<PAGE>
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 March 27, 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 May 12, 1997)
<PAGE>
THE PANTRY, INC.
Form 10-Q
March 27, 1997
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
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 2. Changes in Securities........................................................................12
Item 6. Exhibits and Reports on Form 8-K.............................................................12
</TABLE>
<PAGE>
PART I - Financial Information.
Item 1. Financial Statements.
THE PANTRY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
September 26, March 27,
1996 1997
----------- --------
(Audited) (Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash $ 5,338 $ 16,488
Receivables 2,860 2,575
Inventories 13,223 15,478
Prepaid expenses 775 716
Income taxes receivable 63 --
Property held for sale 2,816 3,454
Deferred income taxes 879 879
-------- --------
Total current assets 25,954 39,590
-------- --------
Property and equipment, net 65,455 64,992
Other assets:
Goodwill, net 16,852 16,554
Deferred lease cost, net 359 337
Deferred financing cost, net 5,940 5,305
Environmental receivables, net 5,162 5,162
Deferred income taxes 790 1,697
Other 368 401
-------- --------
Total other assets 29,471 29,456
-------- --------
$120,880 $134,038
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
2
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THE PANTRY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
September 26, March 27,
1996 1997
--------- ----------
(Audited) (Unaudited)
LIABILITIES AND SHAREHOLDERS' DEFICIT
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 16 $ 32
Current maturities of capital lease obligations 285 285
Line of credit -- --
Accounts payable:
Trade 15,666 14,961
Money orders 2,788 2,790
Accrued interest 4,416 4,522
Accrued compensation and related taxes 2,338 3,013
Other accrued taxes 2,135 1,300
Accrued insurance 3,629 4,043
Other accrued liabilities 1,194 1,429
--------- --------
Total current liabilities 32,467 32,375
--------- --------
Long-term debt 100,148 100,322
--------- --------
Other non-current liabilities:
Environmental reserve 6,232 6,465
Capital lease obligations 982 831
Employment obligations 2,039 1,703
Accrued dividends on preferred stock 2,654 4,942
Other 3,905 4,380
--------- --------
Total other non-current liabilities 15,812 18,321
--------- --------
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 at September 26, 1996 and
March 27, 1997 1 1
Additional paid in capital (10,557) 5,442
Accumulated deficit (16,991) (22,423)
--------- --------
Total shareholders' deficit (27,547) (16,980)
--------- --------
$ 120,880 $ 134,038
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
THE PANTRY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------- -----------------------
March 28, March 27, March 28, March 27,
1996 1997 1996 1997
--------- --------- --------- ---------
(13 weeks) (13 weeks) (26 weeks) (26 weeks)
<S> <C> <C> <C> <C>
Revenues:
Merchandise sales $ 41,311 $ 44,733 $ 85,260 $ 92,117
Gasoline sales 41,975 50,000 87,674 101,838
Commissions 992 1,177 2,021 2,286
--------- --------- --------- ---------
Total revenues 84,278 95,910 174,955 196,241
--------- --------- --------- ---------
Cost of sales:
Merchandise 27,892 29,328 56,811 60,832
Gasoline 36,695 45,291 76,269 91,918
--------- --------- --------- ---------
Total cost of sales 64,587 74,619 133,080 152,750
--------- --------- --------- ---------
Gross profit 19,691 21,291 41,875 43,491
--------- --------- --------- ---------
Operating expenses:
Store expenses 14,113 14,177 28,891 28,685
General and administrative expenses 4,562 4,395 9,252 8,478
Depreciation and amortization 2,375 2,235 4,541 4,498
--------- --------- --------- ---------
Total operating expenses 21,050 20,807 42,684 41,661
--------- --------- --------- ---------
Income (loss) from operations (1,359) 484 (809) 1,830
--------- --------- --------- ---------
Other income (expense):
Interest (3,238) (3,338) (6,302) (6,479)
Miscellaneous 56 652 209 719
--------- --------- --------- ---------
Total other expense (3,182) (2,686) (6,093) (5,760)
--------- --------- --------- ---------
Loss before income tax benefit (4,541) (2,202) (6,902) (3,930)
Income tax benefit 1,144 441 1,678 786
--------- --------- --------- ---------
Net loss $ (3,397) $ (1,761) $ (5,224) $ (3,144)
</TABLE>
See Notes to Consolidated Financial Statements.
4
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THE PANTRY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------------
March 28, March 27,
1996 1997
--------- ---------
(26 weeks) (26 weeks)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(5,224) $(3,144)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization 4,541 4,498
(Gain) loss on sale of property and equipment 303 (432)
Reserves for environmental issues 39 43
Reserves for closed stores 12 49
Amortization of deferred revenues (819) (776)
(Increase) decrease in:
Receivables (420) 401
Inventories 201 (2,255)
Prepaid expenses (304) 59
Income taxes receivable (654) 63
Other assets 239 (894)
Increase (decrease) in:
Accounts payable - trade 1,538 (706)
Accounts payable - money orders 579 2
Accrued interest 114 (119)
Accrued compensation and related taxes (437) 675
Income taxes payable (657) --
Other accrued taxes (1,931) (835)
Accrued insurance 307 414
Employment obligations 1 (335)
Other accrued liabilities (401) 529
Other liabilities 1,328 1,369
------ -------
Net cash provided by (used in) operating activities (1,645) (1,394)
------ -------
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
THE PANTRY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
------------------------
March 28, March 27,
1996 1997
------------ -----------
(26 weeks) (26 weeks)
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property held for sale (2,996) (665)
Additions to property and equipment (4,620) (4,170)
Proceeds from sale of property held for sale 300 --
Proceeds from sale of property and equipment 1,174 1,478
---------- ---------
Net cash provided by (used in) investing activities (6,142) (3,357)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligations (180) (151)
Principal payments on long-term debt (12) (10)
Proceeds from issuance of long-term debt -- 200
Proceeds from line of credit, net 5,640 --
Net proceeds (payments) related to equity issue (42) 15,947
Other financing costs (2,992) (85)
---------- ---------
Net cash provided by (used in) financing activities 2,414 15,901
---------- ---------
Net increase (decrease) in cash (5,373) 11,150
CASH AT BEGINNING OF PERIOD 10,999 5,338
---------- ---------
CASH AT END OF PERIOD $5,626 $ 16,488
=========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE>
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 March 27, 1997 and for the
comparative three and six 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 report on Form 10-Q for the quarterly
period ended December 26, 1996.
2. The results of operations for the three and six month periods ended March
27, 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, March 27,
1996 1997
------------- -----------
(Unaudited)
Inventories at FIFO cost:
Merchandise $ 13,841 $ 16,240
Gasoline 4,013 4,307
------------- -----------
17,854 20,547
Less adjustment to LIFO cost:
Merchandise (4,012) (4,238)
Gasoline (619) (831)
------------- -----------
Inventories at LIFO cost $ 13,223 $ 15,478
============= ===========
4. The March 27, 1997 environmental reserve of $6.5 million represents
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
intends to use the net proceeds of $16 million to fund existing store
remodels, new store development and future acquisitions. 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
7
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date of payment of such dividend. In accordance with these terms, the
Company has accrued $4,373,643 of Series A Preferred Stock dividends as
of March 27, 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 $568,750 of Series B
Preferred Stock dividends as of March 27, 1997.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Revenues. Total revenues for the quarter and six month periods ended
March 27, 1997 were 13.8% and 12.2% higher, respectively, than the comparable
periods ended March 28, 1996 (the "comparable periods in 1996"), despite a 4%
decline in average store count. The increase in revenues can be attributed to a
relatively mild winter in the Company's market area compared to last year and
improved store conditions including merchandising, competitiveness and overall
store appearance.
Total merchandise revenue for both the quarter and six month periods
ended March 27, 1997 was 8% higher than the comparable periods in 1996. Same
store merchandise revenues for the quarter and six month periods ended March 27,
1997 increased 12% and 11 % 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 19% and 16% for the quarter and six month
periods ended March 27, 1997 over the comparable periods in 1996 due primarily
to increases in gasoline volume (gallons) and average retail price. The average
retail price per gallon was $1.25 for both the quarter and six month periods
ended March 27, 1997 compared to $1.15 in the second fiscal quarter 1996 and
$1.13 in the six month period ended March 28, 1996 which is indicative of higher
average wholesale prices in the second fiscal quarter 1997 compared to the
second fiscal quarter 1996. In the quarter ended March 27, 1997 ("second fiscal
quarter 1997"), total gasoline volume and same store gallons increased 9.8% and
9.2%, respectively. For the six month period ended March 27, 1997 ("first fiscal
six months 1997"), total gasoline volume and same store gallons increased 4.6%
and 3.8%, respectively. The increase in gallons can be attributed to the mild
winter and more competitive retail pricing. Commission revenues increased 19%
and 13% for the quarter and six month periods ended March 27, 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 six month periods ended
March 27, 1997 increased 8.1% and 3.9%, respectively, compared to the comparable
periods in 1996, despite an 11% and 13% 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 and price competition from other gasoline marketers.
Store Operating and General and Administrative Expenses. Store
operating expenses were relatively flat when compared to the comparable periods
in 1996, but decreased as a percentage of merchandise sales. General and
administrative expenses for the quarter and six month periods ended March 27,
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 (Loss) from Operations. Income from operations increased from a
loss of $1.4 million in the second fiscal quarter 1996 to income of $0.5 million
in the second fiscal quarter 1997 for an increase of $1.9 million. The increase
is primarily due to increased merchandise gross profit, increased commission
revenues and lower administrative expenses as noted above. For the six month
period ended March 27, 1997, income from operations totaled $1.8 million, a $2.6
million 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 second
fiscal quarter 1997 was $3.4 million versus $1.1 million in the second fiscal
quarter 1996. EBITDA for the first fiscal six months 1997 was $7.0 million
versus $3.9 million for the six months ended March 28, 1996 ("first fiscal six
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 second fiscal quarter 1997 and six months ended March 27, 1997 covered
interest expense 1.0 and 1.1 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 $0.1 million and $0.2 million
for the quarter and six month periods ended March 27, 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
9
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offset by a decrease in the interest on the Company's Line of Credit Facility as
average borrowings were lower in the second fiscal quarter 1997 than in the
second fiscal quarter 1996.
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, capital expenditures
and interest expense represent the primary uses of Company funds. Cash provided
by operating activities in the first fiscal six months 1997 increased primarily
due to a $2 million lower net loss from the first fiscal six 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 March 27, 1997,
there was no outstanding balance under the $10 million working capital line of
credit and approximately $8.3 million of letters of credit were issued under the
standby letter of credit facility.
Capital Expenditures. For the six month period ended March 27, 1997,
capital expenditures totaled $4.2 million, primarily comprised of expenditures
for store equipment, existing store improvements, site acquisitions and new
store development.
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 Second Measurement Period ends June 26,
1997, at which time the Coverage Ratio will again be calculated. If the Coverage
Ratio at that time is equal to or exceeds 1.63 to 1, the interest rate on the
Notes will revert to 12%; if not, the interest rate will continue to be 12.5%
through December 1997. The incremental 0.5% interest accruing through May 15,
1997 will be paid on May 15 while the incremental 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.
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,
10
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"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 intends to use the net
proceeds of $16 million to fund existing store remodels, new store development
and future acquisitions. 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 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
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Part II - Other Information.
Item 2. Changes in Securities.
Recent Sales of Unregistered Securities. On December 30, 1996, the
company issued and FS&Co. purchased 17,500 shares of Series B Preferred Stock,
$0.01 value, for $17.5 million.
No underwriter was engaged in connection with the foregoing sales of securities.
Sales of the securities to the above parties were made in reliance upon Section
4(2) of the Securities Act of 1933, as amended, as transactions not involving
any public offering.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
12
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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: May 12, 1997 By: \s\ William T. Flyg
William T. Flyg
Senior Vice President Finance and Secretary
(Authorized Officer and Principal Financial Officer)
13
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EXHIBIT INDEX
Exhibit No. Description of Document
27.1 Financial Data Schedule.
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-25-1997
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0
0
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