<PAGE> 1
- - ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------
FORM 10-Q
-------------
/X/ Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1994
OR
_____ Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the transition period from ..........to..........
Commission File Number 1-7936
NATIONAL CONVENIENCE STORES INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 74-1361734
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Waugh Drive, Houston, Texas 77007
(Address of principal executive offices) (Zip Code)
(713) 863-2200
(Registrant's telephone number, including area code)
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___
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No___
At May 2, 1994, the number of shares of Common Stock outstanding was 6,050,068.
- - ------------------------------------------------------------------------------
<PAGE> 2
NATIONAL CONVENIENCE STORES INCORPORATED AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Consolidated Statements of Operations
Three Months Ended March 31, 1994, Period from
Inception (March 1, 1993) to March 31, 1993 and Two
Months Ended February 28, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Nine Months Ended March 31, 1994, Period from
Inception (March 1, 1993) to March 31, 1993 and
Eight Months Ended February 28, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Balance Sheets
March 31, 1994 and June 30, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows
Nine Months Ended March 31, 1994, Period from
Inception (March 1, 1993) to March 31, 1993, and
Eight Months Ended February 28, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
NATIONAL CONVENIENCE STORES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(Amount in thousands, except per share amount)
<TABLE>
<CAPTION>
Reorganized Company | Predecessor Company
--------------------------------- | -------------------
Period |
Three from Inception | Two
Months Ended (March 1, 1993) to | Months Ended
March 31, 1994 March 31, 1993 | February 28, 1993
-------------- -------------- | -----------------
<S> <C> <C> | <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $204,664 $ 72,349 | $130,828
|
Costs and Expenses: |
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . 154,115 53,684 | 95,783
Operating expenses . . . . . . . . . . . . . . . . . . . . 41,531 13,551 | 25,849
General and administrative expenses . . . . . . . . . . . . 9,120 2,788 | 4,978
Interest expense . . . . . . . . . . . . . . . . . . . . . 2,314 575 | 349
Other charge . . . . . . . . . . . . . . . . . . . . . . . - - | 6,561
-------- --------- | --------
207,080 70,598 | 133,520
-------- --------- | --------
Earnings (Loss) Before Reorganization Expenses, |
Fresh-Start Adjustments, Income Taxes |
and Extraordinary Gain . . . . . . . . . . . . . . . . . . (2,416) 1,751 | (2,692)
|
Reorganization Expenses, net . . . . . . . . . . . . . . . . - - | 1,880
-------- --------- | --------
|
Earnings (Loss) Before Fresh-Start Adjustments, |
Income Taxes and Extraordinary Gain . . . . . . . . . . . . (2,416) 1,751 | (4,572)
|
Fresh-Start Adjustments . . . . . . . . . . . . . . . . . . . - - | 382
-------- --------- | --------
|
Earnings (Loss) Before Income Taxes and |
Extraordinary Gain . . . . . . . . . . . . . . . . . . . . (2,416) 1,751 | (4,190)
|
Income Tax Expense (Benefit) . . . . . . . . . . . . . . . . (889) 689 | 34
-------- --------- | --------
|
Earnings (Loss) Before Extraordinary |
Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,527) 1,062 | (4,224)
|
Extraordinary Gain . . . . . . . . . . . . . . . . . . . . . - - | 61,493
-------- --------- | --------
|
Net Earnings (Loss) . . . . . . . . . . . . . . . . . . . . . $ (1,527) $ 1,062 | $ 57,269
-------- --------- | --------
-------- --------- | --------
|
Earnings (Loss) Per Share . . . . . . . . . . . . . . . . . . $ (0.25) $ 0.16 |
-------- --------- |
-------- --------- |
|
Weighted Average Common and Common |
Equivalent Shares Outstanding . . . . . . . . . . . . . . . 6,011 6,565 |
-------- -------- |
-------- -------- |
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 4
NATIONAL CONVENIENCE STORES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(Amount in thousands, except per share amount)
<TABLE>
<CAPTION>
Reorganized Company | Predecessor Company
-------------------------------- | -------------------
Period |
Nine from Inception | Eight
Months Ended (March 1, 1993) to | Months Ended
March 31, 1994 March 31, 1993 | February 28, 1993
-------------- -------------- | -----------------
<S> <C> <C> | <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $652,666 $ 72,349 | $ 580,867
|
Costs and Expenses: |
Cost of sales . . . . . . . . . . . . . . . . . . . . . . 483,268 53,684 | 429,019
Operating expenses . . . . . . . . . . . . . . . . . . . 126,638 13,551 | 108,326
General and administrative expenses . . . . . . . . . . . 27,861 2,788 | 20,793
Interest expense . . . . . . . . . . . . . . . . . . . . 7,173 575 | 1,497
Other charge . . . . . . . . . . . . . . . . . . . . . . - - | 6,561
-------- --------- | ---------
644,940 70,598 | 566,196
-------- --------- | ---------
|
Earnings Before Reorganization Expenses, |
Fresh-Start Adjustments, Income Taxes |
and Extraordinary Gain . . . . . . . . . . . . . . . . . 7,726 1,751 | 14,671
|
Reorganization Expenses, net . . . . . . . . . . . . . . . - - | 8,124
-------- --------- | ---------
|
Earnings Before Fresh-Start Adjustments, |
Income Taxes and Extraordinary Gain . . . . . . . . . . . 7,726 1,751 | 6,547
|
Fresh-Start Adjustments . . . . . . . . . . . . . . . . . . - - | 382
-------- --------- | ---------
|
Earnings Before Income Taxes and |
Extraordinary Gain . . . . . . . . . . . . . . . . . . . 7,726 1,751 | 6,929
|
Income Tax Expense . . . . . . . . . . . . . . . . . . . . 3,010 689 | 133
-------- --------- | ---------
|
Earnings Before Extraordinary |
Gain . . . . . . . . . . . . . . . . . . . . . . . . . . 4,716 1,062 | 6,796
|
Extraordinary Gain . . . . . . . . . . . . . . . . . . . . - - | 61,493
-------- --------- | ---------
|
Net Earnings . . . . . . . . . . . . . . . . . . . . . . . $ 4,716 $ 1,062 | $ 68,289
-------- --------- | ---------
-------- --------- | ---------
|
Earnings Per Share . . . . . . . . . . . . . . . . . . . . $ 0.74 $ 0.16 |
-------- --------- |
-------- --------- |
|
Weighted Average Common and Common |
Equivalent Shares Outstanding . . . . . . . . . . . . . . 6,576 6,565 |
-------- --------- |
-------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
NATIONAL CONVENIENCE STORES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
March 31, 1994 June 30, 1993
----------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents, $7,384 and $6,254 reserved . . . . . . . . . . . . . . . . $ 40,099 $ 46,032
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,611 4,474
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,730 37,308
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,539 2,697
-------- --------
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,979 90,511
Property and Equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153,679 156,528
Reorganization Value in Excess of Amounts Allocable to
Identifiable Assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,004 39,587
Deferred Tax Asset, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,196 6,065
Other Assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,249 5,737
-------- --------
$289,107 $298,428
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . $ 68,461 $ 68,395
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 11,750 10,373
-------- --------
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 80,211 78,768
Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113,003 131,559
Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,326 20,839
Commitments and Contingent Liabilities . . . . . . . . . . . . . . . . . . . . . . - -
Stockholders' Equity:
Common Stock, par value $.01 per share; 50,000,000 shares
authorized; 6,045,068 and 6,000,000 shares issued and
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 60
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,401 62,813
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,105 4,389
-------- --------
Total Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . 72,567 67,262
-------- --------
$289,107 $298,428
-------- --------
-------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
NATIONAL CONVENIENCE STORES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
($ in thousands)
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
------------------------------------ -------------------
Period from |
Nine Inception | Eight
Months Ended (March 1, 1993) to | Months Ended
March 31, 1994 March 31, 1993 | February 28, 1993
-------------- -------------- | -----------------
<S> <C> <C> | <C>
Cash flows from operating activities: |
Net earnings . . . . . . . . . . . . . . . . . . . . . . . $ 4,716 $ 1,062 | $ 68,289
|
Adjustments to reconcile net earnings |
to net cash provided by operating activities: |
Depreciation and amortization . . . . . . . . . . . . . 13,134 1,367 | 10,887
Deferred income taxes . . . . . . . . . . . . . . . . . 2,516 689 | -
Fresh-start adjustments . . . . . . . . . . . . . . . . - - | (382)
Extraordinary gain . . . . . . . . . . . . . . . . . . . - - | (61,493)
Other charge . . . . . . . . . . . . . . . . . . . . . . - - | 6,561
Changes in operating assets and liabilities, net |
of sales of stores: |
(Increase) decrease in accounts and notes |
receivable and prepaid expenses . . . . . . . . . . . . (983) (498) | 727
(Increase) decrease in inventories . . . . . . . . . . . (446) (1,235) | 5,691
Increase (decrease) in accounts payable and |
accrued expenses . . . . . . . . . . . . . . . . . . . (2,802) 4,700 | (396)
Increase (decrease) in income taxes . . . . . . . . . . 180 (120) | 38
Other, net . . . . . . . . . . . . . . . . . . . . . . . . - - | 157
-------- -------- | ---------
Net cash provided by operating |
activities . . . . . . . . . . . . . . . . . . . 16,315 5,965 | 30,079
-------- -------- | ---------
|
Cash flows from investing activities: |
Capital expenditures . . . . . . . . . . . . . . . . . . . (10,689) (2,368) | (3,016)
Proceeds from sale of assets . . . . . . . . . . . . . . . 2,998 - | 6,906
Other, net . . . . . . . . . . . . . . . . . . . . . . . . (1,366) (169) | (1,194)
-------- -------- | ---------
Net cash provided by (used in) investing |
activities . . . . . . . . . . . . . . . . . . . (9,057) (2,537) | 2,696
-------- -------- | ---------
|
Cash flows from financing activities: |
Principal payments on long-term debt . . . . . . . . . . . (13,399) - | -
Proceeds from exercise of warrants and options . . 473 - | -
Debt issue costs . . . . . . . . . . . . . . . . . . . . . - - | (181)
Long-term deposits . . . . . . . . . . . . . . . . . . . . - 2,995 | -
Cash settlement of liabilities subject |
to compromise . . . . . . . . . . . . . . . . . . . . . . (265) (28,022) | -
-------- -------- | ---------
Net cash used in financing activities . . . . . . . . (13,191) (25,027) | (181)
-------- -------- | ---------
|
Net increase (decrease) in cash and cash equivalents . . . . (5,933) (21,599) | 32,594
Cash and cash equivalents - beginning of period . . . . . . . 46,032 65,318 | 32,724
--------- -------- | ---------
- end of period . . . . . . . . . . $ 40,099 $ 43,719 | $ 65,318
-------- -------- | ---------
-------- -------- | ---------
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE> 7
NATIONAL CONVENIENCE STORES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation and Significant Accounting Policies
Basis of Presentation - The consolidated financial statements include the
accounts of National Convenience Stores Incorporated and its wholly-owned
subsidiaries (the "Company") with all significant intercompany accounts and
transactions eliminated in consolidation. The financial information presented
for the interim periods is unaudited and the interim period operating results
are not necessarily indicative of the results to be expected for the full
fiscal year. The interim period financial statements reflect all adjustments
which are, in the opinion of management, of a normal recurring nature and
necessary for a fair presentation of financial position as of March 31, 1994,
the results of operations for the three and nine months ended March 31, 1994
and 1993 and the cash flows for the nine months ended March 31, 1994 and 1993.
Certain prior year amounts have been reclassified to conform to the current
year presentation.
As more fully described in Notes 2 and 3 below, on February 25, 1993 a court
order was entered confirming the Company's Revised Fourth Amended and Restated
Joint Plan of Reorganization (the "Plan of Reorganization") by the United
States Bankruptcy Court for the Southern District of Texas, Houston Division
(the "Bankruptcy Court"). As a result, the Company adopted the recommended
"fresh- start reporting" treatment for entities emerging from Chapter 11
bankruptcy reorganization, as set forth in American Institute of Certified
Public Accountants' Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code", ("SOP 90-7"). For
accounting purposes, the inception date for the reorganized company was deemed
to be March 1, 1993 ("Inception"). Therefore, since March 1, 1993, the
Company's consolidated financial statements have been prepared as if it is a
new reporting entity (the reorganized company); the term "predecessor company"
relates to the Company for all periods prior to March 1, 1993. Consequently, a
vertical black line has been placed to separate post-emergence operations from
those prior to March 1, 1993. Accordingly, the Consolidated Statements of
Operations for the three and nine months ended March 31, 1994 and the period
from Inception (March 1, 1993) to March 31, 1993 of the reorganized company are
not comparable to those for the two and eight months ended February 28, 1993 of
the predecessor company nor are the Consolidated Statements of Cash Flows for
the nine months ended March 31, 1994 and the period from Inception (March 1,
1993) to March 31, 1993 of the reorganized company comparable with those for
the eight months ended February 28, 1993 of the predecessor company.
In connection with the adoption of SOP 90-7, the Company was also required to
adopt the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109") as of March 1, 1993 (see Note 5).
7
<PAGE> 8
NATIONAL CONVENIENCE STORES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant Accounting Policies - Reference is made to the Notes to
Consolidated Financial Statements incorporated by reference in the Company's
Annual Report on Form 10-K, as amended, for the fiscal year ended June 30,
1993.
Earnings per share for the predecessor company are not presented since such
disclosure is not meaningful as a result of the confirmation of the Plan of
Reorganization.
2. Bankruptcy Reorganization
Chapter 11 Bankruptcy Filing - On December 9, 1991 (the "Petition Date"), the
Company and substantially all of its wholly-owned active subsidiaries filed
voluntary petitions for reorganization under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") in the Bankruptcy Court. Subsequent to
the Petition Date, the Company operated its business as a debtor-in-possession
under the supervision of the Bankruptcy Court. As of the Petition Date,
actions to collect pre-petition indebtedness were stayed and other contractual
obligations could not be enforced against the Company. In addition, under the
Bankruptcy Code, the Company could reject leases and executory contracts.
Parties affected by these rejections could file claims with the Bankruptcy
Court in accordance with the reorganization process. Substantially all
liabilities as of the Petition Date were subject to settlement under a plan of
reorganization to be voted upon by the creditors and approved by the Bankruptcy
Court.
Plan of Reorganization - As a result of extensive negotiations held in December
1992, the Company reached a compromise agreement with representatives of all of
its major creditor constituencies, as well as two of the predecessor company's
largest common stockholders. This compromise agreement was then incorporated
into and became the Plan of Reorganization. Subsequently, on January 6, 1993,
a supplemental disclosure statement, along with a ballot, was sent to all
members of each class of creditors and equity interest holders entitled to vote
for acceptance or rejection of the Plan of Reorganization. As of February 16,
1993, all such classes of creditors and equity interest holders entitled to
vote had accepted the Plan of Reorganization by the requisite number.
Consequently, on February 24, 1993, the Bankruptcy Court commenced a hearing
that resulted in the entering of a court order confirming the Plan of
Reorganization on February 25, 1993. The Plan of Reorganization subsequently
became effective March 9, 1993 (the "Effective Date").
The Plan of Reorganization was designed to repay all priority creditors in full
on the Effective Date or thereafter as provided in the Plan of Reorganization
and to repay secured creditors in full over time with interest. Allowed
unsecured claims totalling approximately $137.5 million were canceled in
exchange for $9.3 million of cash, $1.0 million of new indebtedness and 5.91
8
<PAGE> 9
NATIONAL CONVENIENCE STORES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
million shares of newly issued Common Stock, par value $.01 per share, of the
reorganized company. All existing $14.375 Convertible Exchangeable Preferred
Stock, Series E (the "Series E Preferred Stock") and existing common stock of
the predecessor company were exchanged for an aggregate distribution of 90,000
shares of the newly issued Common Stock of the reorganized company.
Consequently, a total of 6.0 million shares of newly issued Common Stock of the
reorganized company were issued under the Plan of Reorganization. In addition,
warrants to purchase up to an additional aggregate 1.35 million shares of
newly issued Common Stock at $17.75 per share were distributed to the holders
of the predecessor company's two publicly-held subordinated debenture series,
the Series E Preferred Stock and the old common stock. All alleged seniority
rights arising under the indentures relating to the publicly-held subordinated
debentures were deemed satisfied and canceled as of the Effective Date. In
addition, the Plan of Reorganization authorized the issuance of stock options
to purchase up to 900,000 shares of Common Stock of the reorganized company to
certain key employees and directors at $10.50 per share.
3. Fresh-Start Reporting
In accounting for the effects of the reorganization, the Company adopted the
fresh-start reporting provisions of SOP 90-7 and has reflected the effects of
such adoption in all financial statements covering periods subsequent to March
1, 1993. SOP 90-7 was applicable because the pre-reorganization shareholders
received less than 50% of the reorganized company's newly issued Common Stock
and the enterprise value of the assets of the reorganized company was less than
the total of all pre-petition allowed claims and post-petition liabilities.
In adopting fresh-start reporting, the Company, with the assistance of its
financial advisors, was required to determine its enterprise value, which
represents the fair market value of the entity before considering liabilities
and approximates the amount a willing buyer would pay for the assets of the
entity immediately after the reorganization. The term enterprise value is
synonymous with the term reorganization value as defined by SOP 90-7. After
extensive negotiations between the Company and its various creditor
constituencies, the Company's enterprise value was determined to be within a
group of ranges that centered around a point estimate of $210.0 million. The
enterprise value of the Company was determined by consideration of several
factors and reliance on various valuation methods, including discounted future
cash flows, market comparables and price/earnings ratios. All of the
valuations depended in large part upon the Company's projected future operating
results and cash flows; such projections included assumptions as to anticipated
sales and margins, marketing plans, operating expense levels and capital
expenditure programs. Additional assumptions and methods utilized in the
determination of the enterprise value included, (i) discount rates of 11% to
14%, (ii) statutory tax rates, (iii) five year cash flow projections and (iv)
terminal value based upon industry comparable multiples applied to the
discounted value of estimated post-1998 earnings
9
<PAGE> 10
NATIONAL CONVENIENCE STORES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and cash flows.
The adjustments to reflect the adoption of fresh-start reporting, including the
adjustments to record assets and liabilities at their fair market values and to
reflect the adoption of SFAS 109, were all recorded as of March 1, 1993. In
addition, the reorganized company's opening balance sheet was further adjusted
to eliminate existing equity and to reflect the aforementioned $210.0 million
enterprise value, which included the establishment of Reorganization Value in
Excess of Amounts Allocable to Identifiable Assets ("Excess Reorganization
Value"). Accordingly, a vertical black line is shown in the consolidated
financial statements to separate post-emergence operations from those prior to
March 1, 1993, since they have not been prepared on a comparable basis.
10
<PAGE> 11
NATIONAL CONVENIENCE STORES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following interim unaudited Consolidated Pro Forma Statement of Operations
reflects the financial results of the Company as if the Plan of Reorganization
and change in accounting principle had been effective July 1, 1992 (amounts in
thousands, except per share amount):
<TABLE>
<CAPTION>
Three Months Ended March 31, 1993
-----------------------------------------------------
As Reported Adjustments Pro Forma
------------- -------------- ------------
<S> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . . . $203,177 $ - $203,177
Costs and Expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . 149,467 - 149,467
Operating expenses . . . . . . . . . . . . . . . . . 39,400 243 (a) 39,643
General and administrative expenses . . . . . . . . . 7,766 1,000 (b) 8,766
Interest expense . . . . . . . . . . . . . . . . . . 924 1,435 (c) 2,359
Other charge . . . . . . . . . . . . . . . . . . . . 6,561 - 6,561
-------- -------- --------
204,118 2,678 206,796
-------- -------- --------
Earnings (Loss) Before Reorganization
Expenses, Fresh-Start Adjustments, Income
Taxes and Extraordinary Gain . . . . . . . . . . . . . (941) (2,678) (3,619)
Reorganization Expenses, net . . . . . . . . . . . . . 1,880 (1,880) (c) -
-------- -------- --------
Earnings (Loss) Before Fresh-Start
Adjustments, Income Taxes and
Extraordinary Gain . . . . . . . . . . . . . . . . . (2,821) (798) (3,619)
Fresh-Start Adjustments . . . . . . . . . . . . . . . 382 (382) (c) -
-------- -------- --------
Earnings (Loss) Before Income Taxes
and Extraordinary Gain . . . . . . . . . . . . . . . . (2,439) (1,180) (3,619)
Income Tax Expense (Benefit) . . . . . . . . . . . . . 723 (1,939) (d) (1,216)
-------- -------- --------
Earnings (Loss) Before Extraordinary
Gain . . . . . . . . . . . . . . . . . . . . . . . . . (3,162) 759 (2,403)
Extraordinary Gain . . . . . . . . . . . . . . . . . . 61,493 (61,493) (c) -
-------- -------- --------
Net Earnings (Loss) . . . . . . . . . . . . . . . . . . $ 58,331 $(60,734) $ (2,403) (e)
-------- -------- --------
-------- -------- --------
Loss Per Share . . . . . . . . . . . . . . . . . . $ (0.40) (e)
--------
-------
Weighted Average Common and Common Share Equivalents 6,011
--------
--------
</TABLE>
(a) To record amortization of Excess Reorganization Value.
(b) To record employee benefit expenses for programs resumed or implemented
after June 30, 1993.
(c) To record interest expense on debt incurred in
connection with the Plan of Reorganization and to eliminate Reorganization
Expenses, Fresh-Start Adjustments and Extraordinary Gain.
(d) To record income tax expense pursuant to the adoption of SFAS 109.
(e) Pro Forma Net Earnings and Earnings Per Share are $1,722 and $0.27,
respectively, when the Other charge of $6,561, related to an increase in
environmental liability, is excluded.
11
<PAGE> 12
NATIONAL CONVENIENCE STORES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following interim unaudited Consolidated Pro Forma Statement of Operations
reflects the financial results of the Company as if the Plan of Reorganization
and change in accounting principle had been effective July 1, 1992 (amounts in
thousands, except per share amount):
<TABLE>
<CAPTION>
Nine Months Ended March 31, 1993
------------------------------------------------------
As Reported Adjustments Pro Forma
------------- -------------- ------------
<S> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . . . $653,216 $ - $ 653,216
Costs and Expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . 482,703 - 482,703
Operating expenses . . . . . . . . . . . . . . . . . 121,877 930 (a) 122,807
General and administrative expenses . . . . . . . . . 23,581 3,000 (b) 26,581
Interest expense . . . . . . . . . . . . . . . . . . 2,072 5,808 (c) 7,880
Other charge . . . . . . . . . . . . . . . . . . . . 6,561 - 6,561
-------- --------- --------
636,794 9,738 646,532
-------- --------- --------
Earnings (Loss) Before Reorganization
Expenses, Fresh-Start Adjustments, Income
Taxes and Extraordinary Gain . . . . . . . . . . . . . 16,422 (9,738) 6,684
Reorganization Expenses, net . . . . . . . . . . . . . 8,124 (8,124) (c) -
-------- --------- ---------
Earnings (Loss) Before Fresh-Start
Adjustments, Income Taxes and
Extraordinary Gain . . . . . . . . . . . . . . . . . . 8,298 (1,614) 6,684
Fresh-Start Adjustments . . . . . . . . . . . . . . . . 382 (382) (c) -
-------- --------- ---------
Earnings (Loss) Before Income Taxes
and Extraordinary Gain . . . . . . . . . . . . . . . . 8,680 (1,996) 6,684
Income Tax Expense . . . . . . . . . . . . . . . . . . 822 2,028 (d) 2,850
-------- --------- ---------
Earnings (Loss) Before Extraordinary
Gain . . . . . . . . . . . . . . . . . . . . . . . . . 7,858 (4,024) 3,834
Extraordinary Gain . . . . . . . . . . . . . . . . . . 61,493 ( 61,493) (c) -
-------- --------- ---------
Net Earnings (Loss) . . . . . . . . . . . . . . . . . . $ 69,351 $ (65,517) $ 3,834 (f)
-------- --------- ---------
-------- --------- ---------
Earnings Per Share (e) . . . . . . . . . . . . . . . . $ 0.61 (f)
---------
---------
Weighted Average Common and Common Share Equivalents 6,576
---------
---------
</TABLE>
(a) To record amortization of Excess Reorganization Value.
(b) To record employee benefit expenses for programs resumed or implemented
after June 30, 1993.
(c) To record interest expense on debt incurred in
connection with the Plan of Reorganization and to eliminate Reorganization
Expenses, Fresh-Start Adjustments and Extraordinary Gain.
(d) To record income tax expense pursuant to the adoption of SFAS 109.
(e) Earnings per share is calculated based on net earnings, as adjusted to
reflect decreased interest expense, net of tax, assuming conversion of
stock options.
(f) Pro Forma Net Earnings and Earnings Per Share are $7,959 and $1.23,
respectively, when the Other charge of $6,561, related to an increase in
environmental liability, is excluded.
12
<PAGE> 13
NATIONAL CONVENIENCE STORES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Supplemental Disclosures to Consolidated Statements of Cash Flows
"Net cash provided by operating activities" includes the following cash
payments and receipts ($ in thousands):
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
--------------------------------------- -------------------
Period from |
Nine Inception | Eight
Months Ended (March 1, 1993) to | Months Ended
March 31, 1994 March 31, 1993 | February 28, 1993
----------------- -------------- | -----------------
<S> <C> <C> | <C>
Cash paid (received) for: |
Interest expense . . . . . . . . . . . . . $8,042 $ 94 | $ 85
Income taxes . . . . . . . . . . . . . . . 375 120 | 196
Income tax refunds . . . . . . . . . . . . (60) - | (103)
Reorganization items: |
Professional fees . . . . . . . . . . . . 2,130 877 | 4,908
Other . . . . . . . . . . . . . . . . . . - 2 | 182
</TABLE>
5. Income Taxes
On March 15, 1994, the Company filed its federal income tax return for the year
ended June 30, 1993, which reflected net operating loss carryforwards of $55.8
million plus tax credit carryforwards of $6.5 million. The net operating
losses expire in varying amounts in fiscal years 2003 to 2007 and the tax
credits expire in fiscal years 2000 to 2008. The benefit of these losses is
reduced substantially if there is an ownership change in the Company's stock as
defined in Section 382 of the Internal Revenue Code. Such an ownership change
is defined as occurring when, during any three year period, the Company's 5%
stockholders (as defined in the Internal Revenue Code) increase their ownership
of the Company's stock by more than 50 percentage points. The Plan of
Reorganization resulted in an ownership change since substantially all of the
new stock was issued to the creditors of the Company. However, since the
ownership change occurred pursuant to a Chapter 11 proceeding and because more
than 50% of the new stock was issued to qualifying creditors and shareholders,
the Company presently intends to take advantage of certain favorable rules
contained in Section 382(l)(5).
After an ownership change, Section 382(l)(5) requires a reduction in the amount
of net operating loss carryforwards and other tax attributes. As of March 31,
1994, the net operating loss carryforward is estimated to have been reduced to
$41.1 million as a result of the adjustments
13
<PAGE> 14
NATIONAL CONVENIENCE STORES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
required by Section 382(l)(5), as well as the application of the losses to
reduce taxable income generated after June 30, 1993. Section 382(l)(5) will
also require the Company to reduce the tax basis of its depreciable assets by
approximately $40 million. The Company expects to be able to use the remaining
net operating losses, tax credits and other tax attributes to offset future
income taxes, subject to applicable limits. However, should a second ownership
change occur within two years of the first ownership change, all of the
remaining pre-confirmation net operating losses and other tax attributes would
be eliminated. The Plan of Reorganization provided for the Company's Restated
Certificate of Incorporation dated March 9, 1993 to contain restrictions
through June 30, 1996 on the transfer of stock to the reorganized company's
current 5% stockholders (as defined in the Plan of Reorganization) or those
that would become 5% stockholders as a result of the purported transfer.
6. Debt
Long-term debt consisted of the following as of the respective dates ($ in
thousands):
<TABLE>
<CAPTION>
March 31, 1994 June 30, 1993
-------------- -------------
<S> <C> <C>
Term Loan, due 2000 $ 58,227 $ 67,957
Revolving credit agreement - -
Letter of credit agreement, due 2000 - 3,988
Mortgage notes on real estate, due 2003 59,994 62,271
Other notes payable, due through 2000 6,532 7,716
-------- --------
124,753 141,932
Less amounts due within one year 11,750 10,373
-------- --------
$113,003 $131,559
-------- --------
-------- --------
</TABLE>
Revolving Credit Agreement - The Revolving Credit Agreement provides for the
borrowing and/or issuance of letters of credit in the aggregate of up to $8.0
million, increasing to $11.0 million during the period from November 1 through
May 1 of each year. The Revolving Credit Agreement requires that, during each
fiscal year, the Company pay off all outstanding cash borrowings thereunder for
a period of 30 consecutive days. The Company had no outstanding borrowings
during the nine months ended March 31, 1994 and has therefore satisfied this
requirement for fiscal 1994. Letter of credit issuances cannot exceed $8.0
million and cash borrowings are limited to the commitment limit less letters of
credit outstanding. Cash
14
<PAGE> 15
NATIONAL CONVENIENCE STORES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
borrowings under the Revolving Credit Agreement bear interest at 1% above the
prime rate of the Lender. Any remaining outstanding principal balance becomes
due and payable on September 30, 1995.
During the third quarter of fiscal 1994, the long-term bank debt agreements
were amended for fiscal year 1994 to allow an increase in the capital
expenditure budget from $17 million to $25 million.
Below is a table illustrating primary financial ratios and coverage tests
("Covenants") as of March 31, 1994 associated with the Company's long-term bank
debt instruments.
<TABLE>
<CAPTION>
Covenant Required Actual
- - -------------------- ------------ ------------
<S> <C> <C>
Current Ratio (minimum) 90% 107%
Total Borrowed Funds to Consolidated
Net Worth (maximum) 438% 345%
Maximum Total Liabilities to
Consolidated Net Worth 400% 298%
Minimum Consolidated Net Worth $61,400,000 $72,567,000
Minimum Interest Coverage Ratio 200% 422%
Consolidated Fixed Charge Coverage
Ratio (minimum) 105% 145%
Minimum EBITDA $27,300,000 $40,098,000
Capital Expenditure (maximum) $22,500,000 $11,766,000
</TABLE>
Computation of the Covenants was performed utilizing definitions contained in
the Company's long-term bank debt instrument agreements. At March 31, 1994,
the Company was in compliance with such Covenants.
During the nine months ended March 31, 1994, long-term debt decreased by $18.6
million primarily as a result of principal payments and application of proceeds
from asset sales.
7. Asset Divestiture
On July 10, 1992, the Company consummated the sale of 21 operating convenience
stores together with related inventories and equipment located in and around
the San Francisco Bay Area to The Customer Company and its affiliated
California general partnership for $3.1 million. The Bankruptcy Court had
previously approved the sale of such properties on July 1, 1992. Pursuant to
the Company's then existing Post-Petition Credit Agreement, the proceeds
15
<PAGE> 16
NATIONAL CONVENIENCE STORES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
were held in escrow pending completion of the Chapter 11 bankruptcy
reorganization. Upon confirmation of the Plan of Reorganization, the proceeds
were used to pay down the Company's bank debt. The resultant loss was
previously provided for in a restructuring charge recorded in December 1991.
8. Subsequent Event
On April 29, 1994, the Company completed the previously announced transaction
whereby the Company, (i) exchanged its 53 operating convenience stores in
Southern California, together with related inventories and equipment, for 88
operating convenience stores of The Circle K Corporation in the Dallas-Fort
Worth and Houston, Texas areas, together with related inventories and equipment
and, (ii) sold its 27 operating convenience stores in Atlanta, Georgia,
together with related inventories and equipment, for cash consideration of
$9,150,000. The Company now operates only in the State of Texas.
The Company will record a pretax gain in the fourth quarter of approximately $3
million in conjunction with this transaction. Cash proceeds will be used to
fund transaction costs, capital expenditures and to reduce long-term bank debt.
16
<PAGE> 17
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
In connection with the confirmation of the Plan of Reorganization, the Company,
effective March 1, 1993, adopted "fresh-start reporting" in accordance with the
American Institute of Certified Public Accountants Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code".
Accordingly, since March 1, 1993, the Company's financial statements have been
prepared as if it is a new reporting entity. As a result of adopting
fresh-start reporting, the financial information for the three and nine months
ended March 31, 1994 is not prepared on a comparable basis to the information
for the three and nine months ended March 31, 1993. However, the Company
believes the impact of the fresh-start reporting adjustments is material and
identifiable and that combining the one month ended March 31, 1993 with the two
and eight months ended February 28, 1993 provides a useful basis for comparison
between the two reporting periods.
Sales and Gross Profits - The following table sets forth selected information
regarding the results of the Company's operations during the three and nine
months ended March 31, 1994 and 1993:
<TABLE>
<CAPTION>
Combined Combined
Three Three Nine Nine
Months Ended Months Ended Months Ended Months Ended
March 31, 1994 March 31, 1993 March 31, 1994 March 31, 1993
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Merchandise sales (millions) . . . . . $118.0 $117.0 $380.4 $375.2
Merchandise gross profit margin . . . . 35.3% 36.8% 34.8% 35.8%
Merchandise gross profit (millions) . . $ 41.7 $ 43.1 $132.2 $134.5
Gasoline sales (millions) . . . . . . . $ 86.7 $ 86.1 $272.3 $278.0
Gasoline gross profit margin . . . . . 10.1% 12.3% 13.7% 12.9%
Gasoline gross profit (millions) . . . $ 8.8 $ 10.6 $ 37.2 $ 36.0
Total sales (millions) . . . . . . . . $204.7 $203.1 $652.7 $653.2
Average gross profit margin . . . . . . 24.7% 26.4% 26.0% 26.1%
Total gross profit (millions) . . . . . $ 50.5 $ 53.7 $169.4 $170.5
Average number of stores . . . . . . . 714 721 717 732
Average sales per store (thousands):
Merchandise . . . . . . . . . . . . $165.3 $162.3 $530.5 $512.5
Gasoline . . . . . . . . . . . . . . 121.4 119.4 379.8 379.8
------ ------ ------ ------
Total . . . . . . . . . . . . . $286.7 $281.7 $910.3 $892.3
Gasoline gallons sold (millions) . . 92.5 84.2 276.4 261.9
Average gasoline gallons sold per gas
store (thousands) . . . . . . . . . 149.7 135.0 445.8 417.7
</TABLE>
17
<PAGE> 18
THREE MONTHS ENDED MARCH 31, 1994 COMPARED TO THE COMBINED THREE MONTHS ENDED
MARCH 31, 1993:
Merchandise sales increased $1.0 million, or 1%, to $118.0 million for the
three months ended March 31, 1994 as compared to $117.0 million for the
corresponding three month period ended March 31, 1993. On a same-store basis,
merchandise sales increased 2%, as a result of value pricing promotions,
primarily on fountain drinks and beer; increased lottery income; and an
increase in the number of name-brand eateries operating in the Company's
stores. Additionally, the Company estimates that the lower retail price of
cigarettes had a 2% deflationary impact on same-store merchandise sales.
Merchandise gross profits decreased $1.4 million, or 3%, in the third quarter
of fiscal 1994 as compared to the prior year. This decrease was due to reduced
merchandise gross profit margins primarily attributable to pricing strategies
and promotions which was partially offset by increased margins on cigarettes.
In addition, the prior year gross profits included one-time discount and
allowance revenues related to special marketing programs which contributed 1%
to the total margin. Merchandise gross profit margins decreased 1.5 percentage
points from 36.8% in the third quarter of fiscal 1993 to 35.3% in the third
quarter of fiscal 1994 due to the aforementioned reasons. Management
continually reviews the need for and appropriateness of value pricing and
other promotional strategies based upon customer purchasing trends and patterns.
Gasoline sales increased $0.6 million during the third quarter of fiscal 1994
as compared with the same quarter of the previous year due primarily to a 10%
increase in gasoline sales volumes partially offset by an 8% decrease in the
average retail selling price of gasoline. The gasoline sales volume increase
resulted primarily from the Company's continued emphasis on a volume growth
strategy. Gasoline sales volumes on a same-store sales basis increased 10%
from the same period last year.
Gasoline gross profits decreased $1.8 million in the third quarter of fiscal
1994 as compared to the same period of 1993, primarily due to the unusually
high margins of the prior year period coupled with the increased competitive
pressure experienced by the Company during the current year in its markets.
Gasoline gross profit margins on a volume basis averaged 9.5 cents per gallon
for the third quarter of fiscal 1994 as compared with 12.6 cents per gallon for
the same period of the prior year.
18
<PAGE> 19
An analysis of merchandise sales, gasoline sales and gasoline sales volumes
follows (in millions):
<TABLE>
<CAPTION>
Combined Combined
Three Three Nine Nine
Months Ended Months Ended Month Ended Months Ended
March 31, 1994 March 31, 1993 March 31, 1994 March 31, 1993
-------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
Merchandise Sales:
Same stores (a) . . . . . . . . . . . . $117.7 $115.7 $378.4 $368.5
New stores . . . . . . . . . . . . . . - - - -
Stores closed or sold . . . . . . . . . .3 1.3 2.0 6.7
------ ------ ------ ------
$118.0 $117.0 $380.4 $375.2
------ ------ ------ ------
------ ------ ------
Gasoline Sales:
Same stores (a) . . . . . . . . . . . . $ 86.7 $ 85.9 $272.0 $272.7
New stores . . . . . . . . . . . . . . - - - -
Stores closed or sold . . . . . . . . . - .2 .3 5.3
------ ------ ------ ------
$ 86.7 $ 86.1 $272.3 $278.0
------ ------ ------ ------
------ ------ ------
Gasoline Gallons:
Same stores (a) . . . . . . . . . . . . 92.5 84.0 276.1 256.5
New stores . . . . . . . . . . . . . . - - - -
Stores closed or sold . . . . . . . . . - .2 .3 5.4
------ ------ ------ ----
92.5 84.2 276.4 261.9
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
(a) Represents the 712 stores which opened prior to July 1, 1992, and
continued to operate through March 31, 1994.
Operating Expenses - Operating expenses increased $2.1 million, or 5%, in the
third quarter of fiscal 1994 as compared with the same period of fiscal 1993.
The increase is primarily due to increases in repairs and maintenance costs as
the Company resumed normal maintenance activities upon emergence from Chapter
11 reorganization, labor costs due to a more stable work force at the store
level and insurance expenses. In addition, utilities costs increased as a
result of rate increases for electricity, garbage and telephone services in the
Company's key Texas market areas. These increases were partially offset by an
increase in discounts earned due to more efficient payment of sales and excise
taxes in the third quarter of fiscal 1994.
General and Administrative Expenses - General and administrative expenses for
the quarter ended March 31, 1994, increased $1.4 million, or 17%, from the
corresponding quarter for the prior year period, primarily due to the costs
associated with the resumption and enhancement of employee benefits effective
July 1, 1993, coupled with $256,000 of increased amortization of Reorganization
Value in Excess of Amounts Allocable to Identifiable Assets.
19
<PAGE> 20
Interest Expense - Interest expense increased $1.4 million in the third quarter
of fiscal 1994 as compared to the corresponding period of the prior year
primarily due to the resumption of interest accruals on all indebtedness upon
emergence from Chapter 11 bankruptcy reorganization on March 9, 1993. Prior to
the Effective Date, the Company recorded interest expense only for those pre-
petition debt instruments which were fully secured, and for all
debtor-in-possession financing.
Other Charge - Other charge consists of an increase in the environmental
remediation liability recorded in February 1993. This amount was recorded in
connection with an updated environmental remediation costs analysis.
Reorganization Expenses - Reorganization expenses include those costs and
income items which were incurred by the Company solely as a result of operating
under Chapter 11 of the Bankruptcy Code. During the quarter ended March 31,
1993 the Company incurred $1.9 million of such costs which were primarily for
professional fees the Company was required to pay to attorneys, accountants and
investment bankers involved in the Chapter 11 proceeding.
Income Tax Expense - The effective income tax rate of the reorganized company
for the three months ended March 31, 1994 and for the period from March 1, 1993
to March 31, 1993 differs from the federal statutory rate primarily because of
state income taxes and the nondeductibility of the amortization of
Reorganization Value in Excess of Amounts Allocable to Identifiable Assets.
The effective income tax rate of the predecessor company for the two months
ended February 28, 1993 differs from the federal statutory rate primarily
because the previous method of accounting required the use of prior year loss
carryforwards to reduce the effective federal income tax rate for financial
reporting purposes.
Pro Forma Results of Operations - Management of the Company has made pro forma
calculations of third quarter operating results based on the assumption that
the Plan of Reorganization had become effective on July 1, 1992. See "Item 1 -
Financial Statements, Note 3 of the Notes to Consolidated Financial
Statements".
20
<PAGE> 21
NINE MONTHS ENDED MARCH 31, 1994 COMPARED TO COMBINED NINE MONTHS ENDED MARCH
31, 1993:
Merchandise sales increased $5.2 million, or 1%, in the nine months ended March
31, 1994, as compared with the corresponding period of the prior fiscal year.
On a same-store basis, merchandise sales increased 3% due primarily to hot, dry
weather conditions in the Company's key Texas markets during the first quarter
of fiscal 1994, as well as to value pricing promotions on fountain drinks,
select premium beers and cigarettes. In addition, the Company experienced
strong lottery commission revenues.
Merchandise gross profits decreased $2.3 million, or 2%, in the first nine
months of fiscal 1994 as compared to the corresponding period of the
prior fiscal year because of reduced merchandise margins. Merchandise gross
profit margins decreased 1.0 percentage points from 35.8% in the first nine
months of fiscal 1993 to 34.8% in the first nine months of fiscal 1994. The
decrease in the gross profit margin was primarily attributable to the pricing
strategies and promotions. This decrease was partially offset by the increased
margins associated with refrigerated juices. Management continually reviews
the need for and appropriateness of value pricing and other promotional
strategies based upon customer purchasing trends and patterns.
Gasoline sales decreased $5.7 million, or 2%, during the first nine months of
fiscal 1994 as compared with the same period of the previous year due primarily
to a 7% decrease in the average retail selling price of gasoline partially
offset by a 6% increase in gasoline sales volumes. The gasoline sales volume
increase resulted primarily from the Company's continued emphasis on volume
growth strategy. Gasoline sales volumes on a same-store sales basis increased
8% from the same period last year.
Gasoline gross profits increased $1.2 million, or 3%, in the first nine months
of fiscal 1994 as compared to the corresponding period of the prior fiscal
year, primarily due to the higher gasoline sales volumes. Gasoline gross
profit margins on a volume basis averaged 13.5 cents per gallon for the first
nine months of fiscal 1994 as compared with 13.7 cents per gallon for the same
period of the prior year.
Operating Expenses - Operating expenses increased $4.8 million, or 4%, in the
first nine months of fiscal 1994 as compared with the corresponding period of
the prior fiscal year. The increase is primarily due to increases in
utilities, repairs and maintenance and insurance. The increase in utilities is
attributable to an increase in electricity usage caused by above average
temperatures in the Texas markets during the first four months of fiscal 1994
coupled with rate increases for electricity, garbage and telephone services in
these same markets effective throughout the following quarter. The increase in
repairs and maintenance was the result of higher maintenance costs on air
conditioning, fountain and refrigeration equipment for the first quarter of
fiscal 1994. In addition, the prior year's maintenance activities were scaled
down to only those activities considered as essential repairs and maintenance
during the bankruptcy. Insurance expenses increased primarily due to changes
in the terms and provisions of existing insurance
21
<PAGE> 22
policies. These increases were partially offset by a decrease in advertising
expense and excise taxes during the first nine months of fiscal 1994.
General and Administrative Expenses - General and administrative expenses for
the nine months ended March 31, 1994, increased $4.3 million, or 18%, from the
corresponding period of fiscal year 1993. This increase is primarily due to
the resumption and enhancement of employee benefits effective July 1, 1993,
coupled with $943,000 of increased amortization of Reorganization Value in
Excess of Amounts Allocable to Identifiable Assets. These increases were
partially offset by reductions in corporate payroll costs.
Interest Expense - Interest expense increased $5.1 million in the first nine
months of fiscal 1994 as compared to the same period of the prior year
primarily due to the resumption of interest accruals on all indebtedness upon
emergence from Chapter 11 bankruptcy reorganization. Prior to the Effective
Date, the Company recorded interest expense only for those pre-petition debt
instruments which were fully secured, and for all debtor-in-possession
financing.
Reorganization Expenses - Reorganization expenses include those costs and
income items which were incurred by the Company solely as a result of operating
under Chapter 11 of the Bankruptcy Code. During the nine months ended March
31, 1993 the Company incurred $8.1 million of such costs which were primarily
for professional fees the Company was required to pay to attorneys, accountants
and investment bankers involved in the Chapter 11 proceedings.
Income Tax Expense - The effective income tax rate of the reorganized company
for the nine months ended March 31, 1994 and for the period from March 1, 1993
to March 31, 1993 differs from the federal statutory rate primarily because of
state income taxes and the nondeductibility of the amortization of
Reorganization Value in Excess of Amounts Allocable to Identifiable Assets.
The effective income tax rate of the predecessor company for the eight months
ended February 28, 1993 differs from the federal statutory rate primarily
because the previous method of accounting required the use of prior year loss
carryforwards to reduce the effective federal income tax rate for financial
reporting purposes.
Pro Forma Results of Operations - Management of the Company has made pro forma
calculations of year-to-date operating results based on the assumption that the
Plan of Reorganization had become effective on July 1, 1992. See "Item 1 -
Financial Statements, Note 3 of the Notes to Consolidated Financial
Statements".
22
<PAGE> 23
LIQUIDITY AND CAPITAL RESOURCES
Key balance sheet figures and ratios are presented in the table below (all
amounts, excluding ratios, are in millions):
<TABLE>
<CAPTION>
March 31, 1994 June 30, 1993
-------------- -------------
<S> <C> <C>
Cash (a)............................................... $ 40.1 $ 46.0
Current assets......................................... $ 86.0 $ 90.5
Current liabilities.................................... $ 80.2 $ 78.8
Current ratio.......................................... 1.07 1.15
Inventory turn ratios (annualized):
Merchandise.......................................... 10.6 11.7
Gasoline............................................. 53.8 50.3
Long-term debt......................................... $ 113.0 $131.6
Stockholders' equity................................... $ 72.6 $ 67.3
Debt/Equity ratio...................................... 1.56 1.96
Common shares outstanding.............................. 6.0 6.0
</TABLE>
_____________________
(a) Includes $7.4 million and $6.3 million that has been reserved at the
Company's option related to the remittance of tax and lottery
collections as of March 31, 1994 and June 30, 1993, respectively.
Liquidity - The Company's Revised Fourth Amended and Restated Joint Plan of
Reorganization (the "Plan of Reorganization") was predicated on the assumption
that the Company would fund its daily working capital requirements through its
operations and the cash balances it retained upon emergence from Chapter 11
bankruptcy reorganization. Because substantially all of the Company's sales
are for cash and total inventories are converted to cash approximately once a
month, the Company considers its cash flows adequate to satisfy its daily
working capital requirements. However, in order to further enhance its
liquidity, on March 9, 1993, the Company entered into a Revolving Credit
Agreement with NationsBank of Texas, N.A. which provides for the borrowing
and/or issuance of letters of credit in the aggregate of up to $8.0 million,
increasing to $11.0 million during the period from November 1 through May 1 of
each year. The Revolving Credit Agreement requires that, during each fiscal
year, the Company pay off all outstanding cash borrowings thereunder for a
period of 30 consecutive days. The Company had no outstanding borrowings
during the nine months ended March 31, 1994 and has therefore satisfied this
requirement for fiscal 1994. Letter of credit issuances cannot exceed $8.0
million and cash borrowings are limited to the commitment limit less letters of
credit
23
<PAGE> 24
outstanding. The facility terminates on September 30, 1995. At March 31,
1994, no borrowings or letters of credit were outstanding under this facility.
Operating earnings before interest, income taxes, depreciation, amortization,
reorganization items and other non-recurring items ("EBITDA") amounted to
$28,033,000, or $4,344 per store per month in the nine months of fiscal 1994,
compared to $30,748,000 or $4,667 per store per month in the same period of
fiscal 1993. EBITDA is presented here to provide additional information about
the Company's ability to meet its future debt service, capital expenditure and
working capital requirements and should not be construed either as a substitute
for earnings from operations or as a better indicator of liquidity than cash
flow from operating activities. The decrease in EBITDA is due principally to
lower operating earnings coupled with the timing of working capital items.
Cash flows from operating activities totalled $16.3 million and $36.0 million
for the nine months ended March 31, 1994 and 1993, respectively. The decrease
from the prior year is due to lower operating earnings coupled with the timing
of working capital items.
The Company has historically maintained a portfolio of surplus and excess real
estate properties in anticipation of expansion. During the period of Chapter
11 bankruptcy reorganization, the Company eliminated its new store development
program and began selling parcels of surplus real estate. In addition, in July
1992 the Company sold its 21 operating convenience stores together with related
inventories and equipment located in and around the San Francisco Bay area for
$3.1 million. Net proceeds from these sales were used to partially fund the
Company's cash requirements upon emerging from Chapter 11 bankruptcy
reorganization. During the nine months ending March 31, 1994, the Company sold
sixteen additional parcels of surplus real estate for $2.1 million, net of
closing costs, as well as equipment and other assets for an additional
$855,000. Net proceeds from such sales, and any sales in the future, are
generally required to be applied against mortgage or long-term bank debt. The
Company anticipates entering into additional real estate sales. As of March
31, 1994, 52 parcels of surplus real estate were held by the Company.
On April 29, 1994, the Company completed the previously announced transaction
whereby the Company, (i) exchanged its 53 operating convenience stores in
Southern California, together with related inventories and equipment, for 88
operating convenience stores of The Circle K Corporation in the Dallas-Fort
Worth and Houston, Texas areas, together with related inventories and equipment
and, (ii) sold its 27 operating convenience stores in Atlanta, Georgia,
together with related inventories and equipment, for cash consideration of
$9,150,000. The Company now operates only in the State of Texas.
The Company will record a pre-tax gain in the fourth quarter of approximately
$3 million in conjunction with this transaction. Cash proceeds will be used to
fund transaction costs, capital expenditures and to reduce long-term bank debt.
The Company recently announced the implementation of a program to enhance and
redefine the Company's focus on customer service and employee effectiveness.
This program is the result
24
<PAGE> 25
of an extensive review by management and outside consultants of store
operations. An integral component of the program involves the upgrading of
equipment and technology through the installation of integrated
state-of-the-art sales and inventory management systems. These systems will
significantly automate store operations by capturing data on point of sale and
scanning equipment. The Company will initiate the program in its Dallas/Fort
Worth stores and estimates that it will incur capital expenditures of
approximately $7 million, in such market, over the next three fiscal quarters.
Additionally, the Company estimates that it will incur approximately $3 million
in consulting expenses in conjunction with the program over the next three
fiscal quarters. These costs will be funded by cash generated from operations
as well as cash on hand. As noted below, the Company's long-term bank credit
agreements have been amended to allow an increase in the fiscal year 1994
capital expenditures budget from $17 million to $25 million.
Capital Resources - The Company incurred $10.7 million of capital expenditures
through March 31, 1994 compared to $5.4 million for the corresponding period of
the prior fiscal year. During the first nine months of fiscal 1994, the
capital expenditures consisted of $4.6 million in equipment replacement and
store improvements, $3.1 million of new gasoline dispensing equipment and
installation of underground piping required to comply with environmental laws
(the "Stage II Vapor Recovery Equipment") and $0.9 million for additional
security equipment.
In addition to amounts expended on Stage II Vapor Recovery Equipment, the
Company incurred $1.1 million in the first nine months of fiscal 1994 on
environmental remediation activities compared to $484,000 in the same period of
fiscal 1993. The majority of such expenditures related to the remediation and
clean-up of contaminated soil caused by leaking underground gasoline storage
tanks and underground piping systems. Environmental remediation reserves
totalled $17.1 million and $18.2 million at March 31, 1994 and June 30, 1993,
respectively. These amounts include state reimbursements of approximately
$4 million which the Company considers probable of recovery. The reduction in
the environmental liabilities is a result of the expenditures noted above.
Insurance liabilities totalled $14.9 million and $9.8 million at March 31, 1994
and June 30, 1993, respectively. The liabilities were increased for accruals
of $12.7 million and decreased for payments of $7.6 million during the nine
months ended March 31, 1994.
Restructuring liabilities totalled $7.1 million at March 31, 1994 and June 30,
1993.
The Company's long-term bank debt agreements contain limits on the amount of
capital expenditures and environmental remediation expenses the Company can
incur. During the third quarter of fiscal 1994, the Company's long-term bank
debt agreements were amended to allow an increase in the fiscal year 1994
capital expenditure budget from $17 million to $25 million. The Company
anticipates it will incur an amount near the maximum amount of expenditures
allowed by the long-term bank debt agreements due to, (i) the $11.3 million
dedicated to the required purchase and installation of additional Stage II
Vapor Recovery Equipment and other expenditures required by environmental
regulations, (ii) capital expenditures associated with the implementation of
the integrated state-of-the-art inventory and sales management system and,
25
<PAGE> 26
(iii) the $2.8 million to be incurred in conjunction with the conversion of the
Houston and Dallas stores acquired April 29, 1994 from The Circle K
Corporation. Discretionary capital expenditures will be directed primarily at
store remodels, eatery installations and equipment replacement.
Under the terms of certain of the Company's long-term debt instruments, the
Company cannot pay cash dividends on its Common Stock or purchase treasury
stock.
Below is a table illustrating primary financial ratios and coverage tests
("Covenants") as of March 31, 1994 associated with the Company's long-term bank
debt instruments.
<TABLE>
<CAPTION>
Covenant Required Actual
- - -------------------- ------------ -----------
<S> <C> <C>
Current Ratio (minimum) 90% 107%
Total Borrowed Funds to Consolidated
Net Worth (maximum) 438% 345%
Maximum Total Liabilities to
Consolidated Net Worth 400% 298%
Minimum Consolidated Net Worth $61,400,000 $72,567,000
Minimum Interest Coverage Ratio 200% 422%
Consolidated Fixed Charge Coverage
Ratio (minimum) 105% 145%
Minimum EBITDA $27,300,000 $40,098,000
Capital Expenditure (maximum) $22,500,000 $11,766,000
</TABLE>
Computation of the Covenants was performed utilizing definitions contained in
the Company's long-term bank debt instrument agreements. At March 31, 1994,
the Company was in compliance with such Covenants.
During the nine months ended March 31, 1994, long-term debt decreased by $18.6
million primarily as a result of principal payments and application of proceeds
from asset sales.
On March 15, 1994, the Company filed its Federal income tax return for the year
ended June 30, 1993, which reflected net operating loss carryforwards of $55.8
million plus tax credit carryforwards of $6.5 million. The net operating
losses expire in varying amounts in fiscal years 2003 to 2007 and the tax
credits expire in fiscal years 2000 to 2008. The benefit of these losses is
reduced substantially if there is an ownership change in the Company's stock as
defined in Section 382 of the Internal Revenue Code. Such an ownership change
is defined as occurring when, during any three year period, the Company's 5%
stockholders (as defined in the Internal Revenue Code) increase their ownership
in the Company's stock by more than 50 percentage points. The Plan of
Reorganization resulted in an ownership change since substantially all of the
new stock was issued to the creditors of the Company. However, since the
ownership change occurred pursuant to a Chapter 11 proceeding and because more
than 50% of the new stock was issued to qualifying creditors and shareholders,
the Company presently intends to take
26
<PAGE> 27
advantage of certain favorable rules contained in Section 382(l)(5).
After an ownership change, Section 382(l)(5) requires a reduction in the amount
of net operating loss carryforwards and other tax attributes. As of March 31,
1994, the net operating loss carryforward is estimated to have been reduced to
$41.1 million as a result of the adjustments required by Section 382(l)(5), as
well as the application of the losses to reduce taxable income generated after
June 30, 1993. Section 382(l)(5) will also require the Company to reduce the
tax basis of its depreciable assets by approximately $40 million. The Company
expects to be able to use the remaining net operating losses, tax credits and
other tax attributes to offset future income taxes, subject to applicable
limits. However, should a second ownership change occur within two years of
the first ownership change, all of the remaining pre-confirmation net operating
losses and other tax attributes would be eliminated. The Plan of
Reorganization provided for the Company's Restated Certificate of Incorporation
dated March 9, 1993 to contain restrictions through June 30, 1996 on the
transfer of stock to the reorganized company's current 5% stockholders (as
defined in the Plan of Reorganization) or those that would become 5%
stockholders as a result of the purported transfer.
Risks and Uncertainties - During the year ended June 30, 1993 and the nine
months ended March 31, 1994, the sale of gasoline products, tobacco products
and alcoholic beverages comprised 42%, 15% and 14%, respectively, of total
Company sales. Under the Clinton Administration numerous proposals have been
made recently that would result in increased excise taxes on alcoholic
beverages and tobacco products. Several of these proposals have sought
substantial increases on state and federal excise taxes, as well as additional
state taxes on tobacco products in particular. While the Company cannot
predict whether the remaining tax proposals will become law, similar previous
tax increases on such products have generally had a negative impact on the
sales and earnings of the Company. Additionally, numerous governmental
entities are considering various regulations related to the sale of tobacco
products which are unduly restrictive. If such restrictive regulations are
implemented, sales and earnings of the Company could be adversely affected.
The Company's environmental remediation exposure is related primarily to the
clean up of contaminated soil caused by leaking underground gasoline storage
tanks and underground piping systems. The Company is subject to additional
regulatory matters including environmental capital commitments and
environmental remediation, as further discussed in the Company's Annual Report
on Form 10-K, as amended. The actual cost of remediating contaminated sites
and removing tanks may be substantially lower or higher than the related
accrued liabilities.
World gasoline markets have historically been subject to periods of sudden and
extreme volatility as a result of changing supply and demand conditions for
crude oil and gasoline. The Company's liquidity and gross profits could be
adversely affected in the future should such conditions occur, and such adverse
effects could be significant.
The Clinton Administration and many members of the Congress have proposed
various legislative measures to change existing health care programs. Due to
the labor intensive nature
27
<PAGE> 28
of the convenience store business, any legislation or regulation which
increases the Company's labor costs could have a significant effect on the
results of operations of the Company. As a result of the significant amount of
uncertainty surrounding any potential changes in health care programs, the
Company is unable to predict the outcome of any of these proposals.
28
<PAGE> 29
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
Chapter 11 Reorganization Status - The Company's Revised Fourth Amended and
Restated Joint Plan of Reorganization (the "Plan of Reorganization") was
substantially consummated shortly after the effective date of March 9, 1993.
The principal hearings since that time and presently scheduled on the docket of
the United States Bankruptcy Court for the Southern District of Texas (Houston
Division) (the "Bankruptcy Court") relate to the resolution of the disputed
proofs of claim. All creditors were required to file proofs of claim against
the Company for claims held as of December 9, 1991 (the "Petition Date"),
including contingent, unliquidated, unmatured and disputed claims. However, if
the schedules of liabilities filed with the Bankruptcy Court correctly listed
the claim of any creditor as to amount and priority, and there was no
designation on the schedules that the claim was contingent, unliquidated,
unmatured or disputed, then the creditor could rely on the schedules and need
not file a proof of claim. The Bankruptcy Court established June 4, 1992, as
the deadline by which all proofs of claim had to be filed. Failure to file a
proof of claim by the deadline resulted in the barring of the claim, and the
holder of the barred claim was not treated as a creditor for purposes of voting
or distribution. In instances where particular creditors were omitted from the
original schedules of liabilities and did not receive notice of the earlier
deadlines, the Bankruptcy Court provided for special 30-day deadlines following
receipt of notice by the creditor. With respect to claims arising from the
rejection of executory contracts and unexpired leases, the Bankruptcy Court
established a deadline of the later of October 5, 1992 or 60 days after entry
of an order approving the rejection of the contract or lease. The Bankruptcy
Court also established November 3, 1992, as the deadline for filing proofs of
claims for certain creditors added in supplements to the schedules of
liabilities filed by the Company.
The Company is continuing to research and evaluate the proofs of claims
received, to identify and remove duplicate claims and to combine those proofs
of claim filed on a store by store basis by the same creditor. As of May 2,
1994, 3,003 proofs of claim had been filed against the Company which had a net
stated aggregate value of approximately $426.1 million for the proofs of claim
which specify an amount; numerous other proofs of claim do not specify amounts.
Of the total, 2,892 claims valued at $289.5 million have been settled by the
Company. The remaining number of claims includes other unresolved claims,
including duplicate claims filed by the same claimant, and also includes
duplicate claims filed by separate parties for the same asserted liability.
The Company considers the amounts claimed in the remaining unsettled proofs of
claim to be an unreliable estimate of their liability. In the opinion of
management, certain of these claims assert unrealistic amounts of liability,
are duplicate claims or have other defects. Consequently, as of May 2, 1994,
the Company had filed objections in the Bankruptcy Court for 42 of the
remaining disputed claims covering $85.7 million. Of the disputed claims $74.6
29
<PAGE> 30
million is the amount the Company estimates that is not covered by insurance.
In addition, as of May 2, 1994, 67 claims for $50.8 million had been assigned
to a special settlement procedure for personal injury claims. The Company will
continue to reconcile the amount of claims as determined by the Company with
the claims asserted in proofs of claim and will take appropriate steps to
eliminate all duplications and other inaccuracies to ensure that only valid
claims are allowed by the Bankruptcy Court. This process will continue until
all claims are resolved, which is expected to be for an extended period of
time.
On January 10, 1994, the Bankruptcy Court approved a settlement of the Proofs
of Claim of National Union Fire Insurance Company of Pittsburgh, Pennsylvania
and certain related entities ("National Union"), which settlement provided for
National Union to have an allowed general unsecured claim under the Plan of
Reorganization in the amount of $4,019,319, for the release of $4,494,152 in
Letters of Credit held by National Union and for the reissuance of Letters of
Credit totalling $9,591,925 to National Union. The settlement also
contemplates the payment by National Union of certain proofs of claim by
claimants whose claims are covered by National Union insurance. As a result of
the settlement with National Union, the amount of unresolved general unsecured
claims was substantially reduced.
The majority of outstanding disputed claims are general unsecured claims.
Pursuant to the terms of the Plan of Reorganization, a total of 1,616,559
shares of Common Stock was issued to Boatmen's Trust Company as agent for the
general unsecured creditors, pending allowance of their respective claims. As
of May 2, 1994, Boatmen's had allocated 857,729 shares to individual unsecured
creditors and had issued the appropriate share certificates. The remaining
758,830 shares will be allocated in the future as additional general unsecured
claims are allowed and as disputed claims are resolved.
Other Litigation - George Shields, Garry Cocker, Michael W. Armstrong & Sheila
B. Armstrong, Joint Tenants, Michael W. Armstrong & Sheila B. Armstrong
Revocable Living Trust, Bobby J. Moon, and Jeannie M. Moon, on behalf of
themselves and all others similarly situated, Plaintiffs v. V. H. Van Horn,
Richard C. Steadman, Dunbar N. Chambers, Jr., Raymond W. Oeland, Jr. and Robert
Stobaugh, Defendants; in the 125th Judicial District Court of Harris County,
Texas (the "State Court Action"). In this action, filed on February 24, 1993,
the shareholder Plaintiffs had sought class certification to assert claims by
all shareholders of the Company prior to the confirmation of the Plan of
Reorganization. The Plaintiffs contended, among other things, that the
write-offs which were taken prior to the confirmation of the Plan of
Reorganization were improper and that the Plan of Reorganization, as approved
by order of the Bankruptcy Court, improperly deprived Plaintiffs of their
ownership of the Company. Plaintiffs had sought unspecified compensatory and
punitive damages and costs of defense.
The Company had filed an adversary proceeding against the
shareholders/Plaintiffs styled National Convenience Stores Incorporated v.
George Shields and Garry Cocker, in the Bankruptcy Court, Adversary No. 93-4454
(the "Adversary Proceeding"). The Company's complaint in the Adversary
Proceeding had requested that the Bankruptcy Court enforce its injunction
contained in the Order confirming the Plan of Reorganization since the
Adversary
30
<PAGE> 31
Proceeding, as a collateral attack upon the Order of Confirmation, contradicts
the Order of Confirmation. On October 29, 1993, the Bankruptcy Court entered
judgment for the Company against Messrs. Shields and Cocker. The judgment
enjoined Messrs. Shields and Cocker from prosecuting the State Court Action and
ordered Messrs. Shields and Cocker to dismiss the State Court Action. The
judgment was appealed by Messrs. Shields and Cocker to the United States
District Court for the Southern District of Texas, Houston Division.
The Company had filed a further action in Bankruptcy Court against Messrs.
Shields and Cocker styled National Convenience Stores Incorporated v. Shields
and Cocker, Adversary No. 93-4705 (the "Compensation Lawsuit") in which the
Company sought compensation for costs incurred as a result of the violation of
the permanent injunction by the shareholder/Plaintiffs mentioned above.
The Directors, who are Defendants in the State Court Action, and the Company
entered into a settlement agreement with the Plaintiffs, in the State Court
Action, and Messrs. Shields and Cocker with respect to the State Court Action,
the Adversary Proceeding and the Compensation Lawsuit. Under the terms of the
settlement agreement, the Plaintiffs, in the State Court Action, and Messrs
Shields and Cocker agreed (i) to release each of their claims against the
Directors who are Defendants and the Company; (ii) to dismiss the State Court
Action; (iii) to sell any shares of Company stock owned; (iv) not to purchase
any Company stock for ten years; and (v) to pay the Company $1,000. The
Company agreed to dismiss the Adversary Proceeding and the Compensation
Lawsuit. The State Court Action and the Appeal of the Adversary Proceeding has
been dismissed. The Compensation Lawsuit settlement agreement has been filed
with the Bankruptcy Court and is awaiting entry by such Court.
There is no other litigation pending or threatened against the Company that
management believes is likely to have a material adverse effect on the
financial position or the business of the Company.
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibits
See Index to Exhibits on Page 33.
b) Reports on Form 8-K
The Company did not file a Current Report on Form 8-K during the third
quarter of fiscal 1994.
On May 13, 1994, the Company filed a Current Report on Form 8-K
related to the April 29, 1994 transaction with The Circle K
Corporation referred to above.
31
<PAGE> 32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL CONVENIENCE STORES INCORPORATED
(Registrant)
Date May 13, 1994 /s/ A. J.Gallerano
A. J. Gallerano - Senior Vice President,
General Counsel and Secretary
Date May 13, 1994 /s/ Brian Fontana
Brian Fontana - Vice President -
Chief Financial Officer
Date May 13, 1994 /s/ David Tusa
David Tusa - Vice President - Controller
32
<PAGE> 33
NATIONAL CONVENIENCE STORES INCORPORATED AND SUBSIDIARIES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
EXHIBITS:
*11(a) Computation of earnings (loss) per share for the three
months ended March 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
*11(b) Computation of earnings per share for the nine
months ended March 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
_____________
*Filed Herein
33
<PAGE> 34
NATIONAL CONVENIENCE STORES INCORPORATED AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 11(a)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1994
-----------------
(unaudited)
<S> <C>
Primary Earnings (Loss) Per Share
- - ---------------------------------
Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,527,000)
Average Common Shares Outstanding (1) . . . . . . . . . . . . . . . . . . . . . . . . 6,011,000
Primary Loss Per Common Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.25)
-----------
-----------
Fully Diluted Earnings (Loss) Per Share
- - ---------------------------------------
Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,527,000)
Average Common Shares Outstanding (1) . . . . . . . . . . . . . . . . . . . . . . . . 6,011,000
Fully Diluted Loss Per Common Share . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.25)
-----------
-----------
</TABLE>
(1) Common share equivalents were not considered since the Company
generated a loss for the three month period.
See Notes to Consolidated Financial Statements.
34
<PAGE> 35
NATIONAL CONVENIENCE STORES INCORPORATED AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 11(b)
Primary Earnings Per Share
- - --------------------------
<TABLE>
<CAPTION>
Nine Months Ended
March 31, 1994
-----------------
<S> <C>
Net Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,716,000
Interest expense adjustment
assuming conversion of options, net of tax . . . . . . . . . . . . . . 154,000
----------
Net earnings applicable to
common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,870,000
----------
----------
Average Common Shares and Common Share Equivalents:
Average shares outstanding . . . . . . . . . . . . . . . . . . . . . . 6,004,000
Common Share Equivalents
assuming conversion of options . . . . . . . . . . . . . . . . . . . 567,000
----------
Average number of common shares
and common share equivalents . . . . . . . . . . . . . . . . . . . . . 6,571,000
----------
----------
Primary Earnings Per Common Share
and Common Share Equivalents . . . . . . . . . . . . . . . . . . . . . $ 0.74
----------
----------
Fully Diluted Earnings Per Share
- - --------------------------------
Net Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,716,000
Interest expense adjustment
assuming conversion of options, net of tax . . . . . . . . . . . . . . 154,000
----------
Net earnings applicable to
common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,870,000
----------
----------
Average Common Shares and Common Share Equivalents:
Average shares outstanding . . . . . . . . . . . . . . . . . . . . . . 6,004,000
Common Share Equivalents
assuming conversion of options . . . . . . . . . . . . . . . . . . . 572,000
----------
Average number of common shares
and common share equivalents . . . . . . . . . . . . . . . . . . . . . 6,576,000
----------
----------
Fully Diluted Earnings Per Common Share
and Common Share Equivalents . . . . . . . . . . . . . . . . . . . . . $ 0.74
----------
----------
</TABLE>
See Notes to Consolidated Financial Statements.
35
