-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, QugEhEf+1HCKajHxL8b34plRrbmhVJ1JrJPkMVkudJ7YydGKZITSBTk0fiInJdT5 BaYenGYX3FoZlEVbvDKAgA== 0000950112-94-002413.txt : 19940914 0000950112-94-002413.hdr.sgml : 19940914 ACCESSION NUMBER: 0000950112-94-002413 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940913 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUPERMARKETS GENERAL HOLDINGS CORP CENTRAL INDEX KEY: 0000821139 STANDARD INDUSTRIAL CLASSIFICATION: 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: 94548881 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 SUPERMARKETS GENERAL HOLDINGS CORPORATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 JULY 30, 1994 0-16404 SUPERMARKETS GENERAL HOLDINGS CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 13-3408704 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 301 BLAIR ROAD, P. O. BOX 5301 07095-0915 WOODBRIDGE, NJ (Zip Code) (Address of principal executive office) 908-499-3000 (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 (Title of Class) ------------------- 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 July 30, 1994, 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 I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS)
13 WEEKS ENDED 26 WEEKS ENDED ----------------------- ----------------------- JULY 30, JULY 31, JULY 30, JULY 31, 1994 1993 1994 1993 ---------- ---------- ---------- ---------- Sales......................................... $1,024,885 $1,003,055 $2,043,901 $2,074,362 Cost of sales (exclusive of depreciation and amortization shown separately below).......... 735,082 729,683 1,464,840 1,505,337 ---------- ---------- ---------- ---------- Gross profit.................................. 289,803 273,372 579,061 569,025 Selling, general and administrative expenses...................................... 224,062 227,292 458,644 465,831 Provision for store closings.................. -- 5,975 -- 5,975 Depreciation and amortization................. 16,159 17,644 31,901 34,804 ---------- ---------- ---------- ---------- Operating earnings............................ 49,582 22,461 88,516 62,415 Interest expense.............................. 42,292 49,522 82,833 98,453 Interest income allocated to discontinued operations.................................... -- 2,715 -- 5,933 ---------- ---------- ---------- ---------- Earnings (loss) from continuing operations before income taxes, extraordinary items and cumulative effect of accounting changes....... 7,290 (24,346) 5,683 (30,105) Income tax provision (benefit)................ 1,450 (9,129) 1,492 (10,321) ---------- ---------- ---------- ---------- Earnings (loss) from continuing operations before extraordinary items and cumulative effect of accounting changes................ 5,840 (15,217) 4,191 (19,784) Earnings (loss) from discontinued operations.................................... 1,096 1,984 (5,603) 25 ---------- ---------- ---------- ---------- Earnings (loss) before extraordinary items and cumulative effect of accounting changes....... 6,936 (13,233) (1,412) (19,759) Extraordinary items, net of an income tax benefit of $28 and $99 in the 13 and 26 weeks ended July 31, 1993, respectively..... -- (39) -- (138) ---------- ---------- ---------- ---------- Earnings (loss) before cumulative effect of accounting changes............................ 6,936 (13,272) (1,412) (19,897) Cumulative effect of accounting changes Postretirement benefits other than pensions, net of an income tax benefit of $11,289... -- -- -- (15,636) Postemployment benefits, net of an income tax benefit of $1,813..................... -- -- -- (2,488) Change in the determination of the discount rate utilized to record the present value of certain noncurrent liabilities, net of an income tax benefit of $8,430........... -- -- -- (11,570) Change in the method utilized to calculate last-in, first-out (LIFO) inventories, net of an income tax benefit of $7,770........ -- -- -- (10,664) ---------- ---------- ---------- ---------- Net earnings (loss)........................... 6,936 (13,272) (1,412) (60,255) Less non-cash preferred stock accretion and dividend requirements....................... (4,705) (4,691) (9,407) (9,377) ---------- ---------- ---------- ---------- Net earnings (loss) attributable to its common stockholder................................... $ 2,231 $ (17,963) $ (10,819) $ (69,632) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
See notes to consolidated financial statements. 1 SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS EXCEPT SHARE AMOUNTS)
JULY 30, JANUARY 29, 1994 1994 ----------- ----------- ASSETS Current Assets Cash............................................................... $ 9,140 $ 6,168 Accounts receivable, net........................................... 14,128 15,428 Merchandise inventories............................................ 321,402 323,036 Income taxes receivable............................................ -- 22,422 Prepaid expenses................................................... 25,486 21,838 Due from suppliers................................................. 17,143 20,600 Other current assets............................................... 15,195 12,432 ----------- ----------- Total Current Assets........................................... 402,494 421,924 Property and Equipment, Net......................................... 637,743 645,843 Deferred Financing Costs, Net....................................... 42,994 46,497 Deferred Income Taxes............................................... 4,159 2,890 Investment in Purity Supreme (net of valuation allowance of $30,017 at July 30, 1994 and January 29, 1994)............................. -- -- Other Assets........................................................ 21,285 27,736 ----------- ----------- $ 1,108,675 $ 1,144,890 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDER'S DEFICIT Current Liabilities Accounts payable................................................... $ 261,251 $ 282,771 Current maturities of long-term debt............................... 45,868 46,244 Accrued payroll and payroll taxes.................................. 52,477 60,204 Income taxes payable............................................... 294 -- Current portion of obligations under capital leases................ 18,468 18,844 Accrued interest payable........................................... 17,037 16,633 Accrued expenses and other current liabilities..................... 114,512 114,431 ----------- ----------- Total Current Liabilities...................................... 509,907 539,127 ----------- ----------- Long-Term Debt...................................................... 1,411,090 1,415,236 ----------- ----------- Obligations Under Capital Leases, Long-Term......................... 127,437 131,506 ----------- ----------- Other Noncurrent Liabilities........................................ 254,625 243,385 ----------- ----------- Redeemable Securities Exchangeable Preferred Stock, $.01 par value....................... 101,145 100,346 Authorized: 9,000,000 shares Issued and outstanding: 4,890,671 shares at July 30, 1994 and January 29, 1994 Liquidation preference, $25 per share: $122,267 at July 30, 1994 and January 29, 1994 ----------- ----------- Total Redeemable Securities.................................... 101,145 100,346 ----------- ----------- Commitments and Contingencies Stockholder's Deficit Class A Common Stock, $.01 par value............................... 7 7 Authorized: 1,075,000 shares Issued and outstanding: 650,675 shares at July 30, 1994 and January 29, 1994 Class B Common Stock, $.01 par value............................... 3 3 Authorized: 1,000,000 shares Issued and outstanding: 320,000 shares at July 30, 1994 and January 29, 1994 Paid-in Capital.................................................... 199,949 200,748 Accumulated Deficit................................................ (1,495,488) (1,485,468) ----------- ----------- Total Stockholder's Deficit.................................... (1,295,529) (1,284,710) ----------- ----------- $ 1,108,675 $ 1,144,890 ----------- ----------- ----------- -----------
See notes to consolidated financial statements. 2 SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT (UNAUDITED) (IN THOUSANDS EXCEPT SHARE AMOUNTS)
CLASS A CLASS B TOTAL COMMON COMMON PAID-IN ACCUMULATED STOCKHOLDER'S STOCK STOCK CAPITAL DEFICIT DEFICIT ------- ------- -------- ----------- ------------- Balance at January 29, 1994................. $ 7 $ 3 $200,748 $(1,485,468) $ (1,284,710) Net loss.................................. -- -- -- (1,412) (1,412) Accrued dividends on preferred stock ($.88 per share).............................. -- -- -- (8,608) (8,608) Accretion on preferred stock.............. -- -- (799) -- (799) ------- ------- -------- ----------- ------------- Balance July 30, 1994....................... $ 7 $ 3 $199,949 $(1,495,488) $ (1,295,529) ------- ------- -------- ----------- ------------- ------- ------- -------- ----------- ------------- Balance, January 30, 1993................... $ 7 $ 3 $202,303 $(1,305,025) $ (1,102,712) Net loss.................................. -- -- -- (60,255) (60,255) Accrued dividends on preferred stock ($.88 per share).............................. -- -- -- (8,607) (8,607) Accretion on preferred stock.............. -- -- (771) -- (771) ------- ------- -------- ----------- ------------- Balance July 31, 1993....................... $ 7 $ 3 $201,532 $(1,373,887) $ (1,172,345) ------- ------- -------- ----------- ------------- ------- ------- -------- ----------- -------------
See notes to consolidated financial statements. 3 SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
26 WEEKS ENDED -------------------- JULY 30, JULY 31, 1994 1993 -------- -------- Operating Activities Net loss............................................................. $ (1,412) $(60,255) Adjustments to reconcile net loss to net cash provided by operating activities Extraordinary loss on early extinguishment of debt............... -- 138 Cumulative effect of accounting changes.......................... -- 40,358 Depreciation and amortization.................................... 31,901 34,804 Deferred income tax benefit...................................... (2,051) (10,192) Interest accruable but not payable............................... 6,594 -- Amortization of original issue discount.......................... 6,988 634 Amortization of debt issuance costs.............................. 3,244 2,072 (Gain) loss on disposal of property and equipment................ 63 (109) (Earnings) loss from discontinued operations..................... 5,603 (25) Cash provided by (used for) operating assets and liabilities Accounts receivable, net....................................... 1,300 912 Merchandise inventories........................................ 1,634 4,313 Income taxes................................................... 22,716 225 Other current assets........................................... (2,954) 3,701 Accounts payable............................................... (21,520) (33,871) Other current liabilities...................................... (1,607) (10,578) Other noncurrent assets and liabilities, net................... 9,907 11,305 -------- -------- Cash provided by (used for) operating activities............. 60,406 (16,568) -------- -------- Investing Activities Property and equipment expenditures.................................. (31,233) (30,088) Proceeds from disposition of property and equipment.................. 668 819 -------- -------- Cash used for investing activities........................... (30,565) (29,269) -------- -------- Financing Activities Increase in Working Capital Facilities borrowings.................... 500 -- Decrease in Pathmark Term Loan....................................... (17,500) -- Increase in Old Working Capital Facility borrowings.................. -- 63,000 Increase in other borrowings......................................... 898 669 Repayment of other long-term borrowings.............................. (2,004) (9,824) Reduction in obligations under capital leases........................ (8,763) (7,084) -------- -------- Cash provided by (used for) financing activities............. (26,869) 46,761 -------- -------- Increase in cash....................................................... 2,972 924 Cash at beginning of period............................................ 6,168 3,806 -------- -------- Cash at end of period.................................................. $ 9,140 $ 4,730 -------- -------- -------- --------
See notes to consolidated financial statements. 4 SUPERMARKETS GENERAL HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION On February 4, 1991, Supermarkets General Holdings Corporation (the "Company"), through the consummation of an exchange offer (the "Exchange Offer") pursuant to which the then existing common stockholders exchanged on a one-for-one basis shares of the Company's common stock for shares of common stock of SMG-II Holdings Corporation ("SMG-II"), became a wholly owned subsidiary of SMG-II. As a result of the Exchange Offer, SMG-II owns all of the Company's common stock and is effectively a holding company for the operations of the Company. The holders of SMG-II's common stock include certain limited partnerships controlled directly or indirectly by Merrill Lynch Capital Partners, Inc., together with certain indirectly wholly owned subsidiaries of Merrill Lynch & Co., Inc., certain members of the Company's management, Manufacturers Hanover Capital Partners, Inc. and the Equitable Life Assurance Society of the United States and certain of its affiliates. The consolidated financial statements included herein reflect all adjustments which, in the opinion of management, are of a normal and recurring nature and are necessary to present fairly the results of operations and financial position of the Company and have been prepared in accordance with the same accounting principles followed in the presentation of the Company's annual financial statements for the year ended January 29, 1994. The reader is referred to the Company's Form 10-K Annual Report for the year ended January 29, 1994, Notes to Consolidated Financial Statements, for a summary of significant accounting policies. The accompanying consolidated financial statements of the Company indicate that at July 30, 1994 current liabilities exceed its current assets by $107.4 million and the Company's stockholder's deficit approximates $1.3 billion. Management believes that cash flows generated from operations supplemented by the unused borrowing capacity under the Pathmark and Plainbridge Working Capital Facilities 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 meet its seasonal cash requirements. Further, the Company believes it will continue to be in compliance with its various debt covenants. Since the Company is a wholly owned subsidiary, earnings (loss) per share information is not presented. NOTE 2--RECAPITALIZATION AND DISCONTINUED OPERATIONS During Fiscal 1993, the Board of Directors authorized management of the Company to proceed with a recapitalization plan (the "Recapitalization") consisting of a refinancing of the Company's debt. On October 26, 1993, the Recapitalization was consummated. Pathmark Stores, Inc. (formerly Supermarkets General Corporation, hereinafter referred to as "Pathmark") borrowed $450.0 million under a bank credit agreement, consisting of $400.0 million under a term loan facility ("the Pathmark Term Loan") and $50.0 million under a $175.0 million working capital facility (the "Pathmark Working Capital Facility"), borrowed $436.6 million from the issuance of its 9.625% Senior Subordinated Notes due 2003 (the "Pathmark Senior Subordinated Notes"), issued $120.0 million initial principal amount of its 10.75% Junior Subordinated Deferred Coupon Notes due 2003 (the "Pathmark Deferred Coupon Notes"), exchanged $95.8 million principal amount of its 12.625% Subordinated Debentures due 2002 (the "Pathmark Subordinated Debentures") for $95.8 million principal amount outstanding of Holdings Subordinated Debentures and exchanged $198.5 million principal amount of its 11.625% Subordinated Notes due 2002 (the "Pathmark Subordinated Notes") for $198.5 million principal amount outstanding of the Holdings Subordinated Notes. As part of the Recapitalization, PTK Holdings, Inc. ("PTK"), a newly formed wholly owned subsidiary of Holdings, borrowed 5 SUPERMARKETS GENERAL HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED) NOTE 2--RECAPITALIZATION AND DISCONTINUED OPERATIONS--(CONTINUED) $126.1 million through the issuance of its $130.0 million aggregate principal amount 10.25% Exchangeable Guaranteed Debentures due 2003 (the "PTK DIBs") in a private placement, which bonds the Company has guaranteed. The proceeds from the aforementioned borrowings were used to redeem the Old Working Capital Facility, Holdings 14.5% Senior Subordinated Notes due 1997 (the "Holdings Senior Subordinated Notes") and Holdings 13.125% Junior Subordinated Discount Debentures due 2003 (the "Holdings Discount Debentures") and to purchase $185.0 million aggregate principal amount of the Holdings 12.625% Subordinated Debentures due 2002 (the "Holdings Subordinated Debentures") from the Equitable Affiliates. In addition, on October 26, 1993, Plainbridge, Inc. ("Plainbridge"), a newly formed indirectly wholly owned subsidiary of the Company, borrowed $3.5 million under a $50.0 million bank revolving credit agreement (the "Plainbridge Working Capital Facility"). In conjunction with the Recapitalization, the assets, liabilities and related operations of the Company's home centers segment as well as certain assets and liabilities of the warehouse, distribution and processing facilities which service Pathmark's supermarkets and drug stores and certain inventories and real property, were contributed by Pathmark to Plainbridge and the shares of Plainbridge were distributed to PTK (the "Plainbridge Spin-Off"). As a result, PTK holds 100% of the capital stock of both Plainbridge and Pathmark. The Company intends to further spin-off Plainbridge to its common stockholder, although there can be no assurance that such spin-off will be consummated. Any such spin-off would require satisfying the dividend restrictions with respect to Holding's Exchangeable Preferred Stock (see Note 12) as well as obtaining consents from various lenders to Plainbridge and PTK. Accordingly, the accompanying consolidated statements of operations for all periods presented include the operating results of the Company's home centers segment as discontinued operations. The results of operations related to the warehouse, transportation and certain real estate are included in the continuing operating results of the Company for the first six-month period of Fiscal 1993 since such operations represented a portion of the supermarkets and drug stores segment. Subsequent to the Plainbridge Spin-Off, the operating results related to the warehouse, transportation and certain real estate are included as discontinued operations. The net assets of Plainbridge as of July 30, 1994 and January 29, 1994 were approximately $220.4 million and $223.5 million, respectively. In conjunction with the Recapitalization, Pathmark entered into a 10-year logistical services agreement with Plainbridge (see Note 11). The terms of the logistical services agreement were designed to require Plainbridge to continue to provide Pathmark with substantially the same level of supply and other logistical services as was available from the warehouse, distribution and processing facilities prior to the Plainbridge Spin-Off at substantially the same or a lower cost. Subsequent to the Plainbridge Spin-Off, these intercompany purchases from Plainbridge are included in the Company's continuing operations. The corresponding revenues generated by Plainbridge from such transactions are included in the Company's discontinued operations. 6 SUPERMARKETS GENERAL HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED) NOTE 2--RECAPITALIZATION AND DISCONTINUED OPERATIONS--(CONTINUED) Operating results of the discontinued operations were as follows (dollars in thousands):
13 WEEKS ENDED 26 WEEKS ENDED -------------------- ---------------------- JULY 30, JULY 31, JULY 30, JULY 31, 1994(A) 1993(B) 1994 1993 -------- -------- ---------- -------- Revenues Affiliate................................. $656,371 $ -- $1,322,424 $ -- Rickel home centers....................... 107,118 106,518 182,577 183,509 Rental income............................. 1,520 -- 3,016 -- Other..................................... 6,546 -- 11,161 -- -------- -------- ---------- -------- Total revenues.............................. $771,555 $106,518 $1,519,178 $183,509 -------- -------- ---------- -------- -------- -------- ---------- -------- Earnings (loss) before income taxes......... $ 1,096 $ 3,417(c) $ (5,603) $ 44(c) Income tax provision........................ -- 1,433 -- 19 -------- -------- ---------- -------- Net earnings (loss) from discontinued operations.................................. $ 1,096 $ 1,984 $ (5,603) $ 25 -------- -------- ---------- -------- -------- -------- ---------- --------
- ------------ (a) Represents the results of operations related to the warehouse, transportation and certain real estate as well as the home centers segment. (b) Represents the results of operations related to the home centers segment. (c) The home centers segment was not allocated any portion of the Company's Acquisition debt. However, the Company charged the home centers segment interest expense relating to a proportionate share of certain borrowings. These charges amounted to $2.7 million and $5.9 million for the second quarter and the first six-month period of Fiscal 1993, respectively, and are included in the results of the discontinued operations.
NOTE 3--MERCHANDISE INVENTORIES Merchandise inventories are comprised of the following (dollars in thousands):
JULY 30, JANUARY 29, 1994 1994 -------- ----------- Merchandise inventories at FIFO cost............................... $378,132 $ 377,516 Less LIFO reserve.................................................. 56,730 54,480 -------- ----------- Merchandise inventories at LIFO cost............................... $321,402 $ 323,036 -------- ----------- -------- -----------
Effective January 31, 1993, the Company changed its method utilized to calculate LIFO store inventories related to its indirect wholly owned Pathmark subsidiary (see Note 8). 7 SUPERMARKETS GENERAL HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED) NOTE 4--PROPERTY AND EQUIPMENT Property and equipment are comprised of the following (dollars in thousands):
JULY 30, JANUARY 29, 1994 1994 ---------- ----------- Land................................................................ $ 66,269 $ 65,840 Buildings and building improvements................................. 201,332 196,212 Fixtures and equipment.............................................. 233,586 225,582 Leasehold costs and improvements.................................... 320,836 309,995 Transportation equipment............................................ 20,030 19,771 Construction in progress............................................ -- 680 ---------- ----------- Property and equipment, owned....................................... 842,053 818,080 Property and equipment under capital leases......................... 176,660 176,496 ---------- ----------- Property and equipment, at cost..................................... 1,018,713 994,576 Less accumulated depreciation and amortization...................... 380,970 348,733 ---------- ----------- Property and equipment, net......................................... $ 637,743 $ 645,843 ---------- ----------- ---------- -----------
NOTE 5--OTHER ASSETS The reduction in other assets at July 30, 1994 compared to January 29, 1994 is primarily due to the utilization of the asset related to the Company's corporate owned life insurance policy. NOTE 6--LONG-TERM DEBT Long-term debt is comprised of the following (dollars in thousands):
JULY 30, JANUARY 29, 1994 1994 ---------- ----------- Pathmark Term Loan................................................. $ 367,500 $ 385,000 Pathmark Working Capital Facility.................................. 38,000 29,000 Plainbridge Working Capital Facility............................... -- 8,500 10.25% PTK Exchangeable Guaranteed Debentures due 2003............. 136,460 129,649 9.625% Pathmark Senior Subordinated Notes due 2003................. 436,895 436,718 10.75% Pathmark Deferred Coupon Notes due 2003..................... 129,906 123,312 12.625% Pathmark Subordinated Debentures due 2002.................. 95,750 95,750 11.625% Pathmark Subordinated Notes due 2002....................... 198,517 198,517 11.625% Holdings Subordinated Notes due 2002....................... 1,483 1,483 Industrial Revenue Bonds........................................... 6,375 6,375 Other Debt (primarily mortgages)................................... 46,072 47,176 ---------- ----------- Total debt......................................................... 1,456,958 1,461,480 Less current maturities............................................ 45,868 46,244 ---------- ----------- Long-term portion.................................................. $1,411,090 $ 1,415,236 ---------- ----------- ---------- -----------
8 SUPERMARKETS GENERAL HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED) NOTE 7--INTEREST EXPENSE Interest expense is comprised of the following (dollars in thousands):
13 WEEKS ENDED 26 WEEKS ENDED ------------------ ------------------ JULY JULY JULY JULY 30, 31, 30, 31, 1994 1993 1994 1993 ------- ------- ------- ------- Pathmark Term Loan.................................... $ 6,654 $ -- $12,550 $ -- Pathmark Working Capital Facility..................... 1,378 -- 1,908 -- Pathmark Senior Subordinated Notes Amortization of original issue discount............. 10,587 -- 21,175 -- Currently payable................................... 88 -- 176 -- Pathmark Deferred Coupon Notes Accruable but not payable........................... 3,340 -- 6,594 -- Pathmark Subordinated Debentures...................... 3,022 -- 6,044 -- Pathmark Subordinated Notes........................... 5,698 -- 11,511 -- Amortization of PTK DIBs original issue discount...... 3,412 -- 6,811 -- Old Working Capital Facility.......................... -- 1,671 -- 2,826 Holdings Senior Subordinated Notes.................... -- 14,072 -- 28,127 Holdings Subordinated Debentures...................... -- 13,098 -- 26,196 Holdings Subordinated Notes........................... -- 5,812 -- 11,625 Holdings Discount Debentures.......................... -- 7,073 -- 14,147 Amortization of Holdings original issue discount...... -- 317 -- 634 Amortization of debt issuance costs................... 1,622 1,036 3,244 2,072 Obligations under capital leases...................... 3,679 3,806 7,378 7,589 Mortgages............................................. 48 1,115 100 2,312 Other, net............................................ 2,764 1,522 5,342 2,925 ------- ------- ------- ------- Interest expense...................................... $42,292 $49,522 $82,833 $98,453 ------- ------- ------- ------- ------- ------- ------- -------
The Company made cash interest payments of $51.6 million and $43.8 million during the second quarters of Fiscal 1994 and Fiscal 1993, respectively and $63.1 million and $90.6 million during the first six-month periods of Fiscal 1994 and Fiscal 1993, respectively. As a result of the Recapitalization, the majority of the cash interest payments are scheduled in the second and fourth quarters. NOTE 8--CUMULATIVE EFFECT OF ACCOUNTING CHANGES The Company made the following accounting changes: Inventory: Effective January 31, 1993, the Company changed its method utilized to calculate LIFO store inventories related to its indirect wholly owned subsidiary, Pathmark. Prior to Fiscal 1993, the Company utilized a retail approach to determine current cost and a general warehouse purchase index to measure inflation in the cost of its merchandise inventories in its stores. The Company's change arose from the development and utilization in Fiscal 1993 of internal cost indices based on the specific identification of merchandise in its stores to measure inflation in the prices, thereby eliminating the averaging and estimation inherent in the retail and general warehouse purchase index methods. The Company believes the use of such specific costs and internal indices results in a more accurate 9 SUPERMARKETS GENERAL HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED) NOTE 8--CUMULATIVE EFFECT OF ACCOUNTING CHANGES--(CONTINUED) measurement of the impact of inflation in the cost of its store merchandise. The effect of this change resulted in a charge to income of $10.7 million, net of an income tax benefit of $7.8 million, and has been presented as a cumulative effect of a change in accounting method in the accompanying consolidated statements of operations for the first quarter of Fiscal 1993. Postretirement Benefits other than Pensions: Effective January 31, 1993, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits other than Pensions" which resulted in a charge to income of $15.6 million, net of an income tax benefit of $11.3 million, immediately upon adoption. Postemployment Benefits: Effective January 31, 1993, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" which resulted in a charge to income of $2.5 million, net of an income tax benefit of $1.8 million, immediately upon adoption. Income Taxes: Effective January 31, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". The implementation of SFAS No. 109 had no effect on the consolidated statements of operations, however, it resulted in a reclassification of the current and noncurrent deferred taxes. Present Value Discount Rate Determination: Effective January 31, 1993, the Company made a change in the determination of the discount rate utilized to record the present value of certain noncurrent liabilities (self-insured liabilities and closed store liabilities) and reduced such rate from 12%, representing the Company's effective interest rate, to a risk free rate, estimated at 4% in Fiscal 1993. The cumulative effect of this accounting change as of January 31, 1993 totalled $11.6 million, net of an income tax benefit of $8.4 million. NOTE 9--LEASES The Company incurred capital lease obligations of $4.5 million and $6.0 million during the first six-month periods of Fiscal 1994 and Fiscal 1993, respectively, in connection with lease agreements to acquire property and equipment. NOTE 10--EXTRAORDINARY ITEMS During the second quarter of Fiscal 1993, in connection with the Recapitalization, Pathmark repaid $2.5 million principal amount of indebtedness secured by mortgages on two retail properties subsequently transferred to Plainbridge. This repayment resulted in a net loss on early extinguishment of debt of $0.04 million. During the first quarter of Fiscal 1993, in connection with the Recapitalization, Pathmark repaid $5.7 million aggregate principal amount of indebtedness secured by a mortgage on the distribution center of the home centers segment subsequently transferred to Plainbridge. This repayment resulted in a net loss on early extinguishment of debt of $0.1 million. 10 SUPERMARKETS GENERAL HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED) NOTE 11--RELATED PARTY TRANSACTIONS During the fourth quarter of Fiscal 1993, Pathmark and Plainbridge entered into related party agreements and transactions. Refer to the Company's Form 10-K Annual Report for the year ended January 29, 1994, Notes to the Consolidated Financial Statements, for a more detailed description of such agreements. These related party agreements and transactions are summarized as follows: 1) Spin-Off A) Services Agreements: Pathmark and Plainbridge entered into agreements pursuant to which Pathmark will continue to provide certain administrative services relating to the warehouse, distribution and home centers operations of Plainbridge and certain administrative services to Chefmark. The cost of the services under the Plainbridge and Chefmark service agreements in the aggregate was $3.6 million and $7.0 million during the second quarter and the first six-month period of Fiscal 1994, respectively. B) The Logistical Services Agreements: Under the Logistical Services Agreement, Plainbridge supplies Pathmark most of the merchandise sold in Pathmark's retail stores and for the provision of warehousing, distribution and other logistical services relating to the supply of such merchandise. The cost of fees related to the Logistical Services Agreement in the aggregate was $33.9 million and $69.1 million during the second quarter and the first six-month period of Fiscal 1994, respectively. Pathmark also received an allowance of $6.3 million and $12.6 million during the second quarter and first six-month period of Fiscal 1994, respectively, based on the amount of merchandise purchased by Plainbridge at Pathmark's direction. At July 30, 1994, Pathmark has guaranteed approximately $31.7 million of such merchandise purchases by Plainbridge. 2) Other: In conjunction with the Plainbridge Spin-Off, certain real property with a net book value of $64.5 million was transferred to Plainbridge and is being leased to Pathmark at rentals which the Company believes approximate fair value. During the second quarter and the first six-month period of Fiscal 1994, such rentals amounted to $1.1 million and $2.2 million, respectively, in connection with these related party leases. In addition, Pathmark is leasing six store properties to Plainbridge with a net book value of $9.1 million. The Company believes that the rentals received from Plainbridge approximate fair value. During the second quarter and the first six-month period of Fiscal 1994, such rentals amounted to $1.0 million and $2.0 million, respectively, and are recorded as a reduction in Pathmark's selling, general and administrative expenses in the accompanying consolidated statements of operations. Pathmark earned interest income on advances to affiliates of $2.7 million and $5.9 million during the second quarter and the first six-month period of Fiscal 1993, respectively. NOTE 12--CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK Exchangeable Preferred Stock activity during the first six-month period of Fiscal 1994 was as follows (dollars in thousands):
NUMBER OF SHARES AMOUNT --------- -------- Balance, January 29, 1994............................................. 4,890,671 $100,346 Accretion on preferred stock.......................................... -- 799 --------- -------- Balance, July 30, 1994................................................ 4,890,671 $101,145 --------- -------- --------- --------
11 SUPERMARKETS GENERAL HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED) NOTE 12--CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK--(CONTINUED) The terms of the Exchangeable Preferred Stock provide for cumulative quarterly dividends at an annual rate of $3.52 per share when, as, 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 July 30, 1994, the unpaid dividends of $30.1 million were accrued and included in other noncurrent liabilities. NOTE 13--INCOME TAXES Income taxes are based on the estimated effective tax rate expected to be applicable for the full fiscal year. The income tax provision of $1.5 million for the first six-month period of Fiscal 1994 is net of a reduction in the net deferred tax asset and related valuation allowance of $1.3 million due to the utilization of the net operating loss carryforwards. An income tax benefit of $10.3 million was provided for the first six-month period of Fiscal 1993. During the first six-month period of Fiscal 1994, the Company made income tax payments of $0.5 million and received income tax refunds of $23.2 million. During the first six-month period of Fiscal 1993, the Company made income tax payments of $1.3 million and received income tax refunds of $1.9 million. NOTE 14--PROVISION FOR STORE CLOSINGS Effective with the beginning of the second quarter of Fiscal 1993, the Company made a decision to close or dispose of five supermarkets (the "Five Stores") which the Company believes will continue to be unprofitable. As a result, operating results for the Five Stores have been excluded from the consolidated statements of operations since the beginning of the second quarter of Fiscal 1993. NOTE 15--CONTINGENCIES The Company is contingently liable for certain obligations of the Purity Operations under certain instruments, primarily approximately 60 leases for real property, in the event of default thereunder by the purchaser of the Purity Operations. As of January 29, 1994, the estimated present value of such lease obligations approximated $115.0 million. The Company is also contingently liable for a loan guarantee of approximately $1.4 million at July 30, 1994. On March 1, 1993 the Company was served with a summons and complaint which alleges, among other things, that the Company and other co-defendants induced processors of Tropicana orange juice to provide it with a favorable price and other terms that discriminated against other sellers of orange juice in violation of the price discrimination provisions of the Robinson-Patman Act. The prayer for relief does not claim any specific amount of damages. After consultation with counsel, the Company believes that this lawsuit is without merit and intends to defend the action vigorously. In addition to the litigation referred to above, the Company is 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. 12 SUPERMARKETS GENERAL HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED) NOTE 16--SUBSEQUENT EVENT On August 24, 1994, the Company announced that its Plainbridge subsidiary had signed a definitive asset purchase agreement (the "Agreement") with a purchaser to sell its home centers segment. Under the terms of the Agreement, the purchaser will acquire certain assets and liabilities as specified in the Agreement. The transaction, anticipated to be closed later in Fiscal 1994, is subject to a number of conditions, including regulatory approvals. The Company will use the proceeds from this transaction to repay debt. 13 SUPERMARKETS GENERAL HOLDINGS CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion and analysis of the Company's financial condition and results from continuing operations. The Company intends to spin-off Plainbridge to its common stockholder, although there can be no assurance that such spin-off will be consummated. Accordingly, discontinued operations represent the results of operations related to the home centers segment in the second quarters and the first six-month periods of Fiscal 1993 and Fiscal 1994 and the warehouse, distribution and certain real estate operations in the second quarter and the first six-month period of Fiscal 1994. The warehouse, distribution and certain real estate operations were reflected in continuing operations in the second quarter and the first six-month period of Fiscal 1993 since such operations represent a portion of the supermarkets and drug stores segment. Although the discontinued operations have generated positive operating cash flows, the Company believes that the impact of such spin-off on the Company's liquidity is not material. References to the Company in this section refers to the Company and its subsidiaries, on a consolidated basis, except as otherwise stated herein. RESULTS OF OPERATIONS Sales: Sales for the second quarter of Fiscal 1994 were $1.02 billion compared to $1.00 billion in the prior-year period. The sales increase is primarily due to the negative impact of the strike and lockouts in the second quarter of Fiscal 1993. Sales for stores opened in both second quarter periods increased by 3.3%. Sales for the first six-month period of Fiscal 1994 were $2.04 billion compared to $2.07 billion in the prior-year period. The decrease is primarily due to the exclusion from the reported results of the sales since the beginning of the second quarter of Fiscal 1993 of the Five Stores anticipated to be closed or disposed as part of the provision for store closings, partially offset by the negative impact of the strike and lockouts in the second quarter of Fiscal 1993. Sales for stores opened in both six-month periods increased 0.2%. At quarter end, the Company operated 140 supermarkets, including 131 Pathmark Super Centers compared with the end of Fiscal 1993 when the Company operated 143 supermarkets, including 136 Pathmark Super Centers. The Company also operated 30 freestanding Pathmark drug stores and five "deep discount" drug stores at quarter end compared with the end of Fiscal 1993 when the Company operated 31 freestanding Pathmark drug stores and two "deep discount" drug stores. In order to improve sales and profitability, the Company is continuing to focus on its enlargement and renovation program. Gross Profit: Gross profit for the second quarter of Fiscal 1994 was $289.8 million or 28.3% of sales compared with $273.4 million or 27.3% of sales for the second quarter of Fiscal 1993 and for the first six-month period of Fiscal 1994 was $579.1 million or 28.3% of sales compared with $569.0 million or 27.4% for the prior-year period. This improvement in gross profit as a percentage of sales during the second quarter and the first six-month period of Fiscal 1994 is attributable to the Company's continuing emphasis on large super centers allowing expanded variety in all departments, particularly higher margin perishables, as well as an increased focus on merchandising programs (see "Selling, General and Administrative Expenses"). The cost of goods sold comparisons were affected by a pretax LIFO charge of $0.5 million for the second quarter of Fiscal 1994, compared with a pretax LIFO credit of $0.7 million for the prior-year period and a pretax LIFO charge of $1.0 million for the first six-month period of Fiscal 1994 compared with a pretax LIFO credit of $1.4 million for the prior-year period. Selling, General and Administrative Expenses: Selling, general and administrative expenses for the second quarter of Fiscal 1994 decreased $3.2 million or 1.4% compared to the prior-year period and decreased $7.2 million or 1.5% for the first six-month period of Fiscal 1994 compared with the prior-year period. As a percentage of sales, selling, 14 general and administrative expenses were 21.9% for the second quarter of Fiscal 1994, down from 22.7% in the prior-year period and were 22.4% for the first six-month period of Fiscal 1994 down from 22.5% for the prior-year period. The decrease as a percentage of sales in the second quarter and for the six-month period of Fiscal 1994 compared to the prior-year periods was primarily attributable to the negative impact of the strike and lockouts during the second quarter of Fiscal 1993. Depreciation and Amortization: Depreciation and amortization of $16.2 million for the second quarter of Fiscal 1994 was $1.4 million less than the prior-year period of $17.6 million. For the first six-month period of Fiscal 1994, depreciation and amortization of $31.9 million was $2.9 million lower than the prior-year period of $34.8 million. The decrease in depreciation and amortization expense for the second quarter and the first six-month period of Fiscal 1994 compared to the prior-year periods was primarily due to the impact of the assets transferred to Plainbridge as part of the Plainbridge Spin-Off. Operating Earnings: Operating earnings for the second quarter of Fiscal 1994 were $49.6 million compared with the prior-year period of $22.5 million. For the first six-month period of Fiscal 1994, operating earnings were $88.5 million compared with $62.4 million for the prior-year period. The increase in operating earnings during the second quarter and the first six-month period of Fiscal 1994 compared to the prior-year periods was primarily due to the impact during the second quarter of Fiscal 1993 of the strike and lockouts and the $6.0 million provision for store closings recorded in the second quarter of Fiscal 1993. Interest Expense: Interest expense of $42.3 million for the second quarter of Fiscal 1994 was $7.2 million less than the prior-year period of $49.5 million and for the first six-month period of Fiscal 1994 was $15.7 million lower than the prior year's $98.5 million. The decrease in both periods was primarily due to the benefit of the lower interest rates on the debt incurred with the Recapitalization. Income Taxes: Income taxes are based on the estimated effective tax rate expected to be applicable for the full fiscal year. The income tax provision of $1.5 million for the second quarter of Fiscal 1994 is net of a reduction in the net deferred tax asset and related valuation allowance of $2.1 million due to utilization of the net operating loss carryforwards. An income tax benefit of $9.1 million was provided in the second quarter of Fiscal 1993. The income tax provision for the first six-month period of Fiscal 1994 was $1.5 million compared to an income tax benefit of $10.3 million for the prior-year period. During the first six-month period of Fiscal 1994, the Company made income tax payments of $0.5 million and received income tax refunds of $23.2 million. During the first six-month period of Fiscal 1993, the Company made income tax payments of $1.3 million and received income tax refunds of $1.9 million. Summary of Operations: For the second quarter of Fiscal 1994, the Company's earnings from continuing operations before extraordinary items and cumulative effect of accounting changes was $5.8 million compared to a loss of $15.2 million for the prior-year period. For the first six-month period of Fiscal 1994, the Company's earnings from continuing operations before extraordinary items and cumulative effect of accounting changes was $4.2 million compared to a loss of $19.8 million for the prior-year period. The increase in earnings in both periods are primarily due to the impact during the second quarter of Fiscal 1993 of the strike and lockouts and the $6.0 million provision for store closings recorded in the second quarter of Fiscal 1993. 15 Extraordinary Items: During the second quarter of Fiscal 1993, in connection with the Recapitalization, Pathmark repaid $2.5 million principal amount of indebtedness secured by mortgages on two retail properties subsequently transferred to Plainbridge. This repayment resulted in a net loss on early extinguishment of debt of $0.04 million. During the first quarter of Fiscal 1993, in connection with the Recapitalization, Pathmark repaid $5.7 million aggregate principal amount of indebtedness secured by a mortgage on the distribution center of the home centers segment subsequently transferred to Plainbridge. This payment resulted in a net loss on early extinguishment of debt of $0.1 million. Cumulative Effect of Accounting Changes: Refer to Note 8 of the Consolidated Financial Statements for a discussion related to the cumulative effect of accounting changes, effective January 31, 1993. FINANCIAL CONDITION Debt Service: During the first six-month period of Fiscal 1994, total debt decreased $4.5 million from year end primarily due to the scheduled Term Loan repayments partially offset by an increase in borrowings under the Pathmark Working Capital Facility and by debt accretion on Pathmark Deferred Coupon Notes and PTK DIBs. Borrowings under the Pathmark Working Capital Facility were $38.0 million at July 30, 1994 and have decreased to $20.0 million at September 8, 1994. There were no outstanding borrowings under the Plainbridge Working Capital Facility at July 30, 1994 and September 8, 1994. Under the Pathmark Working Capital Facility, which expires on July 31, 1998, Pathmark can borrow or obtain letters of credit in an aggregate amount not to exceed $175.0 million subject to an annual cleandown provision. Under the terms of the Pathmark cleandown provision, in each fiscal year loans cannot exceed $50.0 million under the Pathmark Working Capital Facility for a period of 30 consecutive days. Under the Plainbridge Working Capital Facility, which expires October 26, 1996, Plainbridge can borrow or obtain letters of credit in an aggregate amount not to exceed $50.0 million subject to an annual cleanup provision. Under the terms of the Plainbridge cleanup provision, in each fiscal year, loans cannot be made for a period of 30 consecutive days. The Company satisfied the terms of the Pathmark cleandown provision during the first quarter of Fiscal 1994 as well as the Plainbridge cleanup provision during the second quarter of Fiscal 1994. Pathmark is required to repay a portion of its borrowings under the Pathmark Term Loan each year, which commenced in January 1994, so as to retire such indebtedness in its entirety by Fiscal 1999. Pathmark is also required to make sinking fund payments on the Pathmark Subordinated Notes in the amount of 25% of the original aggregate principal amount of the Pathmark Subordinated Notes on each of June 15, 2000 and June 15, 2001. The Pathmark Subordinated Debentures and the remaining Pathmark Subordinated Notes mature on June 15, 2002. The Pathmark Senior Subordinated Notes and the Pathmark Deferred Coupon Notes mature in Fiscal 2003. The indebtedness under the Pathmark and Plainbridge Working Capital Facilities and the Pathmark Term Loan bear interest at floating rates. To the extent that certain indebtedness of the Company bears interest at floating rates, cash interest payments on that indebtedness may vary in future years. The 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 when deemed appropriate. As a result of the Recapitalization, the majority of the cash interest payments are scheduled in the second and fourth quarters. 16 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 DIBs) are as follows (dollars in millions): PRINCIPAL FISCAL YEARS PAYMENTS - ---------------------------------------------------------- ------------------ 1994(a)................................................. $ 27.6 1995.................................................... 38.2 1996.................................................... 48.2 1997.................................................... 58.3 1998.................................................... 144.7 1999.................................................... 138.8 2000.................................................... 50.6 2001.................................................... 50.0 2002.................................................... 194.2 2003.................................................... 692.7 - ------------ (a) Subsequent to July 30, 1994 Liquidity: The consolidated financial statements of the Company indicates that at July 30, 1994, current liabilities exceed its current assets by $107.4 million and the Company's stockholder's deficit approximates $1.3 billion. Management believes that cash flows generated from operations, supplemented by the unused borrowing capacity under the Pathmark and Plainbridge Working Capital Facilities 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 meet its seasonal cash requirements. Further, the Company believes it will continue to be in compliance with its various debt covenants. Holdings 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 future borrowing facilities not currently in place. Future refinancing may be necessary if cash flow from operations is not sufficient to meet its debt service requirements related to the amortization of the Pathmark Term Loan and the maturity of the Pathmark Working Capital Facility and certain mortgages in Fiscal 1998, the 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, the Pathmark Deferred Coupon Notes and the PTK DIBs due in Fiscal 2003. The Company may undertake a refinancing of some or all of such indebtedness sometime prior to its maturity. The Company's ability to make scheduled payments or to refinance its obligations with respect to its indebtedness depends on its 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 for payment of Pathmark's and PTK's indebtedness or that future borrowing facilities will be available. While it is the Company's intention to enter into 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 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 potentially result in reduced cash flow. 17 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, as, 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 July 30, 1994, the unpaid dividends of $30.1 million were accrued and included in other noncurrent liabilities. Capital Expenditures: Capital expenditures related to Pathmark supermarkets and drug stores for the second quarter of Fiscal 1994, including property acquired under capital leases, were approximately $17.7 million compared to approximately $18.3 million for the prior-year period and for the first six-month period of Fiscal 1994, including property acquired under capital leases, were approximately $30.9 million compared to $33.0 million for the prior-year period. During the first six-month period of Fiscal 1994, the company opened three "deep discount" drug stores and expects to open one additional "deep discount" drug store during the remainder of Fiscal 1994. Additionally, the Company completed eight enlargements and three renovations to existing supermarkets. During the remainder of Fiscal 1994, the Company expects to open up to four new Pathmark Super Centers, three of which will replace smaller stores, and to complete up to 10 major renovations and eight enlargements. During the current and next two fiscal years, Pathmark plans to open an aggregate of 18 new Pathmark Super Centers, nine of which will replace smaller stores, and to complete up to 85 major renovations and enlargements, at a total investment of approximately $340.0 million, including properties acquired under capital leases. Realization of this plan would increase supermarket selling square footage by more than 14% over the three-year period, although no assurance can be given that Pathmark will be able to successfully complete the number of store openings, renovations and enlargements planned for each year during the period. Pathmark intends to fund this program through cash provided from operations and, to a lesser extent, the leasing of certain properties and equipment. The extent of lease financing will depend on the availability of such financing on favorable terms and the amount of cash provided from operations. Expansion of selling square footage may also occur as a result of the acquisition of new stores. Cash Flows: Net cash provided by operating activities amounted to $60.4 million in the six-month period of Fiscal 1994 compared to cash used for operating activities $16.6 million in the prior-year period. The increase in net cash provided by operating activities in the first six-month period of Fiscal 1994 compared to Fiscal 1993 is primarily due to the improvement in net earnings, income tax refunds of $23.2 million and the reduction in cash interest payments in Fiscal 1994 compared to the prior-year period. Cash used for financing activities for six-month period of Fiscal 1994 was $26.9 million compared to cash provided by financing activities of $46.8 million for the prior-year period. The increase in cash used for financing activities was primarily due to repayments of the Working Capital Facilities and Pathmark Term Loan in the 26 weeks of Fiscal 1994 compared to an increase in the Old Working Capital Facility borrowings of $63.0 million in Fiscal 1993. Cash used for investing activities for the six-month period of Fiscal 1994 was $30.6 million compared to $29.3 million for the prior-year period, primarily reflecting the expenditures for property and equipment in each period. Subsequent Event: On August 24, 1994, the Company announced that its Plainbridge subsidiary had signed a definitive asset purchase agreement (the "Agreement") with a purchaser to sell its home centers segment. Under the terms of the Agreement, the purchaser will acquire certain assets and liabilities as specified in the Agreement. The transaction, anticipated to be closed later in Fiscal 1994, is subject to a number of conditions, including regulatory approvals. The Company will use the proceeds from this transaction to repay debt. 18 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On December 7, 1990, a lawsuit (the "Action") was commenced by a holder of the Exchangeable Preferred Stock, Stanley D. Bernstein, as custodian for Michelle Bernstein, against the Company, SMG-II Holdings Corp. ("SMG-II"), Merrill Lynch Capital Partners, Inc. ("ML Capital Partners"), ML & Co. and the directors of the Company in the Chancery Court, New Castle County, Delaware (the "Court"). The Action purported to be a class action and alleged that the original terms of the Exchangeable Preferred Stock Offer, at $5 per share, constituted a coercive tender offer and a breach of fiduciary duties owed to holders of Exchangeable Preferred Stock. The complaint in the Action sought declaratory and injunctive relief, as well as monetary damages, with respect to the Exchangeable Preferred Stock Offer, but no motions seeking any such relief on a provisional or permanent basis were ever filed. On July 7, 1994, pursuant to the terms of a settlement agreement approved by the Court, the Action was settled. Under the terms of the settlement, the Action was certified as a class action and dismissed on the merits with prejudice, and SMG-II paid attorneys' fees and reimbursement of expenses in the amount of $0.2 million (including interest) to plaintiff's counsel. 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/ ANTHONY CUTI ................................... (Anthony Cuti) President and Chief Financial Officer By /s/ JOSEPH ADELHARDT ................................... (Joseph Adelhardt) Vice President and Controller, Chief Accounting Officer Date: September 13, 1994 19 SUPERMARKETS GENERAL HOLDINGS CORPORATION 3012 Blair Road, Woodbridge, New Jersey 07095 This schedule contains summary financial information extracted from Supermarkets General Holdings Corporation's Consolidated Statements of Operations for the 26 weeks ended July 30, 1994 and the Consolidated Balance Sheet as of July 30, 1994 and is qualified in its entirely by reference to such financial statements. EX-27 2
5 1,000 6-MOS JAN-28-1995 JUL-30-1994 9140 0 15725 1597 321402 402494 1018713 380970 1108675 509907 1411090 101145 0 10 (1295539) 1108675 2043901 2043901 1464840 1464840 490545 2082 82833 5683 1492 4191 (5603) 0 0 (1412) 0 0
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