-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WyBOsaPTCKzAuSXDOyaWE4YMsOvdNVT8aqBilWW2l0TyDLIqV75UyoUYVjk5Xwih p8jXdIEskLmoSAzWbprd5w== 0000912057-97-020561.txt : 19970618 0000912057-97-020561.hdr.sgml : 19970618 ACCESSION NUMBER: 0000912057-97-020561 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970503 FILED AS OF DATE: 19970617 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUPERMARKETS GENERAL HOLDINGS CORP CENTRAL INDEX KEY: 0000821139 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 133408704 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16404 FILM NUMBER: 97625375 BUSINESS ADDRESS: STREET 1: 301 BLAIR RD STREET 2: P.O. BOX 5301 CITY: WOODBRIDGE STATE: NJ ZIP: 07095-0915 BUSINESS PHONE: 9084993000 MAIL ADDRESS: STREET 1: 301 BLAIR RD STREET 2: P.O. BOX 5301 CITY: WOODBRIDGE STATE: NJ ZIP: 07095-0915 10-Q 1 FORM 10-Q ============================================================================ 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 QUARTER ENDED COMMISSION FILE NUMBER MAY 3, 1997 0-16404 SUPERMARKETS GENERAL HOLDINGS CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 13-3408704 (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 301 BLAIR ROAD, P.O. BOX 5301 07095-0915 WOODBRIDGE, NEW JERSEY (Zip Code) (Address of principal executive offices) (732) 499-3000 (Registrant's telephone number, including area code) ------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: $3.52 CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK ------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------------- --------------- As of May 3, 1997, there were outstanding 650,675 shares of $0.01 par value Class A Common Stock (voting) and 320,000 shares of $0.01 par value Class B Common Stock (non-voting), all of which are privately owned and not traded on a public market. ============================================================================= PART 1. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands)
13 WEEKS ENDED ------------------------------- MAY 3, MAY 4, 1997 1996 ---------- --------- Sales............................................................... $922,398 $912,972 Cost of sales (exclusive of depreciation and amortization shown separately below)................................................ 662,918 646,949 ---------- --------- Gross profit........................................................ 259,480 266,023 Selling, general and administrative expenses........................ 212,348 213,710 Depreciation and amortization....................................... 20,216 20,674 ---------- --------- Operating earnings.................................................. 26,916 31,639 Interest expense.................................................... (41,885) (40,589) ---------- --------- Loss before income tax benefit and extraordinary items.............. (14,969) (8,950) Income tax benefit.................................................. 5,866 3,625 ---------- --------- Loss before extraordinary items..................................... (9,103) (5,325) Extraordinary items, net of an income tax benefit................... -- (793) ---------- --------- Net loss............................................................ (9,103) (6,118) Less: non-cash preferred stock accretion and dividend requirements............................................ (4,750) (4,733) ---------- --------- Net loss attributable to common stockholder......................... $ (13,853) $ (10,851) ========== =========
See notes to consolidated financial statements (unaudited). 1 SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands except share amounts)
MAY 3, FEBRUARY 1, 1997 1997 ---------- ---------- ASSETS Current Assets Cash and cash equivalents.............................................. $ 15,015 $ 10,967 Accounts receivable, net............................................... 12,860 12,799 Merchandise inventories................................................ 216,165 217,440 Income taxes receivable................................................ 3,812 2,120 Deferred income taxes.................................................. 9,928 9,969 Prepaid expenses....................................................... 25,323 24,970 Due from suppliers..................................................... 12,376 13,950 Other current assets................................................... 5,818 5,942 ---------- ---------- Total Current Assets................................................ 301,297 298,157 Property and Equipment, Net............................................... 595,049 604,955 Deferred Financing Costs, Net............................................. 27,113 28,743 Deferred Income Taxes..................................................... 44,959 39,530 Other Assets.............................................................. 46,830 45,200 ---------- ---------- $1,015,248 $1,016,585 ========== ========== LIABILITIES AND STOCKHOLDER'S DEFICIT Current Liabilities Accounts payable....................................................... $ 172,995 $ 167,446 Book overdrafts........................................................ 29,287 41,086 Current maturities of long-term debt................................... 113,100 74,431 Accrued payroll and payroll taxes...................................... 56,273 56,414 Current portion of lease obligations................................... 23,437 23,208 Accrued interest payable............................................... 18,914 20,712 Accrued expense and other current liabilities.......................... 88,044 90,629 ---------- ---------- Total Current Liabilities........................................... 502,050 473,926 ---------- ---------- Long-Term Debt............................................................ 1,199,620 1,213,081 ---------- ---------- Lease Obligations, Long-Term.............................................. 176,811 175,628 ---------- ---------- Other Noncurrent Liabilities.............................................. 302,958 306,733 ---------- ---------- Redeemable Securities Exchangeable Preferred Stock, $.01 par value.......................... 105,817 105,372 Authorized: 9,000,000 shares Issued and outstanding: 4,890,671 Liquidation preference, $25 per share: $122,267 ---------- ---------- Total Redeemable Securities........................................ 105,817 105,372 ---------- ---------- Commitments and Contingencies (Note 4) Stockholder's Deficit Class A Common Stock, $.01 par value................................... Authorized: 1,075,000 shares 7 7 Issued and outstanding: 650,675 Class B Common Stock, $.01 par value................................... Authorized: 1,000,000 shares 3 3 Issued and outstanding: 320,000 Paid-in Capital........................................................... 198,886 199,332 Accumulated Deficit....................................................... (1,470,904) (1,457,497) ---------- ---------- Total Stockholder's Deficit............................................ (1,272,008) (1,258,155) ---------- ---------- $1,015,248 $1,016,585 ========== ==========
See notes to consolidated financial statements (unaudited). 2 SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT (UNAUDITED) (in thousands except per share amounts)
CLASS A CLASS B TOTAL COMMON COMMON PAID-IN ACCUMULATED STOCKHOLDER'S STOCK STOCK CAPITAL DEFICIT DEFICIT ---- ----- --------- ----------- ------------ Balance, February 1, 1997................. $ 7 $ 3 $199,332 $(1,457,497) $(1,258,155) Net loss.................................. -- -- -- (9,103) (9,103) Accrued dividends on preferred stock ($.88 per share).................... -- -- -- (4,304) (4,304) Accretion on preferred stock.............. -- -- (446) -- (446) ----- ----- --------- ----------- ------------ Balance, May 3, 1997...................... $ 7 $ 3 $198,886 $(1,470,904) $(1,272,008) ===== ===== ========= =========== ============ Balance, February 3, 1996................. $ 7 $ 3 $197,671 $(1,420,138) $(1,222,457) Net loss.................................. -- -- -- (6,118) (6,118) Accrued dividends on preferred stock ($.88 per share).................... -- -- -- (4,304) (4,304) Accretion on preferred stock.............. -- -- (429) -- (429) ----- ----- --------- ----------- ------------ Balance, May 4, 1996...................... $ 7 $ 3 $197,242 $(1,430,560) $(1,233,308) ==== ===== ========= =========== ============
See notes to consolidated financial statements (unaudited). 3 SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)
13 WEEKS ENDED ------------------------- MAY 3, MAY 4, 1997 1996 -------- --------- Operating Activities Net loss $ (9,103) $ (6,118) Adjustments to reconcile net loss to net cash provided by operating activities: Extraordinary loss on early extinguishment of debt.............................. -- 793 Depreciation and amortization................................................... 21,172 21,516 Deferred income tax benefit..................................................... (5,388) (1,550) Interest accruable but not payable.............................................. 4,448 4,008 Amortization of original issue discount......................................... 814 819 Amortization of debt issuance costs............................................. 1,901 1,816 (Gain) loss on disposal of property and equipment............................... 33 (5,542) Cash provided by (used for) operating assets and liabilities: Accounts receivable, net...................................................... (61) (177) Merchandise inventories....................................................... 1,275 1,620 Income taxes.................................................................. (1,692) (2,918) Other current assets.......................................................... 565 1,887 Other assets.................................................................. (1,809) 1,119 Accounts payable.............................................................. 5,549 (1,343) Accrued interest payable...................................................... (1,798) (1,395) Accrued expenses and other current liabilities................................ (2,678) (4,872) Other noncurrent liabilities.................................................. (8,078) 5,410 -------- --------- Cash provided by operating activities....................................... 5,150 15,073 -------- --------- Investing Activities Property and equipment expenditures............................................... (5,037) (10,796) Proceeds from disposition of property and equipment............................... 1,243 6,589 -------- --------- Cash used for investing activities.......................................... (3,794) (4,207) -------- --------- Financing Activities Increase in Pathmark Working Capital Facility borrowings.......................... 33,000 18,500 Decrease in Pathmark Term Loan.................................................... (12,627) (10,400) Decrease in book overdrafts....................................................... (11,799) (8,985) Increase in other borrowings...................................................... 214 -- Repayment of other long-term borrowings........................................... (642) (1,220) Reduction in lease obligations.................................................... (5,186) (4,901) Repayment of PTK Exchangeable Guaranteed Debentures............................... -- (3,007) Premiums incurred in redemption of PTK Exchangeable Guaranteed Debentures......... -- (202) Deferred financing fees........................................................... (268) (1,503) -------- --------- Cash provided by (used for) financing activities............................ 2,692 (11,718) -------- --------- Increase (decrease) in cash and cash equivalents...................................... 4,048 (852) Cash and cash equivalents at beginning of period...................................... 10,967 12,526 -------- --------- Cash and cash equivalents at end of period............................................ $ 15,015 $ 11,674 ======== ========= Supplemental Disclosures of Cash Flow Information Interest paid..................................................................... $ 35,121 $ 33,768 ======== ========= Income taxes paid................................................................. $ 1,671 $ 1,412 ======== ========= Noncash Investing and Financing Activities Capital lease obligations......................................................... $ 6,807 $ 4,904 ======== =========
See notes to consolidated financial statements (unaudited). 4 SUPERMARKETS GENERAL HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION Supermarkets General Holdings Corporation (the "Company" or "Holdings"), through its indirect wholly owned subsidiary Pathmark Stores, Inc. ("Pathmark"), operated 144 supermarkets as of May 3, 1997, primarily in the New York-New Jersey and Philadelphia metropolitan areas, and is a wholly owned subsidiary of SMG-II Holdings Corporation ("SMG-II"). The unaudited consolidated financial statements included herein have been prepared by the Company in accordance with the same accounting principles followed in the presentation of the Company's annual financial statements for the year ended February 1, 1997, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the consolidated financial statements included herein reflect all adjustments which are of a normal and recurring nature and are necessary to present fairly the results of operations and financial position of the Company. This report should be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-K Annual Report for the year ended February 1, 1997. Income taxes for the interim period are based on the estimated effective tax rate expected to be applicable for the full fiscal year. NOTE 2--LONG-TERM DEBT Long-term debt is comprised of the following (dollars in thousands):
MAY 3, FEBRUARY 1, 1997 1997 ---------- ----------- Pathmark Term Loan................................................................... $ 230,500 $ 243,127 Pathmark Working Capital Facility.................................................... 106,500 73,500 9.625% Pathmark Senior Subordinated Notes due 2003 ("Pathmark Senior Subordinated Notes")........................................... 437,869 437,780 10.75% Pathmark Deferred Coupon Notes due 2003 ("Pathmark Deferred Coupon Notes")............................................... 173,007 168,559 12.625% Pathmark Subordinated Debentures due 2002 ("Pathmark Subordinated Debentures")............................................. 95,750 95,750 11.625% Pathmark Subordinated Notes due 2002 ("Pathmark Subordinated Notes")............................................................. 199,017 199,017 11.625% Holdings Subordinated Notes due 2002 ("Holdings Subordinated Notes")............................................................. 983 983 10.25% PTK Exchangeable Guaranteed Debentures due 2003 ("PTK Exchangeable Guaranteed Debentures")....................................... 28,168 27,442 Industrial revenue bonds............................................................. 6,375 6,375 Other debt (primarily mortgages)..................................................... 34,551 34,979 ---------- ----------- Total debt........................................................................... 1,312,720 1,287,512 Less: current maturities............................................................. 113,100 74,431 ---------- ----------- Long-term portion.................................................................... $1,199,620 $1,213,081 ========== ===========
On May 27, 1997, The Chase Manhattan Bank committed, subject to the execution of a definitive credit agreement, to provide to the Company senior secured facilities in an aggregate principal amount of $500 million pursuant to which the Company will repay in full all amounts outstanding under its existing Bank Credit Agreement. The senior secured facilities include two term facilities in an aggregate principal amount of $300 million and a revolving credit facility in the aggregate principal amount of $200 million. The Company believes it will successfully refinance its existing Bank Credit Agreement, however, there can be no assurances that the refinancing will occur. 5 SUPERMARKETS GENERAL HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED) NOTE 3--INTEREST EXPENSE Interest expense is comprised of the following (dollars in thousands):
13 WEEKS ENDED ------------------------- MAY 3, MAY 4, 1997 1996 ------- ---------- Pathmark Term Loan.................................................................. $ 5,130 $ 5,901 Pathmark Working Capital Facility................................................... 1,767 1,210 Pathmark Senior Subordinated Notes Amortization of original issue discount......................................... 88 88 Currently payable............................................................... 10,588 10,588 Pathmark Deferred Coupon Notes Accrued but not payable......................................................... 4,448 4,008 Pathmark Subordinated Debentures.................................................... 3,022 3,022 Pathmark Subordinated Notes......................................................... 5,813 5,813 PTK Exchangeable Guaranteed Debentures Amortization of original issue discount......................................... 726 731 Amortization of debt issuance costs................................................. 1,901 1,816 Obligations under capital leases.................................................... 4,800 4,342 Other, net.......................................................................... 3,602 3,070 ------- -------- Interest expense.................................................................... $41,885 $40,589 ======= ========
The majority of the cash interest payments are scheduled in the second and fourth quarters. However, the May 1 semi-annual interest payment of $21.2 million on the Pathmark Senior Subordinated Notes was paid in the first quarters of Fiscal 1997 and Fiscal 1996 due to the timing of the quarter end dates. NOTE 4--CONTINGENCIES RICKEL: In connection with the sale of its home centers segment in Fiscal 1994, the Company, as lessor, entered into leases for certain real estate properties with Rickel, as tenant (the "Leases"), pursuant to which the Company is entitled to receive annual aggregate rentals of approximately $4.2 million. In addition, as part of the sale, the Company assigned to Rickel, and Rickel assumed, various liabilities of the home centers segment, primarily third party leases (the "Assumed Liabilities"). As of May 3, 1997, the estimated present value of obligations under the Assumed Liabilities approximated $28.5 million. In January 1996, Rickel filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. In April 1996, the Company filed its proofs of claim in connection with the bankruptcy proceedings. In August 1996, Rickel filed an order with the Bankruptcy Court to reject a third party lease. The estimated present value of this lease obligation is approximately $4.4 million. In November 1996, Rickel filed an order with the Bankruptcy Court to reject four Leases related to property owned by the Company, with aggregate annual rentals of approximately $2.4 million. The Company is actively marketing these properties to other prospective tenants. In February 1997, Rickel filed an order with the Bankruptcy Court to reject one additional third party lease, which the Company has settled with the landlord. In May 1997, Rickel filed an order with the Bankruptcy Court to reject a lease related to property owned by the Company, with aggregate annual rentals of approximately $0.3 million. Management has evaluated its exposure with respect to these rejected Leases and has concluded that the Company has sufficient reserves to cover any resulting liability which may occur with respect to these rejected Leases. Since the bankruptcy is not concluded, the Company cannot determine whether Rickel will reject any additional Leases or the extent to which the Company has become liable with respect to the Assumed Liabilities in the event of Rickel's nonpayment thereof. 6 SUPERMARKETS GENERAL HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED) NOTE 4--CONTINGENCIES--(CONTINUED) OTHER: The Company is also a party to a number of legal proceedings in the ordinary course of business. Management believes that the ultimate resolution of these proceedings will not, in the aggregate, have a material adverse impact on the financial condition, results of operations or business of the Company. 7 SUPERMARKETS GENERAL HOLDINGS CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The matters discussed herein, with the exception of historical information, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, the competitive environment in which the Company operates and the general economic conditions in the Company's trading areas. RESULTS OF OPERATIONS SALES: Sales in the first quarter of Fiscal 1997 were $922.4 million compared to $913.0 million in the prior year, an increase of 1% with same store sales from supermarkets increasing 0.6%. The increase in sales resulted from the Company's new store openings and remodels over the past year and the Company's promotional pricing program which commenced in the first quarter of Fiscal 1997. The Company operated 144 supermarkets at both the end of the first quarters of Fiscal 1997 and Fiscal 1996, including 55 and 46 Pathmark 2000 format stores, respectively. GROSS PROFIT: Gross profit in the first quarter of Fiscal 1997 was $259.5 million or 28.1% of sales compared with $266.0 million or 29.1% of sales for the prior year. The decrease in gross profit in both dollars and as a percentage of sales for the first quarter Fiscal 1997 compared to the prior year was primarily due to the promotional pricing program introduced during the first quarter of Fiscal 1997. The cost of goods sold comparisons were affected by a pretax LIFO charge of $0.4 million and $0.9 million in the first quarters of Fiscal 1997 and Fiscal 1996, respectively. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A"): SG&A in the first quarter of Fiscal 1997 decreased $1.4 million or 0.6% compared to the prior year. As a percentage of sales, SG&A were 23.0% in the first quarter of Fiscal 1997, down from 23.4% in the prior year. The decrease in SG&A as a percentage of sales in the first quarter of Fiscal 1997 compared to the prior year was primarily due to lower advertising and administrative expenses, partially offset by higher labor and labor related expenses. DEPRECIATION AND AMORTIZATION: Depreciation and amortization of $20.2 million in the first quarter of Fiscal 1997 was $0.5 million lower than the prior year of $20.7 million. The decrease in depreciation and amortization expense in the first quarter of Fiscal 1997 compared to the prior year was primarily due to the write down in the fourth quarter of Fiscal 1996 of certain fixed assets held for sale, principally in the Company's southern region, partially offset by capital expenditures in Fiscal 1997. Depreciation and amortization excludes video tape amortization, which is recorded in cost of goods sold, of $0.8 million and $0.75 million in the first quarters of Fiscal 1997 and Fiscal 1996, respectively. OPERATING EARNINGS: Operating earnings in the first quarter of Fiscal 1997 were $26.9 million compared with the prior year of $31.6 million. The decrease in operating earnings in the first quarter of Fiscal 1997 compared to the prior year was due to lower gross profit, partially offset by lower SG&A and depreciation and amortization expense. 8 SUPERMARKETS GENERAL HOLDINGS CORPORATION INTEREST EXPENSE: Interest expense was $41.9 million in the first quarter of Fiscal 1997 compared to $40.6 million in the prior year primarily due to an increase in the Working Capital Facility along with higher interest rates, partially offset by reductions in the Term Loan. INCOME TAXES: Income taxes for the interim period are based on the estimated effective tax rate expected to be applicable for the full fiscal year. The income tax benefit in the first quarters of Fiscal 1997 and Fiscal 1996 were $5.9 million and $3.6 million, respectively. During the first quarter of Fiscal 1997, the Company made income tax payments of $1.7 million and received income tax refunds of $0.5 million. During the first quarter of Fiscal 1996, the Company made income tax payments of $1.4 million and received income tax refunds of $2.3 million. EXTRAORDINARY ITEMS: During the first quarter of Fiscal 1996, in connection with the termination of the Plainbridge credit agreement due to the reacquisition of Plainbridge by Pathmark, the Company wrote off deferred financing fees resulting in a net loss on early extinguishment of debt of $0.7 million. During the first quarter of Fiscal 1996, the Company also made a paydown of $3.2 million of PTK Exchangeable Guaranteed Debentures, including premium and original issue discount, resulting in a net loss on early extinguishment of debt of $0.1 million. SUMMARY OF OPERATIONS: For the first quarter of Fiscal 1997, the Company's net loss was $9.1 million compared to a net loss of $6.1 million for the prior year. The increase in net loss in the first quarter of Fiscal 1997 compared to the prior year was primarily due to lower operating earnings and higher interest expense, partially offset by a higher income tax benefit. EBITDA-FIFO: EBITDA-FIFO was $48.5 million and $54.2 million in the first quarters of Fiscal 1997 and Fiscal 1996, respectively. EBITDA-FIFO represents net earnings before interest expense, income taxes, depreciation, amortization, the LIFO charge (credit) and unusual transactions. EBITDA-FIFO is a widely accepted financial indicator of a company's ability to service and/or incur debt. EBITDA-FIFO should not be construed as an alternative to, or a better indicator of operating income or to cash flows from operating activities, as determined in accordance with generally accepted accounting principles. FINANCIAL CONDITION DEBT SERVICE: During the first quarter of Fiscal 1997, total debt increased $25.2 million from Fiscal 1996 year end primarily due to borrowings under the Pathmark Working Capital Facility and debt accretion on the Pathmark Deferred Coupon Notes and the PTK Exchangeable Guaranteed Debentures, partially offset by Pathmark Term Loan repayments. Borrowings under the Pathmark Working Capital Facility were $106.5 million at May 3, 1997 and have decreased to $70.5 million at June 12, 1997. During the second quarter of Fiscal 1997, the Company sold four of its 12 stores that it announced for divestiture at the end of Fiscal 1996 for $14.9 million. The proceeds were used to paydown a portion of the Pathmark Working Capital Facility. The indebtedness under the Pathmark Working Capital Facility and the Pathmark Term Loan bear interest at floating rates and cash interest payments on that indebtedness may vary in future years. The 9 SUPERMARKETS GENERAL HOLDINGS CORPORATION Company does not currently maintain any interest rate hedging arrangements due to the reasonable risk that near term interest rates will not rise significantly. The Company is continuously evaluating this risk and will implement interest rate hedging arrangements if deemed appropriate. The majority of the cash interest payments are scheduled in the second and fourth quarters. The amount of principal payments required each year on outstanding long-term debt (excluding the original issue discount with respect to the Pathmark Deferred Coupon Notes and the PTK Exchangeable Guaranteed Debentures) are as follows (dollars in millions): PRINCIPAL FISCAL YEARS PAYMENTS ------------ -------- 1997(a)................................................. $ 94.4 1998.................................................... 155.7 1999.................................................... 127.2 2000.................................................... 50.6 2001.................................................... 50.0 2002.................................................... 195.8 2003.................................................... 639.0 - ---------- (a) Subsequent to May 3, 1997. LIQUIDITY: The consolidated financial statements of the Company indicate that, at May 3, 1997, current liabilities exceeded current assets by $200.8 million and stockholder's deficit was $1.27 billion. Management believes that cash flows generated from operations, supplemented by the unused borrowing capacity under the Pathmark Working Capital Facility and the availability of capital lease financing will be sufficient to pay the Company's debts as they come due, provide for its capital expenditure program and meets its other cash requirements. The Company believes that it will be able to make the scheduled payments or refinance its obligations with respect to its indebtedness through a combination of operating funds and borrowing facilities. Future refinancing will be necessary if the Company's cash flow from operations is not sufficient to meet its debt service requirements related to the maturity of a portion of the Pathmark Term Loan, Pathmark Working Capital Facility and certain mortgages in Fiscal 1998, the amortization and subsequent maturity of the Pathmark Term Loan in Fiscal 1999 and the maturity of the Pathmark Subordinated Notes and Pathmark Subordinated Debentures in Fiscal 2002. The Company expects that it will be necessary to refinance all or a portion of the Pathmark Senior Subordinated Notes and the Pathmark Deferred Coupon Notes due in Fiscal 2003 and the PTK Exchangeable Guaranteed Debentures due in Fiscal 2003. The Company may undertake a refinancing of some or all of such indebtedness sometime prior to its maturity. The Bank Credit Agreement includes an annual cleandown provision requiring borrowings under the Pathmark Working Capital Facility not to exceed $60.0 million for a period of 30 consecutive days. The Company was in compliance with its various debt covenants at May 3, 1997, and, based on management's operating projections for Fiscal 1997, the Company believes that it will be able to satisfy this cleandown provision and continue to be in compliance with its other debt covenants. The Company's ability to make scheduled payments, to refinance or otherwise meet its obligations with respect to its indebtedness depends on its 10 SUPERMARKETS GENERAL HOLDINGS CORPORATION financial and operating performance, which in turn, is subject to prevailing economic conditions and to financial, business and other factors beyond its control. Although the Company's cash flow from its operations and borrowings has been sufficient to meet its debt service obligations, there can be no assurance that the Company's operating results will continue to be sufficient or that future borrowing facilities will be available for payment or refinancing of Pathmark's and PTK's indebtedness. On May 27, 1997, The Chase Manhattan Bank committed, subject to the execution of a definitive credit agreement, to provide to the Company senior secured facilities in an aggregate principal amount of $500 million pursuant to which the Company will repay in full all amounts outstanding under its existing Bank Credit Agreement. The senior secured facilities include two term facilities in an aggregate principal amount of $300 million and a revolving credit facility in the aggregatge principal amount of $200 million. The Company believes it will successfully refinance its existing Bank Credit Agreement, however, there can be no assurances that the refinancing will occur. While it is the Company's intention to enter into other refinancings that it considers advantageous, there can be no assurances that the prevailing market conditions will be favorable to the Company. In the event the Company obtains any future refinancing on less than favorable terms, the holders of outstanding indebtedness could experience increased credit risk and could experience a decrease in the market value of their investment, because the Company might be forced to operate under terms that would restrict its operations and might find its cash flow reduced. PREFERRED STOCK DIVIDENDS: The terms of the Exchangeable Preferred Stock provide for cumulative quarterly dividends at an annual rate of $3.52 per share when, and if declared by the Board of Directors of the Company. Dividends for the first 20 quarterly dividend periods (through October 15, 1992) were paid at the Company's option in additional shares of Exchangeable Preferred Stock. Since January 15, 1993, all dividends not paid in cash will cumulate at the rate of $3.52 per share per annum, without interest, until declared and paid. As such, at May 3, 1997, the unpaid dividends of $77.5 million were accrued and included in other noncurrent liabilities. CAPITAL EXPENDITURES: Capital expenditures for the first quarter of Fiscal 1997, including property acquired under capital leases, were $11.8 million compared to $15.7 million for the prior year. During the first quarter of Fiscal 1997, the Company opened one new Pathmark 2000 format store, completed one enlargement to an existing supermarket and closed one of the 12 stores announced for divestiture at the end of Fiscal 1996. Subsequent to the first quarter of Fiscal 1997, the Company opened one new Pathmark 2000 format store and sold or closed six of the 12 stores announced for divestiture. During the remainder of Fiscal 1997, the Company plans to open one new Pathmark 2000 format store and to complete up to an aggregate of nine major renovations and enlargements. CASH FLOWS: Cash provided by operating activities amounted to $5.1 million in the first quarter of Fiscal 1997 compared to $15.1 million in the prior year. The decrease in net cash provided by operating activities is primarily due to a decline in cash provided by operating assets and liabilities and an increase in the net loss. Cash used for investing activities was $3.8 million in the first quarter of Fiscal 1997 compared to $4.2 million in the prior year, primarily due to expenditures of property and equipment, partially offset by proceeds from property dispositions. Cash provided by financing activities was $2.7 million in the first quarter of Fiscal 1997 compared to cash used for financing activities of $11.7 million in the prior year. The increase in cash provided by financing activities is primarily due to an increase in borrowings under the Pathmark Working Capital Facility in Fiscal 1997 and a repayment of the PTK Exchangeable Guaranteed Debentures in Fiscal 1996. 11 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K No reports on Form 8-K have been filed during the quarter for which this report has been filed. 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. SUPERMARKETS GENERAL HOLDINGS CORPORATION BY /s/ RON MARSHALL ----------------------------------- (RON MARSHALL) EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER BY /s/ JOSEPH ADELHARDT ----------------------------------- (JOSEPH ADELHARDT) SENIOR VICE PRESIDENT AND CONTROLLER, CHIEF ACCOUNTING OFFICER DATE: June 17, 1997 12 EX-27 2 EXHIBIT 27 FDS
5 This schedule contains summary financial information extracted from Supermarkets General Holdings Corporation's Consolidated Statement of Operations for the 13 weeks ended May 3, 1997 and Consolidated Balance Sheet as of May 3, 1997 and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS JAN-31-1998 MAY-03-1997 15,015 0 14,048 (1,188) 216,165 301,297 995,593 (400,544) 1,015,248 502,050 1,199,620 105,817 0 10 (1,272,018) 1,015,248 922,398 922,398 662,918 662,918 0 23 (41,885) (14,969) 5,866 (9,103) 0 0 0 (9,103) 0 0
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