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Table of Contents
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended December 26, 2002
 
Commission File Number 33-72574
 
 
THE PANTRY, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
  
56-1574463
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification Number)
 
1801 Douglas Drive
Sanford, North Carolina
27330-1410
(Address of principal executive offices)
 
 
Registrant’s telephone number, including area code: (919) 774-6700
 
 
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
COMMON STOCK, $0.01 PAR VALUE
  
18,107,597 SHARES
(Class)
  
(Outstanding at January 27, 2003)
 

Table of Contents
 
THE PANTRY, INC.
 
FORM 10-Q
 
DECEMBER 26, 2002
 
TABLE OF CONTENTS
 
    
Page
Part I—Financial Information
     
    
  
3
  
4
  
5
  
6
  
16
  
28
  
29
      
Part II—Other Information
     
  
30
  
S-1
 

2

Table of Contents
PART I-FINANCIAL INFORMATION.
 
Item 1.    Financial Statements.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
 
    
December 26, 2002
     
September 26, 2002
  
ASSETS
                  
Current assets:
                  
Cash and cash equivalents
   
$
21,596
 
   
$
42,236
 
Receivables, net
   
 
34,168
 
   
 
34,316
 
Inventories (Note 2)
   
 
79,709
 
   
 
84,437
 
Prepaid expenses
   
 
4,419
 
   
 
3,499
 
Property held for sale
   
 
838
 
   
 
388
 
Deferred income taxes
   
 
863
 
   
 
1,414
 
    
  
Total current assets
   
 
141,593
 
   
 
166,290
 
    
  
Property and equipment, net (Note 6)
   
 
425,086
 
   
 
435,518
 
    
  
Other assets:
                  
Goodwill
   
 
277,874
 
   
 
277,874
 
Deferred financing cost, net
   
 
8,426
 
   
 
8,965
 
Environmental receivables (Note 3)
   
 
11,696
 
   
 
11,696
 
Other assets
   
 
9,037
 
   
 
9,355
 
    
  
Total other assets
   
 
307,033
 
   
 
307,890
 
    
  
Total assets
   
$
873,712
 
   
$
909,698
 
    
  
LIABILITIES AND SHAREHOLDERS’ EQUITY
                  
Current liabilities:
                  
Current maturities of long-term debt (Note 4)
   
$
42,913
 
   
$
43,255
 
Current maturities of capital lease obligations
   
 
1,521
 
   
 
1,521
 
Accounts payable
   
 
80,328
 
   
 
93,858
 
Accrued interest
   
 
6,515
 
   
 
13,175
 
Accrued compensation and related taxes
   
 
7,932
 
   
 
10,785
 
Income taxes payable
   
 
46
 
   
 
—  
 
Other accrued taxes
   
 
11,097
 
   
 
17,463
 
Accrued insurance
   
 
10,420
 
   
 
9,687
 
Other accrued liabilities (Note 5)
   
 
13,847
 
   
 
19,969
 
    
  
Total current liabilities
   
 
174,619
 
   
 
209,713
 
    
  
Long-term debt (Note 4)
   
 
451,086
 
   
 
460,920
 
    
  
Other liabilities:
                  
Environmental reserves (Note 3)
   
 
13,232
 
   
 
13,285
 
Deferred income taxes (Note 6)
   
 
39,264
 
   
 
38,360
 
Deferred revenue
   
 
48,842
 
   
 
51,772
 
Capital lease obligations
   
 
15,046
 
   
 
15,381
 
Other noncurrent liabilities (Notes 5 and 6)
   
 
13,879
 
   
 
5,063
 
    
  
Total other liabilities
   
 
130,263
 
   
 
123,861
 
    
  
Commitments and contingencies (Notes 3 and 4)
                  
Shareholders’ equity (Notes 5, 8 and 9):
                  
Common stock, $.01 par value, 50,000,000 shares authorized; 18,107,597 issued and outstanding at December 26, 2002 and September 26, 2002
   
 
182
 
   
 
182
 
Additional paid-in capital
   
 
128,002
 
   
 
128,002
 
Shareholder loans
   
 
(483
)
   
 
(708
)
Accumulated other comprehensive deficit, net
   
 
(1,235
)
   
 
(2,112
)
Accumulated deficit
   
 
(8,722
)
   
 
(10,160
)
    
  
Total shareholders’ equity
   
 
117,744
 
   
 
115,204
 
    
  
Total liabilities and shareholders’ equity
   
$
873,712
 
   
$
909,698
 
    
  
 
See Notes to Consolidated Financial Statements

3

Table of Contents
 
THE PANTRY, INC.
 
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share data)
 
    
Three Months Ended
  
    
December 26, 2002
     
December 27, 2001
  
    
(13 weeks)
     
(13 weeks)
  
Revenues:
                  
Merchandise sales
   
$
242,340
 
   
$
237,238
 
Gasoline sales
   
 
401,933
 
   
 
334,313
 
Commissions
   
 
6,704
 
   
 
5,822
 
    
  
Total revenues
   
 
650,977
 
   
 
577,373
 
    
  
Cost of sales:
                  
Merchandise
   
 
162,567
 
   
 
159,925
 
Gasoline
   
 
362,419
 
   
 
301,969
 
    
  
Total cost of sales
   
 
524,986
 
   
 
461,894
 
    
  
Gross profit
   
 
125,991
 
   
 
115,479
 
    
  
Operating expenses:
                  
Operating, general and administrative expenses
   
 
93,141
 
   
 
88,976
 
Depreciation and amortization
   
 
13,092
 
   
 
13,392
 
    
  
Total operating expenses
   
 
106,233
 
   
 
102,368
 
    
  
Income from operations
   
 
19,758
 
   
 
13,111
 
    
  
Other income (expense):
                  
Interest expense (Note 7)
   
 
(12,188
)
   
 
(12,343
)
Miscellaneous
   
 
434
 
   
 
25
 
    
  
Total other expense
   
 
(11,754
)
   
 
(12,318
)
    
  
Income before income taxes
   
 
8,004
 
   
 
793
 
Income tax expense
   
 
(3,084
)
   
 
(318
)
    
  
Net income before cumulative effect adjustment
   
 
4,920
 
   
 
475
 
Cumulative effect adjustment, net of tax (Note 6)
   
 
(3,482
)
   
 
—  
 
    
  
Net income
   
$
1,438
 
   
$
475
 
    
  
Earnings per share (Note 9):
                  
Basic
   
$
0.08
 
   
$
0.03
 
Diluted
   
$
0.08
 
   
$
0.03
 
 
See Notes to Consolidated Financial Statements

4

Table of Contents

 

THE PANTRY, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

 

    

Three Months Ended

  
    

December 26, 2002

     

December 27, 2001

  
    

(13 weeks)

     

(13 weeks)

  

CASH FLOWS FROM OPERATING ACTIVITIES

                  

Net income

   

$

1,438

 

   

$

475

 

Adjustments to reconcile net income to net cash provided by operating activities:

                  

Depreciation and amortization

   

 

13,092

 

   

 

13,392

 

Provision for deferred income taxes

   

 

3,084

 

   

 

317

 

Loss on sale of property and equipment

   

 

202

 

   

 

92

 

Impairment of long-lived assets

   

 

75

 

   

 

—  

 

Fair market value change in non-qualifying derivatives

   

 

(219

)

   

 

(235

)

Provision for closed stores

   

 

642

 

   

 

40

 

Cumulative effect of change in accounting principal

   

 

3,482

 

   

 

—  

 

Changes in operating assets and liabilities

                  

Receivables

   

 

180

 

   

 

1,151

 

Inventories

   

 

4,728

 

   

 

7,538

 

Prepaid expenses

   

 

(920

)

   

 

(757

)

Other noncurrent assets

   

 

134

 

   

 

40

 

Accounts payable

   

 

13,530

 

   

 

(14,162

)

Other current liabilities and accrued expenses