- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 2, 1998
THE PANTRY, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-72574 56-1574463
(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation) Identification Number)
1801 Douglas Drive, P.O. Box 1410, Sanford, North Carolina 27330
(Address of principal executive offices)
(919) 774-6700
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
- --------------------------------------------------------------------------------
<PAGE>
ITEM 7 is hereby replaced as follows:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
1) Quick Stop Financial Statements as of December 31, 1996
and 1997 and for each of the three years in the period
ended December 31, 1997, and Unaudited Interim Financial
Statements as of March 31, 1998 and for each of the
Three Month Periods Ended March 31, 1997 and 1998:
a) Report of Independent Certified Public
Accountants
b) Balance Sheets
c) Statements of Income
d) Statements of Stockholders' Equity
e) Statements of Cash Flows
f) Notes to Financial Statements
2) Stallings Financial Statements as of October 31, 1997
and for the year then ended, and Unaudited Interim
Financial Statements as of March 31, 1998 and for the
Five Month Periods Ended March 31, 1997 and 1998:
a) Independent Auditors' Report
b) Balance Sheet
c) Statement of Income
d) Statement of Retained Earnings
e) Statement of Cash Flows
f) Notes to Financial Statements
(b) PRO FORMA FINANCIAL DATA.
1) Introduction to Unaudited Pro Forma Financial Data
2) Unaudited Pro Forma Balance Sheet Data as of March
26, 1998 and Accompanying Notes
3) Unaudited Pro Forma Statement of Operations Data for
the Six-Months Ended March 26, 1998
4) Unaudited Pro Forma Statement of Operations Data for
the Year Ended September 25, 1997 and Accompanying
Notes
(c) EXHIBITS.
Exhibit No. Description of Exhibit
----------- ----------------------
2.1* Asset Purchase Agreement dated June 5, 1998
between Quick Stop and the Company (asterisks
located within the exhibit denote information
which has been deleted pursuant to a request for
confidential treatment filed with the Securities
and Exchange Commission)
2.2* List of Exhibits and Schedules omitted from the
Asset Purchase Agreement referenced in Exhibit
2.1 hereof
2.3* Asset Purchase Agreement dated July 6, 1998
between Stallings and the Company (asterisks
located within the exhibit denote information
which has been deleted pursuant to a request for
confidential treatment filed with the Securities
and Exchange Commission)
2.4* List of Exhibits and Schedules omitted from the
Asset Purchase Agreement referenced in Exhibit
2.3 hereof
-2-
<PAGE>
- -------------------------
* Previously Filed.
-3-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Quick Stop Food Mart, Inc.
Fayetteville, North Carolina
We have audited the accompanying balance sheets of Quick Stop
Food Mart, Inc. as of December 31, 1997 and 1996, and the related
statements of income, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Quick Stop Food Mart, Inc. as of December 31, 1997 and 1996,
and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
Cherry Bekaert & Holland, LLP
Fayetteville, North Carolina
March 6, 1998
-4-
<PAGE>
QUICK STOP FOOD MART, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<S> <C>
DECEMBER 31, MARCH 31,
---------------------------------- --------------
1997 1996 1998
(Unaudited)
---------------------------------- -------------
CURRENT ASSETS
Cash and cash equivalents $ 930,995 $ 1,489,685 $ 1,548,510
Receivables (net of allowance for doubtful
accounts of $33,000 in 1997 and $30,000
in 1996) 12,241,442 971,690 930,868
Inventories 3,805,653 3,303,988 3,278,953
Other current assets 140,265 147,765 233,248
-------------- ------------- --------------
TOTAL CURRENT ASSETS 6,118,355 5,913,128 5,991,579
-------------- ------------- -------------
PROPERTY AND EQUIPMENT
Land and buildings 9,615,335 6,794,281 9,792,359
Store and office equipment 21,651,228 16,135,535 22,040,964
Transportation equipment 1,026,034 937,019 1,054,413
Leasehold improvements 3,117,212 2,575,573 3,217,408
Construction-in-progress 137,347 2,308,181 14,474
-------------- ------------- -------------
35,547,156 28,750,589 36,119,618
Less accumulated depreciation 14,609,791 12,826,346 15,320,938
-------------- ------------- -------------
NET PROPERTY AND EQUIPMENT 20,937,365 15,924,243 20,798,680
-------------- ------------- -------------
OTHER NONCURRENT ASSETS 1,724,495 1,510,193 2,116,167
-------------- ------------- -------------
$ 28,780,215 $ 23,347,564 $ 28,906,426
============== ============= ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-5-
<PAGE>
<TABLE>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, MARCH 31,
---------------------------------- -----------
1997 1996 1998
(Unaudited)
---------------------------------- ----------
CURRENT LIABILITIES
Current portion of long-term debt $ 804,606 $ 1,121,949 $ 674,171
Line of credit 600,000 - 2,200,000
Bonds payable related party 25,829 25,829 25,829
Accounts payable and accrued expenses 7,995,854 7,750,842 6,210,091
-------------- ------------- ------------
TOTAL CURRENT LIABILITIES 9,426,289 8,898,620 9,110,091
-------------- ------------- ------------
LONG-TERM DEBT 5,529,179 2,002,604 5,464,446
-------------- ------------- ------------
TOTAL LIABILITIES 14,955,468 10,901,224 14,574,537
-------------- ------------- ------------
STOCKHOLDERS' EQUITY
Common stock (par value $1). Authorized
100,000 shares; issued and outstanding
1,078 and 1,026 shares in 1997 and 1996. 1,078 1,026 1,078
Additional paid-in capital 886,446 671,577 886,446
Retained earnings 12,937,223 11,773,737 13,444,365
-------------- ------------- ------------
TOTAL STOCKHOLDERS' EQUITY 13,824,747 12,446,340 14,331,889
-------------- ------------- ------------
$ 28,780,215 $ 23,347,564 $ 28,906,426
============== ============= ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-6-
<PAGE>
<TABLE>
<S> <C>
QUICK STOP FOOD MART, INC.
STATEMENTS OF INCOME
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------------------------------------- -----------------------------
1997 1996 1995 1997 1998
(Unaudited) (Unaudited)
---------------------------------------------- -----------------------------
Net sales $ 164,503,534 $ 143,568,524 $ 135,467,154 $ 36,864,646 $ 34,953,855
Cost of goods sold 137,102,870 119,888,214 111,059,632 31,340,678 28,950,485
-------------- ------------- --------------- ------------- -------------
Gross Profit 27,400,664 23,680,310 24,407,522 5,523,968 6,003,370
Operating and administrative expenses 24,569,641 21,812,494 21,639,341 5,505,609 5,496,228
-------------- ------------- --------------- ------------- -------------
Income from operations 2,831,023 1,867,816 2,768,181 18,359 507,142
Other income 254,463 466,743 407,372 -- --
-------------- ------------- --------------- ------------- -------------
Net income $ 3,085,486 $ 2,334,559 $ 3,175,553 $ 18,359 $ 507,142
============== ============= =============== ============= ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-7-
<PAGE>
<TABLE>
<S> <C>
QUICK STOP FOOD MART, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED YEARS ENDED
MARCH 31, 1998 DECEMBER 31,
----------------------------------------------------------------------
(Unaudited) 1997 1996 1995
------------- ------------- ----------- ------------
COMMON STOCK
Beginning of year $ 1,078 $ 1,026 $ 1,023 $ 1,023
Additional shares issued (52 shares
in 1997 and 3 shares in 1996) 52 3 -
--------- --------- --------- --------
End of year $ 1,078 $ 1,078 $ 1,026 $ 1,023
======== ========= ========= ========
ADDITIONAL PAID-IN CAPITAL
Beginning of year $ 886,446 $ 671,577 $ 649,198 $ 649,198
Additions 214,869 22,379 -
------------- ----------- ------------ ------------
End of year $ 886,446 $ 886,446 $ 671,577 $ 649,198
============= =========== ============ =============
RETAINED EARNINGS
Beginning of year $ 12,937,223 $ 11,773,737 $ 11,131,019 $ 9,236,916
Net income 507,142 3,085,486 2,334,559 3,175,553
Stockholder distributions (1,922,000) (1,691,841) (1,281,450)
------------ ------------- -------------- ---------------
End of year $ 13,444,365 $ 12,937,223 $ 11,773,737 $ 11,131,019
============ ============= ============== ===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-8-
<PAGE>
<TABLE>
<S> <C>
QUICK STOP FOOD MART, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED
DECEMBER 31,
------------------------------------------
1997 1996 1995
------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,085,486 $ 2,334,559 $ 3,175,553
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 2,503,455 1,869,819 1,767,540
Amortization 10,687 10,641 10,641
(Gain) loss on disposal of property and equipment 89,722 17,114 (68,573)
(Increase) decrease in receivables (269,752) (53,488) 13,954
(Increase) decrease in inventories (501,665) (392,916) 119,566
(Increase) decrease in other current assets 7,500 91,243 (248,229)
(Increase) decrease in other noncurrent
assets (223,322) (355,925) (237,213)
Increase (decrease) in accounts payable and
accrued expenses 245,012 1,253,749 436,565
-------------- ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,947,123 4,774,796 4,969,804
-------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment 1,852,021 45,575 155,000
Additions to property and equipment (9,459,986) (6,613,166) (1,248,986)
-------------- ------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (7,607,965) (6,567,591) (1,093,986)
-------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt 20,936,250 - 1,285,000
Principal payments on debt (17,127,019) (461,494) (2,202,716)
Proceeds from sale of stock 214,921 22,382 -
Stockholder distributions (1,922,000) (1,691,841) (1,281,450)
-------------- ------------ ------------
NET CASH FLOWS PROVIDED (USED) BY
FINANCING ACTIVITIES 2,102,152 (2,130,953) (2,199,166)
-------------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (558,690) (3,923,748) 1,676,652
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,489,685 5,413,433 3,736,781
-------------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 930,995 $ 1,489,685 $ 5,413,433
============== ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 537,603 $ 295,729 $ 356,158
============== ============ ============
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------------------
1997 1998
(Unaudited) (Unaudited)
---------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 18,359 $ 507,142
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 520,386 711,147
Amortization 2,660 3,919
(Gain) loss on disposal of property and equipment -- --
(Increase) decrease in receivables 85,620 310,574
(Increase) decrease in inventories (285,471) 526,700
(Increase) decrease in other current assets (54,884) (92,983)
(Increase) decrease in other noncurrent
assets (864,007) (395,591)
Increase (decrease) in accounts payable and
accrued expenses (90,751) (1,785,763)
-------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES (668,088) (214,855)
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment -- 550,000
Additions to property and equipment (1,251,383) (1,122,462)
-------------- --------------
NET CASH USED BY INVESTING ACTIVITIES (1,251,383) (572,462)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt 6,056,250 9,850,000
Principal payments on debt (1,319,078) (8,445,168)
Proceeds from sale of stock -- --
Stockholder distributions -- --
-------------- -------------
NET CASH FLOWS PROVIDED (USED) BY
FINANCING ACTIVITIES 4,737,172 1,404,832
-------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,817,701 617,515
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,489,685 930,995
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,307,386 $ 1,548,510
------------- -------------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 92,033 $ 159,085
============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-9-
<PAGE>
QUICK STOP FOOD MART, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
The Corporation operates convenience stores under the name of "Quick Stop" in
North and South Carolina. Revenues are generated primarily by the sale of
various merchandise and petroleum products to the general public.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Corporation considers all
highly liquid debt instruments purchased with a maturity date of three months or
less to be cash equivalents.
INVENTORIES
Substantially all merchandise inventories are stated at the lower of cost or
market using the retail last-in, first-out (LIFO) inventory method. Gasoline
inventories are stated at the lower of cost or market using the LIFO method. The
current cost of inventories valued under the first-in, first-out (FIFO) method
exceeded their LIFO carrying values by approximately $1,717,000, $1,738,000 and
$1,512,620 at December 31, 1997, 1996 and 1995, respectively.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Maintenance and repairs are charged to
operations as incurred, and renewals and betterments are capitalized. Gains or
losses on disposals are credited or charged to operations.
DEPRECIATION
Depreciation and amortization is charged to income over the estimated useful
lives of assets using the straight-line method for financial statement purposes.
STOCKHOLDERS' EQUITY
All stockholders have equal voting rights according to the number of shares
held. Distributions are primarily made to compensate for the individual tax
impact of Subchapter "S" earning passed through to each stockholder.
-10-
<PAGE>
QUICK STOP FOOD MART, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ADVERTISING
The Corporation expenses advertising costs as incurred. Advertising costs for
the years ended 1997, 1996 and 1995 were approximately $207,000, $299,000 and
$253,000, respectively.
INCOME TAXES
The Corporation has elected by unanimous consent of its stockholders to be taxed
under the provisions of Subchapter "S" of the Internal Revenue code. Under those
provisions, the Corporation does not pay federal and state income taxes on its
taxable income. Instead, the stockholders are liable for individual federal and
state income taxes on their respective shares of the Corporation's taxable
income.
PROFIT-SHARING PLAN
The Corporation sponsors a profit-sharing plan covering full-time employees who
meet specified age and length of service requirements. Contributions are
determined annually based on a percentage of net income as approved by the Board
of Directors. Contributions amounted to $386,000 in 1997, $278,000 in 1996 and
$367,000 in 1995.
ENVIRONMENTAL REMEDIATION
The Corporation accrues environmental remediation costs if it is probable that
an asset has been impaired or a liability incurred at the financial statement
date and the amount can be reasonably be estimated.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
NOTE 2 - CASH AND CASH EQUIVALENTS
The Corporation maintains cash and cash equivalent balances at several financial
institutions in North and South Carolina. Accounts at each institution are
insured by the Federal Deposit Insurance Corporation up to $100,000. At December
31, 1997 and 1996, the Corporation's uninsured bank balances totalled
approximately $760,000 and $1,339,000, respectively.
NOTE 3 - LINES OF CREDIT
The Corporation has entered into four credit line arrangements with a local bank
providing maximum borrowings of $15,750,000. Amounts borrowed under these
agreements are due on May 31, 1998 and require monthly interest payments at the
prevailing prime rate minus 1/4%. On May 31, 1998, any unpaid principal balances
shall be set up as a term note. The credit lines are guaranteed by related
parties and secured by inventory, accounts receivable, and equipment.
These credit lines and certain other long term debt obligations contain
restrictions on the combined amounts of stockholders' compensation, dividends
which may be paid, the issuance of additional debt, and other covenants. In
addition, the loan agreements provide that certain financial ratios and other
financial requirements be maintained.
Advances outstanding at December 31, 1997 totalled $600,000; no advances were
outstanding at December 31, 1996.
-11-
<PAGE>
QUICK STOP FOOD MART, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 4 - BONDS PAYABLE RELATED PARTY
Bonds payable related party includes obligations to majority stockholders that
are due currently and includes interest at the applicable federal rate. The
obligations are unsecured.
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<S> <C>
DECEMBER 31,
1997 1996
----- -------
Notes payable to individuals, due in monthly
installments of $4,371 including interest at
7.5%; collateralized by Deeds of Trust. $ 184,016 $ 221,146
Notes payable to bank, due in monthly installments of approximately
$48,700 plus interest ranging from the prevailing prime rate minus 1/4%
to the prevailing prime rate plus 1/2%; collateralized by inventories,
property and equipment, assignment of leases on certain properties,
and Deeds of Trust. 5,950,639 2,535,298
Note payable to bank, due in monthly installments of
$15,747 including interest at 6.75%. The loan is collaterized
by inventories and property and equipment. 199,130 368,109
---------- ----------
6,333,785 3,124,553
Less current installments 804,606 1,121,949
---------- ----------
$5,529,179 $2,002,604
========== ==========
</TABLE>
Maturities of long-term debt at December 31, 1997, are as follows:
DECEMBER 31
-----------
1998 $ 804,606
1999 697,313
2000 1,684,049
2001 1,611,178
2002 1,536,639
-----------------
$ 6,333,785
=================
Interest expense for years ended December 31, 1997, 1996 and 1995 totalled
approximately $553,000, $293,000 and $354,000, respectively.
-12-
<PAGE>
QUICK STOP FOOD MART, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 6 - STOCK OPTION PLANS
In accordance with a non-qualified stock option plan for key employees, options
have been granted to purchase 281 shares of common stock. The purchase price of
these options are fixed at prices ranging from $4,000 to $7,461 per share.
Options granted, exercised and canceled during 1997, 1996 and 1995 are as
follows,
<TABLE>
<S> <C>
DECEMBER 31,
-----------------------------------------------
1997 1996 1995
---------- -------- -------
Options outstanding on January 1 145 148 148
Granted - - -
Exercised 52 3 -
Canceled - - -
Options outstanding at December 31 93 145 148
</TABLE>
The weighted average exercise price for options outstanding at December 31,
1997, 1996 and 1995 was $7,461, $6,220 and $6,175. Options exercised during 1997
and 1996 had a weighted average exercise price of $4,000 in each year.
NOTE 7 - STOCKHOLDER DISTRIBUTIONS
During 1997, 1996 and 1995, the Corporation made distributions to its
stockholders of amounts estimated to compensate for the individual tax impact of
Subchapter "S" earnings passed through to each stockholder. Total distributions
amounted to approximately $1,922,000, $1,692,000 and $1,281,000 in each of the
respective years.
NOTE 8 - SALE TO RELATED PARTY
During 1997, the Corporation sold land and buildings with a book value of
approximately $1,697,000 to a related party, realizing a gain of approximately
$5,000.
NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES
LESSEE ARRANGEMENTS
The Corporation conducts substantially all of its operations utilizing leased
facilities. Some of the operating leases provide that the Corporation pay taxes,
maintenance and other occupancy expenses applicable to leased premises.
Generally, the leases provide for renewal for various periods at stipulated
rates. Some leases also provide for contingent rents, which are based on store
sales. These contingent amounts are payable in addition to minimum rental
payments.
-13-
<PAGE>
QUICK STOP FOOD MART, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES (continued)
LESSEE ARRANGEMENTS (continued)
At December 31, 1997, minimum rental payments under noncancellable operating
leases are as follows:
<TABLE>
<S> <C>
YEARS ENDING RELATED PARTIES OTHER
------------ ---------------- ----------
1998 $ 1,505,118 $ 1,080,622
1999 1,505,118 879,891
2000 1,505,118 848,379
2001 1,505,118 705,236
2002 1,505,118 565,215
Thereafter 4,013,647 2,116,449
---------------- --------------
Total minimum lease payments $ 11,539,237 $ 6,195,792
================ ==============
</TABLE>
Rental expense charged to operations is summarized as follows:
<TABLE>
<S> <C>
YEARS ENDED
DECEMBER 31,
---------------------------------------------------
1997 1996 1995
------- ------- -------
Minimum rentals under operating leases $ 3,125,215 $ 2,948,423 $ 2,469,107
Contingent rentals under operating leases 24,955 20,573 15,604
--------------- --------------- ---------------
$ 3,150,170 $ 2,968,996 $ 2,484,711
=============== =============== ===============
</TABLE>
The principal owners of the Corporation and other companies which they own or
with which they are associated are considered related parties. Rental expense
listed above included minimum rental payments to related parties of
approximately $1,521,000, $1,485,000 and $1,466,000 for years ended December 31,
1997, 1996 and 1995, respectively.
-14-
<PAGE>
QUICK STOP FOOD MART, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES (continued)
LESSOR ARRANGEMENTS
The Corporation subleases facilities to others primarily through noncancellable
operating leases with terms ranging from five to twenty years. The following is
a schedule of future minimum rental income for noncancellable operating leases
with remaining terms of one year or more at December 31, 1997:
YEARS ENDING
1998 $ 160,572
1999 157,642
2000 132,642
2001 120,792
2002 105,192
Thereafter 452,890
---------------
Total minimum rental income $ 1,129,730
===============
The Corporation has guaranteed the repayment of principal and interest on
certain obligations of a related corporation. These obligations are
collateralized by all inventories and equipment of the Corporation. At December
31, 1997, such guarantees totalled approximately $3,300,000.
At December 31, 1997, the Corporation had letters of credit outstanding totaling
$350,000, which may be drawn upon to cover a corrective action arising from
operating underground storage tanks and to cover workers' compensation claims.
At December 31, 1997, the Corporation had contracted with outside parties for
approximately $800,000 for various construction projects.
The Corporation is subject to laws and regulations relating to the protection of
the environment. While it is not possible to quantify with certainty the
potential impact of actions regarding environmental matters, particularly any
future remediation and other compliance efforts, in the opinion of management,
compliance with the present environmental protection laws will not have a
material adverse effect on the financial position, competitive position, or
capital expenditures of the Corporation.
The Corporation is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position of the Corporation.
NOTE 10 - EVENT (UNAUDITED) SUBSEQUENT TO THE DATE OF THE INDEPENDENT AUDITOR'S
REPORT
On July 2, 1998, the Corporation sold certain assets to The Pantry, Inc.,
including the operating assets of the Corporation's seventy-five (75)
convenience stores, inventory and the "Quick Stop" name. The sales price was
$50,000,000 in cash, plus inventory at cost. Assets and liabilities remaining
after this transaction consisted primarily of cash and cash equivalents, real
estate and debt associated with the real estate.
-15-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Stallings Oil Company, Inc.
Rocky Mount, North Carolina
We have audited the accompanying balance sheet of Stallings Oil Company, Inc. as
of October 31, 1997 and the related statements of income, retained earnings, and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Stallings Oil Company, Inc. as
of October 31, 1997 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Bunch & Company, LLP
Rocky Mount, North Carolina
December 22, 1997
-16-
<PAGE>
Stallings Oil Company, Inc.
Balance Sheet
<TABLE>
<S> <C>
Assets
March 31,
October 31, 1998
1997 (Unaudited)
----------- ------------
Current Assets
Cash and cash equivalents 174,446 1,500,973
Accounts receivable 2,251,044 2,383,264
Store refurbishment receivable 648,871 648,871
Notes receivable - current maturities
Officers 33,930 33,930
Others 1,200 35,736
Inventories 2,695,014 2,839,235
Prepaid expenses 191,061 1,216,536
------------ ------------
Total current assets 8,995,566 8,658,545
------------ ------------
Investments and other assets
Notes receivable, less current maturities 553 1,253
Notes receivable - stockholders' trusts 179,581 179,581
Store refurbishment receivable 1,297,741 1,703,137
Deposits and options 26,994 5,494
Equity investments - at equity 414,476 446,562
Cash surrender value of life insurance 87,166 87,166
------------ ------------
Total investment and other assets 2,006,511 2,423,193
------------ ------------
Property and equipment
Real estate 8,105,596 8,212,378
Buildings and leasehold improvements 15,899,846 15,823,587
Equipment 17,553,153 17,633,745
Vehicles 293,086 335,060
Franchise fees 139,100 75,100
------------ ------------
41,990,781 42,079,870
Less accumulated depreciation and amortization 17,711,554 18,838,372
------------ ------------
24,279,227 23,241,498
Construction in progress 619,989 1,001,773
------------ ------------
Net property and equipment 24,899,216 24,243,271
------------ ------------
Total Assets $ 32,901,293 $ 35,325,009
============ ============
See accompanying notes
</TABLE>
-17-
<PAGE>
<TABLE>
<S> <C>
Stallings Oil Company, Inc.
Balance Sheet
Liabilities and Stockholders' Equity
March 31,
October 31, 1998
1997 (Unaudited)
------------ -------------
Current Liabilities
Notes payable $ 440,946 428,000
Accounts payable 7,759,447 7,588,143
Current maturities of long-term debt 1,849,461 1,815,000
Current portion of capital lease obligations 73,234 44,020
Accrued expenses 331,830 2,570,928
------------ -------------
Total current liabilities 10,454,918 12,446,091
------------ -------------
Long-term debt
Long-term debt, less current maturities 12,836,755 13,471,905
Long-term portion of capital lease obligations 1,300 --
------------ -------------
Total long term debt 12,838,055 13,471,905
------------ -------------
Total liabilities 23,292,973 25,917,996
------------ -------------
Stockholders' Equity
Common stock
Class A - Par value $1 per share:
Authorized 500 shares; 495 shares
issued and outstanding 2,597 2,597
Class B - Par value -0- per share:
Authorized 500 shares; 288 shares
issued and outstanding 39,084 39,084
Additional paid-in capital 3,279,525 3,279,525
Retained earnings 6,287,114 6,085,807
------------ ------------
Total stockholders' equity 9,608,320 9,407,013
------------ ------------
Total Liabilities and Stockholders' Equity $ 32,901,293 $ 35,325,009
============ ============
</TABLE>
See accompanying notes
-18-
<PAGE>
Stallings Oil Company, Inc.
Statement of Income
<TABLE>
<S> <C>
Five Months Ended
--------------------------
Year Ended March 31, March 31,
October 31, 1997 1998
1997 (Unaudited) (Unaudited)
------------- ----------- -----------
Sales $ 149,091,849 61,525,203 60,545,236
Cost of goods sold 126,318,367 53,146,967 50,902,100
------------- ------------ -----------
Gross profit 22,773,482 8,678,235 9,643,136
------------- ------------ -----------
Operating expenses
Salaries and benefits 9,470,744 4,190,291 4,264,747
Rent 2,284,792 975,680 1,041,371
Repairs and maintenance 806,585 446,811 443,335
Utilities and telephone 1,279,584 459,310 490,365
Taxes and licenses 1,139,678 192,259 189,140
Insurance 542,823 195,085 159,199
Depreciation and amortization 2,597,322 1,050,000 1,150,000
Other general and administrative expenses 2,861,808 1,248,389 1,287,252
------------- ------------ ----------
Total operating expenses 20,983,336 8,751,825 9,025,409
------------- ------------ ----------
Operating income 1,790,146 79,590 617,727
------------- ------------ ----------
Nonoperating income (expenses)
Interest and dividend income 1,688
Gain (loss) on sale of assets (86,050)
Interest expense (1,282,464) (511,834) (573,573)
Loss on equity investments (57,924)
Other 24,693
------------- ------------ ----------
Net nonoperating expenses (1,400,057) (511,834) (573,573)
------------- ------------ ----------
Net income (loss) $ 390,089 $ (591,424) $ 44,154
============= ============ ==========
</TABLE>
See accompanying notes
-19-
<PAGE>
Stallings Oil Company, Inc.
Statement of Retained Earnings
Retained earnings - beginning, November 1, 1996 $ 5,953,199
Add net income 390,089
Less shareholders' distributions (56,174)
-----------
Retained earnings - ending, October 31, 1997 6,287,114
-----------
Add net income 44,154
Less shareholders' distributions (245,461)
-----------
Retained earnings, ending, March 31, 1998 (Unaudited) $ 6,085,807
===========
See accompanying notes.
-20-
<PAGE>
Stallings Oil Company, Inc.
Statement Of Cash Flows
<TABLE>
<S> <C>
Five Months Ended
---------------------------
Year Ended March 31, March 31,
October 31, 1997 1998
1997 (Unaudited) (Unaudited)
------------ ------------ -----------
Cash flows from operating activities
Net income (loss) $ 390,089 (591,424) 44,154
----------- ---------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,597,322 1,050,000 1,150,000
(Gain) loss on disposal of property 86,050 96,583
Loss from equity investments 57,924
Changes in operating assets and liabilties:
Accrued interest receivable (1,687)
Accounts receivable (2,056,677) (463,380) (537,616)
Prepaid expenses and other (16,581) (1,064,210)
Inventory 268,451 355,181 (144,221)
Accounts payable and accrued expenses 654,068 599,223 2,067,794
----------- ---------- -----------
Total adjustments 1,588,870 1,637,617 1,471,747
----------- ---------- -----------
Net cash provided by operating activities 1,978,959 1,046,193 1,515,901
----------- ---------- -----------
Cash flow from investing activities
Net cash paid - equity investments (112,250) (14,446) (7,087)
Cash payments for the purchase of property (2,592,139) (306,706) (494,055)
Cash proceeds from the sale of property 26,852
Decrease in CSV of life insurance 1,096
Collection of notes receivable 1,300
Issuance of note receivable (58,170)
----------- ---------- -----------
Net cash used by investing activities (2,733,311) (321,152) (501,142)
----------- ---------- -----------
Cash flow from financing activities
Net payments short-term debt (182,054) (590,000) 572,743
Proceeds from issuance of long-term debt 2,965,000 -- 15,000
Principal payments on long-term debt (1,709,439) (20,059)
Distributions to shareholders (56,174) -- (245,000)
Principal payments on capital leases (91,401) (38,083) (30,514)
----------- ---------- -----------
Net cash provided by financing activities 925,932 (648,142) 311,768
----------- ---------- -----------
Net increase in cash and equivalents 171,580 76,899 1,326,527
Cash and equivalents, beginning of year 2,866 2,866 174,446
----------- ---------- -----------
Cash and equivalents, end of year $ 174,446 $ 79,765 $ 1,500,973
=========== ========== ===========
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest expense $ 1,234,291 $ 511,000 $ 566,590
=========== ========== ===========
</TABLE>
See accompanying notes
-21-
<PAGE>
STALLINGS OIL COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - The Company operates convenience stores in North Carolina
and Virginia, and a truck stop and motel in Kenly, North Carolina. The Company
provides credit in the normal course of business to customers primarily located
in North Carolina and Virginia. The Company performs ongoing credit evaluations
of its customers. Credit losses, when realized, have been within the range of
the Company's expectations and historically, have not been significant.
A summary of the Company's significant accounting policies follows:
CASH AND CASH EQUIVALENTS - The Company considers all cash and other highly
liquid assets with maturities of three months or less at the date of
acquisition, to be "cash and cash equivalents."
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
EQUITY INVESTMENTS - The Company has a 33% to 50% ownership in partnerships
owning real estate and an airplane. The investments are booked at cost and
adjusted for the Company's proportionate share of their undistributed earnings
or losses.
PROPERTY, EQUIPMENT, AND DEPRECIATION - Property and equipment are stated at
cost. Depreciation expense is calculated by the straight-line method over the
estimated useful lives of the assets. Estimated useful lives are as follows:
Buildings and leasehold improvements 10 to 15 years
Equipment 3 to 15 years
Vehicles 5 years
INCOME TAXES - Effective November 1, 1987 the Company made an election to be
treated as an S corporation for federal tax purposes. For the fiscal year
beginning November 1, 1989, the S corporation election became effective for
North Carolina purposes. As a result, the Company is no longer required to pay
income taxes. All taxable income is passed through to shareholders and taxed to
them on an individual basis.
UNAUDITED INTERIM FINANCIAL STATEMENTS - The unaudited financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included.
-22-
<PAGE>
PAGE 7
STALLINGS OIL COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 - INVENTORIES
Inventories consisted of the following at October 31, 1997:
Gasoline, diesel oil, kerosene $ 974,792
Store merchandise 1,765,556
Shop parts and tires 306,141
Restaurant inventory 20,624
Lottery tickets 20,485
------------
Inventory at FIFO 3,087,598
Allowance to state inventory at LIFO (392,584)
-----------
2,695,014
===========
Inventories valued using the LIFO method comprised 32% of inventories at October
31, 1997. Had the Company used the FIFO method to value its inventory, the
inventory and stockholders' equity reported in the financial statements would
have both been greater by approximately $393,000 and net earnings would have
increased by approximately $102,000.
NOTE 3 - EQUITY INVESTMENTS AND NONMARKETABLE SECURITIES
As discussed in Note 1, during the year the Company owned a 33% to 50% interest
in three partnerships. These investments are accounted for by the equity method.
The book (equity) value and current year income (loss) of these investments are
as follows:
Investment Ownership Book Current Year
(Equity Method) Percentage Value Income (Loss)
--------------- ---------- ----- -------------
Set Air, LLC 33 1/3% $291,886 $(41,641)
Stallings-Eagle Complex 50 4,114 (22,427)
Beasley-Stallings Partnership 50 118,476 6,144
-------- --------
Total 414,476 (57,924)
======== ========
-23-
<PAGE>
PAGE 8
STALLINGS OIL COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4 - CAPITAL LEASES
The Company acquired equipment under the provisions of long-term leases. The
nature of these leases includes frozen beverage dispensers at several of its
locations as well as a computer system at its administrative offices. The leased
properties under capital leases as of October 31, 1997 have a cost of $269,789,
accumulated amortization of $204,972, and net book value of $64,817.
Amortization of the leased properties is $94,129 and is included in depreciation
expense.
Future minimum lease payments by year, and in aggregate for these leases are as
follows:
YEAR ENDING
OCTOBER 31
-----------
1998 $ 75,844
1999 1,319
Thereafter 0
--------
Total future minimum lease payments 77,163
Less amount representing interest 2,629
--------
Present value of future minimum lease payments 74,534
========
NOTE 5 - RENTAL COMMITMENTS
The Company operates some of its convenience stores from leased facilities owned
by stockholders and officers. Leases expire at varying dates through 2006.
Future minimum rental commitments required under operating leases that have
initial or remaining noncancelable lease terms in excess of one year are as
follows:
MINIMUM ANNUAL RENTALS
----------------------
YEARS ENDING OPERATING SUBLEASE NET RENTAL
OCTOBER 31 LEASES INCOME COMMITMENT
------------ ---------- ---------- ----------
1998 $2,219,771 $ 23,000 $2,196,771
1999 2,110,582 0 2,110,582
2000 2,009,962 0 2,009,962
2001 1,920,775 0 1,920,775
2002 1,895,564 0 1,895,564
Thereafter 7,992,225 0 7,992,225
---------- --------- ----------
18,148,879 23,000 18,125,879
========== ========= ==========
Total rental expense was $2,284,792 excluding insurance, property taxes and
maintenance costs.
-24-
<PAGE>
PAGE 9
STALLINGS OIL COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 6 - NOTES PAYABLE AND LONG-TERM DEBT
Short-term debt consists of credit lines obtained to carry out normal business
operations. At October 31, 1997, short-term debt consisted of the following:
Bank, credit line (maximum $3,000,000) secured by accounts receivable and
inventory, interest payable monthly at prime, matures March 1998,
guaranteed by stockholders 399,000
Supplier, secured by computer software, payable
in monthly installments of $10,487, no interest 41,946
-----------
Total 440,946
===========
Long-term debt is secured by substantially all the real property of the Company
and personally guaranteed by the two stockholders. Long-term debt at fiscal year
end consisted of the following:
Bank, revolving line of credit (maximum
$ 12,000,000) for the use of construction of new stores,
improvements and the refinancing of existing stores.
Interest is stated the lower of prime or LIBOR plus 2.7%.
Principal installments of $125,000 plus interest due
monthly, matures March 2002. $11,905,000
Bank, revolving line of credit (maximum $6,000,000) for
the use of construction of new stores. Interest is
stated at the lower of prime or LIBOR plus 2.7%.
Principal installments of $25,000 plus interest monthly.
Note matures in March 2002. 2,310,000
Real estate obligation, due in monthly installments of
$4,006, including interest of 10.25%, matures August
2004. 235,512
Real estate obligation, due in monthly installments of
$2,676 including interest of 10%, matures July 2005. 172,706
Individual real estate obligation, due in quarterly
installments of $4,295 including interest of 9%,
maturing in 2002. 62,997
----------
Total notes payable 14,686,215
Less current maturities 1,849,461
----------
Long-term portion 12,836,755
==========
-25-
<PAGE>
PAGE 10
STALLINGS OIL COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 6 - NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
Aggregate maturities of long-term debt at October 31, 1997 are as follows:
1998 $ 1,849,461
1999 1,857,683
2000 3,273,651
2001 1,570,238
2002 5,978,068
Thereafter 157,114
----------
14,686,215
==========
NOTE 7 - CONTINGENCIES AND COMMITMENTS
The nature of the Company's operations makes it subject to violations of
environmental laws. The nature of these violations are limited to soil
contamination due to leaking underground petroleum tanks. The Company monitors
all locations conducting petroleum sales and expended minimal amounts for
clean-up costs for the year ended October 31, 1997. These cleanup costs are
included in other expenses in the nonoperating section of the income statement.
The Company believes that it is reasonably possible that future clean-up costs
will occur but cannot estimate the extent.
In fiscal year ended October 31, 1997 the Company entered into an agreement with
a major supplier whereby the supplier will supplement the costs of renovations
of qualifying store locations maintained by the Company. The costs to date are
reported as "Store refurbishment receivable" in the current and long-term asset
section of the balance sheet. These refurbishment costs will be reimbursed over
a three year period. As part of the agreement, the Company is required to
continue to sell the supplier's products for a period of ten years. If the
agreement is terminated within five years of acceptance, the Company will be
required to repay all costs reimbursed by the supplier. If the agreement is
terminated within six to ten years of acceptance, a ratable portion will be
required to be repaid.
NOTE 8 - EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) plan in which employees may contribute up to six
percent of their gross salary, as defined by the 401(k) plan agreement.
Contributions are matched by the Company.
-26-
<PAGE>
Total pension contributions for the year were $47,498.
PAGE 11
STALLINGS OIL COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company leases real estate and equipment from stockholders and officers as
described in Note 5. Rental expenses from these leases totaled approximately
$880,000.
The Company purchases aircraft services from a partnership in which it owns a
one-third interest.
NOTE 10 - LIFE INSURANCE
The Company purchased key-man life insurance policies on its two stockholders.
Under key-man insurance, the Company receives the cash surrender value if the
policy is terminated and, upon death of the insured, receives all benefits
payable. Loans are outstanding against the cash value of some of these policies
in the amount of $213,118. The cash surrender value of life insurance net of
loans payable is shown in the Other Assets section of the balance sheet.
In June 1995, the Company entered into split-dollar insurance agreements with
its two stockholders. Under the terms of the agreement, the Company will
maintain policies on both stockholders in the amount of $2,500,000. Upon death
of either stockholder, the Company is entitled to recover premiums paid. These
amounts are reflected as "Notes receivable - stockholders' trusts" in the Other
Assets section of the balance sheet.
NOTE 11 - STOCKHOLDERS' BUYOUT AGREEMENT
The stockholders of the Company are subject to an agreement which stipulates the
terms under which the Company shares can be sold or transferred. Among other
things, the agreement gives the Company the first option to acquire the share of
any stockholder receiving a third party offer to purchase his or her shares, and
upon approval by the surviving stockholder, to redeem some shares of a deceased
stockholder at a price specified in the agreement. As of October 31, 1997 the
maximum redemption amount the Company could be liable for under such agreement,
assuming complete redemption upon the death of either of its two stockholders,
would be approximately $3,558,360 (net of available life insurance proceeds),
payable over a period not to exceed ten years.
NOTE 12 - SUPPLEMENTAL DISCLOSURES TO THE CASH FLOWS STATEMENT
Noncash Transactions:
Interest income in the amount of $1,688 was added to current notes
receivable in 1997.
-27-
<PAGE>
PAGE 12
STALLINGS OIL COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 13 - MERGER WITH TRUCKLAND, INC.
On November 1, 1995, the Company acquired all of the outstanding common stock of
Truckland, Inc., a truckstop located in Kenly, North Carolina. No new shares
were issued. The ownership of both entities prior to the combination were
identical, and the transaction is accounted for as a pooling of interests.
NOTE 14 - SUBSEQUENT EVENT (UNAUDITED)
On July 16, 1998, the Company sold certain assets to The Pantry, Inc., including
the operating assets of the Company's forty-one (41) convenience stores and
related inventory. The sales price was approximately $24,300,000 plus inventory
at cost. Assets and liabilities remaining after this transaction consisted
primarily of cash and cash equivalents, real estate and related debt, and net
assets of the truckstop (see Note 13).
-28-
<PAGE>
INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma consolidated financial data (the "Unaudited
Pro Forma Financial Data") of the Company have been derived by the application
of pro forma adjustments to the historical financial statements of The Pantry
for the periods indicated. The adjustments are described in the accompanying
notes.
The Unaudited Pro Forma Financial Data give effect to:
o The July 2, 1998 acquisition of certain assets of Quick Stop Food Mart,
Inc. ("Quick Stop") including, but not limited to, seventy-five (75)
convenience stores located throughout North Carolina and South Carolina
(the "Quick Stop Acquisition"). Total consideration paid was approximately
$54.6 million.
o The July 16, 1998 acquisition of certain assets of Stallings Oil Company,
Inc. ("Stallings") including, but not limited to, forty-one (41)
convenience stores located throughout North Carolina and Virginia (the
"Stallings Acquisition"). Total consideration paid was approximately $26.5
million.
The Unaudited Pro Forma Financial Data also give effect to the October 23, 1997
purchase of all of the common stock of Lil' Champ Food Stores, Inc. ("Lil'
Champ") for $135.9 million (net of cash acquired), including the repayment of
$10.7 million in outstanding indebtedness of Lil' Champ (the "Lil' Champ
Acquisition"). Lil' Champ is a leading operator of convenience stores in Florida
and the largest convenience store operator in northern Florida. Lil' Champ's 479
stores are located primarily in northern Florida and Georgia. The purchase
price, the refinancing of existing Lil' Champ debt, and the fees and expense of
the Lil' Champ acquisition were financed with the proceeds from the offering of
$200.0 million, 10 1/4% Senior Subordinated Notes due 2007 (the "Offering"),
cash on hand and the purchase by existing stockholders and management of the
Company of an additional $32.4 million of the Company's capital stock in
connection with the Lil' Champ Acquisition (the "Equity Investment").
Additionally, the Unaudited Pro Forma Financial Data also give effect to October
23, 1997 purchase of $51.0 million in principal amount of the Company's 12%
Series B Senior Notes due 2000 (the "Senior Notes") at a purchase price of 110%
of the aggregate principal amount of each tendered Senior Note plus accrued and
unpaid interest up to, but not including, the date of purchase (the "Tender
Offer"). The Company obtained consents (the "Consent Solicitation") from the
holders of the Senior Notes.
-29-
<PAGE>
The Unaudited Pro Forma Balance Sheet Data gives effect to the Quick Stop
Acquisition and Stallings Acquisition as if these transactions occurred as of
March 26, 1998. The Unaudited Pro Forma Statement of Operations Data gives
effect to the Quick Stop Acquisition, Stallings Acquistion, Lil' Champ
Acquisition, Offering, Equity Investment, Tender Offer and Consent Solicitation
and those discussed in the accompaying notes as if the transactions occurred at
the begining of each period presented. The Unaudited Pro Forma Financial Data do
not give effect to any transactions other than the Quick Stop Acquisition,
Stallings Acquisition, Lil' Champ Acquisition, Offering, Equity Investment,
Tender Offer and Consent Solicitation and those discussed in the accompanying
notes. The Unaudited Pro Forma Financial Data are provided for informational
purposes only and do not purport to represent the results of operations or
financial position of the Company had the transactions in fact occurred on such
dates, nor do they purport to be indicative of the financial position or results
of operations as of any future date or for any future period.
The Quick Stop Acquisition, Stallings Acquisition and Lil' Champ Acquisition
will be (or have been) accounted for using the purchase method of accounting.
The total cost of the acquisitions will be allocated to the tangible and
intangible assets acquired and liabilities assumed based upon their respective
fair values as of the time the acquisitions were consummated. The excess of the
purchase price over the historical basis of the net assets acquired has not been
allocated in the accompanying Unaudited Pro Forma Financial Data. The pro forma
adjustments are based upon available information and upon certain assumptions
that management believes are reasonable. The actual allocation of the purchase
cost, however, and the resulting effect on income from operations may differ
significantly from the pro forma amounts included herein.
The Unaudited Pro Forma Financial Data and accompanying notes should be read in
conjunction with the financial statements and accompanying notes thereto and the
other financial information included elsewhere in this filing on Form 8-K/A.
The Unaudited Pro Forma Statement of Operation Data gives effect to the Quick
Stop Acquisition, Stallings Acquisition, Lil' Champ Acquisition, Offering,
Equity Investment, Tender Offer and Consent Solicitation and those discussed in
the accompanying notes as if the transactions occurred at the beginning of each
period presented.
-30-
<PAGE>
<TABLE>
<S> <C>
UNAUDITED PRO FORMA BALANCE SHEET DATA
MARCH 26, 1998
(DOLLARS IN THOUSANDS)
Historical
-------------------------------------
The Pantry Quick Stop Stallings Acquisition/
March 26, March 31, March 31, Financing Pro Forma
1998 1998 1998 Adjustments Combined
----------- ------------ ---------- ------------ ----------
ASSETS
Current assets:
Cash and cash equivalents $ 28,544 $ 1,549 $ 1,501 $ (9,030) (a) $ 22,564
Receivables, net 5,987 931 2,785 (3,067) (e) 6,636
Inventories 36,589 3,279 2,839 980 (e) 43,687
Prepaid expenses 1,727 233 1,217 (1,450) (e) 1,727
Property held for sale 3,946 - - - 3,946
Deferred income taxes 1,142 - - - 1,142
-------- ------- ------- --------- --------
Total current assets 77,935 5,992 8,342 (12,567) 79,702
-------- ------- ------- --------- --------
Property and equipment, net 224,389 20,799 24,243 (25,199) (e) 244,232
Other assets:
Goodwill, net 70,173 138 - 52,797 (b) 123,108
Deferred lease cost, net 292 - - - 292
Deferred financing cost, net 13,989 - - - 13,989
Environmental receivables, net 8,229 - 247 (247) (e) 8,229
Cash surrender value of life insurance - 1,576 87 (1,663) (e) -
Other 2,988 401 2,406 (1,358) (e) 4,437
-------- ------- ------- -------- ---------
Total other assets 95,671 2,115 2,740 49,529 150,055
-------- ------- ------- -------- ---------
TOTAL ASSETS $ 397,995 $ 28,906 $ 35,325 $ 11,763 $ 473,989
======== ======== ======== ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 56 $ 700 $ 2,243 (2,943) (e) $ 56
Current maturities of capital lease obligations 1,312 - 44 (44) (e) 1,312
Line of credit - 2,200 - (2,200) (e) -
Accounts payable 42,013 4,057 7,588 (11,645) (e) 42,013
Accrued expenses 33,692 2,152 2,570 (3,728) (e) 34,686
------ ----- ------ ------- ------
Total current liabilities 77,073 9,109 12,445 (20,560) 78,067
------ ----- ------ ------- -------
Senior notes payable, 12%, due November 15, 2000 49,000 - - - 49,000
Senior subordinated notes 200,000 - - - 200,000
Acquisition facility 9,000 - - 50,000 (c) 59,000
Other long-term debt 287 5,464 13,472 (18,936) (e) 287
-------- ------- ------ -------- -------
Total long-term debt 258,287 5,464 13,472 31,064 308,287
------- -------
Other non-current liabilities:
Environmental reserve 11,013 - - - 11,013
Capital lease obligations 11,818 - - - 11,818
Employment obligations 1,156 - - - 1,156
Accrued dividends on preferred stock 3,035 - - - 3,035
Deferred income taxes 6,749 - - - 6,749
Other 18,347 - - - 18,347
-------- ------- ------ -------- -------
Total other non-current liabilities 52,118 - - - 52,118
-------- ------- ------ -------- -------
Shareholders' equity:
Preferred stock - - - -
Common stock 2 1 42 207 (d) 252
Additional paid-in capital 43,116 886 3,280 20,584 (d) 67,866
Shareholder loan (215) - - - (215)
Retained earnings (deficit) (32,386) 13,446 6,086 (19,532) (d) (32,386)
-------- ------- ------- -------- ---------
Total shareholders' equity 10,517 14,333 9,408 1,259 (d) 35,517
-------- ------- ------- -------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 397,995 $ 28,906 $ 35,325 $ 11,763 $ 473,989
========= ======== ======== ======== =========
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA BALANCE SHEET DATA
-31-
<PAGE>
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET DATA
(a) Reflects the following:
Cash Inflows:
Proceeds from issuance of Notes $ 50,000
Proceeds from Equity Investment 25,000
----------
Total cash inflows 75,000
----------
Cash Outflows:
Purchase price of Quick Stop 54,565
Purchase price of Stallings 26,475
To eliminate cash of Quick Stop and Stallings not
acquired by The Pantry 2,990
---------
Total cash outflows 84,030
---------
Net cash outflows $ 9,030
=========
(b) For purposes of the pro forma information, the excess of the purchase
price over the historical net assets of Quick Stop and Stallings has
been considered to be goodwill and other intangible assets, pending the
completion of appraisals and other purchase price allocation
adjustments. Goodwill has been determined as follows:
Purchase price $ 81,040
Elimination of historical stockholders' equity of
Quick Stop and Stallings (23,741)
Elimination of certain assets and liabilities, net of
Quick Stop and Stallings not acquired by The Pantry (4,502)
===========
$ 52,797
===========
(c) Reflects the proceeds from the Acquisition facility ($50.0 million) to
partially fund the acquisitions of Quick Stop and Stallings.
(d) Reflects the proceeds from the additional equity investment ($25.0
million) to partially fund the acquisitions of Quick Stop and Stallings
and the elimination of the net assets of the acquired companies as
follows:
Proceeds from the additional equity investment $ 25,000
Elimination of historical stockholders' equity of
Quick Stop and Stallings (23,741)
===========
$ 1,259
===========
(e) Reflects the elimination of certain assets and liabilities of Quick
Stop and Stallings not acquired by The Pantry.
-32-
<PAGE>
<TABLE>
<S> <C>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA
SIX MONTHS ENDED MARCH 26, 1998
(DOLLARS IN THOUSANDS)
HISTORICAL
-----------------------------------------------------------------------------
SIX-MONTH ONE-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
MARCH 26, OCTOBER 23, MARCH 31, MARCH 31,
1998 1997 1998 1998
THE PANTRY LIL' CHAMP(i) QUICK STOP STALLINGS
------------ ------------ ------------ ------------
Revenues:
Merchandise sales $ 193,765 $ 17,752 $ 28,896 $ 12,446
Gasoline sales 215,718 21,397 45,580 54,616
Commissions 6,358 570 1,727 6,223
------------- ----------- -------------- --------------
Total revenues 415,841 39,719 76,203 73,285
------------- ----------- -------------- --------------
Cost of Sales:
Merchandise 126,865 11,421 22,008 8,981
Gasoline 190,324 18,682 40,451 52,404
------------- ----------- ------------- -------------
Total cost of sales 317,189 30,103 62,459 61,395
------------- ----------- -------------- --------------
Gross profit 98,652 9,616 13,744 11,890
------------- ----------- ------------- -------------
Store operating expenses 61,853 5,957 7,987 8,468
General and administrative expenses 15,532 1,698 1,930 888
Depreciation and amortization 11,775 952 1,496 1,339
------------ ----------- ------------ -------------
Total operating expenses 89,160 8,607 11,413 10,695
------------ ----------- ------------ -------------
Income from operations 9,492 1,009 2,331 1,195
Other income (expense):
Interest (12,851) (121) (333) (688)
Miscellaneous 774 - - -
----------- ---------- ----------- ------------
Total other expenses (12,077) (121) (333) (688)
----------- ---------- ----------- ------------
Income (loss) before income taxes (2,585) 888 1,998 507
Income tax benefit (expense) 916 (364) -
----------- ---------- ----------- -----------
Net income (loss) before extraordinary items $ (1,669) $ 524 $ 1,998 $ 507
=========== ========== =========== ===========
<CAPTION>
AQUISITION/ OTHER
FINANCING ACQUISITION PRO FORMA
ADJUSTMENTS ADJUSTMENTS (g) COMBINED
----------- ----------- ------------
Revenues:
Merchandise sales $ - $ (253) $ 252,606
Gasoline sales - (6,983) 330,328
Commissions - (3,605) 11,273
----------- ------------ -----------
Total revenues - (10,841) 594,207
----------- ------------ -----------
Cost of sales:
Merchandise - (141) 169,144
Gasoline - (8,449) 293,412
----------- ------------ -----------
Total cost of sales - (8,590) 462,556
----------- ------------ -----------
Gross profit - (2,251) 131,651
----------- ------------ -----------
Store operating expenses 192 (a) (1,975) 82,482
General and administrative expenses (42)(b) (232) 19,774
Depreciation and amortization 1,139 (c) (109) 16,592
----------- ------------ -----------
Total operating expenses 1,289 (2,316) 118,848
----------- ------------ -----------
Income from operations (1,289) 65 12,803
Other income (expense):
Interest expense (2,077)(d) (16,070)
Miscellaneous - 774
----------- ------------ -----------
Total other expenses (2,077) (15,296)
----------- ------------ -----------
Income (loss) before income taxes (3,366) 65 (2,493)
Income tax benefit (expense) 334 (e) (13) 873
----------- ------------ -----------
Net income (loss) before extraordinary items (3,032)(f) $ 52 $ (1,620)
=========== ============ ===========
</TABLE>
-33-
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA
YEAR ENDED SEPTEMBER 25, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
HISTORICAL
----------------------------------------------------------------
LATEST TWELVE
YEAR ENDED MONTHS ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 25, SEPTEMBER 27, DECEMBER 31, OCTOBER 31,
1997 1997 1997 1997
THE PANTRY LIL' CHAMP QUICK STOP STALLINGS
-------------- --------------- ------------- ------------
Revenues:
Merchandise sales $ 202,440 $ 232,250 $ 62,412 $ 23,160
Gasoline sales 220,166 286,373 99,373 116,282
Commissions 4,787 8,156 2,973 9,650
------------ ------------- ----------- -----------
Total revenues 427,393 526,779 164,758 149,092
------------ ------------- ----------- -----------
Cost of Sales:
Merchandise 132,846 152,847 47,124 16,399
Gasoline 197,268 259,003 89,979 109,919
------------ ------------- ----------- -----------
Total cost of sales 330,114 411,850 137,103 126,318
------------ ------------- ----------- -----------
Gross profit 97,279 114,929 27,655 22,774
------------ ------------- ----------- -----------
Store operating expenses 60,208 74,574 - 15,524
General and administrative expenses 16,796 15,375 21,503 2,862
Environmental remediation charge - 3,381 - -
Depreciation and amortization 9,504 11,911 2,514 2,597
------------ ------------- ----------- -----------
Total operating expenses 86,508 105,241 24,017 20,983
------------ ------------- ----------- -----------
Income from operations 10,771 9,688 3,638 1,791
Other income (expense):
Interest (13,039) (2,388) (553) (1,282)
Miscellaneous 1,293 1,370 (119)
------------ ------------- ----------- ------------
Total other expenses (11,746) (1,018) (553) (1,401)
------------ ------------- ----------- ------------
Income (loss) before income taxes (975) 8,670 3,085 390
Income tax benefit (expenses) - (3,582)
------------ ------------- ----------- ------------
Net income (loss) before extraordinary
items $ (975) $ 5,088 $ 3,085 $ 390
============ ============= =========== ============
<CAPTION>
ACQUISITION OTHER OTHER
FINANCING ACQUISITION ACQUISITIONS/ PRO FORMA
ADJUSTMENTS ADJUSTMENTS(g) DISPOSITIONS(h) COMBINED
-------------- --------------- --------------- ------------
Revenues:
Merchandise sales $ - $ (481) $ 8,881 $ 528,662
Gasoline sales - (15,897) 18,521 724,818
Commissions - (5,048) 436 20,954
------------ -------------- ------------- -----------
Total revenues - (21,426) 27,838 1,274,434
------------ -------------- ------------- -----------
Cost of Sales:
Merchandise - (254) 6,289 355,251
Gasoline - (16,415) 15,841 655,595
------------ -------------- ------------- -----------
Total cost of sales - (16,669) 22,130 1,010,846
------------ -------------- ------------- -----------
Gross profit - (4,757) 5,708 263,588
------------ -------------- ------------- -----------
Store operating expenses 383 (a) (3,980) 3,295 150,004
General and administrative expenses (500)(b) (482) - 55,554
Environmental remediation charge - - - 3,381
Depreciation and amortization 4,741 (c) (229) 79 31,117
------------ -------------- ------------- -----------
Total operating expenses 4,624 (4,691) 3,374 240,056
------------ -------------- ------------- -----------
Income from operations (4,624) (66) 2,334 23,532
Other income (expense):
Interest (15,292)(d) (17) (32,571)
Miscellaneous - - (4) 2,540
------------ --------------- ------------- -----------
Total other expenses (15,292) (21) (30,031)
------------ --------------- ------------- -----------
Income (loss) before income taxes (19,916) (66) 2,313 (6,499)
Income tax benefit (expenses) 4,044 (e) - (462) 0
------------ --------------- ------------- -----------
Net income (loss) before extraordinary
items $ (15,872)(f) $ (66) $ 1,851 $ (6,499)
============ ============= ============= ===========
See Notes to Unaudited Pro Forma Statement of Operations Data.
</TABLE>
-34-
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA
(a) Reflects increase in store rental expense related to stores to be leased
from Quick Stop. The rental increase was effective concurrent with the
Quick Stop Acquisition.
(b) Historically, Lil' Champ paid Docks U.S.A., Inc., Lil' Champ's parent
company, service agreement fees. The service agreement was terminated
concurrently with the Lil' Champ Acquisition and not replaced by a similar
arrangement.
(c) The Quick Stop, Stallings and Lil' Champ Acquisitions will be (or have
been) accounted for under the purchase method accounting. Under the
purchase method of accounting, the total purchase price will be allocated
to the tangible and intangible assets acquired and liabilities assumed by
The Pantry based on their respective fair values as of the acquisition date
based upon valuations and other studies not yet available. For purposes of
the pro forma information, the excess of the purchase price over the
historical net assets acquired has been considered to be goodwill and other
intangible assets, pending the completion of appraisals and other purchase
price allocation adjustments. Assuming the pro forma remaining excess
purchase costs to be allocated will be amortized over a weighted-average
period of approximately 30 years, the resulting amortization is
approximately $1.0 million for the six months ended March 26, 1998 and $3.2
million for the year ended September 25, 1997. Additionally, deferred
financing costs incurred in connection with the Offering will be amortized
over a weighted-average period of 6.5 years. The resulting amortization is
approximately $0.1 million for the six months ended March 26, 1998 and $1.5
million for the year ended September 25, 1997.
(d) Reflects additional interest expense to be incurred by the Company in
connection with the Offering, and reductions in interest expense for the
repayment of existing Lil' Champ debt and the repurchase of Senior Notes as
follows:
SIX MONTHS ENDED YEAR ENDED
MARCH 26, 1998 SEPTEMBER 25, 1997
PRINCIPAL INTEREST PRINCIPAL INTEREST
--------- -------- --------- --------
(DOLLARS IN THOUSANDS)
Offering $ 200,000 $ 1,708 $ 200,000 $ 20,500
Repayment of existing
Lil' Champ Debt 10,700 (121) 10,700 (1,140)
Repurchase of Senior
Notes 51,000 (531) 51,000 (6,318)
Increase in Acquisition
Facility 50,000 2,042 50,000 4,085
Elimination of Quick Stop
interest expense - (333) - (553)
Elimination of Stallings
interest expense - (688) - (1,282)
------- -------
$ 2,077 $ 15,292
======== ========
(e) Adjusts income tax benefit for assumed tax effect of pro forma adjustments
using estimated tax rates (net of a valuation allowance). Amount includes
income tax expense relating to Quick Stop and Stallings, both of which were
taxed as S Corporations for federal and state income tax purposes.
-35-
<PAGE>
(f) Net income (loss) before extraordinary items excludes the effect of
charges, net of tax, related to the costs of the Tender Offer and
write-off of deferred financing costs in connection with the repurchase of
$51.0 of the Senior Notes ($4.9 million and $1.6 million, respectively).
(g) Reflects the elimination of certain operations of Stallings that were not
acquired in the Stallings Acquisition.
(h) Subsequent to fiscal 1996, The Pantry has acquired 35 stores, acquired 23
third-party gasoline locations and disposed of 21. This adjustment gives
effect to the acquisitions and dispositions as if they occurred at the
beginning of the period.
(i) Reflects the results of operations for Lil' Champ for the one-month period
ended October 23, 1997. Results of operation for Lil' Champ subsequent to
October 23, 1997 are included in The Pantry's results of operations for
the six months ended March 26, 1998.
-36-
<PAGE>
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 hereunto duly authorized.
Date: August 7, 1998
THE PANTRY, INC.
By: /s/ William T. Flyg
-------------------
William T. Flyg
Senior Vice President Finance and
Secretary
-37-
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ----------- -----------------------
2.1* Asset Purchase Agreement dated June 5, 1998 between Quick Stop
and the Company (asterisks located within the exhibit denote
information which has been deleted pursuant to a request for
confidential treatment filed with the Securities and Exchange
Commission)
2.2* List of Exhibits and Schedules omitted from the Asset Purchase
Agreement referenced in Exhibit 2.1 hereof
2.3* Asset Purchase Agreement dated July 6, 1998 between Stallings
and the Company (asterisks located within the exhibit denote
information which has been deleted pursuant to a request for
confidential treatment filed with the Securities and Exchange
Commission)
2.4* List of Exhibits and Schedules omitted from the Asset Purchase
Agreement referenced in Exhibit 2.3 hereof
- ----------------------
* Previously Filed.
-38-
