-----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, TbsKAPWTk+l4ujN6awCuikmQJfSdKBMRl7UDQwyOP8dbZMGPwHs7yZejiuzxOZCi Rsm7zK4VOIpfv4uKecL/eQ== 0001047469-98-034612.txt : 19980916 0001047469-98-034612.hdr.sgml : 19980916 ACCESSION NUMBER: 0001047469-98-034612 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980801 FILED AS OF DATE: 19980915 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: 98709570 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 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 AUGUST 1, 1998 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 August 1, 1998, 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 26 WEEKS ENDED -------------------------- ---------------------------- AUGUST 1, AUGUST 2, AUGUST 1, AUGUST 2, 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Sales............................................... $ 922,909 $ 931,909 $ 1,838,924 $ 1,854,307 Cost of sales (exclusive of depreciation and amortization shown separately below)............. 661,009 669,466 1,312,993 1,332,384 ----------- ----------- ------------ ------------ Gross profit........................................ 261,900 262,443 525,931 521,923 Selling, general and administrative expenses........ 204,460 213,130 415,533 425,478 Depreciation and amortization....................... 19,750 19,984 39,436 40,200 ----------- ----------- ------------ ------------ Operating earnings.................................. 37,690 29,329 70,962 56,245 Interest expense.................................... (39,830) (41,903) (81,399) (83,788) ----------- ----------- ------------ ------------ Loss before income tax (provision) benefit and extraordinary items.............................. (2,140) (12,574) (10,437) (27,543) Income tax (provision) benefit...................... (25) 5,022 (55) 10,888 ----------- ----------- ------------ ------------ Loss before extraordinary items..................... (2,165) (7,552) (10,492) (16,655) Extraordinary items, net of an income tax benefit.......................................... -- (7,488) -- (7,488) ----------- ----------- ------------ ------------ Net loss............................................ (2,165) (15,040) (10,492) (24,143) Less: non-cash preferred stock accretion and dividend requirements............................ (4,773) (4,754) (9,540) (9,504) ----------- ----------- ------------ ------------ Net loss attributable to common stockholder......... $ (6,938) $ (19,794) $ (20,032) $ (33,647) =========== =========== ============ ============
See notes to consolidated financial statements (unaudited). 1 SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands except share amounts)
AUGUST 1, JANUARY 31, 1998 1998 ------------ ------------ ASSETS Current Assets Cash and cash equivalents.......................................... $ 10,391 $ 62,914 Accounts receivable, net........................................... 10,737 11,519 Merchandise inventories............................................ 153,978 148,983 Deferred income taxes, net......................................... 8,423 8,492 Prepaid expenses................................................... 22,930 21,455 Due from suppliers................................................. 43,419 13,027 Other current assets............................................... 12,434 11,480 ------------ ------------ Total Current Assets............................................ 262,312 277,870 Property and Equipment, Net........................................... 501,586 530,716 Deferred Financing Costs, Net......................................... 16,601 18,547 Deferred Income Taxes, Net............................................ 47,058 46,279 Other Assets.......................................................... 35,579 34,342 ------------ ------------ $ 863,136 $ 907,754 ============ ============ LIABILITIES AND STOCKHOLDER'S DEFICIENCY Current Liabilities Accounts payable and book overdrafts............................... $ 97,353 $ 155,702 Current maturities of long-term debt............................... 36,037 43,478 Income taxes payable............................................... 586 372 Accrued payroll and payroll taxes.................................. 49,044 49,599 Current portion of lease obligations............................... 23,696 24,417 Accrued interest payable........................................... 20,478 18,300 Accrued expense and other current liabilities...................... 91,079 93,336 ------------ ------------ Total Current Liabilities....................................... 318,273 385,204 ------------ ------------ Long-Term Debt........................................................ 1,249,546 1,208,327 ------------ ------------ Lease Obligations, Long-Term.......................................... 169,937 170,471 ------------ ------------ Other Noncurrent Liabilities.......................................... 371,059 370,697 ------------ ------------ Redeemable Securities Exchangeable Preferred Stock, $.01 par value...................... 108,116 107,183 ------------ ------------ Authorized: 9,000,000 shares Issued and outstanding: 4,890,671 Liquidation preference, $25 per share: $122,267 Commitments and Contingencies (Note 6) Stockholder's Deficiency 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................................................. 196,953 197,521 Accumulated Deficit............................................. (1,550,758) (1,531,659) ------------ ------------ Total Stockholder's Deficiency..................................... (1,353,795) (1,334,128) ------------ ------------ $ 863,136 $ 907,754 ============ ============
See notes to consolidated financial statements (unaudited). 2 SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIENCY (UNAUDITED) (IN THOUSANDS) SUPERMARKETS GENERAL HOLDINGS CORPORATION
CLASS A CLASS B TOTAL COMMON COMMON PAID-IN ACCUMULATED STOCKHOLDER'S STOCK STOCK CAPITAL DEFICIT DEFICIENCY -------- --------- ------------ --------------- -------------- Balance, January 31, 1998.......................... $ 7 $ 3 $ 197,521 $ (1,531,659) $ (1,334,128) Net loss........................................... -- -- -- (10,492) (10,492) Accrued dividends on preferred stock ($1.76 per share)............................ -- -- -- (8,607) (8,607) Accretion on preferred stock....................... -- -- (933) -- (933) Capital contributions from SMG-II Holdings Corporation.................................. -- -- 365 -- 365 ----- ---- ---------- ------------- ------------- Balance, August 1, 1998............................ $ 7 $ 3 $ 196,953 $ (1,550,758) $ (1,353,795) ===== ==== ========== ============= ============= Balance, February 1, 1997.......................... $ 7 $ 3 $ 199,332 $ (1,457,497) $ (1,258,155) Net loss........................................... -- -- -- (24,143) (24,143) Accrued dividends on preferred stock ($1.76 per share)............................ -- -- -- (8,608) (8,608) Accretion on preferred stock....................... -- -- (896) -- (896) ----- ---- ---------- ------------- ------------- Balance, August 2, 1997............................ $ 7 $ 3 $ 198,436 $ (1,490,248) $ (1,291,802) ===== ==== ========== ============= =============
See notes to consolidated financial statements (unaudited). 3 SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)
26 WEEKS ENDED -------------------------- AUGUST 1, AUGUST 2, 1998 1997 ---------- ---------- Operating Activities Net loss $ (10,492) $ (24,143) Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Extraordinary loss on early extinguishment of debt.............................. -- 7,488 Depreciation and amortization................................................... 41,247 42,217 Deferred income tax benefit..................................................... (710) (16,343) Interest accruable but not payable.............................................. 10,055 9,013 Amortization of original issue discount......................................... 920 1,632 Amortization of debt issuance costs............................................. 2,053 3,510 Gain (loss) on disposal of property and equipment............................... (4,562) 89 Cash provided by (used for) operating assets and liabilities: Accounts receivable, net...................................................... 782 838 Merchandise inventories....................................................... (4,995) 20,730 Income taxes.................................................................. 1,933 2,817 Other current assets.......................................................... (34,160) (524) Other assets.................................................................. 880 (1,792) Accounts payable.............................................................. (32,019) (16,931) Accrued interest payable...................................................... 2,171 (1,711) Accrued expenses and other current liabilities................................ (4,617) (1,146) Other noncurrent liabilities.................................................. (18,065) (14,001) ---------- --------- Cash provided by (used for) operating activities............................ (49,579) 11,743 ---------- --------- Investing Activities Property and equipment expenditures................................................ (16,905) (13,614) Proceeds from disposition of property and equipment................................ 28,267 25,470 ---------- --------- Cash provided by investing activities....................................... 11,362 11,856 ---------- --------- Financing Activities Increase (decrease) in Pathmark working capital facilities borrowings.............. 63,400 (52,600) Repayments of term loans........................................................... (3,783) (243,127) Decrease in book overdrafts........................................................ (26,330) (8,307) Increase in other borrowings....................................................... 3,129 1,562 Repayment of other long-term borrowings............................................ (8,772) (4,322) Reduction in lease obligations..................................................... (10,918) (10,650) Deferred financing fees............................................................ (107) (8,292) Capital contribution from SMG-II Holdings Corporation.............................. 246 -- Repayment of the PTK Exchangeable Guaranteed Debentures............................ (31,171) -- Borrowings under Term Loan in connection with the Credit Agreement................. -- 300,000 Premiums incurred in redemption of PTK Exchangeable Guaranteed Debentures and other borrowings............................................................ -- (132) ---------- --------- Cash used for financing activities.......................................... (14,306) (25,868) ---------- --------- Decrease in cash and cash equivalents................................................. (52,523) (2,269) Cash and cash equivalents at beginning of period...................................... 62,914 10,967 ---------- --------- Cash and cash equivalents at end of period............................................ $ 10,391 $ 8,698 ========== ========= Supplemental Disclosures of Cash Flow Information Interest paid...................................................................... $ 66,342 $ 71,288 ========== ========= Income taxes paid.................................................................. $ 882 $ 3,197 ========== ========= Noncash Investing and Financing Activities Capital lease obligations.......................................................... $ 10,460 $ 13,669 ========== =========
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 August 1, 1998, 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 January 31, 1998, 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 31, 1998. 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 second quarter and six-month period of Fiscal 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):
AUGUST 1, JANUARY 31, 1998 1998 ------------ ----------- Pathmark term loan ("Term Loan").................................... $ 259,467 $ 263,250 Pathmark working capital facility ("Working Capital Facility")...... 63,400 -- 9.625% Pathmark Senior Subordinated Notes due 2003 ("Pathmark Senior Subordinated Notes").......................... 438,312 438,134 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").............................. 197,123 187,068 10.25% PTK Exchangeable Guaranteed Debentures due 2003 ("PTK Exchangeable Guaranteed Debentures")...................... -- 30,429 Industrial revenue bonds............................................ 8,561 6,375 Other debt (primarily mortgages).................................... 22,970 30,799 ------------ ----------- Total debt.......................................................... 1,285,583 1,251,805 Less: current maturities............................................ 36,037 43,478 ------------ ----------- Long-term portion................................................... $ 1,249,546 $ 1,208,327 ============ ===========
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. 5 SUPERMARKETS GENERAL HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED) NOTE 3--STOCKHOLDER'S DEFICIENCY During the second quarter of Fiscal 1998, SMG-II issued restricted stock grants ("Stock Grants") to certain officers and key employees of the Company. The Stock Grants will vest in seven years or earlier with the occurrence of an employment-related event, as defined, and will be forfeited in their entirety upon the occurrence of a termination event, as defined. The Stock Grants were valued at $5.0 million at the date of issuance, based on an independent appraisal, and being amortized as compensation expense in the Company's statement of operations over the seven-year vesting period, with a corresponding credit to paid-in capital. During the second quarter of Fiscal 1998, in conjunction with the paydown of debt by PTK (see Note 2), the Company received a capital contribution from SMG-II of $0.25 million. NOTE 4--SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A") SG&A for the second quarter and six-month period of Fiscal 1998 are net of a gain of $5.1 million related to the sale of certain real estate. NOTE 5--INTEREST EXPENSE Interest expense is comprised of the following (dollars in thousands):
13 WEEKS ENDED 26 WEEKS ENDED ------------------------- ------------------------ AUGUST 1, AUGUST 2, AUGUST 1, AUGUST 2, 1998 1997 1998 1997 --------- -------- ------- -------- Pathmark term loans................................ $ 5,361 $ 5,393 $ 10,665 $ 10,523 Pathmark working capital facilities................ 1,458 1,705 1,998 3,472 Pathmark Senior Subordinated Notes Amortization of original issue discount........ 89 89 178 177 Currently payable.............................. 10,587 10,587 21,175 21,175 Pathmark Subordinated Notes........................ 5,812 5,812 11,625 11,625 Pathmark Subordinated Debentures................... 3,022 3,022 6,044 6,044 Pathmark Deferred Coupon Notes Accrued but not payable........................ 5,118 4,565 10,055 9,013 PTK Exchangeable Guaranteed Debentures Amortization of original issue discount........ (63) 729 742 1,455 Amortization of debt issuance costs................ 1,022 1,609 2,053 3,510 Lease obligations.................................. 5,426 5,598 10,923 11,089 Other, net......................................... 1,998 2,794 5,941 5,705 --------- -------- ------- -------- Interest expense................................... $ 39,830 $ 41,903 $ 81,399 $ 83,788 ========= ======== ======= ========
The majority of the cash interest payments are scheduled in the second and fourth quarters. NOTE 6--CONTINGENCIES RICKEL: In connection with the sale of its home centers segment in Fiscal 1994, the Company, as lessor, entered into nine leases for certain of the Company's owned real estate properties with Rickel Home Centers, Inc. ("Rickel"), as tenant. In addition, the Company assigned to Rickel 26 third party leases. 6 SUPERMARKETS GENERAL HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED) NOTE 6--CONTINGENCIES--(CONTINUED) In 1996, Rickel filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. Subsequent to the filing, of the 35 locations leased to Rickel, Rickel entered into an agreement in 1998 to assign the leases of 16 locations to Staples, Inc., nine leases have either been terminated or assigned to third parties and ten rejected leases 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 sublease recoveries. 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 second quarter of Fiscal 1998 were $922.9 million compared to $931.9 million in the prior year, a decrease of 1.0%. For the six-month period of Fiscal 1998, sales were $1,838.9 million compared to $1,854.3 million in the prior year, a decrease of 0.8%. However, same store sales increased 0.5% and 1.1% for the second quarter and six-month period, respectively. Sales in the second quarter and six-month period of Fiscal 1998 compared to the prior year were impacted by sold and closed stores, partially offset by new store openings and same store sales increases. The Company operated 135 and 138 supermarkets at the end of the second quarters of Fiscal 1998 and Fiscal 1997, respectively. GROSS PROFIT: Gross profit in the second quarter of Fiscal 1998 was $261.9 million or 28.4% of sales compared with $262.4 million or 28.2% of sales in the prior year. For the six-month period of Fiscal 1998, gross profit was $525.9 million or 28.6% of sales compared to $521.9 million or 28.1% for the prior year. The increase in gross profit as a percentage of sales for the second quarter and six-month period of Fiscal 1998 compared to the prior year was primarily due to the savings realized from the Company's outsourcing at the end of Fiscal 1997 of certain of its distribution center operations to C&S Wholesale Grocers, Inc. ("C&S") and improvements in the perishables mix. The cost of goods sold amounts were affected by a pretax LIFO charge of $0.35 million and $0.5 million in the second quarters of Fiscal 1998 and Fiscal 1997, respectively, and a pretax LIFO charge of $0.7 million and $0.9 million in the six-month periods of Fiscal 1998 and Fiscal 1997, respectively. SG&A: SG&A in the second quarter of Fiscal 1998 decreased $8.7 million or 4.1% compared to the prior year and decreased $9.9 million or 2.3% in the six-month period of Fiscal 1998 compared to the prior year. As a percentage of sales, SG&A was 22.2% in the second quarter of Fiscal 1998, down from 22.9% in the prior year and was 22.6% for the six-month period of Fiscal 1998 down from 22.9% in the prior year. The decrease in SG&A in the second quarter and six-month period of Fiscal 1998 compared to the prior year was primarily due to the gain recognized on the sale of certain real estate, lower advertising and insurance expense, along with lower operating costs which resulted from sold and closed stores. Excluding the gain on the sale of real estate, SG&A as a percentage of sales was 22.7% and 22.9% for the second quarter and six-month period of Fiscal 1998. DEPRECIATION AND AMORTIZATION: Depreciation and amortization of $19.8 million in the second quarter of Fiscal 1998 was $0.2 million lower than the prior year of $20.0 million. For the six-month period of Fiscal 1998, depreciation and amortization of $39.4 million was $0.8 million lower than the prior year of $40.2 million. The decrease in depreciation and amortization expense in the second quarter and six-month period of Fiscal 1998 compared to the prior year was primarily due to the sale of certain of the Company's distribution center facilities at the end of Fiscal 1997 as part of its transaction with C&S, partially offset by capital expenditures. Depreciation and amortization excludes video tape amortization, which is recorded in cost of goods sold, of $0.7 million and $0.9 million in the second quarters of Fiscal 1998 and Fiscal 1997, respectively, and $1.5 million and $1.7 million in the six-month periods of Fiscal 1998 and Fiscal 1997, respectively. 8 SUPERMARKETS GENERAL HOLDINGS CORPORATION OPERATING EARNINGS: Operating earnings in the second quarter of Fiscal 1998 were $37.7 million compared with the prior year of $29.3 million. For the six-month period of Fiscal 1998, operating earnings were $71.0 million compared with $56.2 million in the prior year. The increase in operating earnings in the second quarter of Fiscal 1998 compared to the prior year was due to lower SG&A. The increase in operating earnings in the six-month period of Fiscal 1998 compared to the prior year was due to higher gross profit and lower SG&A. INTEREST EXPENSE: Interest expense was $39.8 million in the second quarter of Fiscal 1998 compared to $41.9 million in the prior year and $81.4 million for the six-month period of Fiscal 1998 compared to $83.8 million. The decrease in interest expense in the second quarter and six-month period of Fiscal 1998 compared to the prior year was primarily due to lower levels of borrowings under the working capital facilities, lower amortization of debt issuance costs and the repayment of the PTK Exchangeable Guaranteed Debentures, partially offset by 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 first and second quarters of 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 $55.5 million at August 1, 1998 will be realized through the implementation of tax strategies which could generate taxable income. The income tax benefit for the second quarter and six-month period of Fiscal 1997 was $5.0 million and $10.9 million, respectively. During the six-month period of Fiscal 1998, the Company made income tax payments of $0.9 million and received income tax refunds of $0.5 million. During the six-month period of Fiscal 1997, the Company made income tax payments of $3.2 million and received income tax refunds of $0.5 million. EXTRAORDINARY ITEMS: During the second quarter of Fiscal 1997, in connection with the new $500 million bank credit agreement ("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. SUMMARY OF OPERATIONS: The Company's net loss in the second quarter of Fiscal 1998 was $2.2 million compared to a net loss of $15.0 million for the prior year. For the six-month period of Fiscal 1998, the Company's net loss was $10.5 million compared to a net loss of $24.1 million in the prior year. The decrease in net loss in the second quarter and six-month period of Fiscal 1998 compared to the prior year was primarily due to higher operating earnings and lower interest expense in Fiscal 1998 and the extraordinary loss in Fiscal 1997, partially offset by a reduction in the income tax benefit. EBITDA-FIFO: EBITDA-FIFO was $53.6 million and $50.9 million in the second quarters of Fiscal 1998 and Fiscal 1997, respectively and $107.8 million and $99.4 million for the six-month period of Fiscal 1998 and Fiscal 1997, 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 9 SUPERMARKETS GENERAL HOLDINGS CORPORATION indicator of a company's ability to service and/or incur debt. EBITDA-FIFO should not be construed as an alternative to, or a better indicator of, operating income or to cash flows from operating activities, as determined in accordance with generally accepted accounting principles. FINANCIAL CONDITION DEBT SERVICE: During the six-month period of Fiscal 1998, total debt increased $33.8 million from Fiscal 1997 year end due to borrowings under the Working Capital Facility and debt accretion on the Deferred Coupon Notes, partially offset by the repayment of the PTK Exchangeable Debentures and a decrease in certain mortgages. Borrowings under the Working Capital Facility were $63.4 million at August 1, 1998 and $68.8 million at September 10, 1998. In addition, during the six-month period of Fiscal 1998, total lease obligations decreased $1.3 million from Fiscal 1997 year end. During the first six months of Fiscal 1998, the Company sold certain real estate for $26.9 million and recognized a gain of $5.1 million in the second quarter of Fiscal 1998. The proceeds were used to pay down the related mortgages and a portion of the Working Capital Facility. 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) are as follows (dollars in millions): PRINCIPAL FISCAL YEARS PAYMENTS ------------ -------- 1998(a).................................. $ 29.5 1999..................................... 12.1 2000..................................... 75.1 2001..................................... 336.0 2002..................................... 195.9 2003..................................... 636.7 Thereafter............................... 0.3 --------- Total.................................... $ 1,285.6 ========= - ------------ (a) Subsequent to August 1, 1998 LIQUIDITY: The consolidated financial statements of the Company indicate that, at August 1, 1998, current liabilities exceeded current assets by $56.0 million and stockholder's deficiency was $1.4 billion. Cash used for operating activities was $49.6 million in the six-month period of Fiscal 1998 compared to cash provided by operating activities of $11.7 million in the prior year. The change in cash flow from operating activities was primarily due to cash used for operating assets and liabilities, resulting from the paydown of trade accounts payable, utilizing the proceeds received at the end of Fiscal 1997 related to the C&S transaction, and an increase in due from suppliers related to the C&S transition, partially offset by a decrease in the net loss. Management believes that cash flows generated from operations (excluding the C&S transitional related items), 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. 10 SUPERMARKETS GENERAL HOLDINGS CORPORATION 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 Subordinated Notes and Subordinated Debentures in Fiscal 2002. The Company expects that it will be necessary to refinance all or a portion of 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 August 1, 1998 and, based on management's operating projections for Fiscal 1998, 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 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 August 1, 1998, the unpaid dividends of $99.0 million were accrued and included in other noncurrent liabilities. CAPITAL EXPENDITURES: Capital expenditures for the second quarter of Fiscal 1998, including property acquired under capital leases, were $7.9 million compared to $15.5 million for the prior year and for the six-month period of Fiscal 1998 were $27.4 million compared to $27.9 million for the prior year. During the six-month period of Fiscal 1998, the Company completed nine renovations to existing supermarkets. During the remainder of Fiscal 1998, the Company pans to open one new Pathmark store and complete up to an aggregate of 11 renovations and enlargements. In addition, the Company has announced the closing of three stores, which will occur during the third quarter of Fiscal 1998. Capital expenditures for Fiscal 1998, including property to be acquired under capital leases, are estimated to be $79.0 million. Management believes that cash flows generated from operations (excluding the C&S transitional items), 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 used for operating activities was $49.6 million in the six-month period of Fiscal 1998 compared to cash provided by operating activities of $11.7 million in the prior year. The change in cash flow from operating activities was primarily due to cash used for operating assets and liabilities, resulting from the paydown of trade accounts payable, utilizing the proceeds received at the end of Fiscal 1997 related to the C&S transaction, and an increase in due from suppliers related to the C&S transition, partially offset by a decrease in the net loss. Cash provided by investing activities was $11.4 million in the six-month period of Fiscal 1998 compared to $11.9 million in the prior year. The decrease in cash provided by investing activities was primarily due to an increase in expenditures of 11 SUPERMARKETS GENERAL HOLDINGS CORPORATION property and equipment, partially offset by an increase in proceeds from property dispositions. Cash used for financing activities was $14.3 million in the six-month period of Fiscal 1998 compared to $25.9 million in the prior year. The decrease in cash used for financing activities was primarily due to an increase in borrowings under the Working Capital Facility in Fiscal 1998, as compared to the borrowings under the Term Loan, net of repaying in full the former term loan and former working capital facility in conjunction with the Credit Agreement in Fiscal 1997, partially offset by a decrease in book overdrafts related to the C&S transition and the repayment of the PTK Exchangeable Guaranteed Debentures. 12 SUPERMARKETS GENERAL HOLDINGS CORPORATION PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS: none (b) REPORTS ON FORM 8-K: not applicable 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: September 15, 1998 13 EX-27 2 FINACIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from Supermarkets General Holdings Corporation's Consolidated Statement of Operations for the 26 weeks ended August 1, 1998 and Consolidated Balance Sheet as of August 1, 1998 and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS JAN-30-1999 AUG-01-1998 10,236 0 14,307 (1,251) 156,436 266,777 912,045 (389,882) 887,221 319,948 1,259,061 107,647 0 10 (1,347,223) 887,221 1,838,924 1,838,924 1,312,993 1,312,993 0 48 (81,399) (10,437) (55) (10,492) 0 0 0 (10,492) 0 0
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