<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
(MARK ONE)
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
COMMISSION FILE NUMBERS 0-676 AND 0-16626
------------------------
7-ELEVEN, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
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:
104,761,730 shares of common stock, $.0001 par value (the issuer's only
class of common stock), were outstanding as of May 1, 2000.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
7-ELEVEN, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
---------
<S> <C>
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets as of
December 31, 1999 and March 31, 2000................. 1
Condensed Consolidated Statements of Earnings for the
Three Months Ended March 31, 1999 and 2000........... 2
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 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................................................. 16
Part II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................... 17
ITEM 2. CHANGES IN SECURITIES............................... 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 17
SIGNATURES.................................................. 18
Exhibit (3)--Copy of Articles of Amendment to Second
Restated And Amended Articles of Incorporation.............. Tab 1*
Exhibit (15)--Letter re Unaudited Interim Financial
Information................................................. Tab 2
Exhibit (27)--Financial Data Schedule....................... **
</TABLE>
- ------------------------
* Submitted with filing; not attached hereto.
** Submitted in electronic format only.
(i)
<PAGE>
7-ELEVEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 76,859 $ 99,842
Accounts receivable....................................... 179,039 186,555
Inventories............................................... 134,050 111,914
Other current assets...................................... 115,328 124,369
---------- ----------
Total current assets.................................... 505,276 522,680
Property and equipment...................................... 1,880,520 1,855,053
Other assets................................................ 299,870 286,988
---------- ----------
Total assets............................................ $2,685,666 $2,664,721
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable.................................... $ 168,302 $ 168,061
Accrued expenses and other liabilities.................... 401,216 383,187
Commercial paper.......................................... 34,418 116,128
Long-term debt due within one year........................ 207,413 96,411
---------- ----------
Total current liabilities............................... 811,349 763,787
Deferred credits and other liabilities...................... 251,073 232,668
Long-term debt.............................................. 1,802,819 1,296,899
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 1,165,473
Accumulated deficit....................................... (1,194,896) (1,180,060)
Accumulated other comprehensive earnings.................. 9,552 5,944
---------- ----------
Total shareholders' equity (deficit).................... (559,575) (8,633)
---------- ----------
Total liabilities and shareholders' equity (deficit).... $2,685,666 $2,664,721
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
7-ELEVEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 2000
---------- ----------
<S> <C> <C>
REVENUES:
Merchandise sales (Including $118,806 and $143,417 in
excise taxes)........................................... $1,361,750 $1,509,289
Gasoline sales (Including $149,032 and $157,091 in excise
taxes).................................................. 408,345 603,282
---------- ----------
Net sales............................................. 1,770,095 2,112,571
Other income.............................................. 22,127 24,773
---------- ----------
Total revenues........................................ 1,792,222 2,137,344
---------- ----------
COSTS AND EXPENSES:
Merchandise cost of goods sold............................ 909,980 994,498
Gasoline cost of goods sold............................... 354,565 551,634
---------- ----------
Total cost of goods sold.............................. 1,264,545 1,546,132
Franchisee gross profit................................... 128,699 146,752
Operating, selling, general and administrative expenses... 371,779 413,691
Interest expense, net..................................... 24,083 26,892
---------- ----------
Total costs and expenses.............................. 1,789,106 2,133,467
---------- ----------
EARNINGS BEFORE INCOME TAX EXPENSE (BENEFIT) AND
EXTRAORDINARY GAIN........................................ 3,116 3,877
INCOME TAX EXPENSE (BENEFIT)................................ 1,233 (10,959)
---------- ----------
EARNINGS BEFORE EXTRAORDINARY GAIN.......................... 1,883 14,836
EXTRAORDINARY GAIN ON DEBT REDEMPTION (NET OF TAX EFFECT OF
$2,743)................................................... 4,290 --
---------- ----------
NET EARNINGS................................................ $ 6,173 $ 14,836
========== ==========
NET EARNINGS PER COMMON SHARE:
BASIC
Earnings before extraordinary gain...................... $ 0.03 $ 0.17
Extraordinary gain...................................... 0.05 --
---------- ----------
Net earnings............................................ $ 0.08 $ 0.17
========== ==========
DILUTED
Earnings before extraordinary gain...................... $ 0.03 $ 0.16
Extraordinary gain...................................... 0.05 --
---------- ----------
Net earnings............................................ $ 0.08 $ 0.16
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
7-ELEVEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 2000
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.............................................. $ 6,173 $ 14,836
Adjustments to reconcile net earnings to net cash (used
in) provided by operating activities:
Extraordinary gain on debt redemption................... (4,290) --
Depreciation and amortization of property and
equipment............................................. 45,157 51,469
Other amortization...................................... 5,042 4,998
Deferred income taxes................................... 5,327 (15,335)
Noncash interest expense................................ 459 558
Other noncash income.................................... (2,051) (1,111)
Net loss (gain) on property and equipment............... 823 (52)
Increase in accounts receivable......................... (11,283) (5,022)
(Increase) decrease in inventories...................... (1,218) 22,136
Increase in other assets................................ (21,602) (7,255)
Decrease in trade accounts payable and other
liabilities........................................... (30,095) (42,420)
----------- -----------
Net cash (used in) provided by operating activities... (7,558) 22,802
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property and equipment........... (110,697) (71,975)
Proceeds from sale of property and equipment.............. 1,056 72,908
Proceeds from sale of domestic securities................. -- 996
Other..................................................... 5,470 (660)
----------- -----------
Net cash (used in) provided by investing activities... (104,171) 1,269
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from commercial paper and revolving credit
facilities.............................................. 1,231,245 792,843
Payments under commercial paper and revolving credit
facilities.............................................. (1,080,599) (1,209,009)
Principal payments under long-term debt agreements........ (31,809) (131,210)
(Decrease) increase in outstanding checks in excess of
cash in bank............................................ (9,375) 6,568
Net proceeds from issuance of common stock................ -- 539,720
Other..................................................... (829) --
----------- -----------
Net cash provided by (used in) financing activities... 108,633 (1,088)
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (3,096) 22,983
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 87,115 76,859
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 84,019 $ 99,842
=========== ===========
RELATED DISCLOSURES FOR CASH FLOW REPORTING:
Interest paid, excluding SFAS No.15 Interest.............. $ (36,760) $ (32,088)
=========== ===========
Net income taxes paid..................................... $ (2,970) $ (4,713)
=========== ===========
Assets obtained by entering into capital leases........... $ 14,259 $ 14,514
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
7-ELEVEN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated balance sheet as of March 31, 2000, and the
condensed consolidated statements of earnings and cash flows for the three-month
periods ended March 31, 1999 and 2000, have been prepared by the Company without
audit. In the opinion of management, all adjustments necessary to present fairly
the financial position at March 31, 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.
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 three months ended March 31,
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
$539,425 were used to repay the outstanding balance on the Company's bank term
loan of $112,500 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 earnings-per-share data in the
accompanying condensed consolidated financial statements and related notes
reflect the reverse stock split.
3. SALE-LEASEBACK AGREEMENT
In the first quarter, the Company entered into a sale-leaseback agreement
whereby land, buildings and associated real and personal property improvements
were sold and leased back by the Company. The Company received net proceeds of
$71,915 on the sale of 33 stores. The gain on the sale of the properties of
approximately $12 million was deferred and will be recognized on a straight-line
basis over the initial term of the leases.
Under the terms of the agreements, the Company will make rental payments
over a 16-year lease term. At the expiration of the initial lease term, the
Company will have the option of renewing the lease for
4
<PAGE>
7-ELEVEN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
(UNAUDITED)
3. SALE-LEASEBACK AGREEMENT (CONTINUED)
up to six renewal terms of up to five years per renewal term at predetermined
increases. The leases do not contain purchase options or guaranteed residual
values; however, the Company does have the right of first refusal after the
first five years of the initial lease term with respect to any offers to
purchase the properties which the lessor receives. The leases are being
accounted for as operating leases.
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 tax returns. 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 in the first
quarter from an expense of $1.5 million to a benefit of $11 million.
5. COMPREHENSIVE EARNINGS
The components of comprehensive earnings of the Company for the periods
presented are as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------
1999 2000
-------- --------
<S> <C> <C>
Net earnings................................................ $6,173 $14,836
Other comprehensive earnings:
Unrealized gains (losses) on equity securities, net of
tax..................................................... 549 (2,142)
Reclassification adjustments for gains included in net
earnings, net of $758 tax expense....................... -- (1,228)
Foreign currency translation adjustments.................. 1,046 (238)
------ -------
Other comprehensive earnings............................ 1,595 (3,608)
------ -------
Total comprehensive earnings................................ $7,768 $11,228
====== =======
</TABLE>
5
<PAGE>
7-ELEVEN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
(UNAUDITED)
6. EARNINGS PER SHARE
Computations for basic and diluted earnings per share are presented below
(in thousands, except per-share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 2000
-------- --------
<S> <C> <C>
BASIC:
Earnings before extraordinary gain........................ $ 1,883 $ 14,836
Earnings on extraordinary gain............................ 4,290 --
------- --------
Net earnings.............................................. $ 6,173 $ 14,836
======= ========
Weighted-average common shares outstanding................ 81,988 85,758
======= ========
Earnings per common share before extraordinary gain....... $ 0.03 $ 0.17
Earnings per common share on extraordinary gain........... 0.05 --
------- --------
Net earnings per common share............................. $ 0.08 $ 0.17
======= ========
DILUTED:
Earnings before extraordinary gain........................ $ 1,883 $ 14,836
Add interest on convertible quarterly income debt
securities, net of tax (A).............................. -- 2,629
------- --------
Earnings before extraordinary gain plus assumed
conversions............................................. $ 1,883 $ 17,465
Earnings on extraordinary gain............................ 4,290 --
------- --------
Net earnings plus assumed conversions..................... $ 6,173 $ 17,465
======= ========
Weighted-average common shares outstanding (Basic)........ 81,988 85,758
Add effects of assumed conversions:
Stock options (B)....................................... -- 582
Convertible quarterly income debt securities (A)........ -- 20,924
------- --------
Weighted-average common shares outstanding plus shares
from assumed conversions (Diluted)...................... 81,988 107,264
======= ========
Earnings per common share before extraordinary gain....... $ 0.03 $ 0.16
Earnings per common share on extraordinary gain........... 0.05 --
------- --------
Net earnings per common share............................. $ 0.08 $ 0.16
======= ========
</TABLE>
(A) The convertible quarterly income debt securities, which are convertible into
20,924,069 common shares, are not assumed converted for the three months
ended March 31, 1999, as they have an antidilutive effect on earnings per
share.
(B) The weighted-average shares for the three months ended March 31, 1999, do
not assume exercise of the stock options since the average market price of
shares is below the options' exercise prices.
6
<PAGE>
7-ELEVEN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
(UNAUDITED)
7. STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 133
The Company is currently reviewing SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133). The statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
SFAS No. 133 becomes effective for all fiscal quarters of fiscal years beginning
after June 15, 2000, and earlier application is permitted as of the beginning of
any fiscal quarter subsequent to June 15, 2000. The Company intends to adopt the
provisions of this statement as of January 1, 2001. The impact of the adoption
of SFAS No. 133 has not been determined at this time due to the Company's
continuing investigation of its financial instruments and the applicability of
SFAS No. 133 to them.
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 March 31, 2000, and the related condensed
consolidated statements of earnings and cash flows for the three-month periods
ended March 31, 1999 and 2000. 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 auditing standards generally accepted in the United States, 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 of 7-Eleven, Inc. and Subsidiaries for them to be in conformity with
accounting principles generally accepted in the United States.
We previously audited, in accordance with auditing standards generally
accepted in the United States, 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 consolidated balance sheet information 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
May 1, 2000
8
<PAGE>
ITEM 2. 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 PROSPECTUS THAT IS NOT A STATEMENT OF HISTORICAL
FACT MAY 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 THIS 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
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.
ALL REFERENCES TO SHARE DATA REFLECT THE ONE-FOR-FIVE REVERSE SPLIT OF OUR
COMMON STOCK EFFECTED MAY 1, 2000.
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;
- managing distribution to our stores;
- improving the customer shopping experience; and
- a unique franchise model.
In an effort to implement this new business model, we have invested a
significant amount of capital into our business. From 1991 through 1996, the
amount of capital invested totaled approximately $900 million. The majority of
this money was spent remodeling our stores. During this period we sold or closed
over 1,400 stores, most of which were unprofitable, did not fit into our market
development strategy or were too costly to upgrade. The costs associated with
these programs had a negative impact on our earnings but improved our store
base. Additionally, since the beginning of 1997 we have spent over $1 billion of
capital to develop and acquire 541 new stores, design and install a proprietary,
state-of-the-art retail information system and to provide new equipment to
support our merchandising initiatives. We believe these expenditures have
positioned us for sustainable profitable growth.
9
<PAGE>
The following table sets forth our results of operations and other financial
data for the periods indicated. We report all sales and gross profit from
franchised stores in our consolidated results and record as an expense a
percentage of the gross profit generated by the franchised stores. 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. Except where noted, all per store numbers refer to an average
of all stores rather than only stores open more than one year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 2000
-------- --------
(IN MILLIONS, EXCEPT
OTHER DATA)
<S> <C> <C>
Net sales:
Merchandise............................................... $1,361.8 $1,509.3
Gasoline.................................................. 408.3 603.3
-------- --------
Total net sales......................................... 1,770.1 2,112.6
Gross profit:
Merchandise............................................... 451.8 514.8
Gasoline.................................................. 53.8 51.6
-------- --------
Total gross profit...................................... 505.6 566.4
Other income................................................ 22.1 24.8
Franchisee gross profit expense............................. 128.7 146.8
Operating, selling, general and administrative expense
("OSG&A")................................................. 371.8 413.7
Interest expense, net....................................... 24.1 26.9
Income tax expense (benefit)................................ 1.2 (11.0)
Earnings before extraordinary gain.......................... 1.9 14.8
Extraordinary gain.......................................... 4.3 --
Net earnings................................................ $ 6.2 $ 14.8
======== ========
Earnings before extraordinary gain per common share
Basic..................................................... $ 0.03 $ 0.17
Diluted................................................... $ 0.03 $ 0.16
OTHER DATA:
Stores at end of period..................................... 5,622 5,686
Merchandise sales growth--U.S. same store................... 9.9% 9.0%
Merchandise gross profit margin............................. 33.2% 34.1%
Merchandise gross profit growth--per store.................. 6.0% 12.6%
Gasoline gallon sales growth--per store..................... 6.8% (0.6%)
Gasoline gross profit margin--cents per gallon.............. 13.37 12.33
Gasoline gross profit growth--per store..................... 14.7% (8.3%)
Average retail price of gasoline per gallon................. $ 1.02 $ 1.44
OSG&A % of net sales........................................ 21.0% 19.6%
</TABLE>
- ------------------------
(1) The Convertible Quarterly Income Debt Securities are not assumed converted
for the three months ended March 31, 1999 as they have an antidilutive
effect on the period's earnings per share. In addition, stock options are
not assumed exercised for the three months ended March 31, 1999 as the
average market price of shares was below the exercise price of the options.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 TO THREE MONTHS ENDED MARCH 31,
1999
NET SALES
Net sales for the three months ended March 31, 2000 were $2,112.6 million,
an increase of $342.5 million, or 19.3%, from $1,770.1 million for the three
months ended March 31, 1999. This increase was attributable to growth in both
merchandise and gasoline sales.
10
<PAGE>
Merchandise sales for the three months ended March 31, 2000 were $1,509.3
million, an increase of $147.5 million, or 10.8%, from $1,361.8 million for the
three months ended March 31, 1999. This increase was primarily attributable to
U.S. same-store merchandise sales growth of 9.0% and our operating an average of
68 additional stores in the three months ended March 31, 2000 as compared to the
same period in 1999. Excluding the impact of cigarette cost increases passed
through to customers and the extra day from the leap year, our U.S. same-store
merchandise sales were approximately 6% higher for the three months ended
March 31, 2000 as compared to the same period in 1999. Categories contributing
to U.S. same-store merchandise sales growth were trading cards, prepaid phone
cards, non-carbonated beverages, coffee, services and beer/wine. This growth
was, in part, offset by slight decreases in the sales of dairy products and
newspapers.
Gasoline sales for the three months ended March 31, 2000 were $603.3
million, an increase of $194.9 million, or 47.7%, from $408.3 million for the
three months ended March 31, 1999. This increase was primarily attributable to a
higher average retail price of gasoline and our operating an average of 104
additional stores that sell gasoline during the three months ended March 31,
2000 as compared to the same period in 1999. During the three months ended
March 31, 2000, the average retail price of gasoline was $1.44 per gallon, a
$0.42 increase from $1.02 per gallon for the same period in 1999. Average
gallons sold per store declined 0.6% during the three months ended March 31,
2000 as compared to the same period in 1999. This decline was the result of our
pricing strategy of maximizing our gross profit dollars instead of volume. We
sold 419.0 million gallons in the three months ended March 31, 2000, an increase
of 16.8 million gallons, or 4.2%, from 402.2 million gallons for the same period
in 1999.
GROSS PROFIT
Gross profit for the three months ended March 31, 2000 was $566.4 million,
an increase of $60.9 million, or 12.0%, from $505.6 million for the three months
ended March 31, 1999. This increase was attributable to increased merchandise
gross profit, which was offset, in part, by a decline in gasoline gross profit.
Merchandise gross profit for the three months ended March 31, 2000 was
$514.8 million, an increase of $63.0 million, or 13.9%, from $451.8 million for
the three months ended March 31, 1999. This increase was primarily attributable
to higher U.S. same-store merchandise sales, a higher merchandise gross profit
margin and our operating a larger number of stores. Gross profit margin
increased to 34.1% for the three months ended March 31, 2000 from 33.2% for the
same period in 1999. This margin increase was primarily attributable to
increased sales in several higher margin categories, including trading cards,
coffee, services and non-carbonated beverages. As a result, merchandise gross
profits per store increased 12.6% for the three months ended March 31, 2000 as
compared to the same period in 1999.
Gasoline gross profit for the three months ended March 31, 2000 was $51.6
million, a decrease of $2.1 million, or 4.0%, from $53.8 million for the three
months ended March 31, 1999. This decline in gasoline gross profit was the
result of a decrease in gasoline gross profit margin to 12.33 cents per gallon
for the three months ended March 31, 2000 from 13.37 cents per gallon for the
same period in 1999, which was primarily due to wholesale costs rising at a
faster rate than retail prices. As a result, gasoline gross profits per store
declined 8.3% for the three months ended March 31, 2000 as compared to the same
period in 1999.
OTHER INCOME
Other income for the three months ended March 31, 2000 was $24.8 million, an
increase of $2.6 million, or 12.0%, from $22.1 million for the three months
ended March 31, 1999. This increase was attributable to increased franchise fees
associated with more 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.
Other income includes royalties from area license agreements with
Seven-Eleven Japan. One year following the final repayment of our 1988
Yen-denominated loan, currently projected for 2001, royalty
11
<PAGE>
payments from Seven-Eleven Japan will be reduced by approximately two-thirds in
accordance with the terms of the amended license agreement.
FRANCHISEE GROSS PROFIT EXPENSE
Franchisee gross profit expense for the three months ended March 31, 2000
was $146.8 million, an increase of $18.1 million, or 14.0%, from $128.7 million
for the three months ended March 31, 1999. The increase was due to higher gross
profit at franchised stores.
OPERATING, SELLING, GENERAL AND ADMINISTRATIVE ("OSG&A")
OSG&A for the three months ended March 31, 2000 was $413.7 million, an
increase of $41.9 million, or 11.3%, from $371.8 million for the three months
ended March 31, 1999. This increase was primarily attributable to the cost of
operating a larger number of stores, approximately $10 million of incremental
costs related to the implementation of our proprietary retail information system
and additional costs related to implementing other strategic initiatives.
The ratio of OSG&A to net sales decreased to 19.6% for the three months
ended March 31, 2000 from 21.0% for the three months ended March 31, 1999.
Excluding the impact of the higher average retail price of gasoline in the three
months ended March 31, 2000, the ratio of OSG&A to net sales increased to 21.4%
from 21.0% for the same period in 1999.
INTEREST EXPENSE, NET
Net interest expense for the three months ended March 31, 2000 was $26.9
million, an increase of $2.8 million, or 11.7%, from $24.1 million for the three
months ended March 31, 1999. This increase was primarily attributable to higher
borrowing levels that we incurred to finance new store development and other
initiatives, combined with slightly higher interest rates on our floating rate
debt. The increase was partially offset by a reduction in interest expense for
the three months ended March 31, 2000 resulting from the repayment of borrowings
with proceeds from our sale of common stock to IYG Holding Company on March 16,
2000.
As a result of our reduction of debt, we expect net interest expense in 2000
to decrease by approximately $21 million as compared to 1999 based on
anticipated levels of debt and interest rate projections.
INCOME TAX EXPENSE/BENEFIT
Income tax benefit for the three months ended March 31, 2000 was $11.0
million, compared to a $1.2 million expense for the three months ended March 31,
1999. This decrease was primarily attributable to a non-recurring benefit of
$12.5 million recorded in the three months ended March 31, 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 income
tax credit, our effective tax rate was 39.5% for the three months ended
March 31, 2000 compared to 39.6% in the same period 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 three months ended March 31, 2000 were $14.8 million,
an increase of $8.7 million, or 140.3%, from $6.2 million for the three months
ended March 31, 1999. Net earnings for the three months ended March 31, 2000
included the $12.5 million tax benefit discussed above. Net earnings for the
three months ended March 31, 1999 included the $4.3 million extraordinary gain
discussed above.
12
<PAGE>
Excluding these non-recurring items, net earnings were $2.3 million for the
three months ended March 31, 2000, an increase of $0.5 million, or 24.1%, from
$1.9 million 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; 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.
Our $400 million revolving credit facility was made available to us under an
unsecured credit agreement with a group of lenders. A sublimit 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.
IYG Holding Company is our majority shareholder and on March 16, 2000, IYG
Holding 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 our commercial paper facility borrowings. As a result IYG Holding
currently holds approximately 72.7% of our outstanding common stock. In
addition, IYG Holding's shareholders own Convertible Quarterly Income Debt
Securities that are convertible into a maximum of 20,924,069 shares of our
common stock.
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 the transaction to pay down our revolving credit
facility.
MATURITIES
As of March 31, 2000, long-term debt maturities, for the twelve month
periods ending March 31, which include capital lease obligations as well as SFAS
No. 15 Interest accounted for in the recorded amount of the debentures, are as
follows (dollars in millions):
<TABLE>
<S> <C>
2001........................................................ $ 96.4
2002........................................................ 63.5
2003........................................................ 77.6
2004........................................................ 286.7
2005........................................................ 164.3
Thereafter.................................................. 704.8
--------
$1,393.3
========
</TABLE>
The above long-term debt maturities assume the continuance of the commercial
paper program and the Ito-Yokado Co. Ltd. guarantee.
13
<PAGE>
CASH FROM OPERATING ACTIVITIES.
Net cash provided by operating activities was $22.8 million for the three
months ended March 31, 2000 compared to a use of $7.6 million for the three
months ended March 31, 1999, an increase of $30.4 million. This increase is
primarily attributable to higher net earnings as adjusted for non-cash items and
changes in certain balance sheet amounts. Changes in working capital include the
payment of a previously accrued claim, an increase in advances for RIS equipment
awaiting quarterly funding under a master lease facility and a payment
associated with transferring our obligation for long-term disability coverage to
a third party insurer, all of which are non-recurring items that occurred in the
three months ended March 31, 1999.
CASH FROM INVESTING ACTIVITIES
Net cash provided by investing activities was $1.3 million for the three
months ended March 31, 2000 compared to a use of $104.2 million for the three
months ended March 31, 1999. Capital expenditures were $72.0 million for the
three months ended March 31, 2000 compared to $110.7 million for the same period
in 1999. In addition, we received $71.9 million of net proceeds from a
sale-leaseback transaction during the three months ended March 31, 2000.
Capital expenditures were used for new store development, continued
implementation of our retail information system, new equipment to support
merchandising initiatives, maintaining, remodeling and upgrading store and
gasoline facilities' image and equipment and compliance with environmental
regulations. We expect capital expenditures for 2000, excluding lease
commitments, to be in excess of $325 million.
CASH FROM FINANCING ACTIVITIES
Net cash used in financing activities was $1.1 million for the three months
ended March 31, 2000, compared to cash provided by financing activities of
$108.6 million for the three months ended March 31, 1999.
Net repayments under commercial paper and revolving credit facilities
totaled $416.2 million for the three months ended March 31, 2000, compared to
net borrowings of $150.6 million for the same period in 1999. Net long-term debt
repayments for the three months ended March 31, 2000 were $131.2 million
compared to $31.8 million for the same period in 1999. Cash from financing
activities for the three months ended March 31, 2000 also included
$539.7 million in net proceeds from issuance of common stock that we used to pay
down our indebtedness.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The following discussion summarizes the financial and derivative instruments
we held as of March 31, 2000 which are sensitive to changes in interest rates,
foreign exchange rates and equity prices. We use interest-rate swaps to manage
the primary market exposures associated with underlying liabilities and
anticipated transactions. We use these instruments to reduce risk by essentially
creating offsetting market exposures. In addition, our two yen-denominated loans
serve effectively to hedge our exposure to yen-dollar currency fluctuations. The
instruments we hold are not leveraged and are held for purposes other than
trading. On March 16, 2000 we received $539.4 million in net proceeds from a
private placement transaction. We used these proceeds to reduce floating rate
debt which has lowered our exposure to interest rate risk. See "--Liquidity and
Capital Resources" for more information.
In the normal course of business, we also face risks that are either
non-financial or non-quantifiable. Such risks principally include country risk,
credit risk and legal risk and are not represented in this discussion.
INTEREST-RATE RISK MANAGEMENT.
The table below presents descriptions of the floating-rate financial
instruments and interest-rate-derivative instruments we held at March 31, 2000.
We entered into an interest-rate swap to achieve the
14
<PAGE>
appropriate level of variable and fixed-rate debt as approved by senior
management. Under the interest-rate swap, we agreed with other parties to
exchange the difference between fixed-rate and floating-rate interest amounts on
a quarterly basis.
For the debt, the table below presents principal cash flows that exist by
maturity date and the related average interest rate. For the swap, the table
presents the notional amounts outstanding and expected interest rates that exist
by contractual dates. We used the notional amount to calculate the contractual
payments to be exchanged under the contract and estimated the variable rates
based on implied forward rates in the yield curve at the reporting date.
Additionally, the interest rate on the bank debt reflects a LIBOR margin of 47.5
basis points as prescribed in the credit agreement.
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 THEREAFTER TOTAL FAIR VALUE
-------- -------- -------- -------- -------- ---------- -------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Floating-rate financial
instruments:
Commercial paper................ $116 $ 0 $ 0 $ 0 $ 0 $350 $466 $466
Average interest rate......... 7.3% 7.4% 7.3% 7.3% 7.3% 7.3% 7.3%
Interest-rate derivatives:
Notional amount................. $250 $250 $250 $250 $250 $ 0 $250 $ 8
Average pay rate................ 6.1% 6.1% 6.1% 6.1% 6.1% 0% 6.1%
Average receive rate............ 7.3% 7.4% 7.3% 7.3% 7.3% 7.3% 7.3%
</TABLE>
The $8 million fair value of the interest-rate swap represents an estimate
of the amount we would receive from the counterparty if we chose to terminate
the swap as of March 31, 2000. See Note 11 to the Consolidated Financial
Statements for detailed information on floating-rate and fixed-rate liabilities
as well as fair value and derivative discussions.
As of March 31, 2000, approximately 31% of our debt contained floating rates
that will be unfavorably impacted by rising interest rates. We have effectively
eliminated 54% of our exposure to rising interest rates through an interest rate
swap agreement. The weighted-average interest rate for such debt, including the
impact of the interest rate swap agreement, was 6.2% for three months ended
March 31, 2000 as compared to 5.4% for the same period in 1999.
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 $6.5 million at March 31, 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 $4.1
million at March 31, 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 March 31, 2000, our estimated undiscounted liability for
these sites was $27.9 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 March 31, 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 March 31, 2000, we had recorded a net
receivable of $49.7 million based on the estimated state reimbursements. In
15
<PAGE>
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 is 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 reimbursement of our identified remediation 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 remedial activities that has already
been completed at a discount rate of approximately 6.5%. Thus, the recorded
receivable amount is also net of a discount of $14.0 million.
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 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-Registered Trademark-
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
We are currently reviewing SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS
No. 133 becomes effective for all fiscal quarters of fiscal years beginning
after June 15, 2000, and earlier application is permitted as of the beginning of
any fiscal quarter subsequent to June 15, 2000. We intend to adopt the
provisions of this statement as of January 1, 2001. The impact of the adoption
of SFAS No. 133 has not been determined at this time due to our continuing
investigation of our financial instruments and the applicability of SFAS
No. 133 to them.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Management's Discussion and Analysis" above.
16
<PAGE>
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no other reportable suits or proceedings pending or threatened
against the Company other than as previously reported.
ITEM 2. CHANGES IN SECURITIES
On April 26, 2000, the Company's shareholders approved Articles of Amendment
to the Company's Second Restated and Amended Articles of Incorporation. The
Articles of Amendment effected a one-for-five reverse split of the Company's
Common Stock as of May 1, 2000. The CUSIP number for the Company's common stock
is now 817826 29 0.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit (3).--Copy of Articles of Amendment to the Second Restated
Articles of Incorporation, as filed with the Secretary of State of
Texas.
Exhibit (15)--Letter re Unaudited Interim Financial Information. Letter
of PricewaterhouseCoopers LLP, Independent Auditors.
Exhibit (27)--Financial Data Schedule. Submitted in electronic format
only.
(b) 8-K Reports:
During the first quarter of 2000, the Company filed no reports on Form 8-K.
17
<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 thereunto duly authorized.
<TABLE>
<S> <C> <C>
7-ELEVEN, INC.
(Registrant)
/s/ JAMES W. KEYES
-----------------------------------------
James W. Keyes
Date: May 8, 2000 PRESIDENT AND CHIEF EXECUTIVE OFFICER
/s/ DONALD E. THOMAS
-----------------------------------------
Donald E. Thomas
(PRINCIPAL ACCOUNTING OFFICER)
VICE PRESIDENT, CHIEF ACCOUNTING OFFICER
Date: May 8, 2000 AND CONTROLLER
</TABLE>
18
<PAGE>
EXHIBIT 3
ARTICLES OF AMENDMENT
TO THE
SECOND RESTATED ARTICLES OF INCORPORATION OF
7-ELEVEN, INC.
Pursuant to the provisions of the Texas Business Corporation Act, 7-Eleven,
Inc., a corporation organized under the laws of the State of Texas, hereby
amends its Second Restated Articles of Incorporation (the "Articles of
Incorporation") and for that purpose, submits the following statement:
ARTICLE ONE
The name of the corporation is 7-Eleven, Inc.
ARTICLE TWO
Article Four (b) of the Articles of Incorporation is hereby deleted in its
entirety and replaced with a new paragraph (b), as follows:
"ARTICLE FOUR
(b) Upon the filing of these Articles of Amendment to the Articles of
Incorporation with the Texas Secretary of State, each share of the
Corporation's common stock, par value $0.0001 per share (the "Old Common
Stock"), issued and outstanding immediately prior to the filing hereof
shall, without any action on the part of the holder thereof, be converted
and reclassified into, and immediately represent one-fifth of a validly
issued, fully paid and non-assessable share of Common Stock. No holder will
be entitled to receive a fractional share of Common Stock and any fraction
of a share of Common Stock that would otherwise be due a holder as a result
of the preceding sentence shall automatically be eliminated and, in lieu
thereof, the holder thereof shall be entitled to receive a cash adjustment
in respect of such fraction of a share in an amount based upon a value of
the Common Stock equal to the product of five multiplied by the closing
price, as reported by The Nasdaq Stock Market, of a share of the Old Common
Stock on the last trading day immediately preceding the effective date of
this amendment. Each certificate which theretofore represented shares of Old
Common Stock shall thereafter represent that number of shares of Common
Stock determined in the previous sentences; provided, however, that each
person holding of record a stock certificate or certificates which
represented a share of Old Common Stock shall receive, upon surrender of
such certificate or certificates, a new certificate or certificates
evidencing and representing the number of shares of Common Stock to which
such person is entitled."
ARTICLE THREE
The amendment to the Articles of Incorporation was adopted by a vote of the
shareholders of the corporation on April 26, 2000.
ARTICLE FOUR
The number of shares of the corporation outstanding and entitled to vote on
this amendment was 410,112,375 shares.
The designation and number of shares of each class or series entitled to
vote thereon as a class or series were as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES OUTSTANDING
CLASS OR SERIES AND ENTITLED TO VOTE
<S> <C>
None
</TABLE>
<PAGE>
ARTICLE FIVE
The number of shares voted for such amendment was 340,331,661 and the number
of shares voted against such amendment was 6,843,358.
The number of shares of each class or series entitled to vote as a class
or series voted for or against such amendment as follows:
<TABLE>
<CAPTION>
CLASS OR SERIES NUMBER OF SHARES VOTED
<S> <C> <C>
FOR AGAINST
None
</TABLE>
ARTICLE SIX
The effective date of this amendment shall be 12:01 a.m., central daylight
time, May 1, 2000.
<TABLE>
<S> <C>
Dated the 26th day of April, 2000. 7-ELEVEN, INC.
(to be effective 12:01 a.m.
central daylight time, May 1, 2000)
By: /s/ BRYAN F. SMITH, JR.
--------------------------------------------
Name and Title: Bryan F. Smith, Jr.
Senior Vice President
</TABLE>
<PAGE>
EXHIBIT 15
May 8, 2000
Securities and Exchange Commission
450 Fifth Street, Northwest
Washington, D.C. 20549
Attention: Document Control
Re: 7-Eleven, Inc. Form 10-Q
We are aware that our report dated May 1, 2000 on our review of the condensed
consolidated balance sheet of 7-Eleven, Inc. and Subsidiaries as of March 31,
2000, and the related condensed consolidated statements of earnings and cash
flows for the three-month periods ended March 31, 1999 and 2000, included in
this Form 10-Q, is incorporated by reference in the following registration
statements:
<TABLE>
<CAPTION>
REGISTRATION NO.
----------------
<S> <C>
On Form S-8 for:
7-Eleven, Inc. 1995 Stock Incentive Plan 33-63617
7-Eleven, Inc. Supplemental Executive Retirement Plan for
Eligible Employees 333-42731
7-Eleven, Inc. Stock Compensation Plan for Non-Employee
Directors 333-68491
</TABLE>
Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not
be considered a part of the registration statement prepared or certified by us
within the meaning of Sections 7 and 11 of that Act.
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 99,842
<SECURITIES> 0
<RECEIVABLES> 193,197
<ALLOWANCES> 6,642
<INVENTORY> 111,914
<CURRENT-ASSETS> 522,680
<PP&E> 3,486,425
<DEPRECIATION> 1,631,372
<TOTAL-ASSETS> 2,664,721
<CURRENT-LIABILITIES> 763,787
<BONDS> 1,676,899
0
0
<COMMON> 10
<OTHER-SE> (8,643)
<TOTAL-LIABILITY-AND-EQUITY> 2,664,721
<SALES> 2,112,571
<TOTAL-REVENUES> 2,137,344
<CGS> 1,546,132
<TOTAL-COSTS> 1,546,132
<OTHER-EXPENSES> 560,443
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,892
<INCOME-PRETAX> 3,877
<INCOME-TAX> (10,959)
<INCOME-CONTINUING> 14,836
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,836
<EPS-BASIC> 0.17
<EPS-DILUTED> 0.16
</TABLE>
