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Article by DailyStocks_admin    (05-17-08 05:06 PM)

Susser Holdings Corp. CEO Sam L Susser bought 20000 shares on 5-12-2008 at $14.76

BUSINESS OVERVIEW

General

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 December 30, 2007, following our November 13, 2007 acquisition of Town & Country Food Stores, Inc., our retail segment operated 504 convenience stores in Texas, New Mexico and Oklahoma, offering merchandise, foodservice, motor fuel and other services. For the fiscal year ended December 30, 2007, we purchased 921.7 million gallons of branded and unbranded motor fuel from refiners for distribution to our retail convenience stores, contracted independent operators of convenience stores, unbranded convenience stores and commercial users. We believe our unique retail/wholesale business model, scale, and foodservice and merchandising offerings, combined with our highly productive new store model and selected acquisition opportunities, position us for ongoing growth in sales and profitability.

Our principal executive offices are located at 4433 Baldwin Boulevard, Corpus Christi, Texas 78408. Our telephone number is (361) 884-2463. Our internet address is www.susser.com . We make available through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission, or the SEC. The SEC maintains an internet site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

References in this annual report to “Susser,” “we,” “us,” and “our,” refer to Susser Holdings Corporation, our predecessors and our consolidated subsidiaries. References to “TCFS” refer to TCFS Holdings, Inc., which is the parent company of Town & Country Food Stores, Inc., or “Town & Country.” References to years are to our fiscal years, which end on the last Sunday closest to December 31. References to “2007” are to the 52 weeks ending December 30, 2007; references to “2006” are to the 52 weeks ending December 31, 2006 and references to “2005” are to the 52 weeks ending January 1, 2006.

History

The Susser family entered the motor fuel retailing and distribution business in the 1930s. Sam L. Susser, our President and Chief Executive Officer, joined us in 1988, when we operated five stores and had revenues of $8.4 million. We have demonstrated a strong track record of internal growth and ability to successfully integrate acquisitions in both the retail convenience store and wholesale fuel distribution segments.

On December 21, 2005, Stripes Acquisition LLC, an affiliate of Wellspring Capital Partners III, L.P, or “Wellspring,” merged with and into Susser Holdings, L.L.C., with Susser Holdings, L.L.C. remaining as the surviving entity, and Wellspring becoming a significant stockholder along with Sam L. Susser and members of our senior management. On October 24, 2006, we completed an initial public offering, or “IPO” of our common stock, broadening our ownership base with new public stockholders. Concurrent with our initial public offering, we became the holding company of Stripes Holdings LLC and its subsidiaries.

On November 13, 2007, we acquired TCFS, which included 168 convenience stores in West Texas and Eastern New Mexico, in a transaction valued at approximately $356 million. We refer to the acquisition of TCFS and the related financing transactions as the “TCFS Acquisition.”

Retail Operations

As of December 30, 2007, our retail segment operated 504 convenience stores in Texas, New Mexico and Oklahoma, offering merchandise, foodservice, motor fuel and other services. For the eleven and a half years ended November 2006 we were a licensee of TMC Franchise Corporation, a subsidiary of Alimentation Couche-Tard, during which our retail stores operated under the Circle K banner. We began rebranding our stores to our proprietary Stripes banner during the second quarter of 2006 and completed our rebranding during the first quarter of 2007. The Town & Country retail stores acquired operate under the Town & Country and Village Market brands. As of December 30, 2007, we had 337 stores operating under the Stripes brand, 160 stores under the Town & Country brand and 7 stores under the Village Market brand. Our business experiences substantial seasonality due to the geographic area our stores are concentrated in, as well as customer activity behaviors during different seasons. In general, sales and operating income are highest in the second and third quarters during the summer activity months, and lowest during the winter months.

We stock 2,300 to 3,000 merchandise units on average with each store offering a customized merchandise mix based on local customer demand and preferences. To further differentiate our merchandise offering, we have developed several proprietary offerings unique to our stores: Laredo Taco Company and Country Cookin’ restaurants, Café de la Casa custom blended coffee, Slush Monkey frozen carbonated beverages, Quake energy drink and our Royal brand cigarettes. Each of these proprietary offerings, along with our prominent fountain drink offering, generates higher gross margins than our non-proprietary merchandise average, and we emphasize these offerings in our marketing campaigns. Our stores also offer candy, packaged foods, magazines and newspapers, health and beauty aids and a variety of other non-food items. We own and operate ATM, pay telephone and proprietary money order systems in most of our stores and also provide other services such as lottery, prepaid telephone cards and wireless services, and car washes. In addition, we own a 50% interest in Cash & Go, Ltd and lease to them 38 kiosks, consisting of approximately 100 square feet per unit within our stores, for check cashing and short-term lending products. Seven of the stores acquired from Town & Country operate under the Village Market banner, and supply an extended range of grocery products to small rural communities.

Laredo Taco Company is our original in-house, proprietary restaurant operation featuring breakfast tacos, lunch tacos, fried and rotisserie chicken and other hot food offerings targeted to the local populations in the markets we serve. Laredo Taco Company is in 169 of our stores and features in-store kitchens allowing us to make fresh food on the premises daily. Country Cookin’ is a legacy proprietary restaurant operation of Town & Country that features breakfast sandwiches and burritos for breakfast and fried chicken, finger foods and freshly grilled hamburgers for lunch and dinner in 102 locations. These offerings generate higher margins than most other products and drive the sale of high margin complementary items, such as hot and cold beverages and snacks. We are continuing to drive same store restaurant sales growth and transaction size by broadening our menus and extending hours of operation.

We purchase more than 40% of our merchandise, including most tobacco and grocery items, from McLane Company, Inc., or McLane, a wholly-owned subsidiary of Berkshire Hathaway Inc. McLane has been our primary supplier since 1992 and currently delivers products to substantially all of our retail stores. We entered into a new three-year supply agreement with McLane in December 2007. We purchase products at McLane’s cost, reduced by any promotional allowances and volume rebates offered by manufacturers and McLane, and pay McLane an agreed upon delivery fee by region, subject to fuel cost-related surcharges or credits. We also purchase a variety of merchandise, including soda, beer, bread, dairy products, ice cream and snack foods, directly from a number of vendors and their wholesalers. All merchandise is delivered directly to our stores by McLane or other vendors. We do not maintain additional product inventories other than what is in our stores. We do not carry any significant customer receivables in the retail segment.

Motor Fuel Operations . We offer Valero, Shamrock, Chevron, Shell, Texaco, Phillips 66 and Exxon branded motor fuel and unbranded motor fuel at 496 of our convenience stores, approximately 63% of which were branded under the Valero name as of December 30, 2007. We entered into a new fuel supply agreement with Valero Marketing and Supply Company in July 2006 and completed the rebranding of most of our retail fuel locations, which had previously been branded CITGO, during first quarter 2007. We purchase all of our motor fuel from our wholesale segment at a price reflecting product cost plus our transportation cost. Most fuel is purchased by the load as needed to replenish supply at the stores, although some fuel is purchased in pipeline batches.

Our retail fuel margins per gallon tend to be lower than industry averages due to the saturation of hypermarkets in the markets we serve. From 1996 to 2000, our motor fuel gross profit declined by approximately four cents per gallon compared to the preceding five-year period, reflecting this competitive environment. Since 1999, we have invested in more efficient motor fueling facilities designed to handle higher volumes to offset some of the margin pressure while improving our higher margin in-store merchandise offerings and focusing on the convenience of our format. We believe that these actions, along with our combined retail and wholesale purchasing leverage, have positioned us to effectively compete with these hypermarkets. As a result, our subsequent annual motor fuel cents per gallon has stabilized and slightly improved as we are able to benefit from our more favorable procurement costs and economies of scale.

Store Locations . As of December 30, 2007, we operated 504 stores, 457 of which were in Texas, 28 of which were in New Mexico, and 19 of which were in Oklahoma. All but 56 of our stores are open 24 hours a day, 365 days a year. All but eight stores sell motor fuel. We seek to provide our customers with a convenient, accessible and clean store environment. Approximately 99% of our convenience stores are freestanding facilities, which average 3,300 square feet. The 72 stores we have built since January 2000 average approximately 4,800 square feet and are built on large lots with much larger motor fueling and parking facilities. The seven Village Market grocery stores average approximately 12,500 square feet.

Stripes Rebranding. Our royalty expense for the rights to use the Circle K banner at our stores was $3.6 million for the fiscal year ended December 31, 2006. We elected not to renew the Circle K licensing agreement, and to rebrand all of our convenience stores to our proprietary Stripes brand. We completed the rebranding during the first quarter of 2007 for a one-time capital investment of approximately $8.6 million. To support our proprietary Stripes brand, we increased our annual marketing expense by approximately $0.8 million beginning in fiscal 2006. We did not experience any adverse impacts on our store operations or customer traffic and spending from our rebranding initiative. We believe rebranding to Stripes affords us more flexibility for future growth while enhancing our profitability. In addition, we are no longer limited by the geographic restrictions set forth in the Circle K license agreement which limited the markets we could operate under the Circle K brand. We plan to rebrand the Town & Country convenience stores to our Stripes brand, commencing in the second half of 2008. We expect to spend $9 to $14 million in the rebranding of the Town and Country stores to our Stripes brand, with $4 to $7 million expected to be spent in 2008. The rebranding effort is expected to continue into 2009. The final cost of rebranding will depend partly on our fuel branding decisions which are still pending.

Technology and Store Automation . All of our retail convenience stores use computerized management information systems, including point-of-sale scanning, that are designed to improve operating efficiencies, streamline back office functions, provide corporate management with timely access to financial and marketing data, reduce store level and corporate administrative expense and control merchandise shortage, or shrink. Our information systems platform is highly scalable, which allows new stores to be quickly integrated into our system-wide reporting.

Our management information systems obtain detailed store level sales and volume data on a daily basis and generate gross margin, payroll and store contribution data on a weekly basis. We utilize price scanning and electronic point-of-sale, or EPOS, technology in all of our retail convenience stores that is consolidated on a single platform, VeriFone Ruby/Sapphire System, supported by on-site computers that are networked to our central server and back office. We manage our motor fuel inventory through TelaPoint, which enables us to monitor and coordinate fuel inventory management with our motor fuel vendors. This product has allowed us to better control inventory levels.

All store level, back office and accounting functions, including our merchandise price book, scanning, motor fuel management, scheduling, payroll and trend reports, are supported by PDI software, a fully integrated management information and financial accounting system. This system provides us with significant flexibility to continually review and adjust our pricing, merchandising strategies and price book, automates the traditional store paperwork process and improves the speed and accuracy of category management, restaurant expenses and inventory control. Data collected by the PDI system is consolidated for financial reporting, data analysis and category management purposes by a Hyperion database. The Company leverages its information technology and finance systems to manage proprietary money order, payphone and ATM networks.

Our physical information technology equipment consists of a wide area network that spans Texas, New Mexico and Oklahoma, providing connectivity to our corporate and regional offices and most of our convenience stores. The majority of our convenience stores communicate through broadband technology, with the balance using dial-up technology.

Our network and systems are kept up to date by annual capital investments, replacing end of life hardware and updating software versions. We also invest capital in firewall, remote access security, and virus and spam protection to ensure a high level of network security against intrusion from external threats. We have business policies and processes around access controls, password requirements, change management and systems and data redundancy to enhance systems integrity.

Town & Country also uses the PDI software and VeriFone EPOS systems, which is partly integrated into our systems at the current time. We expect to complete the systems and communications integration by mid-2008. Town & Country also utilizes the KSS pricing system as a tool for managing retail fuel pricing.

Wholesale Operations

Wholesale Motor Fuel Distribution . We believe our business model of operating both retail convenience stores and wholesale motor fuel distribution provides us with significant advantages over our competitors. Unlike many of our convenience store competitors, we are able to take advantage of the combined motor fuel purchasing volumes to obtain attractive pricing and terms while reducing the variability in motor fuel margins. Our wholesale motor fuel segment purchases branded and unbranded motor fuel from refiners and distributes it to: (i) our retail convenience stores; (ii) 387 contracted independent operators of convenience stores, which we refer to as dealers; and (iii) commercial users, unbranded convenience stores and five unattended fueling facilities. We are a distributor of various brands of motor fuel, as well as unbranded motor fuel, which differentiates us from other wholesale distributors in our markets. We believe we are among the largest distributors of Valero and Chevron branded motor fuel in the United States, and we also distribute CITGO, Conoco, Exxon, Phillips 66, Shamrock, Shell and Texaco branded motor fuel. For the year ended December 30, 2007, we supplied 456.5 million gallons of motor fuel to our retail stores (including fuel purchased directly by Town & Country from the refiners) and 465.2 million gallons of motor fuel to other customers. We receive a fixed fee per gallon on approximately 79% of our third-party wholesale gallons sold, which reduces the overall variability of our financial results. We are in the process of evaluating and transferring Town & Country’s fuel supply agreements to our wholesale segment. The wholesale segment produced third-party revenues and gross profit of $1,039.6 million and $28.5 million, respectively, for fiscal 2007. The wholesale segment had total assets of $107.8 million as of December 30, 2007.

Arrangements with Dealers . We distribute motor fuel to dealers either under supply agreements or consignment arrangements. Under our supply agreements, we agree to supply a particular branded motor fuel or unbranded motor fuel to a location or group of locations and arrange for all transportation. We receive a per gallon fee equal to the rack cost plus transportation costs, taxes and a fixed margin. The initial term of most supply agreements is 10 years. These supply agreements require, among other things, dealers to maintain standards established by the applicable brand. Under consignment arrangements, we provide and control motor fuel inventory and price at the site and receive the actual retail selling price for each gallon sold less a commission paid to the dealer. Consignment margins per gallon are similar to our retail motor fuel margins, less the commissions paid to the dealers. Our wholesale segment maintains minimal inventories, consisting of consigned fuel inventory at 76 dealer locations as of December 30, 2007. We may provide credit terms to our wholesale customers, which are generally seven days.

In addition to motor fuel supply, we offer dealers the opportunity to participate in merchandise purchase and promotional programs we set up with vendors. We believe the vendor relationships we have established through our retail operations and our ability to develop these purchase and promotional programs provides us with an advantage over other distributors when recruiting new dealers into our network.

As an incentive to dealers, we may provide store equipment or motor fuel distribution equipment for use at designated sites. Generally, this equipment is provided to the dealer on the condition that the dealer continues to comply with the terms of its supply agreement with us. We typically own and depreciate these assets on our books.

Supplier Arrangements. We distribute branded motor fuel under the Chevron, CITGO, Conoco, Exxon, Phillips 66, Shamrock, Shell, Texaco and Valero brands to our retail convenience stores and to 387 independently operated sites within our wholesale network. Branded motor fuels are purchased from major oil companies under supply agreements. On July 28, 2006, we entered into a new supply agreement with Valero Marketing and Supply Company to supply motor fuel to all of our Stripes retail stores that were previously supplied by CITGO, new retail stores in certain geographic areas and selected wholesale locations. In connection with this new supply agreement, we rebranded all of our existing retail fuel islands that were supplied by CITGO to the Valero, Shamrock or Stripes brand. For fiscal 2007, Valero supplied approximately 52% and Chevron supplied approximately 25% of our motor fuel purchases. Our supply agreement with Valero expires in July 2018. We have been distributors for Chevron since 1996 and we have a contract with Chevron until March 2008, which we expect to be renewed on similar terms. We purchase the motor fuel at the supplier’s applicable price per terminal which typically changes on a daily basis. Each supply agreement generally has an initial term of three years. In addition, each supply agreement typically contains provisions relating to, among other things, payment terms, use of the supplier’s brand names, provisions relating to credit card processing, compliance with supplier’s requirements, insurance coverage and compliance with legal and environmental requirements. As is typical in the industry, suppliers generally can terminate the supply contract if we do not comply with any material condition of the contract, including if we were to fail to make payments when due, or if our company is involved in fraud, criminal misconduct, bankruptcy or insolvency. Each supply agreement has provisions that obligate the supplier, subject to certain limitations, to sell up to an agreed upon number of gallons. Any amount in excess is subject to availability. Certain suppliers offer volume rebates or incentive payments to drive volumes and provide an incentive for branding new locations. Certain suppliers require that all or a portion of any such incentive payments be repaid to the supplier in the event that the sites are rebranded within a stated number of years. Moreover, in some cases, supply agreements provide that motor fuel suppliers have the right of first refusal to acquire assets used by us to sell their branded motor fuel. We also purchase unbranded motor fuel for distribution either on a spot or a rack basis.

We generally arrange for a third-party transportation provider to take delivery of the motor fuel at the terminal and deliver it to the appropriate sites in our distribution network. Under these arrangements, we take legal title to the motor fuel we purchase when we receive the motor fuel at the rack. A large portion of our motor fuel is transported by one third-party transport company, pursuant to a contract that automatically renews for six month periods unless terminated by either party. In addition, we also acquired a fleet of 18 fuel transportation vehicles in connection with our acquisition of TCFS, which continue to deliver fuel to the majority of our Town & Country branded conveniences stores. Effective with the beginning of fiscal 2008, we transferred these assets to a new wholly-owned subsidiary in our wholesale division called GoPetro Transport LLC.

Selection and Recruitment of New Dealers . We constantly evaluate potential independent site operators based on their creditworthiness and the quality of their site and operation as determined by size and location of the site, monthly volumes of motor fuel sold, monthly merchandise sales, overall financial performance and previous operating experience. In addition to adding to our network through acquiring or recruiting existing independently operating sites from other distributors, we identify new sites to be operated by existing independent operators in our network or new operators we recruit to operate the site. We also occasionally convert our retail stores to dealer locations.

Technology . Technology is an important part of our wholesale operations. We utilize a proprietary web-based system that allows our wholesale customers to access their accounts at any time from a personal computer to obtain motor fuel prices, place motor fuel orders and review motor fuel invoices, credit card transactions and electronic funds transfer notifications. Substantially all of our dealers make payments to us by electronic funds transfer. We also use software licensed from Structured Management Systems, or SMS, for accounting, billing and motor fuel procurement processing. We extract data from SMS and upload the data into the Hyperion database for corporate financial consolidation.

Other Operations

We formed Applied Petroleum Technologies, Ltd., or APT, in June 1994. Headquartered in Corpus Christi, APT manages our environmental, maintenance and construction activities. In addition, APT sells and installs motor fuel pumps and tanks and also provides a broad range of environmental consulting services, such as hydrocarbon remediation and Phase I and II site assessments for our stores and for our outside customers. APT employs geologists, hydrogeologists and technicians licensed to oversee the installation and removal of underground storage tank systems. APT’s revenues and net income are not material to Susser, and are included in “all other” in our segment reporting disclosures included in our audited consolidated financial statements.

Competition

The retail convenience store industry is highly competitive and marked by ease of entry and constant change in the number and type of retailers offering products and services of the type we sell in our stores. Our retail segment competes with other convenience store chains, independently owned convenience stores, motor fuel stations, supermarkets, drugstores, discount stores, dollar stores, club stores and hypermarkets. Over the past ten years, several non-traditional retailers, such as supermarkets, club stores and hypermarkets, have impacted the convenience store industry, particularly in the geographic areas in which we operate, by entering the motor fuel retail business. These non-traditional motor fuel retailers have captured a significant share of the retail motor fuel market, and we expect their market share will continue to grow. In addition, some large retailers and supermarkets are adjusting their store layouts and product prices in an attempt to appeal to convenience store customers. Major competitive factors for our retail segment include, among others, location, ease of access, product and service selection, motor fuel brands, pricing, customer service, store appearance, cleanliness and safety.

Our wholesale segment competes with major oil companies that distribute their own products, as well as other independent motor fuel distributors. We may encounter more significant competition if major oil companies increase their own motor fuel distribution operations or if our wholesale customers choose to purchase their motor fuel supplies directly from the major oil companies. Major competitive factors for our wholesale segment include, among others, customer service, price, range of services offered and quality of service.

Trade Names, Service Marks and Trademarks

We have registered, acquired the registration of, applied for the registration of and claim ownership of a variety of trade names, service marks and trademarks for use in our business, including “Stripes,” “Laredo Taco Company” (proprietary foodservice), “Bun on the Run” (stuffed pastry introduced in 2003), “Texas Pride” (unbranded motor fuel), “Café de la Casa” (custom coffee blend) and “Slush Monkey” (proprietary frozen carbonated beverage). We are not aware of any facts which would negatively affect our continuing use of any of the above trade names, service marks or trademarks.

Government Regulation and Environmental Matters

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

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

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

We are required to make financial expenditures to comply with regulations governing underground storage tanks adopted by federal, state and local regulatory agencies. Pursuant to the Resource Conservation and Recovery Act of 1976, as amended, the Environmental Protection Agency, or EPA, has established a comprehensive regulatory program for the detection, prevention, investigation and cleanup of leaking underground storage tanks. Compliance with existing and future environmental laws regulating underground storage tank systems of the kind we use may require significant capital expenditures in the future. These expenditures may include upgrades, modifications, and the replacement of underground storage tanks and related piping to comply with current and future regulatory requirements designed to ensure the detection, prevention, investigation and remediation of leaks and spills. State or local agencies are often delegated the responsibility for implementing the federal program or developing and implementing equivalent state or local regulations. We have a comprehensive program in place for performing routine tank testing and other compliance activities which are intended to promptly detect and investigate any potential releases. We spent approximately $0.8 million on these compliance activities for the fiscal year ended December 30, 2007. In addition, the Federal Clean Air Act and similar state laws impose requirements on emissions to the air from motor fueling activities in certain areas of the country, including those that do not meet state or national ambient air quality standards. These laws may require the installation of vapor recovery systems to control emissions of volatile organic compounds to the air during the motor fueling process. We believe we are in compliance in all material respects with applicable environmental requirements, including those applicable to our underground storage tanks.

We are in the process of investigating and remediating contamination at a number of our sites as a result of recent or historic releases of petroleum products. At many sites, we are entitled to reimbursement from third parties for certain of these costs under third-party contractual indemnities, state trust funds and insurances policies, in each case, subject to specified deductibles, per incident, annual and aggregate caps and specific eligibility requirements. To the extent third parties (including insurers) fail to pay for remediation as we anticipate, and/or insurance is unavailable, and/or the state trust funds cease to exist or become insolvent, we will be obligated to pay these additional costs. We recorded expenses of $0.4 million during fiscal 2007 for remediation activities for which we do not expect to receive reimbursement.

We are required to comply with federal and state financial responsibility requirements to demonstrate that we have the ability to pay for cleanups or to compensate third parties for damages incurred as a result of a release of regulated materials from our underground storage tank systems. We seek to comply with these requirements by maintaining insurance which we purchase from private insurers and in certain circumstances, rely on applicable state trust funds, which are funded by underground storage tank registration fees and taxes on wholesale purchase of motor fuels. More specifically, in Texas, for 2007 and prior years we met our financial responsibility requirements by state trust fund coverage for claims asserted prior to December 1998 (claims reported after that date are ineligible for reimbursement) and met such requirements for claims asserted after that date through private insurance. In Oklahoma and New Mexico, we meet our financial responsibility requirements by state trust fund coverage for cleanup liability and meet the requirements for third-party liability through private insurance. The coverage afforded by each fund varies and is dependent upon the continued maintenance and solvency of each fund.

Environmental Reserves . As of December 30, 2007, Susser had environmental reserves of $2.6 million for estimated costs associated with investigating and remediating known releases of regulated materials, including overfills, spills and releases from underground storage tanks, at approximately 47 currently and formerly owned and operated sites. Approximately $1.5 million of the total environmental reserve is for the investigation and remediation of contamination at 21 of these sites, for which we estimate we will receive approximately $1.6 million in reimbursement from the Texas Petroleum Storage Tank Remediation fund. Reimbursement will depend upon the continued maintenance and solvency of the state fund through its scheduled expiration on August 31, 2011. The remaining reserve of $1.1 million represents our estimate of deductibles under insurance policies that we anticipate being required to pay with respect to 26 additional sites for which we expect to receive insurance coverage over the deductible amount, subject to per occurrence and aggregate caps contained in the policies. There are 27 additional sites that we own and/or operate with known contamination, which are being investigated and remediated by third parties (primarily former site owners) pursuant to contractual indemnification agreements imposing responsibility on the former owners for pre-existing contamination. We maintain no reserves for these sites. There can be no assurance that the third parties will be able or willing to pay all costs for these sites in which case we could incur additional costs. We have additional reserves of $3.7 million that represent our estimate for future asset retirement obligations for underground storage tanks.

There are currently 17 sites with known contamination owned or operated by Town & Country. We believe all remediation obligations with respect to these sites will be eligible for reimbursement under Texas or New Mexico remediation funds.

Sale of Alcoholic Beverages and Tobacco Products . In certain areas where our stores are located, state or local laws limit the hours of operation for the sale of alcoholic beverages, or prohibit the sale of alcoholic beverages, and restrict the sale of alcoholic beverages and cigarettes to persons older than a certain age. State and local regulatory agencies have the authority to approve, revoke, suspend or deny applications for and renewals of permits and licenses relating to the sale of alcoholic beverages, as well as to issue fines to stores for the improper sale of alcoholic beverages and cigarettes. Failure to comply with these laws may result in the loss of necessary licenses and the imposition of fines and penalties on us. Such a loss or imposition could have a material adverse effect on our business, liquidity and results of operations. In many states, retailers of alcoholic beverages have been held responsible for damages caused by intoxicated individuals who purchased alcoholic beverages from them. While the potential exposure for damage claims as a seller of alcoholic beverages and cigarettes is substantial, we have adopted procedures intended to minimize such exposure. In addition, we maintain general liability insurance that may mitigate the effect of any liability.

Safety . We are subject to comprehensive federal, state and local safety laws and regulations. These regulations address issues ranging from facility design, equipment specific requirements, training, hazardous materials, record retention, self-inspection, equipment maintenance and other worker safety issues, including workplace violence. These regulatory requirements are fulfilled through health, environmental and safety programs.

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

CEO BACKGROUND

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

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

Rocky B. Dewbre has served as our Executive Vice President and President/Chief Operating Officer-Wholesale since January 2005. Mr. Dewbre served as our Executive Vice President and Chief Operating Officer-Wholesale from 1999 to 2005, as Vice President from 1995 to 1999 and as Manager of Finance and Administration from 1992 to 1995. Before joining us in 1992, Mr. Dewbre was a corporate internal auditor with Atlantic Richfield Corporation, a petroleum/chemical company, from 1991 to 1992 and an auditor and consultant at Deloitte & Touche LLP from 1988 to 1991.

W. Alvin New has served as our Executive Vice President and President/Chief Executive Officer-Retail Operations since November 2007. Mr. New was previously with TCFS Holdings, Inc., the parent company of Town & Country Food Stores, Inc., since 1984 where he held various positions, the most recent being as President and Chief Executive Officer and a member of the Board of Directors from November 2002. Mr. New has announced his intention to resign, but will continue in his current role until approximately May 31, 2008.

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

William F. Dawson, Jr. has been a partner at Wellspring, a private equity firm, since 2001 and has served as a member of our board of directors since December 2005. Mr. Dawson previously chaired the middle-market buyout group at J.H. Whitney & Co., a private equity firm, and, from 1986 until 2000, was with Donaldson, Lufkin & Jenrette Securities Corporation, an investment bank, where he most recently served as Managing Director. Mr. Dawson serves on several private company boards controlled by Wellspring.

Bruce W. Krysiak has served as our director and Non-Executive Chairman since 2000. Mr. Krysiak has been Chairman of EDABB, Inc., a personal investment company, since 1999. Prior to 1999, Mr. Krysiak served as the President and Chief Operating Officer of Toys “R”Us from 1998 to 1999, of Dollar General Corporation from 1996 to 1997 and of Circle K Corporation from 1995 to 1996. Currently, Mr. Krysiak serves as the non-executive chairman of the board of directors of LA Dove, Inc., a hair care products manufacturer, and Quantum Health, an offeror of coordinated health care plans for self-insured employers. In addition, Mr. Krysiak serves as a member of the board of directors of several privately held entities. Mr. Krysiak also served on our board of directors in 1995 and 1996.

David P. Engel has served as a member of our board of directors since September 2007. Mr. Engel has been the principal of Corpus Christi-based Engel and Associates, LLC, since 1991 which provides business management consulting services to public and private companies in the areas of financial performance improvement, acquisitions and divestitures. Prior to joining Engel and Associates, LLC, Mr. Engel was president of Airgas Southwest, Inc. and was CEO, president and owner of Welders Equipment Company. Mr. Engel serves on the board of directors of several privately held companies. Mr. Engel also served on our board of directors from 1999 to 2005.

Armand S. Shapiro has served as our director since 1997 and also chairs the audit committee. Mr. Shapiro serves as a business consultant/mentor to chief executive officers of private companies to develop strategies to improve growth and profitability of the companies. He served from October 2001 through January 2006 on the board of directors of Bindview Development Corporation, then a publicly traded corporation that provided software for proactively managing information technology security compliance operations. Mr. Shapiro was the Chairman and Chief Executive Officer of Garden Ridge Corporation from 1990 until June 1999. During the 1980’s, Mr. Shapiro also served as President, a member of the executive management team, and a director of Computer Craft, Inc., then a publicly traded retailer of computer products. He was previously a partner and Chief Operating Officer of Modern Furniture Rentals, Inc., a family-owned and operated business. Mr. Shapiro is a graduate of Renesselaer Polytechnic Institute and has served as an officer in the United States Army.

Sam J. Susser has served as a member of our board of directors since 1988 and was our chairman from 1988-1992. Mr. Susser was also the Chairman and Chief Executive Officer of Plexus Financial Services, a holding company based in Dallas, Texas, from 1987 through 1991. Mr. Susser’s experience includes various positions with The Southland Corporation (7-Eleven, Inc.), Plexus Financial Services and CITGO Petroleum Corporation, where he served as President. Mr. Susser is a director and past chairman of the Audit Committee of Alberto-Culver Company, a manufacturer and marketer of personal care and household brands. Mr. Susser previously has served on the board of directors of Garden Ridge Pottery and Computer Craft, Inc. Sam J. Susser is the father of Sam L. Susser, our President and Chief Executive Officer and a director.

Jerry E. Thompson has served as a member of our board of directors since May 2006. Mr. Thompson is President and Chief Executive Officer of the general partner of TEPPCO Partners, L.P., a publicly traded master limited partnership operating in segments including refined petroleum products, liquified petroleum gases and petrochemical transportation and storage. Mr. Thompson joined TEPPCO in April 2006 after a 35-year career with CITGO Petroleum Corporation. At the time of his retirement from CITGO in March 2006, Mr. Thompson had served as Chief Operating Officer of CITGO since 2003 and had served as Senior Vice President since 1998. Mr. Thompson also serves on the board of Texas Eastern Products Pipeline Company, LLC.

Roger D. Smith, who was our Executive Vice President and Chief Operating Officer—Retail, resigned effective November 13, 2007. Ronald D. Coben, who was our Executive Vice President and Chief Marketing Officer, resigned effective February 1, 2008. W. Alvin New, our current Executive Vice President and President and Chief Executive Officer of Retail Operations, has announced his intention to resign, but will continue in his current role until approximately May 31, 2008.

COMPENSATION

Individual Performance and Contributions . Individual performance objectives are specific to each officer position and may relate to the following matters, among others:


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Leadership


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Customer/Frontline Employee Experience


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Financial Performance/Acumen


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Ethics/Integrity


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Driving Growth


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Planning, Execution and Problem Solving


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Strategic Vision/Direction


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Leadership Development/Succession Planning


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Internal Controls/Risk Management


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External Relations


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Board Relations and Operations

These subjective evaluative criteria are used to supplement objective financial performance metrics for purposes of assisting the compensation committee in considering increases in annual base salary above the level specified in an individual’s employment agreement and/or increases or decreases in an individual’s annual performance bonus above or below the level called for by reference to achievement of specific financial targets.

Comparison Analysis . In 2007, the compensation committee, with the assistance of Company personnel and in consultation with the Company’s financial advisors, began compiling a comparison study of compensation practices at other companies for purposes of guiding 2008 compensation decisions. Due to the Company’s unique retail convenience store, wholesale fuel distribution and restaurant business structure and its relative size, the Company has no pure peer companies against which to benchmark.

The compensation committee considered the mean, median and 25 th and 75 th percentile compensation levels by executive office, in total and by individual compensation component, across this comparison group, while giving proper deference to differences in size and profitability by comparing group distribution of enterprise value, trailing 12 month revenue, trailing 12 month EBITDA and number of employees. On a pro-forma basis for the acquisition of the parent company of Town & Country Food Stores in November of 2007, the Company’s size and financial results placed it above median but below mean levels of enterprise value, trailing 12 month EBITDA and employee count and significantly above both median and mean levels of trailing 12 month revenue. The Compensation Committee also evaluated the Company’s same store and total growth rates as well as other quantitative and qualitative factors in evaluating compensation. After considering this analysis of peer group compensation levels, the Compensation Committee determined that adjustments to named executive officer compensation reflected below were warranted both by external market conditions, as well as by the quantitative and qualitative performance criteria discussed in greater detail below.

Adjustments to Base Compensation and Target Bonus Levels. Each of our named executive officers is currently party to an employment agreement that sets his or her base annual salary and target bonus level, in either case, subject to annual review and discretionary increase by our compensation committee for reasons such as changes in job responsibility or market trends or to reward individual performance.

In 2007, the compensation committee approved increases to Ms. Sullivan’s and Mr. Dewbre’s base salary levels. Ms. Sullivan’s base salary’s was increased by 3.5%, reflecting acceptable financial performance, achievement of certain growth objectives and successful execution of the initial public offering. Mr. Dewbre’s base salary was increased by $36,595 or approximately 19%, in view of strong financial performance in 2005 and 2006. No adjustments were made to the salaries of the other named executive officers.

In 2008, the Company adjusted the base compensation for Ms. Sullivan from $170,775 to $220,775 for outstanding performance as Chief Financial Officer as it relates to accurate, timely financial reporting, transparency and accessibility to shareholders, bondholders and lenders, recruiting highly qualified staff and retaining and developing critical team members in a competitive regional economy. Ms. Sullivan was also instrumental in the due diligence and financing processes necessary to complete our acquisition of the parent company of Town & Country Food Stores in November of 2007.

Mr. Dewbre’s base salary was adjusted in 2008 from $225,000 to $232,875, reflecting the achievement of targets relating to EBITDAR (earnings before interest, taxes, depreciation, amortization and rent) and new store openings in the wholesale division. Mr. Dewbre was the team leader in a successful renegotiation of pricing under a major supply agreement and was a key member of the due diligence and integration teams working to complete the Town & Country acquisition.

Mr. Bonner’s compensation was adjusted from $279,537 in 2006 and 2007 to $289,321 in 2008, reflecting his contribution to our successful initial public offering in 2006, and to the due diligence effort, negotiations, and financing and integration processes relating to the Town & Country acquisition. Also, the compensation committee recognized Mr. Bonner’s success in strengthening the legal and construction groups in 2007 and his continued success in overseeing the execution of our real estate development objectives.

Target bonus levels for 2008 for each of Ms. Sullivan and Mssrs. Dewbre and Bonner were also increased from 33% (the base level specified in their employment agreements) to 40% to reflect market considerations and the challenge associated with meeting internal performance targets.

Mr. Susser’s base salary remains unchanged from 2004 to 2008 as he has recommended to the compensation committee and to the Board that, in lieu of increases to base salary, the committee and Board consider equity incentives or one-time bonuses to better align his interests with those of other shareholders. Mr. Susser’s 2008 target bonus level was increased from 40% to 50% to reflect market considerations and the challenge associated with meeting internal performance targets.

Annual Bonuses. Annual bonuses are intended to motivate and reward the Company’s named executive officers by tying performance awards to both the achievement of Company and segment-specific financial goals for the performance year and individual performance and achievements. Target bonus levels, based on the target percentages specified in each of the named executive officers’ employment agreements—as they may be increased from time to time in the discretion of the compensation committee, form the benchmark for making annual bonus decisions. These target bonus levels are currently 50% of base salary for our Chief Executive Officer and 40% for each of our other named executive officers, as discussed above. The compensation committee considers company performance for the preceding fiscal year based upon one or more categories of financial or operational metrics to further refine its estimation of target bonus dollars available for the named executive officers. Final bonus awards are determined, however, within the sole discretion of the compensation committee after assessing the subjective performance criteria discussed under the preceding caption, “Individual Performance and Contributions.” The compensation committee chooses to retain such discretionary authority over bonus decisions—without relying solely on a formulaic assessment of pre-determined performance metrics—due to the impact that outside variables, such as fuel margins or weather, have historically had on our results of operations, and its observation that Company or segment-specific performance metrics may not reflect the growth or performance of individuals within the Company. Consequently, while the compensation committee considers the objective performance criteria established as part of the management bonus program discussed below to be important components in making award determinations, bonus decisions are nonetheless entirely discretionary in nature.

At the beginning of the 2007 fiscal year, the compensation committee determined that its objective assessment of Mr. Coben’s performance would be based 66.7% on achievement of targeted consolidated EBITDAR (earnings before interest, taxes, depreciation, amortization and rent) with the remaining 33.3% being based on achieving targeted levels of retail segment EBITDAR and retail segment non-fuel gross income, respectively. Similarly, Mr. Dewbre’s objective performance criteria for fiscal 2007 were weighted 66.7% on achievement of targeted consolidated EBITDAR with the remaining 33.3% being based on achieving targeted levels of wholesale segment EBITDAR. The performance of our other named executive officers was assessed based upon performance of the Company relative to internal target levels of consolidated adjusted EBITDAR. The following table reflects the correlation between (i) achievement of internal target levels of these metrics and (ii) corresponding target bonus dollars available for each of our named executive officers (expressed as a percentage of base salary) for the 2007 fiscal year. For the 2007 fiscal year, without giving effect to the impact of the TCFS Acquisition, the company achieved EBITDAR slightly in excess of internal targets. The compensation committee considered this financial performance, together with the management team’s successful execution of the TCFS Acquisition and the other achievements discussed above under the caption “Adjustments to Base Compensation and Target Bonus Levels,” in awarding the bonuses reflected in the Summary Compensation Table.

For purposes of assisting its annual bonus determinations, the compensation committee selects internal performance targets that it believes are achievable while also aspirational, insofar as they are indicative of strong company-wide or, as the case may be, segment-specific performance. While the Company believes that target levels are reasonably attainable, they are necessarily based on certain assumptions as to variables beyond the Company’s control, including future weather patterns, commodity price levels and the impact of outside competition—all of which have historically had a significant impact on our business. The compensation committee also notes the impact to the Company’s financial performance of any acquired business that was not contemplated at the time the internal targets were finalized. Consequently, while the compensation committee looks generally to these objective performance measures, it does not take a purely formulaic approach to making bonus decisions and retains authority to consider any number of subjective factors in making award determinations.

MANAGEMENT DISCUSSION FROM LATEST 10K

Safe Harbor Discussion

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


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Competitive pressures from convenience stores, gasoline stations, other non-traditional retailers located in our markets, and other wholesale fuel distributors;


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Volatility in crude oil and wholesale petroleum costs;


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The successful integration and anticipated future financial performance and trends of Town & Country;


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


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


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


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


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


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


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Seasonal trends in the industries in which we operate;


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Unfavorable weather conditions;


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Devaluation of the Mexican peso or imposition of restrictions on access of Mexican citizens to the United States;


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Inability to identify, acquire and integrate new stores;


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


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Dangers inherent in storing and transporting motor fuel;


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Our ability to insure our motor fuel operations;


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Dependence on one principal supplier for merchandise;


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

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


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Acts of war and terrorism; and


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Other unforeseen factors.

For a discussion of these and other risks and uncertainties, please refer to “Part 1. Item 1A. Risk Factors.” The list of factors that could affect future performance and the accuracy of forward-looking statements is illustrative but by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty. The forward-looking statements included in this report are based on, and include, our estimates as of March 14, 2008. We anticipate that subsequent events and market developments will cause our estimates to change. However, while we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if new information becomes available in the future.

Overview

We are the largest non-refining operator in Texas of convenience stores based on store count and we believe we are the largest non-refining motor fuel distributor by gallons in Texas. Our operations include retail convenience stores and wholesale motor fuel distribution. We constructed or acquired 16 and 18 new retail stores in 2006 and 2007, respectively. Additionally, we acquired 168 retail stores from Town & Country on November 13, 2007. As of December 30, 2007, after giving effect to Town & Country, our retail segment operated 504 convenience stores in Texas, New Mexico and Oklahoma, offering merchandise, foodservice, motor fuel and other services.

For the fiscal year ended December 30, 2007, we sold 921.7 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 commercial users. We added 30 new dealer sites in each of 2006 and 2007, and as of December 30, 2007, we supplied 387 dealer locations. We believe our retail/wholesale business model, scale, market share, and foodservice and merchandising offerings, combined with our highly productive new store model and selected acquisition opportunities, position us for ongoing growth in sales and profitability. Our total revenues, net income (loss) and Adjusted EBITDA were $2,265.2 million, ($3.7) million and $45.2 million, respectively, for fiscal 2006 and $2,717.4 million, $16.3 million and $58.3 million, respectively, for fiscal 2007.

We substantially changed our capital structure in December 2005 through a series of recapitalization and financial transactions in which Stripes Acquisition LLC, an affiliate of Wellspring Capital Partners III, L.P., merged with and into Susser Holdings, L.L.C., with Susser Holdings, L.L.C. surviving the merger, and Susser Holdings, L.L.C. became a wholly-owned subsidiary of Stripes Holdings LLC. Wellspring becoming a significant stockholder along with Sam L. Susser and members of our senior management, investing a total of $128.5 million. Concurrent with this transaction, we also issued $170 million aggregate principal amount of 10 5 /8% senior notes due 2013, sold 74 of our retail stores for $170 million and entered into leaseback agreements for each of the stores, entered into a new $50 million revolving credit facility and repaid all existing indebtedness. This recapitalization allowed us to provide liquidity to our three existing private equity firms, who had invested in Susser Holdings, L.L.C. in 2000, and other equity holders. It also provided us with an appropriate capital structure to continue our strategy of growing through new store construction, new dealer openings, and strategic acquisitions. However, it did not change the core operations of our business, which is retail convenience store operations and wholesale fuel distribution.

On October 24, 2006, Susser Holdings Corporation completed an IPO of 7,475,000 shares of common stock at a price of $16.50 per share for an aggregate offering price of $123.3 million, and approximately $112.8 million in net proceeds after payment of fees, expenses and underwriting discounts of approximately $10.5 million. The net proceeds were used to redeem $50 million of our 10 5 / 8 % senior notes, plus accrued interest and premium thereon, to repay outstanding borrowings under our existing revolving credit facility, and for general corporate purposes, including growth capital. Susser Holdings Corporation became, immediately prior to the IPO, the holding company of Stripes Holdings LLC, which together with each of its direct and indirect subsidiaries, comprises all of our operations.

Our agreement for the rights to use the Circle K brand name on our convenience stores in certain geographic locations expired in November 2006. We elected to not renew this agreement and have rebranded all of our retail convenience stores to our proprietary Stripes brand name. On July 28, 2006, we entered into a new long-term supply agreement, expiring July 13, 2018, with Valero Marketing and Supply Company to supply motor fuel to our Stripes retail stores that were then supplied by CITGO, as well as to supply selected wholesale locations. In connection with this new supply agreement, we have rebranded all of our existing stores that were previously supplied by CITGO to the Valero or Shamrock brand or the Stripes brand.

On November 13, 2007, we acquired TCFS, which included 168 convenience stores in West Texas and Eastern New Mexico, in a transaction valued at approximately $356 million. Financing for this acquisition consisted of $150 million additional 10 5 / 8 % senior notes, $105 million term debt, $51.2 million sale and leaseback of 13 Town & Country retail properties, $11.3 million borrowings on our new $90 million revolving credit facility and cash on our balance sheet. See Note 4 of the accompany Notes to Consolidated Financial Statements in our audited consolidated financial statements for further discussion of the TCFS Acquisition. The results of operations of Town & Country for the 48 days subsequent to acquisition are included in our results of operations for the twelve months ended December 30, 2007.

Market and Industry Trends

During the past thirty-six months domestic crude oil and wholesale motor fuel costs have risen dramatically and have continued to be extremely volatile due to global increased demand and general instability in oil producing regions, especially the Middle East, Russia, Africa and South America, as well as severe weather conditions affecting the U.S. domestic oil production and refining operations. If the increase in crude oil prices and volatility continues and we are not able to pass on the cost increases to retail motor fuel customers, our fuel margins may decline. Nevertheless, when prices increase quickly and then subsequently fall our margins tend to be higher. Higher motor fuel costs result in an increase in our credit card expenses, since these fees are calculated as a percentage of the sales amount rather than a percentage of gallons sold. In addition, higher natural gas prices result in significantly higher electricity costs.

The other significant trends in the retail convenience store industry continue to be the expansion of foodservice categories as an increased percentage of merchandise sales and the continued increased motor fuel competition from hypermarkets. We believe that our larger format stores, more efficient motor fueling facilities and Laredo Taco Company and Country Cookin’ offerings position us strongly to competitively address these industry trends in our retail segment.

Description of Revenues and Expenses

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


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

We also offer a number of ancillary products and services to our customers including lottery tickets, ATM services, proprietary money orders, prepaid phone cards and wireless services and pay phones.

The income for these ancillary products and services is recorded in other revenues in our consolidated statements of operations. There is minimal cost of sales associated with other revenue.


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Wholesale. Wholesale revenues are derived primarily from sales of motor fuel to branded dealers, unbranded convenience stores and other commercial users. Sales of motor fuel to our retail operations are at cost, and, with respect to management’s discussion and analysis, all wholesale operations data presented represents third-party transactions only. The wholesale cost of motor fuel includes delivery costs, purchase discounts and other related costs, but excludes excise taxes, which are billed on a pass-through basis to the retailer/consumer.

The wholesale business also receives rental income from convenience store properties it leases to third parties, and nominal commission income on various programs we offer to our branded dealers. These programs allow dealers to take advantage of products and services that they would not likely be able to obtain on their own, or at discounted rates. The income for rents and program income is recorded in other revenues in our consolidated statements of operations. There is minimal cost of sales associated with other revenue.


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Other. Applied Petroleum Technology, Ltd. (“APT”) derives revenues from environmental remediation, environmental compliance, and motor fuel construction services it provides to our retail stores and wholesale locations, as well as to third parties. Cost of sales includes the direct labor, materials and supplies required to provide the services and indirect costs, such as supervision.

Operating expenses. Our operating expenses consist primarily of the following:


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


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

Key Measures Used to Evaluate and Assess Business

Key measures we use to evaluate and assess our business include the following:


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Merchandise same store sales . This reflects the change in year-over-year merchandise sales for comparable stores. We include a store in the same store sales base in its thirteenth full month of operation. A store that is closed is removed from the same store calculation base, including its historical sales. A store that is razed and rebuilt is treated as a closed store when it is razed, and then as a new store when it is rebuilt. Remodeled stores are included in our same store sales base.


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Merchandise gross profit and margin. Merchandise gross profit represents gross sales price of merchandise sold less the direct cost of goods and shortages. Included in shortages are bad merchandise and theft. Merchandise margin represents merchandise gross profit as a percentage of merchandise sales.


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Average gallons per store . This reflects the average motor fuel gallons sold per location for a specific period, and includes all stores in operation during the period that sell fuel.


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Gross profit cents per gallon. Our retail gross profit cents per gallon reflects the gross profit on motor fuel before credit card expenses divided by the number of retail gallons sold. Our wholesale gross profit cents per gallon reflects the gross profit on motor fuel after credit card expenses divided by the number of wholesale gallons sold.


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EBITDA and Adjusted EBITDA . We monitor EBITDA and Adjusted EBITDA on a site, segment and consolidated basis as a key performance measure. We define EBITDA as net income before net interest expense, income taxes and depreciation, amortization and accretion. Adjusted EBITDA further adjusts EBITDA by excluding cumulative effect of changes in accounting principles, discontinued operations, non-cash stock based compensation expense, and certain other operating expenses that are reflected in our net income that we do not believe are indicative of our ongoing core operations, such as significant transaction expenses associated with the 2005 recapitalization 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 (along with our royalty expenses and other items) are also excluded in measuring our covenants under our existing revolving credit facility and the indenture governing the existing notes.

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


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


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


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


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

EBITDA and Adjusted EBITDA are not recognized terms under GAAP and do not purport to be alternatives to net income as measures of operating performance or to cash flows from operating activities as a measure of liquidity. EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. Some of these limitations include:


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they do not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;


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they do not reflect changes in, or cash requirements for, working capital;


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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;


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they do not reflect payments made or future requirements for income taxes;


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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


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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.

Results of Operations

Fiscal 2007 Compared to Fiscal 2006

The following comparative discussion of results for fiscal year 2007 compared to fiscal year 2006 compares the 52-week periods of operations ended December 30, 2007 and December 31, 2006 of Susser Holdings Corporation. Included in our 2007 results are 48 days of operations of Town & Country, subsequent to their acquisition on November 13, 2007. The addition of Town & Country’s convenience stores increased our retail store count by approximately 50%. We also constructed or acquired 16 new stores during 2006 which contributed a full year of results for 2007, and 18 new stores during 2007 which contributed a partial year’s results.

Total Revenue. Total revenue for 2007 was $2,717.4 million, an increase of $452.2 million, or 20.0%, over 2006. The increase in total revenue was driven by a 21.6% increase in merchandise sales, a 27.2% increase in retail motor fuel sales and a 12.1% increase in wholesale motor fuel sales, as further discussed below. Included in these increases are 48 days of Town & Country revenue of approximately $131.6 million.

Total Gross Profit. Total gross profit for 2007 was $261.1 million, an increase of $40.4 million, or 18.3%, over 2006. Contributing to the increase were the impact of Town & Country ($17.0 million), the other new stores constructed or acquired during 2006 and 2007 ($14.7 million) and other reasons as further described below.

Merchandise Sales and Gross Profit. Merchandise sales were $444.2 million for 2007, an increase of $78.9 million, or 21.6%, over 2006. Our performance was due to a 7.7% merchandise same store sales increase, accounting for $27.5 million of the increase, with the balance due to new stores built or acquired in 2006 and 2007. Key categories contributing to the same store sales increase were cigarettes ($ 12.1 million), food service ($6.3 million), packaged drinks ($3.5 million), beer ($2.8 million) and snacks ($2.0 million). Food service includes sales from restaurant operations, hot dogs, fountain beverages, coffee and other prepared foods. The increase in cigarettes was primarily due to a $1 per pack excise tax increase in Texas effective January 2007. Merchandise gross profit was $144.6 million for 2007, a $25.5 million, or 21.4%, increase over 2006, which was driven by the increase in merchandise sales. Merchandise margins after shrink were 32.5%, down slightly from 32.6% in 2006. Cigarette margins declined by 320 basis points from 2006, resulting from the excise tax increase. However, this margin decrease was largely offset by the continued expansion of Laredo Taco Company and other high-margin categories. 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 2007 were $1,211.8 million, an increase of $258.8 million, or 27.2%, over 2006, driven by a 10.1% increase in the average retail price of motor fuel and a 15.5% increase in retail gallons sold. Town & Country contributed approximately half of this gallon increase. Excluding Town & Country, we sold an average of 1.3 million gallons per retail store, a 5.0% increase over 2006. Retail motor fuel gross profit increased by 24.9% over 2006 due to the additional gallons sold and a 1.1 cent, or 8.1%, increase in the gross profit per gallon to 14.7 cents per gallon.

Wholesale Motor Fuel Sales, Gallons and Gross Profit. Wholesale motor fuel revenues to third parties for 2007 were $1,035.5 million, a 12.1% increase over 2006. The increase was driven by a 3.2% increase in gallons sold and an 8.7% increase in the wholesale selling price per gallon. Wholesale motor fuel gross profit of $24.5 million decreased 2.3% from 2006, largely related to the sale of 25 unattended fueling sites in second quarter 2006. Gross profit cents per gallon decreased to 5.3 cents for 2007 compared to 5.6 cents for 2006, partly reflecting a change in mix from the sale of the unattended fueling sites.

Other Revenue and Other Gross Profit. Other revenue of $25.9 million for 2007 increased by $2.7 million, or 11.9%, over 2006. Gross profit associated with other revenue was $24.8 million, an increase of 9.0% over 2006. The retail segment reported other revenue of $20.8 million in 2007 compared to $18.9 million in 2006. Retail segment other gross profit was also $20.8 million and $18.9 million, respectively, as we record these service revenues on a net basis. The increase over last year was primarily driven by an increase in ATM income due to a new program that began in late 2006. Other revenues and related gross profit for the wholesale segment were approximately $3.9 million and $3.9 million in 2006, respectively. Other revenues and related gross profit for the wholesale segment in 2007 was $4.2 million and $4.1 million, respectively.

Personnel Expense . The largest component of our operating expenses is retail store personnel expense. For 2007, personnel expense was $82.5 million, an increase of $13.2 million, or 19.0%, over 2006. The increase in personnel expense was primarily attributable to the Town & Country acquisition and our new store openings, which have restaurants requiring incremental labor. Additionally, our restaurant sales, which require proportionately more labor, are growing at a much higher rate than our other merchandise sales and therefore are contributing to the increase in personnel expense.

General and Administrative Expense . For 2007, general and administrative expenses increased by $8.6 million, or 44.2%, over 2006. The increase was primarily due to additional public company expenses of $2.7 million, which included consulting costs for Sarbanes-Oxley compliance of $1.3 million, increased legal and accounting fees and increased directors and officers liability insurance premiums. Other increases consisted of incremental bonus expense of $1.4 million, increased personnel costs of $1.8 million, and a $1.6 million increase in non-cash stock based compensation expense over 2006, primarily related to options granted in October 2006 and fiscal 2007. Town & Country also contributed approximately $1.1 million to the increase in G&A.

Operating Expenses . Operating expenses increased by $7.0 million, or 11.3% over 2006. The increase was primarily due to the additional retail stores constructed and acquired during 2006 and 2007. Decreases in credit card fees of $1.1 million offset the increased operating costs.

Rent Expense . Rent expense for 2007 of $25.8 million was $3.1 million, or 13.8%, higher than 2006, due primarily to rent expense on additional leased stores.

Royalty Expense . Royalty expense for 2007 was less than $0.1 million as the conversion from the Circle K brand to our proprietary Stripes brand was completed during the first quarter of 2007. Royalty expense for 2006 was $3.6 million.

Loss (Gain) on Disposal of Assets and Impairment Charges. During 2007, excluding sale/leaseback transactions, we sold assets with a net book value of $0.4 million and recognized a loss on disposal of assets of $0.2 million.

Depreciation, Amortization and Accretion . Depreciation, amortization and accretion expense for 2007 of $29.5 million was up $6.7 million, or 29.4%, from 2006 due to $1.7 million for new stores constructed or acquired in 2006 and 2007, $1.8 million for Town & Country stores and additional depreciation due to finalization of purchase accounting for the 2005 recapitalization recorded in the fourth quarter of 2006 which required a partial step up of assets.

Income from Operations . Income from operations for 2007 was $26.3 million, compared to $21.1 million for 2006. The increase is attributed to the increases in gross profit, partially offset by the increases in operating expenses, as described above.

Interest Expense, Net. Net interest expense for 2007 was $16.2 million, a decrease of $6.5 million from 2006, primarily due to the redemption of $50 million of senior notes in November 2006. This redemption resulted in the elimination of $5.3 million of annual interest expense for 2007 and resulted in a charge to interest expense in 2006 of $5.3 million in prepayment penalties and $1.8 million write off of unamortized loan costs.

Other Miscellaneous Income and Expense. Other miscellaneous includes income from a non-consolidated joint venture and other non-operating income.

Income Taxes . We became a taxable entity on October 24, 2006. Additionally, effective January 1, 2007, the state of Texas implemented a tax based on gross margin to replace the previous franchise tax system, and this tax has been determined to be an income tax for financial statement presentation. Income tax benefit for 2007 was $5.7 million. There was minimal tax expense in 2006. The 2007 income tax benefit consisted of $3.2 million of federal and state income tax expense, $0.7 million attributable to Texas state margin tax, and a $9.7 million benefit related to the release of income tax valuation allowance. During the year ended December 30, 2007, the Company generated pre-tax book income as well as taxable income which resulted in the utilization of all net operating loss carryforwards. In addition, as a result of the acquisition of TCFS, the Company has recorded an additional $39.4 million of deferred tax liability. Therefore, in evaluating the need for valuation allowance at December 30, 2007, the Company has determined that it is more likely than not that the full deferred tax assets will be realized and has released the entire previously established valuation allowance. See Note 9 of the accompanying Notes to Consolidated Financial Statements in our audited consolidated financial statements for further discussion of our income tax provision.

Adjusted EBITDA . Adjusted EBITDA for 2007 was $58.3 million, an increase of $13.1 million, or 28.9%, compared to 2006. The increase is primarily due to the increase in gross profit offset by the additional general and administrative expenses and increased personnel expenses, as discussed above. Retail segment Adjusted EBITDA of $44.3 million increased by $18.5 million, or 71.9% compared to 2006, primarily due to the TCFS Acquisition and the 34 other new stores constructed or acquired during 2006 and 2007, and an increase in same store profitability. Wholesale segment Adjusted EBITDA of $20.3 million increased by $0.8 million, or 3.9%, from 2006 primarily due to the reduction in gross profit described above being offset by a reduction in selling, general and administrative expenses. All other adjusted EBITDA decreased by $6.2 million, primarily due to increased corporate general and administrative expense.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

First Quarter 2008 Compared to First Quarter 2007

The following discussion of results for first quarter 2008 compared to first quarter 2007 compares the 13-week period of operations ended March 30, 2008 to the 13-week period of operations ended April 1, 2007. Results for 2008 include the Town & Country results, which we acquired on November 13, 2007, and increased our retail store count by approximately 50%. We also constructed or acquired another 18 stores during fiscal 2007 and three new stores during the first quarter 2008 which contributed to the increases over the prior period. We are providing selected comparative results on an unaudited pro forma basis, as if the TCFS Acquisition had occurred at the beginning of our 2007 fiscal year, in order to provide additional information about the underlying business trends.

Total Revenue. Total revenue for first quarter 2008 was $1,000.7 million, an increase of $472.1 million, or 89.3%, over 2007. The increase in total revenue was driven by an 80.8% increase in merchandise sales, a 131.3% increase in retail fuel revenue and a 48.0% increase in wholesale fuel revenue, as further discussed below. Total revenue increased by $282.4 or 39.3%, on a pro forma basis.

Total Gross Profit. Total gross profit for first quarter 2008 was $91.5 million, an increase of $39.1 million, or 74.7%, over 2007 and a pro forma increase of $8.8 million, or 10.6%. Contributing to the increase were the impact of the other new stores constructed or acquired during 2007 and 2008 ($3.7 million excluding Town & Country) and other reasons as further described below.

Merchandise Sales and Gross Profit. Merchandise sales were $168.8 million for first quarter 2008, a $75.4 million, or 80.8%, increase over 2007, and a $20.4 million, or 13.8% increase on a pro forma basis. Our performance was due to a 8.2% merchandise same store sales increase, accounting for $7.6 million of the increase, with the balance due to new stores built or acquired in 2007 and 2008. Key categories contributing to the same store sales increase were packaged drinks ($1.8 million), cigarettes ($1.4 million), beer ($1.3 million) and food service ($1.1 million). Food service includes sales from restaurant operations, hot dogs, fountain beverages, coffee and other prepared foods. As we do not include a store in our same store sales base until its thirteenth month of operations, the Town & Country stores are not a part of our reported same store sales increase. However, on a pro forma basis, had Town & Country been part of our operations for all of 2007, we would have reported a same store sales increase of 8.4%.

Merchandise gross profit was $56.7 million for the first quarter of 2008, a $26.7 million, or 89.1%, increase over 2007, which was driven by the increase in merchandise sales and an increase in gross profit margin from 32.1% to 33.6%. On a pro forma basis, merchandise margin increased by $8.3 million, or 17.1%, and the gross profit margin increased by approximately 100 basis points. 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 2008 were $519.8 million, an increase of 131.3% from 2007, driven by a 66.3% increase in retail gallons sold and a 39.1% increase in the average retail price of motor fuel. On a pro forma basis, retail motor fuel sales increased $166.4 million, or 47.1%, due to an 8.2% increase in gallons sold and a 35.9% increase in the average retail price of fuel. We sold an average of 0.3 million gallons per retail store, a 7.2% increase over 2007 and a 4.6% increase on a pro forma basis. Retail motor fuel gross profit increased by 66.7% over 2007 due to the additional gallons sold, as retail fuel margins were even with the prior period on a reported basis, and decreased 1.75 cents per gallons on a pro forma basis.

Wholesale Motor Fuel Sales, Gallons and Gross Profit. Wholesale motor fuel revenues to third parties for the first quarter of 2008 were $302.6 million, a 48.0% increase over 2007. The increase was driven by a 2.3% increase in gallons sold and an 44.7% increase in the wholesale selling price per gallon. Wholesale motor fuel gross profit of $5.6 million increased 30.0% from 2007 due to the increase in gallons and a 27.1% increase in the gross profit per gallon to 4.9 cents per gallon.

Other Revenue and Gross Profit. Other revenue of $9.5 million for first quarter 2008 increased by 54.7% over 2007. Gross profit associated with other revenue was $9.1 million, an increase of 50.6% over 2007. The retail segment had other revenue of $7.7 million in 2008 compared to $5.1 million in 2007. Retail segment other gross profit was also $7.7 million and $5.1 million in 2008 and 2007, respectively, as we record these service revenues on a net basis. The increase over last year was primarily due to the acquisition of Town & Country, and partially driven by an increase in income from ATM and car wash income. Other revenues and related gross profit for the wholesale segment in 2008 was $1.8 million and $1.4 million, respectively, compared to $1.0 million revenue and $1.0 million gross profit for the prior period. The increase in revenue and gross profit is primarily attributable to the acquisition of Town and Country.

First Quarter 2008 Compared to First Quarter 2007

The following discussion of results for first quarter 2008 compared to first quarter 2007 compares the 13-week period of operations ended March 30, 2008 to the 13-week period of operations ended April 1, 2007. Results for 2008 include the Town & Country results, which we acquired on November 13, 2007, and increased our retail store count by approximately 50%. We also constructed or acquired another 18 stores during fiscal 2007 and three new stores during the first quarter 2008 which contributed to the increases over the prior period. We are providing selected comparative results on an unaudited pro forma basis, as if the TCFS Acquisition had occurred at the beginning of our 2007 fiscal year, in order to provide additional information about the underlying business trends.

Total Revenue. Total revenue for first quarter 2008 was $1,000.7 million, an increase of $472.1 million, or 89.3%, over 2007. The increase in total revenue was driven by an 80.8% increase in merchandise sales, a 131.3% increase in retail fuel revenue and a 48.0% increase in wholesale fuel revenue, as further discussed below. Total revenue increased by $282.4 or 39.3%, on a pro forma basis.

Total Gross Profit. Total gross profit for first quarter 2008 was $91.5 million, an increase of $39.1 million, or 74.7%, over 2007 and a pro forma increase of $8.8 million, or 10.6%. Contributing to the increase were the impact of the other new stores constructed or acquired during 2007 and 2008 ($3.7 million excluding Town & Country) and other reasons as further described below.

Merchandise Sales and Gross Profit. Merchandise sales were $168.8 million for first quarter 2008, a $75.4 million, or 80.8%, increase over 2007, and a $20.4 million, or 13.8% increase on a pro forma basis. Our performance was due to a 8.2% merchandise same store sales increase, accounting for $7.6 million of the increase, with the balance due to new stores built or acquired in 2007 and 2008. Key categories contributing to the same store sales increase were packaged drinks ($1.8 million), cigarettes ($1.4 million), beer ($1.3 million) and food service ($1.1 million). Food service includes sales from restaurant operations, hot dogs, fountain beverages, coffee and other prepared foods. As we do not include a store in our same store sales base until its thirteenth month of operations, the Town & Country stores are not a part of our reported same store sales increase. However, on a pro forma basis, had Town & Country been part of our operations for all of 2007, we would have reported a same store sales increase of 8.4%.

Merchandise gross profit was $56.7 million for the first quarter of 2008, a $26.7 million, or 89.1%, increase over 2007, which was driven by the increase in merchandise sales and an increase in gross profit margin from 32.1% to 33.6%. On a pro forma basis, merchandise margin increased by $8.3 million, or 17.1%, and the gross profit margin increased by approximately 100 basis points. 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 2008 were $519.8 million, an increase of 131.3% from 2007, driven by a 66.3% increase in retail gallons sold and a 39.1% increase in the average retail price of motor fuel. On a pro forma basis, retail motor fuel sales increased $166.4 million, or 47.1%, due to an 8.2% increase in gallons sold and a 35.9% increase in the average retail price of fuel. We sold an average of 0.3 million gallons per retail store, a 7.2% increase over 2007 and a 4.6% increase on a pro forma basis. Retail motor fuel gross profit increased by 66.7% over 2007 due to the additional gallons sold, as retail fuel margins were even with the prior period on a reported basis, and decreased 1.75 cents per gallons on a pro forma basis.

Wholesale Motor Fuel Sales, Gallons and Gross Profit. Wholesale motor fuel revenues to third parties for the first quarter of 2008 were $302.6 million, a 48.0% increase over 2007. The increase was driven by a 2.3% increase in gallons sold and an 44.7% increase in the wholesale selling price per gallon. Wholesale motor fuel gross profit of $5.6 million increased 30.0% from 2007 due to the increase in gallons and a 27.1% increase in the gross profit per gallon to 4.9 cents per gallon.

Other Revenue and Gross Profit. Other revenue of $9.5 million for first quarter 2008 increased by 54.7% over 2007. Gross profit associated with other revenue was $9.1 million, an increase of 50.6% over 2007. The retail segment had other revenue of $7.7 million in 2008 compared to $5.1 million in 2007. Retail segment other gross profit was also $7.7 million and $5.1 million in 2008 and 2007, respectively, as we record these service revenues on a net basis. The increase over last year was primarily due to the acquisition of Town & Country, and partially driven by an increase in income from ATM and car wash income. Other revenues and related gross profit for the wholesale segment in 2008 was $1.8 million and $1.4 million, respectively, compared to $1.0 million revenue and $1.0 million gross profit for the prior period. The increase in revenue and gross profit is primarily attributable to the acquisition of Town and Country.

Liquidity and Capital Resources

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

Cash flows from operations were $3.5 million and $4.6 million for the first three months of 2008 and 2007, respectively. The change in our cash provided from operating activities for the respective periods was primarily attributable to changes in working capital. Our daily capital requirements fluctuate within each month, primarily in response to the timing of motor fuel tax, sales tax and rent payments. We had $13.8 million of cash and cash equivalents on hand at March 30, 2008 compared to $20.0 million at April 1, 2007, and $7.8 million at December 30, 2007.

Capital Expenditures . Capital expenditures, before any sale/leasebacks and asset dispositions, were $15.2 million and $17.5 million during the first quarter of 2008 and 2007, respectively. During first quarter 2008, we completed a $6.9 million sale leaseback transaction of five existing retail stores. We also completed additional sale leasebacks of one new retail store in April 2008 for net proceeds of $2.9 million, and six new retail stores in May 2008 for net proceeds of $16.7 million. We opened three new retail stores during the first quarter 2008, bringing our store count to 507 as of March 30, 2008. We opened one additional store in early May, and currently have another three stores under construction and one store under contract to purchase. We expect to open a total of 12 to 18 new retail stores during 2008. During fiscal 2008, we plan to invest approximately $25 to $40 million (net of approximately $50 to $55 million of lease financing) in new retail stores, new dealer projects and maintenance and upgrade of our existing facilities. We plan to finance our capital spending plan with cash flow from operations, cash balances, borrowings under the revolving credit facility and additional lease financing.

Cash Flows from Financing Activities . At March 30, 2008, our outstanding debt was $420.4 million, including $5.3 million current maturities but excluding $3.6 million unamortized issuance premium. On November 13, 2007, we financed the acquisition of TCFS with the issuance of an additional $150 million 10 5/8% senior unsecured notes, a $105 million term loan facility, an $11.3 million draw on our revolving credit facility, a $51.2 million sale/leaseback transaction, and cash on the balance sheet. The notes, term loan and revolving credit facility are further discussed in “Credit Facilities” and “Senior Notes” below, and in our Notes to Consolidated Financial Statements.

Credit Facilities. On November 13, 2007, as part of the TCFS Acquisition, we, as parent guarantor, and our indirect wholly-owned subsidiary Susser Holdings, L.L.C., as borrower entered into a new credit agreement with Bank of America, N.A., as Term Administrative Agent, Bank of America, N.A., as Revolving Administrative Agent, Swing Line Lender, and L/C Issuer, each of Merrill Lynch Capital, a Division of Merrill Lynch Business Financial Services Inc., Wachovia Bank, National Association, and BMO Capital Markets, as Co-Syndication Agents, Banc of America Securities LLC, Merrill Lynch Capital, a Division of Merrill Lynch Business Financial Services Inc., Wachovia Capital Markets, LLC, and BMO Capital Markets, as Joint Lead Arrangers and Joint Book Managers, and other lenders party thereto, providing for a five year revolving credit facility in an aggregate principal amount of up to $90 million, and a five year term loan facility in the aggregate principal amount of $105 million (the “term loan”). On May 6, 2008, we, Susser Holdings, L.L.C. and the financial institutions party to the credit agreement entered into Amendment No. 1 to the credit agreement (“Amendment No. 1”), which increased the aggregate commitments under the revolving credit facility to $120 million (we refer to the revolving credit facility, as amended by Amendment No. 1, as the “revolver”). We and each of our 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” and (ii) Susser Company, Ltd.) are, and will be, guarantors under each of the facilities.

The term loan was funded in full at the closing of the credit agreement and net term loan proceeds were used to finance part of the merger consideration and related fees and expenses paid in connection with the TCFS Acquisition as well as to refinance, in part, certain existing indebtedness.

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 35% of the aggregate borrowing base amount, minus (d) such reserves as the administrative agent of the revolving credit facility 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) 85% of gross accounts receivable plus 60% of gross inventory. Borrowings under the revolver may be made to fund ongoing working capital and other general corporate purposes. Up to $60 million of the revolver may be used for the issuance of standby and commercial letters of credit and a portion of the revolver is available for swing line loans.

The interest rates for both the revolver and term loan facility are calculated, at the borrower’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.

As of March 30, 2008, we had $45.4 million outstanding on the revolver and $28.6 million in standby letters of credit, which include two $10.0 million letters of credit held in escrow related to the TCFS Acquisition that will be eligible to be drawn upon on each of the first and second anniversaries of closing, respectively, net of any settled or pending indemnity claims. As of May 6, 2008, we had sufficient borrowing base to support the use of approximately $105 million of the $120 million revolver, as amended, and had $14.4million in outstanding borrowings and $28.8 million in standby letters of credit, leaving approximately $62 million available on the revolver. Additional description of the credit facilities is included in our accompanying Notes to Consolidated Financial Statements and in our Annual Report of Form 10-K for the year ended December 30, 2007.

Senior Notes. On December 21, 2005, Susser Holdings, L.L.C. and a subsidiary, Susser Finance Corporation (which we refer to, collectively, as the “issuers”), sold $170 million of 10 5 /8% senior unsecured notes due, 2013 (referred to as the “original notes”). Proceeds from the sale of the original notes were used to fund the 2005 recapitalization, repay existing indebtedness and pay related fees and expenses. We incurred approximately $7.6 million in costs associated with the original notes, which were deferred and are being amortized over the life of the existing notes. A portion of the proceeds from the IPO were used to redeem $50 million of the original notes, plus accrued interest and premium thereon on November 24, 2006.

On November 13, 2007, as part of the TCFS Acquisition, the issuers issued and sold an additional $150 million in aggregate principal amount of 10 5/8% senior notes, due 2013 (which we refer to, alone, as the “additional notes” and together with the original notes, as the “senior notes”). The additional notes were issued under, and are governed by the terms of, the indenture, dated as of December 21, 2005, governing the original notes (referred to as the “indenture”). Under the indenture, the original notes and the additional notes are subject to the same interest payment, ranking, redemption and change of control provisions, covenants and transfer restrictions and pay interest semiannually in arrears on June 15 and December 15 of each year. The senior notes mature on December 15, 2013 and are guaranteed by us and each existing and future domestic subsidiary of the issuers with the exception of one non-wholly-owned subsidiary. We incurred approximately $7.0 million in costs associated with the additional notes, which were deferred and are being amortized to interest expense over the remaining life of the senior notes. We are also amortizing a $3.8 million issuance premium as a credit to interest expense over the remaining life of the senior notes.

Pursuant to a registration rights agreement that the issuers entered into at the time that the issuers issued the additional notes, the issuers agreed to file a registration statement with the SEC within 180 days, and to use reasonable best efforts to cause it to become effective as soon as possible after filing—but in any event no later than 90 days after the date of the initial filing with the SEC, with respect to an offer to exchange each of the additional notes for a new issue of debt securities registered under the Securities Act, with terms identical to those of the additional notes (except for provisions relating to transfer restrictions and payment of additional interest). The issuers filed a registration statement on Form S-4 with the SEC on April 29, 2008 in respect of such additional notes. Additional description of the senior notes is included in our accompanying Notes to Consolidated Financial Statements and in our Annual Report on Form 10-K for the year ended December 30, 2007.

Long Term Liquidity . We expect that our cash flows from operations, cash on hand, lease financing and our revolving credit facility will be adequate to provide for our short-term and long-term liquidity needs. Our ability to meet our debt service obligations and other capital requirements, including capital expenditures, as well as the cost of potential acquisitions and new store openings, will depend on our future performance which, in turn, will be subject to general economic, financial, business, competitive, legislative, regulatory and other conditions, many of which are beyond our control. As a normal part of our business, depending on market conditions, we from time to time consider opportunities to refinance our existing indebtedness, and although we may refinance all or part of our indebtedness in the future, including our existing notes, the notes offered hereby and our new revolving credit and term loan facilities, 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.

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