<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-16626
-----------------
7-ELEVEN, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1085131
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2711 NORTH HASKELL AVE., DALLAS, TEXAS 75204-2906
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code, 214/828-7011
--------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
104,764,596 shares of common stock, $.0001 par value (the
issuer's only class of common stock), were outstanding as of September
30, 2000.
<PAGE>
7-ELEVEN, INC.
INDEX
PAGE
NO.
----
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets -
December 31, 1999 and September 30, 2000 1
Condensed Consolidated Statements of Earnings -
Three Months and Nine Months Ended
September 30, 1999 and 2000 2
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1999 and 2000 3
Notes to Condensed Consolidated Financial Statements 4
Report of Independent Accountants 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 19
Part II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURES 20
Exhibit (15) - Letter re Unaudited Interim Financial Information Tab 1
Exhibit (27) - Financial Data Schedule *
* Submitted in electronic format only
(i)
<PAGE>
<TABLE>
<CAPTION>
7-ELEVEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 76,859 $ 111,524
Accounts receivable 179,039 174,643
Inventories 134,050 106,311
Other current assets 115,328 115,904
------------- -------------
Total current assets 505,276 508,382
Property and equipment 1,880,520 1,893,975
Other assets 299,870 277,482
------------- -------------
Total assets $ 2,685,666 $ 2,679,839
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable $ 168,302 $ 214,580
Accrued expenses and other liabilities 401,216 436,575
Commercial paper 34,418 -
Long-term debt due within one year 207,413 89,058
------------- -------------
Total current liabilities 811,349 740,213
Deferred credits and other liabilities 251,073 251,145
Long-term debt 1,802,819 1,240,695
Convertible quarterly income debt securities 380,000 380,000
Commitments and contingencies
Shareholders' equity (deficit):
Preferred stock, $.01 par value - -
Common stock, $.0001 par value 8 10
Additional capital 625,761 1,166,186
Accumulated deficit (1,194,896) (1,100,766)
Accumulated other comprehensive earnings 9,552 2,356
------------- -------------
Total shareholders' equity (deficit) (559,575) 67,786
------------- -------------
Total liabilities and shareholders' equity (deficit) $ 2,685,666 $ 2,679,839
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
7-ELEVEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
(UNAUDITED)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
----------------------------- -------------------------
1999 2000 1999 2000
------------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Merchandise sales (Including $138,526, $154,657,
$391,559 and $451,785 in excise taxes) $ 1,694,636 $ 1,793,773 $ 4,641,592 $ 5,024,982
Gasoline sales (Including $158,628, $169,571,
$463,412 and $498,357 in excise taxes) 547,864 718,181 1,459,512 2,028,899
------------- ------------- ------------ ------------
Net sales 2,242,500 2,511,954 6,101,104 7,053,881
Other income 25,792 27,363 72,013 79,408
------------- ------------- ------------ ------------
Total revenues 2,268,292 2,539,317 6,173,117 7,133,289
------------- ------------- ------------ ------------
COSTS AND EXPENSES:
Merchandise cost of goods sold 1,098,344 1,169,708 3,040,114 3,277,653
Gasoline cost of goods sold 495,017 655,387 1,292,815 1,847,218
------------ -------------- ----------- -----------
Total cost of goods sold 1,593,361 1,825,095 4,332,929 5,124,871
Franchisee gross profit expense 170,566 181,518 457,678 503,338
Operating, selling, general and administrative expenses 416,271 447,983 1,194,087 1,308,434
Interest expense, net 25,751 17,101 75,422 62,530
------------- ------------- ----------- -----------
Total costs and expenses 2,205,949 2,471,697 6,060,116 6,999,173
------------- ------------- ----------- -----------
EARNINGS BEFORE INCOME TAX EXPENSE AND EXTRAORDINARY GAIN 62,343 67,620 113,001 134,116
INCOME TAX EXPENSE 24,676 26,710 44,726 39,986
------------- ------------- ----------- -----------
EARNINGS BEFORE EXTRAORDINARY GAIN 37,667 40,910 68,275 94,130
EXTRAORDINARY GAIN ON DEBT REDEMPTION (net of tax effect
of $2,743) - - 4,290 -
------------- ------------- ---------- -----------
NET EARNINGS $ 37,667 $ 40,910 $ 72,565 $ 94,130
============= ============= =========== ===========
NET EARNINGS PER COMMON SHARE:
BASIC
Earnings before extraordinary gain $ .46 $ .39 $ .84 $ .96
Extraordinary gain - - .05 -
------------- ------------- ----------- ------------
Net earnings $ .46 $ .39 $ .89 $ .96
============= ============= =========== ============
DILUTED
Earnings before extraordinary gain $ .39 $ .35 $ .74 $ .85
Extraordinary gain - - .04 -
------------- ------------- ----------- ------------
Net earnings $ .39 $ .35 $ .78 $ .85
============= ============= =========== ============
</TABLE>
See notes to condensed consolidated financial statements.
2
<Page
<TABLE>
<CAPTION>
7-ELEVEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30
-------------------------------
1999 2000
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 72,565 $ 94,130
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Extraordinary gain on debt redemption (4,290) -
Depreciation and amortization of property and equipment 138,639 162,641
Other amortization 14,974 15,034
Deferred income taxes 21,622 12,282
Noncash interest expense 1,139 1,100
Other noncash income (3,716) (2,106)
Net loss on property and equipment 2,673 231
(Increase) decrease in accounts receivable (6,782) 2,538
(Increase) decrease in inventories (8,551) 27,739
Increase in other assets (27,195) (5,827)
Increase in trade accounts payable and other liabilities 45,806 48,870
------------- -------------
Net cash provided by operating activities 246,884 356,632
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property and equipment (328,549) (220,452)
Proceeds from sale of property and equipment 5,997 77,129
Proceeds from sale of domestic securities 5,015 6,017
Other 6,928 (1,526)
------------- -------------
Net cash used in investing activities (310,609) (138,832)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from commercial paper and revolving credit facilities 3,606,140 3,051,692
Payments under commercial paper and revolving credit facilities (3,458,332) (3,605,533)
Principal payments under long-term debt agreements (105,974) (179,121)
Increase in outstanding checks in excess of cash in bank 935 10,137
Net proceeds from issuance of common stock - 539,690
Other (904) -
------------- -------------
Net cash provided by (used in) financing activities 41,865 (183,135)
------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (21,860) 34,665
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 87,115 76,859
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 65,255 $ 111,524
============= =============
RELATED DISCLOSURES FOR CASH FLOW REPORTING:
Interest paid, excluding SFAS No.15 Interest $ (92,122) $ (75,646)
============= =============
Net income taxes paid $ (9,780) $ (15,908)
============= =============
Assets obtained by entering into capital leases $ 34,374 $ 23,994
============= =============
See notes to condensed consolidated financial statements.
3
</TABLE>
<PAGE>
7-ELEVEN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated balance sheet as of September 30,
2000, and the condensed consolidated statements of earnings for the
three-month and nine-month periods ended September 30, 1999 and 2000,
and the condensed consolidated statements of cash flows for the nine-
month periods ended September 30, 1999 and 2000, have been prepared by
7-Eleven, Inc. (the "Company") without audit. In the opinion of
management, all adjustments necessary to present fairly the financial
position at September 30, 2000, and the results of operations and cash
flows for all periods presented have been made. Certain prior-period
amounts have been reclassified to conform to current-period
presentation. The results of operations for the interim periods are
not necessarily indicative of the operating results for the full year.
The reported results include approximately 5,700 convenience stores that
are operated or franchised in the United States and Canada by 7-
Eleven, Inc., along with royalty income only from worldwide 7-Eleven
area licensees. Sales and cost of goods sold of stores operated by
franchisees are consolidated with the results of Company-operated
stores in the condensed consolidated statements of earnings. Gross
profit from franchise stores is split between the Company and its
franchisees pursuant to the terms of franchise agreements.
The condensed consolidated balance sheet as of December 31, 1999,
is derived from the audited financial statements but does not include
all disclosures required by generally accepted accounting principles.
The notes accompanying the consolidated financial statements in the
Company's Annual Report on Form 10-K for the year ended December 31,
1999, include accounting policies and additional information pertinent
to an understanding of both the December 31, 1999, balance sheet and
the interim financial statements. The information has not changed
except as a result of normal transactions in the nine months ended
September 30, 2000, and as discussed in the following notes.
2. EQUITY TRANSACTIONS
On March 16, 2000, the Company issued 22,736,842 shares of
common stock at $23.75 per share to IYG Holding Company in a private
placement transaction, which increased their ownership in the Company
to 72.7%. The net proceeds of $539.4 million were used to repay the
outstanding balance on the Company's bank term loan of $112.5 million
and to reduce the Company's revolving credit facility by
approximately $250 million and commercial paper facility by
approximately $177 million.
On April 26, 2000, the shareholders of the Company approved a
reverse stock split of one share of common for five shares of common,
which was effective May 1, 2000. Accordingly, all references to share
or per-share data in the accompanying condensed consolidated financial
statements and related notes reflect the reverse stock split.
On May 23, 2000, the Company granted options for 2,023,424 shares
under the 1995 Stock Incentive Plan. The options were granted at an
exercise price of $19.00 per share, which was equal to the fair market
value of the Company's common stock on the date of grant.
4
<PAGE>
3. EARNINGS PER SHARE
Computations for basic and diluted earnings per share are presented
below (in thousands, except per-share data):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
--------------------- -------------------
1999 2000 1999 2000
-------- -------- ------ ------
<S> <C> <C> <C> <C>
BASIC:
Earnings before extraordinary gain $ 37,667 $ 40,910 $ 68,275 $ 94,130
Earnings on extraordinary gain - - 4,290 -
--------- --------- -------- ---------
Net earnings $ 37,667 $ 40,910 $ 72,565 $ 94,130
========== ========= ======== =========
Weighted-average common shares outstanding 81,996 104,765 81,992 98,451
========== ======== ======== ========
Earnings per common share before extraordinary gain $ .46 $ .39 $ .84 $ .96
Earnings per common share on extraordinary gain - - .05 -
---------- --------- ------- -------
Net earnings per common share $ .46 $ .39 $ .89 $ .96
========== ========= ======== ========
DILUTED:
Earnings before extraordinary gain $ 37,667 $ 40,910 $ 68,275 $ 94,130
Add interest on convertible quarterly
income debt securities, net of tax 2,626 2,630 7,878 7,889
---------- -------- --------- --------
Earnings before extraordinary gain plus
assumed conversions 40,293 43,540 76,153 102,019
Earnings on extraordinary gain - - 4,290 -
--------- -------- -------- --------
Net earnings plus assumed conversions $ 40,293 $ 43,540 $ 80,443 $102,019
========= ========= ======== ========
Weighted-average common shares outstanding (Basic) 81,996 104,765 81,992 98,451
Add effects of assumed conversions:
Stock options 41 422 52 610
Convertible quarterly income debt securities 20,924 20,924 20,924 20,924
--------- -------- -------- -------
Weighted-average common shares outstanding
plus shares from assumed conversions (Diluted) 102,961 126,111 102,968 119,985
========= ======== ======== ========
Earnings per common share before extraordinary gain $ .39 $ .35 $ .74 $ .85
Earnings per common share on extraordinary gain - - .04 -
--------- --------- ------- --------
Net earnings per common share $ .39 $ .35 $ .78 $ .85
========= ========= ======== ========
</TABLE>
5
<PAGE>
4. INCOME TAX EXPENSE/BENEFIT
On March 27, 2000, the Company received notice of approval from
the Internal Revenue Service regarding the settlement of certain
outstanding tax issues relating to audits of the Company's federal
income tax returns for the 1992 through 1995 tax years. As a result
of the settlement, the Company recorded an income tax benefit of $12.5
million in the first quarter. This benefit reduced the Company's
income tax expense for the nine months ended September 30, 2000, from
$52.5 million to $40.0 million.
5. COMPREHENSIVE EARNINGS
The components of comprehensive earnings of the Company for the
periods presented are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
------------------- -------------------
1999 2000 1999 2000
------------------- -------------------
<S> <C> <C> <C> <C>
Net earnings $ 37,667 $ 40,910 $ 72,565 $ 94,130
Other comprehensive earnings:
Unrealized gains (losses) on
equity securities, net of tax (3,098) 2,686 (1,753) (464)
Reclassification adjustments for
gains included in net earnings
(net of $979, $1,177, $1,964 and
$2,358 tax expense) (1,532) (1,840) (3,073) (3,688)
Foreign currency translation
adjustments 569 (945) 3,409 (3,044)
--------- --------- --------- --------
Other comprehensive earnings (4,061) (99) (1,417) (7,196)
--------- --------- --------- --------
Total comprehensive earnings $ 33,606 $ 40,811 $ 71,148 $ 86,934
========= ========= ========= ========
</TABLE>
6. SFAS NO. 133
Statement of Financial Accounting Standard No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS No. 133")
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. The Company must adopt the
provisions of this statement no later than January 1, 2001. The Company
has completed its initial review of derivative instruments and other
contracts that might be considered or contain derivative instruments.
The Company's $250 million interest rate swap can be considered a
hedge of its interest rate exposure in connection with its commercial
paper program. Upon adoption of SFAS No. 133, the Company would record
the interest rate swap at its fair value, with the offset to Accumulated
Other Comprehensive Earnings in the equity section of the balance sheet.
The fair value of the interest rate swap at September 30, 2000, was $3.8
million. The Company is reviewing the effectiveness of the $250 million
interest rate swap and is assessing various strategies including
terminating the swap or not designating the swap as a hedge.
As disclosed in detail in the Company's Form 10-K for the year
ended December 31, 1999, the Company has two yen-denominated loans (the
"Yen Loans"). The accounting treatment currently used to account for
the Yen Loans, and the yen-based royalty from Seven-Eleven Japan Co.,
Ltd., will be nullified upon adoption of SFAS No. 133. Therefore, the
Company will no longer be able to account for the yen-based royalty as
a hedge of the monthly principal and interest payments on the Yen
Loans. As a result, the Company would be required
6
<PAGE>
to record a cumulative effect adjustment in the first quarter of 2001 to
record the Yen Loans at current yen to U.S. dollar exchange rates in effect
as of January 1, 2001. In addition, the Company will be subject to the
recognition of foreign currency transaction gains and losses in earnings
prospectively. Had the Company been required to adopt this accounting
treatment under SFAS No. 133 as of September 30, 2000, the cumulative
effect adjustment in connection with the Yen Loans would have been a charge
of approximately $16 million (after-tax) or $0.13 per diluted share. The
Company is also assessing strategies in connection with its Yen Loans and
yen-based royalty to possibly mitigate the impact of adopting SFAS No. 133,
as well as the ongoing impact to the Company's financial statements, if
such treatment is required to be adopted.
The Company continues to review and evaluate various other contracts
to ensure all potential derivative instruments have been identified and the
proper accounting is applied upon adoption of SFAS No. 133.
7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
7-Eleven, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet
of 7-Eleven, Inc. and Subsidiaries as of September 30, 2000, and the
related condensed consolidated statements of earnings for each of the
three-month and nine-month periods ended September 30, 2000 and 1999,
and the condensed consolidated statements of cash flows for the nine-
month periods ended September 30, 2000 and 1999. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying condensed consolidated interim
financial statements for them to be in conformity with accounting
principles generally accepted in the United States of America.
We previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance
sheet as of December 31, 1999, and the related consolidated statements
of earnings, shareholders' equity (deficit), and cash flows for the
year then ended (not presented herein); and in our report dated
February 3, 2000, except as to the information included in the fourth
paragraph of Note 13, for which the date is March 2, 2000, and the
information included in Note 2, for which the date is March 16, 2000,
we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31,
1999, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
October 26, 2000
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS QUARTERLY REPORT INCLUDES CERTAIN STATEMENTS THAT ARE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. ANY STATEMENT IN THIS
REPORT THAT IS NOT A STATEMENT OF HISTORICAL FACT SHOULD BE DEEMED
TO BE A FORWARD-LOOKING STATEMENT. WE OFTEN USE THESE TYPES OF
STATEMENTS WHEN DISCUSSING OUR PLANS AND STRATEGIES, OUR
ANTICIPATION OF REVENUES FROM DESIGNATED MARKETS AND STATEMENTS
REGARDING THE DEVELOPMENT OF OUR BUSINESSES, THE MARKETS FOR OUR
SERVICES AND PRODUCTS, OUR ANTICIPATED CAPITAL EXPENDITURES,
OPERATIONS, SUPPORT SYSTEMS, CHANGES IN REGULATORY REQUIREMENTS AND
OTHER STATEMENTS CONTAINED IN THE QUARTERLY REPORT REGARDING MATTERS
THAT ARE NOT HISTORICAL FACTS. WHEN USED IN THIS QUARTERLY REPORT,
THE WORDS "EXPECT," "ANTICIPATE," "INTEND," "PLAN," "BELIEVE,"
"SEEK," "ESTIMATE," AND OTHER SIMILAR EXPRESSIONS ARE GENERALLY
INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. BECAUSE THESE
FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY
THESE FORWARD-LOOKING STATEMENTS. THERE CAN BE NO ASSURANCE THAT:
(I) WE HAVE CORRECTLY MEASURED OR IDENTIFIED ALL OF THE FACTORS
AFFECTING THESE MARKETS OR THE EXTENT OF THEIR LIKELY IMPACT; (II)
THE PUBLICLY AVAILABLE INFORMATION WITH RESPECT TO THESE FACTORS ON
WHICH OUR ANALYSIS IS BASED IS COMPLETE OR ACCURATE; (III) OUR
ANALYSIS IS CORRECT OR (IV) OUR STRATEGY, WHICH IS BASED IN PART ON
THIS ANALYSIS, WILL BE SUCCESSFUL. WE DO NOT INTEND TO UPDATE OR
REVISE ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW
INFORMATION, FUTURE EVENTS OR OTHERWISE.
GENERAL
7-Eleven is the world's largest operator, franchisor and
licensor of convenience stores. 7-Eleven is also the largest
convenience store chain in North America. Over the last several
years we have transformed our business model to take advantage of
our extensive store base, our widely recognized brand identity and
the best practices developed by our affiliate and largest area
licensee, Seven-Eleven Japan Co., Ltd. The key elements of our
business model are:
* a differentiated merchandising strategy;
* utilization of sophisticated retail information
technology;
* efficiently managing distribution to our stores;
* providing an attractive shopping experience; and
* a unique franchise model.
EXCEPT WHERE NOTED, ALL PER STORE NUMBERS REFER TO AN AVERAGE OF
ALL STORES RATHER THAN ONLY STORES OPEN MORE THAN ONE YEAR. IN
ADDITION, ALL REFERENCES TO SHARE DATA REFLECT A ONE-FOR-FIVE REVERSE
SPLIT OF OUR COMMON STOCK EFFECTED MAY 1, 2000.
9
<PAGE>
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2000 TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
NET SALES
Three Months Ended September 30
-------------------------------
1999 2000
------ ------
<S> <C> <C>
Net Sales: (in millions)
Merchandise sales $1,694.6 $1,793.8
Gasoline sales 547.9 718.2
-------- --------
Total net sales $2,242.5 $2,512.0
Merchandise sales growth-U.S. same store 7.7% 4.6%
Gasoline gallon sales change-per store 1.4% 1.4%
Average retail price of gasoline per gallon $ 1.28 $ 1.59
</TABLE>
Merchandise sales for the three months ended September 30, 2000
were $1,793.8 million, an increase of $99.2 million, or 5.9%, from
$1,694.6 million for the three months ended September 30, 1999. This
increase was primarily attributable to U.S. same-store merchandise
sales growth of 4.6% and our operating an average of 61 additional
stores in the three months ended September 30, 2000 as compared to
the same period in 1999. Categories contributing to the merchandise
sales growth were cigarettes, prepaid cards, beer, non-carbonated
beverages, coffee, snacks and fountain drinks. Wholesale cigarette
cost increases, which were reflected in higher retail prices,
accounted for less than two percentage points of the increase in U.S.
same-store merchandise sales, while contributing more than five
percent to the 1999 same-store growth. Growth in the other
categories was fueled by new items and improved merchandising of
product through assortment and equipment changes.
Gasoline sales for the three months ended September 30, 2000 were
$718.2 million, an increase of $170.3 million, or 31.1%, from $547.9
million for the three months ended September 30, 1999. This increase
was primarily attributable to a higher average retail price of gasoline
and our operating an average of 97 additional stores that sell gasoline
as compared to the same period in 1999. The average retail price of
gasoline was $1.59 per gallon during the quarter, a $0.31 increase over
the comparable quarter. Average gallons sold per store increased 1.4%
over the comparable quarter, the result of adding new higher volume
stores. We believe the high price of gasoline has adversely affected
the increase in gallons sold. There were 453.0 million gallons sold in
the three months ended September 30, 2000, an increase of 24.9 million
gallons, or 5.8%, from 428.1 million gallons for the same period in
1999.
<TABLE>
<CAPTION>
GROSS PROFIT
Three Months Ended September 30
-------------------------------
1999 2000
------ ------
<S> <C> <C>
Gross Profit (in millions)
Merchandise gross profit $ 596.3 $ 624.1
Gasoline gross profit 52.8 62.8
-------- --------
Total gross profit $ 649.1 $ 686.9
Merchandise gross profit margin 35.2% 34.8%
Merchandise gross profit growth-per store 8.5% 3.5%
Gasoline gross profit margin-cents per gallon 12.34 13.86
Gasoline gross profit change-per store (13.0)% 13.9%
</TABLE>
10
<PAGE>
Merchandise gross profit for the three months ended September 30,
2000 was $624.1 million, an increase of $27.8 million, or 4.7%, from
$596.3 million for the three months ended September 30, 1999, which
equates to merchandise gross profit growth of 3.5% per store. This
increase was primarily attributable to higher U.S. same-store
merchandise sales, combined with operating more stores. Gross profit
margin decreased to 34.8% for the three months ended September 30, 2000
from 35.2% for the same period in 1999. The decline in overall margin
was the result of a combination of higher sales of lower margin
products, such as cigarettes and prepaid cards, and lower sales in
several higher margin categories, including Slurpee and frozen non-
carbonated beverages, which were impacted by unseasonably cool weather
in certain parts of the country.
Gasoline gross profit for the three months ended September 30,
2000 was $62.8 million, an increase of $10.0 million, or 18.9%, from
$52.8 million for the three months ended September 30, 1999. This
increase in gasoline gross profit was the result of the combination of
improved gasoline gross profit margin, more store months and increased
gallon sales per-store. Gasoline gross profit margin improved to 13.86
cents per gallon for the three months ended September 30, 2000 as
compared to 12.34 cents per gallon during the same period in 1999.
Consistently high wholesale gasoline cost throughout the third quarter
of 2000 had an unfavorable impact on margin, but did not have the
dramatic effect that rapidly rising costs and supply problems had
throughout the same period in 1999. As a result of these factors,
gasoline gross profit per store increased 13.9% for the three months
ended September 30, 2000 as compared to the same period in 1999.
OTHER INCOME
Other income for the three months ended September 30, 2000 was
$27.4 million, an increase of $1.6 million, or 6.1%, from $25.8 million
for the three months ended September 30, 1999. This increase was
attributable to increased royalty income from our area licensees as a
result of higher sales at stores operated by licensees and an increase
in the number of such stores.
FRANCHISEE GROSS PROFIT EXPENSE
We report all sales and gross profit from franchised stores in
our consolidated results and record as an expense a percentage of the
gross profits generated by our domestic individually franchised
stores. Franchisee gross profit expense for the three months ended
September 30, 2000 was $181.5 million, an increase of $11.0 million, or
6.4%, from $170.6 million for the three months ended September 30,
1999. The increase was primarily attributable to higher per store
gross profits at franchised stores and an increase in the number of
stores operated by franchisees.
OPERATING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSE ("OSG&A")
OSG&A for the three months ended September 30, 2000 was $448.0
million, an increase of $31.7 million, or 7.6%, from $416.3 million for
the three months ended September 30, 1999. The increase in OSG&A costs
was partially attributable to the cost of operating an average of 61
more stores, approximately $4 million of incremental costs related to
the implementation of our proprietary retail information system,and
increased costs associated with processing credit card charges, due in
part to the significantly higher gasoline prices. Offsetting a portion
of the increase in OSG&A was a reduction in discretionary general and
administrative expense resulting from cost containment initiatives. In
addition, the third quarter of 1999 included an environmental credit of
$10 million related to legislative changes in California.
11
<PAGE>
The ratio of OSG&A to net sales decreased to 17.8% for the three
months ended September 30, 2000 from 18.6% for the three months ended
September 30, 1999. Assuming that the average retail price of
gasoline in the three months ended September 30, 2000 was reduced to
the level that prevailed in the three months ended September 30,
1999, the ratio of OSG&A to net sales would have increased to 18.9%
for the three months ended September 30, 2000 from 18.6% for the same
period in 1999.
INTEREST EXPENSE, NET
Net interest expense for the three months ended September 30, 2000
was $17.1 million, a decrease of $8.7 million, or 33.6%, from $25.8
million for the three months ended September 30, 1999. This decrease
was primarily due to the repayment of borrowings with proceeds from our
sale of common stock to IYG Holding Company on March 16, 2000. As a
result of these proceeds, we expect net interest expense in 2000 to
decrease by more than $20 million, compared to 1999, based on
anticipated levels of debt and interest rate projections. See
"Liquidity and Capital Resources" for more information.
In accordance with Statement of Financial Accounting Standards
No. 15 ("SFAS No. 15"), we do not recognize interest expense on our
debentures in our statement of earnings. These debentures are
recorded at an amount equal to the future undiscounted cash payments,
both principal and interest. Accordingly, the cash interest payments
are charged against the recorded amount of the debentures and are not
treated as interest expense.
INCOME TAX EXPENSE
Income tax expense for the three months ended September 30, 2000
was $26.7 million, compared to $24.7 million for the three months ended
September 30, 1999. Our effective tax rate was 39.5% for the three
months ended September 30, 2000 compared to 39.6% for the same period
in 1999.
NET EARNINGS
Net earnings for the three months ended September 30, 2000 were
$40.9 million ($0.35 per diluted share), an increase of $3.2 million,
or 8.5%, from $37.7 million ($0.39 per diluted share) for the three
months ended September 30, 1999. Diluted earnings per share now
reflects the addition of the 22.7 million shares as a result of the
March 2000 private placement. See "Liquidity and Capital Resources"
for more information.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 TO NINE MONTHS
ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
NET SALES
Nine Months Ended September 30
------------------------------
1999 2000
------ ------
<S> <C> <C>
Net Sales: (in millions)
Merchandise sales $4,641.6 $5,025.0
Gasoline sales 1,459.5 2,028.9
-------- --------
Total net sales $6,101.1 $7,053.9
Merchandise sales growth-U.S. same store 8.7% 7.0%
Gasoline gallon sales change-per store 3.9% 1.6%
Average retail price of gasoline per gallon $ 1.17 $ 1.53
</TABLE>
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<PAGE>
Merchandise sales for the nine months ended September 30, 2000
were $5,025.0 million, an increase of $383.4 million, or 8.3%, from
$4,641.6 million for the nine months ended September 30, 1999. This
increase was primarily attributable to U.S. same-store merchandise
sales growth of 7.0% and our operating an average of 63 additional
stores. Categories contributing to merchandise sales growth were
cigarettes, prepaid cards, beer/wine, non-carbonated beverages,
trading cards and coffee. Wholesale cigarette cost increases, which
were reflected in higher retail prices, accounted for less than two
percentage points of the increase in U.S. same-store merchandise
sales, while contributing just over five percentage points to the 1999
growth.
Gasoline sales for the nine months ended September 30, 2000
were $2,028.9 million, an increase of $569.4 million, or 39.0%, from
$1,459.5 million for the nine months ended September 30, 1999. This
increase was primarily attributable to a higher average retail price
of gasoline and our operating an average of 100 additional stores
that sell gasoline. During the nine months ended September 30,
2000, the average retail price of gasoline was $1.53 per gallon, a
$0.36 increase from $1.17 per gallon for the same period in 1999.
Average gallons sold per store increased 1.6% during the nine months
ended September 30, 2000, as compared to the same period in 1999.
This increase was the result of adding new gasoline outlets, which
tend to pump higher volumes than existing stores. We sold
1,328.1 million gallons in the nine months ended September 30, 2000,
an increase of 77.7 million gallons, or 6.2%, from 1,250.4 million
gallons for the same period in 1999.
<TABLE>
<CAPTION>
GROSS PROFIT
Nine Months Ended September 30
-------------------------------
1999 2000
------ ------
<S> <C> <C>
Gross Profit (in millions)
Merchandise gross profit $1,601.5 $1,747.3
Gasoline gross profit 166.7 181.7
-------- ---------
Total gross profit $1,768.2 $1,929.0
Merchandise gross profit margin 34.5% 34.8%
Merchandise gross profit growth-per store 7.2% 7.9%
Gasoline gross profit margin-cents per gallon 13.33 13.68
Gasoline gross profit change-per store 7.9% 4.3%
</TABLE>
Merchandise gross profit for the nine months ended September 30,
2000 was $1,747.3 million, an increase of $145.8 million, or 9.1%, from
$1,601.5 million for the nine months ended September 30, 1999. This
increase was primarily attributable to higher U.S. same-store
merchandise sales, operating more stores and an increase in merchandise
gross profit margin. Gross profit margin increased to 34.8% for the
nine months ended September 30, 2000 from 34.5% for the same period in
1999. The margin improvement was primarily attributable to increased
sales in several higher margin categories, including coffee and non-
carbonated beverages, combined with incremental cigarette manufacturer
allowances. Merchandise gross profits per store increased 7.9% for the
nine months ended September 30, 2000 as compared to the same period in
1999.
Gasoline gross profit for the nine months ended September 30, 2000
was $181.7 million, an increase of $15.0 million, or 9.0%, from $166.7
million for the nine months ended September 30, 1999. This increase in
gasoline gross profit was the result of higher gross profit margin,
more store months and increased gallon sales per-store. Gasoline gross
profit margin increased slightly to 13.68 cents per gallon from 13.33.
13
<PAGE>
Gasoline margins were pressured again as the cost of gasoline rose
during October. A continuation of the relatively high level of
gasoline cost throughout the remainder of the fourth quarter would
impact the Company in several ways, including lower purchases from
customers, the increased cost of gasoline credit card transactions and
customer drive-off expense and the inflationary impact on the Company's
gasoline LIFO calculation. The combined effect of the continued high
cost of gasoline during the fourth quarter could have a significant
impact on the Company's earnings.
OTHER INCOME
Other income for the nine months ended September 30, 2000 was
$79.4 million, an increase of $7.4 million, or 10.3%, from $72.0
million for the nine months ended September 30, 1999. This increase
was attributable to increased franchise fees associated with a greater
number of stores being franchised. In addition, royalty income from
our area licensees increased as a result of higher sales at stores
operated by licensees and an increase in the number of such stores. We
expect to receive approximately $58 million of royalties from an area
license agreement with Seven-Eleven Japan during the 2000 calendar
year. One year following the final repayment of our 1988 yen-
denominated loan, currently projected for the third quarter of 2001,
royalty payments from Seven-Eleven Japan will be reduced by
approximately 70% in accordance with the terms of the amended license
agreement.
FRANCHISEE GROSS PROFIT EXPENSE
Franchisee gross profit expense for the nine months ended September
30, 2000 was $503.3 million, an increase of $45.7 million, or 10.0%, from
$457.7 million for the nine months ended September 30, 1999. The increase
was primarily attributable to higher per store gross profits at
franchised stores and an increase in the number of stores operated by
franchisees.
OPERATING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
OSG&A for the nine months ended September 30, 2000 was $1,308.4
million, an increase of $114.3 million, or 9.6%, from $1,194.1 million
for the nine months ended September 30, 1999. This increase was
primarily attributable to the cost of operating more stores,
approximately $24 million of incremental costs related to the
implementation of our proprietary retail information system, and higher
costs associated with processing credit card charges, due in part to
significantly higher gasoline prices.
The ratio of OSG&A to net sales decreased to 18.5% for the nine
months ended September 30, 2000 from 19.6% for the nine months ended
September 30, 1999. Assuming that the average retail price of gasoline
in the nine months ended September 30, 2000 was reduced to the level
which prevailed in the nine months ended September 30, 1999, the ratio
of OSG&A to net sales would have increased to 19.9% for the nine months
ended September 30, 2000 from 19.6% for the same period in 1999.
INTEREST EXPENSE, NET
Net interest expense for the nine months ended September 30, 2000
was $62.5 million, a decrease of $12.9 million, or 17.1%, from $75.4
million for the nine months ended September 30, 1999. This decrease was
primarily due to the repayment of borrowings with proceeds from our sale
of common stock to IYG Holding Company on March 16, 2000.
14
<PAGE>
INCOME TAX EXPENSE
Income tax expense for the nine months ended September 30, 2000 was
$40.0 million, compared to $44.7 million for the nine months ended
September 30, 1999. This decrease was primarily attributable to a non-
recurring benefit of $12.5 million recorded in the first quarter of 2000,
which resulted from a settlement with the Internal Revenue Service
related to audits of our federal income taxes for the 1992 through 1995
tax years. Excluding the non-recurring benefit, our effective tax rate
was 39.1% for the nine months ended September 30, 2000 compared to 39.6%
for the same period in 1999.
EXTRAORDINARY GAIN
In the first quarter of 1999, we redeemed $19.4 million of our
debentures resulting in a $4.3 million after-tax gain. This gain
resulted from the retirement of future undiscounted interest payments as
recorded under SFAS No. 15, combined with repurchasing a portion of the
debentures below their face amount.
NET EARNINGS
Net earnings for the nine months ended September 30, 2000 were $94.1
million ($0.85 per diluted share), an increase of $21.6 million, or
29.7%, from $72.6 million ($0.78 per diluted share) for the nine months
ended September 30, 1999. Results in 2000 included the $12.5 million tax
benefit discussed above, while the 1999 results included the non-
recurring $4.3 million extraordinary gain discussed above. Excluding
these non-recurring items, net earnings were $81.6 million ($0.75 per
diluted share) for the nine months ended September 30, 2000, an increase
of $13.3 million, or 19.5%, from $68.3 million ($0.74 per diluted share)
for the same period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
The majority of our working capital is provided from three sources:
* cash flows generated from our operating activities;
* a $650 million commercial paper facility, guaranteed by Ito-
Yokado Co., Ltd.; and
* short-term seasonal borrowings of up to $400 million under
our revolving credit facility.
We believe that operating activities, coupled with available short-
term working capital facilities, will provide sufficient liquidity to
fund operating and capital expenditure programs, as well as to service
debt requirements. The outstanding balance at September 30, 2000 for
commercial paper was $325.5 million, while there were no amounts
outstanding under the revolver. We expect capital expenditures for 2000,
excluding lease commitments, to be in excess of $300 million, which
includes opening or acquiring more than 120 new stores.
Our $400 million revolving credit facility was made available to us
under an unsecured credit agreement with a group of lenders. A sub-limit
of $150 million for letters of credit is included in the revolving credit
facility. To the extent outstanding letters of credit are less than the
$150 million maximum, the excess availability can be used for additional
borrowings under the revolving credit facility. The credit agreement
also included a $225 million term loan, the balance of which was paid in
full on March 16, 2000. The covenant levels established by the credit
agreement generally require continuing improvement in our financial
condition.
15
<PAGE>
On March 16, 2000, IYG Holding Company purchased 22,736,842 newly
issued shares of our common stock for $540 million, or $23.75 per share,
in a private placement transaction. We used the net proceeds from this
transaction to repay the outstanding balance on our bank term loan, to
repay the outstanding balance of our bank revolver and to reduce
indebtedness under our commercial paper facility.
In January 2000, we entered into a sale-leaseback agreement for 33
of our store properties whereby we sold land, buildings and related
improvements, which were then leased back to us. We received net
proceeds of $71.9 million on the sale. The sale resulted in
approximately $12 million of deferred gains, which we will recognize on a
straight-line basis over the initial term of the leases. We used all of
the proceeds from this transaction to pay down our revolving credit
facility.
In August 1999, we entered into a leasing facility that provides
up to $100 million of off-balance-sheet financing to be used for the
construction of new stores. Funding under this facility is available
through August 2001 with a final maturity of the leases of
February 2005. As of September 30, 2000, $56.0 million was funded
under this facility, which should be fully funded by the end of the
first quarter of 2001.
CASH FROM OPERATING ACTIVITIES
Net cash provided by operating activities was $356.6 million for
the nine months ended September 30, 2000 compared to $246.9 million for
the nine months ended September 30, 1999, an increase of
$109.7 million. This increase can be primarily attributed to increased
levels of net earnings as adjusted for non-cash items and changes in
certain balance sheet amounts.
CASH FROM INVESTING ACTIVITIES
Net cash used in investing activities was $138.8 million for the
nine months ended September 30, 2000 compared to $310.6 million for the
nine months ended September 30, 1999. Payments for capital
expenditures were $220.5 million for the nine months ended September
30, 2000 compared to $328.5 million for the same period in 1999. In
addition, we received $71.9 million of net proceeds from a sale-
leaseback transaction during the nine months ended September 30, 2000.
Capital expenditures for each of the periods were used for new store
development; continued implementation of our retail information system;
new equipment to support merchandising initiatives; maintaining,
remodeling and upgrading stores; and maintaining and upgrading gasoline
facilities and related environmental compliance.
CASH FROM FINANCING ACTIVITIES
Net cash used in financing activities was $183.1 million for the
nine months ended September 30, 2000, compared to net cash provided by
financing activities of $41.9 million for the nine months ended
September 30, 1999.
16
<PAGE>
Net repayments under commercial paper and revolving credit
facilities totaled $553.8 million for the nine months ended September 30,
2000, compared to net borrowings of $147.8 million for the same period in
1999. Net long-term debt repayments for the nine months ended September
30, 2000 were $179.1 million compared to $106.0 million for the same
period in 1999. Cash from financing activities for the nine months ended
September 30, 2000 also included $539.7 million in net proceeds from
issuance of common stock that we used to pay down debt.
OTHER ISSUES
ENVIRONMENTAL
In December 1988, we closed our chemical manufacturing facility in
New Jersey. We are required to conduct environmental remediation at
the facility, including groundwater monitoring and treatment for a
projected 15-year period, which commenced in 1998. We have recorded
undiscounted liabilities, representing our best estimates of the clean-
up costs, of $5.6 million at September 30, 2000. In 1991, we entered
into a settlement agreement with the former owner of the facility
pursuant to which the former owner agreed to pay a substantial portion
of the clean-up costs. Based on the terms of the settlement agreement
and the financial resources of the former owner, we have a receivable
recorded of $3.2 million at September 30, 2000.
Additionally, we accrue for the anticipated future costs and the
related probable state reimbursement amounts for remediation activities
at our existing and previously operated gasoline sites where releases of
regulated substances have been detected. At September 30, 2000, our
estimated undiscounted liability for these sites was $27.7 million. This
estimate is based on our prior experience with gasoline sites and
contractors who perform environmental assessment and remediation work as
well as other factors such as the age of the tanks and the location of
tank sites. We anticipate that substantially all of the future
remediation costs for detected releases of regulated substances at these
sites, as of September 30, 2000, will be incurred within the next four to
five years.
Under state reimbursement programs, we are eligible to receive
reimbursement for a portion of future remediation costs, as well as a
portion of remediation costs previously paid. Accordingly, at September
30, 2000, we had recorded a net receivable of $49.7 million based on the
estimated state reimbursements. In assessing the probability of state
reimbursements, we take into consideration each state's fund balance,
revenue sources, existing claim backlog, status of clean-up activity and
claim ranking systems. As a result of these assessments, the recorded
receivable amount is net of an allowance of $7.9 million.
While there can be no assurance of the timing of the receipt of
state reimbursement funds, based on our experience we expect to receive
the majority of state reimbursement funds, except from California, within
one to three years after our payment of eligible remediation expenses.
This time period assumes that the state administrative procedures for
processing such reimbursements have been fully developed. Because of
recent legislative changes in California, we estimate that we will
receive state reimbursement funds within one to ten years after our
payment of eligible remediation expenses. As a result of the timing for
reimbursements, we have present-valued the portion of the recorded
receivable amount that relates to remediation activities that have
already been completed at a discount rate of approximately 5.9%. Thus,
the recorded receivable amount is also net of a discount of
$14.0 million.
17
<PAGE>
The estimated future assessment and remediation expenditures and
related state reimbursement amounts could change within the near future
as governmental requirements and state reimbursement programs continue to
be implemented or revised.
LITIGATION
We are a defendant in two legal actions, which are referred to as
the 7-Eleven Owners for Fair Franchising and the Valente cases, filed by
franchisees in 1993 and 1996, respectively. A nationwide settlement was
negotiated in 1997, and, in connection with the settlement, these two
cases were combined on behalf of a class of all persons who franchised 7-
Eleven convenience stores from us in the United States at any time
between January 1, 1987 and July 31, 1997. A total of 98.5% of the
class members have approved the settlement, and the court presiding over
the settlement process gave its final approval of the settlement on
April 24, 1998. The settlement provides that class members who are
former franchisees will share in a settlement fund, that we will make
certain changes to the franchise agreements of class members who are
current franchisees and that we will pay certain attorney fees.
Notices of appeal of the order approving the settlement were filed
on behalf of three of the attorneys who represented the class and six
former and two current franchisees who were members of the class. One of
these current franchisees has dismissed his appeal. The settlement
agreement will not become effective until the appeals are resolved.
However, the settlement agreement provides that while the appeals are
pending we will pay certain maintenance and supply expenses relating to
the cash registers and retail information system equipment of current
franchisees that are members of the settlement class. If the settlement
is overturned on appeal, we have the right to require franchisees to
repay the amounts that we paid for these expenses. Our accruals are
sufficient to cover the total settlement costs, including payments due to
former franchisees when the settlement becomes effective.
RECENTLY ISSUED ACCOUNTING STANDARD
Statement of Financial Accounting Standard No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS No. 133")
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. We must adopt the provisions
of this statement no later than January 1, 2001. We have completed our
initial review of derivative instruments and other contracts that might
be considered or contain derivative instruments.
Our $250 million interest rate swap may be considered a hedge of our
interest rate exposure in connection with its commercial paper program.
Upon adoption of SFAS No. 133, we would record the interest rate swap at
its fair value, with the offset to Accumulated Other Comprehensive
Earnings in the equity section of the balance sheet. The fair value of
the interest rate swap at September 30, 2000 was $3.8 million. We are
reviewing the effectiveness of the $250 million interest rate swap and
are assessing various strategies, including terminating the swap or not
designating the swap as a hedge.
As we disclosed in detail in our Form 10-K for the year ended
December 31, 1999, we have two yen-denominated loans (the "Yen Loans").
We currently use the Seven-Eleven Japan royalty as a hedge of the monthly
interest and principal payments on the Yen Loans, an accounting treatment
that will be nullified upon adoption of SFAS No. 133. As a result, we
would be required to record a cumulative effect adjustment in the first
quarter 2001, to record the Yen Loans at current yen to U.S. dollar
exchange rates. In addition, we will be subject
18
<PAGE>
to the recognition of foreign currency transaction gains and losses in
earnings prospectively. Had we been required to adopt this accounting
treatment under SFAS No. 133 as of September 30, 2000, the cumulative
effect adjustment in connection with the Yen Loans would have been a
charge of approximately $16 million (after-tax) or $0.13 per diluted
share. We are also assessing strategies in connection with the Yen
Loans and yen-based royalty in an effort to mitigate the impact of
adopting SFAS No. 133. In addition, we are assessing the ongoing impact
to our financial statements, if such treatment is required to be adopted.
We continue to review and evaluate various other contracts to ensure
we have identified all potential derivative instruments and will have
applied the proper accounting upon adoption of SFAS No. 133.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
See "Management's Discussion and Analysis," above.
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no reportable suits or proceedings pending or threatened
against the Company, other than as previously reported.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
1. Exhibit (15) - Letter re Unaudited Interim Financial
Information.
2. Exhibit (27) - Financial Data Schedule.
Submitted in electronic format only.
(b) 8-K Reports:
During the third quarter of 2000, the Company filed no reports on Form
8-K.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
7-ELEVEN, INC.
(Registrant)
Date: November 10, 2000 /s/ James W. Keyes
----------------- ----------------------------
(Officer)
James W. Keyes
President and Chief Executive
Officer
Date: November 10, 2000 /s/ Donald E. Thomas
----------------- -----------------------------
(Principal Accounting Officer)
Donald E. Thomas
Vice President, Chief Accounting
Officer, and Controller
20
