SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 26, 1997
Commission File Number 33-72574
THE PANTRY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 56-1574463
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1801 DOUGLAS DRIVE, SANFORD, NORTH CAROLINA
(Address of principal executive offices)
27330
(Zip Code)
(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 114,029 shares
(Class) (Outstanding at July 31, 1997)
THE PANTRY, INC.
Form 10-Q
June 26, 1997
Table of Contents
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets...................................................................2
Consolidated Statements of Operations.........................................................4
Consolidated Statements of Cash Flows.........................................................5
Notes to Consolidated Financial Statements....................................................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..............................................................9
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K.............................................................13
PART I - Financial Information.
Item 1. Financial Statements.
THE PANTRY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 26, June 26,
1996 1997
(Audited) (Unaudited)
ASSETS
Current assets:
Cash $ 5,338 $ 6,134
Receivables 2,860 2,961
Inventories 13,223 15,637
Prepaid expenses 775 960
Income taxes receivable 63 --
Property held for sale 2,816 8,168
Deferred income taxes 879 --
Total current assets 25,954 33,860
Property and equipment, net 65,455 72,085
Other assets:
Goodwill, net 16,852 20,565
Deferred lease cost, net 359 325
Deferred financing cost, net 5,940 6,077
Environmental receivables, net 5,162 5,162
Deferred income taxes 790 1,505
Other 368 329
Total other assets 29,471 33,963
$120,880 $139,908
See Notes to Consolidated Financial Statements.
2
THE PANTRY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 26, June 26,
1996 1997
(Audited) (Unaudited)
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt $ 16 $ 32
Current maturities of capital lease obligations 285 285
Line of credit -- 5,645
Accounts payable:
Trade 15,666 16,640
Money orders 2,788 3,154
Accrued interest 4,416 1,489
Accrued compensation and related taxes 2,338 3,228
Other accrued taxes 2,135 1,455
Accrued insurance 3,629 4,251
Other accrued liabilities 1,194 1,256
Total current liabilities 32,467 37,435
Long-term debt 100,148 100,314
Other non-current liabilities:
Environmental reserve 6,232 6,494
Capital lease obligations 982 755
Employment obligations 2,039 1,590
Accrued dividends on preferred stock 2,654 6,414
Other 3,905 4,584
Total other non-current liabilities 15,812 19,837
Shareholders' deficit:
Preferred stock, $.01 par value, 150,000 shares authorized; 25,999 issued and
outstanding at September 26, 1996 and
43,499 issued and outstanding at March 27, 1997 -- --
Common stock, $.01 par value, 300,000 shares authorized;
114,029 issued and outstanding 1 1
Additional paid in capital (10,557) 5,383
Accumulated deficit (16,991) (23,062)
Total shareholders' deficit (27,547) (17,678)
$ 120,880 $ 139,908
See Notes to Consolidated Financial Statements.
3
THE PANTRY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands)
Three Months Ended Nine Months Ended
June 27, June 26, June 27, June 26,
1996 1997 1996 1997
(13 weeks) (13 weeks) (39 weeks) (39 weeks)
Revenues:
Merchandise sales $ 50,351 $ 52,562 $ 135,611 $ 144,679
Gasoline sales 52,301 57,132 139,975 158,970
Commissions 998 1,338 3,019 3,624
Total revenues 103,650 111,032 278,605 307,273
Cost of sales:
Merchandise 34,196 34,552 91,007 95,384
Gasoline 45,617 51,166 121,886 143,084
Total cost of sales 79,813 85,718 212,893 238,468
Gross profit 23,837 25,314 65,712 68,805
Operating expenses:
Store expenses 14,002 14,959 42,893 43,644
General and administrative expenses 5,363 4,237 14,615 12,715
Depreciation and amortization 2,333 2,310 6,874 6,808
Total operating expenses 21,698 21,506 64,382 63,167
Income from operations 2,139 3,808 1,330 5,638
Other income (expense):
Interest (2,604) (3,284) (8,906) (9,763)
Miscellaneous (347) 517 (138) 1,236
Total other expense (2,951) (2,767) (9,044) (8,527)
Income (loss) before income taxes (812) 1,041 (7,714) (2,889)
Income tax benefit (expense) (286) (208) 1,392 578
Net income (loss) $ (1,098) $ 833 $ (6,322) $ (2,311)
See Notes to Consolidated Financial Statements.
4
THE PANTRY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Nine Months Ended
June 27, June 26,
1996 1997
(39 weeks) (39 weeks)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(6,322) $(2,311)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization 6,874 6,808
(Gain) loss on sale of property and equipment 268 (467)
Reserves for environmental issues 73 72
Reserves for closed stores 285 59
Write-off of property held for sale 125 --
Amortization of deferred revenues (1,011) (949)
(Increase) decrease in:
Receivables (249) (64)
Inventories (848) (1,019)
Prepaid expenses 4 (184)
Income taxes receivable (392) (644)
Other assets 262 26
Increase (decrease) in:
Accounts payable - trade 3,756 974
Accounts payable - money orders 778 366
Accrued interest (3,451) (2,927)
Accrued compensation and related taxes 393 890
Income taxes payable (657) --
Other accrued taxes 4 (681)
Accrued insurance 342 623
Employment obligations (71) (449)
Other accrued liabilities (246) 63
Other liabilities 1,831 1,739
Net cash provided by (used in) operating activities 1,748 1,925
See Notes to Consolidated Financial Statements.
5
THE PANTRY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Nine Months Ended
June 27, June 26,
1996 1997
(39 weeks) (39 weeks)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property held for sale (3,362) (6,737)
Additions to property and equipment (5,447) (9,003)
Cash paid for businesses acquired -- (9,526)
Proceeds from sale of property held for sale 1,385 1,274
Proceeds from sale of property and equipment 1,421 1,406
Net cash provided by (used in) investing activities (6,003) (22,586)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligations (270) (227)
Principal payments on long-term debt (16) (18)
Proceeds from issuance of long-term debt -- 200
Proceeds from line of credit, net 2,585 5,645
Net proceeds (payments) related to equity issue (285) 15,941
Other financing costs (3,030) (84)
Net cash provided by (used in) financing activities (1,016) 21,457
Net increase (decrease) in cash (5,271) 796
CASH AT BEGINNING OF PERIOD 10,999 5,338
CASH AT END OF PERIOD $ 5,728 $ 6,134
See Notes to Consolidated Financial Statements.
6
THE PANTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying 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 (the Company) and all amounts at June 26, 1997 and for the
comparative three and nine month periods are unaudited. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting
principles 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. It is suggested
that these interim financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's annual report on Form 10-K for the year ended September 26,
1996 and the Company's quarterly reports on Form 10-Q for the quarterly
periods ended December 26, 1996 and March 27, 1997.
2. The results of operations for the three and nine month periods ended June
26, 1997 are not necessarily indicative of results to be expected for the
full fiscal year. The convenience store industry in the Company's
marketing areas experiences higher levels of revenues and profit margins
during the summer months than during the winter months. Historically, the
Company has achieved higher revenues and earnings in its third and fourth
quarters.
3. Inventories are stated at the lower of last-in, first-out (LIFO) cost or
market. Inventories consisted of the following (in thousands):
September 26, June 26,
1996 1997
(Audited) (Unaudited)
Inventories at FIFO cost:
Merchandise $ 13,841 $ 16,180
Gasoline 4,013 4,691
17,854 20,871
Less adjustment to LIFO cost:
Merchandise (4,012) (4,352)
Gasoline (619) (882)
Inventories at LIFO cost $ 13,223 $ 15,637
4. Environmental reserves of $6.2 million and $6.5 million as of September
26, 1996 and June 26, 1997 represent estimates for future expenditures
for remediation, tank removal and litigation associated with all known
contaminated sites 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. The Company anticipates
that it will be reimbursed for a portion of these expenditures from state
insurance funds and private insurance. These anticipated reimbursements
of $5.2 million are recorded as long-term environmental receivables.
5. On December 30, 1996, the Company issued 17,500 shares of Series B
Preferred Stock, $0.01 par value, for $17.5 million (see Management's
Discussion and Analysis of Financial Condition and Results of Operations;
Liquidity and Capital Resources; Preferred and Common Stock). The Company
used the net proceeds of $16 million to fund acquisitions, existing store
remodels and new store development. This transaction increases the total
number of shares of Preferred Stock issued and outstanding to 43,499
consisting of 25,999 outstanding shares of Series A Preferred Stock and
17,500 outstanding shares of Series B Preferred Stock.
Under the terms of the Series A Preferred Stock, holders of the
outstanding shares are entitled to receive cumulative dividends in an
amount equal to sixty dollars ($60) per share per semi-annual calendar
period plus an amount determined by applying a 12% annual rate compounded
semi-annually to any accrued but unpaid dividend amount from the last day
of the semi-annual calendar period when such dividend accrues to the
actual
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date of payment of such dividend. In accordance with these terms,
the Company has accrued $5,258,271 of Series A Preferred Stock dividends
as of June 26, 1997.
Under the terms of the Series B Preferred Stock, holders of the
outstanding shares are entitled to receive cumulative dividends in an
amount equal to thirty-two dollars and fifty cents ($32.50) per share per
quarterly calendar period plus an amount determined by applying a 13%
annual rate compounded quarterly to any accrued but unpaid dividend
amount from the last day of the quarterly calendar period when such
dividend accrues to the actual date of payment of such dividend. In
accordance with these terms, the Company has accrued $1,155,984 of
Series B Preferred Stock dividends as of June 26, 1997.
6. In four separate and unrelated transactions, the Company acquired
thirty-two (32) convenience stores in existing markets in North and South
Carolina. The Company acquired the operating rights, leases, certain
equipment, inventory and certain real estate. The real estate purchased
is classified as property held for resale in the Company's financial
statements and sale and leaseback transactions are expected within the
next twelve months. The Company paid $14.7 million for the assets with
values attributed as follows (in thousands):
Property held for resale $ 5,150
Plant, property and equipment 3,974
Inventory 1,395
Value of tangible assets purchased 10,519
Cash paid in excess of value - goodwill 4,157
Cash paid for businesses acquired $ 14,676
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Revenues. Total revenues for the quarter and nine month periods ended
June 26, 1997 were 7% and 10% higher, respectively, than the comparable periods
ended June 27, 1996 (the "comparable periods in 1996"), despite a 4% decline in
average store count. The increase in revenues can be attributed to improved
store conditions including merchandising, competitiveness and overall store
appearance.
Total merchandise revenue for both the quarter and nine month periods
ended June 26, 1997 was 4% and 7% higher, respectively, than the comparable
periods in 1996. Same store merchandise revenues for the quarter and nine month
periods ended June 26, 1997 increased 6% and 9% over the comparable periods in
1996. The increase in merchandise sales can be attributed to improved volume in
major product categories, enhanced store merchandising and increased promotional
activity.
Gasoline revenues increased 9% and 14% for the quarter and nine month
periods ended June 26, 1997 over the comparable periods in 1996 due primarily to
increases in gasoline volume (gallons). In the quarter ended June 26, 1997
("third fiscal quarter 1997"), total gasoline volume and same store gallons
increased 18% and 13%, respectively. For the nine month period ended June 26,
1997 ("first fiscal nine months 1997"), total gasoline volume and same store
gallons increased 9% and 7%, respectively. The increase in gallons can be
attributed to a more competitive retail pricing strategy and a comparatively
milder winter in the Company's major markets. Commission revenues increased 34%
and 20% for the quarter and nine month periods ended June 26, 1997 over the
comparable periods in 1996 due to increases in money order, amusement and other
miscellaneous commission income.
Gross Profit. Gross profit for the quarter and nine month periods ended
June 26, 1997 increased 6% and 5%, respectively, compared to the comparable
periods in 1996, despite a 11% and 12% decline in gasoline gross profit,
respectively. The gasoline gross profit decline was offset by an increase in
merchandise gross profit attributable to increased revenue and higher average
gross margin. The increase in merchandise gross margin reflects changes in
merchandise mix and increased controls to lower inventory shrinkage. The decline
in gasoline margin per gallon is the result of general gasoline market
conditions, price competition from other gasoline marketers and a more
competitive gasoline pricing strategy.
Store Operating and General and Administrative Expenses. Store
operating expenses increased 7% and 2% for the quarter and nine month periods
ended June 26, 1997, respectively, compared to the comparable periods in 1996
due to increases in wage, repair & maintenance, rent and equipment lease
expenses. General and administrative expenses for the quarter and nine month
periods ended June 26, 1997 decreased over the comparable periods in 1996, both
in total dollars and as a percentage of merchandise sales. The decline in
general and administrative expenses was primarily due to lower employee related
expenses and lower general office expenses.
Income from Operations. Income from operations increased from $2.1
million in the third fiscal quarter 1996 to $3.8 million in the third fiscal
quarter 1997 for an increase of $1.7 million or 78%. The increase is primarily
due to increased merchandise gross profit, increased commission revenues and
lower administrative expenses as noted above. For the nine month period ended
June 26, 1997, income from operations totaled $5.6 million, a $4.3 million or
324% increase over the comparable period in 1996.
Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA"). EBITDA represents income (loss) before interest expense, income tax
benefit (expense) and depreciation and amortization. EBITDA for the third fiscal
quarter 1997 was $6.6 million versus $4.1 million in the third fiscal quarter
1996. EBITDA for the first fiscal nine months 1997 was $13.7 million versus $8.1
million for the nine months ended June 27, 1996 ("first fiscal nine months
1996"). EBITDA increased over the comparable periods in 1996 primarily as a
result of the increase in income from operations discussed above. EBITDA in the
third fiscal quarter 1997 and nine months ended June 26, 1997 covered interest
expense 2.0 and 1.4 times, respectively.
Interest Expense (see Liquidity and Capital Resources; Long-Term Debt).
Interest expense is primarily interest on the $100 million of the Company's 12%
Senior Notes due 2000 (the "Notes") which is due and payable semi-annually on
May 15 and November 15. Interest expense increased $0.7 million and $0.9 million
for the quarter and nine month periods ended June 26, 1997, respectively, over
the comparable periods in 1996 as the rate on the Notes increased from 12% to
12.5% on December 27, 1996. The increase resulting from the rate increase was
partially offset by a decrease in the interest on the Company's Line of Credit
Facility as average borrowings were lower in the third fiscal quarter 1997 than
in the third fiscal quarter 1996.
8
Liquidity and Capital Resources
Cash Flows from Operations. Due to the nature of the Company's
business, substantially all sales are for cash, and cash provided by operations
is the Company's primary source of liquidity. Currently, acquisition costs, new
store development, general capital expenditures and interest expense represent
the primary uses of Company funds. Cash provided by operating activities in the
first fiscal nine months 1997 increased primarily due to a $4 million lower net
loss from the first fiscal nine months 1996. The lower net loss was partially
offset by increases in the Company's merchandise inventory and higher weighted
average cost of gasoline inventory.
Line and Letter of Credit Facility. To supplement cash on hand and cash
provided by operating activities, the Company has a $25 million credit facility,
which will expire on January 31, 1998 consisting of a $10 million working
capital line of credit and a $15 million line of credit for issuance of standby
letters of credit to vendors, insurance companies, federal and state regulatory
agencies for self-insurance of workers compensation and for other letter of
credit needs. Up to $2.5 million of the standby letter of credit facility can be
used as an additional working capital line of credit. As of June 26, 1997, there
was a $5.6 million outstanding balance under the $10 million working capital
line of credit and approximately $8.2 million of letters of credit were issued
under the standby letter of credit facility.
Capital Expenditures. For the nine month period ended June 26, 1997,
capital expenditures totaled $25.3 million, primarily comprised of expenditures
for acquisition activity, existing store improvements, store equipment and new
store development. Of the $25.3 million, $14.7 million was expended to acquire
the operating rights, certain real estate, equipment and inventory of thirty-two
(32) convenience stores owned by four unrelated parties located within the
Company's existing markets. The remaining $10.6 million was expended to remodel
existing stores, acquire certain properties, and upgrade certain store
equipment. These activities are consistent with the Company's strategy to invest
through acquisition, new site development and upgrading existing store
facilities.
As of June 26, 1997, the Company has over $8.2 million in property held
for resale. Several of these properties are fully developed and sale-leaseback
transactions are expected within the next twelve months.
Long-Term Debt. The Company's long-term debt consists primarily of the
Notes. The interest payments on the Notes are due May 15 and November 15. The
Indenture, which governs the Notes, contains restrictive covenants that affect
the ability of the Company to expand its business. A Supplemental Indenture,
executed on December 4, 1995, by the Company and IBJ Schroder Bank & Trust
Company, as Trustee, became effective on December 30, 1996, when the Company
issued additional Qualified Capital Stock (as defined in the Indenture) raising
the total Qualified Capital Stock proceeds received since December 1995 to over
$22.6 million on or before December 31, 1996. The issuance of the additional
Qualified Capital Stock caused the Supplemental Indenture to become effective.
The Supplemental Indenture amends the Indenture as follows: (i)
permitted borrowings under Section 4.10(b) of the Indenture are increased from
$25 million to $35 million and the purposes for which such borrowings can be
used is expanded; (ii) borrowings permitted under Section 4.10(d) of the
Indenture are increased from $5 million to $10 million, the purposes for which
such borrowings can be used are expanded to include capital expenditures
generally (rather than furniture, fixtures and equipment) and the restriction
that all such borrowings be non-recourse to the Company is removed; (iii) the
time period in which proceeds of Asset Sales (as defined in the Indenture) can
be reinvested is increased and the amount of Asset Sales for which no prepayment
of the Notes is required under Section 4.13 of the Indenture is increased to
facilitate potential sale/leaseback transactions; (iv) the limitations on
Restricted Payments (as defined in the Indenture) are modified to allow the
Company to make loans to employees to purchase Company stock and to allow the
Company to repurchase stock from employees when their employment with the
Company terminates; (v) the Company is required to own a minimum of 112
convenience store properties at all times; and (vi) the interest rate payable on
the Notes will increase if the Consolidated Fixed Charge Coverage Ratio falls
for a Measurement Period ("the Coverage Ratio", as defined in the Indenture)
below 1.63 to 1.
The Company's Coverage Ratio for the Measurement Period for the twelve
months ending December 26, 1996 was .93 to 1, resulting in an increase in the
interest rate on the Notes from 12% to 12.5% for the period beginning December
27, 1996 and ending June 26, 1997. The Coverage Ratio for the Measurement Period
for the twelve months ending June 26, 1997 was 1.24 to 1, indicating an
improvement in the ratio though not sufficient to trigger a decline in the
interest rate. Since the Coverage Ratio does not equal or exceed 1.63 to 1, the
interest rate on the Notes will continue to be 12.5% through December 1997. The
incremental 0.5% interest accruing from May 16 through June 26, 1997 will be
paid on November 15, 1997.
The $0.2 million increase in long-term debt results from permitted
borrowings under the Notes to acquire property and convenience stores. The debt
is secured by the property with principal and interest payments monthly.
9
Preferred and Common Stock. In a series of transactions during fiscal
1996, Freeman Spogli & Co. Incorporated, through its affiliates, FS Equity
Partners III, L.P., a Delaware limited partnership ("FSEP III") and FS Equity
Partners International, L.P., a Delaware limited partnership ("FSEP
International," collectively with FSEP III, "the FS Group," the FS Group
collectively with Freeman Spogli & Co. Incorporated, "FS&Co.") and Chase
Manhattan Capital Corporation ("Chase") purchased all of the newly issued
preferred stock and 95.4% of the outstanding common stock of the Company. A
partnership of which Mr. Christopher C. Behrens, a director of the Company and
an affiliate of Chase, is a partner owns 4.6% of the common stock.
On December 30, 1996, subsequent to the end of the Company's first
quarter fiscal 1997, the Company issued and FS&Co. purchased 17,500 shares of
Series B Preferred Stock for $17.5 million. The Company used the net proceeds of
$16 million to fund acquisitions, existing store remodels and new store
development. As a result of this transaction, the Company has issued and
outstanding (i) 114,029 shares of common stock, (ii) 25,999 shares of Series A
Preferred Stock, and (iii) 17,500 shares of Series B Preferred Stock.
Environmental Considerations. The Company is subject to various
federal, state and local environmental laws. Federal, state, and local
regulatory agencies have adopted regulations governing underground petroleum
storage tanks ("USTs") that require the Company to make certain expenditures for
compliance. Regulations enacted by the EPA in 1988 established requirements for
(i) installing UST systems; (ii) upgrading UST systems; (iii) taking corrective
action in response to releases; (iv) closing UST systems; (v) keeping
appropriate records; and (vi) maintaining evidence of financial responsibility
for taking corrective action and compensating third parties for bodily injury
and property damage resulting from releases. UST systems upgrading consists of:
installing and employing leak detection equipment and systems, upgrading UST
systems for corrosion protection and installing overfill/spill prevention
devices.
In addition to the technical standards, the Company 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 UST systems. In order to comply with the applicable
requirements, the Company maintains a letter of credit in the aggregate amount
of $2.1 million issued by a commercial bank in favor of state environmental
agencies in the states of North Carolina, South Carolina, Tennessee, Kentucky
and Indiana and relies upon the reimbursement provisions of applicable state
trust funds.
The Company believes it is in full or substantial compliance with
the leak detection requirements applicable to its USTs. The Company anticipates
that it will meet the 1998 deadline for installing corrosion protection and
spill/overfill equipment for all of its USTs and has budgeted approximately $2.0
million of capital expenditures for these purposes over the next two fiscal
years. Additional regulations or amendments to the existing UST regulations
could result in future revisions to the estimated upgrade compliance and
remediation costs outlined above.
All states in which the Company operates or has operated UST systems
have established trust funds for the sharing, recovering and reimbursing of
certain cleanup costs and liabilities incurred as a result of releases from UST
systems. These trust funds, which essentially provide coverage for taking
corrective action and compensating third parties in the event of a release from
its UST systems, are funded by a UST registration fee and a tax on the wholesale
purchase of motor fuels within each state. The Company has paid UST registration
fees and gasoline taxes to each state where it operates to participate in these
trust programs and the Company has filed claims and received reimbursement in
North Carolina, South Carolina, Tennessee and Kentucky. The coverage afforded by
each state fund varies but generally provides for up to $1 million per site for
the cleanup of environmental contamination, and most provide coverage for third
party liability subject to applicable deductibles. Costs for which the Company
does not receive reimbursement include but are not limited to: (i) the per-site
deductible; (ii) costs incurred in connection with releases occurring or
reported to trust funds prior to their inception; (iii) removal and disposal of
UST systems; and (iv) costs incurred in connection with sites otherwise
ineligible for reimbursement from the trust funds. The trust funds require the
Company to pay deductibles ranging from $10,000 to $100,000 per occurrence
depending on the upgrade status of its UST system, the date the release is
discovered/reported and the type of cost for which reimbursement is sought.
Reimbursements from state trust funds will be dependent upon the continued
maintenance and solvency of the various funds.
---------------------------------------
While no assurances can be given in this regard, management believes
that cash on hand, together with cash flow anticipated to be generated from
operations, short-term borrowing for seasonal working capital needs, sale and
leaseback programs, permitted borrowings under the Indenture and by its
Unrestricted Subsidiary will be adequate to
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fund existing store remodels, new store development, future acquisitions, its
debt service requirements and the other operating requirements of the Company
over the next twelve months.
11
Part II - Other Information.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.1 Restated Certificate of Incorporation, including
Certificates of Designation of Preferences of the
Series A and Series B Preferred Stock
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE PANTRY, INC.
Date: July 31, 1997 By: \s\ William T. Flyg
William T. Flyg
Senior Vice President Finance and Secretary
(Authorized Officer and Principal Financial Officer)
13
EXHIBIT INDEX
Exhibit No. Description of Document
3.1 Restated Certificate of Incorporation, including Certificates
of Designation of Preferences of the Series A and Series B
Preferred Stock
27.1 Financial Data Schedule.