<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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): November 11, 1999
THE PANTRY, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-72574 56-1574463
(State or other (Commission File No.) (IRS Employer
jurisdiction Identification Number)
of incorporation)
1801 Douglas Drive, PO 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)
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<PAGE>
ITEM 7 is hereby replaced as follows:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Audited financial statements of Kangaroo, Inc. ("Kangaroo") as of October
31, 1999 and 1998, and for each of the two years in the period ended October
31, 1999:
(1) Report of Independent Auditor's Report
(2) Balance Sheets
(3) Statements of Income and Retained Earnings
(4) Statements of Cash Flows
(5) Notes to Financial Statements
(b) PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma consolidated financial data provided below have
been derived by the application of pro forma adjustments to the historical
financial statements of The Pantry for the periods indicated. The adjustments,
which include adjustments reflecting the acquisition on November 11, 1999 of
Kangaroo are described in the accompanying notes. The unaudited pro forma
consolidated financial data also give effect to: (i) the initial public
offering of 6,250,000 shares of The Pantry's common stock on June 8, 1999; (ii)
other acquisitions by the Company in fiscal 1999; and (iii) certain financing
transactions in fiscal 1999 (each as described more fully in Items (1), (3) and
(5) below). The following unaudited pro forma consolidated financial data are
provided below:
(1) Introduction to Unaudited Pro Forma Financial Data
(2) Unaudited Pro Forma Balance Sheet Data as of September 30, 1999
(3) Notes to Unaudited Pro Forma Balance Sheet Data
(4) Unaudited Pro Forma Statement of Operations Data for the Year Ended
September 31, 1999
(5) Notes to Unaudited Pro Forma Statements of Operations Data
2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Kangaroo, Inc.
Gainesville, Georgia
We have audited the accompanying balance sheets of Kangaroo, Inc. as of
October 31, 1999 and 1998, and the related statements of income and retained
earnings, and cash flows for the years 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 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 audits provide 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 Kangaroo, Inc. as
of October 31, 1999 and 1998, and the results of operations and cash flows for
the years then ended in conformity with generally accepted accounting
principles.
/s/ Smith & Howard, P.C.
Atlanta, Georgia
December 8, 1999
3
<PAGE>
KANGAROO, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
October 31,
-----------------------
1999 1998
----------- -----------
<S> <C> <C>
Assets (Note 5)
Current Assets
Cash................................................. $ 2,497,724 $ 1,638,986
Accounts receivable, less allowance for doubtful
accounts of $19,352 in 1999 and $10,089 in 1998..... 1,733,397 920,183
Note receivable from related party, current portion
(Note 8)............................................ 5,454 4,975
Inventories (Note 2)................................. 3,564,996 2,963,306
Prepaid expenses..................................... 310,247 87,234
Advances to officers and employees................... 15,445 23,042
Note receivable, current portion..................... 98,951 81,816
Property and equipment held for sale, at cost less
accumulated depreciation of $412,813 in 1999 and
$427,720 in 1998 which approximates fair value
(Note 1)............................................ 952,563 955,786
----------- -----------
Total current assets............................... 9,178,777 6,675,328
Property and equipment, at cost; net of accumulated
depreciation and amortization (Note 1)................ 16,264,009 11,308,205
Other assets (Note 3).................................. 344,624 780,319
----------- -----------
$25,787,410 $18,763,852
=========== ===========
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
KANGAROO, INC.
BALANCE SHEETS--(Continued)
<TABLE>
<CAPTION>
October 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Liabilities and Stockholder's Equity
Current liabilities
Accounts payable.................................... $ 2,871,802 $ 2,314,713
Accrued expenses (Note 8)........................... 1,240,810 1,762,884
Due to affiliate (Note 8)........................... 3,796,650 1,212,818
Accrued sales tax................................... 646,799 503,483
Current portion of long-term debt (Note 5).......... 346,527 328,361
----------- -----------
Total Current Liabilities......................... 8,902,588 6,122,259
Long-term debt, net of current portion (Note 5)....... 6,023,857 3,337,500
Other long-term liabilities (Note 8).................. 648,494 300,000
Commitments and contingencies
(Notes 7, 10, 12 and 13)
Stockholder's equity
Common stock, no par value, 10,000 shares
authorized, 9,900 shares issued.................... 848,282 848,282
Additional paid-in capital.......................... 10,000 10,000
Retained earnings................................... 9,679,189 8,470,811
----------- -----------
10,537,471 9,329,093
Less 1,900 shares of treasury stock, at cost........ (325,000) (325,000)
----------- -----------
Total stockholder's equity........................ 10,212,471 9,004,093
----------- -----------
$25,787,410 $18,763,852
=========== ===========
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
KANGAROO, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Years Ended October 31,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
Sales.............................................. $111,862,518 $104,910,514
Cost of Sales...................................... 89,064,827 82,214,509
------------ ------------
Gross Profit..................................... 22,797,691 22,696,005
Operating expenses
Direct store..................................... 16,245,723 15,965,805
Selling, general and administrative.............. 4,658,070 5,227,397
------------ ------------
20,903,793 21,193,202
------------ ------------
Income from Operations............................. 1,893,898 1,502,803
Other income (expense)
Gain on sales of property and equipment
(Note 11)....................................... 103,041 2,202,055
Interest income.................................. 55,028 136,640
Interest expense................................. (496,524) (420,015)
------------ ------------
(338,455) 1,918,680
------------ ------------
Net income....................................... 1,555,443 3,421,483
Retained earnings at beginning of year............. 8,470,811 6,104,328
Distributions to stockholder....................... (347,065) (1,055,000)
------------ ------------
Retained earnings at end of year................... $ 9,679,189 $ 8,470,811
============ ============
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
KANGAROO, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended October 31,
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities
Cash received from customers.................... $ 111,692,891 $ 104,896,882
Cash paid to suppliers and employees............ (105,813,865) (100,221,271)
Interest received............................... 55,029 136,640
Interest paid................................... (496,524) (420,015)
------------- -------------
Net cash provided by operating activities..... 5,437,531 4,392,236
------------- -------------
Cash flows from investing activities
Proceeds from sale of property and equipment.... 550,191 433,150
Purchases of property and equipment............. (4,510,982) (2,325,731)
Issuance of notes receivable.................... -- (99,090)
Payments received on notes receivable........... 24,540 54,588
------------- -------------
Net cash used in investing activities......... (3,936,251) (1,937,083)
------------- -------------
Cash flows from financing activities
Payments on long-term debt...................... (295,477) (492,332)
Distributions to stockholder.................... (347,065) (1,055,000)
------------- -------------
Net cash used in financing activities......... (642,542) (1,547,332)
------------- -------------
Net increase in cash.......................... 858,738 907,821
Cash at beginning of year......................... 1,638,986 731,165
------------- -------------
Cash at end of year............................... $ 2,497,724 $ 1,638,986
============= =============
</TABLE>
(Continued)
7
<PAGE>
KANGAROO, INC.
STATEMENTS OF CASH FLOWS--(Continued)
<TABLE>
<CAPTION>
Years Ended October
31,
-----------------------
1999 1998
---------- -----------
<S> <C> <C>
Reconciliation of Net Income to Net Cash Provided by
Operating Activities:
Net income........................................... $1,555,444 $ 3,421,483
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 1,864,485 1,375,723
Gain on sale of property and equipment............. (103,041) (2,202,055)
(Increase) decrease in accounts receivable......... (822,476) 9,295
(Increase) decrease in inventories................. (601,690) 643,387
Decrease in prepaid expenses....................... 144,240 2,039
(Increase) decrease in advances to officers and
employees......................................... 7,596 (16,205)
(Increase) decrease in other assets................ 282,317 (455,992)
Decrease in accounts payable....................... 782,089 922,845
Increase (decrease) in accrued liabilities......... (271,204) 508,228
Increase (decrease) in due to affiliate............ 2,583,832 (116,512)
Increase in other long-term liabilities............ 15,939 300,000
---------- -----------
Total Adjustments................................ 3,882,087 970,753
---------- -----------
Net cash provided by operating activities........ $5,437,531 $ 4,392,236
========== ===========
</TABLE>
Schedule of Non-Cash Financing and Investing Activities:
During the year ended October 31, 1999, the Company financed acquisitions
of property and equipment with issuance of long-term debt in the amount of
$3,000,000. During the year ended October 31, 1998 property and equipment was
sold for $4,904,316; $2,185,164 of the proceeds were deposited in an escrow
account which is included in property and equipment on the accompanying balance
sheet at October 31, 1998; the balance of the proceeds were applied to long-term
debt with a financial institution (see Note 11). distribution of the escrow
account was restricted to replacement property and equipment purchases which
took place during the year ended October 31, 1999.
See Notes to Financial Statements.
8
<PAGE>
KANGAROO, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Kangaroo, Inc. (the Company) was incorporated in 1984 under the laws of
the State of Georgia. The Company operates forty-nine retail convenience stores
throughout Georgia whose operations consist primarily of retail sales of
petroleum products, groceries, tobacco products, beverages and general
merchandise.
Inventories
During the year ended October 31, 1998, the Company elected to change its
method of accounting for petroleum product inventories from the last-in, first-
out (LIFO) method to the first in-first out (FIFO) method; the impact of that
change of accounting was not material to the accompanying financial statements.
Grocery merchandise and store supplies inventories are stated at the lower of
cost or market with cost determined using the retail inventory method.
Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
October 31,
-----------------------
1999 1998
----------- -----------
<S> <C> <C>
Land............................................. $ 2,082,070 $ 655,861
Land improvements................................ 616,608 599,961
Buildings........................................ 6,728,916 2,812,174
Furniture and fixtures........................... 105,810 102,914
Equipment........................................ 10,748,182 7,361,407
Vehicles......................................... 556,776 532,775
Leasehold improvements........................... 1,968,538 1,385,508
Construction in progress......................... 92,463 706,362
Cash restricted for purchase of replacement
property........................................ -- 2,185,164
----------- -----------
22,899,363 16,342,126
Less accumulated depreciation and amortization... 6,635,354 5,033,921
----------- -----------
$16,264,009 $11,308,205
=========== ===========
</TABLE>
Depreciation is provided over the estimated useful lives of the individual
assets using the straight-line method. Estimated useful lives by asset class are
as follows: buildings, twenty years; land improvements, five years; equipment,
five to ten years; furniture and fixtures, five years; and vehicles, three
years. Leasehold improvements are amortized over the lesser of the remaining
lease terms or the estimated useful lives of the assets.
9
<PAGE>
KANGAROO, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Long-Lived Assets
The Company's long-lived assets consist of property and equipment and
certain intangibles.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," management reviews and assesses long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review
of recoverability, management estimates the future cash flows expected to
result from the use of the asset. If the sum of the undiscounted expected cash
flows is less than the carrying amount of the asset, an impairment loss is
recognized based upon the estimated fair value of the asset.
The Company classifies as a current asset property and equipment for
which it has both the ability and intent to dispose of during the coming year.
Such property consists of both operating and nonoperating property and may be
disposed of either via a sale or a sale-leaseback transaction. Operating
property is depreciated to the date of disposal and is carried at the lower of
depreciated cost or net realizable value; nonoperating property is carried at
the lower of cost or net realizable value.
Cash
The Company had deposits at banks totaling $80,269 and $2,078,748 in
excess of the federally insured limit at October 31, 1999 and 1998,
respectively.
Excise and Use Taxes
The Company collects and remits various federal and state excise taxes on
petroleum products. Sales and costs of sales included approximately
$20,069,000 and $18,651,000 for 1999 and 1998, respectively.
Major Suppliers
Petroleum product purchases were primarily from an affiliated company.
Approximately 55% and 54% of merchandise purchases during fiscal 1999 and
1998, respectively, were from a single vendor.
NOTE 2--INVENTORIES
A summary of inventories by major classification at October 31, 1999 and
1998 is as follows:
<TABLE>
<CAPTION>
October 31,
---------------------
1999 1998
---------- ----------
<S> <C> <C>
Petroleum products................................... $ 701,619 $ 465,505
Grocery merchandise.................................. 2,704,155 2,316,971
Store supplies....................................... 159,222 180,830
---------- ----------
$3,564,996 $2,963,306
========== ==========
</TABLE>
10
<PAGE>
KANGAROO, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 3--OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
October 31,
-----------------
1999 1998
-------- --------
<S> <C> <C>
Note receivable from related party, net of current
portion (See Note 8).................................. $ 82,236 $ 87,691
Note receivable, net of current portion................ 107,176 117,506
Deferred loan costs, less accumulated amortization of
$71,009 in 1998.................... -- 4,005
Franchise fees, less accumulated amortization of
$22,003 in 1999 and $2,635 in 1998.................... 155,212 203,865
Other.................................................. -- 367,252
-------- --------
$344,624 $780,319
======== ========
</TABLE>
Deferred loan costs are amortized on a straight-line basis over the term
of the related debt.
NOTE 4--LINES OF CREDIT
During 1999 and 1998 the Company had a revolving working capital line of
credit with a bank which provides for maximum borrowings of $1,500,000.
During 1999 and 1998 the Company had a revolving line of credit with the
same bank for the construction of convenience stores to be sold by the Company
and leased back pursuant to a sale-leaseback program (See Note 7). Available
borrowings are generally limited to 80% of the ratio of (1) total debt owed to
the financial institution by the Company and certain affiliates, exclusive of
the working capital line of credit discussed above, and (2) the fair market
value of property and equipment securing such debt. Maximum borrowings under
the line of credit were $1,500,000 at October 31, 1999 and 1998.
Borrowings under both lines of credit bear interest at the bank's base
rate (8.25% at October 31, 1999) and are secured by real estate, equipment,
inventories, accounts receivable and intangibles. Both lines of credit expire
June 1, 2000, at which time the Company plans to renew the agreements. There
were no outstanding borrowings under the lines of credit at October 31, 1999
and 1998.
11
<PAGE>
KANGAROO, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 5--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
October 31,
---------------------
1999 1998
---------- ----------
<S> <C> <C>
$3.0 million note payable to a bank; interest at
6.5%; monthly payments of principal and interest
of $26,139 through maturity in January 2004, at
which time all remaining principal of $2,372,800
is due and payable; secured by real estate,
equipment, inventories, accounts receivable and
intangibles....................................... $2,963,048 $ --
$1.74 million note payable to a bank which was
refinanced during 1999; interest at 6.5%; monthly
payments of principal and interest of $10,956
through maturity in December 2003, at which time
all remaining principal of $375,513 is due and
payable; secured by real estate, equipment,
inventories, accounts receivable and intangibles.. 738,982 864,739
$589,000 note payable to a bank which was
refinanced during 1999; interest at 6.5%; monthly
payments of principal and interest of $5,495
through maturity in December 2003, at which time
all remaining principal of $322,953 is due and
payable; secured by accounts receivable,
inventories and equipment......................... 488,143 520,046
$530,000 note payable to a bank which was
refinanced during 1999; interest at 6.5%; monthly
payments of principal and interest of $4,912
through maturity in December 2003, at which time
all remaining principal of $1,366,054 is due and
payable; secured by accounts receivable,
inventories and equipment......................... 439,675 467,953
$1.8 million note payable to a bank; interest at
7.0%; monthly payments of principal and interest
of $16,179 through maturity in December 2003, at
which time all remaining principal of $1,411,077
is due and payable; secured by real estate........ 1,740,536 1,800,000
Other............................................. -- 13,123
---------- ----------
6,370,384 3,665,861
Less current portion.............................. 346,527 328,361
---------- ----------
$6,023,857 $3,337,500
========== ==========
</TABLE>
Principal maturities of long-term debt at October 31, 1999 are as
follows:
<TABLE>
<CAPTION>
Year Ending October 31
----------------------
<S> <C>
2000.......................................................... $ 346,527
2001.......................................................... 376,618
2002.......................................................... 401,841
2003.......................................................... 428,753
2004.......................................................... 4,816,645
----------
$6,370,384
==========
</TABLE>
The $1,500,000 revolving working capital line of credit and $1,500,000
revolving construction line of credit as discussed in Note 4 and notes payable
in the amounts of $3.0 million,
12
<PAGE>
KANGAROO, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
$1.8 million; $1.74 million; $589,000 and $530,000 discussed above are with the
same bank. Borrowings from this bank are guaranteed up to the amount of
$1,000,000 by the Company's president/stockholder.
The Company is required to adhere to various covenants under the above
agreements. At October 31, 1999 and 1998, the Company was in compliance with
the covenants.
NOTE 6--INCOME TAXES
Effective November 1, 1995, the Company's then stockholders elected to be
taxed under the S Corporation provisions of the Internal Revenue Code. Under
those provisions, the Company is generally not liable for corporate income
taxes on its taxable income. Instead, the stockholder will be liable for
individual income taxes on the Company's taxable income. Accordingly, the
accompanying financial statements for the years ended October 31, 1999 and 1998
do not include a provision nor liability for income taxes based upon income for
the years then ended.
NOTE 7--LEASES
The Company leases certain land, buildings and equipment (primarily store
locations and related equipment) under noncancellable agreements accounted for
as operating leases. Certain of these leases provide for contingent rental
payments based on either the consumer price index or a percentage of net sales
or net income. The following is a schedule of future minimum rental payments
under operating leases, including future minimum rental payments under certain
leases with related parties (see Note 8) for years ending October 31:
<TABLE>
<S> <C>
2000........................................................... $ 2,850,065
2001........................................................... 2,764,950
2002........................................................... 2,682,892
2003........................................................... 2,672,502
2004........................................................... 2,622,896
Thereafter..................................................... 16,807,916
-----------
$30,401,221
===========
</TABLE>
Rent expense under all operating leases totaled $2,996,417 and $3,196,142
for fiscal 1999 and 1998, respectively.
Certain operating leases contain purchase and renewal options,
exercisable at the Company's discretion. Purchase options are at the fair
market value of the leased assets. Renewal options are for periods of from five
to ten years and provide for rental payment adjustments based on fair rental
values at the time of exercise.
The Company has developed a program whereby certain store locations may
be sold to both related and unrelated parties and subsequently leased back by
the Company. During the year ended October 31, 1999 and 1998, the amounts of
the sales and leasebacks were minimal. The leases are classified as operating
leases and are included in the future minimum rental payments schedule above.
13
<PAGE>
KANGAROO, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 8--RELATED PARTY TRANSACTIONS
During 1997 the Company's majority stockholder sold his stock in the
Company to the then minority stockholder who is the current president and sole
stockholder of the Company. A management consulting agreement provides that,
for a seven year period, the Company will pay, on a cumulative basis, the
consultant (the former majority stockholder) the first $300,000 of annual
earnings before interest, taxes, depreciation and amortization in excess of
annual thresholds. Amounts are payable currently other than amounts accrued in
arrears which are payable at the end of the seven year period. The Company
failed to exceed the annual threshold for the year ended October 31, 1997 but
exceeded the annual and cumulative thresholds during the year ended October 31,
1998. Hence, accrued expenses and other long-term liabilities in the
accompanying balance sheet at October 31, 1998 each include $300,000 relative
to payments to be made under the provision and selling, general and
administrative expenses for the year ended October 31, 1998 includes $600,000
related to those liabilities. The Company exceeded the annual threshold for the
year ended October 31, 1999. Selling, general and administrative expenses for
the year ended October 31, 1999 includes a provision of $300,000 relative to
payments to be made under the provision, $375,000 of payments due under the
agreement were made during the year ended October 31, 1999. Hence, accrued
expenses and long-term liabilities include $225,000 and $300,000, respectively,
in the accompanying balance sheet at October 31, 1999. Subsequent to October 31,
1999, the entire unpaid portion due under the seven year agreement of $1,725,000
was paid to the former majority stockholder as a condition to the sale discussed
in Note 12.
The Company purchases most of its petroleum product inventories from a
company under common control (the Affiliate). In addition, the Company receives
certain services from and provides certain services to the Affiliate.
During 1995 the Company entered into a sale/leaseback transaction (See
Note 7) with the spouse of the Company's former majority stockholder, and the
Company accepted a note in the amount of $108,000 as a portion of the sales
price. The unsecured note, which bears interest at 9.25% and is due in monthly
installments through December 2009, had an outstanding balance of $87,690 at
October 31, 1999 and $92,665 at October 31, 1998.
The Company leases store locations and equipment from the Affiliate, the
Company's president/sole stockholder and other officers of the Company under
leases which are accounted for as operating leases. Rent expense under all
related party leases totaled $1,605,680 and $1,338,467 for fiscal 1999 and
1998, respectively.
Following is a summary of transactions and balances with the Affiliate
and related parties as of and for the years ended October 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Note receivable from related party............... $ 87,690 $ 92,665
Payable to affiliate--net........................ $ 3,796,650 $ 1,212,818
Purchases of petroleum product inventories from
affiliate....................................... $31,531,380 $29,864,829
Administrative fee to affiliate.................. $ 354,294 $ 365,346
</TABLE>
NOTE 9--EMPLOYEE BENEFIT PLAN
The Company participates in a 401(k) profit-sharing plan established by
the Affiliate effective August 1, 1993 for the benefit of all employees who are
at least twenty-one years of age and were employed on the effective date or
have completed one year of service. Participants may contribute up to 15% of
their compensation. The Company matches participant contributions based on an
established formula and may also make discretionary contributions to the plan.
Profit-sharing plan expense totaled $27,189 and $18,346 in fiscal 1999 and
1998, respectively.
14
<PAGE>
KANGAROO, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 10--CONTINGENCIES
The Company and other companies marketing petroleum products have, in
recent years, become subject to increasingly demanding environmental standards
imposed by federal, state and local environmental laws and regulations. It is
the policy of the Company to endeavor to comply with applicable environmental
laws and regulations. In management's opinion, the Company is currently in
compliance with existing regulatory standards and the future cost of compliance
with those standards will not have a material adverse effect upon the Company's
financial position or results of operations.
NOTE 11--DISPOSALS OF PROPERTY AND EQUIPMENT
During the year ended October 31, 1998, the Company disposed of certain
property and equipment for $4,904,316. Gains on these transactions in the
amount of $2,595,624 have been recognized by the Company. Proceeds in the amount
of $2,185,164 from these dispositions were deposited into an escrow account
which is included in property and equipment on the accompanying balance sheet at
October 31, 1998; the balance of the proceeds were applied to long-term debt
with a financial institution. Distribution of the escrow account was restricted
to purchases of replacement property and equipment which took place during the
year ended October 31, 1999.
NOTE 12--SALE OF THE COMPANY
The Company's stockholder entered into an agreement subsequent to
October 31, 1999 to sell all of his stock in the Company to a publicly-traded
company.
NOTE-13 Year 2000 (UNAUDITED)
The Company recognizes the need to insure that its operations will not be
adversely impacted by year 2000 failures. The Company believes it has taken the
actions necessary to ensure that its systems and applications will recognize
and process dates in the year 2000 and beyond. Management currently does not
expect future costs of year 2000 compliance to be material to the Company's
financial statements.
15
<PAGE>
INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma consolidated financial data 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 our acquisition of Kangaroo and our other 1999
acquisitions and financing transactions as follows:
The Initial Public Offering of our Common Stock:
The net proceeds from the sale of 6,250,000 shares of our common stock
on June 8, 1999, were approximately $74.6 million. We used the net proceeds to
repay indebtedness of $19.0 million under our bank credit facility and redeem
our outstanding preferred stock and accumulated dividends of $23.3 million,
with the remainder available for acquisitions following the offering.
1999 Acquisitions:
<TABLE>
<CAPTION>
Number
of
Date Acquired Company Trade Name Locations Stores
----------------- -------------------------- ----------------- ------------------------ ------
<C> <C> <C> <S> <C>
November 11, 1999 Kangaroo, Inc. Georgia, North Carolina, 64
South Carolina, Florida
July 22, 1999 R&H Maxxon, Inc. Depot Food Stores South Carolina, Georgia 53
February 25, 1999 Taylor Oil Company ETNA North Carolina, Virginia 60
January 28, 1999 Miller Enterprises, Inc. Handy Way North-central Florida 121
and affiliates (a)
Express Stop Southeast North 22
November 5, 1998 Express Stop, Inc. Carolina,
Eastern South Carolina
Dash-N East-central North 10
October 22, 1998 A.G. Lee Oil Company, Inc. Carolina
</TABLE>
- --------
(a) Including real estate assets of Miller Brothers and Circle Investments,
Ltd. consisting of land and buildings leased to and used in the
convenience store operations of Miller Enterprises, Inc.
The approximate cost of the 1999 acquisitions and the sources of funding
are as follows:
<TABLE>
<CAPTION>
Company Acquisition Cost Funding Sources
--------------------------------- ---------------- -------------------------
(in thousands)
<C> <C> <S>
Kangaroo 46,500 Proceeds of $46.0 million
from our 1999 bank credit
facility and cash on hand
Maxxon $35,809 Proceeds of $12.0 million
from our 1999 bank credit
facility and cash on hand
Taylor Oil 22,850 Proceeds of $19.0 million
from our 1999 bank credit
facility and cash on hand
Miller Enterprises and affiliates 95,100 Proceeds of $95.0 million
from our 1999 bank credit
facility and cash on hand
Express Stop 21,800 Proceeds of $16.0 million
from our 1998 bank credit
facility and cash on hand
A.G. Lee Oil 3,750 Cash on hand
</TABLE>
16
<PAGE>
1999 Financing Transactions:
. January 28, 1999--we entered into a new bank credit facility and used
the proceeds of $245.0 million plus cash on hand to:
. repay $94.0 million of existing debt under our 1998 bank credit
facility
. redeem $49.0 million of outstanding senior notes and pay $2.0
million of related premium costs
. finance $95.0 million of the Miller Enterprises and affiliates
acquisition price and
. pay related fees and accrued and unpaid interest
. The 1999 bank credit facility repaid and replaced the 1998 bank
credit facility and is comprised of $80.0 million Tranche A and
$160.0 million Tranche B term loans, a $45.0 million revolving credit
facility and a $50.0 million acquisition facility
. February 25, 1999--we borrowed $19.0 million on our 1999 revolving
credit facility and used the proceeds plus cash on hand to finance
the purchase price of the Taylor Oil acquisition
. July 22, 1999--we borrowed $12.0 million on our 1999 revolving credit
facility and used the proceeds plus cash on hand to finance the
purchase price of the Maxxon acquisition.
. November 11, 1999--we borrowed $46.0 million on our 1999 acquisition
facility and Tranche C term loans and used the proceeds plus cash on
hand to finance the purchase price of the Kangaroo acquisition.
Pro Forma Adjustments:
Unaudited Pro Forma Balance Sheet as of September 30, 1999
The unaudited pro forma balance sheet gives effect to our acquisition of
Kangaroo on November 11, 1999. The remaining fiscal 1999 transactions are
reflected in our historical unaudited balance sheet as of September 30, 1999.
Unaudited Pro Forma Statement of Operations for the Year Ended September 30,
1999
The unaudited pro forma statement of operations for the year ended
September 30, 1999 gives effect to the 1999 acquisitions and the fiscal 1999
financing transactions as if such events occurred at the beginning of fiscal
1999. The periods for which the 1999 acquisitions have been included in the pro
forma statement of operations are as follows:
. Kangaroo--the year ended October 31, 1999
. Maxxon--the period from October 1, 1998 through July 22, 1999
. Taylor Oil--the period from October 1, 1998 through February 25, 1999
(date of acquisition)
. Miller Enterprises--the period from October 1, 1998 through January
27, 1999 (date of acquisition)
. Express Stop--the period from October 1, 1998 through November 5,
1998 (date of acquisition)
. A.G. Lee Oil--the one-month period from October 1, 1998 through
October 22, 1998 (date of acquisition)
17
<PAGE>
In connection with Express Stop and Maxxon acquisitions, we did not
acquire all operations of these entities. The operations not acquired primarily
related to equity in earnings of affiliates of Express Stop and a wholesale
petroleum business owned, operated, and retained by Maxxon.
The unaudited pro forma financial data are provided for informational
purposes only and do not represent our results of operations or financial
position had the transactions occurred on such dates, nor are they indicative
of our results of operations or financial position as of any future date or
period.
18
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET DATA
September 30, 1999
<TABLE>
<CAPTION>
Acquisition
The Pantry Kangaroo and Total
September 30, October 31, Financing Pro
1999 1999 Adjustments Forma
------------- ----------- ----------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents... $ 31,157 $ 2,498 $46,000 (a) $ 33,155
(46,500)(b)
Receivables, net............ 24,234 1,733 -- 25,967
Inventories................. 76,237 3,565 -- 79,802
Income taxes receivable..... -- -- --
Prepaid expenses............ 3,497 429 -- 3,926
Property held for sale...... 135 953 (742)(d) 346
Deferred income taxes....... 4,849 -- 4,849
-------- ------- ------- --------
Total current assets...... 140,109 9,178 (1,242) 148,045
-------- ------- ------- --------
Property and equipment, net... 421,685 16,264 (573)(c) 436,462
742 (d)
(1,656)(b)
Other assets:
Goodwill, net............... 197,705 -- 34,086 (b) 231,791
Deferred lease cost, net.... 224 -- -- 224
Deferred financing cost,
net........................ 12,680 -- -- 12,680
Environmental receivables,
net........................ 13,136 -- -- 13,136
Other....................... 8,179 345 (154)(c) 8,370
-------- ------- ------- --------
Total other assets........ 231,924 345 33,932 266,201
-------- ------- ------- --------
Total assets............ $793,718 $25,787 $31,203 $850,708
======== ======= ======= ========
</TABLE>
See Notes to Unaudited Pro Forma Balance Sheet Data
19
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET DATA
September 30, 1999
<TABLE>
<CAPTION>
Acquisition
The Pantry Kangaroo and
September 30, October 31, Financing Total
1999 1999 Adjustments Pro Forma
-------------- ----------- ----------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C>
Liabilities and
Shareholders' Equity
Current liabilities:
Current maturities of
long-term debt........... $ 10,687 $ 346 $ (346)(c) $ 10,687
Current maturities of
capital lease
obligations.............. 1,205 -- 1,205
Accounts payable.......... 89,124 6,669 -- 95,793
Income tax payable........ 5,004 -- 5,004
Accrued expenses.......... 61,600 1,888 856 (b)
(225)(c) 64,119
-------- ------- -------- --------
Total current
liabilities............. 167,620 8,903 285 176,808
-------- ------- -------- --------
Senior notes payable, 12%,
due November 15, 2000.... -- -- --
Senior subordinated
notes.................... 200,000 -- -- 200,000
Credit facility........... 229,059 -- 46,000 (a) 275,059
Other long-term debt...... 1,161 6,024 (6,024)(c) 1,161
-------- ------- -------- --------
Total long-term debt..... 430,220 6,024 39,976 476,220
-------- ------- -------- --------
Other non-current
liabilities:
Environmental reserve..... 15,402 -- -- 15,402
Capital lease
obligations.............. 13,472 -- -- 13,472
Employment obligations.... 486 -- -- 486
Deferred income taxes..... 26,245 -- 26,245
Other..................... 648 1,454 (b) 37,878
36,076 (300)(c)
-------- ------- -------- --------
Total other non current
liabilities............. 91,681 648 1,454 93,483
-------- ------- -------- --------
Shareholders' equity:
Preferred stock........... -- -- -- --
Common stock.............. 182 523 (523)(b) 182
Additional paid-in
capital.................. 128,256 10 (10)(b) 128,256
Shareholder loans......... (937) -- -- (937)
Retained earnings
(accumulated deficit).... (23,304) 9,679 (9,679)(b) (23,304)
-------- ------- -------- --------
Total shareholders'
equity.................. 104,197 10,212 (10,212) 104,197
-------- ------- -------- --------
Total liabilities and
shareholders' equity.... $793,718 $25,787 $ 31,728 $850,708
======== ======= ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Balance Sheet Data
20
<PAGE>
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET DATA
(dollars in thousands except per share amounts)
(a) Reflects borrowings of $46.0 million under our 1999 bank credit facility at
a rate of 8.39% to partially fund the Kangaroo acquisition.
(b) Goodwill related to the Kangaroo acquisition has been determined as
follows:
<TABLE>
<S> <C>
Aggregate purchase price........................................... $ 46,500
Less shareholders' equity.......................................... (10,212)
Purchase accounting adjustments appropriate to reflect past
acquisition facts and circumstances............................... 3,966
Elimination of certain net assets not acquired by The Pantry
(see note c)...................................................... (6,168)
--------
Total............................................................ $ 34,086
========
</TABLE>
The 1999 acquisitions have been accounted for using the purchase method of
accounting. Purchase price allocations for all 1999 acquisitions have not
been finalized and are based on available information, internal estimates
and assumptions we believe are reasonable.
For each acquisition, the purchase price will be allocated to the tangible
and intangible assets acquired and liabilities assumed based upon their
respective fair values at the time the acquisitions were consummated,
pending completion of appraisals of property and equipment acquired. The
excess of the purchase price over the historical basis of the net assets
acquired has been allocated to the net assets acquired based on preliminary
estimates. 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 pending the completion of appraisals and
other purchase price adjustments.
The purchase price of Kangaroo, Maxxon and Miller Enterprises acquisitions
are subject to various cash, working capital, net assets, debt and capital
expenditure adjustments. Final purchase price adjustments will be made
pending the completion of closing balance sheet audits.
(c) Reflects the elimination of certain assets and liabilities we did not
acquire or assume in connection with the Kangaroo acquisition:
<TABLE>
<S> <C>
Property and equipment............................................... $ (573)
Other assets......................................................... (154)
Accrued expenses..................................................... 225
Other non current liabilities........................................ 300
Other long term debt................................................. 6,370
------
Total.............................................................. $6,168
======
</TABLE>
(d) Reflects the reclassification of property held for sale to property and
equipment.
(e) Reflects recognition of remaining unamortized liability assumed related to
a gasoline product purchase agreement. Kangaroo received up-front payments
which require the stores to continue to be branded for a 5 year period. The
balance is recorded as follows:
<TABLE>
<S> <C>
Accrued expenses....................................................... 856
Other non current liabilities.......................................... 1,454
-----
Total................................................................ 2,310
=====
</TABLE>
(f) Reflects the write-down of property, which The Pantry intends to sell, to
the expected net-realizable value.
21
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA
Year Ended September 24, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, October 30, Acquisition/
1999 1999 Fiscal 1999 Financing IPO Total
The Pantry Kangaroo Acquisitions(a) Adjustments Subtotal Adjustments Pro Forma
------------- ----------- --------------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Merchandise sales...... $ 731,681 $ 44,614 $82,861 $ -- $ 859,156 $ -- $ 859,156
Gasoline sales......... 923,786 64,975 141,476 (5,890)(c) 1,124,347 -- 1,124,347
Commission, video, and
other 23,403 2,274 3,258 (6)(c) 28,929 -- 28,929
---------- -------- ------- ------- ---------- ----- ----------
Total revenue.......... 1,678,870 111,863 227,595 (5,896) 2,012,432 -- 2,012,432
---------- -------- ------- ------- ---------- ----- ----------
Cost of Sales:
Merchandise............ 489,258 31,784 54,055 -- 575,097 -- 575,097
Gasoline............... 818,784 57,281 124,151 (5,699)(c) 993,661 -- 993,661
(856)(m)
---------- -------- ------- ------- ---------- ----- ----------
Total cost of sales.... 1,308,042 89,065 178,206 (5,699) 1,569,614 -- 1,569,614
---------- -------- ------- ------- ---------- ----- ----------
Gross profit............ 370,828 22,798 49,389 (197) 442,818 -- 442,818
---------- -------- ------- ------- ---------- ----- ----------
Store operating
expenses................ 214,384 14,693 33,335 (1,507)(d) 264,030 -- 264,030
3,158 (e) --
(33)(c)
General and
administrative
expenses................ 48,468 4,347 5,064 (300)(n) 57,579 -- 57,579
Merger integration
costs................... -- -- 695 -- 695 -- 695
Stock compensation
charges................. -- -- 2,029 (b) -- 2,029 -- 2,209
Impairment of long-lived
assets.................. -- -- 47 -- 47 -- 47
Depreciation and
amortization............ 42,798 1,864 4,699 2,370 (f) 50,724 -- 50,724
(752)(g)
(222)(h)
(33)(c)
---------- -------- ------- ------- ---------- ----- ----------
Total operating
expense................ 305,650 20,904 45,869 2,681 375,104 -- 375,104
---------- -------- ------- ------- ---------- ----- ----------
Income from operations.. 65,178 1,894 3,520 (2,878) 67,714 -- 67,714
---------- -------- ------- ------- ---------- ----- ----------
Other Income (Expense):
Interest expense....... (41,280) (497) (923) (6,190)(i) (48,831) -- (48,831)
59 (c)
Miscellaneous.......... 852 158 512 (187)(c) 1,335 1,093 (l) 2,428
Due diligence costs.... -- -- -- -- -- --
---------- -------- ------- ------- ---------- ----- ----------
Total other expenses... (40,428) (339) (411) (6,318) (47,496) 1,093 (46,403)
---------- -------- ------- ------- ---------- ----- ----------
Income (loss) before
income taxes............ 24,750 1,555 3,109 (9,196) 20,218 1,093 21,311
Income tax benefit
(expense)............... 10,750 -- 832 (2,945)(j) 8,637 474 (j) 9,111
---------- -------- ------- ------- ---------- ----- ----------
Net income (loss) before
extraordinary items..... $ 14,000 $ 1,555 $ 2,277 $(6,389) $ 11,263 $ 619 $ 11,882 (k)
========== ======== ======= ======= ========== ===== ==========
Earnings per share
before extraordinary
loss:
Basic.................. 0.71 (k) 0.23 (k)
========== ==========
Diluted................ 0.65 (k) 0.21 (k)
========== ==========
Weighted-average Number
of Shares Outstanding:
Basic.................. 13,768 (k) 13,768 (k)
========== ==========
Diluted................ 14,758 (k) 19,299 (k)
========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Statement of Operations Data
22
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA
(dollars in thousands)
(a) The fiscal 1999 acquisitions included in the unaudited pro forma statement
of operations for the year ended September 30, 1999 consist of the
historical financial statements of the following entities:
<TABLE>
<CAPTION>
Period Period Period
October 1, October 1, Period October 1,
1998 1998 October 1, 1998
through through 1998 through through
November 5, January 27, February 25, July 22,
1998 1999 1999 1999
----------- ----------- ------------ ---------- Total
Express Miller Taylor Other 1999 Fiscal 1999
Stop Enterprises Oil Maxxon Acquisitions Acquisitions
----------- ----------- ------------ ---------- ------------ ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Merchandise sales...... $1,698 $ 36,072 $10,737 $33,739 $ 615 $ 82,861
Gasoline sales......... 2,407 45,191 32,012 60,831 1,035 141,476
Commissions............ 191 404 104 2,501 58 3,258
------ -------- ------- ------- ------ --------
Total revenue......... 4,296 81,667 42,853 97,071 1,708 227,595
------ -------- ------- ------- ------ --------
Cost of Sales:
Merchandise............ 1,232 20,736 7,237 24,389 461 54,055
Gasoline............... 2,184 39,608 27,701 53,701 957 124,151
------ -------- ------- ------- ------ --------
Total cost of sales... 3,416 60,344 34,938 78,090 1,418 178,206
------ -------- ------- ------- ------ --------
Gross profit............ 880 21,323 7,915 18,981 290 49,389
------ -------- ------- ------- ------ --------
Store operating
expenses............... 433 17,961 4,754 9,938 249 33,335
General and
administrative
expenses............... 105 1,503 1,015 2,433 8 5,064
Merger integration
costs.................. -- 695 -- -- -- 695
Stock compensation
charge................. -- 2,029 -- -- -- 2,029
Impairment of long-lived
assets................. -- -- 47 -- -- 47
Depreciation and
amortization........... 61 1,281 685 2,663 9 4,699
------ -------- ------- ------- ------ --------
Total operating
expense.............. 599 23,469 6,501 15,034 266 45,869
------ -------- ------- ------- ------ --------
Income (loss) from
operations............. 281 (2,146) 1,414 3,947 24 3,520
------ -------- ------- ------- ------ --------
Other Income (Expense):
Interest............... (5) (126) -- (792) -- (923)
Miscellaneous.......... 13 2 -- 487 10 512
------ -------- ------- ------- ------ --------
Total other........... 8 (124) -- (305) 10 (411)
------ -------- ------- ------- ------ --------
Income (loss) before
income taxes........... 289 (2,270) 1,414 3,642 34 3,109
Income tax (benefit)
expense................ -- (508) -- 1,340 -- 832
------ -------- ------- ------- ------ --------
Net income (loss) before
extraordinary item..... $ 289 $ (1,762) $ 1,414 $ 2,302 $ 34 $ 2,277
====== ======== ======= ======= ====== ========
</TABLE>
(b) On January 26, 1999, in anticipation of its acquisition by The Pantry,
Miller Enterprises redeemed 18,502 shares of its restricted stock. In
connection with this redemption of stock, Miller Enterprises recognized a
charge to compensation expense of $2,029 for the period October 1, 1998
through January 27, 1999. This non-recurring charge is not reflective of
The Pantry's continuing operations after the Miller acquisition and would
not have been incurred by The Pantry had it owned Miller Enterprises as of
the beginning of fiscal 1999.
23
<PAGE>
(c) Reflects the elimination of operations not acquired. These operations
relate to equity in earnings of affiliates of ExpressStop and a wholesale
petroleum business owned, operated and retained by Maxxon which were not
acquired by The Pantry.
<TABLE>
<CAPTION>
Year Ended
September 30,
1999
-------------
Decrease in expenses
(decrease in income)
<S> <C> <C> <C>
Fiscal 1999 Acquisitions:
Gasoline sales...................................... (5,890)
Commissions......................................... (6)
Gasoline cost of sales.............................. 5,699
Store operating expense............................. 33
Depreciation and amortization....................... 33
Interest expense.................................... 59
Miscellaneous income................................ (187)
</TABLE>
(d) Historically, Miller Enterprises incurred rental expense related to stores
leased from its affiliates. These stores were acquired by us in connection
with the Miller Enterprises acquisition and all leases with Miller
Enterprises affiliates were terminated. As a result, rental expenses of
$1,507 for the year ended September 30, 1999 have been eliminated.
(e) Reflects an increase in store rental expense of $2,267 for Maxxon and $891
for Taylor Oil for the year ended September 30, 1999 in connection with an
obligation to lease stores from the former owners Maxxon and Taylor Oil at
current market values at the dates of acquisition. The rent increases were
effective concurrent with the Taylor Oil acquisition, which occurred on
February 25, 1999, and the Maxxon acquisition which occurred on July 22,
1999.
(f) The 1999 acquisitions have been accounted for using the purchase method of
accounting. Purchase price allocations for all 1999 acquisitions have not
been finalized and are based on available information, internal estimates
and assumptions we believe are reasonable.
For each acquisition, the purchase price will be allocated to the tangible
and intangible assets acquired and liabilities assumed based upon their
respective fair values at the time the acquisitions were consummated,
pending completion of appraisals of property and equipment acquired. The
excess of the purchase price over the historical basis of the net assets
acquired has been allocated to the net assets acquired based on preliminary
estimates. 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 pending the completion of appraisals
and other purchase price adjustments.
24
<PAGE>
The following table summarizes the additional amortization expense to be
incurred in connection with the 1999 transactions described above:
<TABLE>
<CAPTION>
Estimated Year Ended
Recorded Useful Life September 30,
Acquisitions Goodwill (in years) 1999
------------ -------- ----------- -------------
<S> <C> <C> <C>
1999 acquisitions:
A.G. Lee Oil............................ 355 30 1
Express Stop............................ 12,163 30 34
Miller Enterprises and affiliates....... 25,000 30 278
Taylor Oil.............................. 13,300 30 185
Maxxon.................................. 26,485 30 736
Kangaroo................................ 34,611 30 1,136
-------- ------
$111,914 2,370
========
Less historical recorded predecessor
amounts................................. --
------
Adjustment............................... $2,370
======
</TABLE>
(g) Reflects additional depreciation expense in connection with the various
1998 and 1999 acquisition and financing transactions as follows:
<TABLE>
<CAPTION>
Recorded
Fair Value of
Property and Estimated Year Ended
Equipment Useful Life September 30,
Acquisitions Acquired (in years) 1999
------------ ------------- ----------- -------------
<S> <C> <C> <C>
1999 acquisitions:
A.G. Lee Oil..................... $ 2,500 10 21
Express Stop..................... 7,095 10 159
Miller Enterprises and
affiliates...................... 79,335 10-35 1,928
Taylor Oil....................... 4,750 10 198
Maxxon........................... 16,771 10-35 2,169
Kangaroo......................... 16,264 10 1,403
-------- ------
$109,994 5,778
======== ------
Less historical recorded amounts.. 6,530
------
Adjustment........................ $ (752)
======
</TABLE>
The Pantry did not acquire a wholesale petroleum business owned, operated,
and retained by Maxxon. Included in the historical financial statements of
Maxxon for the year ended September 30, 1999 is $33 of depreciation expense
related to the wholesale business, which has been eliminated.
(h) Reflects additional amortization of deferred financing costs resulting
from entering into our 1999 bank credit facility and the removal of
deferred financing costs associated with the repayment of our 1998 bank
credit facility and the repurchase of our senior notes as follows:
<TABLE>
<CAPTION>
Straight-
Financing line
Costs Amortization Year Ended
Incurred Period September 30,
Transaction (Written-off) (in years) 1999
----------- ------------- ------------ -------------
<S> <C> <C> <C>
Entering into 1999 bank credit
facility......................... 3,210 6 178
Repurchase of $49 million of
outstanding senior notes and
repayment of 1998 bank credit
facility......................... (3,972) 7 (400)
-----
Adjustment........................ $(222)
=====
</TABLE>
25
<PAGE>
For purposes of the unaudited pro forma financial statements, deferred
financing costs related to the 1999 credit facility are amortized using the
straight line method, which approximates the results that would be computed
using the effective interest method.
(i) Reflects additional interest expense in connection with the various 1999
financing and acquisitions transactions as follows:
<TABLE>
<CAPTION>
Year Ended
Principal Interest September
Borrowed Rate 30,
Acquisition/Financing (Retired) (per annum) 1999
--------------------- --------- ----------- ----------
<S> <C> <C> <C>
1999 acquisitions and proceeds to redeem
outstanding senior notes ................. 198,000 8.18-8.25 5,735
Redemption of senior notes from proceeds of
1999 bank credit
facility.................................. (49,000) 12.50 (2,042)
Borrowings under 1999 bank credit facility
to fund Kangaroo acquisition.............. 46,000 8.39 3,859
-------
Subtotal.................................. 7,552
Less historical recorded amounts related to
indebtedness not assumed.................. 1,362
-------
Adjustment................................. $ 6,190
=======
</TABLE>
In connection with the 1999 acquisitions, The Pantry did not assume debt
obligations of the acquired entities totaling approximately $70 and having
interest rates ranging from 5.75% to 8.75%.
The interest rates disclosed above are based on the current weighted-
average interest rates for which The Pantry has an obligation. Assuming a
0.125% increase or decrease in the variable rate bank credit facility,
interest expense, net of taxes, would increase or decrease by $305 for the
year ended September 31, 1999.
(j) Adjusts income tax expense for an assumed tax rate of 43.4%.
(k) Net income (loss) excludes an extraordinary loss of $3,584 related to the
redemption of $48,995 of senior notes and the amendment of our bank credit
facility.
Pro forma basic and diluted earnings per share exclude dividends and
redemption in excess of carrying amount on our preferred stock of $2,070
and $ 2, 113, respectively for the year ended September 30, 1999 as if the
initial offering of our stock and the redemption of our preferred stock
occurred at the beginning of fiscal 1999.
In addition, basic and diluted weighted average shares outstanding have
been increased by 4,342 shares for the year ended September 30, 1999 to
arrive at pro forma weighted average shares outstanding as if the offering
of 6,250 shares of our common stock had occurred at the beginning of fiscal
1999.
(l) Reflects the application of net proceeds of approximately $19,000 to repay
outstanding indebtedness at the weighted-average rate of 8.25%.
(m) Reflect the income statement impacts of purchase accounting adjustments
appropriate to the post-acquisition facts and circumstances.
(n) Reflects the decrease of Kangaroo related party consulting expenses which
would not have been incurred had the Party purchased Kangaroo at the
beginning of 1999.
26
<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: January 25, 2000
The Pantry, Inc.
/s/ William T. Flyg
By: _________________________________
William T. Flyg
Senior Vice President Finance and
Secretary
27
