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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q/A
AMENDMENT NO. 2
TO
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended March 25, 1999
Commission File Number 33-72574
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THE PANTRY, INC.
(Exact name of registrant as specified in its charter)
Delaware 56-1574463
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1801 Douglas Drive, Sanford, North Carolina 27330
(Address of principal executive offices)
(919) 774-6700
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $0.01 Par Value 232,578 Shares
(Class) (Outstanding at April 30, 1999)
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THE PANTRY, INC.
FORM 10-Q/A
MARCH 25, 1999
TABLE OF CONTENTS
PART I--FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets.......................................... 1
Consolidated Statements of Operations................................ 3
Consolidated Statements of Cash Flows................................ 4
Notes to Consolidated Financial Statements........................... 6
PART I--FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
THE PANTRY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 24, March 25,
1998 1999
------------- ----------
(audited) (unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents.......................... $ 34,404 $ 24,999
Receivables (net of allowances for doubtful
accounts of $280 at September 24, 1998 and $395 at
March 25, 1999)................................... 9,907 14,829
Inventories (Note 3)............................... 47,809 61,378
Income taxes receivable............................ 488 4,581
Prepaid expenses................................... 2,216 2,634
Property held for sale............................. 3,761 82
Deferred income taxes, net......................... 3,988 4,133
-------- --------
Total current assets............................. 102,573 112,636
-------- --------
Property and equipment, net.......................... 300,978 405,727
-------- --------
Other assets:
Goodwill (net of accumulated amortization of
$11,940 at September 24, 1998 and $13,854 at March
25, 1999)......................................... 120,025 169,431
Deferred lease costs (net of accumulated
amortization of $9,001 at September 24, 1998 and
$9,024 at March 25, 1999)......................... 269 247
Deferred financing cost (net of accumulated
amortization of $4,871 at September 24, 1998 and
$5,840 at March 25, 1999)......................... 14,545 13,130
Environmental receivables.......................... 13,187 12,732
Other.............................................. 3,243 9,027
-------- --------
Total other assets............................... 151,269 204,567
-------- --------
Total assets......................................... $554,820 $722,930
======== ========
See Notes to Consolidated Financial Statements.
1
THE PANTRY, INC.
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
(Dollars in thousands)
September 24, March 25,
1998 1999
------------- ----------
(audited) (unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt............... $ 45 $ 5,431
Current maturities of capital lease obligations.... 1,240 1,240
Accounts payable:
Trade............................................ 49,559 66,280
Money orders..................................... 5,181 7,965
Accrued interest................................... 11,712 10,794
Accrued compensation and related taxes............. 6,719 7,862
Other accrued taxes................................ 7,007 8,538
Accrued insurance.................................. 5,745 8,501
Other accrued liabilities.......................... 24,348 30,861
-------- --------
Total current liabilities........................ 111,556 147,472
-------- --------
Long-term debt....................................... 327,269 454,277
-------- --------
Other noncurrent liabilities:
Environmental reserves............................. 17,137 17,185
Deferred income taxes.............................. 20,366 23,414
Capital lease obligations.......................... 12,129 11,498
Employment obligations............................. 934 749
Accrued dividends on preferred stock............... 4,391 5,837
Other.............................................. 21,734 26,052
-------- --------
Total other noncurrent liabilities............... 76,691 84,735
-------- --------
Commitments and contingencies (Notes 4 and 5)........
Shareholders' equity (deficit):
Preferred stock, $.01 par value, 150,000 shares
authorized; 17,500 issued and outstanding......... -- --
Common stock, $.01 par value, 300,000 shares
authorized; 229,507 issued and outstanding at
September 24, 1998 and 232,578 issued and
outstanding at March 25, 1999..................... 2 2
Additional paid in capital......................... 69,054 70,844
Shareholder loans.................................. (215) (937)
Accumulated deficit................................ (29,537) (33,463)
-------- --------
Total shareholders' equity (deficit)............. 39,304 36,446
-------- --------
Total liabilities and shareholders' equity........... $554,820 $722,930
======== ========
See Notes to Consolidated Financial Statements.
2
THE PANTRY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands)
Three Months Ended Six Months Ended
-------------------- --------------------
March 26, March 25, March 26, March 25,
1998 1999 1998 1999
--------- --------- --------- ---------
(13 weeks) (13 weeks) (26 weeks) (26 weeks)
Revenues:
Merchandise sales................ $104,405 $164,572 $193,765 $303,962
Gasoline sales................... 112,696 189,128 215,718 360,917
Commissions...................... 3,569 6,092 6,358 10,520
-------- -------- -------- --------
Total revenues................. 220,670 359,792 415,841 675,399
-------- -------- -------- --------
Cost of sales:
Merchandise...................... 67,968 110,372 126,865 204,825
Gasoline......................... 99,415 165,859 190,324 314,633
-------- -------- -------- --------
Total cost of sales............ 167,383 276,231 317,189 519,458
-------- -------- -------- --------
Gross profit....................... 53,287 83,561 98,652 155,941
-------- -------- -------- --------
Operating expenses:
Store expenses................... 33,688 51,486 61,853 95,215
General and administrative
expenses........................ 8,360 12,388 15,532 22,356
Depreciation and amortization.... 6,624 9,640 11,775 17,830
-------- -------- -------- --------
Total operating expenses....... 48,672 73,514 89,160 135,401
-------- -------- -------- --------
Income from operations............. 4,615 10,047 9,492 20,540
-------- -------- -------- --------
Other income (expense):
Interest......................... (7,034) (9,961) (12,851) (18,873)
Miscellaneous.................... 335 312 774 128
-------- -------- -------- --------
Total other expense............ (6,699) (9,649) (12,077) (18,745)
-------- -------- -------- --------
Income (loss) before income taxes
and extraordinary loss............ (2,084) 398 (2,585) 1,795
Income tax benefits (expense)...... 504 (386) 916 (718)
-------- -------- -------- --------
Income (loss) before extraordinary
loss.............................. (1,580) 12 (1,669) 1,077
Extraordinary loss................. -- (3,557) (6,800) (3,557)
-------- -------- -------- --------
Net loss........................... (1,580) (3,545) (8,469) (2,480)
Preferred dividends................ (647) (734) (1,586) (1,466)
-------- -------- -------- --------
Net loss applicable to common
shareholders...................... $ (2,227) $ (4,279) $(10,055) $ (3,926)
======== ======== ======== ========
See Notes to Consolidated Financial Statements.
3
THE PANTRY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Six Months Ended
---------------------
March 26, March 25,
1998 1999
---------- ---------
(26 weeks) (26 weeks)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................... $ (8,469) $ (2,480)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Extraordinary loss................................... 6,800 3,405
Depreciation and amortization........................ 11,775 17,830
Provision for deferred income taxes.................. (1,415) 120
(Gain) loss on sale of property and equipment........ 209 (410)
Reserves for environmental expenses.................. 57 48
Changes in operating assets and liabilities, net of
effects of acquisitions:
Receivables.......................................... (3,758) (948)
Inventories.......................................... (781) (4,628)
Prepaid expenses..................................... 879 (18)
Other noncurrent assets.............................. 5,366 (2,216)
Accounts payable..................................... 1,397 7,911
Other current liabilities and accrued expenses....... 1,559 (5,686)
Employment obligations............................... (185) (185)
Other noncurrent liabilities......................... 4,218 662
--------- ---------
Net cash provided by operating activities.......... 17,652 13,405
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property held for sale.................... (2,648) (93)
Additions to property and equipment.................... (17,814) (23,166)
Proceeds from sale of property held for sale........... 2,025 1,495
Proceeds from sale of property and equipment........... 682 376
Acquisitions of related businesses, net of cash
acquired.............................................. (145,398) (129,900)
--------- ---------
Net cash used in investing activities.............. (163,153) (151,288)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments under capital leases.............. (577) (631)
Principal repayments of long-term debt................. (57,009) (143,999)
Proceeds from issuance of long-term debt............... 209,022 275,000
Net proceeds from equity issues........................ 31,936 1,068
Other financing costs.................................. (12,674) (2,960)
--------- ---------
Net cash provided by financing activities............ 170,698 128,478
--------- ---------
NET INCREASE (DECREASE) IN CASH.......................... 25,197 (9,405)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD......... 3,347 34,404
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............... $ 28,544 $ 24,999
========= =========
See Notes to Consolidated Financial Statements.
4
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
Six Months Ended
---------------------
March 26, March 25,
1998 1999
---------- ----------
(26 weeks) (26 weeks)
Cash paid (refunded) during the year:
Interest................................................ $6,570 $19,791
====== =======
Taxes................................................... $ 670 $ 302
====== =======
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES
During 1998, The Pantry entered into several business acquisitions and
divestitures (see Note 2--Business Acquisitions). In connection with the Lil'
Champ acquisition, the holders of The Pantry's Series A preferred stock
contributed all outstanding shares of Series A preferred stock and related
accrued and unpaid dividends to the capital of The Pantry, resulting in an
increase in paid in capital of $6,508.
5
THE PANTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND RECENT DEVELOPMENTS
Unaudited Consolidated Financial Statements
The accompanying consolidated financial statements include the accounts of
The Pantry, Inc. and its wholly-owned subsidiaries, Lil' Champ Food Stores,
Inc. and Lil' Champ's wholly-owned subsidiary Miller Enterprises, Inc.,
Sandhills, Inc., Global Communications, Inc. and PH Holding Corporation and
PH's wholly-owned subsidiaries, TC Capital Management, Inc., and Pantry
Properties, Inc. All intercompany transactions and balances have been
eliminated in consolidation. See "Note 7--Supplemental Guarantor Information."
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X. The
interim consolidated financial statements have been prepared from the
accounting records of The Pantry, Inc. and its subsidiaries and all amounts at
March 25, 1999 and for the three and six months ended March 25, 1999 and March
26, 1998 are unaudited. References herein to "The Pantry" shall include all
subsidiaries. Pursuant to Regulation S-X, certain information and note
disclosures normally included in annual financial statements have been
condensed or omitted. The information furnished reflects all adjustments which
are, in the opinion of management, necessary for a fair statement of the
results for the interim periods presented, and which are of a normal,
recurring nature.
We suggest that these interim financial statements be read in conjunction
with the consolidated financial statements and the notes thereto included in
The Pantry's Annual Report on Form 10-K for the fiscal year ended September
24, 1998, The Pantry's Registration Statement on Form S-1, as amended, and
The Pantry's Quarterly Report on Form 10-Q for the period ended December 24,
1998.
Our results of operations for the three and six months ended March 25, 1999
and March 26, 1998 are not necessarily indicative of results to be expected
for the full fiscal year. Our results of operations and comparisons with prior
and subsequent quarters are materially impacted by the results of operations
of businesses acquired since September 25, 1997. These acquisitions have been
accounted for under the purchase method. See "Note 2--Businesses
Acquisitions". Furthermore, the convenience store industry in The Pantry's
marketing areas experiences higher levels of revenues and profit margins
during the summer months than during the winter months. Historically, we have
achieved higher revenues and earnings in our third and fourth quarters.
The Pantry
The Pantry operated approximately 1,149 convenience stores located in
Florida, North Carolina, South Carolina, Tennessee, Kentucky, Indiana and
Virginia as of March 25, 1999. The Pantry's stores offer a broad selection of
products and services designed to appeal to the convenience needs of our
customers, including gasoline, car care products and services, tobacco
products, beer, soft drinks, self-service fast food and beverages,
publications, dairy products, groceries, health and beauty aids, video games
and money orders. In our Florida, Kentucky, Virginia and Indiana stores, we
also sell lottery products. Self-service gasoline is sold at 1,068 locations,
778 of which sell gasoline under brand names including Amoco, British
Petroleum, Chevron, Citgo, Exxon, Fina, Shell, and Texaco. During the last
three fiscal years, merchandise revenues (including commissions from services)
and gasoline revenues have averaged approximately 48.6% and 51.4% of total
revenues, respectively.
Recent Developments
On March 11, 1999, we filed a Registration Statement on Form S-1, as
amended, relating to an initial public offering of shares of our common stock.
6
THE PANTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On February 25, 1999, we acquired 60 convenience stores and related assets
from Taylor Oil Company. The stores are located in North Carolina and Virginia
and are operated under the name "ETNA." This transaction was primarily funded
from borrowings under the Company's 1999 bank credit facility. See "Note 2--
Business Acquisitions."
On January 28, 1999, we entered into an Amended and Restated Credit Facility
(the "1999 bank credit facility") consisting of
. a $45.0 million revolving credit facility available for working capital
financing, general corporate purposes and issuing commercial and standby
letters of credit;
. a $50.0 million acquisition facility available to finance acquisition of
related businesses
. a term loan facility with outstanding borrowings of $239.0 million
See "Note 5--Long Term Debt." The 1999 bank credit facility replaces a
previous facility (the "1998 bank credit facility").
We used the proceeds of the term loan facility and a $5.0 million initial
draw under our revolving credit facility, along with cash on hand, to
. finance the acquisition of Miller Enterprises and affiliates,
. refinance $94.0 million outstanding under the 1998 bank credit facility
. redeem our outstanding senior notes in the aggregate principal amount of
$49.0 million
. pay related transaction costs.
On January 28, 1999, we acquired 100% of the outstanding capital stock of
Miller Enterprises and certain other real estate assets of certain affiliates
of Miller for $95.1 million. Miller is a leading operator of convenience
stores, operating 121 stores located in central Florida under the name "Handy
Way." The purchase price and the fees and expenses of the Miller acquisition
were financed with proceeds from the 1999 bank credit facility and cash on
hand.
Also on January 28, 1999, we repurchased $49.0 million in principal amount
of senior notes and paid accrued and unpaid interest up to, but not including,
the date of purchase and a 4% call premium. The repurchase of 100% of the
senior notes outstanding, the payment of accrued interest and the call premium
were financed with proceeds from the 1999 bank credit facility. The Pantry
recognized an extraordinary loss, net of taxes, of approximately $3.6 million
in connection with the repurchase of the senior notes including the payment of
a $2.0 million call premium and the write-off of related deferred financing
costs.
NOTE 2--BUSINESS ACQUISITIONS:
During the six months ended March 25, 1999, The Pantry acquired the
businesses described below, which are accounted for by the purchase method of
accounting:
. The October 22, 1998 acquisition of the operating assets of 10
convenience stores in eastern North Carolina, for $3.8 million which was
financed by cash on hand.
. The November 5, 1998 acquisition of the operating assets of 22
convenience stores in North Carolina and South Carolina, for $21.8
million which was financed with proceeds of $16.0 million from the 1998
bank credit facility and cash on hand.
. The January 28, 1999 acquisition of all of the common stock of Miller
Enterprises and real estate assets of affiliates of Miller Enterprises.
The $95.1 million purchase price was financed with the proceeds from the
1999 bank credit facility and cash on hand.
. The February 25, 1999 acquisition of the operating assets of 60
convenience stores in North Carolina and Virginia for $22.8 million
which was financed with $19.0 million of proceeds from the 1999 bank
credit facility and cash on hand.
7
THE PANTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The purchase price of the Miller Enterprises and affiliates acquisition is
subject to working capital and capital expenditure adjustments pending the
completion of a closing balance-sheet audit of Miller Enterprises as of
January 28, 1999. $2.5 million of the purchase price of the Express Stop, Inc.
acquisition was subject to an escrow agreement until March 1999, and was to be
forfeited upon the occurrence of specific events or conditions relating to the
operations of video poker machines in the State of South Carolina. The events
or conditions specified in the purchase agreement did not occur, and the $2.5
million held in escrow was paid to Express Stop, Inc. in March 1999.
Goodwill associated with the 1999 acquisitions is being amortized over 30
years using the straight-line method.
During fiscal 1998, The Pantry acquired and disposed of the businesses
described below. These acquisitions were accounted for by the purchase method
of accounting:
. The October 23, 1997 acquisition of all of the common stock of Lil'
Champ for $136.4 million. The purchase price, the refinancing of
existing Lil' Champ debt, and the fees and expenses of the Lil' Champ
acquisition were financed with the proceeds from the offering of $200.0
million, 10.5% senior subordinated notes due 2007, cash on hand and the
purchase by existing shareholders and management of The Pantry of an
additional $32.4 million of The Pantry's common stock.
. The March 19, 1998 acquisition of the operating assets of 23 convenience
stores in eastern North Carolina for approximately $9.0 million, which
was financed with proceeds from the 1998 bank credit facility and cash
on hand.
. The May 10, 1998 acquisition of 10 convenience stores for approximately
$18.3 million in the Gainesville, Florida area, which was financed with
proceeds from the 1998 bank credit facility.
. The July 2, 1998 acquisition of assets of Quick Stop Food Mart, Inc.
including 75 convenience stores located throughout North Carolina and
South Carolina, for $56.0 million, which was financed with the proceeds
of $25.0 million from the sale of common stock to existing shareholders,
borrowings of $25.0 million under the 1998 bank credit facility and cash
on hand.
. The July 15, 1998 acquisition of assets of Stallings Oil Company, Inc.
including 41 convenience stores located throughout North Carolina and
Virginia for $29.3 million. The Stallings and Quick Stop acquisitions
were financed by proceeds of $50.0 million from the 1998 bank credit
facility and cash on hand.
. The September 1, 1998 disposition of certain assets of Lil' Champ
including 48 convenience stores located throughout eastern Georgia.
. The September 1, 1998 acquisition of the operating assets of 4
convenience stores located in northern Florida which was financed with a
portion of the proceeds from the disposition of the assets discussed
above.
With the exception of the Lil' Champ acquisition, the purchase price
allocations are preliminary estimates, based on available information and
certain assumptions management believes are reasonable. Accordingly, the
purchase price allocations are subject to finalization. The purchase price
allocation for the Lil' Champ acquisition has been finalized.
The following unaudited pro forma information presents a summary of
consolidated results of operations of The Pantry and acquired businesses as if
the transactions occurred at the beginning of the fiscal year for each of the
periods presented (amounts in thousands):
Six Months Ended
--------------------
March 26, March 25,
1998 1999
--------- ---------
Total revenues......................................... $827,185 $805,923
Income before extraordinary loss....................... $ 1,207 $ (1,050)
Net income (loss)...................................... $ (5,593) $ (4,607)
8
THE PANTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In management's opinion, the unaudited pro forma information is not
necessarily indicative of actual results that would have occurred had the
acquisitions been consummated at the beginning of fiscal 1997 or fiscal 1998,
or of future operations of the combined companies.
NOTE 3--INVENTORIES
Inventories are stated at the lower of last-in, first-out (LIFO) cost or
market. Inventories consisted of the following (in thousands):
September 24, March 26,
1998 1999
------------- ---------
Inventories at FIFO cost:
Merchandise........................................ $41,967 $56,055
Gasoline........................................... 11,510 14,932
------- -------
53,477 70,987
Less adjustment to LIFO cost:
Merchandise........................................ (5,668) (9,348)
Gasoline........................................... -- (261)
------- -------
Inventories at LIFO cost............................. $47,809 $61,378
======= =======
Total inventories at September 24, 1998 and March 25, 1999 include $5.2
million and $6.4 million of gasoline inventories held by Lil' Champ and Miller
(March 25, 1999 only) that are recorded under the FIFO method, respectively.
Inventories are net of estimated obsolescence reserves of approximately
$200,000 at September 24, 1998 and March 25, 1999.
NOTE 4--ENVIRONMENTAL LIABILITIES AND OTHER CONTINGENCIES
As of March 25, 1999, The Pantry was contingently liable for outstanding
letters of credit in the amount of $15.7 million related primarily to several
self-insured programs, regulatory requirements, and vendor contract terms. The
letters of credit are not to be drawn against unless The Pantry defaults on
the timely payment of related liabilities.
The State of North Carolina and the State of Tennessee have assessed
Sandhills, Inc., a subsidiary of The Pantry , with additional taxes plus
penalties and accrued interest totaling approximately $5 million, for the
periods February 1, 1992 to September 26, 1996. In December 1998, The Pantry
reached a tentative settlement with the State of North Carolina, which is
pending final approval by the state. Under the settlement, The Pantry will
reduce state net economic loss carryforwards and pay a de minimis amount of
additional tax. The expected settlement is reflected in the financial
statements as a reduction to state net economic losses and a reduction of
deferred tax assets which is fully offset by a corresponding reduction to the
valuation allowance. The Pantry is contesting the Tennessee assessment and
believes that, in the event of a mutual settlement, the assessment amount and
related penalties (approximately $250,000) would be substantially reduced.
Based on this, The Pantry believes the outcome of the audits will not have a
material adverse effect on its financial condition or financial statements.
The Pantry is involved in certain legal actions arising in the normal course
of business. In the opinion of management, based on a review of such legal
proceedings, the ultimate outcome of these actions will not have a material
effect on the consolidated financial statements.
9
THE PANTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Environmental Liabilities and Contingencies
The Pantry is subject to various federal, state and local environmental laws
and regulations governing underground petroleum storage tanks that require The
Pantry to make certain expenditures for compliance. In particular, at the
federal level, the Resource Conservation and Recovery Act, as amended,
requires the EPA to establish a comprehensive regulatory program for the
detection, prevention, and cleanup of leaking underground storage tanks.
Regulations enacted by the EPA in 1988 established requirements for
. installing underground storage tank systems
. upgrading underground storage tank systems
. taking corrective action in response to releases
. closing underground storage tank systems
. keeping appropriate records
. maintaining evidence of financial responsibility for taking corrective
action and compensating third parties for bodily injury and property
damage resulting from releases
These regulations permit states to develop, administer and enforce their own
regulatory programs, incorporating requirements which are at least as
stringent as the federal standards. The Florida rules for 1998 upgrades are
more stringent than the 1988 EPA regulations. The Pantry facilities in Florida
all meet or exceed such rules. The following is an overview of the
requirements imposed by these regulations:
. Leak Detection: The EPA and states' release detection regulations were
phased in based on the age of the underground storage tanks. All
underground storage tanks were required to comply with leak detection
requirements by December 22, 1993. The Pantry utilizes several approved
leak detection methods for all company-owned underground storage tank
systems. Daily and monthly inventory reconciliations are completed at the
store level and at the corporate support center. The daily and monthly
reconciliation data is also analyzed using statistical inventory
reconciliation which compares the reported volume of gasoline purchased
and sold with the capacity of each underground storage tank system and
highlights discrepancies. The Pantry believes it is in full or
substantial compliance with the leak detection requirements applicable to
underground storage tanks.
. Corrosion Protection: The 1988 EPA regulations require that all
underground storage tank systems have corrosion protection by December
22, 1998. All of The Pantry's underground storage tanks have been
protected from corrosion either through the installation of fiberglass
tanks or upgrading steel underground storage tanks with interior
fiberglass lining and the installation of cathodic protection.
. Overfill/Spill Prevention: The 1988 EPA regulations require that all
sites have overfill/spill prevention devices by December 22, 1998. The
Pantry has installed spill/overfill equipment on all company-owned
underground storage tank systems to meet these regulations.
In addition to the technical standards, The Pantry is required by federal
and state regulations to maintain evidence of financial responsibility for
taking corrective action and compensating third parties in the event of a
release from its underground storage tank systems. In order to comply with
this requirement, The Pantry maintains surety bonds in the aggregate amount of
approximately $900,000 in favor of state environmental enforcement agencies in
the states of North Carolina, Virginia and South Carolina and a letter of
credit in the aggregate amount of approximately $1.1 million issued by a
commercial bank in favor of state environmental enforcement agencies in the
states of Florida, Tennessee, Indiana and Kentucky and relies on
reimbursements from applicable state trust funds. In Florida, The Pantry meets
such financial responsibility requirements by state trust fund coverage
through December 31, 1998 and will meet such requirements thereafter through
private
10
THE PANTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
commercial liability insurance. The Pantry has sold all of its Georgia stores
but has retained responsibility for pre-closing environmental remediation. The
costs of such remediation and third party claims should be covered by the
state trust fund, subject to applicable deductibles and caps on
reimbursements.
All states in which The Pantry operates or has operated underground storage
tank systems have established trust funds for the sharing, recovering, and
reimbursing of certain cleanup costs and liabilities incurred as a result of
releases from underground storage tank systems. These trust funds, which
essentially provide insurance coverage for the cleanup of environmental
damages caused by the operation of underground storage tank systems, are
funded by a underground storage tank registration fee and a tax on the
wholesale purchase of motor fuels within each state. The Pantry has paid
underground storage tank registration fees and gasoline taxes to each state
where it operates to participate in these programs and has filed claims and
received reimbursement in North Carolina, South Carolina, Kentucky, Indiana,
Florida, Georgia, and Tennessee. The coverage afforded by each state fund
varies but generally provides from $150,000 to $1.0 million per site or
occurrence for the cleanup of environmental contamination, and most provide
coverage for third party liabilities.
Costs for which The Pantry does not receive reimbursement include but are
not limited to, the per-site deductible, costs incurred in connection with
releases occurring or reported to trust funds prior to their
inception, removal and disposal of underground storage tank systems, and costs
incurred in connection with sites otherwise ineligible for reimbursement from
the trust funds. The trust funds require The Pantry to pay deductibles ranging
from $10,000 to $100,000 per occurrence depending on the upgrade status of its
underground storage tank system, the date the release is discovered/reported
and the type of cost for which reimbursement is sought. The Florida trust fund
will not cover releases first reported after December 31, 1998. The Pantry
will meet Florida financial responsibility requirements for remediation and
third party claims arising out of releases reported after December 31, 1998
through a combination of private insurance and a letter of credit. In addition
to material amounts to be spent by The Pantry, a substantial amount will be
expended for remediation on behalf of The Pantry by state trust funds
established in The Pantry's operating areas or other responsible third parties
(including insurers). To the extent such third parties do not pay for
remediation as anticipated by The Pantry, The Pantry will be obligated to make
such payments, which could materially adversely affect The Pantry's financial
condition and results of operations. Reimbursement from state trust funds will
be dependent upon the maintenance and continued solvency of the various funds.
Environmental reserves of $17.1 million and $17.2 million as of September
24, 1998 and March 25, 1999, respectively, represent estimates for future
expenditures for remediation, tank removal and litigation associated with 205
and 207 known contaminated sites, respectively, as a result of releases (e.g.,
overfills, spills and underground storage tank releases) and are based on
current regulations, historical results and certain other factors. As of March
25, 1999 the current average remediation cost per site is $70,000. Remediation
costs for known sites are expected to be incurred over the next one to ten
years. Environmental reserves have been established on an undiscounted basis
with remediation costs based on internal and external estimates for each site.
Future remediation costs for amounts of deductibles under, or amounts not
covered by, state trust fund programs and third party insurance arrangements
and for which the timing of payments can be reasonably estimated are
discounted using a ten-percent rate.
The Pantry anticipates that it will be reimbursed for a portion of these
expenditures from state insurance funds and private insurance. As of September
24, 1998, and March 25, 1999, these anticipated reimbursements of $13.2
million and $12.7 million, respectively, are recorded as long-term
environmental receivables. In Florida, remediation of such contamination
reported before January 1, 1999 will be performed by the state and
substantially all of the costs will be paid by the state trust fund. The
Pantry will perform remediation in other states through independent contractor
firms engaged by The Pantry. For certain sites the trust fund does not cover a
deductible or has a copay which may be less than the cost of such remediation.
Although The Pantry is not aware of releases or contamination at other
locations where it currently operates or has operated stores, any such
11
THE PANTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
releases or contamination could require substantial remediation expenditures,
some or all of which may not be eligible for reimbursement from state trust
funds.
The Pantry has reserved $500,000 to cover third party claims for
environmental conditions at adjacent real properties that are not covered by
state trust funds or by private insurance. This reserve is based on
management's best estimate of losses that may be incurred over the next
several years based on, among other things, the average remediation costs for
contaminated sites and The Pantry's historical claims experience.
Several of the locations identified as contaminated are being cleaned up by
third parties who have indemnified The Pantry as to responsibility for clean
up matters. Additionally, The Pantry is awaiting closure notices on several
other locations which will release The Pantry from responsibility related to
known contamination at those sites. These sites continue to be included in The
Pantry's environmental reserve until a final closure notice is received.
NOTE 5--LONG-TERM DEBT
At September 24, 1998 and March 25, 1999, long-term debt consisted of the
following (in thousands):
March 25,
1998 1999
-------- ---------
Senior notes payable; due November 15, 2000; interest
payable semi-annually at 12%........................... $ 48,995 $ --
Senior subordinated notes payable; due October 15, 2007;
interest payable semi-annually at 10.25%............... 200,000 200,000
Term loan facility--Tranche A; interest payable monthly
at LIBOR (4.94% at March 25, 1999) plus 3.0%; principal
due in quarterly installments beginning April 30, 1999
through January 31, 2004............................... -- 79,086
Term loan facility--Tranche B; interest payable monthly
at LIBOR (4.94% at March 25, 1999) plus 3.5%; principal
due in quarterly installments beginning April 30, 1999
through January 31, 2006............................... -- 159,939
Acquisition facility; interest payable monthly at LIBOR
(4.94% at March 25, 1999) plus 3.0%; principal due in
quarterly installments beginning April 30, 2001 through
January 31, 2004....................................... 78,000 19,000
Notes payable to McLane Company, Inc.; zero (0.0%)
interest, with principal due in annual installments
through February 26, 2003.............................. -- 1,380
Other notes payable; various interest rates and maturity
dates.................................................. 319 303
-------- --------
327,314 459,708
Less--current maturities................................ (45) (5,431)
-------- --------
$327,269 $454,277
======== ========
The senior notes and senior subordinated notes are unconditionally
guaranteed, on an unsecured basis, as to the payment of principal, premium, if
any, and interest, jointly and severally, by all subsidiary guarantors. See
"Note 7--Supplemental Guarantor Information". On January 28, 1999, The Pantry
repurchased $49.0 million in principal amount of senior notes plus accrued and
unpaid interest up to, but not including, the date of purchase and a 4% call
premium. The repurchase of 100% of the senior notes outstanding, the payment
of accrued interest and the call premium were financed with proceeds from the
1999 bank credit facility and cash on hand.
On January 28, 1999, The Pantry entered into the 1999 bank credit facility
consisting of
. a $45.0 million revolving credit facility available for working capital
financing, general corporate purposes and issuing commercial and standby
letters of credit
12
THE PANTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
. a $50.0 million acquisition facility available to finance acquisition of
related businesses
. term loan facilities with outstanding borrowings of $239.0 million
The Pantry used the proceeds of the term loan facility and a $5.0 million
initial draw under the revolving credit facility, along with cash on hand, to
.finance the Miller Enterprises acquisition
.refinance $94.0 million outstanding under the 1998 bank credit facility
.redeem the outstanding senior notes in the aggregate principal amount of
$49.0 million
.pay related transaction costs
The annual maturities of notes payable are as follows (in thousands):
Year Ended September:
1999............................................................ $ 2,896
2000............................................................ 10,686
2001............................................................ 17,939
2002............................................................ 20,943
2003............................................................ 37,931
Thereafter...................................................... 369,313
--------
$459,708
========
As of March 25, 1999, The Pantry was in compliance with all covenants and
restrictions relating to all its outstanding borrowings.
As of March 25, 1999, substantially all of The Pantry's and its
subsidiaries' net assets are restricted as to payment of dividends and other
distributions.
NOTE 6--SHAREHOLDERS' EQUITY
On August 31, 1998, The Pantry adopted the 1998 Stock Subscription Plan. The
Stock Subscription Plan allows us to offer to certain employees the right to
purchase shares of common stock at a purchase price equal to the fair market
value on the date of purchase. During the six months ended March 25, 1999,
2,636 shares, net of repurchases of 123 shares were issued under the Stock
Subscription Plan. These shares were sold at fair value ($575), as determined
by the most recent equity investment (July 1998). In connection with these
sales, The Pantry received $722,000 of secured promissory notes receivable,
bearing an interest rate of 8.8%, due August 31, 2003.
NOTE 7--SUPPLEMENTAL GUARANTOR INFORMATION
Lil' Champ, Sandhills, Inc. and Global Communications, Inc. (the
"Guarantors") jointly and severally, unconditionally guarantee, on an
unsecured senior subordinated basis, the full and prompt performance of The
Pantry's obligations under its senior subordinated notes, its senior notes
indenture and its 1999 bank credit facility.
Management has determined that separate financial statements of the
Guarantors would not provide significant additive information to investors and
in lieu of such separate financial statements, The Pantry has presented
supplemental combining information. This supplemental combining information
includes the consolidated financial statements of the Company's unrestricted
subsidiary, PH and PH's wholly-owned subsidiaries, TC Capital Management,
Inc., and Pantry Properties, Inc. (together, the "Non-Guarantors").
Accordingly, the following supplemental combining information presents
information regarding The Pantry, the Guarantors, the Non-Guarantors, and
related consolidating entries.
The Pantry accounts for its wholly-owned subsidiaries on the equity basis.
Certain reclassifications have been made to conform all of the financial
information to the financial presentation on a consolidated basis. The
principal consolidating entries eliminate investments in subsidiaries and
intercompany balances and transactions.
13
THE PANTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
THE PANTRY, INC.
SUPPLEMENTAL COMBINING BALANCE SHEETS
Year Ended September 24, 1998
The Pantry Guarantor Non-Guarantor
(Issuer) Subsidiaries Subsidiary Eliminations Total
---------- ------------ ------------- ------------ --------
(Dollars in thousands)
ASSETS
------
Current assets:
Cash and cash
equivalents.......... $ 24,031 $ 6,300 $4,073 $ -- $ 34,404
Receivables, net...... 11,211 9,263 1,030 (11,597) 9,907
Inventories........... 24,933 22,876 -- -- 47,809
Income taxes
receivable........... 270 (2,098) (472) 2,788 488
Prepaid expenses...... 1,206 1,007 3 -- 2,216
Property held for
sale................. 3,761 -- -- -- 3,761
Deferred income
taxes................ 1,262 2,726 -- -- 3,988
-------- -------- ------ --------- --------
Total current
assets............. 66,674 40,074 4,634 (8,809) 102,573
-------- -------- ------ --------- --------
Investment in
subsidiaries........... 69,317 -- -- (69,317) --
-------- -------- ------ --------- --------
Property and equipment,
net.................... 125,340 175,298 340 -- 300,978
-------- -------- ------ --------- --------
Other assets:
Goodwill, net......... 72,375 47,650 -- -- 120,025
Deferred lease cost,
net.................. 269 -- -- -- 269
Deferred financing
cost, net............ 14,545 -- -- -- 14,545
Environmental
receivables, net..... 11,566 1,621 -- -- 13,187
Intercompany notes
receivable........... 19,803 49,705 -- (69,508) --
Other noncurrent
assets............... 155 3,088 -- -- 3,243
-------- -------- ------ --------- --------
Total other assets.. 118,713 102,064 -- (69,508) 151,269
-------- -------- ------ --------- --------
Total assets........ $380,044 $317,436 $4,974 $(147,634) $554,820
======== ======== ====== ========= ========
14
THE PANTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
THE PANTRY, INC.
SUPPLEMENTAL COMBINING BALANCE SHEETS--(Continued)
Year Ended September 24, 1998
The Pantry Guarantor Non-Guarantor
(Issuer) Subsidiaries Subsidiary Eliminations Total
---------- ------------ ------------- ------------ --------
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
- -----------------------------
Current liabilities:
Current maturities of long-
term debt................. $ 17 $ 10 $ 18 $ -- $ 45
Current maturities of
capital lease
obligations............... 213 1,027 -- -- 1,240
Accounts payable:
Trade...................... 28,563 20,996 -- -- 49,559
Money orders............... 4,112 1,069 -- -- 5,181
Accrued interest........... 11,564 1,283 1 (1,136) 11,712
Accrued compensation and
related taxes............. 4,366 2,352 1 -- 6,719
Other accrued taxes........ 3,108 3,899 -- -- 7,007
Accrued insurance.......... 3,188 2,557 -- -- 5,745
Other accrued liabilities.. 11,118 18,877 122 (5,769) 24,348
-------- -------- ------ --------- --------
Total current
liabilities............. 66,249 52,070 142 (6,905) 111,556
-------- -------- ------ --------- --------
Long-term debt............... 188,151 139,000 118 -- 327,269
-------- -------- ------ --------- --------
Other noncurrent liabilities:
Environmental reserves..... 13,487 3,650 -- -- 17,137
Deferred income taxes...... (36) 22,001 -- (1,599) 20,366
Capital lease obligations.. 1,534 10,595 -- -- 12,129
Employment obligations..... 934 -- -- -- 934
Accrued dividends on
preferred stock........... 4,391 -- -- -- 4,391
Intercompany note payable.. 50,705 20,822 -- (71,527) --
Other noncurrent
liabilities............... 15,325 5,737 38 634 21,734
-------- -------- ------ --------- --------
Total other noncurrent
liabilities............. 86,340 62,805 38 (72,492) 76,691
-------- -------- ------ --------- --------
SHAREHOLDERS' EQUITY
(DEFICIT):
Preferred stock............ -- -- -- -- --
Common stock............... 2 1 -- (1) 2
Additional paid-in
capital................... 69,054 6,758 5,001 (11,759) 69,054
Shareholder loan........... (215) -- -- -- (215)
Accumulated earnings
(deficit)................. (29,537) 56,802 (325) (56,477) (29,537)
-------- -------- ------ --------- --------
Total shareholders'
equity (deficit)........ 39,304 63,561 4,676 (68,237) 39,304
-------- -------- ------ --------- --------
Total liabilities and
shareholders' equity
(deficit)............... $380,044 $317,436 $4,974 $(147,634) $554,820
======== ======== ====== ========= ========
15
THE PANTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
THE PANTRY, INC.
SUPPLEMENTAL COMBINING BALANCE SHEETS
March 25, 1999
The Pantry Guarantor Non-Guarantor
(Issuer) Subsidiaries Subsidiary Eliminations Total
---------- ------------ ------------- ------------ --------
(Dollars in thousands)
ASSETS
------
Current assets:
Cash and cash
equivalents........... $ 9,686 $ 11,089 $4,224 $ -- $ 24,999
Receivables, net....... 19,281 25,878 1,030 (31,360) 14,829
Inventories............ 32,163 29,215 -- -- 61,378
Income taxes
receivable
(payable)............. 1,883 (2,634) (551) 5,883 4,581
Prepaid expenses....... 1,297 1,329 8 -- 2,634
Property held for
sale.................. 82 -- -- -- 82
Deferred income
taxes................. 1,366 2,767 -- -- 4,133
-------- -------- ------ --------- --------
Total current
assets............ 65,758 67,644 4,711 (25,477) 112,636
-------- -------- ------ --------- --------
Investment in
subsidiaries........... 77,188 968 -- (78,156) --
-------- -------- ------ --------- --------
Property and equipment,
net.................... 147,662 257,728 337 -- 405,727
-------- -------- ------ --------- --------
Other assets:
Goodwill, net.......... 97,555 71,876 -- -- 169,431
Deferred lease cost,
net................... 247 -- -- -- 247
Deferred financing
cost, net............. 13,130 -- -- -- 13,130
Environmental
receivables, net...... 11,566 1,166 -- -- 12,732
Intercompany note
receivable............ 257,465 49,705 -- (307,170) --
Other.................. 3,214 4,845 -- 968 9,027
-------- -------- ------ --------- --------
Total other
assets............ 383,177 127,592 -- (306,202) 204,567
-------- -------- ------ --------- --------
Total assets....... $673,785 $453,932 $5,048 $(409,835) $722,930
======== ======== ====== ========= ========
16
THE PANTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
THE PANTRY, INC.
SUPPLEMENTAL COMBINING BALANCE SHEETS--(Continued)
March 25, 1999
The Pantry Guarantor Non-Guarantor
(Issuer) Subsidiaries Subsidiary Eliminations Total
---------- ------------ ------------- ------------ --------
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
- -----------------------------
Current liabilities:
Current maturities of long-
term debt.................. $ 5,117 $ 296 $ 18 $ -- $ 5,431
Current maturities of
capital lease
obligations................ 213 1,027 -- -- 1,240
Accounts payable:
Trade..................... 35,009 31,297 -- (26) 66,280
Money orders.............. 4,620 3,345 -- -- 7,965
Accrued interest............ 14,373 -- 1 (3,580) 10,794
Accrued compensation and
related taxes.............. 4,019 3,842 1 -- 7,862
Other accrued taxes......... 2,529 6,009 -- -- 8,538
Accrued insurance........... 3,825 4,676 -- -- 8,501
Other accrued liabilities... 24,634 23,464 121 (17,358) 30,861
-------- -------- ------ --------- --------
Total current
liabilities............ 94,339 73,956 141 (20,964) 147,472
-------- -------- ------ --------- --------
Long-term debt............... 453,072 1,097 108 -- 454,277
-------- -------- ------ --------- --------
Other noncurrent liabilities:
Environmental reserves...... 13,566 3,619 -- -- 17,185
Deferred income taxes....... (1,667) 25,081 -- -- 23,414
Capital lease obligations... 1,413 10,085 -- -- 11,498
Employment obligations...... 749 -- -- -- 749
Accrued dividends on
preferred stock............ 5,837 -- -- -- 5,837
Intercompany note payable... 51,705 259,961 -- (311,666) --
Other....................... 18,325 7,690 37 -- 26,052
-------- -------- ------ --------- --------
Total other noncurrent
liabilities............ 89,928 306,436 37 (311,666) 84,735
-------- -------- ------ --------- --------
SHAREHOLDERS' EQUITY
(DEFICIT):
Preferred stock.............. -- -- -- -- --
Common stock................. 2 1 5,001 (5,002) 2
Additional paid-in capital... 70,844 6,882 -- (6,882) 70,844
Shareholder loans............ (937) -- -- -- (937)
Accumulated earnings
(deficit)................... (33,463) 65,560 (239) (65,321) (33,463)
-------- -------- ------ --------- --------
Total shareholders'
equity (deficit)....... 36,446 72,443 4,762 (77,205) 36,446
-------- -------- ------ --------- --------
Total liabilities and
shareholders' equity
(deficit).............. $673,785 $453,932 $5,048 $(409,835) $722,930
======== ======== ====== ========= ========
17
THE PANTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
THE PANTRY, INC.
SUPPLEMENTAL COMBINING STATEMENT OF OPERATIONS
Three Months Ended March 26, 1998
The
Pantry Guarantor Non-Guarantor
(Issuer) Subsidiaries Subsidiary Eliminations Total
-------- ------------ ------------- ------------ --------
(dollars in thousands)
Revenues:
Merchandise sales..... $48,733 $ 55,672 $ -- $ -- $104,405
Gasoline sales........ 48,636 64,060 -- -- 112,696
Commissions........... 1,483 2,086 -- -- 3,569
------- -------- ---- ------- --------
Total revenues...... 98,852 121,818 -- -- 220,670
------- -------- ---- ------- --------
Cost of sales:
Merchandise........... 31,272 36,696 -- -- 67,968
Gasoline.............. 43,541 55,874 -- -- 99,415
------- -------- ---- ------- --------
Total cost of
sales.............. 74,813 92,570 -- -- 167,383
------- -------- ---- ------- --------
Gross profit............ 24,039 29,248 -- -- 53,287
------- -------- ---- ------- --------
Operating expenses:
Store expenses........ 18,960 17,723 (59) (2,936) 33,688
General and
administrative
expenses............. 4,146 4,207 7 -- 8,360
Depreciation and
amortization......... 3,317 3,306 1 -- 6,624
------- -------- ---- ------- --------
Total operating
expenses........... 26,423 25,236 (51) (2,936) 48,672
------- -------- ---- ------- --------
Income (loss) from
operations............. (2,384) 4,012 51 2,936 4,615
------- -------- ---- ------- --------
Equity in earnings of
subsidiaries........... 4,098 -- -- (4,098) --
------- -------- ---- ------- --------
Other income (expense):
Interest expense...... (3,977) (4,038) (3) 984 (7,034)
Miscellaneous......... 179 4,097 9 (3,950) 335
------- -------- ---- ------- --------
Total other
expense............ (3,798) 59 6 (2,966) (6,699)
------- -------- ---- ------- --------
Income (loss) before
income taxes and
extraordinary item..... (2,084) 4,071 57 (4,128) (2,084)
Income tax benefit
(expense).............. 504 (1,368) (57) 1,425 504
------- -------- ---- ------- --------
Net income (loss) before
extraordinary item..... (1,580) 2,703 -- (2,703) (1,580)
Extraordinary item, net
of taxes............... -- -- -- -- --
------- -------- ---- ------- --------
Net income (loss)....... (1,580) 2,703 -- (2,703) (1,580)
Preferred dividends..... (647) -- -- -- (647)
------- -------- ---- ------- --------
Net income (loss)
applicable to common
shareholders........... $(2,227) $ 2,703 $ -- $(2,703) $ (2,227)
======= ======== ==== ======= ========
18
THE PANTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
THE PANTRY, INC.
SUPPLEMENTAL COMBINING STATEMENT OF OPERATIONS
Three Months Ended March 25, 1999
Total
The Pantry Guarantor Non-Guarantor
(Issuer) Subsidiaries Subsidiaries Eliminations Total
---------- ------------ ------------- ------------ --------
(dollars in thousands)
Revenues:
Merchandise sales..... $ 86,920 $ 77,652 $ -- $ -- $164,572
Gasoline sales........ 105,111 84,017 -- -- 189,128
Commissions........... 3,786 2,306 -- -- 6,092
-------- -------- ---- ------- --------
Total revenues...... 195,817 163,975 -- -- 359,792
-------- -------- ---- ------- --------
Cost of sales:
Merchandise........... (58,745) 51,627 -- -- 110,372
Gasoline.............. (93,108) 72,751 -- -- 165,859
-------- -------- ---- ------- --------
Total cost of
sales.............. 151,853 124,378 -- -- 276,231
-------- -------- ---- ------- --------
Gross profit............ 43,964 39,597 -- -- 83,561
-------- -------- ---- ------- --------
Operating expenses:
Store expenses........ 33,496 23,802 (60) (5,752) 51,486
General and
administrative
expenses............. 6,174 6,208 6 -- 12,388
Depreciation and
amortization......... 4,583 5,056 1 -- 9,640
-------- -------- ---- ------- --------
Total operating
expenses........... 44,253 35,066 (53) (5,752) 73,514
-------- -------- ---- ------- --------
Income (loss) from
operations............. (289) 4,531 53 5,752 10,047
-------- -------- ---- ------- --------
Equity in earnings of
subsidiaries........... 6,425 16 -- 6,441 --
-------- -------- ---- ------- --------
Other income (expense):
Interest expense...... (5,792) (5,447) 2 1,280 (9,961)
Miscellaneous......... 54 7,235 38 7,015 312
-------- -------- ---- ------- --------
Total other
expenses........... (5,738) 1,788 36 (5,735) (9,649)
-------- -------- ---- ------- --------
Income (loss) before
income taxes and
extraordinary loss..... 398 6,335 89 (6,424) 398
Income tax benefit
(expense).............. (386) (2,306) 34 2,340 (386)
-------- -------- ---- ------- --------
Net income (loss) before
extraordinary item..... 12 4,029 55 (4,084) 12
Extraordinary loss...... (3,557) -- -- -- (3,557)
-------- -------- ---- ------- --------
Net income (loss)....... (3,545) 4,029 55 (4,084) (3,545)
Preferred dividends..... (734) -- -- -- (734)
-------- -------- ---- ------- --------
Net income (loss)
applicable to common
shareholders........... $ (4,279) $ 4,029 $ 55 $(4,084) $ (4,279)
======== ======== ==== ======= ========
19
THE PANTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
THE PANTRY, INC.
SUPPLEMENTAL COMBINING STATEMENT OF OPERATIONS
Six Months Ended March 26, 1998
The Pantry Guarantor Non-Guarantor
(Issuer) Subsidiaries Subsidiary Eliminations Total
---------- ------------ ------------- ------------ --------
(dollars in thousands)
Revenues:
Merchandise sales..... $ 99,613 $ 94,152 $ -- $ -- $193,765
Gasoline sales........ 105,466 110,252 -- -- 215,718
Commissions........... 2,915 3,443 -- -- 6,358
-------- -------- ----- ------- --------
Total revenues...... 207,994 207,847 -- -- 415,841
-------- -------- ----- ------- --------
Cost of sales:
Merchandise........... 64,374 62,491 -- -- 126,865
Gasoline.............. 93,984 96,340 -- -- 190,324
-------- -------- ----- ------- --------
Total cost of
sales.............. 158,358 158,831 -- -- 317,189
-------- -------- ----- ------- --------
Gross profit............ 49,636 49,016 -- -- 98,652
-------- -------- ----- ------- --------
Operating expenses:
Store expenses........ 37,962 30,212 (119) (6,202) 61,853
General and
administrative
expenses............. 8,481 7,039 12 -- 15,532
Depreciation and
amortization......... 6,187 5,585 3 -- 11,775
-------- -------- ----- ------- --------
Total operating
expenses........... 52,630 42,836 (104) (6,202) 89,160
-------- -------- ----- ------- --------
Income (loss) from
operations............. (2,994) 6,180 104 6,202 9,492
-------- -------- ----- ------- --------
Equity in earnings of
subsidiaries........... 8,071 -- -- (8,071) --
-------- -------- ----- ------- --------
Other income (expense):
Interest expense...... (8,125) (6,785) (6) 2,065 (12,851)
Miscellaneous......... 463 8,562 15 (8,266) 774
-------- -------- ----- ------- --------
Total other
expense............ (7,662) 1,777 9 (6,201) (12,077)
-------- -------- ----- ------- --------
Income (loss) before
income taxes and
extraordinary item..... (2,585) 7,957 113 (8,070) (2,585)
Income tax benefit
(expense).............. 916 (2,755) (132) 2,887 916
-------- -------- ----- ------- --------
Net income (loss) before
extraordinary item..... (1,669) 5,202 (19) (5,183) (1,669)
Extraordinary item, net
of taxes............... (6,800) -- -- -- (6,800)
-------- -------- ----- ------- --------
Net income (loss)....... (8,469) 5,202 (19) (5,183) (8,469)
Preferred dividends..... (1,586) -- -- -- (1,586)
-------- -------- ----- ------- --------
Net income (loss)
applicable to common
shareholders........... $(10,055) $ 5,202 $ (19) $(5,183) $(10,055)
======== ======== ===== ======= ========
20
THE PANTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
THE PANTRY, INC.
SUPPLEMENTAL COMBINING STATEMENTS OF OPERATIONS
Six Months Ended March 25, 1999
Total
The Pantry Guarantor Non-Guarantor
(Issuer) Subsidiaries Subsidiaries Eliminations Total
---------- ------------ ------------- ------------ --------
(dollars in thousands)
Revenues:
Merchandise sales..... $170,297 $133,665 $ -- $ -- $303,962
Gasoline sales........ 212,186 148,731 -- -- 360,917
Commissions........... 6,294 4,226 -- -- 10,520
-------- -------- ----- -------- --------
Total revenues...... 388,777 286,622 -- -- 675,399
-------- -------- ----- -------- --------
Cost of sales:
Merchandise........... 115,711 89,114 -- -- 204,825
Gasoline.............. 186,555 128,078 -- -- 314,633
-------- -------- ----- -------- --------
Total cost of
sales.............. 302,266 217,192 -- -- 519,458
-------- -------- ----- -------- --------
Gross profit............ 86,511 69,430 -- -- 155,941
-------- -------- ----- -------- --------
Operating expenses:
Store expenses........ 65,635 41,158 (121) (11,457) 95,215
General and
administrative
expenses............. 11,849 10,496 11 -- 22,356
Depreciation and
amortization......... 9,119 8,708 3 -- 17,830
-------- -------- ----- -------- --------
Total operating
expenses........... 86,603 60,362 (107) (11,457) 135,401
-------- -------- ----- -------- --------
Income (loss) from
operations............. (92) 9,068 107 11,457 20,540
-------- -------- ----- -------- --------
Equity in earnings of
subsidiaries........... 13,677 16 -- (13,693) --
-------- -------- ----- -------- --------
Other income (expense):
Interest expense...... (11,564) (9,819) (5) 2,515 (18,873)
Miscellaneous......... (226) 14,237 72 (13,955) 128
-------- -------- ----- -------- --------
Total other
expense............ (11,790) 4,418 67 (11,440) (18,745)
-------- -------- ----- -------- --------
Income (loss) before
income taxes and
extraordinary loss..... 1,795 13,502 174 (13,676) 1,795
Income tax benefit
(expense).............. (718) (4,717) (89) 4,806 (718)
-------- -------- ----- -------- --------
Net income (loss) before
extraordinary loss..... 1,077 8,785 85 (8,870) 1,077
Extraordinary loss...... (3,557) -- -- -- (3,557)
-------- -------- ----- -------- --------
Net income (loss)....... (2,480) 8,785 85 (8,870) (2,480)
Preferred dividends..... (1,466) -- -- -- (1,466)
-------- -------- ----- -------- --------
Net income (loss)
applicable to common
shareholders........... $ (3,926) $ 8,785 $ 85 $ (8,870) $ (3,926)
======== ======== ===== ======== ========
21
THE PANTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
THE PANTRY, INC.
SUPPLEMENTAL COMBINING STATEMENTS OF CASH FLOWS
Six Months Ended March 25, 1998
The Pantry Guarantor Non-Guarantor
(Issuer) Subsidiaries Subsidiary Eliminations Total
---------- ------------ ------------- ------------ ---------
(Dollars in Thousands)
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)....... $ (8,469) $ 5,202 $(19) $(5,183) $ (8,469)
Adjustments to reconcile
net income (loss) to
net cash provided by
(used in) operating
activities:
Extraordinary loss.... 6,800 -- -- -- 6,800
Depreciation and
amortization......... 6,193 5,580 2 -- 11,775
Provision for deferred
income taxes......... (1,398) -- (17) -- (1,415)
(Gain) loss on sale of
property and
equipment............ 100 109 -- -- 209
Reserves for
environmental
issues............... 57 -- -- -- 57
Equity earnings of
affiliates........... (5,183) -- -- 5,183 --
Changes in operating
assets and liabilities,
net:
Receivables........... (3,068) (6,891) 26 6,175 (3,758)
Inventories........... 1,501 (2,282) -- -- (781)
Prepaid expenses...... 423 462 (6) -- 879
Other noncurrent
assets............... (15) (386) -- 5,767 5,366
Accounts payable...... (661) 2,056 -- 2 1,397
Other current
liabilities and
accrued expenses..... 5,883 3,462 136 (7,922) 1,559
Employment
obligations.......... (185) -- -- -- (185)
Other noncurrent
liabilities.......... 2,675 1,543 -- -- 4,218
-------- --------- ---- ------- ---------
Net cash provided by
operating activities... 4,653 8,855 122 4,022 17,652
-------- --------- ---- ------- ---------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Additions to property
held for sale.......... (2,648) -- -- -- (2,648)
Additions to property
and equipment.......... (11,324) (6,490) -- -- (17,814)
Proceeds from sale of
property held for
sale................... 2,025 -- -- -- 2,025
Proceeds from sale of
property and
equipment.............. 316 366 -- -- 682
Intercompany notes
receivable (payable)... 4,048 -- (26) (4,022) --
Acquisitions of related
businesses, net of cash
acquired of $10,487.... (9,500) (135,898) -- -- (145,398)
-------- --------- ---- ------- ---------
Net cash used in
investing activities... (17,083) (142,022) (26) (4,022) (163,153)
-------- --------- ---- ------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Principal repayments
under capital leases... (151) (426) -- -- (577)
Principal repayments of
long-term debt......... (57,000) -- (9) -- (57,009)
Proceeds from issuance
of long-term debt...... 63,267 145,755 -- -- 209,022
Net proceeds from equity
issue.................. 31,936 -- -- -- 31,936
Other financing costs... (12,674) -- -- -- (12,674)
-------- --------- ---- ------- ---------
Net cash provided by
(used in) financing
activities............. 25,378 145,329 (9) -- 170,698
-------- --------- ---- ------- ---------
NET INCREASE IN CASH.... 12,948 12,162 87 -- 25,197
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF PERIOD.... 2,247 279 821 -- 3,347
-------- --------- ---- ------- ---------
CASH AND CASH
EQUIVALENTS AT END OF
PERIOD................. $ 15,195 $ 12,441 $908 $ -- $ 28,544
======== ========= ==== ======= =========
22
THE PANTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
THE PANTRY, INC.
SUPPLEMENTAL COMBINING STATEMENTS OF CASH FLOWS
Six Months Ended March 25, 1999
The Pantry Guarantor Non-Guarantor
(Issuer) Subsidiaries Subsidiary Eliminations Total
---------- ------------ ------------- ------------ ---------
(Dollars in Thousands)
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)....... $ (2,480) $ 8,785 $ 85 $ (8,870) $ (2,480)
Adjustments to reconcile
net income (loss) to
net cash provided by
(used in) operating
activities:
Extraordinary loss.... 3,405 -- -- -- 3,405
Depreciation and
amortization......... 9,119 8,708 3 -- 17,830
Provision for deferred
income taxes......... (136) 256 -- -- 120
(Gain) loss on sale of
property and
equipment............ (741) 344 -- (13) (410)
Reserves for
environmental
issues............... 79 (31) -- -- 48
Provision for closed
stores............... -- -- -- -- --
Equity earnings of
affiliates........... (8,950) -- -- 8,950 --
Changes in operating
assets and liabilities,
net:
Receivables........... (9,311) (7,685) 569 15,479 (948)
Inventories........... (3,668) (960) -- -- (4,628)
Prepaid expenses...... (44) 31 (5) -- (18)
Other noncurrent
assets............... (218) (2,011) -- 13 (2,216)
Accounts payable...... 6,914 997 -- -- 7,911
Other current
liabilities and
accrued expenses..... 16,036 (9,863) (490) (11,369) (5,686)
Employment
obligations.......... (185) -- -- -- (185)
Accrued dividends..... -- -- -- -- --
Other noncurrent
liabilities.......... 2,999 (1,703) (1) (633) 662
-------- ------- ------ -------- ---------
Net cash provided by
(used in) operating
activities............. 12,819 (3,132) 161 3,557 13,405
-------- ------- ------ -------- ---------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Additions to property
held for sale.......... (93) -- -- -- (93)
Additions to property
and equipment.......... (12,259) (10,907) -- -- (23,166)
Proceeds from sale of
property held for
sale................... 1,495 -- -- -- 1,495
Proceeds from sale of
property and
equipment.............. 376 -- -- -- 376
Intercompany notes
receivable (payable)... (2,081) 100,139 -- (98,058) --
Acquisitions of related
businesses, net of cash
acquired .............. (143,610) (80,791) -- 94,501 (129,900)
-------- ------- ------ -------- ---------
Net cash provided by
(used in) investing
activities............. (156,172) 8,441 -- (3,557) (151,288)
-------- ------- ------ -------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Principal repayments
under capital leases... (121) (510) -- -- (631)
Proceeds from issuance
of capital leases...... -- -- -- -- --
Principal repayments of
long-term debt......... (143,979) (10) (10) -- (143,999)
Proceeds from issuance
of long-term debt...... 275,000 -- -- -- 275,000
Loan to shareholder..... -- -- -- -- --
Net proceeds from equity
issues................. 1,068 -- -- -- 1,068
Other financing costs... (2,960) -- -- -- (2,960)
-------- ------- ------ -------- ---------
Net cash provided by
(used in) financing
activities............. 129,008 (520) (10) -- 128,478
-------- ------- ------ -------- ---------
NET INCREASE (DECREASE)
IN CASH................ (14,345) 4,789 151 -- (9,405)
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF YEAR...... 24,031 6,300 4,073 -- 34,404
-------- ------- ------ -------- ---------
CASH AND CASH
EQUIVALENTS AT END OF
PERIOD ................ $ 9,686 $11,089 $4,224 $ -- $ 24,999
======== ======= ====== ======== =========
23
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Amendment No. 2 to the undersigned's Quarterly
Report on Form 10-Q to be signed on its behalf by the undersigned thereunto
duly authorized.
THE PANTRY, INC.
Date: June 9, 1999
By: /s/ William T. Flyg
_________________________________
William T. Flyg
Senior Vice President Finance and
Secretary
(Authorized Officer and Principal
Financial Officer)
24