-----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, MFIFsbJH7SJKoqoAHQDRdMirJZMxPydC5C0gx4tLspGWbGJKhrkJ+e0W7G5F3nfx zqjHLjk117oosnG6rbTsRw== 0001047469-97-007923.txt : 19971217 0001047469-97-007923.hdr.sgml : 19971217 ACCESSION NUMBER: 0001047469-97-007923 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971101 FILED AS OF DATE: 19971216 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: SEC FILE NUMBER: 000-16404 FILM NUMBER: 97739082 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 NOVEMBER 1, 1997 0-16404 SUPERMARKETS GENERAL HOLDINGS CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 13-3408704 (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 301 BLAIR ROAD, P.O. BOX 5301 07095-0915 WOODBRIDGE, NEW JERSEY (Zip Code) (Address of principal executive offices) (732) 499-3000 (Registrant's telephone number, including area code) ------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: $3.52 CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK ------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- As of November 1, 1997, there were outstanding 650,675 shares of $0.01 par value Class A Common Stock (voting) and 320,000 shares of $0.01 par value Class B Common Stock (non-voting), all of which are privately owned and not traded on a public market. ============================================================================== PART 1. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands) 13 WEEKS ENDED 39 WEEKS ENDED -------------------------- ------------------------- NOVEMBER 1, NOVEMBER 2, NOVEMBER 1, NOVEMBER 2, 1997 1996 1997 1996 -------- -------- ------- -------- Sales.............................................. $ 901,006 $ 911,221 $ 2,755,313 $ 2,755,556 Cost of sales (exclusive of depreciation and amortization shown separately below)............ 652,524 644,420 1,984,908 1,947,781 ----------- ------------ ------------ ------------ Gross profit....................................... 248,482 266,801 770,405 807,775 Selling, general and administrative expenses....... 205,318 211,821 630,796 640,518 Depreciation and amortization...................... 21,407 20,536 61,607 62,668 ----------- ------------ ------------ ------------ Operating earnings................................. 21,757 34,444 78,002 104,589 Interest expense................................... (41,034) (40,951) (124,822) (122,646) ----------- ------------ ------------ ------------ Loss before income tax benefit and extraordinary items............................. (19,277) (6,507) (46,820) (18,057) Income tax benefit................................. 7,815 2,567 18,703 7,070 ----------- ------------ ------------ ------------ Loss before extraordinary items.................... (11,462) (3,940) (28,117) (10,987) Extraordinary items, net of an income tax benefit of $5,456 in Fiscal 1997 and $695 in Fiscal 1996.................................. -- -- (7,488) (997) ----------- ------------ ------------ ------------ Net loss........................................... (11,462) (3,940) (35,605) (11,984) Less: non-cash preferred stock accretion and dividend requirements........................... (4,758) (4,740) (14,262) (14,209) ----------- ------------ ------------ ------------ Net loss attributable to common stockholder........ $ (16,220) $ (8,680) $ (49,867) $ (26,193) =========== ============ ============ ============
1 SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands except share amounts)
NOVEMBER 1, FEBRUARY 1, 1997 1997 --------- ---------- ASSETS Current Assets Cash and cash equivalents......................................... $ 9,436 $ 10,967 Accounts receivable, net.......................................... 10,985 12,799 Merchandise inventories........................................... 203,236 217,440 Income taxes receivable........................................... 4,241 2,120 Deferred income taxes............................................. 9,568 9,969 Prepaid expenses.................................................. 24,638 24,970 Due from suppliers................................................ 11,206 13,950 Other current assets.............................................. 10,317 5,942 ------------ ------------ Total Current Assets........................................... 283,627 298,157 Property and Equipment, Net.......................................... 551,556 604,955 Deferred Financing Costs, Net........................................ 19,734 28,743 Deferred Income Taxes................................................ 64,645 39,530 Other Assets......................................................... 37,423 45,200 ------------ ------------ $ 956,985 $ 1,016,585 ============ ============ LIABILITIES AND STOCKHOLDER'S DEFICIT Current Liabilities Accounts payable.................................................. $ 143,474 $ 167,446 Book overdrafts................................................... 30,511 41,086 Current maturities of long-term debt.............................. 17,493 74,431 Accrued payroll and payroll taxes................................. 51,827 56,414 Current portion of lease obligations.............................. 24,966 23,208 Accrued interest payable.......................................... 37,579 20,712 Accrued expense and other current liabilities..................... 90,316 90,629 ------------ ------------ Total Current Liabilities...................................... 396,166 473,926 ------------ ------------ Long-Term Debt....................................................... 1,289,342 1,213,081 ------------ ------------ Lease Obligations, Long-Term......................................... 167,506 175,628 ------------ ------------ Other Noncurrent Liabilities......................................... 305,270 306,733 ------------ ------------ Redeemable Securities Exchangeable Preferred Stock, $.01 par value...................... 106,723 105,372 ------------ ------------ Authorized: 9,000,000 shares Issued and outstanding: 4,890,671 Liquidation preference, $25 per share: $122,267 Commitments and Contingencies (Note 5) Stockholder's Deficit Class A Common Stock, $.01 par value.............................. 7 7 Authorized: 1,075,000 shares Issued and outstanding: 650,675 Class B Common Stock, $.01 par value.............................. 3 3 Authorized: 1,000,000 shares Issued and outstanding: 320,000 Paid-in Capital...................................................... 197,981 199,332 Accumulated Deficit.................................................. (1,506,013) (1,457,497) ------------ ------------ Total Stockholder's Deficit....................................... (1,308,022) (1,258,155) ------------ ------------ $ 956,985 $ 1,016,585 ============ ============
See notes to consolidated financial statements (unaudited). 2
SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT (UNAUDITED) (in thousands except per share amounts) CLASS A CLASS B TOTAL COMMON COMMON PAID-IN ACCUMULATED STOCKHOLDER'S STOCK STOCK CAPITAL DEFICIT DEFICIT ---- ----- --------- ------------ ------------ Balance, February 1, 1997................. $ 7 $ 3 $ 199,332 $ (1,457,497) $ (1,258,155) Net loss.................................. -- -- -- (35,605) (35,605) Accrued dividends on preferred stock ($2.64 per share)................... -- -- -- (12,911) (12,911) Accretion on preferred stock.............. -- -- (1,351) -- (1,351) ---- ----- --------- ------------ ------------ Balance, November 1, 1997................. $ 7 $ 3 $ 197,981 $ (1,506,013) $ (1,308,022) ==== ===== ========= ============ ============ Balance, February 3, 1996................. $ 7 $ 3 $ 197,671 $ (1,420,138) $ (1,222,457) Net loss.................................. -- -- -- (11,984) (11,984) Accrued dividends on preferred stock ($2.64 per share)................... -- -- -- (12,911) (12,911) Accretion on preferred stock.............. -- -- (1,298) -- (1,298) ---- ----- --------- ------------ ------------ Balance, November 2, 1996................. $ 7 $ 3 $ 196,373 $ (1,445,033) $ (1,248,650) ==== ===== ========= ============ ============
See notes to consolidated financial statements (unaudited). 3
SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) 39 WEEKS ENDED --------------------------- NOVEMBER 1, NOVEMBER 2, 1997 1996 --------- --------- Operating Activities Net loss................................................................................ $ (35,605) $ (11,984) Adjustments to reconcile net loss to net cash provided by operating activities: Extraordinary loss on early extinguishment of debt.................................... 7,488 997 Depreciation and amortization......................................................... 64,624 65,251 Deferred income tax benefit........................................................... (24,159) (4,925) Interest accruable but not payable.................................................... 13,700 12,344 Amortization of original issue discount............................................... 2,484 2,343 Amortization of debt issuance costs................................................... 4,526 5,555 (Gain) loss on disposal of property and equipment..................................... 117 (5,332) Cash provided by (used for) operating assets and liabilities: Accounts receivable, net............................................................ 1,814 (533) Merchandise inventories............................................................. 14,204 (5,411) Income taxes........................................................................ 3,335 (4,467) Other current assets................................................................ (3,595) (3,526) Other assets........................................................................ 6,066 364 Accounts payable.................................................................... (23,972) 2,770 Accrued interest payable............................................................ 15,165 (65) Accrued expenses and other current liabilities...................................... (3,142) (8,366) Other noncurrent liabilities........................................................ (17,573) 3,598 --------- --------- Cash provided by operating activities............................................ 25,477 48,613 --------- --------- Investing Activities Property and equipment expenditures..................................................... (20,707) (38,198) Proceeds from disposition of property and equipment..................................... 25,475 8,059 --------- --------- Cash provided by (used for) investing activities................................ 4,768 (30,139) --------- --------- Financing Activities Borrowings under Term Loan in connection with the new Credit Agreement................... 300,000 -- Repayments of term loans................................................................. (245,252) (32,890) Increase (decrease) in working capital facilities borrowings............................. (48,300) 25,000 Increase (decrease) in book overdrafts................................................... (10,575) (5,966) Increase in other borrowings............................................................. 1,956 2,052 Repayment of other long-term borrowings.................................................. (5,265) (7,342) Reduction in lease obligations........................................................... (15,955) (15,035) Deferred financing fees.................................................................. (8,253) (2,926) Premiums incurred in redemption of PTK Exchangeable Guaranteed Debentures and other borrowings.................................................................. (132) (554) Proceeds from lease financing............................................................ -- 21,405 Repayment of PTK Exchangeable Guaranteed Debentures...................................... -- (3,007) --------- --------- Cash used for financing activities............................................... (31,776) (19,263) --------- --------- Decrease in cash and cash equivalents....................................................... (1,531) (789) Cash and cash equivalents at beginning of period............................................ 10,967 12,526 --------- --------- Cash and cash equivalents at end of period.................................................. $ 9,436 $ 11,737 ========= ========= Supplemental Disclosures of Cash Flow Information Interest paid........................................................................... $ 87,138 $ 102,561 ========= ========= Income taxes paid....................................................................... $ 3,222 $ 4,028 ========= ========= Noncash Investing and Financing Activities Capital lease obligations............................................................... $ 17,917 $ 24,821 ========= =========
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 135 supermarkets as of November 1, 1997, primarily in the New York-New Jersey and Philadelphia metropolitan areas, and is a wholly owned subsidiary of SMG-II Holdings Corporation ("SMG-II"). The unaudited consolidated financial statements included herein have been prepared by the Company in accordance with the same accounting principles followed in the presentation of the Company's annual financial statements for the year ended February 1, 1997, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the consolidated financial statements included herein reflect all adjustments which are of a normal and recurring nature and are necessary to present fairly the results of operations and financial position of the Company. This report should be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-K Annual Report for the year ended February 1, 1997. Income taxes for the interim period are based on the estimated effective tax rate expected to be applicable for the full fiscal year. NOTE 2--SUPPLY AND DISTRIBUTION AGREEMENTS During the third quarter of Fiscal 1997, the Company entered into a fifteen year supply agreement with C&S Wholesale Grocers, Inc. ("C&S") which will supply substantially all of the Company's grocery, frozen and perishable merchandise. Simultaneously, the Company and C&S entered into an agreement pursuant to which C&S will purchase Pathmark's Woodbridge, New Jersey warehouse complex and assume the leases of other distribution facilities in North Brunswick and Dayton, New Jersey, including the fixtures, equipment and inventory at each facility. The transactions, which are subject to a number of conditions, are expected to be closed by the end of the fiscal year. In addition, the Company outsourced its trucking operations to a third party trucking company, pursuant to a ten year trucking services agreement effective October 5, 1997, in which the trucking company will deliver merchandise to all of the Company's stores. Also during the third quarter, the Company entered into a three year agreement with a pharmaceutical wholesaler to supply pharmaceutical products to the Company on a consignment basis. In connection with such agreement, the pharmaceutical wholesaler purchased the Company's warehouse pharmaceutical inventory for $5.2 million and plans to purchase certain store pharmaceutical products throughout Fiscal 1998. Current year results for the third quarter and nine-month period include a $2.0 million gain on a LIFO liquidation related to the sale of such warehouse inventory. 5 SUPERMARKETS GENERAL HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED) NOTE 3--LONG-TERM DEBT Long-term debt is comprised of the following (dollars in thousands):
NOVEMBER 1, FEBRUARY 1, 1997 1997 ----------- ------------ Pathmark Term Loan.............................................................. $ 297,875 $ -- Pathmark Working Capital Facility............................................... 25,200 -- Former Pathmark term loan....................................................... -- 243,127 Former Pathmark working capital facility........................................ -- 73,500 9.625% Pathmark Senior Subordinated Notes due 2003 ("Pathmark Senior Subordinated Notes")...................................... 438,045 437,780 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 Deferred Coupon Notes due 2003 ("Pathmark Deferred Coupon Notes").......................................... 182,259 168,559 10.25% PTK Exchangeable Guaranteed Debentures due 2003 ("PTK Exchangeable Guaranteed Debentures").................................. 29,661 27,442 Industrial revenue bonds........................................................ 6,375 6,375 Other debt (primarily mortgages)................................................ 31,670 34,979 ----------- ------------ Total debt...................................................................... 1,306,835 1,287,512 Less: current maturities........................................................ 17,493 74,431 ----------- ------------ Long-term portion............................................................... $ 1,289,342 $ 1,213,081 =========== ============
On June 30, 1997, the Company, through its Pathmark subsidiary, entered into a new $500 million bank credit agreement (the "Credit Agreement") with a group of lenders led by The Chase Manhattan Bank. The Credit Agreement includes a $300 million term loan (the "Term Loan") and a $200 million working capital facility (the "Working Capital Facility"). The Company repaid in full the former term loan and former working capital facility with the borrowings obtained under the Credit Agreement. Under the Credit Agreement, the Term Loan and Working Capital Facility bear interest at floating rates, ranging from LIBOR plus 2.25% to LIBOR plus 2.50%. The Company is required to repay a portion of its borrowings under the Term Loan each year, so as to retire such indebtedness in its entirety by December 15, 2001. Under the Working Capital Facility, which expires on June 15, 2001, the Company can borrow or obtain letters of credit in an aggregate amount not to exceed $200 million, of which the maximum of $125 million can be in letters of credit. In addition, pursuant to Permitted Subordinated Debt Refinancing (as defined in the Credit Agreement), the Working Capital Facility and a portion of the Term Loan can be extended up to an additional two and one-half years and the remainder of the Term Loan can be extended up to an additional three and one-half years from the original expiration dates. The Credit Agreement contains certain covenants, including financial covenants concerning levels of operating cash flow, minimum interest and rent expense coverage, maximum leverage ratio, maximum senior debt leverage ratio, maximum consolidated rental payments and maximum capital expenditures. The Credit Agreement also contains other covenants including, but not limited to, covenants with respect to the following matters: (i) limitation on indebtedness; (ii) limitation on liens; (iii) restriction on mergers; (iv) restriction on investments, loans, advances, guarantees and acquisitions; (v) restriction on assets sales and sale/leaseback transactions; (vi) restriction on certain payments of indebtedness and incurrence of certain agreements and (vii) restriction on transactions with affiliates. 6 SUPERMARKETS GENERAL HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED) NOTE 4--INTEREST EXPENSE Interest expense is comprised of the following (dollars in thousands):
13 WEEKS ENDED 39 WEEKS ENDED ---------------------------- --------------------------- NOVEMBER 1, NOVEMBER 2, NOVEMBER 1, NOVEMBER 2, 1997 1996 1997 1996 --------- --------- --------- --------- Pathmark term loans................................ $ 6,156 $ 5,519 $ 16,679 $ 17,233 Pathmark working capital facilities................ 671 1,299 4,143 3,955 Pathmark Senior Subordinated Notes Amortization of original issue discount........ 88 88 265 265 Currently payable.............................. 10,588 10,588 31,763 31,763 Pathmark Subordinated Notes........................ 5,813 5,813 17,438 17,438 Pathmark Subordinated Debentures................... 3,022 3,022 9,066 9,066 Pathmark Deferred Coupon Notes Accrued but not payable........................ 4,687 4,222 13,700 12,344 PTK Exchangeable Guaranteed Debentures Amortization of original issue discount........ 764 689 2,219 2,078 Amortization of debt issuance costs................ 1,016 1,918 4,526 5,555 Lease obligations.................................. 5,398 4,750 16,487 13,995 Other, net......................................... 2,831 3,043 8,536 8,954 --------- --------- --------- --------- Interest expense................................... $ 41,034 $ 40,951 $ 124,822 $ 122,646 ========= ========= ========= =========
The majority of the cash interest payments are scheduled in the second and fourth quarters. NOTE 5--CONTINGENCIES RICKEL: In connection with the sale of its home centers segment in Fiscal 1994, the Company, as lessor, entered into leases for certain of the Company's owned real estate properties with Rickel, as tenant (the "Leases"), pursuant to which the Company is entitled to receive annual aggregate rentals of approximately $4.2 million. In addition, as part of the sale, the Company assigned to Rickel and Rickel assumed various liabilities of the home centers segment, primarily third party leases (the "Assumed Liabilities"). As of November 1, 1997, the estimated present value of obligations under the Assumed Liabilities approximated $25.6 million. In January 1996, Rickel filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. Since the inception of Rickel's bankruptcy, Rickel has rejected five Leases and two third party leases. The five rejected Leases had annual rentals of approximately $2.7 million. One of the rejected third party leases has been settled with the landlord and the estimated present value of the other third party lease obligation is approximately $4.6 million at November 1, 1997. The Company is actively marketing these properties to other prospective tenants. In addition to the above leases, Rickel has also assigned one of its third party leases to a large retailer. Management has concluded that the Company has sufficient reserves to cover any resulting liability which may occur with respect to these matters. In September 1997, Rickel announced that it is terminating its retail operations and is liquidating its retail inventory. Since Rickel's bankruptcy is not concluded, the Company cannot determine whether Rickel will reject any additional Leases or the extent to which the Company will become liable with respect to the Assumed Liabilities in the event of Rickel's nonpayment thereof. OTHER: The Company is also a party to a number of legal proceedings in the ordinary course of business. Management believes that the ultimate resolution of these proceedings will not, in the aggregate, have a material adverse impact on the financial condition, results of operations or business of the Company. 7 SUPERMARKETS GENERAL HOLDINGS CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The matters discussed herein, with the exception of historical information, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, the competitive environment in which the Company operates and the general economic conditions in the Company's trading areas. RESULTS OF OPERATIONS SALES: Sales in the third quarter of Fiscal 1997 were $901.0 million compared to $911.2 million in the prior year, a decrease of 1.1%. For the nine-month period of Fiscal 1997, sales were $2,755.3 million compared to $2,755.6 million in the prior year. Same store sales increased 0.6% and 0.8% for the third quarter and nine-month period, respectively, primarily from the Company's promotional pricing program which commenced in the first quarter of Fiscal 1997. Sales in Fiscal 1997 compared to Fiscal 1996 were also impacted by new store openings and remodels offset by sold and closed stores. The Company operated 135 and 143 supermarkets at the end of the second quarters of Fiscal 1997 and Fiscal 1996, respectively. GROSS PROFIT: Gross profit in the third quarter of Fiscal 1997 was $248.5 million or 27.6% of sales compared to $266.8 million or 29.3% of sales for the prior year. For the nine-month period of Fiscal 1997, gross profit was $770.4 million or 28.0% of sales compared to $807.8 million or 29.3% for the prior year. The decrease in gross profit in both dollars and as a percentage of sales for the third quarter and nine-month period of Fiscal 1997 compared to the prior year was primarily due to the promotional pricing program introduced during the first quarter of Fiscal 1997, as well as the pre-Thanksgiving holiday promotions during the third quarter of Fiscal 1997. The cost of goods sold comparisons were impacted by a pretax LIFO credit of $1.7 million in the third quarter of Fiscal 1997 compared to no LIFO adjustment in the third quarter of Fiscal 1996, and by a pretax LIFO credit of $0.8 million and a pretax LIFO charge of $1.7 million in the nine-month period of Fiscal 1997 and Fiscal 1996, respectively. The pretax LIFO credit for the current year third quarter and the nine-month period include a $2.0 million gain on a LIFO liquidation related to the sale of the Company's pharmaceutical warehouse inventory (See Note 2 to the Consolidated Financial Statements). SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A"): SG&A in the third quarter of Fiscal 1997 decreased $6.5 million or 3.1% compared to the prior year and decreased $9.7 million or 1.5% in the nine-month period of Fiscal 1997 compared to the prior year. As a percentage of sales, SG&A was 22.8% in the third quarter of Fiscal 1997, down from 23.2% in the prior year and was 22.9% for the nine-month period of Fiscal 1997, down from 23.2% the prior year. The decrease in SG&A as a percentage of sales in the third quarter and nine-month period of Fiscal 1997 compared to the prior year was primarily due to lower administrative, advertising, claims and utilities expenses, partially offset by higher store labor expenses. DEPRECIATION AND AMORTIZATION: Depreciation and amortization of $21.4 million in the third quarter of Fiscal 1997 was $0.9 million higher than the prior year of $20.5 million. For the nine-month period of Fiscal 1997, depreciation and amortization of $61.6 million was $1.1 million lower than the prior year of $62.7 million. The increase in depreciation and amortization expense in the third quarter of Fiscal 1997 compared to the prior year was primarily due to capital expenditures in Fiscal 1997. The decrease in depreciation and amortization expense 8 SUPERMARKETS GENERAL HOLDINGS CORPORATION in the nine-month period of Fiscal 1997 compared to the prior year was primarily due to the write down in the fourth quarter of Fiscal 1996 of certain fixed assets held for sale, principally in the Company's southern region, partially offset by capital expenditures in Fiscal 1997. Depreciation and amortization excludes video tape amortization, which is recorded in cost of goods sold, of $0.9 million and $0.8 million in the third quarters of Fiscal 1997 and Fiscal 1996, respectively, and $2.6 million and $2.3 million in the nine-month period of Fiscal 1997 and Fiscal 1996, respectively. OPERATING EARNINGS: Operating earnings in the third quarter of Fiscal 1997 were $21.8 million compared to the prior year of $34.4 million. For the nine-month period of Fiscal 1997, operating earnings were $78.0 million compared with $104.6 million in the prior year. The decrease in operating earnings in the third quarter and nine-month period of Fiscal 1997 compared to the prior year was primarily due to lower gross profit, partially offset by lower SG&A. INTEREST EXPENSE: Interest expense was $41.0 million in both the third quarter of Fiscal 1997 and Fiscal 1996 and $124.8 million for the nine-month period of Fiscal 1997 compared to $122.6 million in the prior year. The increase in interest expense in the nine-month period of Fiscal 1997 compared to the prior year was primarily due to increases in lease obligations, the debt accretion on the Deferred Coupon Notes, and higher interest rates, partially offset by lower amortization of debt issuance costs. INCOME TAXES: Income taxes for the interim period are based on the estimated effective tax rate expected to be applicable for the full fiscal year. The income tax benefit in the third quarter and nine-month period of Fiscal 1997 was $7.8 million and $18.7 million, respectively. The income tax benefit for the third quarter and nine-month period of Fiscal 1996 was $2.6 million and $7.1 million, respectively. During the nine-month period of Fiscal 1997, the Company made income tax payments of $3.2 million and received income tax refunds of $0.5 million. During the nine-month period of Fiscal 1996, the Company made income tax payments of $4.0 million and received income tax refunds of $2.9 million. EXTRAORDINARY ITEMS: During the second quarter of Fiscal 1997, in connection with the Credit Agreement, the Company wrote off deferred financing fees of $12.8 million related to the former bank credit agreement, resulting in a net loss on early extinguishment of debt of $7.4 million. In addition, during the second quarter of Fiscal 1997, in connection with the sale of certain mortgaged property, the Company made a mortgage paydown of $2.9 million, including accrued interest and debt premiums, resulting in a net loss on early extinguishment of debt of $0.1 million. During the second quarter of Fiscal 1996, in connection with the sale of certain mortgaged property, the Company made a mortgage paydown of $5.3 million, including accrued interest and debt premiums, resulting in a net loss on early extinguishment of debt of $0.2 million. During the first quarter of Fiscal 1996, in connection with the termination of the Plainbridge, Inc. credit agreement due to the reacquisition of Plainbridge, Inc. by Pathmark, the Company wrote off deferred financing fees resulting in a net loss on early extinguishment of debt of $0.7 million. During the first quarter of Fiscal 1996, the Company also made a paydown of $3.2 million of PTK Exchangeable Guaranteed Debentures. The premium paid, including original issue discount, resulted in a net loss on early extinguishment of debt of $0.1 million. 9 SUPERMARKETS GENERAL HOLDINGS CORPORATION SUMMARY OF OPERATIONS: For the third quarter of Fiscal 1997, the Company's net loss was $11.5 million compared to a net loss of $3.9 million for the prior year. For the nine-month period of Fiscal 1997, the Company's net loss was $35.6 million compared to a net loss of $12.0 million in the prior year. The increase in net loss in the nine-month period of Fiscal 1997 compared to the prior year was primarily due to lower operating earnings, the extraordinary loss on early extinguishment of debt and higher interest expense, partially offset by a higher income tax benefit. EBITDA-FIFO: EBITDA-FIFO was $42.5 million and $55.9 million in the third quarters of Fiscal 1997 and Fiscal 1996, respectively, and $141.9 million and $171.7 million for the nine-month period of Fiscal 1997 and Fiscal 1996, respectively. EBITDA-FIFO represents net earnings before interest expense, income taxes, depreciation, amortization, the LIFO charge (credit) and unusual transactions. EBITDA-FIFO is a widely accepted financial indicator of a company's ability to service and/or incur debt and should not be construed as an alternative to, or a better indicator of, operating income or cash flows from operating activities, as determined in accordance with generally accepted accounting principles. FINANCIAL CONDITION DEBT SERVICE: During the nine-month period of Fiscal 1997, total debt increased $19.3 million from Fiscal 1996 year end primarily due to debt accretion on the Pathmark Deferred Coupon Notes and the PTK Exchangeable Guaranteed Debentures and a net increase in borrowings under the Credit Agreement compared to the former credit agreement. On June 30, 1997, the Company, through its Pathmark subsidiary, entered into the Credit Agreement with a group of lenders led by The Chase Manhattan Bank. The Credit Agreement includes a $300 million Term Loan and a $200 million Working Capital Facility. In connection with this refinancing, the Company repaid in full the former Pathmark term loan ($230.5 million) and the former Pathmark working capital facility ($57.5 million) with the borrowings obtained under the Credit Agreement. Borrowings under the Working Capital Facility were $25.2 million at November 1, 1997 and have increased to $26.8 million at December 9, 1997. During the second quarter of Fiscal 1997, the Company sold four of the 12 supermarkets that it announced for divestiture at the end of Fiscal 1996 for $14.9 million and sold two former operating sites, primarily drug stores, for $11.1 million. There was no gain or loss recognized on these transactions. The proceeds were used to paydown a portion of the former working capital facility and certain mortgages. The Company does not currently maintain any interest rate hedging arrangements. 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. 10 SUPERMARKETS GENERAL HOLDINGS CORPORATION The amount of principal payments required each year on outstanding long-term debt (excluding the original issue discount with respect to the Pathmark Deferred Coupon Notes and the PTK Exchangeable Guaranteed Debentures) are as follows (dollars in millions): PRINCIPAL FISCAL YEARS PAYMENTS 1997(a)...................................................... $ 10.1 1998......................................................... 37.5 1999......................................................... 16.5 2000......................................................... 81.6 2001......................................................... 315.5 2002......................................................... 195.8 2003......................................................... 650.0 - ---------- (a) Subsequent to November 1, 1997. LIQUIDITY: The consolidated financial statements of the Company indicate that, at November 1, 1997, current liabilities exceeded current assets by $112.5 million and stockholder's deficit was $1.31 billion. Management believes that cash flows generated from operations, supplemented by the unused borrowing capacity under the Pathmark Working Capital Facility and the availability of capital lease financing will be sufficient to pay the Company's debts as they come due, provide for its capital expenditure program and meets its other cash requirements. The Company believes that it will be able to make the scheduled payments or refinance its obligations with respect to its indebtedness through a combination of operating funds and borrowing facilities. Future refinancing will be necessary if the Company's cash flow from operations is not sufficient to meet its debt service requirements related to the maturity of the Term Loan and Working Capital Facility in Fiscal 2001 and the maturity of the Pathmark Subordinated Notes and Pathmark Subordinated Debentures in Fiscal 2002. The Company expects that it will be necessary to refinance all or a portion of the Pathmark Senior Subordinated Notes and the Pathmark Deferred Coupon Notes due in Fiscal 2003 and the PTK Exchangeable Guaranteed Debentures due in Fiscal 2003. The Company may undertake a refinancing of some or all of such indebtedness sometime prior to its maturity. The Company was in compliance with its various debt covenants at November 1, 1997, and, based on management's operating projections for the remainder of Fiscal 1997, the Company believes that it will continue to be in compliance with its 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 Company's operating results will continue to be sufficient or that future borrowing facilities will be available for payment or refinancing of Pathmark's and PTK's indebtedness. 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. 11 SUPERMARKETS GENERAL HOLDINGS CORPORATION 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 November 1, 1997, the unpaid dividends of $86.1 million were accrued and included in other noncurrent liabilities. CAPITAL EXPENDITURES: Capital expenditures for the third quarter of Fiscal 1997, including property acquired under capital leases, were $11.3 million compared to $19.4 million for the prior year and for the nine-month period of Fiscal 1997 were $38.6 million compared to $63.0 million for the prior year. During the nine-month period of Fiscal 1997, the Company opened two new Pathmark stores, completed five major renovations and enlargements to existing supermarkets and sold four and closed seven of the 12 stores announced for divestiture at the end of Fiscal 1996. During the remainder of Fiscal 1997, the Company does not plan to open any new Pathmark stores and expects to complete up to an aggregate of 12 major renovations and enlargements. CASH FLOWS: Cash provided by operating activities amounted to $25.5 million in the nine-month period of Fiscal 1997 compared to $48.6 million in the prior year. The decrease in net cash provided by operating activities was primarily due to an increase in the net loss and an increase in cash used for operating assets and liabilities. Cash provided by investing activities was $4.8 million in the nine-month period of Fiscal 1997 compared to cash used for investing activities of $30.1 million in the prior year. The increase in cash provided by investing activities was primarily due to an increase in proceeds from property dispositions and a decrease in expenditures of property and equipment. Cash used for financing activities was $31.8 million in the nine-month period of Fiscal 1997 compared to $19.3 million in the prior year. The increase in cash used for financing activities was primarily due to a decrease in bank overdrafts and an increase in deferred financing fees related to the Credit Agreement, partially offset by a decrease in the repayment of PTK Exchangeable Guaranteed Debentures and an increase in borrowings in conjunction with the Credit Agreement, net of repaying in full the former Pathmark term loan and former Pathmark working capital facility. 12 PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION During the third quarter of Fiscal 1997, the Company entered into a fifteen year supply agreement with C&S Wholesale Grocers, Inc. ("C&S") which will supply substantially all of the Company's grocery, frozen and perishable merchandise. Simultaneously, the Company and C&S entered into an agreement pursuant to which C&S will purchase Pathmark's Woodbridge, New Jersey warehouse complex and assume the leases of other distribution facilities in North Brunswick and Dayton, New Jersey, including the fixtures, equipment and inventory at each facility. The transactions, which are subject to a number of conditions, are expected to be closed by the end of the fiscal year. In addition, the Company outsourced its trucking operations to a third party trucking company, pursuant to a ten year trucking services agreement effective October 5, 1997, in which the trucking company will deliver merchandise to all of the Company's stores. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K No reports on Form 8-K have been filed during the quarter for which this report has been filed. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the Undersigned thereunto duly authorized. SUPERMARKETS GENERAL HOLDINGS CORPORATION BY /S/ RON MARSHALL --------------------------------- (RON MARSHALL) EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER BY /S/ JOSEPH ADELHARDT ---------------------------------- (JOSEPH ADELHARDT) SENIOR VICE PRESIDENT AND CONTROLLER, CHIEF ACCOUNTING OFFICER DATE: December 16, 1997 13 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 NOVEMBER 1, 1997 AND CONSOLIDATED BALANCE SHEET AS OF NOVEMBER 1, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS JAN-31-1998 NOV-01-1997 9,436 0 12,385 (1,400) 203,236 283,627 970,039 (418,483) 956,985 396,166 1,289,342 106,723 0 10 (1,308,032) 956,985 2,755,313 2,755,313 1,984,908 1,984,908 0 148 (124,822) (46,820) 18,703 (28,117) 0 (7,488) 0 (35,605) 0 0
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