-----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, Amo6hWWCYDGRBeFLdom0qLxo/V06gU/lfibB5QrXbFGKdYdMCB+uUt50zv3q9uuO rehwgfonLfZodwA5lSyaKg== 0001047469-99-024225.txt : 19990616 0001047469-99-024225.hdr.sgml : 19990616 ACCESSION NUMBER: 0001047469-99-024225 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990501 FILED AS OF DATE: 19990615 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: 99646621 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 MAY 1, 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 May 1, 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 1. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands)
13 WEEKS ENDED ---------------------- MAY 1, MAY 2, 1999 1998 --------- --------- Sales ............................................................ $ 894,457 $ 916,015 Cost of sales (exclusive of depreciation and amortization shown separately below) ..................... 639,510 651,984 --------- --------- Gross profit ..................................................... 254,947 264,031 Selling, general and administrative expenses ..................... 206,519 211,073 Depreciation and amortization .................................... 18,227 19,686 --------- --------- Operating earnings ............................................... 30,201 33,272 Interest expense ................................................. (39,475) (41,569) --------- --------- Loss before income taxes ......................................... (9,274) (8,297) Income tax provision ............................................. (25) (30) --------- --------- Net loss ......................................................... (9,299) (8,327) Less: non-cash preferred stock accretion and dividend requirements (4,788) (4,768) --------- --------- Net loss attributable to common stockholder ...................... $ (14,087) $ (13,095) ========= =========
See notes to consolidated financial statements (unaudited). 1 SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands except share amounts)
MAY 1, JANUARY 30, 1999 1999 ----------- ----------- ASSETS Current Assets Cash and cash equivalents ....................... $ 8,572 $ 7,726 Accounts receivable, net ........................ 12,863 13,792 Merchandise inventories ......................... 150,519 143,212 Income taxes receivable ......................... 1,755 1,482 Deferred income taxes, net ...................... 3,803 4,026 Prepaid expenses ................................ 23,449 21,527 Due from suppliers .............................. 47,042 49,600 Other current assets ............................ 11,929 10,708 ----------- ----------- Total Current Assets .......................... 259,932 252,073 Property and Equipment, Net ........................ 478,870 471,583 Deferred Financing Costs, Net ...................... 15,066 15,723 Deferred Income Taxes, Net ......................... 46,371 46,148 Other Assets ....................................... 46,235 42,525 ----------- ----------- $ 846,474 $ 828,052 =========== =========== LIABILITIES AND STOCKHOLDER'S DEFICIENCY Current Liabilities Accounts payable and book overdrafts ............ $ 101,013 $ 98,967 Current maturities of long-term debt ............ 18,836 15,902 Accrued payroll and payroll taxes ............... 44,150 52,014 Current portion of lease obligations ............ 23,314 21,956 Accrued interest payable ........................ 39,596 21,325 Accrued expenses and other current liabilities .. 85,667 86,404 ----------- ----------- Total Current Liabilities ..................... 312,576 296,568 ----------- ----------- Long-Term Debt ..................................... 1,270,694 1,258,539 ----------- ----------- Lease Obligations, Long-Term ....................... 168,613 160,820 ----------- ----------- Other Noncurrent Liabilities ....................... 381,177 385,287 ----------- ----------- Redeemable Securities Exchangeable Preferred Stock, $.01 par value .... 109,553 109,069 ----------- ----------- 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 .................................... 196,052 196,357 Accumulated Deficit ................................ (1,592,201) (1,578,598) ----------- ----------- Total Stockholder's Deficiency ................ (1,396,139) (1,382,231) ----------- ----------- $ 846,474 $ 828,052 =========== ===========
See notes to consolidated financial statements (unaudited). 2 SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIENCY (UNAUDITED) (in thousands)
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......................................... -- -- -- (9,299) (9,299) Accrued dividends on preferred stock ($.88 per share)........................... -- -- -- (4,304) (4,304) Accretion on preferred stock..................... -- -- (484) -- (484) Capital contribution from SMG-II Holdings Corporation....................... -- -- 179 -- 179 ------ ------ ------------ -------------- -------------- Balance, May 1, 1999............................. $ 7 $ 3 $ 196,052 $ (1,592,201) $ (1,396,139) ====== ====== ============ ============== ============== Balance, January 31, 1998........................ $ 7 $ 3 $ 197,521 $ (1,531,659) $ (1,334,128) Net loss......................................... -- -- -- (8,327) (8,327) Accrued dividends on preferred stock ($.88 per share)........................... -- -- -- (4,304) (4,304) Accretion on preferred stock..................... -- -- (464) -- (464) ------ ------ ------------ -------------- -------------- Balance, May 2, 1998............................. $ 7 $ 3 $ 197,057 $ (1,544,290) $ (1,347,223) ====== ====== ============ ============== ==============
See notes to consolidated financial statements (unaudited). 3 SUPERMARKETS GENERAL HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)
13 WEEKS ENDED -------------------- MAY 1, MAY 2, 1999 1998 -------- -------- Operating Activities Net loss .............................................................. $ (9,299) $ (8,327) Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Depreciation and amortization ................................... 19,069 20,590 Deferred income tax benefit ..................................... -- (636) Interest accruable but not payable .............................. 5,596 4,937 Amortization of original issue discount ......................... 89 894 Amortization of debt issuance costs ............................. 1,084 1,031 Gain (loss) on disposal of property and equipment ............... (382) 533 Cash provided by (used for) operating assets and liabilities: Accounts receivable, net ...................................... 929 (1,537) Merchandise inventories ....................................... (7,307) (7,453) Income taxes .................................................. (273) 981 Due from suppliers ............................................ 2,558 (28,200) Other current assets .......................................... (3,905) (5,102) Other assets .................................................. (3,604) 2,820 Accounts payable .............................................. (4,503) (33,853) Accrued interest payable ...................................... 18,317 674 Accrued expenses and other current liabilities ................ (8,601) (5,400) Other noncurrent liabilities .................................. (8,414) (6,144) -------- -------- Cash provided by (used for) operating activities ............ 1,354 (64,192) -------- -------- Investing Activities Property and equipment expenditures ................................ (12,179) (9,076) Proceeds from disposition of property and equipment ................ 880 8,926 -------- -------- Cash used for investing activities .......................... (11,299) (150) -------- -------- Financing Activities Increase in Pathmark Working Capital Facility borrowings ........... 11,900 45,200 Repayments of Term Loan ............................................ (1,891) (1,891) Increase in other long-term debt ................................... -- 2,000 Repayment of other long-term debt .................................. (605) (4,346) Increase (decrease) in book overdrafts ............................. 6,549 (23,755) Reduction in lease obligations ..................................... (4,735) (5,523) Deferred financing fees ............................................ (427) (21) -------- -------- Cash provided by financing activities ....................... 10,791 11,664 -------- -------- Increase (decrease) in cash and cash equivalents ...................... 846 (52,678) Cash and cash equivalents at beginning of period ...................... 7,726 62,914 -------- -------- Cash and cash equivalents at end of period ............................ $ 8,572 $ 10,236 ======== ======== Supplemental Disclosures of Cash Flow Information Interest paid ...................................................... $ 14,358 $ 33,987 ======== ======== Income taxes paid .................................................. $ 354 $ 83 ======== ======== Noncash Investing and Financing Activities Capital lease obligations .......................................... $ 13,840 $ 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 133 supermarkets as of May 1, 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 first quarters 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):
MAY 1, JANUARY 30, 1999 1999 ---------- ---------- Pathmark term loan ("Term Loan") ................................... $ 253,793 $ 255,684 Pathmark working capital facility ("Working Capital Facility") 54,900 43,000 9.625% Pathmark Senior Subordinated Notes due 2003 ("Pathmark Senior Subordinated Notes") ......................... 438,578 438,489 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") ............................. 213,476 207,880 Industrial revenue bonds ........................................... 8,281 8,302 Other debt (primarily mortgages) ................................... 24,752 25,336 ---------- ---------- Total debt ......................................................... 1,289,530 1,274,441 Less: current maturities ........................................... 18,836 15,902 ---------- ---------- Long-term portion .................................................. $1,270,694 $1,258,539 ========== ==========
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 ------------------ MAY 1, MAY 2, 1999 1998 ------- ------- Pathmark Term Loan ....................................... $ 4,837 $ 5,304 Pathmark Working Capital Facility ........................ 1,101 540 Pathmark Senior Subordinated Notes Amortization of original issue discount .............. 89 89 Currently payable .................................... 10,587 10,588 Pathmark Subordinated Notes .............................. 5,813 5,813 Pathmark Subordinated Debentures ......................... 3,022 3,022 Pathmark Deferred Coupon Notes Accrued but not payable .............................. 5,596 4,937 10.25% PTK Exchangeable Guaranteed Debentures due 2003 ("PTK Exchangeable Guaranteed Debentures") Amortization of original issue discount .............. -- 805 Amortization of debt issuance costs ...................... 1,084 1,031 Lease obligations ........................................ 5,107 5,497 Other, net ............................................... 2,239 3,943 ------- ------- Interest expense ......................................... $39,475 $41,569 ======= =======
The majority of the cash interest payments are scheduled in the second and fourth quarters. However, the semi-annual interest payment of $21.2 million on the Pathmark Senior Subordinated Notes was paid in the second quarter of Fiscal 1999 compared to the first quarter of Fiscal 1998, due to the timing of the quarter-end dates. 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, the Company, SMG-II, the Purchaser, 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 Memorandum of Understanding, dated May 19, 1999 (the "Memorandum of Understanding"), 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 Memorandum of Understanding 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 (the "Alternative Transaction"). In addition, pursuant to the terms of the Memorandum of 6 SUPERMARKETS GENERAL HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED) NOTE 4--CONTINGENCIES--(CONTINUED) Understanding, 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 Plaintiff's counsel by the Court divided by the total number of outstanding shares of Preferred Stock (the "New Offer Price"). Plaintiff's counsel currently intends to apply 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. Thus, if the Court approves the settlement and the fees and expenses of counsel for the Plaintiff in full, the New Offer Price will be $39.85 per share of Preferred Stock. The Memorandum of Understanding 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 which 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) the drafting and execution of the settlement documents and the other agreements necessary to effectuate the terms of the proposed settlement; (ii) Final Court Approval of the settlement; (iii) dismissal of the Action by the Court with prejudice and without awarding fees or costs to any party; and (iv) the Purchaser closing (A) its tender offer and the SMG-II Merger, or (B) the Alternative Transaction. For purposes of the Memorandum of Understanding, "Final Court Approval" of the settlement means an order entered by the Court approving the settlement and awarding Plaintiff's counsel's fees and expenses and such order is firmly affirmed, without modification of any substantive right of any party to the Memorandum of Understanding, 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 attorney's 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. 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 first quarter of Fiscal 1999 were $894.5 million compared to $916.0 million in the prior year, a decrease of 2.4%. The sales reduction was primarily due to closed and divested stores in Fiscal 1998, partially offset by a new store opening in Fiscal 1999. In addition, same store sales decreased 0.8% in the first quarter of Fiscal 1999. The Company operated 133 and 135 supermarkets at the end of the first quarters of Fiscal 1999 and Fiscal 1998, respectively. GROSS PROFIT: Gross profit in the first quarter of Fiscal 1999 was $254.9 million or 28.5% of sales compared with $264.0 million or 28.8% of sales in the prior year. The decrease in gross profit in both dollars and as a percentage of sales for the first quarter of Fiscal 1999 compared to the prior year was primarily due to lower sales and higher promotional expenses, partially offset by lower shrink. The cost of goods sold comparisons were affected by a pretax LIFO charge of $0.4 million in each of the first quarters of Fiscal 1999 and 1998, respectively. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A"): SG&A in the first quarter of Fiscal 1999 decreased $4.6 million or 2.2% compared to the prior year primarily due to lower incentive and store labor, insurance claims and utilities expenses. As a percentage of sales, SG&A was 23.1% in the first quarter of Fiscal 1999, compared to 23.0%in the prior year. DEPRECIATION AND AMORTIZATION: Depreciation and amortization of $18.2 million in the first quarter of Fiscal 1999 was $1.4 million lower than the prior year of $19.7 million 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 $0.8 million in each of the first quarters of Fiscal 1999 and 1998, respectively. OPERATING EARNINGS: Operating earnings in the first quarter of Fiscal 1999 were $30.2 million compared with the prior year of $33.3 million. The decrease in operating earnings in the first quarter of Fiscal 1999 compared to the prior year was due to lower gross profit, partially offset by lower SG&A and lower depreciation and amortization expense. INTEREST EXPENSE: Interest expense was $39.5 million in the first quarter of Fiscal 1999 compared to $41.6 million in the prior year. The decrease in interest expense in the first quarter 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. 8 SUPERMARKETS GENERAL HOLDINGS CORPORATION 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 quarter 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 $50.2 million at May 1, 1999 will be realized through the implementation of tax strategies which could generate taxable income. During the first quarter of Fiscal 1999, the Company made income tax payments of $0.4 million and received income tax refunds of $0.03 million. During the first quarter of Fiscal 1998, the Company made income tax payments of $0.1 million and received income tax refunds of $0.5 million. SUMMARY OF OPERATIONS: The Company's net loss in the first quarter of Fiscal 1999 was $9.3 million compared to a net loss of $8.3 million for the prior year. The increase in net loss in the first quarter of Fiscal 1999 compared to the prior year was primarily due to lower operating earnings, partially offset by lower interest expense. EBITDA-FIFO: EBITDA-FIFO was $49.3 million and $54.2 million in the first quarters 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. FINANCIAL CONDITION DEBT SERVICE: During the first quarter of Fiscal 1999, total debt increased $15.1 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 $54.9 million at May 1, 1999 and $75.1 million at June 9, 1999. In addition, during the first quarter of Fiscal 1999, total lease obligations increased $9.2 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. However, the semi-annual interest payment of $21.2 million on the Pathmark Senior Subordinated Notes was paid in the second quarter of Fiscal 1999 compared to the first quarter of Fiscal 1998, due to the timing of the quarter-end dates. 9 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 Deferred Coupon Notes) is as follows (dollars in millions):
PRINCIPAL FISCAL YEARS PAYMENTS ------------ -------- 1999(a).................................. $ 13.4 2000..................................... 78.8 2001..................................... 319.3 2002..................................... 196.3 2003..................................... 660.2 Thereafter............................... 21.5 -------- Total.................................... $ 1,289.5 ========
- ---------- (a) Subsequent to May 1, 1999 LIQUIDITY: The consolidated financial statements of the Company indicate that, at May 1, 1999, current liabilities exceeded current assets by $52.6 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. 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 May 1, 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 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 May 1, 1999, the unpaid dividends of $111.9 million are accrued and included in other noncurrent liabilities. 10 SUPERMARKETS GENERAL HOLDINGS CORPORATION CAPITAL EXPENDITURES: Capital expenditures for the first quarter of Fiscal 1999, including property acquired under capital leases, were $26.0 million compared to $19.5 million for the prior year. During the first quarter of Fiscal 1999, the Company opened one new store and completed seven renovations to existing supermarkets. Subsequent to May 1, 1999, the Company opened another new store and during the remainder of Fiscal 1999, expects to open two additional stores and complete up to an aggregate of 38 renovations and enlargements. Capital expenditures for Fiscal 1999, including property to be acquired under capital leases, are estimated to be $99.0 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 $1.4 million in the first quarter of Fiscal 1999 compared to cash used for operating activities of $64.2 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 $11.3 million in the first quarter of Fiscal 1999 compared to $0.2 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 and a decrease in proceeds from property dispositions. Cash provided by financing activities was $10.8 million in the first quarter of Fiscal 1999 compared to $11.7 million in the prior year. The decrease in cash provided by financing activities was primarily due to a decrease in borrowings under the Working Capital Facility, partially offset by an increase in book overdrafts and the Fiscal 1998 paydown of a mortgage in connection with the sale of a former supermarket property. 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. The Company is preparing 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 has formed a project team of senior managers. This project team has assessed the Company's information systems, including its hardware, software programs and embedded systems contained in the Company's stores, distribution facilities and corporate headquarters. Based on the findings of this assessment, the Company has 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 is currently formulating 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. 11 SUPERMARKETS GENERAL HOLDINGS CORPORATION The Company is communicating 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 are taking action related to the Year 2000. The Company plans to test 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 issue will not cause an interruption of the Company's business. The Company has committed significant resources in connection with resolving its Year 2000 issues. The Company expects that the principal costs will be those associated with the remediation and testing of its computer applications. Through IBM, this effort is under way across the Company and is following a process of inventory, analysis, modification, testing and implementation. A major portion of these costs will be 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. As of May 31, 1999, the Company believes that approximately 65% of its mainframe information systems are Year 2000 ready. The Company estimates that the total costs associated with achieving Year 2000 readiness will be approximately $17.0 million (of which approximately $8.3 million has been expended through May 1, 1999), consisting of system remediation costs of $9.0 million and equipment replacement of $8.0 million. The Company anticipates that it will finance the cost of its Year 2000 remediation using its existing sources of liquidity. The Company expects to complete its Year 2000 remediation by August 1999. However, the Company's ability to execute its plan in a timely manner may be adversely affected by a variety of factors, some of which are beyond the Company's control, including turnover of key employees, availability and continuity of IBM consultants and the potential for unforeseen implementation problems. The Company's business could be interrupted if the Year 2000 plan is not implemented in a timely manner, if the Company's vendors, service providers or other third parties are not Year 2000 ready or if the Company's contingency plans are not successful. 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. 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. 12 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, 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 Memorandum of Understanding, dated May 19, 1999 (the "Memorandum of Understanding"), 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 Memorandum of Understanding 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 Memorandum of understanding, 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 Plaintiff's counsel by the Court divided by the total number of outstanding shares of Preferred Stock (the "New Offer Price"). Plaintiff's counsel currently intends to apply 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. Thus, if the Court approves the settlement and the fees and expenses of counsel for the Plaintiff in full, the New Offer Price will be $39.85 per share of Preferred Stock. The Memorandum of Understanding 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 which 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) the drafting and execution of the settlement documents and the other agreements necessary to effectuate the terms of the proposed settlement; (ii) Final Court Approval of the settlement; (iii) dismissal of the Action by the Court with prejudice and without awarding fees or costs to any party; and (iv) the Purchaser closing (A) its tender offer and the SMG-II Merger, or (B) the Alternative Transaction. For purposes of the Memorandum of Understanding, "Final Court Approval" of the settlement means an order entered by the Court approving the settlement and awarding Plaintiff's counsel's fees and expenses and such order is firmly affirmed, without modification of any substantive right of any party to the Memorandum of Understanding, 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 attorney's 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. 13 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: The registrant filed one Form 8-K during the quarter for which this report is filed. Date of Report Item -------------- ---- March 11, 1999 Agreement and Plan of Merger among Koninklijke Ahold N.V., Ahold Acquisition, Inc. and SMG-II Holdings Corporation 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: June 15, 1999 14 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from Supermarkets General Holdings Corporation's Consolidated Statement of Operations for the 13 weeks ended May 1, 1999 and Consolidated Balance Sheet as of May 1, 1999 and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS JAN-29-2000 MAY-01-1999 8,572 0 14,150 (1,287) 150,519 259,932 864,039 (385,169) 846,474 312,576 1,270,694 109,553 0 10 (1,396,139) 846,474 894,457 894,457 639,510 639,510 0 21 (39,475) (9,274) (25) (9,299) 0 0 0 (9,299) 0 0
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