-----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, r2f892YC7l2tBkgrWnmrkZT18LLy0x2iLXNqBVnnj1RC66c0diSGuogMyqUiygVn bR11Y5WV996LAGge4U5yCA== 0000950112-94-003113.txt : 19941214 0000950112-94-003113.hdr.sgml : 19941214 ACCESSION NUMBER: 0000950112-94-003113 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19941029 FILED AS OF DATE: 19941213 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: 94564585 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 OCTOBER 29, 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, NEW JERSEY (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 October 29, 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. l - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS)
13 WEEKS ENDED 39 WEEKS ENDED ------------------------- ------------------------- OCTOBER 29, OCTOBER 30, OCTOBER 29, OCTOBER 30, 1994 1993 1994 1993 ----------- ----------- ----------- ----------- Sales......................................... $ 1,020,017 $ 1,050,880 $ 3,063,918 $ 3,125,242 Cost of sales (exclusive of depreciation and amortization shown separately below).......... 731,312 772,802 2,192,330 2,278,139 ----------- ----------- ----------- ----------- Gross profit.................................. 288,705 278,078 871,588 847,103 Selling, general and administrative expenses...................................... 228,304 223,067 690,770 688,898 Recapitalization expenses..................... -- 23,737 -- 23,737 Provision for store closings.................. -- -- -- 5,975 Depreciation and amortization................. 16,276 17,883 48,177 52,687 ----------- ----------- ----------- ----------- Operating earnings............................ 44,125 13,391 132,641 75,806 Interest expense.............................. 42,447 49,104 125,280 147,557 Interest income allocated to discontinued operations.................................... -- 3,936 -- 9,869 ----------- ----------- ----------- ----------- Earnings (loss) from continuing operations before income taxes, extraordinary items and cumulative effect of accounting changes....... 1,678 (31,777) 7,361 (61,882) Income tax provision (benefit)................ 920 (11,597) 2,412 (21,918) ----------- ----------- ----------- ----------- Earnings (loss) from continuing operations before extraordinary items and cumulative effect of accounting changes................ 758 (20,180) 4,949 (39,964) Earnings (loss) from discontinued operations.................................... (1,167) 890 (6,770) 915 ----------- ----------- ----------- ----------- Loss before extraordinary items and cumulative effect of accounting changes.................. (409) (19,290) (1,821) (39,049) Extraordinary items, net of an income tax benefit of $9,255 and $9,354 in the 13 and 39 weeks ended October 30, 1993, respectively.................................. -- (106,017) -- (106,155) ----------- ----------- ----------- ----------- Loss before cumulative effect of accounting changes....................................... (409) (125,307) (1,821) (145,204) 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 loss...................................... (409) (125,307) (1,821) (185,562) Less non-cash preferred stock accretion and dividend requirements....................... (4,709) (4,694) (14,116) (14,072) ----------- ----------- ----------- ----------- Net loss attributable to its common stockholder................................... $ (5,118) $ (130,001) $ (15,937) $ (199,634) ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
See notes to consolidated financial statements. 1 SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS EXCEPT SHARE AMOUNTS)
OCTOBER 29, JANUARY 29, 1994 1994 ----------- ----------- ASSETS Current Assets Cash and marketable securities..................................... $ 9,433 $ 6,168 Accounts receivable, net........................................... 13,213 15,428 Merchandise inventories............................................ 338,814 323,036 Income taxes receivable............................................ 3,695 22,422 Prepaid expenses................................................... 25,840 21,838 Due from suppliers................................................. 17,608 20,600 Other current assets............................................... 16,863 12,432 ----------- ----------- Total Current Assets........................................... 425,466 421,924 Property and Equipment, Net......................................... 647,303 645,843 Deferred Financing Costs, Net....................................... 41,243 46,497 Deferred Income Taxes............................................... 4,307 2,890 Investment in Purity Supreme (net of valuation allowance of $30,017 at October 29, 1994 and January 29, 1994).......................... -- -- Other Assets........................................................ 15,481 27,736 ----------- ----------- $ 1,133,800 $ 1,144,890 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDER'S DEFICIT Current Liabilities Accounts payable................................................... $ 278,581 $ 282,771 Current maturities of long-term debt............................... 46,824 46,244 Accrued payroll and payroll taxes.................................. 53,310 60,204 Current portion of obligations under capital leases................ 18,389 18,844 Accrued interest payable........................................... 37,654 16,633 Accrued expenses and other current liabilities..................... 115,945 114,431 ----------- ----------- Total Current Liabilities...................................... 550,703 539,127 ----------- ----------- Long-Term Debt...................................................... 1,401,512 1,415,236 ----------- ----------- Obligations Under Capital Leases, Long-Term......................... 124,667 131,506 ----------- ----------- Other Noncurrent Liabilities........................................ 256,014 243,385 ----------- ----------- Redeemable Securities Exchangeable Preferred Stock, $.01 par value....................... 101,551 100,346 Authorized: 9,000,000 shares Issued and outstanding: 4,890,671 shares at October 29, 1994 and January 29, 1994 Liquidation preference, $25 per share: $122,267 at October 29, 1994 and January 29, 1994 ----------- ----------- Total Redeemable Securities.................................... 101,551 100,346 ----------- ----------- 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 October 29, 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 October 29, 1994 and January 29, 1994 Paid-in Capital.................................................... 199,543 200,748 Accumulated Deficit................................................ (1,500,200) (1,485,468) ----------- ----------- Total Stockholder's Deficit.................................... (1,300,647) (1,284,710) ----------- ----------- $ 1,133,800 $ 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.................................. -- -- -- (1,821) (1,821) Accrued dividends on preferred stock ($.88 per share per quarter).................. -- -- -- (12,911) (12,911) Accretion on preferred stock.............. -- -- (1,205) -- (1,205) ------- ------- -------- ----------- ------------- Balance October 29, 1994.................... $ 7 $ 3 $199,543 $(1,500,200) $ (1,300,647) ------- ------- -------- ----------- ------------- ------- ------- -------- ----------- ------------- Balance, January 30, 1993................... $ 7 $ 3 $202,303 $(1,305,025) $ (1,102,712) Net loss.................................. -- -- -- (185,562) (185,562) Accrued dividends on preferred stock ($.88 per share per quarter).................. -- -- -- (12,911) (12,911) Accretion on preferred stock.............. -- -- (1,161) -- (1,161) ------- ------- -------- ----------- ------------- Balance October 30, 1993.................... $ 7 $ 3 $201,142 $(1,503,498) $ (1,302,346) ------- ------- -------- ----------- ------------- ------- ------- -------- ----------- -------------
See notes to consolidated financial statements. 3 SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
39 WEEKS ENDED -------------------------- OCTOBER 29, OCTOBER 30, 1994 1993 ----------- ----------- Operating Activities Net loss........................................................... $ (1,821) $ (185,562) Adjustments to reconcile net loss to net cash provided by operating activities Extraordinary loss on early extinguishment of debt............. -- 106,155 Cumulative effect of accounting changes........................ -- 40,358 Depreciation and amortization.................................. 48,177 52,687 Deferred income tax benefit.................................... (1,028) (6,524) Interest accruable but not payable............................. 10,286 141 Amortization of original issue discount........................ 10,390 1,118 Amortization of debt issuance costs............................ 4,965 3,107 Loss on disposal of property and equipment..................... 155 165 Loss (earnings) from discontinued operations................... 6,770 (915) Cash provided by (used for) operating assets and liabilities Accounts receivable, net..................................... 2,215 (429) Merchandise inventories...................................... (15,778) (1,273) Income taxes................................................. 18,727 (23,126) Other current assets......................................... (5,441) 3,351 Accounts payable............................................. (4,190) 12,388 Other current liabilities.................................... 20,636 (10,507) Other noncurrent assets and liabilities, net................. 15,729 19,084 ----------- ----------- Cash provided by operating activities...................... 109,792 10,218 ----------- ----------- Investing Activities Property and equipment expenditures................................ (60,676) (51,190) Proceeds from disposition of property and equipment................ 1,226 1,205 ----------- ----------- Cash used for investing activities......................... (59,450) (49,985) ----------- ----------- Financing Activities Increase (decrease) in Working Capital Facilities borrowings....... (7,500) 1,000 Decrease in Pathmark Term Loan..................................... (26,250) -- Increase in other borrowings....................................... 3,672 1,351 Repayment of other long-term borrowings............................ (3,744) (8,871) Reduction in obligations under capital leases...................... (13,255) (10,968) Borrowings from Pathmark Term Loan................................. -- 400,000 Proceeds from issuance of Pathmark Senior Subordinated Notes....... -- 436,625 Proceeds from issuance of Pathmark Deferred Coupon Notes........... -- 120,000 Proceeds from issuance of PTK Deferred Interest Bonds.............. -- 126,100 Proceeds from New Working Capital Facilities borrowings in connection with the Recapitalization............................. -- 53,500 Purchase of Holdings Senior Subordinated Notes..................... -- (388,192) Purchase of Holdings Subordinated Debentures....................... -- (319,229) Purchase of Holdings Discount Debentures........................... -- (184,752) Repayment of Old Working Capital Facility in connection with the Recapitalization..................................................... -- (80,000) Premiums and other fees in connection with the Recapitalization.... -- (98,499) Deferred financing fees in connection with the Recapitalization.... -- (47,538) Increase in Old Working Capital Facility borrowings prior to the Recapitalization..................................................... -- 40,000 ----------- ----------- Cash provided by (used for) financing activities........... (47,077) 40,527 ----------- ----------- Increase in cash..................................................... 3,265 760 Cash at beginning of period.......................................... 6,168 3,806 ----------- ----------- Cash at end of period................................................ $ 9,433 $ 4,566 ----------- ----------- ----------- -----------
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 October 29, 1994 current liabilities exceed its current assets by $125.2 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 and distribution facilities and certain real estate are included in the continuing operating results of the Company for the nine-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 and distribution facilities and certain real estate are included as discontinued operations. The net assets of Plainbridge as of October 29, 1994 and January 29, 1994 were approximately $219.8 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 39 WEEKS ENDED -------------------------- -------------------------- OCTOBER 29, OCTOBER 30, OCTOBER 29, OCTOBER 30, 1994(A) 1993(B) 1994(A) 1993(B) ----------- ----------- ----------- ----------- Revenues Affiliate.............................. $ 675,368 $ -- $ 1,997,792 $ -- Rickel home centers.................... 89,412 83,182 271,989 266,691 Rental income.......................... 1,520 -- 4,536 -- Other.................................. 6,210 -- 17,371 -- ----------- ----------- ----------- ----------- Total revenues........................... $ 772,510 $83,182 $ 2,291,688 $ 266,691 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Earnings (loss) before income taxes...... $ (1,167) $ 1,544(c) $ (6,770) $ 1,588(c) Income tax provision..................... -- 654 -- 673 ----------- ----------- ----------- ----------- Net earnings (loss) from discontinued operations............................... $ (1,167) $ 890 $ (6,770) $ 915 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
- ------------ (a) Represents the results of operation related to the warehouse and distribution facilities 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 $3.9 million and $9.9 million for the third quarter and the nine-month period of Fiscal 1993, respectively, and are included in the results of the discontinued operations.
In connection with the Plainbridge Spin-Off and Recapitalization, the Company recorded a pretax charge of approximately $23.7 million in the third quarter of Fiscal 1993 to record reorganization and restructuring costs, including an early retirement program offered to certain Company associates. During the fourth quarter of Fiscal 1993, the Company determined that the estimated costs related to the reorganization and restructuring were less than originally estimated and recorded a pretax credit of approximately $7.1 million. NOTE 3--MERCHANDISE INVENTORIES Merchandise inventories are comprised of the following (dollars in thousands):
OCTOBER 29, JANUARY 29, 1994 1994 ----------- ----------- Merchandise inventories at FIFO cost.............................. $ 395,801 $ 377,516 Less LIFO reserve................................................. 56,987 54,480 ----------- ----------- Merchandise inventories at LIFO cost.............................. $ 338,814 $ 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):
OCTOBER 29, JANUARY 29, 1994 1994 ----------- ----------- Land................................................................ $ 65,796 $ 65,840 Buildings and building improvements................................. 212,174 196,212 Fixtures and equipment.............................................. 241,317 225,582 Leasehold costs and improvements.................................... 330,308 309,995 Transportation equipment............................................ 19,942 19,771 Construction in progress............................................ -- 680 ----------- ----------- Property and equipment, owned....................................... 869,537 818,080 Property and equipment under capital leases......................... 176,103 176,496 ----------- ----------- Property and equipment, at cost..................................... 1,045,640 994,576 Less accumulated depreciation and amortization...................... 398,337 348,733 ----------- ----------- Property and equipment, net......................................... $ 647,303 $ 645,843 ----------- ----------- ----------- -----------
NOTE 5--OTHER ASSETS The reduction in other assets at October 29, 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):
OCTOBER 29, JANUARY 29, 1994 1994 ----------- ----------- Pathmark Term Loan................................................. $ 358,750 $ 385,000 Pathmark Working Capital Facility.................................. 30,000 29,000 Plainbridge Working Capital Facility............................... -- 8,500 10.25% PTK Exchangeable Guaranteed Debentures due 2003............. 140,039 129,649 9.625% Pathmark Senior Subordinated Notes due 2003................. 436,984 436,718 10.75% Pathmark Deferred Coupon Notes due 2003..................... 133,334 123,312 12.625% Pathmark Subordinated Debentures due 2002.................. 95,750 95,750 11.625% Pathmark Subordinated Notes due 2002....................... 199,017 198,517 11.625% Holdings Subordinated Notes due 2002....................... 983 1,483 Industrial Revenue Bonds........................................... 6,375 6,375 Other Debt (primarily mortgages)................................... 47,104 47,176 ----------- ----------- Total debt......................................................... 1,448,336 1,461,480 Less current maturities............................................ 46,824 46,244 ----------- ----------- Long-term portion.................................................. $ 1,401,512 $ 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 39 WEEKS ENDED -------------------------- -------------------------- OCTOBER 29, OCTOBER 30, OCTOBER 29, OCTOBER 30, 1994 1993 1994 1993 ----------- ----------- ----------- ----------- Pathmark Term Loan.............................. $ 6,919 $ 338 $ 19,469 $ 338 Pathmark Working Capital Facility............... 1,066 39 2,974 39 Plainbridge Working Capital Facility............ -- 5 -- 5 Pathmark Senior Subordinated Notes Amortization of original issue discount....... 88 5 264 5 Currently payable............................. 10,588 588 31,763 588 Pathmark Deferred Coupon Notes Accruable but not payable..................... 3,428 141 10,022 141 Pathmark Subordinated Debentures................ 3,022 134 9,066 134 Pathmark Subordinated Notes..................... 5,813 255 17,324 255 Amortization of PTK DIBs original issue discount........................................ 3,579 162 10,390 162 Old Bank Credit Agreement....................... -- 1,511 -- 4,337 Holdings Senior Subordinated Notes.............. -- 13,446 -- 41,573 Holdings Subordinated Debentures................ -- 12,516 -- 38,711 Holdings Subordinated Notes..................... -- 5,557 -- 17,182 Holdings Discount Debentures.................... -- 6,597 -- 20,744 Amortization of Holdings original issue discount........................................ -- 317 -- 951 Amortization of debt issuance costs............. 1,655 1,036 4,965 3,107 Obligations under capital leases................ 3,666 3,725 11,044 11,313 Mortgages....................................... 40 1,119 140 3,432 Other, net...................................... 2,583 1,613 7,859 4,540 ----------- ----------- ----------- ----------- Interest expense................................ $42,447 $49,104 $ 125,280 $ 147,557 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
The Company made cash interest payments of $11.7 million and $70.2 million during the third quarters of Fiscal 1994 and Fiscal 1993, respectively and $74.8 million and $160.8 million during the nine-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 in Fiscal 1993: 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 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 39 weeks ended October 30, 1993. 9 SUPERMARKETS GENERAL HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED) NOTE 8--CUMULATIVE EFFECT OF ACCOUNTING CHANGES--(CONTINUED) 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 $6.5 million and $9.0 million during the nine-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 third quarter of Fiscal 1993, in connection with the Recapitalization, the Company repaid or exchanged $1.3 billion of debt through the issuance of new Pathmark and PTK indebtedness. This repayment of outstanding debt and origination of new debt included premiums and other expenses, including the write off existing deferred financing fees associated with debt which was extinguished, which resulted in a net loss on early extinguishment of debt of $106.0 million. 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. NOTE 11--RELATED PARTY TRANSACTIONS During the third 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 10 SUPERMARKETS GENERAL HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED) NOTE 11--RELATED PARTY TRANSACTIONS--(CONTINUED) 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 $3.8 million and $10.9 million during the third quarter and the nine-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 $34.8 million and $103.9 million during the third quarter and the nine-month period of Fiscal 1994, respectively. Pathmark also received an allowance of $6.4 million and $19.1 million during the third quarter and nine-month period of Fiscal 1994, respectively, based on the amount of merchandise purchased by Plainbridge at Pathmark's direction. At October 29, 1994, Pathmark guaranteed approximately $45.2 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 third quarter and the nine-month period of Fiscal 1994, such rentals amounted to $1.1 million and $3.3 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 third quarter and the nine-month period of Fiscal 1994, such rentals amounted to $1.0 million and $3.0 million, respectively, and are recorded as a reduction in Pathmark's selling, general and administrative expenses in the accompanying consolidated statements of operations. During the third quarter of Fiscal 1994, Pathmark entered into a 10-year lease with a third-party landlord and a 10-year sublease with Plainbridge for a frozen food distribution center. The rental expense incurred by Pathmark is fully offset by the rental income received from Plainbridge. Pathmark earned interest income on advances to affiliates of $3.9 million and $9.9 million during the third quarter and the nine-month period of Fiscal 1993, respectively. NOTE 12--CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK Exchangeable Preferred Stock activity during the first nine-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.......................................... -- 1,205 --------- -------- Balance, October 29, 1994............................................. 4,890,671 $101,551 --------- -------- --------- --------
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 October 29, 1994, the unpaid dividends of $34.4 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 $2.4 million for the nine-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 $21.9 million was provided for the nine-month period of Fiscal 1993. During the nine-month period of Fiscal 1994, the Company made income tax payments of $4.8 million and received income tax refunds of $23.6 million. During the nine-month period of Fiscal 1993, the Company made income tax payments of $1.4 million and received income tax refunds of $7.5 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. Subsequent to the third quarter of Fiscal 1994, three of the stores were closed and a decision has not yet been made to continue the operations of the remaining two stores. 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 $1.2 million at October 29, 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. 12 SUPERMARKETS GENERAL HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED) NOTE 15--CONTINGENCIES--(CONTINUED) 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. NOTE 16--SUBSEQUENT EVENT On November 4, 1994, the Company's Plainbridge subsidiary completed the sale of its Rickel Home Centers business ("Rickel") for approximately $80 million, including the assumption of certain indebtedness of Rickel, to a company organized by EOS Partners, L.P.. The Company expects to recognize a gain on the sale of Rickel. Under terms of the Indenture governing the PTK DIB's, the Company was required to use the net cash proceeds of $62.6 million to pay down the PTK DIB's, including accrued interest and debt premium. The sale price is subject to a final determination based on the closing Rickel balance sheet. After such final determination, any remaining net cash proceeds will be applied to pay down the PTK DIBs. 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 third quarters and the nine-month periods of Fiscal 1993 and Fiscal 1994. The warehouse, distribution and certain real estate operations are reflected in continuing operations 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 third quarter of Fiscal 1994 were $1.02 billion compared to $1.05 billion in the prior-year period. The sales decrease is primarily due to the same store decrease of 2.5%. Sales for the nine-month period of Fiscal 1994 were $3.06 billion compared to $3.12 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 open in both nine-month periods decreased 0.7%. 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 six "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 third quarter of Fiscal 1994 was $288.7 million or 28.3% of sales compared with $278.1 million or 26.5% of sales for the third quarter of Fiscal 1993 and for the nine-month period of Fiscal 1994 was $871.6 million or 28.4% of sales compared with $847.1 million or 27.1% for the prior-year period. This improvement in gross profit as a percentage of sales during the third quarter and the nine-month period of Fiscal 1994 is primarily 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. The cost of goods sold comparisons were affected by a pretax LIFO charge of $0.5 million for the third 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 $1.5 million for the nine-month period of Fiscal 1994 compared with a pretax LIFO credit of $2.1 million for the prior-year period. Selling, General and Administrative Expenses: Selling, general and administrative expenses for the third quarter of Fiscal 1994 increased $5.2 million or 2.3% compared to the prior-year period and increased $1.9 million or 0.3% for the nine-month period of Fiscal 1994 compared with the prior-year period. As a percentage of sales, selling, general and administrative expenses were 22.4% for the third quarter of Fiscal 1994, up from 21.2% in the prior-year period and were 22.5% for the nine-month period of Fiscal 1994, up from 22.0% for the prior-year period. The increase as a percentage of sales in the third quarter and nine-month period of 14 Fiscal 1994 compared to the prior-year period was due to higher computer development and services costs, labor and labor related expenses and occupancy expenses, partially offset by lower promotional costs this year compared to the additional promotional programs implemented last year to regain sales levels subsequent to the strike and lockouts. Depreciation and Amortization: Depreciation and amortization of $16.3 million for the third quarter of Fiscal 1994 was $1.6 million less than the prior-year period of $17.9 million. For the nine-month period of Fiscal 1994, depreciation and amortization of $48.2 million was $4.5 million lower than the prior-year period of $52.7 million. The decrease in depreciation and amortization expense for the third quarter and the nine-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 third quarter of Fiscal 1994 were $44.1 million compared with the prior-year period of $13.4 million. For the nine-month period of Fiscal 1994, operating earnings were $132.6 million compared with $75.8 million for the prior-year period. The increase in operating earnings during the third quarter and the nine-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 $42.4 million for the third quarter of Fiscal 1994 was $6.7 million less than the prior-year period of $49.1 million and for the nine-month period of Fiscal 1994 was $22.3 million lower than the prior year's $147.6 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 $0.9 million for the third quarter of Fiscal 1994 is net of an adjustment in the net deferred tax asset and related valuation allowance of $0.2 million due to increases in the net operating loss carryforwards. An income tax benefit of $11.6 million was provided in the third quarter of Fiscal 1993. The income tax provision for the first nine-month period of Fiscal 1994 was $2.4 million compared to an income tax benefit of $21.9 million for the prior-year period. During the nine-month period of Fiscal 1994, the Company made income tax payments of $4.8 million and received income tax refunds of $23.6 million. During the nine-month period of Fiscal 1993, the Company made income tax payments of $1.4 million and received income tax refunds of $7.5 million. Summary of Operations: For the third quarter of Fiscal 1994, the Company's earnings from continuing operations before extraordinary items and cumulative effect of accounting changes was $0.8 million compared to a loss of $20.2 million for the prior-year period. For the nine-month period of Fiscal 1994, the Company's earnings from continuing operations before extraordinary items and cumulative effect of accounting changes was $5.0 million compared to a loss of $40.0 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, the $6.0 million provision for store closings recorded in the second quarter of Fiscal 1993 and the Recapitalization Expenses of $23.7 million in the third quarter of Fiscal 1993. 15 Extraordinary Items: During the third quarter of Fiscal 1993, in connection with the Recapitalization, the Company repaid or exchanged $1.3 billion of debt through the issuance of new Pathmark and PTK indebtedness. This repayment of outstanding debt and origination of new debt included premiums and other expenses, including the write off of existing deferred financing fees associated with debt which was extinguished, which resulted in a net loss on early extinguishment of debt of $106.0 million. 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 nine-month period of Fiscal 1994, total debt decreased $13.1 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 $30.0 million at October 29, 1994 and have increased as a result of seasonal borrowing needs to $65.0 million at December 12, 1994. There were no outstanding borrowings under the Plainbridge Working Capital Facility at October 29, 1994 and December 12, 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 (of which the maximum of $100.0 million can be in letters of credit) 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 one 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 16 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. 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)................................................. $ 19.5 1995.................................................... 38.2 1996.................................................... 48.2 1997.................................................... 58.3 1998.................................................... 133.6 1999.................................................... 138.8 2000.................................................... 50.6 2001.................................................... 50.0 2002.................................................... 194.2 2003.................................................... 692.7 - ------------ (a) Subsequent to October 29, 1994 Liquidity: The consolidated financial statements of the Company indicates that at October 29, 1994, current liabilities exceed its current assets by $125.2 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 17 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. 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 October 29, 1994, the unpaid dividends of $34.4 million were accrued and included in other noncurrent liabilities. Capital Expenditures: Capital expenditures related to Pathmark supermarkets and drug stores for the third quarter of Fiscal 1994, including property acquired under capital leases, were approximately $27.1 million compared to approximately $24.1 million for the prior-year period and for the nine-month period of Fiscal 1994, including property acquired under capital leases, were approximately $58.0 million compared to $60.2 million for the prior-year period. During the nine-month period of Fiscal 1994, the company opened four "deep discount" drug stores which were converted from Pathmark supermarkets. Additionally, the Company completed 13 enlargements and four renovations to existing supermarkets. During the remainder of Fiscal 1994, the Company will open up to four new Pathmark Super Centers, three of which will replace smaller stores, and will complete six major renovations and three enlargements. Cash Flows: Net cash provided by operating activities amounted to $109.8 million in the nine-month period of Fiscal 1994 compared to $10.2 million in the prior-year period. The increase in net cash provided by operating activities in the nine-month period of Fiscal 1994 compared to Fiscal 1993 is primarily due to the improvement in net earnings, income tax refunds of $23.6 million and the reduction in cash interest payments in Fiscal 1994 compared to the prior-year period. Cash used for financing activities for the nine-month period of Fiscal 1994 was $47.1 million compared to cash provided by financing activities of $40.5 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 39 weeks of Fiscal 1994 compared to an increase in net debt provided by the Recapitalization in Fiscal 1993. Cash used for investing activities for the nine-month period of Fiscal 1994 was $59.5 million compared to $50.0 million for the prior-year period, primarily reflecting the expenditures for property and equipment in each period. Subsequent Event: On November 4, 1994, the Company's Plainbridge subsidiary completed the sale of its Rickel Home Centers business ("Rickel") for approximately $80 million, including the assumption of certain indebtedness of Rickel, to a company organized by EOS Partners, L.P. The Company expects to recognize a gain on the sale of Rickel. Under terms of the Indenture governing the PTK DIB's, the company was required to use the net cash proceeds of $62.6 million to pay down the PTK DIB's, including accrued interest and debt premium. The sale price is subject to a final determination based on the closing Rickel balance sheet. After such final determination, any remaining net cash proceeds will be applied to pay down the PTK DIBs. 18 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) Vice President and Controller, Chief Accounting Officer Date: December 13, 1994 19 EX-27 2
5 This schedule contains summary financial information extracted from Supermarkets General Holdings Corporation's Consolidated Statements of Operations for the 26 weeks ended October 29, 1994 and the Consolidated Balance Sheet as of October 29, 1994 and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS JAN-28-1995 OCT-29-1994 4933 4500 15260 2047 338814 425466 1045640 398337 1133800 550703 1401512 10 101551 0 (1300647) 1133800 3063918 3063918 2192330 2192330 738947 2806 125280 7361 2412 4949 (6770) 0 0 (1821) 0 0
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