32,604   

Other operating

     32,837        38,976        95,121        108,567   

Rent

     11,004        11,492        31,597        34,181   

Loss on disposal of assets and impairment charge

     22        312        864        1,621   

Depreciation, amortization and accretion

     10,514        12,420        33,087        34,807   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     102,806        115,829        300,725        332,119   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     26,571        37,586        60,175        95,945   

Other income (expense):

        

Interest expense, net

     (9,985     (10,332     (53,945     (30,391

Other miscellaneous

     (60     (107     (125     (221
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense, net

     (10,045     (10,439     (54,070     (30,612
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     16,526        27,147        6,105        65,333   

Income tax expense

     (7,563     (8,629     (4,021     (23,171
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     8,963        18,518        2,084        42,162   
  

 

 

   

 

 

   

 

 

   

 

 

 

Less: Net income attributable to noncontrolling interests

     11        2        33        4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Susser Holdings Corporation

   $ 8,952      $ 18,516      $ 2,051      $ 42,158   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share attributable to Susser Holdings Corporation:

        

Basic

   $ 0.53      $ 1.09      $ 0.12      $ 2.47   

Diluted

   $ 0.52      $ 1.06      $ 0.12      $ 2.42   

Weighted average shares outstanding:

        

Basic

     17,022,362        16,943,642        17,010,840        17,040,251   

Diluted

     17,278,898        17,463,284        17,147,511        17,439,690   

See accompanying notes

 

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Table of Contents

Susser Holdings Corporation

Consolidated Statement of Cash Flows

Unaudited

 

     Nine Months Ended  
     October 3,
2010
    October 2,
2011
 
     (in thousands)  

Cash flows from operating activities:

    

Net income

   $ 2,084      $ 42,162   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation, amortization and accretion

     33,087        34,807   

Amortization of deferred financing fees

     2,495        1,981   

Loss on disposal of assets and impairment charge

     864        1,621   

Non-cash stock-based compensation

     1,771        3,015   

Deferred income tax

     3,633        17,544   

Early extinguishment of debt

     21,449        —     

Amortization of debt premium/discount, net

     31        509   

Excess tax benefits from stock-based compensation

     —          (232

Changes in operating assets and liabilities:

    

Receivables

     (689     (22,107

Inventories

     (1,376     (11,286

Intangible assets, net

     (2,130     —     

Other assets

     (1,410     (557

Accounts payable

     5,211        22,851   

Accrued liabilities

     25,187        14,067   

Other noncurrent liabilities

     (122     (2,505
  

 

 

   

 

 

 

Net cash provided by operating activities

     90,085        101,870   

Cash flows from investing activities:

    

Capital expenditures

     (54,091     (95,653

Purchase of intangibles

     (633     (4

Proceeds from disposal of property and equipment

     7,161        452   

Proceeds from sale/leaseback transactions

     16,966        8,953   
  

 

 

   

 

 

 

Net cash (used in) investing activities

     (30,597     (86,252

Cash flows from financing activities:

    

Proceeds from issuance of long-term debt

     431,241        20,000   

Change in notes receivable

     400        427   

Payments on long-term debt

     (408,139     (798

Revolving line of credit, net

     (25,800     —     

Loan origination costs

     (11,615     (372

Proceeds (purchase) of equity, net

     121        (5,563

Excess tax benefits from stock-based compensation

     —          232   
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (13,792     13,926   

Net increase in cash

     45,696        29,544   

Cash and cash equivalents at beginning of year

     17,976        47,943   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 63,672      $ 77,487   
  

 

 

   

 

 

 

See accompanying notes

 

3


Table of Contents

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 2, 2011, 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 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 2010 refer to the 52-week period ended January 2, 2011. All references to the first nine months and third quarter of 2010 and 2011 refer to the 39-week and 13-week periods ended October 3, 2010 and October 2, 2011, respectively. Stripes and APT follow the same accounting calendar as the Company. SPC uses calendar month accounting periods and ends its 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 2, 2011 and for the three and nine months ended October 3, 2010 and October 2, 2011 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 October 3, 2010 and October 2, 2011 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 2, 2011.

 

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Table of Contents

Certain line items have been reclassified for presentation 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 (ASC 820 – Improving Disclosures about Fair Value Measurements). This guidance requires 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. 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 is effective for fiscal years beginning after December 15, 2010 (and for interim periods within such years). Our adoption of the applicable sections of this ASU did not have a material impact on our financial statements.

FASB ASU No. 2010-29. In December 2010, the FASB issued ASU No. 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations (ASC 805– Business Combinations). This guidance requires that disclosure for pro forma revenue and earnings must be as of the beginning of the comparative period presented and adds additional disclosure related to the nature and amount of material, nonrecurring pro forma adjustments. It is effective for public companies only, for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, but early adoption is permitted. Our adoption in January 2011 will impact our disclosure of any future acquisitions.

FASB ASU No. 2011-04. In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (ASC 820– Fair Value Measurement). This guidance amends ASC 820 on fair value measurements and disclosures to (1) clarify the board’s intent in respect of existing measurement guidance, (2) revise certain measurement guidance that changes or modifies a principle, and (3) add disclosure requirements concerning the measurement uncertainty of level 3 measurements. The ASU is effective for interim and annual periods beginning after December 15, 2011. No impact is expected on our financial statements.

FASB ASU No. 2011-05. In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income: Presentation of Comprehensive Income (ASC 220– Comprehensive Income). This guidance removes the presentation options in ASC 220 and requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. The ASU does not change the items that must be reported in other comprehensive income. It is effective for fiscal years beginning after December 15, 2011 (and for interim periods within such years). On October 21, 2011, the FASB announced it would examine deferring certain aspects of ASU 2011-05. Our adoption in January 2012 will impact the presentation on our financial statements.

FASB ASU No. 2011-08. In September 2011, the FASB issued ASU NO. 2011-08, Intangibles-Goodwill and Other (ASC350 -20-Goodwill): Testing Goodwill for Impairment. This guidance permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, but early adoption is permitted. The Company plans to early adopt ASU No. 2011-08 during the fourth quarter of Fiscal 2011 and use it to perform the annual goodwill impairment test. Our adoption will impact disclosure 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 2, 2011, up until the issuance of these financial statements.

 

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Table of Contents

On October 3, 2011, we completed the acquisition of 121 wholesale fuel supply contracts and fuel supply rights to 24 commercial accounts from Dallas/Ft. Worth based Community Fuels of Texas, LP. The transaction was funded with cash. The financial terms of the transaction were not disclosed and the transaction was not material. We anticipate that the majority of the purchase price will be allocated to intangible assets.

 

4. Accounts Receivable

Accounts receivable consisted of the following:

 

     January 2,
2011
    October 2,
2011
 
     (in thousands)  

Accounts receivable, trade

   $ 19,381      $ 34,948   

Credit card receivables

     22,432        27,436   

Receivable from state reimbursement funds

     1,074        402   

Vendor receivables for rebates, branding and others

     7,752        8,003   

ATM fund receivables

     6,333        7,765   

Notes receivable, short-term

     1,194        766   

Other receivables

     3,244        3,854   

Allowance for uncollectible accounts, trade

     (754     (606

Allowance for uncollectible accounts, environmental

     (300     (105
  

 

 

   

 

 

 

Accounts receivable, net

   $ 60,356      $ 82,463   
  

 

 

   

 

 

 

 

5. Inventories

Inventories consisted of the following:

 

     January 2,
2011
    October 2,
2011
 
     (in thousands)  

Merchandise

   $ 48,521      $ 51,311   

Fuel-retail

     23,660        27,188   

Fuel-wholesale consignment

     4,347        5,460   

Fuel-wholesale bulk

     737        2,422   

Lottery

     2,028        2,004   

Equipment and maintenance spare parts

     5,977        8,120   

Allowance for inventory shortage and obsolescence

     (1,130     (1,079
  

 

 

   

 

 

 

Inventories, net

   $ 84,140      $ 95,426   
  

 

 

   

 

 

 

 

6


Table of Contents
6. Property and Equipment

Property and equipment consisted of the following:

 

     January 2,
2011
     October 2,
2011
 
     (in thousands)  

Land

   $ 128,071       $ 138,951   

Buildings and leasehold improvements

     235,588         266,493   

Equipment

     190,324         220,450   

Construction in progress

     10,889         19,594   
  

 

 

    

 

 

 
     564,872         645,488   

Less: Accumulated depreciation

     155,719         185,252   
  

 

 

    

 

 

 

Property and equipment, net

   $ 409,153       $ 460,236   
  

 

 

    

 

 

 

 

7. Goodwill and Other Intangible Assets

Goodwill is not being amortized, but is tested annually for impairment, or 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 2, 2011 and October 2, 2011, we had $240.2 million and $244.4 million, respectively, of goodwill recorded in conjunction with past business combinations. The 2010 impairment analysis indicated no impairment in goodwill. As of October 2, 2011, we evaluated potential impairment indicators and we believe no indicators of impairment occurred during the third quarter of 2011, and believe the assumptions used in the analysis performed in 2010 are still relevant and indicative of our current operating environment. As a result, no impairment was recorded to goodwill during the first nine months of 2011. During the second quarter of 2011, the Company determined there was a computational error related to deferred income tax balances established in the initial Town & Country purchase price allocation. As a result, additions of $4.2 million were made related to deferred taxes. The Company evaluated the impact of this error on the initial purchase price allocation and concluded the error was not of a magnitude to require restatement of the initial purchase price allocation. The computational error had less than 2% impact on goodwill, total assets and noncurrent liabilities as of December 30, 2007. As a result the adjustment was reflected in 2011.

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 are not amortized. 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 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 fifty months. Loan origination costs are amortized over the life of the underlying debt as an increase to interest expense.

 

7


Table of Contents

The following table presents the gross carrying amount and accumulated amortization for each major class of intangible assets, excluding goodwill, at January 2, 2011 and October 2, 2011:

 

     January 2, 2011      October 2, 2011  
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net
Amount
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net
Amount
 
     (in thousands)  

Unamortized

                 

Trade name

   $ 45       $ —         $ 45       $ 45       $ —         $ 45   

Franchise rights

     389         —           389         489         —           489   

Liquor licenses

     12,038         —           12,038         12,038         —           12,038   

Amortized

                 

Supply agreements

     18,534         4,305         14,229         19,655         5,623         14,032   

Favorable leasehold arrangements, net

     2,497         2,341         156         3,584         3,289         295   

Loan origination costs

     14,024         2,888         11,136         14,397         4,869         9,528   

Trade names

     5,756         2,384         3,372         5,756         2,992         2,764   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Intangible assets, net

   $ 53,283       $ 11,918       $ 41,365       $ 55,964       $ 16,773       $ 39,191   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

8. Long-Term Debt

Long-term debt consisted of the following:

 

     January 2,
2011
    October 2,
2011
 
     (in thousands)  

8.5% senior unsecured notes due 2016

   $ 425,000      $ 425,000   

Revolving credit agreement, bearing interest at Prime or LIBOR plus applicable margin

     —          —     

Other notes payable

     10,802        30,003   

Unamortized discount

     (4,496     (3,987
  

 

 

   

 

 

 

Total debt

     431,306        451,016   

Less: Current maturities

     550        1,462   
  

 

 

   

 

 

 

Long-term debt, net of current maturities

   $ 430,756      $ 449,554   
  

 

 

   

 

 

 

The fair value of debt as of October 2, 2011, is estimated to be approximately $473.0 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. Other notes payable consists primarily of long-term, variable-rate mortgage notes with maturity dates ranging from 2015 to 2016.

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. 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.

 

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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, 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.

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 and release of a majority of the real property securing the term loan (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

 

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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 2, 2011.

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 loans under the Revolver are secured by a first priority security interest in (a) 100% of the outstanding ownership interests in Susser Holdings, L.L.C. and of each of the Company’s existing and future direct and indirect subsidiaries (subject to certain exclusions and limited, in the case of each foreign subsidiary (i) to first-tier foreign subsidiaries and (ii) with respect to any controlled foreign corporation, to 65% of the outstanding voting stock of each such foreign subsidiary); (b) all present and future intercompany debt of the Company, Susser Holdings, L.L.C. and each subsidiary guarantor; (c) real property included in the borrowing base, including equipment and fixtures located on such real property, (d) substantially all of the present and future personal property and assets of the Company, Susser Holdings, L.L.C. and each subsidiary guarantor, including, but not limited to, inventory, accounts receivable, license rights, patents, trademarks, trade names, copyrights, other intellectual property and other general intangibles, insurance proceeds and instruments; and (e) all proceeds and products of all of the foregoing.

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 2, 2011, we had no outstanding borrowings under the Revolver and $18.7 million in standby letters of credit. Our borrowing base in effect at October 2, 2011 allowed a maximum borrowing, including outstanding letters of credit, of $120.0 million. Our unused availability on the revolver at October 2, 2011, was $101.3 million.

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 is derived from such prices or parameters. Where observable prices or inputs are not available, use of unobservable prices or inputs is 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.

 

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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. We had no interest rate swaps outstanding at January 2, 2011 or October 2, 2011.

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. The fair value of our derivative contracts is measured using Level 2 inputs, and is 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 to a new obligor due to the short term nature of these contracts. At January 2, 2011, the Company held fuel futures contracts with a fair value of ($14,300) (six contracts representing 0.3 million gallons). At October 2, 2011, the Company held fuel futures contracts with a fair value of ($110,700) (19 contracts representing 0.8 million gallons), which is classified in other current assets in the Company’s consolidated balance sheets. The Company recognized a loss during the first nine months of 2011 related to these contracts of $0.7 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 contingent payments based on sales or motor fuel volume. The Company is typically responsible for payment of real estate taxes, maintenance expenses and insurance.

 

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The components of net rent expense are as follows:

 

     Three Months Ended     Nine Months Ended  
     October 3,
2010
    October 2,
2011
    October 3,
2010
    October 2,
2011
 
     (in thousands)  

Cash rent:

  

Store base rent

   $ 10,806      $ 11,366      $ 31,411      $ 33,722   

Equipment rent

     510        501        1,065        1,526   

Contingent rent

     53        77        186        219   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cash rent

   $ 11,369      $ 11,944      $ 32,662      $ 35,467   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-cash rent:

        

Straight-line rent

     185        125        559        388   

Amortization of deferred gain

     (550     (577     (1,624     (1,674
  

 

 

   

 

 

   

 

 

   

 

 

 

Net rent expense

   $ 11,004      $ 11,492      $ 31,597      $ 34,181   
  

 

 

   

 

 

   

 

 

   

 

 

 

Letters of Credit

We were contingently liable for $18.7 million related to irrevocable letters of credit required by various insurers and suppliers at October 2, 2011.

 

10. Interest Expense and Interest Income

The components of net interest expense are as follows:

 

     Three Months Ended     Nine Months Ended  
     October 3,
2010
    October 2,
2011
    October 3,
2010 (a)
    October 2,
2011
 
     (in thousands)  

Cash interest expense

   $ 9,394      $ 9,662      $ 45,228      $ 28,662   

Cash paid on interest rate swap

     —          —          1,397        —     

Capitalized interest

     (175     (155     (266     (570

Amortization of loan costs and issuance (premium)/discount, net

     791        856        7,672        2,489   

Cash interest income

     (25     (31     (86     (190
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense, net

   $ 9,985      $ 10,332      $ 53,945      $ 30,391   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

     Cash      Non-Cash      Total  

Total non-recurring charges

   $ 18,735       $ 5,510       $ 24,245   

The tax effect of the non-recurring charges was $8.5 million, resulting in a net after-tax charge of $15.7 million.

 

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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 2, 2011 and October 3, 2010 is as follows:

 

     Three Months Ended     Nine Months Ended  
     October 2, 2011     October 2, 2011  
     (in thousands)     Tax rate %     (in thousands)     Tax rate %  

Tax at statutory federal rate

   $ 9,500        35.0   $ 22,865        35.0

State and local tax, net of federal benefit

     482        1.8     1,518        2.4

Other

     (1,353     (5.0 )%      (1,212     (1.9 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Tax expense per financial statement

   $ 8,629        31.8   $ 23,171        35.5
  

 

 

   

 

 

   

 

 

   

 

 

 
     Three Months Ended     Nine Months Ended  
     October 3, 2010     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
  

 

 

   

 

 

   

 

 

   

 

 

 

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 three months ended October 3, 2010 and October 2, 2011 was $0.5 and $0.6, respectively. The margin tax accrued for the nine months ended October 3, 2010 and October 2, 2011 was $1.5 million and $1.8 million, respectively.

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 2, 2011, 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 17,402,934 were issued and 17,361,406 were outstanding as of January 2, 2011, and 17,506,187 were issued and 17,121,501 were outstanding as of October 2, 2011. Included in the issued amounts are 297,919 and 264,973 shares as of January 2, 2011 and October 2, 2011, respectively, which represent restricted shares that are not yet vested and have no voting rights. Treasury shares consist of 41,528 and 384,686 shares as of January 2, 2011 and October 2, 2011, respectively, which include restricted shares issued which were forfeited prior to vesting or were withheld to pay taxes upon vesting.

On June 2, 2011, the Company announced the approval of a stock repurchase program pursuant to which the Company may elect to repurchase up to $15 million of its outstanding common stock. Purchases may be made from time to time on the open market or in privately negotiated transactions. Timing of the purchases and the amount of stock purchased will be determined at the discretion of the Company’s management and may include purchases

 

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through one or more broker-assisted plans (including 10b5-1 and/or 10b-18 plans). The repurchase authorization expires December 31, 2012, and the program may be discontinued at any time. Included in treasury shares at October 2, 2011 are 322,888 shares repurchased and settled by the Company by the end of the third fiscal quarter pursuant to the stock repurchase program at a total value of $5.8 million.

A total of 25,000,000 preferred shares have been authorized, par value $0.01 per share, although none have been issued. Options to purchase 833,296 shares of common stock are outstanding as of October 2, 2011, 338,348 of which are vested. Additionally, 297,700 restricted stock units are outstanding, of which 194,700 remain subject to performance criteria in addition to time-vesting (See Note 13).

 

13. Share-Based Compensation

The Company has granted options, restricted stock and restricted stock units subject to vesting requirements under its 2006 Equity Incentive Plan. Vesting of most grants is over two to five years. The restricted stock units are 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 of
Options
Outstanding
    Weighted
Average Exercise
Price
 

Balance at December 28, 2008

     1,708,842      $ 17.17   

Granted

     91,158        12.12   

Forfeited or expired

     (56,978     19.19   
  

 

 

   

 

 

 

Balance at January 3, 2010

     1,743,022        16.84   

Granted

     390,750        11.03   

Forfeited or expired

     (1,335,567     17.96   
  

 

 

   

 

 

 

Balance at January 2, 2011

     798,205        12.11   

Granted

     73,500        15.20   

Forfeited or expired

     (26,909     15.61   

Exercised

     (11,500     13.41   
  

 

 

   

 

 

 

Balance at October 2, 2011

     833,296        12.25   
  

 

 

   

 

 

 

Exercisable at October 2, 2011

     338,348      $ 12.49   
  

 

 

   

 

 

 
     Restricted Stock  
     Number of
Shares
    Grant-Date
Average

Fair Value
Per Share
 

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

     (65,536     13.86   

Forfeited

     (18,978     10.60   
  

 

 

   

 

 

 

Nonvested at January 2, 2011

     297,919        11.48   

Granted

     85,163        13.73   

Vested

     (108,187     11.83   

Forfeited

     (9,922     9.36   
  

 

 

   

 

 

 

Nonvested at October 2, 2011

     264,973      $ 12.14   
  

 

 

   

 

 

 

 

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Table of Contents
     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

     (10,000     8.75   
  

 

 

   

 

 

 

Nonvested at January 2, 2011

     111,000        8.75   

Granted

     207,700        13.64   

Vested

     —          —     

Forfeited

     (21,000     11.70   
  

 

 

   

 

 

 

Nonvested at October 2, 2011

     297,700        11.95   
  

 

 

   

 

 

 

Remain subject to performance criteria

     194,700      $ 13.65   
  

 

 

   

 

 

 

During the third quarter of 2011, we granted 10,500 options to purchase stock at an exercise price equal to the closing price of the related common stock on the date the options were granted. These options had an aggregate fair value of $0.1 million, which will be amortized to expense over the option’s requisite service periods. During the third quarter of 2011, we granted 999 shares of restricted stock with an aggregate fair value of $20,000, which will be amortized to expense over the requisite service period. In addition, we granted 1,700 restricted stock units with an aggregate fair value of $34,000 during the third quarter of 2011, which will be amortized to expense over the requisite service period. These restricted stock units are subject to performance criteria based on 2011 results, in addition to time vesting.

We recognized non-cash stock compensation expense of $0.1 million and $1.0 million during the three months ended October 3, 2010 and October 2, 2011, respectively, and $1.8 million and $3.0 million during the nine months ended October 3, 2010 and October 2, 2011, respectively, which is included in general and administrative expense.

 

14. Other Comprehensive Income (Loss)

Accumulated other comprehensive loss is comprised of the following:

 

     Year Ended     Nine Months
Ended
 
     January 2,
2011
    October 2,
2011
 
     (in thousands)  

Balance at the beginning of the period

   $ (358   $ —     

Amount reclassified to income, net of tax of $489 as of January 2, 2011

     (908     —     

Net change in fair value of interest rate swaps, net of tax of $650 as of January 2, 2011

     1,266     
  

 

 

   

 

 

 

Balance at end of period

   $ —        $ —     
  

 

 

   

 

 

 

There are no differences in net income and comprehensive income for the periods presented.

 

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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.

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 Three Months Ended October 2, 2011

(dollars and gallons in thousands)

 

     Retail
Segment
     Wholesale
Segment
     Intercompany
Eliminations
    All Other     Totals  

Revenue:

  

Merchandise

   $ 233,464       $ —         $ —        $ —        $ 233,464   

Fuel

     711,203         987,738         (590,537     —          1,108,404   

Other

     8,111         6,361         (3,409     583        11,646   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total revenue

     952,778         994,099         (593,946     583        1,353,514   

Gross profit:

            

Merchandise

     78,391         —           —          —          78,391   

Fuel

     55,306         8,410         —          —          63,716   

Other

     8,111         3,129         (275     343        11,308   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total gross profit

     141,808         11,539         (275     343        153,415   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Selling, general and administrative

     95,802         4,484         (275     3,086        103,097   

Depreciation, amortization and accretion

     10,678         1,480         —          262        12,420   

Other operating expenses (income)

     220         70         —          22        312   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Operating income (loss)

   $ 35,108       $ 5,505       $ —        $ (3,027   $ 37,586   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Gallons

     199,650         330,903         (200,953     —          329,600   

Gross capital expenditures

   $ 24,940       $ 2,428       $ —        $ —        $ 27,368   

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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Segment Financial Data for the Nine Months Ended October 2, 2011

(dollars and gallons in thousands)

 

     Retail
Segment
     Wholesale
Segment
     Intercompany
Eliminations
    All
Other
    Totals  

Revenue:

            

Merchandise

   $ 662,922       $ —         $ —        $ —        $ 662,922   

Fuel

     2,054,316         2,844,837         (1,699,206     —          3,199,947   

Other

     25,539         18,277         (9,014     1,364        36,166   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total revenue

     2,742,777         2,863,114         (1,708,220     1,364        3,899,035   

Gross profit:

       

Merchandise

     224,496         —           —          —          224,496   

Fuel

     145,338         23,640         —          —          168,978   

Other

     25,539         8,926         (825     950        34,590   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total gross profit

     395,373         32,566         (825     950        428,064   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Selling, general and administrative

     273,989         13,480         (825     9,047        295,691   

Depreciation, amortization and accretion

     29,835         4,070         —          902        34,807   

Other operating expenses (income)

     1,430         222         —          (31     1,621   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Operating income (loss)

   $ 90,119       $ 14,794       $ —        $ (8,968   $ 95,945   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Gallons

     585,490         964,641         (585,614     —          964,517   

Gross capital expenditures

   $ 89,927       $ 5,726       $ —        $ —        $ 95,653   

 

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, unvested stock and unvested stock units are excluded from the diluted EPS computation.

Per share 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, unvested stock and unvested stock units 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, unvested restricted stock and unvested restricted stock units granted under the 2006 Equity Incentive Plan (See Note 13).

 

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

 

     Three Months Ended      Nine Months Ended  
     October 3,
2010
     October 2,
2011
     October 3,
2010 (a)
     October 2,
2011
 
     (dollars in thousands, except per share data)  

Net income attributable to Susser Holdings Corporation

   $ 8,952       $ 18,516       $ 2,051       $ 42,158   

Denominator for basic earnings per share - weighted average number of common shares outstanding during the period

     17,022,362         16,943,642         17,010,840         17,040,251   

Incremental common shares attributable to outstanding dilutive options and restricted shares/units

     256,536         519,642         136,671         399,439   
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator for diluted earnings per common share

     17,278,898         17,463,284         17,147,511         17,439,690   

Net income per share attributable to Susser Holdings Corporation:

           

Per common share – basic

   $ 0.53       $ 1.09       $ 0.12       $ 2.47   
  

 

 

    

 

 

    

 

 

    

 

 

 

Per common share – diluted

   $ 0.52       $ 1.06       $ 0.12       $ 2.42   
  

 

 

    

 

 

    

 

 

    

 

 

 

Options and non-vested restricted shares/units not included in diluted net income attributable to Susser Holdings Corporation common shareholders because the effect would be anti-dilutive

     177,064         79,370         1,270,637         141,326   

 

(a) 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 EPS of $1.04 per share for the nine months ended October 3, 2010.

 

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 2, 2011. Our fiscal year contains either 52 or 53 weeks and ends on the Sunday closest to December 31. All references to the third quarter and first nine months of 2010 and 2011 refer to the 13-week and 39-week periods ended October 3, 2010 and October 2, 2011, 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 (b) 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

 

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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;

 

   

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

 

   

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

 

   

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

 

   

Seasonal trends in the industries in which we operate;

 

   

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 and employment laws and health benefits;

 

   

Dangers inherent in storing and transporting motor fuel;

 

   

Pending or future consumer or other litigation;

 

   

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

 

   

Dependence on two principal suppliers for merchandise;

 

   

Dependence on two principal suppliers for 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 2, 2011, 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 are 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.

 

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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 2, 2011, our retail segment operated 535 convenience stores in Texas, New Mexico and Oklahoma offering merchandise, food service, motor fuel and other services.

For the three months ended October 2, 2011, we sold 329.6 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 food service and merchandising offerings distinguish us from our competition, providing the opportunity for increased traffic in our stores.

We opened five new retail stores during the third quarter and closed two, for a total of 535 retail stores operated at the end of the quarter. Two additional stores have been opened to date in the fourth quarter, bringing the total new stores added year to date to 15. We have five retail stores currently under construction, of which four to five are expected to open during 2011. We expect to start construction on another five stores prior to year end. We added two dealer sites and discontinued one during the third quarter, for a total of 440 dealer sites as of the end of the quarter in our wholesale segment. On October 3, 2011, we completed the acquisition of 121 branded wholesale fuel supply contracts and 24 commercial accounts, bringing our contracted branded dealer count to 561.

Our total revenues, net income attributable to Susser Holdings Corporation and Adjusted EBITDA were $1,353.5 million, $18.5 million and $51.4 million, respectively, for third quarter 2011, compared to $966.4 million, $9.0 million and $37.2 million, respectively, for third quarter 2010. Our first nine months of 2011 total revenues, net income attributable to Susser Holdings Corporation and Adjusted EBITDA were $3,899.0 million, $42.2 million and $135.4 million, respectively, compared to $2,923.1 million, $2.1 million and $95.9 million, respectively, for the first nine months of 2010. 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 typically experience lower fuel margins in periods when the cost of fuel increases gradually, and higher fuel margins in periods when the cost of fuel declines or is more volatile. Crude oil costs during the third quarter 2011 averaged $89 per barrel, an increase of 17% over the third quarter of 2010 but a 12% decrease compared to the second quarter of 2011. During the third quarter the cost of crude oil declined by almost 17% from the beginning of the quarter to the end of the quarter, partly responsible for higher than average fuel margins. Our retail fuel margin for the third quarter and first nine months of 2011 averaged 27.7 and 24.8 cents per gallon, respectively, compared to 22.8 and 19.6 cents per gallon for the third quarter and first nine months of 2010. We report retail fuel margins before credit card fees, but higher fuel prices result in higher credit card costs. Historically, we tend to experience higher fuel margins during periods of high prices. After deducting credit card fees, our retail fuel margin for the third quarter of 2011 was 21.9 cents per gallon compared to 18.5 cents a year ago, and 19.2 cents per gallon compared to 15.3 cents per gallon for the first nine months of 2011 and 2010, respectively. Fuel gross profit represented 39.5% of our consolidated gross profit for the first nine months of 2011. For our retail division, fuel represented 36.8% of retail gross profit for the first nine months of 2011.

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. We have reported positive comparable merchandise results in 19 of the last 20 quarters, and expect 2011 to produce our 23rd consecutive annual increase in same-store merchandise sales. Our strongest markets are benefiting from increased oil and gas drilling, with rig counts approximately 25% higher than a year ago, which directly affects approximately 20% of our retail stores. We are also seeing an increase in diesel volume sold, which we believe is primarily attributable to increased freight driven by manufacturing, agriculture and oil and gas activity. Gasoline volume is softer than the strong trends we are seeing in diesel. New home construction remains soft across many of our core markets but is slightly better in 2011 than in 2010.

 

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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. We have had no borrowings on our $120 million revolving credit facility since June 2010, and at the end of the third quarter had $101.3 million of unused availability, in addition to $77.5 million of cash on the balance sheet. During the third quarter we received gross proceeds of $2.8 million from one sale/leaseback transaction on a new store. In May 2011, our board of directors authorized a share repurchase program for up to $15 million. During the third quarter we spent $4.4 million to repurchase 229,102 common shares at an average stock price of $19.12 per share, with repurchases through October 2, 2011 of $5.8 million for 322,888 shares at an average stock price of $18.01 per share.

 

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Table of Contents

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  
      October 3,
2010
    October 2,
2011
    October 3,
2010
    October 2,
2011
 
    

(dollars in thousands, except motor fuel

pricing and gross profit per gallon)

 

Revenue:

        

Merchandise sales

   $ 207,018      $ 233,464      $ 606,332      $ 662,922   

Motor fuel—retail

     489,130        711,203        1,479,395        2,054,316   

Motor fuel—wholesale

     260,066        397,201        805,785        1,145,631   

Other

     10,203        11,646        31,569        36,166   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

   $ 966,417      $ 1,353,514      $ 2,923,081      $ 3,899,035   

Gross profit:

        

Merchandise

   $ 70,050      $ 78,391      $ 203,106      $ 224,496   

Motor fuel—retail

     42,133        55,306        108,287        145,338   

Motor fuel—wholesale

     7,248        8,410        19,775        23,640   

Other

     9,946        11,308        29,732        34,590   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total gross profit

   $ 129,377      $ 153,415      $ 360,900      $ 428,064   

Adjusted EBITDA (b):

        

Retail

   $ 32,812      $ 46,006      $ 85,125      $ 121,384   

Wholesale

     6,202        7,055        15,832        19,086   

Other

     (1,778     (1,702     (5,093     (5,086
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Adjusted EBITDA

   $ 37,236      $ 51,359      $ 95,864      $ 135,384   

Retail merchandise margin

     33.8     33.6     33.5     33.9

Merchandise same-store sales growth (a)

     3.4     7.4     3.0     6.3

Average per retail store per week:

        

Merchandise sales

   $ 30.5      $ 33.7      $ 29.7      $ 32.1   

Motor fuel gallons

     27.5        29.0        27.5        28.6   

Motor fuel gallons sold:

        

Retail

     185,073        199,650        553,333        585,490   

Wholesale

     122,115        129,950        370,957        379,027   

Average retail price of motor fuel

   $ 2.64      $ 3.56      $ 2.67      $ 3.51   

Motor fuel gross profit cents per gallon:

        

Retail

     22.8 ¢      27.7 ¢      19.6 ¢      24.8 ¢ 

Wholesale

     5.9 ¢      6.5 ¢      5.3 ¢      6.2 ¢ 

Retail credit card cents per gallon

     4.3 ¢      5.8 ¢      4.3 ¢      5.6 ¢ 

 

(a) We include a store in the same store sales base in its thirteenth full month of our operation.
(b) We define EBITDA as net income (loss) 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 (loss) 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 debt agreements and indentures.

We believe EBITDA and Adjusted EBITDA are useful to investors in evaluating our operating performance because:

 

   

they are used as performance and liquidity measures under our existing revolving credit facility and the indenture governing our 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;

 

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securities analysts and other interested parties use such calculations as a measure of financial performance and debt service capabilities;

 

   

they facilitate management’s ability to measure the operating performance of our business on a consistent basis by excluding the impact of items not directly resulting from our retail convenience stores and wholesale motor fuel distribution operations;

 

   

they are used by our management for internal planning purposes, including aspects of our consolidated operating budget, capital expenditures, as well as for segment and individual site operating targets; and

 

   

they are used by our Board and management for determining certain management compensation targets and thresholds.

EBITDA and Adjusted EBITDA are not recognized terms under GAAP and do not purport to be alternatives to net income (loss) 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 (loss) attributable to Susser Holdings Corporation to EBITDA and Adjusted EBITDA:

 

     Three Months Ended      Nine Months Ended  
     October 3,
2010
     October 2,
2011
     October 3,
2010
     October 2,
2011
 
     (in thousands)  

Net income attributable to Susser Holdings Corporation

   $ 8,952       $ 18,516       $ 2,051       $ 42,158   

Depreciation, amortization and accretion

     10,514         12,420         33,087         34,807   

Interest expense, net

     9,985         10,332         53,945         30,391   

Income tax expense

     7,563         8,629         4,021         23,171   
  

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA

     37,014         49,897         93,104         130,527   

Non-cash stock-based compensation

     140         1,043         1,771         3,015   

Loss on disposal of assets and impairment charge

     22         312         864         1,621   

Other miscellaneous expense

     60         107         125         221   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 37,236       $ 51,359       $ 95,864       $ 135,384   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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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  
     October 3,
2010
    October 2,
2011
 
     (in thousands)  

Net cash provided by operating activities

   $ 90,085      $ 101,870   

Changes in operating assets and liabilities

     (24,671     (463

Amortization of deferred financing fees

     (2,495     (1,981

Loss on disposal of assets and impairment charge

     (864     (1,621

Non-cash stock-based compensation

     (1,771     (3,015

Noncontrolling interest

     (33     (4

Deferred income tax

     (3,633     (17,544

Amortization of debt premium/discount, net

     (31     (509

Early extinguishment of debt

     (21,449     —     

Excess tax benefits from stock-based compensation

     —          232   

Interest expense, net 43,960

     53,945        30,391   

Income tax expense

     4,021        23,171   
  

 

 

   

 

 

 

EBITDA

     93,104        130,527   

Non-cash stock-based compensation

     1,771        3,015   

Loss on disposal of assets and impairment charge

     864        1,621   

Other miscellaneous

     125        221   
  

 

 

   

 

 

 

Adjusted EBITDA

   $ 95,864      $ 135,384   
  

 

 

   

 

 

 

Refer to Note 15 of the accompanying Notes to Consolidated Financial Statements for a description of our segment reporting. The following table presents 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  
     October 3,
2010
     October 2,
2011
     October 3,
2010
     October 2,
2011
     October 3,
2010
    October 2,
2011
    October 3,
2010
    October 2,
2011
 
     (in thousands)  

Operating income (loss)

   $ 55,466       $ 90,119       $ 12,359       $ 14,794       $ (7,650   $ (8,968   $ 60,175      $ 95,945   

Depreciation, amortization and accretion

     28,852         29,835         3,384         4,070         851        902        33,087        34,807   

Other miscellaneous

     —           —           —           —           (125     (221     (125     (221

Noncontrolling interest

     —           —           —           —           (33     (4     (33     (4
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     84,318         119,954         15,743         18,864         (6,957     (8,291     93,104        130,527   

Non-cash stock-based compensation

     —           —           —           —           1,771        3,015        1,771        3,015   

Loss (gain) on disposal of assets and impairment charge

     807         1,430         89         222         (32     (31     864        1,621   

Other operating expenses

     —           —           —           —           125        221        125        221   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 85,125       $ 121,384       $ 15,832       $ 19,086       $ (5,093   $ (5,086   $ 95,864      $ 135,384   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

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Third Quarter 2011 Compared to Third Quarter 2010

The following discussion of results for third quarter 2011 compared to third quarter 2010 compares the 13-week period of operations ended October 2, 2011 to the 13-week period of operations ended October 3, 2010. During 2010, we constructed or acquired 14 stores, seven of which opened after the third quarter of 2010 and therefore did not contribute to results in the third quarter of 2010. In addition, we have opened 13 stores during the first nine months of 2011, five of which were opened in the third quarter.

Total Revenue. Total revenue for third quarter 2011 was $1.4 billion, an increase of $387.1 million, or 40.1%, from 2010. The increase in total revenue was driven by a 45.4% increase in retail fuel revenue and a 52.7% increase in wholesale fuel revenue, and an increase in merchandise sales of 12.8%, as further discussed below.

Total Gross Profit. Total gross profit for third quarter 2011 was $153.4 million, an increase of $24.0 million, or 18.6% over 2010. The increase was primarily due to the increase in retail fuel gross profit of $13.2 million, the increase in wholesale fuel gross profit of $1.2 million and the increase in merchandise gross profit of $8.3 million, as further discussed below. Included in these increases is the impact of new stores constructed or acquired during 2011 and 2010 ($9.2 million of growth in gross profit).

Merchandise Sales and Gross Profit. Merchandise sales were $233.5 million for third quarter 2011, a $26.4 million, or 12.8% increase over 2010. Our performance was due to a 7.4% merchandise same-store sales increase, accounting for $15.0 million of the increase, with the balance due to new stores built or acquired in 2010 and 2011. Merchandise same-store sales include food service sales but do not include motor fuel sales. Key categories contributing to the merchandise same-store sales increase were packaged drinks, food service, beer, snacks and cigarettes. Food service includes sales from restaurant operations, hot dogs, fountain beverages, coffee and other foods prepared in the store.

Merchandise gross profit was $78.4 million for the third quarter of 2011, an 11.9% increase over 2010, which was driven by the increase in merchandise sales. Merchandise margin as a percent of sales declined slightly to 33.6% this quarter compared to 33.8% in the third quarter 2010 primarily attributable to commodity price increases in food and coffee, and increased promotional activities. Our reported merchandise margins do not include other income from services such as ATM’s, lottery, prepaid phone cards and car washes.

Retail Motor Fuel Sales, Gallons and Gross Profit. Retail sales of motor fuel for third quarter 2011 were $711.2 million, an increase of $222.1 million, or 45.4% over 2010, primarily driven by a 34.8% increase in the average retail price of motor fuel and a 7.9% increase in retail gallons sold. We sold an average of 29,000 gallons per retail store per week, 5.6% more than last year. Retail motor fuel gross profit increased by $13.2 million or 31.3% over 2010 due to an increase in the gross profit per gallon and the increase in gallons sold. The average retail fuel margin increased from 22.8 cents per gallon to 27.7 cents per gallon for 2010 and 2011, respectively. This increase in fuel margin increased retail fuel gross profit by $9.9 million. After deducting credit card fees, the net margin increased from 18.5 cents per gallon to 21.9 cents per gallon from third quarter 2010 to third quarter 2011.

Wholesale Motor Fuel Sales, Gallons and Gross Profit. Wholesale motor fuel revenues to third parties for the third quarter of 2011 were $397.2 million, a 52.7% increase over 2010. The increase was primarily driven by a 43.5% increase in the wholesale selling price per gallon and a 6.4% increase in gallons sold. Wholesale motor fuel gross profit of $8.4 million increased $1.2 million or 16.0% from 2010, due to a 9.0% increase in the gross profit per gallon from 5.9 to 6.5 cents per gallon (responsible for a $0.7 million increase) and the additional gallons sold.

Other Revenue and Gross Profit. Other revenue of $11.6 million for third quarter 2011 increased by $1.4 million or 14.1% from 2010, with a 13.7% increase in associated gross profit, primarily attributable to growth in fuel transportation to third parties, ATM fees and carwash income.

 

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Personnel Expense. For the third quarter of 2011, personnel expense increased $1.9 million or 4.8% over 2010. Of the increase in personnel expense, $2.9 million was attributable to the new stores acquired and constructed during 2010 and 2011. While we recorded additional bonus and 401(k) match during the quarter to reflect above plan performance, the total of these items was $0.8 million less than in 2010 due to the timing of the accrual during 2010.

General and Administrative Expenses. For third quarter 2011, general and administrative expenses increased by $2.3 million, or 25.7%, from 2010. G&A expenses include non-cash stock-based compensation expenses which were $1.0 million for the quarter, compared to $0.1 million for the third quarter of 2010, respectively. The remaining $1.4 million increase was primarily due to additional personnel and benefit costs.

Other Operating Expenses. Other operating expenses increased by $6.1 million or 18.7% over 2010. The increase was primarily due to an increase in credit card expense of $3.7 million, which is directly related to the increased price of fuel and an increase in utilities expense of $1.7 million. Operating expenses related to credit card fees, utilities and maintenance for new stores accounted for $1.7 million of increased costs.

Rent Expense. Rent expense for third quarter 2011 of $11.5 million was $0.5 million or 4.4% higher than 2010 due primarily to rent expense on additional leased stores.

Loss on disposal of assets and impairment charge. We recognized a net loss on disposal of $0.3 million in the third quarter 2011 primarily related to asset retirements.

Depreciation, Amortization and Accretion. Depreciation, amortization and accretion expense for third quarter 2011 of $12.4 million was up $1.9 million, or 18.1%, from 2010 due to the additional stores and other assets added.

Income from Operations. Income from operations for third quarter 2011 was $37.6 million, compared to $26.6 million for 2010. The increase is primarily attributed to higher retail fuel gross profit of $13.2 million, higher wholesale fuel gross profit of $1.2 million and increased merchandise gross profit of $8.3 million partly offset by an increase in operating expenses as described above.

Interest Expense, Net. Net interest expense for third quarter 2011 was $10.3 million, compared to $10.0 million for 2010. The increase is primarily attributable to additional mortgage debt.

Income Tax. The income tax expense accrued for third quarter 2011 was $8.6 million, which consisted of $0.6 million of expense attributable to the Texas margin tax and $8.0 million of income tax expense related to federal and state 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. See Note 11 of the accompanying Notes to Consolidated Financial Statements for further discussion of our income tax provision.

Net income attributable to Susser Holdings Corporation. We recorded net income attributable to Susser Holdings Corporation for the third quarter 2011 of $18.5 million, compared to net income attributable to Susser Holdings Corporation of $9.0 million for 2010. The increase is primarily due to the same factors impacting operating income, as described above.

Adjusted EBITDA. Adjusted EBITDA for third quarter 2011 was $51.4 million, an increase of $14.1 million, or 37.9% compared to 2010. Retail segment Adjusted EBITDA of $46.0 million increased by $13.2 million, or 40.2% compared to 2010, primarily due to higher fuel and merchandise gross profit slightly offset by increased credit card expense. Wholesale segment Adjusted EBITDA of $7.1 million increased by $0.9 million, or 13.8% from 2010, primarily resulting from the higher fuel gross profit. Other segment Adjusted EBITDA reflects net expenses of $1.7 million for the quarter, compared to net expenses of $1.8 million for the same period in 2010.

 

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First Nine Months 2011 Compared to First Nine Months 2010

The following discussion of results for the first nine months 2011 compared to the first nine months 2010 compares the 39-week period of operations ended October 2, 2011 to the 39-week period of operations ended October 3, 2010. Our retail store count at October 2, 2011 was 535 compared to 525 at October 3, 2010.

Total Revenue. Total revenue for first nine months 2011 was $3.9 billion, an increase of $976.0 million or 33.4%, from 2010. The increase in total revenue was driven by a 38.9% increase in retail fuel revenue, a 42.2% increase in wholesale fuel revenue and an increase in merchandise sales of 9.3%, as further discussed below.

Total Gross Profit. Total gross profit for first nine months 2011 was $428.1 million, an increase of $67.2 million, or 18.6% over 2010. The increase was primarily due to the increase in retail fuel gross profit of $37.1 million, the increase in wholesale fuel gross profit of $3.9 million and the increase in merchandise gross profit of $21.4 million, as further discussed below. Included in these increases is the impact of new stores constructed or acquired during 2010 and 2011 ($20.5 million of growth in gross profit).

Merchandise Sales and Gross Profit. Merchandise sales were $662.9 million for first nine months 2011, a $56.6 million, or 9.3% increase over 2010. Our performance was due to a 6.3% merchandise same-store sales increase, accounting for $37.3 million of the increase, with the balance due to new stores built or acquired in 2010 and 2011. Merchandise same-store sales include food service sales but do not include motor fuel sales. Key categories contributing to the merchandise same-store sales increase were packaged drinks, food service, cigarettes and beer.

Merchandise gross profit was $224.5 million for the first nine months of 2011, a 10.5% increase over 2010, which was driven by the increase in merchandise sales and the increase in gross profit margin from 33.5% to 33.9%. Our reported merchandise margins do not include other income from services such as ATM’s, lottery, prepaid phone cards, movie rentals, and car washes.

Retail Motor Fuel Sales, Gallons and Gross Profit. Retail sales of motor fuel for 2011 were $2.1 billion, an increase of $574.9 million, or 38.9% over 2010, primarily driven by a 31.2% increase in the average retail price of motor fuel and a 5.8% increase in retail gallons sold. We sold an average of 28,600 gallons per retail store per week, 4.1% more than last year. Retail motor fuel gross profit increased by $37.1 million or 34.2% over 2010 due to an increase in the gross profit per gallon and an increase in gallons sold. The average retail fuel margin increased from 19.6 cents per gallon to 24.8 cents per gallon for 2010 and 2011, respectively. This increase in fuel margin increased retail fuel gross profit by $30.8 million. After deducting credit card fees, the net margin increased from 15.3 cents per gallon to 19.2 cents per gallon from first nine months 2010 to first nine months 2011.

Wholesale Motor Fuel Sales, Gallons and Gross Profit. Wholesale motor fuel revenues to third parties for the first nine months of 2011 were $1.1 billion, a 42.2% increase over 2010. The increase was driven by a 39.1% increase in the wholesale selling price per gallon, with gallons sold 8.1 million higher than last year. Wholesale motor fuel gross profit of $23.6 million increased $3.9 million or 19.5% from 2010, due to a 17.0% increase in the gross profit per gallon from 5.3 cents per gallon to 6.2 cents per gallon and the increased gallons sold.

Other Revenue and Gross Profit. Other revenue of $36.2 million for first nine months 2011 increased by $4.6 million or 14.6% from 2010, with a 16.3% increase in associated gross profit, primarily attributable to growth in fuel transportation to third parties, lottery income, ATM fees, carwash income, movie rental income and the sale of rights to operate dealer locations.

Personnel Expense. For the first nine months of 2011, personnel expense increased $7.9 million or 7.1% over 2010. Of the increase in personnel expense, $6.7 million was attributable to the new stores acquired and constructed during 2010 and 2011.

 

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General and Administrative Expenses. For first nine months 2011, general and administrative expenses increased by $4.9 million, or 17.8% from 2010, of which $1.3 million is attributable to increased bonus and 401(k) accrual related to strong growth in performance metrics. G&A expenses include non-cash stock-based compensation expenses which were $3.0 million and $1.8 million for the first nine months of 2011 and 2010, respectively. The balance of the increase over last year is primarily attributed to higher personnel costs.

Other Operating Expenses. Other operating expenses increased by $13.4 million or 14.1% over 2010. The increase was primarily due to an increase in credit card expense of $9.1 million from 2010 and an increase in utilities expense of $1.6 million. Credit card costs are directly related to the price of fuel. Operating expenses for new stores accounted for $3.8 million of increased costs.

Rent Expense. Rent expense for first nine months 2011 of $34.2 million was $2.6 million or 8.2% higher than 2010 due primarily to rent expense on additional leased stores.

Loss on disposal of assets and impairment charge. We recognized a net loss on disposal of $1.6 million in 2011 related to asset sales and retirements.

Depreciation, Amortization and Accretion. Depreciation, amortization and accretion expense for first nine months 2011 of $34.8 million increased $1.7 million or 5.2% from 2010 due to additional assets in service.

Income from Operations. Income from operations for first nine months 2011 was $95.9 million, compared to $60.2 million for 2010. 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 2011 was $30.3 million, compared to $53.9 million for first nine months 2010. The decrease was primarily due to $24.2 million non-recurring charges related to the refinancing completed in May 2010.

Income Tax. The income tax expense accrued for first nine months 2011 was $23.2 million, which consisted of $1.8 million of expense attributable to the Texas margin tax and $21.4 million of income tax benefit related to federal and state 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 $2.5 million of income tax expense related to federal and state income tax. See Note 11 of the accompanying Notes to Consolidated Financial Statements for further discussion of our income tax provision.

Net Income Attributable to Susser Holdings Corporation. We recorded net income attributable to Susser Holdings Corporation for first nine months 2011 of $42.2 million, compared to net income attributable to Susser Holdings Corporation of $2.1 million for 2010. The increase is primarily due to the same factors impacting operating income and the non-recurring interest charges related to the May 2010 financing, as described above. Excluding the non-recurring charges, we would have reported net income of $17.8 million for the first nine months of 2010.

Adjusted EBITDA. Adjusted EBITDA for first nine months 2011 was $135.4 million, an increase of $39.5 million, or 41.2% compared to 2010. Retail segment Adjusted EBITDA of $121.4 million increased by $36.3 million, or 42.6% compared to 2010, primarily due to higher gross profit slightly offset by increased credit card expense. Wholesale segment Adjusted EBITDA of $19.1 million increased by $3.2 million, or 20.6% from 2010, primarily resulting from the higher fuel gross profit. Other segment Adjusted EBITDA reflects net expenses of $5.1 million for first nine months of 2011 compared to net expenses of $5.1 million for the same period 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

 

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Table of Contents

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 second and third quarters.

Cash flows from operations were $101.9 million and $90.1 million for the first nine months of 2011 and 2010, 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 $77.5 million of cash and cash equivalents on hand at October 2, 2011 compared to $63.7 million at October 3, 2010, and $47.9 million at January 2, 2011, of which $1.2 million was restricted at January 2, 2011. We have no restricted cash as of October 2, 2011.

Capital Expenditures. Capital expenditures, before any sale/leasebacks and asset dispositions were $95.7 million and $54.1 million during the first nine months of 2011 and 2010, respectively. We opened 13 new large-format retail stores and closed four smaller retail stores through October 2, 2011. We have opened two additional retail stores to date in the fourth quarter and currently have another five stores under construction, four or five of which are expected to open before year end. We expect to start construction on another five sites prior to year-end.

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

 

     Three Months
Ended  October 2,
2011
    Nine Months
Ended October  2,
2011
 

Retail stores:

    

Number at beginning of period

     532        526   

New stores

     5        13   

Closed stores

     (2     (4
  

 

 

   

 

 

 

Number at end of period

     535        535   
  

 

 

   

 

 

 

Wholesale dealer locations:

    

Number at beginning of period

     439        431   

New locations

     2        15   

Closed locations

     (1     (6
  

 

 

   

 

 

 

Number at end of period

     440        440   
  

 

 

   

 

 

 

Subsequent to the end of the quarter, we completed the acquisition of 121 wholesale fuel supply contracts and 24 commercial accounts in the Dallas/Ft. Worth and East Texas markets. The transaction was funded with cash. Terms were not disclosed and the transaction value was not material.

During fiscal 2011, we plan to invest approximately $140 to $155 million ($125 to $140 million, net of anticipated lease financing and asset sales) in new retail stores, new dealer projects and acquisition of supply contracts, and maintenance and upgrade of our existing facilities. We plan to finance our capital spending plan with cash flows 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.

Cash Flows from Financing Activities. 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. On May 7, 2010, the Company, through its subsidiaries Susser Holdings, L.L.C. and Susser Finance Corporation, also issued $425 million 8.50% Senior Notes due 2016 (the “2016 Notes”). For more information regarding the terms of

 

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Table of Contents

the Credit Agreement, including the Revolver, and the 2016 Notes, please see Note 8 in the accompanying Notes to Consolidated Financial Statements. We entered into a $20 million mortgage loan with a regional bank in the second quarter, with a five-year term, 15-year amortization and variable interest based on prime rate. We completed one sale/leaseback transaction during the third quarter for $2.8 million.

During the second quarter of 2011, our board of directors authorized us to repurchase up to $15 million of our common stock. As of October 2, 2011, we had completed open-market purchases of 322,888 shares at weighted-average share price of $18.01, or a total value of $5.8 million.

At October 2, 2011, our outstanding debt was $455.0 million, excluding $4.0 million unamortized issuance discount. As of October 2, 2011, we had no outstanding borrowings under the revolving credit facility and $18.7 million in standby letters of credit. Our borrowing base in effect at October 2, 2011, allowed a maximum borrowing, including outstanding letters of credit, of $120.0 million. Our unused availability on the revolver at October 2, 2011 was $101.3 million. Our cash on our balance sheet was $77.5 million and total debt was $451.0 million, leaving debt net of cash of $373.5 million as of October 2, 2011.

Long Term Liquidity. We expect that our cash flows from operations, cash on hand, lease and mortgage 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. As a normal part of our business, depending on market conditions, we from time to time consider opportunities to repay, redeem or repurchase our existing indebtedness, and although we may refinance all or part of our indebtedness in the future, including our existing notes and our revolving credit and mortgage facility, there can be no assurances that we will do so. Changes in our operating plans, lower than anticipated sales, increased expenses, 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 2, 2011  
     Fee      Leased  

Operating sites:

     

Retail

     243         292   

Wholesale

     51         31   
  

 

 

    

 

 

 

Total

     294         323   

Office locations

     4         3   

Properties currently under construction

     5         2   

Properties held for future development

     29         0   

Income producing properties

     7         6   

Surplus properties

     42         1   

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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Table of Contents

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.

 

    2009     2010     2011  
    (dollars and gallons in thousand; except per share amounts)  
    1st
QTR
    2nd
QTR
    3rd
QTR
    4th
QTR(b)
    1st
QTR
    2nd
QTR
    3rd
QTR
    4th
QTR
    1st
QTR
    2nd
QTR
    3rd
QTR
 

Merchandise sales

  $ 181,919      $ 199,940      $ 201,190      $ 201,375      $ 191,038      $ 208,276      $ 207,018      $ 199,920      $ 203,017      $ 226,441      $ 233,464   

Motor fuel sales:

                     

Retail

    322,072        392,593        427,603        463,266        478,619        511,646        489,130        507,677        618,120        724,993        711,203   

Wholesale

    167,327        221,336        240,874        246,388        258,195        287,524        260,066        288,494        336,361        412,069        397,201   

Other income

    9,490        9,297        12,433        10,205        10,273        11,093        10,203        11,458        11,635        12,885        11,646   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    680,808        823,166        882,100        921,234        938,125        1,018,539        966,417        1,007,549        1,169,133        1,376,388        1,353,514   

Merchandise gross profit

    62,416        66,496        66,307        65,865        62,383        70,673        70,050        67,577        69,011        77,094        78,391   

Motor fuel gross profit:

                     

Retail

    21,204        26,988        34,613        22,216        20,291        45,863        42,133        27,324        29,313        60,719        55,306   

Wholesale

    4,251        5,030        6,388        4,538        5,028        7,499        7,248        6,243        6,207        9,023        8,410   

Other gross profit

    9,390        9,302        12,453        9,922        9,919        9,867        9,946        11,058        11,188        12,094        11,308   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total gross profit

    97,261        107,816        119,761        102,541        97,621        133,902        129,377        112,202        115,719        158,930        153,415   

Income from operations

    8,541        13,390        19,826        313        1,692        31,912        26,571        9,821        10,699        47,660        37,586   

Net income (loss)

attributable to

Susser Holdings Corporation

  $ (931   $ 2,165      $ 6,503      $ (5,669   $ (4,985   $ (1,916   $ 8,952      $ (1,265   $ (23   $ 23,665      $ 18,516   

Earnings (loss) per common share:

                     

Basic

  $ (0.05   $ 0.13      $ 0.38      $ (0.33   $ (0.29   $ (0.11   $ 0.53      $ (0.07   $ (0.00   $ 1.38      $ 1.09   

Diluted

  $ (0.05   $ 0.13      $ 0.38      $ (0.33   $ (0.29   $ (0.11   $ 0.52      $ (0.07   $ (0.00   $ 1.36      $ 1.06   

Merchandise margin, net

    34.3     33.3     33.0     32.7     32.7     33.9     33.8     33.8     34.0     34.0     33.6

Fuel gallons:

                     

Retail

    179,412        177,887        175,317        187,033        183,068        185,192        185,073        182,430        191,302        194,538        199,650   

Wholesale

    122,469        125,832        125,205        121,315        120,013        128,829        122,115        123,252        121,007        128,070        129,950   

Motor fuel margin:

                     

Retail (a)

    11.8 ¢      15.2 ¢      19.7 ¢      11.9 ¢      11.1 ¢      24.8 ¢      22.8 ¢      15.0 ¢      15.3 ¢      31.2 ¢      27.7 ¢ 

Wholesale

    3.5 ¢      4.0 ¢      5.1 ¢      3.7 ¢      4.2 ¢      5.8 ¢      5.9 ¢      5.1 ¢      5.1 ¢      7.0 ¢      6.5 ¢ 

 

(a) Before deducting credit card, fuel maintenance and other fuel related expenses.
(b) Includes 14 weeks of operations.

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 2, 2011. 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.

 

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As one of our critical accounting policies, goodwill is not being amortized, but is tested annually for impairment or more frequently if events and circumstances indicate that the asset might be impaired. There are no indicators of impairment as of October 2, 2011.

 

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 2, 2011. We had $28.9 million outstanding in other notes payable that is subject to variable interest rates. The annualized effect of a one percentage point change in floating interest rates on our variable rate debt obligations outstanding at October 2, 2011, would be to change interest expense by approximately $0.3 million.

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.

We also periodically purchase motor fuel in bulk and hold in inventory or transport it to West Texas or Houston 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.

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 Rule 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 2011 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 2, 2011, 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

The following table provides information about our purchases of our common stock pursuant a share repurchase program announced in June 2011.

ISSUER PURCHASES OF EQUITY SECURITIES

 

Period(1)

   Total
Number of
Shares
Purchased
(2)
     Average
Price Paid
per Share
     Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs(3)
     Approximate
Dollar Value of
Shares That May
Yet Be  Purchased
Under the Plans or
Programs
 

July 4 through

July 31, 2011

     6,758       $ 15.94         117,645       $ 13,185,543   

August 1 through

September 4, 2011

     112,743       $ 19.17         230,388       $ 11,024,297   

September 5 through

October 2, 2011

     161,754       $ 19.90         392,142       $ 7,805,065   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     281,255       $ 19.51         392,142       $ 7,805,065   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Periods reflect the Company’s fiscal months in the 2011 third fiscal quarter.
(2) Includes 69,254 shares purchased during the Company’s third fiscal quarter, but not settled until the fourth quarter.
(3) Represent shares repurchased in the open market pursuant to the program announced by the Company on June 2, 2011 authorizing the Company to repurchase up to $15,000,000 in its outstanding common stock through December 31, 2012.

 

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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 10, 2011    
  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

10.1    Branded Marketer Agreement between Susser Petroleum Company LLC and Chevron Products Company, effective September 1, 2011 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Susser Holdings Corporation filed October 28, 2011).
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.
101    Interactive Data Files.

 

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