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 25, 2003
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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
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 | 19,797,481 SHARES | |
| (Class) | (Outstanding at February 4, 2004) |
FORM 10-Q
DECEMBER 25, 2003
TABLE OF CONTENTS
| Page | ||
| 3 | ||
| 4 | ||
| 5 | ||
| 6 | ||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
19 | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk |
33 | |
| 35 | ||
| 36 | ||
| 36 | ||
2
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
| December 25, 2003 |
September 25, 2003 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents. |
$ | 52,000 | $ | 72,901 | ||||
| Receivables, net. |
31,567 | 30,423 | ||||||
| Inventories (Notes 2 and 3) |
94,994 | 84,156 | ||||||
| Prepaid expenses |
5,662 | 6,326 | ||||||
| Property held for sale (Note 2) |
5,653 | 2,013 | ||||||
| Deferred income taxes |
4,334 | 4,334 | ||||||
| Total current assets |
194,210 | 200,153 | ||||||
| Property and equipment, net (Note 2) |
420,359 | 400,609 | ||||||
| Other assets: |
||||||||
| Goodwill (Note 2) |
337,452 | 278,629 | ||||||
| Deferred financing costs, net (Note 5) |
12,485 | 10,757 | ||||||
| Environmental receivables (Note 4) |
15,601 | 15,109 | ||||||
| Other (Note 2) |
11,863 | 8,908 | ||||||
| Total other assets |
377,401 | 313,403 | ||||||
| Total assets |
$ | 991,970 | $ | 914,165 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Current maturities of long-term debt (Note 5) |
$ | 32,953 | $ | 27,558 | ||||
| Current maturities of capital lease obligations |
1,375 | 1,375 | ||||||
| Accounts payable (Note 2) |
86,274 | 78,885 | ||||||
| Accrued interest (Note 5) |
10,792 | 11,924 | ||||||
| Accrued compensation and related taxes |
10,179 | 12,840 | ||||||
| Other accrued taxes |
12,059 | 16,510 | ||||||
| Accrued insurance |
13,442 | 12,293 | ||||||
| Other accrued liabilities (Note 2) |
12,323 | 21,314 | ||||||
| Total current liabilities |
179,397 | 182,699 | ||||||
| Long-term debt (Note 5) |
542,387 | 470,011 | ||||||
| Other liabilities: |
||||||||
| Environmental reserves (Note 4) |
14,247 | 13,823 | ||||||
| Deferred income taxes |
53,107 | 50,015 | ||||||
| Deferred revenue |
37,492 | 37,251 | ||||||
| Capital lease obligations |
15,442 | 15,779 | ||||||
| Other noncurrent liabilities |
15,709 | 15,922 | ||||||
| Total other liabilities |
135,997 | 132,790 | ||||||
| Commitments and contingencies (Notes 4 and 5) |
||||||||
| Shareholders’ equity (Notes 7 and 10): |
||||||||
| Common stock, $.01 par value, 50,000,000 shares authorized; 19,765,481 and 18,107,597 issued and outstanding at December 25, 2003 and September 25, 2003, respectively |
199 | 182 | ||||||
| Additional paid-in capital |
128,190 | 128,002 | ||||||
| Shareholder loans |
(69 | ) | (173 | ) | ||||
| Accumulated other comprehensive deficit, net |
(412 | ) | (690 | ) | ||||
| Accumulated earnings |
6,281 | 1,344 | ||||||
| Total shareholders’ equity |
134,189 | 128,665 | ||||||
| Total liabilities and shareholders’ equity |
$ | 991,970 | $ | 914,165 | ||||
See Notes to Consolidated Financial Statements
3
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share data)
| Three Months Ended |
||||||||
| December 25, 2003 |
December 26, 2002 |
|||||||
| (13 weeks) | (13 weeks) | |||||||
| Revenues: |
||||||||
| Merchandise sales |
$ | 270,025 | $ | 242,340 | ||||
| Gasoline sales |
474,292 | 401,933 | ||||||
| Commissions |
7,019 | 6,704 | ||||||
| Total revenues |
751,336 | 650,977 | ||||||
| Cost of sales: |
||||||||
| Merchandise |
177,617 | 162,567 | ||||||
| Gasoline |
433,356 | 362,419 | ||||||
| Total cost of sales |
610,973 | 524,986 | ||||||
| Gross profit |
140,363 | 125,991 | ||||||
| Operating expenses: |
||||||||
| Operating, general and administrative expenses |
105,379 | 93,141 | ||||||
| Depreciation and amortization |
14,075 | 12,507 | ||||||
| Total operating expenses |
119,454 | 105,648 | ||||||
| Income from operations |
20,909 | 20,343 | ||||||
| Other income (expense): |
||||||||
| Interest expense (Note 9) |
(13,141 | ) | (12,773 | ) | ||||
| Miscellaneous |
261 | 434 | ||||||
| Total other expense |
(12,880 | ) | (12,339 | ) | ||||
| Income before income taxes |
8,029 | 8,004 | ||||||
| Income tax expense |
(3,092 | ) | (3,084 | ) | ||||
| Net income before cumulative effect adjustment |
4,937 | 4,920 | ||||||
| Cumulative effect adjustment, net of income tax (Note 8) |
— | (3,482 | ) | |||||
| Net income |
$ | 4,937 | $ | 1,438 | ||||
| Earnings per share (Note 11): |
||||||||
| Basic: |
||||||||
| Net income before cumulative effect adjustment |
$ | 0.27 | $ | 0.27 | ||||
| Cumulative effect adjustment |
— | (0.19 | ) | |||||
| Net income |
$ | 0.27 | $ | 0.08 | ||||
| Diluted: |
||||||||
| Net income before cumulative effect adjustment |
$ | 0.24 | $ | 0.27 | ||||
| Cumulative effect adjustment |
— | (0.19 | ) | |||||
| Net income |
$ | 0.24 | $ | 0.08 | ||||
See Notes to Consolidated Financial Statements
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
| Three Months Ended |
||||||||
| December 25, 2003 |
December 26, 2002 |
|||||||
| (13 weeks) | (13 weeks) | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
| Net income |
$ | 4,937 | $ | 1,438 | ||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization |
14,075 | 12,507 | ||||||
| Provision for deferred income taxes |
3,092 | 3,084 | ||||||
| (Gain) Loss on sale of property and equipment |
(215 | ) | 202 | |||||
| Impairment of long-lived assets |
323 | 75 | ||||||
| Fair market value change in non-qualifying derivatives |
(756 | ) | (219 | ) | ||||
| Provision for closed stores |
397 | 642 | ||||||
| Cumulative effect of change in accounting principle |
— | 3,482 | ||||||
| Amortization of deferred loan costs |
853 | 585 | ||||||
| Amortization of long-term debt discount |
288 | — | ||||||
| Changes in operating assets and liabilities |
||||||||
| Receivables |
(555 | ) | 180 | |||||
| Inventories |
(820 | ) | 4,728 | |||||
| Prepaid expenses |
780 | (920 | ) | |||||
| Other noncurrent assets |
(58 | ) | 134 | |||||
| Accounts payable |
(4,047 | ) | (13,530 | ) | ||||
| Other current liabilities and accrued expenses |
(13,938 | ) | (19,575 | ) | ||||
| Reserves for environmental expenses |
(107 | ) | (53 | ) | ||||
| Other noncurrent liabilities |
(3,048 | ) | (2,817 | ) | ||||
| Net cash provided by (used in) operating activities |
1,202 | (10,057 | ) | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||
| Additions to property held for sale |
(513 | ) | (482 | ) | ||||
| Additions to property and equipment |
(9,336 | ) | (2,400 | ) | ||||
| Proceeds from sale of property held for sale |
95,737 | 1,186 | ||||||
| Proceeds from sale of property and equipment |
1,984 | 1,437 | ||||||
| Acquisitions of related businesses, net of cash acquired |
(184,848 | ) | — | |||||
| Net cash used in investing activities |
(96,977 | ) | (259 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
| Principal repayments of long-term debt |
(2,517 | ) | (10,176 | ) | ||||
| Principal repayments under capital leases |
(337 | ) | (335 | ) | ||||
| Proceeds from issuance of long-term borrowings |
80,000 | — | ||||||
| Proceeds from exercise of stock options, net of repurchases |
205 | |||||||