-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CyTbBsOCHHkSu27eEGMGukz/5X7y9rO0Spp+kPv6WGcmvPRk7JhGxvysq2ILVJyE BAIBCrtnp2T7X4G/rYwifQ== 0001005477-99-005852.txt : 19991214 0001005477-99-005852.hdr.sgml : 19991214 ACCESSION NUMBER: 0001005477-99-005852 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991030 FILED AS OF DATE: 19991213 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: SEC FILE NUMBER: 000-16404 FILM NUMBER: 99773512 BUSINESS ADDRESS: STREET 1: 301 BLAIR RD STREET 2: P.O. BOX 5301 CITY: WOODBRIDGE STATE: NJ ZIP: 07095-0915 BUSINESS PHONE: 9084993000 MAIL ADDRESS: STREET 1: 301 BLAIR RD STREET 2: P.O. BOX 5301 CITY: WOODBRIDGE STATE: NJ ZIP: 07095-0915 10-Q 1 FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ---------- For the Quarter Ended Commission File Number October 30, 1999 0-16404 Supermarkets General Holdings Corporation (Exact name of registrant as specified in its charter) Delaware 13-3408704 (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 200 Milik Street 07008 Carteret, New Jersey (Zip Code) (Address of principal executive offices) (732) 499-3000 (Registrant's telephone number, including area code) -------------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: $3.52 Cumulative Exchangeable Redeemable Preferred Stock -------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| As of October 30, 1999, 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. Consolidated Financial Statements SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands)
13 Weeks Ended 39 Weeks Ended ---------------------------- ---------------------------- October 30, October 31, October 30, October 31, 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Sales ...................................... $ 924,854 $ 899,990 $ 2,742,039 $ 2,738,914 Cost of sales (exclusive of depreciation and amortization shown separately below) ...... 663,794 644,554 1,961,191 1,957,547 ----------- ----------- ----------- ----------- Gross profit ............................... 261,060 255,436 780,848 781,367 Selling, general and administrative expenses 214,813 210,389 633,575 625,922 Depreciation and amortization .............. 19,111 19,597 55,720 59,033 ----------- ----------- ----------- ----------- Operating earnings ......................... 27,136 25,450 91,553 96,412 Interest expense ........................... (41,028) (39,774) (120,870) (121,173) ----------- ----------- ----------- ----------- Loss before income taxes ................... (13,892) (14,324) (29,317) (24,761) Income tax provision ....................... (25) (39) (76) (94) ----------- ----------- ----------- ----------- Net loss ................................... (13,917) (14,363) (29,393) (24,855) Less: non-cash preferred stock accretion and dividend requirements ..................... (4,799) (4,778) (14,380) (14,318) ----------- ----------- ----------- ----------- Net loss attributable to common stockholder $ (18,716) $ (19,141) $ (43,773) $ (39,173) =========== =========== =========== ===========
See notes to consolidated financial statements (unaudited). 1 SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands except share amounts)
October 30, January 30, 1999 1999 ----------- ----------- ASSETS Current Assets Cash and cash equivalents ....................... $ 8,752 $ 7,726 Accounts receivable, net ........................ 15,502 13,792 Merchandise inventories ......................... 166,848 143,212 Income taxes receivable ......................... 2,174 1,482 Deferred income taxes, net ...................... 4,203 4,026 Prepaid expenses ................................ 23,379 21,527 Due from suppliers .............................. 51,733 49,600 Other current assets ............................ 16,463 10,708 ----------- ----------- Total Current Assets .......................... 289,054 252,073 Property and Equipment, Net ...................... 482,195 471,583 Deferred Financing Costs, Net .................... 12,871 15,723 Deferred Income Taxes, Net ....................... 45,777 46,148 Other Assets ..................................... 46,068 42,525 ----------- ----------- $ 875,965 $ 828,052 =========== =========== LIABILITIES AND STOCKHOLDER'S DEFICIENCY Current Liabilities Accounts payable and book overdrafts ............ $ 100,528 $ 98,967 Current maturities of long-term debt ............ 76,064 15,902 Accrued payroll and payroll taxes ............... 44,508 52,014 Current portion of lease obligations ............ 23,869 21,956 Accrued interest payable ........................ 38,811 21,325 Accrued expenses and other current liabilities .. 89,068 86,404 ----------- ----------- Total Current Liabilities ..................... 372,848 296,568 ----------- ----------- Long-Term Debt ................................... 1,268,608 1,258,539 ----------- ----------- Lease Obligations, Long-Term ..................... 177,658 160,820 ----------- ----------- Other Noncurrent Liabilities ..................... 372,143 385,287 ----------- ----------- Redeemable Securities Exchangeable Preferred Stock, $.0l par value .... 110,538 109,069 ----------- ----------- Authorized: 9,000,000 shares Issued and outstanding: 4,890,671 shares Liquidation preference, $25 per share: $122,267 Commitments and Contingencies (Note 4) Stockholder's Deficiency Class A common stock $.01 par value ............. 7 7 Authorized: 1,075,000 shares Issued and outstanding: 650,675 shares Class B common stock $.01 par value ............. 3 3 Authorized: 1,000,000 shares Issued and outstanding: 320,000 shares Paid-in capital ................................. 195,062 196,357 Accumulated deficit ............................. (1,620,902) (1,578,598) ----------- ----------- Total Stockholder's Deficiency ................. (1,425,830) (1,382,231) ----------- ----------- $ 875,965 $ 828,052 =========== ===========
See notes to consolidated financial statements (unaudited). 2 SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIENCY (Unaudited) (in thousands except per share amounts)
Class A Class B Total Common Common Paid-in Accumulated Stockholder's Stock Stock Capital Deficit Deficiency -------- -------- --------- ----------- ------------- Balance, January 30, 1999 ............. $ 7 $ 3 $ 196,357 $(1,578,598) $(1,382,231) Net loss ............................ -- -- -- (29,393) (29,393) Accrued dividends on preferred stock ($2.64 per share) .................. -- -- -- (12,911) (12,911) Accretion on preferred stock ........ -- -- (1,469) -- (1,469) Capital contribution from SMG-II Holdings Corporation ............... -- -- 174 -- 174 -------- -------- --------- ----------- ----------- Balance, October 30, 1999 ............. $ 7 $ 3 $ 195,062 $(1,620,902) $(1,425,830) ======== ======== ========= =========== =========== Balance, January 31, 1998 ............. $ 7 $ 3 $ 197,521 $(1,531,659) $(1,334,128) Net loss ........................... -- -- -- (24,855) (24,855) Accrued dividends on preferred stock ($2.64 per share) ................. -- -- -- (12,911) (12,911) Accretion on preferred stock ....... -- -- (1,407) -- (1,407) Capital contributions from SMG-II Holdings Corporation ............ -- -- 543 -- 543 -------- -------- --------- ----------- ----------- Balance, October 31, 1998 ............. $ 7 $ 3 $ 196,657 $(1,569,425) $(1,372,758) ======== ======== ========= =========== ===========
See notes to consolidated financial statements (unaudited). 3 SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
39 Weeks Ended ------------------------- October 30, October 31, 1999 1998 ----------- ----------- Operating Activities Net loss ........................................................... $(29,393) $(24,855) Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Depreciation and amortization ................................... 58,599 61,811 Deferred income tax benefit ..................................... -- (581) Interest accruable but not payable .............................. 17,246 15,362 Amortization of original issue discount ......................... 266 1,008 Amortization of debt issuance costs ............................. 3,283 3,069 Gain on disposal of property and equipment ...................... (426) (4,560) Cash provided by (used for) operating assets and liabilities: Accounts receivable, net ....................................... (1,710) (1,356) Merchandise inventories ........................................ (23,636) (19,312) Income taxes ................................................... (498) 3,524 Due from suppliers ............................................. (2,133) (36,546) Other current assets ........................................... (7,918) (2,383) Other assets ................................................... (3,655) (2,689) Accounts payable ............................................... 6,102 (17,225) Accrued interest payable ....................................... 17,636 20,910 Accrued expenses and other current liabilities ................. (4,842) (4,380) Other noncurrent liabilities ................................... (24,280) (24,486) -------- -------- Cash provided by (used for) operating activities ............. 4,641 (32,689) -------- -------- Investing Activities Property and equipment expenditures ................................ (37,259) (27,932) Proceeds from disposition of property and equipment ................ 888 28,377 -------- -------- Cash provided by (used for) investing activities .............. (36,371) 445 -------- -------- Financing Activities Increase in Working Capital Facility borrowings .................... 62,700 57,800 Repayment of Term Loan ............................................. (9,012) (5,674) Repayment of other long-term debt .................................. (969) (29,459) Decrease in book overdrafts ........................................ (4,541) (20,198) Reduction in lease obligations ..................................... (14,991) (18,002) Deferred financing fees ............................................ (431) (777) Increase in other long-term debt ................................... -- 26,652 Capital contribution from SMG-II Holdings Corporation .............. -- 246 Repayment of the PTK Exchangeable Guaranteed Debentures ............ -- (31,171) -------- -------- Cash provided by (used for) financing activities .............. 32,756 (20,583) -------- -------- Increase (decrease) in cash and cash equivalents .................... 1,026 (52,827) Cash and cash equivalents at beginning of period .................... 7,726 62,914 -------- -------- Cash and cash equivalents at end of period .......................... $ 8,752 $ 10,087 ======== ======== Supplemental Disclosures of Cash Flow Information Interest paid .................................................... $ 82,547 $ 80,903 ======== ======== Income taxes paid ................................................ $ 461 $ 908 ======== ======== Noncash Investing and Financing Activities Capital lease obligations ........................................ $ 34,981 $ 10,425 ======== ========
See notes to consolidated financial statements (unaudited). 4 SUPERMARKETS GENERAL HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1--Organization and Basis of Presentation Supermarkets General Holdings Corporation (the "Company" or "Holdings"), through its indirect wholly owned subsidiary Pathmark Stores, Inc. ("Pathmark"), operated 134 supermarkets as of October 30, 1999, primarily in the New York-New Jersey and Philadelphia metropolitan areas, and is a wholly owned subsidiary of SMG-II Holdings Corporation ("SMG-II"). On March 9, 1999, Ahold Acquisitions, Inc. ("the Purchaser"), an indirect wholly owned subsidiary of the Netherlands based international food retailer, Koninklijke Ahold N.V. ("Ahold"), announced it will acquire all of the issued and outstanding shares of the capital stock of SMG-II, subject to the completion of a number of conditions (see Note 4). The unaudited consolidated financial statements included herein have been prepared by the Company in accordance with the same accounting principles followed in the presentation of the Company's annual financial statements for the year ended January 30, 1999, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the consolidated financial statements included herein reflect all adjustments, which are of a normal and recurring nature and are necessary to present fairly the results of operations and financial position of the Company. This report should be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-K Annual Report for the year ended January 30, 1999. Income taxes for the interim period are based on the estimated effective tax rate expected to be applicable for the full fiscal year. The Company has recorded a valuation allowance related to the income tax benefit for the third quarters and nine-month periods of Fiscal 1999 and 1998, therefore, no income tax benefit has been recognized. Note 2--Long-Term Debt Long-term debt is comprised of the following (dollars in thousands):
October 30, January 30, 1999 1999 ----------- ----------- Pathmark term loan ("Term Loan") ................................. $ 246,672 $ 255,684 Pathmark working capital facility ("Working Capital Facility") ... 105,700 43,000 9.625% Pathmark Senior Subordinated Notes due 2003 ("Pathmark Senior Subordinated Notes") ......................... 438,755 438,489 11.625% Pathmark Subordinated Notes due 2002 ("Pathmark Subordinated Notes") ................................ 199,017 199,017 11.625% Holdings Subordinated Notes due 2002 ("Holdings Subordinated Notes") ................................ 983 983 12.625% Pathmark Subordinated Debentures due 2002 ("Pathmark Subordinated Debentures") ........................... 95,750 95,750 10.75% Pathmark Junior Subordinated Deferred Coupon Notes due 2003 ("Pathmark Deferred Coupon Notes") ............................. 225,126 207,880 Industrial revenue bonds ......................................... 8,239 8,302 Other debt (primarily mortgages) ................................. 24,430 25,336 ---------- ---------- Total debt ....................................................... 1,344,672 1,274,441 Less: current maturities ......................................... 76,064 15,902 ---------- ---------- Long-term portion ................................................ $1,268,608 $1,258,539 ========== ==========
The increase in the current maturities is primarily due to the sinking fund payment of $50.0 million, due June 15, 2000, related to the Subordinated Notes. 5 SUPERMARKETS GENERAL HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued) Note 3--Interest Expense Interest expense is comprised of the following (dollars in thousands):
13 Weeks Ended 39 Weeks Ended --------------------------- ---------------------------- October 30, October 31, October 30, October 31, 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Term Loans .............................. $ 4,932 $ 5,275 $ 14,538 $ 15,940 Working Capital Facility ................ 1,778 1,622 4,567 3,620 Pathmark Senior Subordinated Notes Amortization of original issue discount 89 88 267 266 Currently payable ..................... 10,588 10,588 31,762 31,763 Pathmark Subordinated Notes ............. 5,812 5,813 17,437 17,438 Pathmark Subordinated Debentures ........ 3,022 3,022 9,066 9,066 Pathmark Deferred Coupon Notes Accrued but not payable ............... 5,902 5,307 17,246 15,362 PTK Exchangeable Guaranteed Debentures Amortization of original issue discount -- -- -- 742 Amortization of debt issuance costs ..... 1,097 1,016 3,283 3,069 Lease obligations ....................... 5,561 5,251 15,928 16,174 Other, net .............................. 2,247 1,792 6,776 7,733 ------- ------- -------- -------- Interest expense ........................ $41,028 $39,774 $120,870 $121,173 ======= ======= ======== ========
On May 12, 1998, the Company's wholly owned subsidiary PTK Holdings, Inc. ("PTK") repaid, at a discount, the PTK Exchangeable Guaranteed Debentures, totaling $31.2 million. Note 4--Contingencies Ahold Acquisition: As previously described in the Company's Annual Report on Form 10-K for the year ended January 30, 1999, and its periodic report on Form 10-Q for the six months ended July 31, 1999, the Company, its parent, SMG-II Holdings Corporation ("SMG-II"), Ahold Acquisitions, Inc. (the "Purchaser"), an indirect, wholly owned subsidiary of the Netherlands based international food retailer, Koninklijke Ahold N.V. ("Ahold"), and the directors of the Company are defendants (collectively, the "Defendants") in a purported stockholder class action lawsuit entitled Wolfson v. Supermarkets General Holdings Corporation, et al., C.A. No. 17047 (the "Action"), in which the Plaintiff alleged, among other things, that the defendant directors of the Company and SMG-II breached their fiduciary duties to the holders of the Company's $3.52 Cumulative Exchangeable Redeemable Preferred Stock (the "Preferred Stock"). The Plaintiff, by his counsel, has entered into a Settlement Agreement, dated June 9, 1999 (the "Settlement Agreement"), with the Defendants (by their counsel) pursuant to which the parties have agreed to settle the Action. The proposed settlement is subject to, among other things, the approval of the settlement by the court of Chancery of the State of Delaware (the "Court"). The Settlement Agreement provides for, among other things, the certification of the action as a class action under the rules of the Court, which class would consist of all holders of the Preferred Stock of the Company from and including March 9, 1999 (the "Class") through and including the consummation of the merger pursuant to the Agreement and Plan of Merger by and among Ahold, the Purchaser and SMG-II dated March 9, 1999 (the "SMG-II Merger") or, if the SMG-II Merger fails to close, the stock purchase pursuant to the Stock Purchase Agreement dated March 9, 1999 by and among Ahold, the Purchaser, SMG-II and PTK Holdings, Inc. (the "Alternative Transaction"). In addition, pursuant to the terms of the Settlement Agreement, the Defendants have agreed, subject to Final Court Approval (as defined below), that the Purchaser shall increase its tender offer price to $40.25 per share of Preferred Stock (from $38.25), less the total amount awarded as 6 SUPERMARKETS GENERAL HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued) Note 4--Contingencies--(Continued) fees and expenses to Plaintiffs counsel by the Court divided by the total number of outstanding shares of Preferred Stock (the "New Offer Price"). Plaintiffs counsel has applied to the Court for an award of fees and expenses in an aggregate amount of $1,956,268, or $0.40 per share of Preferred Stock. The Settlement Agreement also provides, among other things, that any of the Defendants shall have the right to withdraw from the proposed settlement in the event that (i) any claims related to the SMG-II Merger, the Alternative Transaction, or the subject matter of the Action are commenced by any member of the Class against any Defendants or certain others employed by, affiliated with or retained by the Defendants in any court prior to Final Court Approval of the settlement, and the court in which such claims are pending denies Defendants' application to dismiss or stay such action in contemplation of dismissal, or (ii) any of the other conditions to the consummation of the settlement described below shall not have been satisfied. The consummation of the settlement is subject to (i) Final Court Approval of the settlement; (ii) dismissal of the Action by the Court with prejudice and without awarding fees or costs to any party; and (iii) the Purchaser closing (A) its tender offer and the SMG-II Merger, or (B) the Alternative Transaction. For purposes of the Settlement Agreement, "Final Court Approval" of the settlement means an order entered by the Court approving the settlement and awarding Plaintiffs counsel's fees and expenses and such order is finally affirmed, without modification of any substantive right of any party to the Settlement Agreement, on appeal, or is no longer subject to appeal and time for any petition for reargument, appeal or review, by certiorari or otherwise, has expired, provided that any modification of the order approving the settlement with respect to the amount of attorneys' fees and expenses awarded and/or any additional supplemental disclosure required shall not be considered a modification of a substantive right affecting Final Court Approval. After notice and a hearing, on July 22, 1999 the Court approved the settlement and the fee application of the Plaintiffs attorneys. As of August 23, 1999, all applicable appeal periods have expired, thus constituting Final Court Approval. As a result of the settlement, the New Offer Price will be $39.85 per share of Preferred Stock. Rickel: In connection with the sale of its home centers segment in Fiscal 1994, the Company, as lessor, entered into ten leases for certain of the Company's owned real estate properties, including a distribution center, with Rickel as tenant. In addition, the Company assigned to Rickel 25 third-party leases. In 1996, Rickel filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. Subsequent to the bankruptcy filing, of the 35 locations leased to Rickel, 16 leases have been assigned by Rickel in 1998 to Staples, Inc., 12 leases have either been terminated or assigned to third parties, including Rickel's distribution center which was sold by the Company during Fiscal 1998, and seven leases were rejected and are being actively marketed by the Company to other prospective tenants. Management has assessed its exposure with respect to this matter and has concluded that it has sufficient reserves to cover any resulting liability which may occur, including the future rent and real estate taxes, net of expected recoveries. Other: The Company is a party to a number of other 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, cash flows or business of the Company. 7 SUPERMARKETS GENERAL HOLDINGS CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Sales: Sales in the third quarter of Fiscal 1999 were $924.8 million compared to $900.0 million in the prior year, an increase of 2.8%. For the nine-month period of Fiscal 1999, sales were $2,742.0 million compared to $2,738.9 million in the prior year, an increase of 0.1%. Same store sales increased 1.4% and 0.1% for the third quarter and nine-month period of Fiscal 1999, respectively. The sales increase in the third quarter was primarily due to new stores in Fiscal 1999 and same store sales increases, partially offset by stores which were closed or divested in the prior year. The Company operated 134 and 132 supermarkets at the end of the third quarters of Fiscal 1999 and Fiscal 1998, respectively. Gross Profit: Gross profit in the third quarter of Fiscal 1999 was $261.1 million or 28.2% of sales compared with $255.4 million or 28.4% of sales in the prior year. For the nine-month period of Fiscal 1999, gross profit was $780.8 million or 28.5% of sales compared to $781.4 million or 28.5% for the prior year. The increase in gross profit dollars for the third quarter of Fiscal 1999 compared to the prior year was primarily due to higher sales, partially offset by higher promotional costs. The decrease in gross profit dollars for the nine-month period of Fiscal 1999 compared to the prior year was primarily due to higher promotional expenses, partially offset by higher sales and lower shrink. The cost of goods sold comparisons were affected by a pretax LIFO charge of $0.4 million and $0.35 million in the third quarters of Fiscal 1999 and 1998, respectively and a pretax LIFO charge of $1.2 million and $1.1 million in the nine-month periods of Fiscal 1999 and Fiscal 1998, respectively. Selling, General and Administrative Expenses ("SG&A "): SG&A in the third quarter of Fiscal 1999 increased $4.4 million or 2.1% compared to the prior year and increased $7.7 million or 1.2% in the nine-month period of Fiscal 1999 compared to the prior year. The increase in SG&A in the third quarter and nine-month period of Fiscal 1999 was primarily due to higher expenses related to general liability claims, the Ahold acquisition of SMG-II, Year 2000 remediation and bank charges, partially offset by lower incentive and store labor expenses. SG&A in the nine-month period of Fiscal 1998 is net of a $5.1 million gain recognized on the sale of certain real estate. As a percentage of sales, SG&A was 23.2% in the third quarter of Fiscal 1999, down from 23.4% in the prior year and was 23.1% for the nine-month period of Fiscal 1999 up from 22.8% in the prior year. Excluding the gain on the sale of real estate, SG&A as a percentage of sales was 23.0% for the nine-month period of Fiscal 1998. Depreciation and Amortization: Depreciation and amortization of $19.1 million in the third quarter of Fiscal 1999 was $0.5 million lower than the prior year of $19.6 million. For the nine-month period of Fiscal 1999, depreciation and amortization of $55.7 was $3.3 million lower than the prior year of $59.0 million. The decrease in depreciation and amortization expense in the third quarter and nine-month period of Fiscal 1999 compared to the prior year was primarily due to property and equipment dispositions during Fiscal 1998, partially offset by capital expenditures. Depreciation and amortization excludes video tape amortization, which is recorded in cost of goods sold, of $1.0 million and $0.8 million of the third quarters of Fiscal 1999 and 1998, respectively and $2.6 million and $2.3 in the nine-month periods of Fiscal 1999 and Fiscal 1998, respectively. 8 SUPERMARKETS GENERAL HOLDINGS CORPORATION Operating Earnings: Operating earnings in the third quarter of Fiscal 1999 were $27.1 million compared with the prior year of $25.5 million. For the nine-month period of Fiscal 1999, operating earnings were $91.6 million compared with $96.4 in the prior year. The increase in operating earnings in the third quarter of Fiscal 1999 compared to the prior year was due to higher gross profit and lower depreciation and amortization expenses, partially offset by higher SG&A. The decrease in operating earnings in the nine-month period of Fiscal 1999 compared to the prior year was due to higher SG&A and lower gross profit, partially offset by lower depreciation and amortization expense; operating earnings in the nine-month period of Fiscal 1998 include a $5.1 million gain on the sale of certain real estate. Interest Expense: Interest expense was $41.0 million in the third quarter of Fiscal 1999 compared to $39.8 million in the prior year and $120.9 million for the nine-month period of Fiscal 1999 compared to $121.2 million in the prior year. The increase in interest expense in the third quarter of Fiscal 1999 compared to the prior year was primarily due to higher levels of borrowings under the Working Capital Facility, debt accretion on the Deferred Coupon Notes and an increase in lease obligations, partially offset by reductions in the Term Loan and the paydown of certain mortgages. The decrease in interest expense in the nine-month period of Fiscal 1999 compared to the prior year was primarily due to reductions in the Term Loan and the paydown of certain mortgages, along with the Fiscal 1998 paydown of the PTK Exchangeable Guaranteed Debentures, partially offset by higher levels of borrowings under the Working Capital Facility and the debt accretion on the Deferred Coupon Notes. Income Taxes: Income taxes for the interim period are based on the estimated effective tax rate expected to be applicable for the full fiscal year. The Company has recorded a valuation allowance related to the income tax benefit for the third quarters and nine-month periods of Fiscal 1999 and Fiscal 1998; therefore, no income tax benefit has been recognized. The Company believes that it is more likely than not that the net deferred income tax assets of $50.0 million at October 30, 1999 will be realized through the implementation of tax strategies which could generate taxable income. During the nine-month period of Fiscal 1999, the Company made income tax payments of $0.5 million and received income tax refunds of $0.09 million. During the nine-month period of Fiscal 1998, the Company made income tax payments of $0.9 million and received income tax refunds of $4.2 million. Summary of Operations: The Company's net loss in the third quarter of Fiscal 1999 was $13.9 million compared to a net loss of $14.4 million for the prior year. For the nine-month period of Fiscal 1999, the Company's net loss was $29.4 million compared to a net loss of $24.9 million in the prior year. The decrease in the net loss in the third quarter of Fiscal 1999 compared to the prior year was primarily due to higher operating earnings, partially offset by higher interest expense. The increase in net loss in the nine-month period of Fiscal 1999 compared to the prior year was primarily due to lower operating earnings. EBITDA-FIFO: EBITDA-FIFO was $47.8 million and $46.3 million in the third quarters of Fiscal 1999 and Fiscal 1998, respectively and $150.9 million and $154.1 million for the nine-month period of Fiscal 1999 and Fiscal 1998, respectively. EBITDA-FIFO represents net earnings before interest expense, income taxes, depreciation, amortization, the gain on sale of real estate and the LIFO charge. EBITDA-FIFO is a widely accepted financial indicator of a company's ability to service and/or incur debt. EBITDA-FIFO should not be construed as an alternative to, or a better indicator of, operating income or to cash flows from operating activities, as determined in accordance with generally accepted accounting principles. 9 SUPERMARKETS GENERAL HOLDINGS CORPORATION Financial Condition Debt Service: During the nine-period of Fiscal 1999, total debt increased $70.2 million from Fiscal 1998 year end due to borrowings under the Working Capital Facility and debt accretion on the Deferred Coupon Notes, partially offset by reductions in the Term Loan and a decrease in certain mortgages. Borrowings under the Working Capital Facility were $105.7 million at October 30, 1999 and $109.3 million at December 8, 1999. In addition, during the nine-month period of Fiscal 1999, total lease obligations increased $18.8 million from Fiscal 1998 year end. The indebtedness under the Working Capital Facility and the Term Loan bear interest at floating rates and, therefore, 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 if deemed appropriate. The majority of the cash interest payments are scheduled in the second and fourth quarters. The amount of principal payments required each year on outstanding long-term debt (excluding the original issue discount with respect to the Deferred Coupon Notes) is as follows (dollars in millions): Principal Fiscal Years Payments ------------ --------- 1999(a)........................................... $ 5.8 2000.............................................. 79.0 2001.............................................. 370.1 2002.............................................. 196.3 2003.............................................. 672.0 Thereafter ....................................... 21.5 -------- Total ............................................ $1,344.7 ======== - ---------- (a) Subsequent to October 30, 1999 Liquidity: The consolidated financial statements of the Company indicate that, at October 30, 1999, current liabilities exceeded current assets by $83.8 million and stockholder's deficiency was $1.4 billion. Management believes that cash flows generated from operations, supplemented by the unused borrowing capacity under the Working Capital Facility and the availability of capital lease financing, will be sufficient to pay the Company's debts as they come due, provide for its capital expenditure program and meets its other cash requirements. The Company believes that it will be able to make the scheduled payments or refinance its obligations with respect to its indebtedness through a combination of operating funds and borrowing facilities. Refinancing will be necessary in Fiscal 2000 to meet the debt service requirements related to the interest payment on the Deferred Coupon Notes and the sinking fund payment on the Subordinated Notes. The Company also expects that it will be necessary to refinance the Term Loan and Working Capital Facility in Fiscal 2001, the Subordinated Notes and Subordinated Debentures in Fiscal 2002 and the Senior Subordinated Notes and the Deferred Coupon Notes due in Fiscal 2003. The Company may undertake a refinancing of some or all of such indebtedness sometime prior to its maturity. The Company was in compliance with its various debt covenants at October 30, 1999 and, based on management's operating projections for Fiscal 1999, the Company believes that it will continue to be in compliance with its various debt covenants. The Company's ability to make scheduled payments or to refinance or otherwise meet 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 10 SUPERMARKETS GENERAL HOLDINGS CORPORATION Company's operating results will continue to be sufficient or that future borrowing facilities will be available for payment or refinancing of the Company's indebtedness. While it is the Company's intention to enter into other refinancings that it considers advantageous, there can be no assurances that the prevailing market conditions will be favorable to the Company. In the event the Company obtains any future refinancing on less than favorable terms, the holders of outstanding indebtedness could experience increased credit risk and could experience a decrease in the market value of their investment, because the Company might be forced to operate under terms that would restrict its operations and might find its cash flow reduced. Preferred Stock Dividends: The terms of the Exchangeable Preferred Stock provide for cumulative quarterly dividends at an annual rate of $3.52 per share when, and if declared by the Board of Directors of the Company. Dividends for the first 20 quarterly dividend periods (through October 15, 1992) were paid at the Company's option in additional shares of Exchangeable Preferred Stock. Since January 15, 1993, all dividends not paid in cash will cumulate at the rate of $3.52 per share per annum, without interest, until declared and paid. As such, at October 30, 1999, the unpaid dividends of $120.5 million are accrued and included in other noncurrent liabilities. Capital Expenditures: Capital expenditures for the third quarter of Fiscal 1999, including property acquired under capital leases, were $24.5 million compared to $11.0 million for the prior year and for the nine-month period of Fiscal 1999 were $72.2 million compared to $38.4 million for the prior year. During the nine-month period of Fiscal 1999, the Company opened two new stores and completed 27 renovations to existing supermarkets. Subsequent to October 30, 1999, the Company opened one additional store and during the remainder of Fiscal 1999, the Company expects to complete two renovations. Capital expenditures for Fiscal 1999, including property to be acquired under capital leases, are estimated to be $90.0 million. Management believes that cash flows generated from operations, supplemented by the unused borrowing capacity under the Working Capital Facility and the availability of capital lease financing, will be sufficient to provide for the Company's capital expenditure program. Cash Flows: Cash provided by operating activities was $4.6 million in the nine-month period of Fiscal 1999 compared to cash used for operating activities of $32.7 million in the prior year. The change in cash flow from operating activities was primarily due to cash provided by operating assets and liabilities. Cash used for operating activities in the prior year was impacted by the transition to C&S Wholesalers, Inc ("C&S"). Cash used for investing activities was $36.4 million in the nine-month period of Fiscal 1999 compared to cash provided by investing activities of $0.4 million in the prior year. The increase in cash used for investing activities was primarily due to an increase in expenditures of property and equipment, partially offset by a decrease in proceeds from property dispositions. Cash provided by financing activities was $32.8 million in the nine-month period of Fiscal 1999 compared to cash used for financing activities of $20.6 million in the prior year. The increase in cash provided by financing activities was primarily due to an increase in book overdrafts in Fiscal 1999 and the repayment of the PTK Exchangeable Guaranteed Debentures in Fiscal 1998. Year 2000 Readiness: This disclosure is a year 2000 ("Year 2000") Readiness Disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act of 1998 to the extent that the disclosure relates to the Year 2000 processing of the Company. 11 SUPERMARKETS GENERAL HOLDINGS CORPORATION The Company has prepared its computer systems and hardware to deal with the issues related to the Year 2000. This is necessary because certain computer programs have been written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculation causing disruptions of operations, including, among other things, a temporary inability to process normal business transactions. In addition, many of the Company's vendors and service providers are also faced with similar issues related to the Year 2000. In order to address the Year 2000 issues, the Company formed a project team of senior managers. This project team assessed the Company's information systems, including its hardware, software programs and embedded systems contained in the Company's stores, distribution facility and corporate headquarters. Based on the findings of this assessment, the Company commenced a plan to upgrade or replace the Company's hardware and software programs to ensure Year 2000 readiness, as well as to assess the Year 2000 readiness of the Company's vendors and service providers. In addition, the Company's management has developed contingency plans, which, in the event that the Company is unable to fully achieve Year 2000 readiness in a timely manner, or any of the Company's vendors or service providers fail to achieve Year 2000 readiness, may be implemented to minimize the risks of interruptions of the Company's business. The Audit Committee of the Board of Directors is advised periodically on the status of the Company's Year 2000 readiness program. The Company has communicated with its principal vendors to determine the extent to which it will be vulnerable to third-party Year 2000 readiness problems. Based on its assessment to date of the Year 2000 readiness of the Company's key suppliers, including C&S, vendors, service providers and other third parties on which the Company relies for business operations, the Company believes that its principal vendors, service providers and other third parties have addressed the Year 2000 issues. The Company has tested Year 2000 readiness with certain key suppliers; however, the Company has limited ability to test and control such third parties' Year 2000 readiness, and the Company cannot provide assurance that failure of such third parties to address the Year 2000 issues will not cause an interruption of the Company's business. The Company has expended significant resources in connection with resolving its Year 2000 issues, primarily related to the remediation and testing of its computer applications. Through IBM, this effort is basically completed and followed a process of inventory, analysis, modification, testing and implementation. A major portion of these costs have been met under the existing agreement with IBM through a reprioritization of systems development projects, with the remainder representing incremental costs. Those systems development projects, which have been deferred due to the Year 2000 readiness program, are not deemed to be critical to the Company's operations. The Company believes that its information systems, including hardware, software programs and embedded systems contained in the Company's stores, distribution facility and corporate headquarters are Year 2000 ready; additional Year 2000 testing of the Company's critical remediated systems will continue through December 1999. The Company estimates that the total costs associated with achieving Year 2000 readiness will be approximately $17.0 million (of which approximately $13.2 million has been expended through October 30, 1999), consisting of system remediation costs of $10.7 million and equipment replacement of $6.3 million. The Company anticipates that it will finance the cost of its Year 2000 remediation using its existing sources of liquidity. The remaining $3.8 million in costs is being expended primarily through the IBM information systems service agreement. The Company's business could be interrupted if its Year 2000 remediation efforts and contingency plans are not successful, and if the Company's vendors, service providers or other third parties are not Year 2000 ready. Any such business interruptions could have a material adverse effect on the Company's results of operation, liquidity or financial condition by impairing its ability to process customer transactions, as well as to order and receive merchandise for sale in a timely manner. 12 SUPERMARKETS GENERAL HOLDINGS CORPORATION Forward-Looking Information The matters discussed herein, with the exception of historical information, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, the competitive environment in which the Company operates, the general economic conditions in the Company's trading areas and the ability of the Company, its key suppliers, vendors and others with whom the Company has significant business relationships to identify and remediate all Year 2000 issues. 13 SUPERMARKETS GENERAL HOLDINGS CORPORATION PART II. OTHER INFORMATION Item 1. Legal Proceedings As previously described in the Company's Annual Report on Form 10-K for the year ended January 30, 1999, and its periodic reports on Form 10-Q for the periods ended May 1, 1999 and July 31, 1999, respectively, the Company, its parent, SMG-II Holdings Corporation ("SMG-II"), Ahold Acquisitions, Inc. (the "Purchaser"), an indirect, wholly owned subsidiary of the Netherlands based international food retailer, Koninklijke Ahold N.V. ("Ahold"), and the directors of the Company are defendants (collectively, the "Defendants") in a purported stockholder class action lawsuit entitled Wolfson v. Supermarkets General Holdings Corporation, et al., C.A. No. 17047 (the "Action"), in which the Plaintiff alleged, among other things, that the defendant directors of the Company and SMG-II breached their fiduciary duties to the holders of the Company's $3.52 Cumulative Exchangeable Redeemable Preferred Stock (the "Preferred Stock"). The Plaintiff, by his counsel, has entered into a Settlement Agreement, dated June 9, 1999 (the "Settlement Agreement"), with the Defendants (by their counsel) pursuant to which the parties have agreed to settle the Action. The proposed settlement is subject to, among other things, the approval of the settlement by the court of Chancery of the State of Delaware (the "Court"). The Settlement Agreement provides for, among other things, the certification of the action as a class action under the rules of the Court, which class would consist of all holders of the Preferred Stock of the Company from and including March 9, 1999 (the "Class") through and including the consummation of the merger pursuant to the Agreement and Plan of Merger by and among Ahold, the Purchaser and SMG-II dated March 9, 1999 (the "SMG-II Merger") or, if the SMG-II Merger fails to close, the stock purchase pursuant to the Stock Purchase Agreement dated March 9, 1999 by and among Ahold, the Purchaser, SMG-II and PTK Holdings, Inc. (the "Alternative Transaction"). In addition, pursuant to the terms of the Settlement Agreement, the Defendants have agreed, subject to Final Court Approval (as defined below), that the Purchaser shall increase its tender offer price to $40.25 per share of Preferred Stock (from $38.25), less the total amount awarded as fees and expenses to Plaintiffs counsel by the Court divided by the total number of outstanding shares of Preferred Stock (the "New Offer Price"). Plaintiffs counsel has applied to the Court for an award of fees and expenses in an aggregate amount of $1,956,268, or $0.40 per share of Preferred Stock. The Settlement Agreement also provides, among other things, that any of the Defendants shall have the right to withdraw from the proposed settlement in the event that (i) any claims related to the SMG-II Merger, the Alternative Transaction, or the subject matter of the Action are commenced by any member of the Class against any Defendants or certain others employed by, affiliated with or retained by the Defendants in any court prior to Final Court Approval of the settlement, and the court in which such claims are pending denies Defendants' application to dismiss or stay such action in contemplation of dismissal, or (ii) any of the other conditions to the consummation of the settlement described below shall not have been satisfied. The consummation of the settlement is subject to (i) Final Court Approval of the settlement; (ii) dismissal of the Action by the Court with prejudice and without awarding fees or costs to any party; and (iii) the Purchaser closing (A) its tender offer and the SMG-II Merger, or (B) the Alternative Transaction. For purposes of the Settlement Agreement, "Final Court Approval" of the settlement means an order entered by the Court approving the settlement and awarding Plaintiffs counsel's fees and expenses and such order is finally affirmed, without modification of any substantive right of any party to the Settlement Agreement, on appeal, or is no longer subject to appeal and time for any petition for reargument, appeal or review, by certiorari or otherwise, has expired, provided that any modification of the order approving the settlement with respect to the amount of attorneys' fees and expenses awarded and/or any additional supplemental disclosure required shall not be considered a modification of a substantive right affecting Final Court Approval. 14 SUPERMARKETS GENERAL HOLDINGS CORPORATION After notice and a hearing, on July 22, 1999 the Court approved the settlement and the fee application of the Plaintiff's attorneys. As of August 23, 1999, all applicable appeal periods have expired, thus constituting Final Court Approval. As a result of the settlement, the New Offer Price will be $39.85 per share of Preferred Stock. The Company is a party to a number of other 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, cash flows or business of the Company. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: None (b) Reports on Form 8-K: None 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/ Frank Vitrano ------------------------------- (Frank Vitrano) Senior Vice President and Chief Financial Officer By /s/ Joseph Adelhardt ------------------------------- (Joseph Adelhardt) Senior Vice President and Controller, Chief Accounting Officer Date: December 13, 1999 15 EX-27 2 FDS
5 This schedule contains summary financial information extracted from Supermarkets General Holdings Corporation's Consolidated Statement of Operations for the 39 weeks ended October 30, 1999 and Consolidated Balance Sheet as of October 30, 1999 and is qualified in its entirety by reference to such financial statements. 1,000 YEAR JAN-29-2000 OCT-30-1999 8,752 0 16,546 (1,044) 166,848 289,054 895,417 (413,222) 875,965 372,848 1,268,608 110,538 0 10 (1,425,830) 875,965 2,742,039 2,742,039 1,961,191 1,961,191 0 (234) (120,870) (29,317) (76) (29,393) 0 0 0 (29,393) 0 0
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