10-Q 1 ptry122613-10q.htm 10-Q PTRY 12.26.13-10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 2013
Commission file number: 000-25813

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 No.)

P.O. Box 8019
305 Gregson Drive
Cary, North Carolina 27511
(Address of principal executive offices and zip code)

(919) 774-6700
(Registrant’s telephone number, including area code)

 
 
 

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  ý      No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ý     No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 
Large accelerated filer ¨
 
Accelerated filer    ý
 
Non-accelerated filer ¨   (Do not check if a smaller reporting company)
 
Smaller reporting company ¨ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨     No  ý

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
 
23,468,045 SHARES
(Class)
 
(Outstanding at January 23, 2014)





THE PANTRY, INC.
TABLE OF CONTENTS 


2

PART I – FINANCIAL INFORMATION
 
Item 1.  Financial Statements.
 
THE PANTRY, INC.
CONDENSED BALANCE SHEETS

 
(Unaudited)
 
 
(in thousands, except par value and shares)
December 26,
2013
 
September 26,
2013
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
32,506

 
$
57,168

Receivables
58,750

 
64,936

Inventories
134,128

 
132,229

Prepaid expenses and other current assets
18,481

 
19,120

Deferred income taxes
16,874

 
18,698

Total current assets
260,739

 
292,151

Property and equipment, net
896,916

 
902,796

Other assets:
 
 
 
Goodwill and other intangible assets
440,891

 
440,982

Other noncurrent assets
80,628

 
79,297

Total other assets
521,519

 
520,279

TOTAL ASSETS
$
1,679,174

 
$
1,715,226

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Current maturities of long-term debt
$
2,550

 
$
2,550

Current maturities of lease finance obligations
10,998

 
11,018

Accounts payable
142,720

 
153,693

Accrued compensation and related taxes
11,384

 
10,315

Other accrued taxes
17,469

 
26,207

Self-insurance reserves
30,935

 
30,700

Other accrued liabilities
43,075

 
47,178

Total current liabilities
259,131

 
281,661

Other liabilities:
 
 
 
Long-term debt
497,868

 
498,414

Lease finance obligations
430,692

 
434,022

Deferred income taxes
54,438

 
59,182

Deferred vendor rebates
9,283

 
10,152

Other noncurrent liabilities
109,121

 
108,096

Total other liabilities
1,101,402

 
1,109,866

Commitments and contingencies (Note 8)


 


Shareholders’ equity:
 
 
 
Common stock, $.01 par value, 50,000,000 shares authorized; 23,483,566 and 23,556,291 issued and
 
 
 
outstanding at December 26, 2013 and September 26, 2013, respectively
235

 
236

Additional paid-in capital
218,900

 
218,911

Accumulated other comprehensive loss, net of deferred income taxes of $107 and $170 at December 26, 2013
 
 
 
and September 26, 2013, respectively
(168
)
 
(266
)
Retained earnings
99,674

 
104,818

Total shareholders’ equity
318,641

 
323,699

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
1,679,174

 
$
1,715,226



See Notes to Condensed Financial Statements

3

THE PANTRY, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)

 
Three Months Ended
(in thousands, except per share data)
December 26,
2013
 
December 27,
2012
Revenues:
 
 
 
Merchandise
$
440,780

 
$
428,848

Fuel
1,363,299

 
1,486,359

Total revenues
1,804,079

 
1,915,207

Costs and operating expenses:
 
 
 
Merchandise cost of goods sold (exclusive of items shown separately below)
293,001

 
281,955

Fuel cost of goods sold (exclusive of items shown separately below)
1,314,617

 
1,437,191

Store operating
128,069

 
123,276

General and administrative
25,977

 
23,886

Impairment charges
829

 
2,299

Depreciation and amortization
28,679

 
28,586

Total costs and operating expenses
1,791,172

 
1,897,193

Income from operations
12,907

 
18,014

Other expenses:
 
 
 
Interest expense
21,372

 
23,101

Total other expenses
21,372

 
23,101

Loss before income taxes
(8,465
)
 
(5,087
)
Income tax benefit
(3,321
)
 
(2,030
)
Net loss
$
(5,144
)
 
$
(3,057
)
 
 
 
 
Loss per share:
 
 
 
Basic
$
(0.23
)
 
$
(0.14
)
Diluted
$
(0.23
)
 
$
(0.14
)


See Notes to Condensed Financial Statements

4

THE PANTRY, INC.
CONDENSED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)

 
Three Months Ended
(in thousands)
December 26,
2013
 
December 27,
2012
Net loss
$
(5,144
)
 
$
(3,057
)
Other comprehensive loss, net of tax:
 
 
 
      Amortization of accumulated other comprehensive loss on terminated interest
             rate swap agreements, net of deferred income taxes of $(63) and $(62),
             respectively
98

 
98

Comprehensive loss
$
(5,046
)
 
$
(2,959
)


See Notes to Condensed Financial Statements

5

THE PANTRY, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

 
Three Months Ended
(in thousands)
December 26,
2013
 
December 27,
2012
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net loss
$
(5,144
)
 
$
(3,057
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
28,679

 
28,586

Impairment charges
829

 
2,299

Amortization of debt discount
91

 
515

Provision for deferred income taxes
(2,983
)
 
(2,002
)
Stock-based compensation expense
924

 
852

Other
1,313

 
834

Changes in operating assets and liabilities:
 
 
 
Receivables
5,787

 
13,442

Inventories
(1,898
)
 
5,828

Prepaid expenses and other current assets
448

 
(553
)
Accounts payable
(10,973
)
 
(17,180
)
Other current liabilities and accrued liabilities
(5,272
)
 
(11,452
)
Other noncurrent assets and liabilities, net
(1,168
)
 
(1,093
)
Net cash provided by operating activities
10,633

 
17,019

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Additions to property and equipment
(31,748
)
 
(20,549
)
Proceeds from sales of property and equipment
2,003

 
2,038

Other
—

 
141

Net cash used in investing activities
(29,745
)
 
(18,370
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Repayments of long-term debt, including redemption premiums
(638
)
 
(61,316
)
Repayments of lease finance obligations
(4,511
)
 
(2,100
)
Other
(401
)
 
(43
)
Net cash used in financing activities
(5,550
)
 
(63,459
)
Net decrease in cash and cash equivalents
(24,662
)
 
(64,810
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
57,168

 
89,175

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
32,506

 
$
24,365

Cash paid during the period:
 
 
 
Interest
$
16,962

 
$
17,701

Income taxes received, net
$
(51
)
 
$
(389
)
Non-cash investing and financing activities:
 
 
 
Capital expenditures financed through capital leases
$
415

 
$
420

Accrued purchases of property and equipment
$
10,705

 
$
12,490



See Notes to Condensed Financial Statements

6

NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
 
NOTE 1 - BASIS OF PRESENTATION
 
The Pantry
 
As of December 26, 2013, we operated 1,538 convenience stores primarily in the southeastern United States. Our stores offer a broad selection of merchandise, fuel and ancillary products and services designed to appeal to the convenience needs of our customers, including fuel, car care products and services, tobacco products, beer, soft drinks, self-service fast food and beverages, publications, dairy products, groceries, health and beauty aids, money orders and other ancillary services. In all states, except Alabama and Mississippi, we also sell lottery products. As of December 26, 2013, we operated 223 quick service restaurants and 252 of our stores included car wash facilities. Self-service fuel is sold at 1,526 locations, of which 1,024 sell fuel under major oil company brand names including BP® Products North America, Inc. ("BP"), CITGO®, ConocoPhillips®, ExxonMobil®, Marathon® Petroleum Company, LLC ("Marathon"), Shell® and Valero®.

References in this report to "the Company," "Pantry," "The Pantry," "we," "us" and "our" refer to The Pantry, Inc.
 
Unaudited Condensed Financial Statements
 
The unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. The condensed financial statements have been prepared from the accounting records and all amounts as of December 26, 2013 are unaudited. Pursuant to Regulation S-X, certain information and note disclosures normally included in annual financial statements have been condensed or omitted. The information furnished reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented, and which are of a normal, recurring nature.
 
The condensed financial statements included herein should be read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 26, 2013.

Our results of operations for the three months ended December 26, 2013 and December 27, 2012 are not necessarily indicative of results to be expected for the full fiscal year. The convenience store industry in our marketing areas generally experiences higher sales volumes during the summer months than during the winter months.

References in this report to "fiscal 2014" refer to our current fiscal year, which ends on September 25, 2014, references to "fiscal 2013" refer to our prior fiscal year, which ended September 26, 2013, and references to "fiscal 2012" refer to our fiscal year, which ended September 27, 2012, all of which are 52 week years.

Excise and Other Taxes
 
We pay federal and state excise taxes on petroleum products. Fuel revenues and cost of goods sold included excise and other taxes of approximately $195.3 million and $204.7 million for the three months ended December 26, 2013 and December 27, 2012, respectively.

Inventories

Inventories are valued at the lower of cost or market. Cost is determined using the last-in, first-out method for merchandise inventories and using the weighted-average method for fuel inventories. The fuel we purchase from our vendors is temperature adjusted. The fuel we sell at retail is sold at ambient temperatures. The volume of fuel we maintain in inventory can expand or contract with changes in temperature. Depending on the actual temperature experience and other factors, we may realize a net increase or decrease in the volume of our fuel inventory during our fiscal year. At interim periods, we record any projected increases or decreases through fuel cost of goods sold ratably over the fiscal year, which we believe more fairly reflects our results by better matching our costs to our retail sales. As of December 26, 2013 and December 27, 2012, we have increased inventory by capitalizing fuel expansion variances of approximately $2.6 million and $3.1 million, respectively. At the end of any fiscal year, the entire variance is absorbed into fuel cost of goods sold.




7

New Accounting Standards

In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This ASU clarifies guidance and eliminates diversity in practice on the presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. This update requires that an unrecognized tax benefit, or portion of an unrecognized tax benefit, be presented as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward. If an applicable deferred tax asset is not available or a company does not expect to use the applicable deferred tax asset, the unrecognized tax benefit should be presented as a liability in the financial statements and should not be combined with an unrelated deferred tax asset. This new standard is effective for fiscal years beginning after December 15, 2013, with early adoption permitted, and may be applied either retrospectively or on a prospective basis to all unrecognized tax benefits that exist at the adoption date. We are currently assessing the impact this ASU will have on our financial position, results of operations and cash flows.

NOTE 2 - GOODWILL AND OTHER INTANGIBLE ASSETS

We test goodwill for possible impairment in the second quarter of each fiscal year and more frequently if impairment indicators arise. A significant amount of judgment is involved in determining if an indicator of goodwill impairment has occurred. An impairment indicator represents an event or change in circumstances that would more likely than not reduce the fair value of the reporting unit below its carrying amount.

In accordance with our policy, we are in the process of performing our annual goodwill impairment assessment as of January 23, 2014 and we will complete our step one of the goodwill impairment test in the second quarter of fiscal 2014. We operate as one reporting unit and as of our annual testing date, our market capitalization was greater than our book value. If our book value exceeds our fair value we will proceed to step two of the goodwill impairment test to determine the amount of the impairment, if any. The second step compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. The fair value of the assets and liabilities reflects market conditions, thus volatility in prices could have a material impact on the determination of the implied fair value of the reporting unit goodwill at the annual testing date. If we are required to perform step two of the goodwill impairment test it may result in impairment of goodwill that could have a material impact on our financial statements.

All of our intangible assets have finite lives and are amortized over their estimated useful lives using the straight-line method. We review our intangible assets for impairment whenever events or circumstances indicate that it is more likely than not that fair value of the asset is below its carrying amount.

No impairment charges related to goodwill and intangible assets were recognized in the first quarter of fiscal 2014 and fiscal 2013.

The following table reflects goodwill and other intangible asset balances for the periods presented:
(in thousands)
December 26, 2013
 
September 26, 2013
 
Weighted Average Useful Life
 
Gross Amount
 
Accumulated Amortization
 
Net Book Value
 
Weighted Average Useful Life
 
Gross Amount
 
Accumulated Amortization
 
Net Book Value
Unamortized
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
N/A
 
$
436,102

 
N/A
 
$
436,102

 
N/A
 
$
436,102

 
N/A
 
$
436,102

Amortized
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer agreements
13.3
 
1,356

 
(945
)
 
411

 
13.3
 
1,356

 
(923
)
 
433

Non-compete agreements
32.8
 
7,974

 
(3,596
)
 
4,378

 
32.8
 
7,974

 
(3,527
)
 
4,447

 
 
 
$
9,330

 
$
(4,541
)
 
$
4,789

 
 
 
$
9,330

 
$
(4,450
)
 
$
4,880

Total goodwill and other
   intangible assets
 
 
$
445,432

 
$
(4,541
)
 
$
440,891

 
 
 
$
445,432

 
$
(4,450
)
 
$
440,982




8

NOTE 3 – IMPAIRMENT CHARGES

The following table reflects asset impairment charges for the periods presented:
 
Three Months Ended
(in thousands)
December 26,
2013
 
December 27,
2012
Operating stores
$
742

 
$
1,375

Surplus properties
87

 
924

Total impairment charges
$
829

 
$
2,299


Operating Stores.  We test our operating stores for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. We compared the carrying amount of these operating store assets to their estimated future undiscounted cash flows to determine recoverability. If the sum of the estimated undiscounted cash flows did not exceed the carrying value, we then estimated the fair value of these operating stores to measure the impairment, if any. We recorded impairment charges related to operating stores detailed in the table above. There were no operating stores classified as held for sale as of December 26, 2013 and September 26, 2013.

Surplus Properties.  We test our surplus properties for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Periodically management determines that certain surplus properties should be classified as held for sale because of a change in facts and circumstances, including increased marketing and bid activity. We estimate the fair value of these and other surplus properties where events or changes in circumstances indicated, based on marketing and bid activity, that the carrying amount of the assets may not be recoverable. Based on these estimates, we determined that the carrying values of certain properties exceeded fair value resulting in the impairment charges detailed above. Surplus properties classified as held for sale and included in prepaid expenses and other current assets on our Condensed Balance Sheets were $4.5 million and $4.7 million as of December 26, 2013 and September 26, 2013, respectively.

The impairment evaluation process requires management to make estimates and assumptions with regard to fair value. Actual values may differ significantly from these estimates. Such differences could result in impairment that could have a material impact on our financial statements.

Refer to Note 9, Fair Value Measurements, for additional information regarding the determination of fair value.

NOTE 4 - DEBT

Long-term debt consisted of the following:
(in thousands)
December 26,
2013
 
September 26,
2013
 
 
 
 
Senior secured term loan
$
252,450

 
$
253,087

Senior unsecured notes
250,000

 
250,000

Total long-term debt
502,450

 
503,087

Less—current maturities
(2,550
)
 
(2,550
)
Less—unamortized debt discount on senior unsecured notes
(2,032
)
 
(2,123
)
Long-term debt, net of current maturities and unamortized debt discount
$
497,868

 
$
498,414


We are party to the Fourth Amended and Restated Credit Agreement, as amended, which provides for a $480.0 million senior secured credit facility ("credit facility"). Our credit facility includes a $225.0 million senior secured revolving credit facility which expires in 2017 and a $255.0 million senior secured term loan which matures in 2019. In addition, the credit facility provides for the ability to incur additional term loans and increases in the secured revolving credit facility in an aggregate principal amount of up to $200.0 million provided certain conditions are satisfied. The interest rate on borrowings under the revolving credit facility is dependent on our consolidated total leverage ratio and ranges between LIBOR plus 350 to 450 basis points. Our current interest rate under the revolving credit facility is LIBOR plus 425 basis points with an unused commitment fee of 50 basis points. The interest rate on the senior secured term loan is also dependent on our consolidated total leverage ratio and ranges between LIBOR plus 350 to 375 basis points, with a LIBOR floor of 100 basis points. Based on our current leverage ratio, the interest rate is LIBOR plus 375 basis points with a LIBOR floor of 100 basis points.



9

Our credit facility is secured by substantially all of our assets and is required to be fully and unconditionally guaranteed by any material, direct and indirect, domestic subsidiaries (of which we currently have none). Our credit facility contains customary affirmative and negative covenants for financings of its type, including the following financial covenants: maximum total adjusted leverage ratio and minimum interest coverage ratio (as defined in our credit agreement). Additionally, our credit facility contains restrictive covenants regarding our ability to incur indebtedness, make capital expenditures, enter into mergers, acquisitions, and joint ventures, pay dividends or change our line of business, among other things. If we are able to satisfy a leverage ratio incurrence test and no default under our credit facility is continuing or would result therefrom, we are permitted under the credit facility to pay dividends in an aggregate amount not to exceed $35.0 million per fiscal year, plus the sum of (i) any unused amount from preceding years beginning with fiscal year 2012 and (ii) the amount of excess cash flow, if any, not required to be utilized to prepay outstanding amounts under our credit facility for the previous fiscal year. As of December 26, 2013, we were in compliance with all covenants and restrictions.

In addition, a change of control of our company, which includes among other things, the majority of the directors on our Board consisting of new directors whose nomination was not recommended by a majority of our current directors, a person acquiring beneficial ownership of a certain amount of our equity securities or a change of control occurring under the indenture governing our senior unsecured notes, would constitute an event of default, upon which, the lenders holding a majority of the outstanding term loans and revolving credit commitments under the credit facility would be able to accelerate any unpaid loan amounts requiring us to immediately repay all such amounts (plus accrued interest to the date of repayment).

As of December 26, 2013, we had approximately $83.6 million of standby letters of credit issued under the credit facility. We had approximately $141.4 million in available borrowing capacity under the revolving credit facility, of which $76.4 million was available for the issuances of letters of credit. The standby letters of credit primarily relate to self-insurance programs, vendor contracts and regulatory requirements.

We have outstanding $250.0 million of 8.375% senior unsecured notes ("senior notes") maturing in 2020. Interest on the senior notes is payable semi-annually in February and August of each year until maturity. If a change of control occurs under the indenture governing our senior notes, which includes among other things, the majority of the directors on our Board consisting of new directors whose election or nomination for election was not approved by a majority of our current directors, a person acquiring beneficial ownership of a certain amount of our equity securities, certain mergers or consolidations, and the sale of all or substantially all of our assets, we must give holders of the senior notes an opportunity to sell their senior notes to us at a purchase price equal to 101% of the principal amount of the senior notes, plus accrued and unpaid interest, if any, to the purchase date, subject to certain conditions. Failure to make or comply with the repurchase offer would be an event of default under the indenture governing our senior notes, which would also trigger a cross-default under our credit facility. Additionally, an event of default under our credit facility that results in the acceleration of indebtedness thereunder would result in an event of default under the indenture governing our senior notes. Upon an event of default under the indenture governing our senior notes, the requisite noteholders would be able to accelerate and require us to immediately repay all unpaid senior unsecured note amounts (plus accrued interest to the date of repayment).
 
The indenture governing our senior notes contains restrictive covenants that are similar to those contained in our credit facility. If we are able to satisfy a fixed charge coverage ratio incurrence test and no default under our indenture is continuing or would result therefrom, we are permitted to pay dividends, subject to certain exceptions and qualifications, not exceeding 50% of our consolidated net income (as defined in our indenture) from June 29, 2012 to the end of our most recently ended fiscal quarter, plus proceeds received from certain equity issuances and returns or dispositions of certain investments made from August 3, 2012, less the aggregate amount of dividends or other restricted payments made under this provision and the amount of certain other restricted payments that our indenture permits us to make. Notwithstanding the indenture provision described in the prior sentence, so long as no default under our indenture is continuing or would result therefrom, we are permitted to pay dividends in an aggregate amount not to exceed $20.0 million since August 3, 2012. Based on our current fixed charge coverage ratio incurrence test we are not permitted to pay dividends. We do not expect to pay dividends in the foreseeable future.

As of December 26, 2013, the maximum total adjusted leverage ratio (generally the ratio of our consolidated debt to specified earnings) decreased from 6.25 to 6.0. During the first quarter of fiscal 2014, we entered into the Second Amendment (the "Amendment") to the Fourth Amended and Restated Credit Agreement. The Amendment extends the date on which the required minimum consolidated interest coverage ratio increases from 2.0 to 1.0 to 2.25 to 1.0 from the end of the first quarter of fiscal 2014 to the end of the fourth quarter of fiscal 2014.

As of December 26, 2013, we were in compliance with all covenants and restrictions. Our ability to access our credit facility is subject to our compliance with the terms and conditions of the credit agreement governing our credit facility, including financial and negative covenants.

10

The carrying amounts and the related estimated fair value of our long-term debt is disclosed in Note 9, Fair Value
Measurements.

The remaining principal payments of our long-term debt as of December 26, 2013 are as follows:
(in thousands)
 
Fiscal year
 
2014
$
1,913

2015
2,550

2016
2,550

2017
2,550

2018
2,550

Later years
490,337

      Total principal payments
$
502,450



NOTE 5 – STOCK-BASED COMPENSATION
We account for stock-based compensation by estimating the fair value of stock options using the Black-Scholes option pricing model. Restricted stock awards and restricted stock units (collectively time-based restricted stock) and performance-based restricted stock are valued at the market price of a share of our common stock on the date of grant. We recognize this fair value as an expense in our Condensed Statements of Operations over the requisite service period using the straight-line method. We adjust the expense recognized on performance-based restricted stock based on the probability of achieving performance metrics.

Stock-based compensation grants, for the periods presented are as follows:
 
Three Months Ended
(in thousands)
December 26,
2013
 
December 27,
2012
Shares granted
 

 
 

Stock options
121

 
153

Time-based restricted stock
96

 
197

Performance-based restricted stock
191

 
238

Total shares granted
408

 
588

 
 
 
 
Fair value of shares granted
 
 
 
Stock options
$
547

 
$
517

Time-based restricted stock
1,528

 
2,244

Performance-based restricted stock
3,033

 
2,719

Total fair value of shares granted
$
5,108

 
$
5,480


The components of stock-based compensation expense included in general and administrative expenses in our Condensed Statements of Operations for the periods presented are as follows:
 
Three Months Ended
(in thousands)
December 26,
2013
 
December 27,
2012
Stock options
$
128

 
$
113

Time-based restricted stock
761

 
692

Performance-based restricted stock
35

 
47

Total stock-based compensation expense
$
924

 
$
852




11


NOTE 6 - INTEREST EXPENSE

The components of interest expense for the periods presented are as follows:
 
Three Months Ended
(in thousands)
December 26,
2013
 
December 27,
2012
Interest on long-term debt, including amortization of deferred
   financing costs
$
9,933

 
$
11,058

Interest on lease finance obligations
10,988

 
11,143

Amortization of terminated interest rate swaps
161

 
161

Amortization of debt discount
91

 
515

Miscellaneous
199

 
224

Interest expense
$
21,372

 
$
23,101



NOTE 7 - LOSS PER SHARE

Basic loss per share is computed on the basis of the weighted-average number of common shares available to common shareholders. Diluted loss per share is computed on the basis of the weighted-average number of common shares available to common shareholders, plus the effect of unvested restricted stock and stock options using the "treasury stock" method.

Stock options and restricted stock representing 1.3 million and 1.8 million shares for the three months ended December 26, 2013 and December 27, 2012, respectively, were anti-dilutive and were not included in the diluted loss per share calculation. In periods in which a net loss is incurred, no common stock equivalents are included since they are anti-dilutive. As such, all stock options and restricted stock outstanding are excluded from the computation of diluted loss per share in those periods.
The following table reflects the calculation of basic and diluted loss per share for the periods presented:
 
Three Months Ended
(in thousands, except per share data)
December 26,
2013
 
December 27,
2012
Net loss
$
(5,144
)
 
$
(3,057
)
Loss per share—basic:
 
 
 
Weighted-average shares outstanding
22,791

 
22,615

Loss per share—basic
$
(0.23
)
 
$
(0.14
)
Loss per share—diluted:
 
 
 
Weighted-average shares outstanding
22,791

 
22,615

Weighted-average potential dilutive shares outstanding
—

 
—

Weighted-average shares and potential dilutive shares outstanding
22,791


22,615

Loss per share—diluted
$
(0.23
)
 
$
(0.14
)



12

NOTE 8 - COMMITMENTS AND CONTINGENCIES
 
As of December 26, 2013, we were contingently liable for outstanding letters of credit in the amount of approximately $83.6 million primarily related to several self-insurance programs, vendor contracts and regulatory requirements. The letters of credit are not to be drawn against unless we default on the timely payment of related liabilities.

Legal and Regulatory Matters

Since the beginning of fiscal 2007, over 45 class action lawsuits have been filed in federal courts across the country against numerous companies in the petroleum industry. Major petroleum companies and significant retailers in the industry have been named as defendants in these lawsuits. Initially, we were named as a defendant in eight of these cases, three of which have recently been dismissed without prejudice. We remain as a defendant in five cases: one in North Carolina (Neese, et al. v. Abercrombie Oil Company, Inc., et al., E.D.N.C., No. 5:07-cv-00091-FL, filed 3/7/07); one in Alabama (Cook, et al. v. Chevron USA, Inc., et al., N.D. Ala., No. 2:07-cv-750-WKW-CSC, filed 8/22/07); one in Georgia (Rutherford, et al. v. Murphy Oil USA, Inc., et al., No. 4:07-cv-00113-HLM, filed 6/5/07); one in Tennessee (Shields, et al. v. RaceTrac Petroleum, Inc., et al., No. 1:07-cv-00169, filed 7/13/07); and one in South Carolina (Korleski v. BP Corporation North America, Inc., et al., D.S.C., No 6:07-cv-03218-MDL, filed 9/24/07). Pursuant to an Order entered by the Joint Panel on Multi-District Litigation ("MDL"), all of the cases, including those in which we are named, have been transferred to the United States District Court for the District of Kansas and consolidated for all pre-trial proceedings. The plaintiffs in the lawsuits generally allege that they are retail purchasers who received less motor fuel than the defendants agreed to deliver because the defendants measured the amount of motor fuel they delivered in non-temperature adjusted gallons which, at higher temperatures, contain less energy. These cases seek, among other relief, an order requiring the defendants to install temperature adjusting equipment on their retail motor fuel dispensing devices and/or temperature disclosures. In certain of the cases, including some of the cases in which we are named, plaintiffs also have alleged that because defendants pay fuel taxes based on temperature adjusted 60 degree gallons, but allegedly collect taxes from consumers on non-temperature adjusted gallons, defendants receive a greater amount of tax from consumers than they paid on the same gallon of fuel. The plaintiffs in these cases seek, among other relief, recovery of excess taxes paid and punitive damages. Both types of cases seek compensatory damages, injunctive relief, attorneys’ fees and costs and prejudgment interest. The defendants filed motions to dismiss all cases for failure to state a claim, which were denied by the court on February 21, 2008.

On May 28, 2010, in a lawsuit in which we are not a party, the Court granted the Kansas Plaintiffs’ Motion for Class Certification as to liability and injunctive relief pursuant to Rule 23(b)(2) but declined to certify a class for damages at that time. The Kansas Defendants sought permission to appeal that decision to the Tenth Circuit in June 2010, and that request was denied on August 31, 2010. On November 21, 2011, the Kansas Defendants filed a motion to decertify the Kansas classes in light of a new favorable United States Supreme Court decision. On January 19, 2012, the MDL judge denied the Defendants’ motion to decertify and, construing Plaintiffs response as a motion to redefine the classes and for class certification under Rules 23(b)(3) and (c)(4), granted the Plaintiffs’ motion as to the liability and injunctive relief aspects of Plaintiffs’ claims. The Kansas Defendants again sought a Rule 23(f) appeal which the Tenth Circuit denied on March 12, 2012. On September 24, 2012, the jury in the Kansas case returned a verdict in favor of defendants, finding that defendants did not violate Kansas law by willfully failing to disclose temperature and its effect on the energy content of motor fuel. On October 3, 2012 the judge in the Kansas case also ruled that defendants’ practice of selling motor fuel without disclosing temperature or disclosing the effect of temperature was not unconscionable under Kansas law. On April 5, 2013 and April 9, 2013, the judge granted class certification to plaintiffs on the liability and injunctive relief aspects of their claims against the nonsettling defendants in the cases filed in California. On August 14, 2013, the Court granted summary judgment in favor of the defendants in the California cases. We are not a defendant in the California cases. On October 9, 2013, at the invitation of the Court, defendants and plaintiffs filed a joint suggested remand and final MDL pretrial order for all the Non-California cases.

In the course of this litigation, the defendants in the Kansas case won a unanimous defense verdict and the defendants in the California cases won on summary judgment, notwithstanding the Court’s granting class certification as described above.

In January 2014, Plaintiffs offered to voluntarily dismiss with prejudice each of the cases to which we are a party without any payment or other consideration from us. We are currently evaluating the offer and the parties are discussing the dismissal documents. The Pantry anticipates that the dismissal documents will likely be filed by the end of January 2014.






13

At this stage of proceedings, if the dismissals with prejudice are not filed, losses are reasonably possible, however, we cannot estimate our loss, range of loss or liability, if any, related to these lawsuits because there are a number of unknown facts and unresolved legal issues that will impact the amount of any potential liability, including, without limitation: (i) whether defendants are required, or even permitted under federal and state law, to sell retail motor fuel with reference to temperature adjustment or disclosure; (ii) the amounts and actual temperature of fuel purchased by plaintiffs; and (iii) whether or not class certification is proper in cases to which we are a party. An adverse outcome in this litigation could have a material effect on our business, financial condition, results of operations and cash flows. 

On October 19, 2009, Patrick Amason, on behalf of himself and a putative class of similarly situated individuals, filed suit against The Pantry in the United States District Court for the Northern District of Alabama, Western Division (Patrick Amason v. Kangaroo Express and The Pantry, Inc. No. CV-9-P-2117-W). On September 9, 2010, a first amended complaint was filed adding Enger McConnell on behalf of herself and a putative class of similarly situated individuals. The plaintiffs seek class action status and allege that The Pantry included more information than is permitted on electronically printed credit and debit card receipts in willful violation of the Fair and Accurate Credit Transactions Act, codified at 15 U.S.C. § 1681c(g). The amended complaint alleges that: (i) plaintiff Patrick Amason seeks to represent a subclass of those class members as to whom we printed receipts containing the first four and last four digits of their credit and/or debit card numbers; and (ii) plaintiff Enger McConnell seeks to represent a subclass of those class members as to whom we printed receipts containing all digits of their credit and/or debit card numbers. The plaintiffs seek an award of statutory damages of $100 to $1,000 for each alleged willful violation of the statute, as well as attorneys' fees, costs, punitive damages and a permanent injunction against the alleged unlawful practice. On July 25, 2011, the court denied the plaintiffs’ initial motion for class certification but granted the plaintiffs the right to file an amended motion. On October 3, 2011, plaintiff filed an amended motion for class certification seeking to certify two classes. The first purported class, represented by Mr. Amason, consists of (A) all natural persons whose credit and/or debit card was used at an in-store point of sale owned or operated by us from June 4, 2009 through the date of the final judgment in the action; (B) where the transaction was in a Company store located in the State of Alabama; and (C) in connection with the transaction, a receipt was printed by Retalix software containing the first four and last four digits of the credit/debit card number on the receipt provided to the customer. The second purported class, represented by Ms. McConnell, consists of (A) all natural persons whose credit and/or debit card was used at an in-store point of sale owned or operated by us from June 1, 2009 through the date of the final judgment in the action; and (B) in connection with the transaction, a receipt was printed containing all of the digits of the credit/debit card numbers on the receipt provided to the customer. We opposed the plaintiffs’ motion for class certification and moved to dismiss the plaintiffs’ claims on the basis that the plaintiffs lack standing. On March 11, 2013, the court denied our Motion to Dismiss For Lack of Standing and certified the issue for interlocutory appeal to the United States Court of Appeals for the 11th Circuit. We filed a petition with the 11th Circuit to take up the appeal of our Motion to Dismiss at this juncture, rather than at the end of the case and on June 20, 2013, the 11th Circuit granted our petition.

On October 8, 2013, we reached a proposed settlement in principle with the plaintiffs which, if finalized in a definitive agreement and approved by the court, will result in a dismissal of this lawsuit. Under the proposed settlement, our minimum liability would be $1.5 million plus the amount of attorneys’ fees awarded and our maximum liability, including legal fees and expenses, would be $5.0 million. Assuming that a definitive settlement agreement is executed and approved by the court, we estimate that our range of liability, inclusive of attorneys’ fees and expenses, will be from $3.1 million to $5.0 million. We accrued a reserve of $3.1 million in the fourth quarter of fiscal 2013 relating to the proposed settlement.

Final approval of the proposed settlement is expected to take several months and there can be no assurance that a definitive settlement agreement will be reached or that the settlement will be approved by the court. We cannot reasonably estimate our loss, range of loss or liability, if any, related to this lawsuit if the settlement agreement is not finalized and approved by the court because there are a number of unknown facts and unresolved legal issues that will impact the amount of our potential liability, including, without limitation: (i) whether the plaintiffs have standing to assert their claims; (ii) whether a class or classes will be certified; (iii) if a class or classes are certified, the identity and number of the putative class members; and (iv) if a class or classes are certified, the resolution of certain unresolved statutory interpretation issues that may impact the size of the putative class(es) and whether or not the plaintiffs are entitled to statutory damages. An adverse outcome in this litigation could have a material effect on our business, financial condition, results of operations and cash flows. 

We are party to various other legal actions in the ordinary course of our business. We believe these other actions are routine in nature and incidental to the operation of our business. While the outcome of these actions cannot be predicted with certainty, management’s present judgment is that the resolution of these matters will not have a material impact on our business, financial condition, results of operations and cash flows. If, however, our assessment of these actions is inaccurate, or there are any significant adverse developments in these actions, our business, financial condition, results of operations and cash flows could be materially affected. 


14

Our Board of Directors has approved employment agreements for our executives, which create certain liabilities in the event of the termination of these executives, including termination following a change of control. These agreements have original terms of at least one year and specify the executive’s current compensation, benefits and perquisites, the executive’s entitlements upon termination of employment and other employment rights and responsibilities.

Environmental Liabilities and Contingencies

We are subject to various federal, state and local environmental laws and regulations. We make financial expenditures in order to comply with regulations governing underground storage tanks adopted by federal, state and local regulatory agencies. In particular, at the federal level, the Resource Conservation and Recovery Act of 1976, as amended, requires the U.S. Environmental Protection Agency ("EPA") to establish a comprehensive regulatory program for the detection, prevention and cleanup of leaking underground storage tanks (e.g., overfills, spills and underground storage tank releases).

Federal and state laws and regulations require us to provide and maintain evidence that we are taking financial responsibility for corrective action and compensating third parties in the event of a release from our underground storage tank systems. In order to comply with these requirements, as of December 26, 2013, we maintained letters of credit in the aggregate amount of approximately $1.4 million in favor of state environmental agencies in North Carolina, South Carolina, Virginia, Georgia, Indiana, Tennessee, Kentucky and Louisiana.

We also rely upon the reimbursement provisions of applicable state trust funds. In Florida, we meet our financial responsibility requirements by state trust fund coverage for releases occurring through December 31, 1998 and meet such requirements for releases thereafter through private commercial liability insurance. In Georgia, we meet our financial responsibility requirements by a combination of state trust fund coverage, private commercial liability insurance and a letter of credit.

As of December 26, 2013, environmental liabilities of approximately $5.2 million and $67.5 million are included in other accrued liabilities and other noncurrent liabilities, respectively. As of September 26, 2013, environmental liabilities of approximately $5.2 million and $66.2 million are included in other accrued liabilities and other noncurrent liabilities, respectively. These environmental liabilities represent our estimates for future expenditures for remediation associated with 583 and 582 known contaminated sites as of December 26, 2013 and September 26, 2013, respectively, as a result of releases (e.g., overfills, spills and underground storage tank releases) and are based on current regulations, historical results and certain other factors. We estimate that approximately $65.0 million of our environmental obligations will be funded by state trust funds and third-party insurance; as a result we estimate we will spend up to approximately $7.7 million for remediation.

As of December 26, 2013, anticipated reimbursements of $2.1 million are recorded as current receivables and $65.0 million are recorded as other noncurrent assets related to all sites. As of September 26, 2013, anticipated reimbursements of $2.4 million are recorded as current receivables and $63.6 million are recorded as other noncurrent assets. Remediation costs for known sites are expected to be incurred over the next one to ten years. Environmental liabilities have been established with remediation costs based on internal and external estimates for each site. Future remediation for which the timing of services can be reliably estimated is discounted at 6.5% to determine the reserve.

Although we anticipate that we will be reimbursed for certain expenditures from state trust funds and private insurance, until such time as a claim for reimbursement has been formally accepted for coverage and payment, there is a risk of our reimbursement claims being rejected by a state trust fund or insurer. In Florida, remediation of such contamination reported before January 1, 1999 will be performed by the state (or state approved independent contractors) and substantially all of the remediation costs, less any applicable deductibles, will be paid by the state trust fund. We will perform remediation in other states through independent contractor firms engaged by us. For certain sites, the state trust fund does not cover a deductible or has a co-pay which may be less than the cost of such remediation. Although we are not aware of releases or contamination at other locations where we currently operate or have operated stores, any such releases or contamination could require substantial remediation expenditures, some or all of which may not be eligible for reimbursement from state trust funds or private insurance. 

As of December 26, 2013 and September 26, 2013, there are 146 and 147 sites, respectively, identified as contaminated that are being remediated by third parties who have indemnified us as to responsibility for cleanup matters. These sites are not included in our environmental liabilities. Additionally, we are awaiting closure notices on several other locations that will release us from responsibility related to known contamination at those sites. These sites continue to be considered in our environmental liabilities until a final closure notice is received. 




15

Unamortized Liabilities Associated with Vendor Payments

Service and supply allowances are amortized over the life of each service or supply agreement, respectively, in accordance with the agreement’s specific terms. As of December 26, 2013, other accrued liabilities and deferred vendor rebates included the unamortized liabilities associated with these payments of $700 thousand and $9.3 million, respectively. As of September 26, 2013, other accrued liabilities and deferred vendor rebates included the unamortized liabilities associated with these payments of $1.3 million and $10.2 million, respectively.

We purchase over 50% of our general merchandise from a single wholesaler, McLane Company, Inc. ("McLane"). Our arrangement with McLane is governed by a distribution service agreement which expires in December 2014.

We have entered into product brand imaging agreements with numerous oil companies to buy fuel at market prices. The initial terms of these agreements have expiration dates ranging from 2014 to 2019 as of December 26, 2013. In connection with these agreements, we may receive upfront vendor allowances, volume incentive payments and other vendor assistance payments. If we default under the terms of any contract or terminate any supply agreement prior to the end of the initial term, we must reimburse the respective oil company for the unearned, unamortized portion of the payments received to date. These payments are amortized and recognized as a reduction to fuel cost of goods sold using the specific amortization periods based on the terms of each agreement, either using the straight-line method or based on fuel volume purchased. Therefore, the contractual obligation we must reimburse the respective oil company if we default may be different than the unamortized balance recorded as deferred vendor rebates.

Fuel Contractual Contingencies

Our Product Supply Agreement, Guaranteed Supply Agreement and Master Conversion Agreement with Marathon provides for Marathon to supply, and us to purchase, certain minimum amounts of motor fuel for our specified convenience store locations. Subject to certain adjustments, Marathon may terminate the agreements if we do not purchase a minimum volume of a combination of Marathon branded and unbranded gasoline and distillates annually. Based on current forecasts, we anticipate attaining the annual minimum fuel requirements. If we fail to purchase the annual minimum amounts, Marathon is entitled to receive the unamortized balance of the investment provided for under the Master Conversion Agreement.

Our Branded Jobber Contract with BP provides for BP to supply, and us to purchase, certain minimum amounts of motor fuel for our specified convenience store locations. Our obligation to purchase a minimum volume of BP branded fuel is measured each year over a one-year period during the remaining term of the agreement. Subject to certain adjustments, in any year in which we fail to meet our minimum volume purchase obligation, we have agreed to pay BP two cents per gallon times the difference between the actual volume of BP branded product purchased and the minimum volume requirement. Based on current forecasts, we anticipate attaining the minimum volume requirements for the one-year period ending December 31, 2014. The Agreement expires on December 31, 2019.

We have agreements with other fuel suppliers that contain minimum volume provisions. A failure to purchase the minimum volumes could result in an increase in our fuel costs and/or other remedies available to the supplier. Based on our current forecasts, we do not expect these requirements to have a material effect on our results of operations, financial position or cash flows.


NOTE 9 - FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance for accounting for fair value measurements established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The three levels of inputs are defined as follows:
Tier
 
Description
Level 1
 
Defined as observable inputs such as quoted prices in active markets.
Level 2
 
Defined as inputs other than quoted prices in active markets that are either directly or indirectly observable.
Level 3
 
Defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
Our financial instruments not measured at fair value on a recurring basis includes cash and cash equivalents, receivables, accounts payable, accrued liabilities and long-term debt and are reflected in the financial statements at cost. With the exception of long-term debt, cost approximates fair value for these items due to their short-term nature. We believe the fair value determination of these short-term financial instruments is a level 1 measure. Estimated fair values for long-term debt have been determined using available market information, including reported trades and benchmark yields. The fair value of our indebtedness was approximately $520.9 million and $522.5 million as of December 26, 2013 and September 26, 2013, respectively. We believe the fair value determination of long-term debt is a Level 2 measure. 


16

Significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition included long-lived tangible assets as described in Note 3, Impairment Charges. 

In determining the impairment of operating stores and surplus properties, we determined the fair values by estimating selling prices of the assets. We generally determine the estimated selling prices using information from comparable sales of similar assets and assumptions about demand in the market for these assets. While some of these inputs are observable, significant judgment was required to select certain inputs from observed market data. We believe the fair value determination of surplus properties and operating stores are a Level 2 measure.

For non-financial assets and liabilities measured at fair value on a non-recurring basis, quantitative disclosure of the fair value for each major category and any resulting realized losses included in earnings is presented below. Because these assets are not measured at fair value on a recurring basis, certain carrying amounts and fair value measurements presented in the table may reflect values at earlier measurement dates and may no longer represent their fair values as of the three months ended December 26, 2013 and December 27, 2012, respectively.

 
Three Months Ended
 
December 26, 2013
 
December 27, 2012
(in thousands)
Operating Stores
 
Surplus Properties
 
Operating Stores
 
Surplus Properties
Non-recurring basis
 

 
 
 
 

 
 
Fair value measurement
$
530

 
$
512

 
$
2,524

 
$
3,119

Carrying amount
1,272

 
599

 
3,899

 
4,043

Realized loss
$
(742
)
 
$
(87
)
 
$
(1,375
)
 
$
(924
)


17

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
This discussion and analysis of our financial condition and results of operations is provided to increase the understanding of, and should be read in conjunction with, our Condensed Financial Statements and the accompanying notes appearing elsewhere in this report. Additional discussion and analysis related to our business is contained in our Annual Report on Form 10-K for the fiscal year ended September 26, 2013.

Safe Harbor Discussion

This report, including, without limitation, our MD&A, contains statements that are "forward-looking statements" under the Private Securities Litigation Reform Act of 1995 and that are intended to enjoy the protection of the safe harbor for forward-looking statements provided by that Act. These forward-looking statements generally can be identified by the use of phrases such as "believe," "plan," "expect," "anticipate," "will," "may," "intend," "outlook," "target", "forecast," "goal," "guidance" or other similar words or phrases. Descriptions of our objectives, goals, targets, plans, strategies, anticipated financial performance, projected costs and burdens of environmental remediation, anticipated capital expenditures, expected cost savings and benefits and anticipated synergies, the ability to divest non-core assets, and expectations regarding remodeling, re-branding, re-imaging or otherwise converting our stores or opening new stores are forward-looking statements, as are our statements relating to our anticipated liquidity, financial position and compliance with our covenants under our credit and other agreements, our pricing and merchandising strategies and their anticipated impact and our intentions with respect to acquisitions, the construction of new stores, including additional quick service restaurants, and the remodeling of our existing stores. These forward-looking statements are based on our current plans and expectations and involve a number of risks and uncertainties that could cause actual results and events to vary materially from the results and events anticipated or implied by such forward-looking statements, including:

•
Competitive pressures from convenience stores, fuel stations and other non-traditional retailers located in our markets;
•
Enhancing our operating performance through in-store initiatives and our store remodel program;
•
Realizing the expected benefits from our fuel supply agreements, including our ability to satisfy minimum fuel provisions;
•
Financial difficulties of suppliers, including our principal suppliers of fuel and merchandise, and their ability to continue to supply our stores;
•
Volatility in domestic and global petroleum and fuel markets;
•
Political conditions in oil producing regions and global demand;
•
Changes in credit card expenses;
•
Changes in economic conditions generally and in the markets we serve;
•
Consumer behavior, travel and tourism trends;
•
Legal, technological, political and scientific developments regarding climate change;
•
Wholesale cost increases of, tax increases on and campaigns to discourage the use of tobacco products;
•
Federal and state regulation of tobacco products;
•
Unfavorable weather conditions, the impact of climate change or other trends or developments in the southeastern United States;
•
Inability to identify, acquire and integrate new stores or to divest our non-core stores to qualified buyers or operators on acceptable terms;
•
Financial leverage and debt covenants, including increases in interest rates;
•
Our ability to identify suitable acquisition targets and to take advantage of expected synergies in connection with acquisitions;
•
Federal and state environmental, tobacco and other laws and regulations;
•
Dependence on one principal supplier for merchandise and three principal suppliers for fuel;
•
Dependence on senior management;
•
Litigation risks, including with respect to food quality, health and other related issues;
•
Inability to maintain an effective system of internal control over financial reporting;
•
Disruption of our information technology systems or a failure to protect sensitive customer, employee or vendor data;
•
Risks associated with proxy contests conducted by dissident stockholders;
•
Inability to effectively implement our store improvement strategies; and
•
Other unforeseen factors.

For a discussion of these and other risks and uncertainties, please refer to the Risk Factors and Critical Accounting Policies and Estimates included in our Annual Report on Form 10-K and the description of material changes therein, if any, included in our Quarterly Reports on Form 10-Q. The list of factors that could affect future performance and the accuracy of forward-looking statements is illustrative but by no means exhaustive.

18

Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty. The forward-looking statements included in this report are based on, and include, our estimates as of January 30, 2014. We anticipate that subsequent events and market developments will cause our estimates to change. However, while we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if new information becomes available.

Our Business

We are a leading independently operated convenience store chain in the southeastern United States. As of December 26, 2013, we operated 1,538 stores in 13 states primarily under the Kangaroo Express® operating banner. All but our smallest stores offer a wide selection of merchandise, fuel and ancillary products and services designed to appeal to the convenience needs of our customers. A limited number of stores do not offer fuel.

Business Strategy

Our strategy is to grow revenue and profitability by focusing  on prioritizing our markets and improving the stores within those markets. We then remodel stores, selectively open  new stores and restaurants  and acquire stores. In addition we have seven initiatives designed to improve the performance of our company. This strategy is intended to allow us to reinvest in our business and maintain sufficient liquidity and financial flexibility. Our initiatives are as follows:

•
Invest in the development of the best and most energized people;
•
Increase merchandise sales and gross margin with targeted merchandising and foodservice initiatives;
•
Optimize fuel gallons sold and fuel margin;
•
Reduce our corporate general administrative, and store operating expenses as a percent of revenue;
•
Generate strong operating cash flow to reinvest in our business and reduce our leverage;
•
Divest underperforming store assets and non-productive surplus properties; and
•
Utilize technology throughout the business to improve the customer experience, our performance, and our people.

Executive Overview

Our net loss for the first quarter of fiscal 2014 was $5.1 million, or $0.23 per share, compared to $3.1 million, or $0.14 per share, in the first quarter of fiscal 2013. Adjusted EBITDA for the first quarter of fiscal 2014 was $42.4 million, a decrease of $6.5 million, or 13.3% from the first quarter of fiscal 2013. For the definition of Adjusted EBITDA, see our discussion of the Three Months Ended December 26, 2013 Compared to the Three Months Ended December 27, 2012.

During the first quarter of fiscal 2014, comparable store merchandise revenue increased 3.5%, driven primarily by a 4.1% increase in sales per customer. Comparable store merchandise revenue increased 5.4% excluding the impact of cigarettes. Comparable store retail fuel gallons sold declined 4.0% during the first quarter of fiscal 2014 while our retail fuel margin per gallon improved to 11.8 cents in the first quarter of fiscal 2014 from 11.4 cents in the first quarter of fiscal 2013.

We remained focused on upgrading our store base in the first quarter of fiscal 2014 as we completed 28 remodels, opened one new store and four quick service restaurants. For the remainder of fiscal 2014 we plan to continue to execute on our merchandising programs as well as balancing our fuel profitability and volumes throughout our store portfolio. In addition we intend to continue to strengthen our position in our key markets through our facilities program including remodels, opening new stores and quick service restaurants. We may also look to enhance our density in these key markets through disciplined acquisitions of individual stores or chains of stores.

During the first quarter of fiscal 2014, JCP Investment Partnership, LP (“JCP”), delivered a notice of intent to nominate individuals to our board of directors at the 2014 Annual Meeting of Stockholders scheduled for March 13, 2014 (the “Annual Meeting”). After discussion between management and certain of our directors and representatives of JCP, our Corporate Governance and Nominating Committee reviewed four individuals put forward by JCP and determined that they should not be nominated to our Board. Subsequent to the first quarter of fiscal 2014, JCP and Lone Star Value Management, LLC (“Lone Star,” together with JCP, the “JCP Group”), announced publicly their intent to nominate three individuals to our board of directors at the Annual Meeting.





19


Market and Industry Trends

Wholesale fuel costs, as measured by the Gulf Spot price, were volatile during the first quarter of fiscal 2014. Wholesale fuel costs fluctuated within a range of approximately $0.38 throughout the quarter with a low on November 5, 2013 of $2.28 and a high on November 21, 2013 of $2.66. In comparison, wholesale fuel costs declined steadily throughout the first quarter of fiscal 2013 before a dramatic rise in the last few weeks of the quarter. These changes in wholesale fuel costs yielded a retail margin per gallon of 11.8 cents in the first quarter of fiscal 2014 compared to 11.4 cents in the same period of fiscal 2013. We attempt to pass along wholesale fuel cost changes to our customers through retail price changes; however, we are not always able to do so. The timing of any related increase or decrease in retail prices is affected by competitive conditions. As a result, we tend to experience higher fuel margins when the cost of fuel is declining gradually over a longer period and lower fuel margins when the cost of fuel is increasing or more volatile over a shorter period of time.

Results of Operations

The table below provides a summary of our selected financial data for the three months ended December 26, 2013 and December 27, 2012:
 
Three Months Ended
(in thousands, except per gallon and store count data)
December 26,
2013
 
December 27,
2012
 
Percent
Change
Merchandise data:
 
 
 
 
 
Merchandise revenue
$
440,780

 
$
428,848

 
2.8
 %
   Merchandise gross profit (1)
$
147,779

 
$
146,893

 
0.6
 %
Merchandise margin
33.5
 %
 
34.3
 %
 
N/A

Fuel data:
 
 
 
 
 

Financial data:
 
 
 
 
 

Fuel revenue
$
1,363,299

 
$
1,486,359

 
(8.3
)%
   Fuel gross profit (1)(2)
$
48,682

 
$
49,168

 
(1.0
)%
Retail fuel data:
 
 
 
 
 
   Gallons (in millions)
408.7

 
427.0

 
(4.3
)%
   Margin per gallon (2)
$
0.118

 
$
0.114

 
3.5
 %
   Retail price per gallon
$
3.28

 
$
3.42

 
(4.1
)%
Financial data:
 
 
 
 
 
Store operating expenses
$
128,069

 
$
123,276

 
3.9
 %
General and administrative expenses
$
25,977

 
$
23,886

 
8.8
 %
Impairment charges
$
829

 
$
2,299

 
(63.9
)%
Depreciation and amortization
$
28,679

 
$
28,586

 
0.3
 %
Interest expense
$
21,372

 
$
23,101

 
(7.5
)%
Income tax benefit
$
(3,321
)
 
$
(2,030
)
 
63.6
 %
   Adjusted EBITDA (3)
$
42,415

 
$
48,899

 
(13.3
)%
Comparable store data (4):
 
 
 
 
 
Merchandise sales increase (%)
3.5
 %
 
2.2
 %
 
N/A

Merchandise sales increase
$
14,721

 
$
9,240

 
59.3
 %
Retail fuel gallons decrease (%)
(4.0
)%
 
(4.8
)%
 
N/A

Retail fuel gallons decrease
(16,961
)
 
(21,361
)
 
(20.6
)%
Number of stores:
 
 
 
 
 
End of period
1,538

 
1,572

 
(2.2
)%
Weighted-average store count
1,544

 
1,574

 
(1.9
)%

(1) 
We compute gross profit exclusive of depreciation and allocation of store operating and general and administrative expenses.
(2) 
Fuel margin per gallon represents fuel revenue less cost of product and expenses associated with credit card processing fees and repairs and maintenance on fuel equipment. Fuel margin per gallon as presented may not be comparable to similarly titled measures reported by other companies.
(3) 
For the definition of Adjusted EBITDA, see our discussion of the Three Months Ended December 26, 2013 Compared to the Three Months Ended December 27, 2012.
(4) 
The stores included in calculating comparable store data are existing or replacement retail stores, which were in operation during the entire comparable period of all fiscal years. Remodeling, physical expansion or changes in store square footage are not considered when computing comparable store data as amounts have no meaningful impact on measures. Comparable store data as defined by us may not be comparable to similarly titled measures reported by other companies.

20


Three Months Ended December 26, 2013 Compared to the Three Months Ended December 27, 2012

Merchandise Revenue and Gross Profit. Merchandise revenue in the first quarter of fiscal 2014 increased $11.9 million from the first quarter of fiscal 2013. Our comparable store merchandise revenue increased 3.5%, or $14.7 million driven by a 4.1% increase in merchandise revenue per customer. We experienced stronger comparable store merchandise revenue growth in other tobacco products and proprietary foodservice categories, while we continue to see declining comparable store sales in cigarettes. Our comparable store merchandise revenue increased 5.4% excluding the impact of cigarettes. Merchandise revenue also increased $2.5 million from the first quarter of fiscal 2013 as a result of new convenience store openings and acquisitions since the beginning of the first quarter of fiscal 2013. These increases were partially offset by lost merchandise revenue from stores closed or converted to dealer operations since the beginning of the first quarter of fiscal 2013 of $4.9 million.

Our merchandise gross profit increased $887 thousand or 0.6% from the first quarter of fiscal 2013 as a result of the increase in merchandise revenues. The impact from increased merchandise revenues was partially offset by the decline in merchandise margin to 33.5% from 34.3% in the first quarter of fiscal 2013, which was driven by sales mix and more competitive pricing. We compute gross profit exclusive of depreciation and allocation of store operating and general and administrative expenses.

Fuel Revenue, Gallons and Gross Profit. Fuel revenue in the first quarter of fiscal 2014 decreased $123.1 million, or 8.3% as a result of the decrease in retail fuel gallons sold for the first quarter of fiscal 2014 of 4.3%, or 18.3 million gallons compared to the first quarter of fiscal 2013 and a decline in our average retail fuel prices of 4.1% to $3.28 in the first quarter of fiscal 2014 from $3.42 in the first quarter of fiscal 2013. The decline in retail fuel gallons sold is primarily attributable to a 4.0%, or 17.0 million gallon decline in comparable store retail fuel gallons sold. We believe lower consumer retail fuel demand contributed to our decline in comparable store retail fuel gallons sold during the first quarter of fiscal 2014.

Fuel gross profit remained relatively consistent, declining $487 thousand or 1.0% as the decline in retail fuel gallons sold of 4.3% was nearly offset by an increase in our retail margin per gallon to 11.8 cents in the first quarter of fiscal 2014 from 11.4 cents in the first quarter of fiscal 2013. Retail margin per gallon in the first quarter of fiscal 2013 was negatively impacted by rising wholesale fuel costs in the last few weeks of the quarter, as measured by the Gulf Spot price. We compute gross profit exclusive of depreciation and allocation of store operating and general and administrative expenses and inclusive of credit card processing fees and cost of repairs and maintenance on fuel equipment. These fees totaled 6.6 cents and 6.8 cents per retail gallon for the three months ended December 26, 2013 and December 27, 2012, respectively.

Store Operating. Store operating expenses for the first quarter of fiscal 2014 increased $4.8 million, or 3.9%, from the first quarter of fiscal 2013. The increase is primarily due to higher facilities costs from remodel related maintenance and non-capital equipment expenditures.  We also experienced increased store labor and training costs as we added additional part time employees to address staffing needs in preparation for the Affordable Care Act.

General and Administrative. General and administrative expenses for the first quarter of fiscal 2014 increased $2.1 million or 8.8% from the first quarter of fiscal 2013. The increase is driven by gains recognized in the first quarter of fiscal 2013 from condemnation proceeds that did not repeat in the first quarter of fiscal 2014 and higher incentive compensation costs tied to financial performance targets.

Impairment Charges. We recorded impairment charges related to operating stores and surplus properties of $829 thousand and $2.3 million for the three months ended December 26, 2013 and December 27, 2012, respectively, as a result of changes in expected cash flows at certain operating stores and management determining that certain facts and circumstances changed regarding specific surplus properties. See Note 3, Impairment Charges and Note 9, Fair Value Measurements in Part I, Item 1, Financial Statements, Notes to Condensed Financial Statements.

Interest Expense. Interest expense is primarily comprised of interest on our long-term debt and lease finance obligations. Interest expense for the first quarter of fiscal 2014 was $21.4 million compared to $23.1 million for the first quarter of fiscal 2013. The decrease is primarily due to lower interest rates on our term loan and lower average outstanding borrowings as a result of repaying $61.3 million of outstanding convertible notes upon maturity in November 2012.

Income Tax Benefit. The change in income tax benefit was a result of the change in our pre-tax loss from the first quarter of fiscal 2014 to the first quarter of fiscal 2013. Our effective tax rate remained consistent and was 39.2% in the first quarter of fiscal 2014 compared to 39.9% in the first quarter of fiscal 2013.



21

Adjusted EBITDA. We define Adjusted EBITDA as net income (loss) before interest expense, gain (loss) on extinguishment of debt, income taxes, impairment charges and depreciation and amortization. Adjusted EBITDA for the first quarter of fiscal 2014 decreased $6.5 million, or 13.3%, from the first quarter of fiscal 2013. This decrease is primarily attributable to the increased store operating and general administrative expenses noted above.

Adjusted EBITDA is not a measure of operating performance or liquidity under generally accepted accounting principles ("GAAP") and should not be considered as a substitute for net income, cash flows from operating activities or other income or cash flow statement data. We have included information concerning Adjusted EBITDA because we believe investors find this information useful as a reflection of the resources available for strategic opportunities including, among others, to invest in our business, make strategic acquisitions and to service debt. Management also uses Adjusted EBITDA to review the performance of our business directly resulting from our retail operations and for budgeting compensation targets. Adjusted EBITDA does not include impairment of long-lived assets and other charges. We excluded the effect of impairment losses because we believe that including them in Adjusted EBITDA is not consistent with reflecting the ongoing performance of our remaining assets.

Any measure that excludes interest expense, gain (loss) on extinguishment of debt, depreciation and amortization, impairment charges or income taxes has material limitations because we use debt and lease financing in order to finance our operations and acquisitions, we use capital and intangible assets in our business and the payment of income taxes is a necessary element of our operations. Due to these limitations, we use Adjusted EBITDA only in addition to and in conjunction with results and cash flows presented in accordance with GAAP. We strongly encourage investors to review our financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.

Because non-GAAP financial measures are not standardized, Adjusted EBITDA, as defined by us, may not be comparable to similarly titled measures reported by other companies. It therefore may not be possible to compare our use of Adjusted EBITDA with non-GAAP financial measures having the same or similar names used by other companies.

The following table contains a reconciliation of Adjusted EBITDA to net loss for the periods presented:
 
Three Months Ended
(in thousands)
December 26,
2013
 
December 27,
2012
Adjusted EBITDA
$
42,415

 
$
48,899

Impairment charges
(829
)
 
(2,299
)
Interest expense
(21,372
)
 
(23,101
)
Depreciation and amortization
(28,679
)
 
(28,586
)
Income tax benefit
3,321

 
2,030

Net loss
$
(5,144
)
 
$
(3,057
)

The following table contains a reconciliation of Adjusted EBITDA to net cash provided by operating activities for the periods presented:
 
Three Months Ended
(in thousands)
December 26,
2013
 
December 27,
2012
Adjusted EBITDA
$
42,415

 
$
48,899

Interest expense
(21,372
)
 
(23,101
)
Income tax benefit
3,321

 
2,030

Stock-based compensation expense
924

 
852

Changes in operating assets and liabilities
(13,076
)
 
(11,008
)
   Benefit for deferred income taxes
(2,983
)
 
(2,002
)
Other
1,404

 
1,349

Net cash provided by operating activities
$
10,633

 
$
17,019

Net cash used in investing activities
$
(29,745
)
 
$
(18,370
)
Net cash used in financing activities
$
(5,550
)
 
$
(63,459
)




22


Liquidity and Capital Resources
 
Three Months Ended
(in thousands)
December 26,
2013
 
December 27,
2012
Cash and cash equivalents at beginning of period
$
57,168

 
$
89,175

Net cash provided by operating activities
10,633

 
17,019

Net cash used in investing activities
(29,745
)
 
(18,370
)
Net cash used in financing activities
(5,550
)
 
(63,459
)
Cash and cash equivalents at end of period
$
32,506

 
$
24,365

Consolidated total adjusted leverage ratio (1)
5.56

 
5.28

Consolidated interest coverage ratio (1)
2.34

 
2.45


(1) 
As defined by the senior credit facility agreement.

Due to the nature of our business, substantially all sales are for cash and credit cards which are converted to cash shortly after the transaction. Cash provided by operations is our primary source of liquidity. We rely primarily on cash provided by operating activities, supplemented as necessary from time to time by borrowings under our revolving credit facility to finance our operations, pay principal and interest on our debt and fund capital expenditures. We generally experience higher sales volumes during the summer months, and therefore our cash flow from operations tends to be higher during our third and fourth fiscal quarters. We had approximately $83.6 million of standby letters of credit issued under the facility as of December 26, 2013.

Cash Flows provided by Operating Activities. Cash provided by operating activities decreased to $10.6 million for the first three months of fiscal 2014 compared to $17.0 million for the first three months of fiscal 2013. The decrease in cash flow from operations is primarily due to a higher net loss in the first three months of fiscal 2014 compared to the first three months of fiscal 2013, as well as the impact of non-cash impairment charges and changes in working capital. Changes in working capital used cash of $11.9 million in the first three months of fiscal 2014 compared to a use of cash of $9.9 million in the first three months of fiscal 2013. Changes in working capital tend to result in a use of cash in our first fiscal quarter due to the timing of property tax payments, incentive compensation programs and other operating expenses.

Cash Flows used in Investing Activities. Cash used in investing activities increased to $29.7 million for the first three months of fiscal 2014 compared to $18.4 million for the first three months of fiscal 2013. Capital expenditures for the first three months of fiscal 2014 were $31.7 million which was partially offset by proceeds from the sale of property and equipment of $2.0 million. Capital expenditures for the first three months of fiscal 2013 were $20.5 million which was partially offset by proceeds from the sale of property and equipment of $2.0 million. Capital expenditures primarily relate to store improvements, store equipment, new store development including quick service restaurants, information systems and expenditures to comply with regulatory statutes, including those related to environmental matters. The increase in capital expenditures in the first quarter of fiscal 2014 compared to the first quarter of fiscal 2013 is primarily due to our store remodel and new store initiatives. The proceeds from the sale of property and equipment relate to our ongoing initiative to divest our under-performing store assets and non-productive surplus properties. We finance substantially all capital expenditures through cash flows from operations, asset dispositions and vendor reimbursements. We anticipate that capital expenditures for fiscal 2014 will be approximately $110.0 million.

Cash Flows used in Financing Activities. For the first three months of fiscal 2014, net cash used in financing activities was $5.6 million compared to $63.5 million for the first three months of fiscal 2013. During the first three months of fiscal 2013, we used available cash to repay the $61.3 million of outstanding convertible notes.

Sources of Liquidity

As of December 26, 2013, we had approximately $32.5 million in cash and cash equivalents and approximately $141.4 million in available borrowing capacity under our revolving credit facility, approximately $76.4 million of which was available for the issuances of letters of credit.

Due to the nature of our business, substantially all sales are for cash and credit cards which are converted to cash shortly after the transaction. Funds generated by operating activities, available cash and cash equivalents, our credit facility and asset dispositions continue to be our most significant sources of liquidity.

23

We believe our sources of liquidity will be sufficient to sustain operations and to finance anticipated strategic initiatives for the next twelve months. However, in the event our liquidity is insufficient, we may be required to limit our spending on future initiatives or other business opportunities. There can be no assurance that we will continue to generate cash flows at or above current levels or that we will be able to maintain our ability to borrow under our existing credit facilities or obtain additional financing, if necessary, on favorable terms.

Our financing strategy is to maintain liquidity and access to capital markets while reducing our leverage. We expect to continue to have access to capital markets on both short and long-term bases when needed for liquidity purposes. Our continued access to these markets depends on multiple factors including the condition of debt capital markets, our operating performance and maintaining our credit ratings. Our credit ratings and outlooks issued by Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Rating Services ("Standard & Poor's") as of December 26, 2013, are summarized below:
Rating Agency
 
Senior
Secured Credit Facility
 
Senior
Unsecured Notes due 2020
 
Corporate
Rating
 
Corporate
Outlook
Moody's
 
B1
 
Caa1
 
B2
 
Stable
Standard & Poor's
 
BB
 
B+
 
B+
 
Stable

Credit rating agencies review their ratings periodically and therefore, the credit rating assigned to us by each agency may be subject to revision at any time. Accordingly, we are not able to predict whether our current credit ratings will remain as disclosed above. Factors that can affect our credit ratings include changes in our operating performance, the economic environment, conditions in the convenience store industry, our financial position and changes in our business strategy. If further changes in our credit ratings were to occur, they could impact, among other things, our future borrowing costs, access to capital markets and vendor financing terms.

Capital Resources

Capital Expenditures

We anticipate spending approximately $110.0 million in capital expenditures during fiscal 2014. Our capital expenditures typically include store improvements, store equipment, new store development including quick service restaurants, information systems and expenditures to comply with regulatory statutes, including those related to environmental matters. Refer to Note 8, Commitments and Contingencies, of the Notes to Condensed Financial Statements, included in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q for further information regarding our significant commitments.

Debt

Our credit facility includes a $225.0 million senior secured revolving credit facility which expires in 2017 and a $255.0 million senior secured term loan which matures in 2019. The senior secured revolving credit facility is available for working capital and general corporate purposes, and a maximum of $160.0 million is available for issuance of letters of credit. The issuance of letters of credit will reduce the amount otherwise available for borrowing under the senior secured revolving credit facility. In addition, the credit facility provides for the ability to incur additional senior secured term loans and/or increases in the senior secured revolving credit facility in an aggregate principal amount of up to $200.0 million provided certain conditions are satisfied, and provided that the aggregate principal amount for all increases in the senior secured revolving credit facility cannot exceed $100.0 million.

The interest rate on borrowings under the senior secured revolving credit facility is dependent on our consolidated total leverage ratio and ranges between LIBOR plus 350 to 450 basis points. Our current interest rate under the revolving credit facility is LIBOR plus 425 basis points with an unused commitment fee of 50 basis points. The interest rate on the senior secured term loan is also dependent on our consolidated total leverage ratio and ranges between LIBOR plus 350 to 375 basis points, with a LIBOR floor of 100 basis points. Our current interest rate under the senior secured term loan is LIBOR (with a floor of 100 basis points) plus 375 basis points. Interest under the credit facility is paid on the last day of each LIBOR interest period, but no less than every three months.






24

Borrowings under our senior secured term loan are required to be paid in equal quarterly installments in an aggregate annual amount equal to 1% of the original principal amount, with the remainder due on the maturity date. In addition, borrowings under our credit facility are required to be prepaid with: (a) 100% of the net cash proceeds of the issuance or incurrence of debt by the Company or any of its subsidiaries, subject to certain exceptions; (b) 100% of the net cash proceeds of all asset sales, insurance and condemnation recoveries and other asset dispositions by the Company or its subsidiaries, if any, subject to reinvestment provisions and certain other exceptions; and (c) to the extent the total leverage ratio is greater than 3.5 to 1.0 at the end of any fiscal year, the lesser of (i) 50% of excess cash flow during such fiscal year minus voluntary prepayments of our senior secured term loan or senior unsecured notes or (ii) the amount of prepayment necessary to lower the total leverage ratio to 3.5 to 1.0, after giving pro forma effect to such prepayment.

Our ability to access our credit facility is subject to our compliance with the terms and conditions of the credit agreement governing our credit facility, including financial and negative covenants.

The financial covenants under our credit facility currently include the following: (a) maximum total adjusted leverage ratio, which is the maximum ratio of debt (net of cash and cash equivalents in excess of $40.0 million) plus eight times rent expenses to EBITDAR (which represents EBITDA plus rental expenses for operating leases); and (b) minimum interest coverage ratio. The financial covenants apply to the Company and its subsidiaries, if any, on a consolidated basis (of which we currently have none).

The negative covenants under our credit facility include, without limitation, restrictions on the following: capital expenditures; indebtedness; liens and related matters; investments and joint ventures; contingent obligations; dividends and other restricted payments; fundamental changes, asset sales and acquisitions; sales and leasebacks; sale or discount of receivables; transactions with shareholders and affiliates; disposal of subsidiary capital stock and formation of new subsidiaries; conduct of business; certain amendments; senior debt status; fiscal year, state of organization and accounting practices; and management fees.

In addition, a change of control of our company, which includes among other things, the majority of the directors on our Board consisting of new directors whose nomination was not recommended by a majority of our current directors, a person acquiring beneficial ownership of a certain amount of our equity securities or a change of control occurring under the indenture governing our senior unsecured notes, would constitute an event of default, upon which, the lenders holding a majority of the outstanding term loans and revolving credit commitments under the credit facility would be able to accelerate any unpaid loan amounts requiring us to immediately repay all such amounts (plus accrued interest to the date of repayment).

We have outstanding $250.0 million of 8.375% senior unsecured notes (“senior notes”) maturing in 2020. Interest on the notes is payable semiannually in February and August of each year until maturity. If a change of control occurs under the indenture governing our senior notes, which includes among other things, the majority of the directors on our Board consisting of new directors whose election or nomination for election was not approved by a majority of our current directors, a person acquiring beneficial ownership of a certain amount of our equity securities, certain mergers or consolidations, and the sale of all or substantially all of our assets, we must give holders of the senior notes an opportunity to sell their senior notes to us at a purchase price equal to 101% of the principal amount of the senior notes, plus accrued and unpaid interest, if any, to the purchase date, subject to certain conditions. Failure to make or comply with the repurchase offer would be an event of default under the indenture governing our senior notes, which would also trigger a cross-default under our credit facility. Additionally, an event of default under our credit facility that results in the acceleration of indebtedness thereunder would result in an event of default under the indenture governing our senior notes. Upon an event of default under the indenture governing our senior notes, the requisite noteholders would be able to accelerate and require us to immediately repay all unpaid senior unsecured note amounts (plus accrued interest to the date of repayment).

In addition, if we make certain asset sales and do not reinvest the proceeds thereof or use such proceeds to repay certain debt, we will be required to use the proceeds of such asset sales to make an offer to purchase the senior notes at 100% of their principal amount, together with accrued and unpaid interest and additional interest, if any, to the date of purchase. Failure to make or comply with the repurchase offer would be an event of default under the indenture governing our senior notes, which would also trigger a cross-default under our credit facility.

The negative covenants under the indenture governing our senior notes are similar to those under our credit facility and include, without limitation, the following: restricted payments; dividend and other payment restrictions affecting subsidiaries; incurrence of indebtedness and issuance of preferred stock; asset sales; transactions with affiliates; liens; corporate existence; and no layering of debt.

As of December 26, 2013, we were in compliance with all covenants under our credit facility and senior notes.


25

If we default under our credit facility or the indenture governing our senior notes because of a covenant breach or otherwise, all outstanding amounts thereunder could become immediately due and payable. Any acceleration of amounts due would have a material adverse effect on our liquidity and financial condition, and we cannot assure you that we would be able to obtain a waiver of any such default, that we would have sufficient funds to repay all of the outstanding amounts, or that we would be able to obtain alternative financing to satisfy such obligations on commercially reasonable terms or at all.

As of December 26, 2013, the maximum total adjusted leverage ratio (generally the ratio of our consolidated debt to specified earnings) decreased from 6.25 to 6.0. During the first quarter of fiscal 2014, we entered into the Second Amendment (the "Amendment") to the Fourth Amended and Restated Credit Agreement. The Amendment extends the date on which the required minimum consolidated interest coverage ratio increases from 2.0 to 1.0 to 2.25 to 1.0 from the end of the first quarter of fiscal 2014 to the end of the fourth quarter of fiscal 2014. We believe that we will be able to continue to satisfy these ratios; however, certain factors could result in our failure to comply with our covenants.

We use capital leases and sale leaseback transactions to finance a portion of our stores. The net present value of our capital lease obligations and sale leaseback transactions are reflected in our Condensed Balance Sheets in lease finance obligations and current maturities of lease finance obligations.

Refer to Note 4, Debt, of the Notes to Condensed Financial Statements, included in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q for further information on our debt obligations.

Contractual Obligations and Commitments

There have been no material changes to our contractual obligations and commercial commitments outside the ordinary course of business since the end of fiscal 2013. Refer to our Annual Report on Form 10-K for the fiscal year ended September 26, 2013 for additional information regarding our contractual obligations and commercial commitments.

New Accounting Standards

In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This ASU clarifies guidance and eliminates diversity in practice on the presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. This update requires that an unrecognized tax benefit, or portion of an unrecognized tax benefit, be presented as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward. If an applicable deferred tax asset is not available or a company does not expect to use the applicable deferred tax asset, the unrecognized tax benefit should be presented as a liability in the financial statements and should not be combined with an unrelated deferred tax asset. This new standard is effective for fiscal years beginning after December 15, 2013, with early adoption permitted, and may be applied either retrospectively or on a prospective basis to all unrecognized tax benefits that exist at the adoption date. We are currently assessing the impact this ASU will have on our financial position, results of operations and cash flows.

Critical Accounting Policies

As discussed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended September 26, 2013, we consider our policies on store closing and impairment charges, goodwill, asset retirement obligations, self-insurance reserves and environmental liabilities and related receivables to be the most critical in understanding the judgments that are involved in preparing our financial statements. There have been no material changes in our critical accounting policies described in our Annual Report on Form 10-K for the fiscal year ended September 26, 2013.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.
 
We are subject to interest rate risk on our existing long-term debt and any future financing requirements. Our fixed rate debt consists primarily of outstanding balances on our senior notes due in 2020 and our variable rate debt relates to borrowings under our senior credit facility. We are exposed to market risks inherent in our financial instruments. These instruments arise from transactions entered into in the normal course of business and, in some cases, relate to our acquisitions of related businesses.







 

26

Our primary exposure relates to:

•
Interest rate risk on long-term and short-term borrowings resulting from changes in LIBOR;
•
Our ability to pay or refinance long-term borrowings at maturity at market rates;
•
The impact of interest rate movements on our ability to meet interest expense requirements and exceed financial covenants; and
•
The impact of interest rate movements on our ability to obtain adequate financing to fund future strategic business initiatives.

As of December 26, 2013 and September 26, 2013, we had fixed-rate debt outstanding of $250.0 million and $250.0 million, respectively, and we had variable-rate debt outstanding of $252.5 million and $253.1 million, respectively. The following table presents the future principal cash flows and weighted-average interest rates by fiscal year on our existing long-term debt instruments based on rates in effect as of December 26, 2013. Fair values have been determined based on quoted market prices as of December 26, 2013.
 
Expected Maturity Date
 
 
(in thousands)
2014
 
2015
 
2016
 
2017
 
2018
 
Thereafter
 
Total
 
Fair Value
Long-term debt (fixed rate)
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
250,000

 
$
250,000

 
$
265,625

Weighted-average interest rate
8.38
%
 
8.38
%
 
8.38
%
 
8.38
%
 
8.38
%
 
8.38
%
 
 
 
 
Long-term debt (variable rate)
$
1,913

 
$
2,550

 
$
2,550

 
$
2,550

 
$
2,550

 
$
240,337

 
$
252,450

 
$
255,290

Weighted-average interest rate
4.75
%
 
4.75
%
 
4.75
%
 
4.75
%
 
4.75
%
 
4.75
%
 
 
 
 

At December 26, 2013 and September 26, 2013, the interest rate on approximately 50.0% of our debt was fixed by the nature of the obligation. The annualized effect of a one percentage point change in our floating rate debt obligations at December 26, 2013 would be an increase to interest expense of approximately $2.5 million.
 
While we cannot predict or manage our ability to refinance existing debt or the impact interest rate movements will have on our existing debt, management evaluates our financial position on an ongoing basis.


Item 4.  Controls and Procedures.

As required by paragraph (b) of Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), our Chief Executive Officer and our Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded, as of the end of the period covered by this report, that our disclosure controls and procedures were effective in that they provide reasonable assurance that the information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the first quarter of fiscal 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

From time to time, we make changes to our internal control over financial reporting that are intended to enhance its effectiveness and which do not have a material effect on our overall internal control over financial reporting. We will continue to evaluate the effectiveness of our disclosure controls and procedures and internal control over financial reporting on an ongoing basis and will take action as appropriate.

27

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

For a description of legal proceedings, see Note 8, Commitments and Contingencies - Legal and Regulatory Matters of the Notes to Condensed Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.



28

Item 1A.  Risk Factors.

Except for the risk factors indicated below, there have been no material changes to the risk factors described in our annual report on Form 10-K for the fiscal year ended September 26, 2013.

If we do not comply with the covenants and other terms in the credit agreement governing our senior credit facility and the indenture governing our senior notes or otherwise default under them, we may not have the funds necessary to pay all of our indebtedness that could become due.
 
The credit agreement governing our senior credit facility and the indenture governing our senior notes require us to comply with certain covenants. In particular, the credit agreement requires us to comply with certain financial covenants. As discussed under "Capital Resources", "Debt" included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K, the financial covenants under our credit agreement changed as of the end of the first quarter of fiscal 2014. We believe that we will be able to continue to satisfy these covenants; however, certain factors could result in our inability to comply with our covenants. In the event we are unable to comply with our financial covenants, or our performance suggests an impending inability to comply, we would attempt to negotiate with our lenders to obtain loan modifications or, if necessary, waivers of compliance with required ratios under our senior credit facility. We cannot predict whether our lenders will provide loan modifications or waivers, what the terms of such modifications or waivers would be or what impact any such modifications or waivers might have on our liquidity, financial condition or results of operations, but depending on the results of such negotiation, the impact could be materially adverse.
 
In addition to the financial covenants under our credit agreement, our credit agreement and the indenture governing our senior notes contain additional affirmative and negative covenants, including restrictions on our ability to acquire and dispose of assets, engage in mergers or reorganizations, incur indebtedness, pay dividends or make investments or capital expenditures. A violation of any of our covenants could cause an event of default under our credit agreement and the indenture.
 
Finally, a change of control of our company, which for purposes of our credit agreement and the indenture includes, among other things, certain changes in the majority of the directors on our Board, would trigger certain provisions of those documents that could have a materially adverse effect on our business. Under our credit agreement, a change of control constitutes an event of default, upon which the lenders holding a majority of the outstanding term loans and revolving credit commitments under the credit facility would be able to accelerate any unpaid loan amounts requiring us to immediately repay all such amounts (plus accrued interest to the date of repayment). Under the indenture, a change of control would require us to offer to purchase all outstanding senior notes at a purchase price equal to 101% of the principal amount of the senior notes, plus accrued and unpaid interest, if any, to the purchase date, subject to certain conditions. Failure to make or comply with the purchase offer would be an event of default under the indenture, which would trigger a cross-default under our credit agreement. Additionally, an event of default under our credit agreement that results in the acceleration of indebtedness thereunder would result in an event of default under the indenture. Upon an event of default under the indenture, the requisite noteholders would be able to accelerate and require us to immediately repay all unpaid senior note amounts (plus accrued interest to the date of repayment).

If we default on the credit agreement or the indenture because of a covenant breach or otherwise, all outstanding amounts thereunder could become immediately due and payable. Any acceleration of amounts due would have a material adverse effect on our liquidity and financial condition, and we cannot assure you that we would be able to obtain a waiver of any such default, that we would have sufficient funds to repay all of the outstanding amounts, or that we would be able to obtain alternative financing to satisfy such obligations on commercially reasonable terms or at all.














29

Our business could be negatively affected as a result of the actions of activist shareholders.

Stockholders of our company may from time to time engage in proxy solicitations, advance stockholder proposals or otherwise attempt to effect changes or acquire control over our company. Campaigns by stockholders to effect changes at publicly-traded companies are sometimes led by investors seeking to increase short-term stockholder value by advocating corporate actions such as financial restructuring, increased borrowing, special dividends, stock repurchases or even sales of assets or the entire company.

On January 23, 2014, the JCP Group announced their intention to nominate three director candidates to stand for election to our Board of Directors at our 2014 Annual Meeting of Stockholders. If a proxy contest involving the JCP Group ensues, or if we become engaged in a proxy contest with another activist shareholder in the future, our results of operations and financial condition could be adversely affected because:

•
responding to proxy contests and other actions by activist shareholders can disrupt our operations, be costly and time-consuming, and divert the attention of our management and employees;

•
perceived uncertainties as to our future direction may result in the loss of potential business opportunities, and may make it more difficult to attract and retain qualified personnel and business partners; and

•
if individuals are elected to our board of directors to pursue an activist shareholder’s particular agenda, it may adversely affect our ability to effectively implement our business strategy and create additional value for our stockholders.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

There were no sales of unregistered equity securities during the first quarter of fiscal 2014.

The following table lists all repurchases during the first quarter of fiscal 2014 of any of our securities registered under Section 12 of the Exchange Act by or on behalf of us or any affiliated purchaser.

Issuer Purchases of Equity Securities
Period
 
Total Number of Shares Purchased (1)
 
Average Price Paid per Share (2)
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
September 27, 2013 - October 24, 2013
 
22,737

 
$
11.22

 
—

 
$
—

October 25, 2013 - November 28, 2013
 
—

 
$
—

 
—

 
—

November 29, 2013 - December 26, 2013
 
27,603

 
$
16.04

 
—

 
—

   Total
 
50,340

 
$
13.86

 
—

 
$
—


(1) 
Represents shares repurchased in connection with tax withholding obligations under The Pantry, Inc. 2007 Omnibus Plan.
(2) 
Represents the average price paid per share for the shares repurchased in connection with tax withholding obligations under the Omnibus Plan.

30


Item 6.  Exhibits.

Exhibit Number
 
Description of Document
 
 
 
3.1
 
Amended and Restated Certificate of Incorporation of The Pantry (incorporated by reference to Exhibit 3.3 to The Pantry’s Registration Statement on Form S-1, as amended (Registration No. 333-74221)).
 
 
 
3.2
 
Amended and Restated By-Laws of The Pantry (incorporated by reference to Exhibit 3.2 to The Pantry’s Quarterly Report on Form 10-Q for the quarterly period ended June 25, 2009).
4.1
 
Indenture dated August 3, 2012 by The Pantry and U.S. National Association, as Trustee, with respect to the 8.375% Senior Notes due 2020 (incorporated by reference to Exhibit 4.1 to The Pantry’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 3, 2012).
4.2
 
Supplemental Indenture dated April 23, 2013 by The Pantry and U.S. Bank National Association, as Trustee, with respect to the 8.375% senior notes due 2020 (incorporated by reference to Exhibit 4.1 to The Pantry’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 24, 2013).
 
 
 
10.1
 
Second Amendment to Fourth Amended and Restated Credit Agreement dated as of December 20, 2013 among The Pantry, Wells Fargo Bank, National Association, as administrative agent, Wells Fargo Securities, LLC, BMO Capital Markets, Merrill Lynch, Pierce, Fenner & Smith Incorporated, RBC Capital Markets, LLC, and SunTrust Robinson Humphrey, Inc., as joint lead arrangers and joint bookrunners, Royal Bank of Canada as syndication agent, Bank of America, N.A., BMO Harris Financing, Inc., Cooperative Centrale Raiffeisen-Boerenleenbank B.A. “Rabobank Nederland,” New York Branch and SunTrust Bank, as co-documentation agents, and the several other banks and financial institutions signatory thereto.
 
 
 
10.2
 
Third Amendment to Fourth Amended and Restated Credit Agreement dated as of January 14, 2014 among The Pantry, Wells Fargo Bank, National Association, as administrative agent, Wells Fargo Securities, LLC, BMO Capital Markets, Merrill Lynch, Pierce, Fenner & Smith Incorporated, RBC Capital Markets, LLC, and SunTrust Robinson Humphrey, Inc., as joint lead arrangers and joint bookrunners, Royal Bank of Canada as syndication agent, Bank of America, N.A., BMO Harris Financing, Inc., Cooperative Centrale Raiffeisen-Boerenleenbank B.A. “Rabobank Nederland,” New York Branch and SunTrust Bank, as co-documentation agents, and the several other banks and financial institutions signatory thereto.
 
 
 
10.3
 
Employment Agreement effective as of January 14, 2014 by and between David Zodikoff and the Company.
 
 
 
31.1
 
Certification by Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.2
 
Certification by Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.1
 
Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 [This exhibit is being furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by that act, be deemed to be incorporated by reference into any document or filed herewith for purposes of liability under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, as the case may be.].
 
 
 
32.2
 
Certification by Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 [This exhibit is being furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by that act, be deemed to be incorporated by reference into any document or filed herewith for purposes of liability under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, as the case may be.].
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document


31

SIGNATURE
 
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.
 
 
 
 
 
THE PANTRY, INC.
 
By:                       /s/ B. Clyde Preslar                         
 
   B. Clyde Preslar
 
 
 
 
Senior Vice President and Chief Financial Officer
 
 
 
 
(Authorized Officer and Principal
 
Financial Officer)
 
 
 
 
Date: 
January 30, 2014

32

EXHIBIT INDEX
Exhibit Number
 
Description of Document
 
 
 
3.1
 
Amended and Restated Certificate of Incorporation of The Pantry (incorporated by reference to Exhibit 3.3 to The Pantry’s Registration Statement on Form S-1, as amended (Registration No. 333-74221)).
 
 
 
3.2
 
Amended and Restated By-Laws of The Pantry (incorporated by reference to Exhibit 3.2 to The Pantry’s Quarterly Report on Form 10-Q for the quarterly period ended June 25, 2009).
 
 
 
4.1
 
Indenture dated August 3, 2012 by The Pantry and U.S. National Association, as Trustee, with respect to the 8.375% Senior Notes due 2020 (incorporated by reference to Exhibit 4.1 to The Pantry’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 3, 2012).
 
 
 
4.2
 
Supplemental Indenture dated April 23, 2013 by The Pantry and U.S. Bank National Association, as Trustee, with respect to the 8.375% senior notes due 2020 (incorporated by reference to Exhibit 4.1 to The Pantry’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 24, 2013).
 
 
 
10.1
 
Second Amendment to Fourth Amended and Restated Credit Agreement dated as of December 20, 2013 among The Pantry, Wells Fargo Bank, National Association, as administrative agent, Wells Fargo Securities, LLC, BMO Capital Markets, Merrill Lynch, Pierce, Fenner & Smith Incorporated, RBC Capital Markets, LLC, and SunTrust Robinson Humphrey, Inc., as joint lead arrangers and joint bookrunners, Royal Bank of Canada as syndication agent, Bank of America, N.A., BMO Harris Financing, Inc., Cooperative Centrale Raiffeisen-Boerenleenbank B.A. “Rabobank Nederland,” New York Branch and SunTrust Bank, as co-documentation agents, and the several other banks and financial institutions signatory thereto.
 
 
 
10.2
 
Third Amendment to Fourth Amended and Restated Credit Agreement dated as of January 14, 2014 among The Pantry, Wells Fargo Bank, National Association, as administrative agent, Wells Fargo Securities, LLC, BMO Capital Markets, Merrill Lynch, Pierce, Fenner & Smith Incorporated, RBC Capital Markets, LLC, and SunTrust Robinson Humphrey, Inc., as joint lead arrangers and joint bookrunners, Royal Bank of Canada as syndication agent, Bank of America, N.A., BMO Harris Financing, Inc., Cooperative Centrale Raiffeisen-Boerenleenbank B.A. “Rabobank Nederland,” New York Branch and SunTrust Bank, as co-documentation agents, and the several other banks and financial institutions signatory thereto.
 
 
 
10.3
 
Employment Agreement effective as of January 14, 2014 by and between David Zodikoff and the Company.
 
 
 
31.1
 
Certification by Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.2
 
Certification by Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.1
 
Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 [This exhibit is being furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by that act, be deemed to be incorporated by reference into any document or filed herewith for purposes of liability under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, as the case may be.].
 
 
 
32.2
 
Certification by Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 [This exhibit is being furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by that act, be deemed to be incorporated by reference into any document or filed herewith for purposes of liability under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, as the case may be.].
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document