1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended January 29, 2000
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number: 33-63372
PUEBLO XTRA INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 65-0415593
------------------------------------ -----------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
1300 N.W. 22nd Street
Pompano Beach, Florida 33069
------------------------------------ -----------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (954) 977-2500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
No voting stock of the Registrant is held by non-affiliates of the
Registrant.
Number of shares of the Registrant's Common Stock, $ .10 par value,
outstanding as of April 27, 2000 -- 200.
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PART I.
ITEM 1. BUSINESS
General
Pueblo Xtra International, Inc. (the "Company") is a Delaware holding
company that owns all of the common stock of Pueblo International, Inc., a
Delaware company (together with its subsidiaries, "Pueblo"). Pueblo, which
was founded in 1955 with the opening of the first mainland-style supermarkets
in Puerto Rico, is the leading supermarket chain in the Commonwealth of
Puerto Rico and the Territory of the U.S. Virgin Islands. In addition,
Pueblo is the leading operator of video rental outlets in Puerto Rico and the
U.S. Virgin Islands through its franchise rights with Blockbuster, Inc.
("BI"). The Company currently operates 44 supermarkets in Puerto Rico and
six supermarkets in the U.S. Virgin Islands. The Company also currently
operates 41 Blockbuster locations in Puerto Rico and two Blockbuster
locations in the U.S. Virgin Islands.
On July 28, 1993, the Company acquired all of the outstanding shares of
common stock of Pueblo for an aggregate purchase price of $283.6 million plus
transaction costs (hereinafter referred to as the "Acquisition"). Pursuant
to the Acquisition, Pueblo became a wholly-owned subsidiary of the Company.
The shares were acquired from an investor group including affiliates of
Metropolitan Life Insurance Company, The First Boston Corporation and certain
current and former members of Pueblo management and its Board of Directors.
The Acquisition has been accounted for under the purchase method
effective July 31, 1993 as discussed in Note (2)-- Goodwill of the notes to
the Company's consolidated financial statements referenced in Part II, Item 8
of this Form 10-K.
Business of the Company
Supermarket Industry Overview
The top four chains in the retail grocery industry in Puerto Rico account
for approximately 61% of total industry sales, with the remainder divided
among smaller chains and numerous independent operations. Total supermarket
chain sales in calendar year 1999 were approximately $2.5 billion, a
significant portion of which was attributable to the more densely populated
greater San Juan metropolitan area, where the larger chains are concentrated.
The grocery industry in less populated parts of the island is characterized
by smaller family-run operations with limited selection and less competitive
prices. No major U.S. supermarket chains have established operations in the
Puerto Rico grocery market, although a number of national general merchandise
chains have significant Puerto Rican operations. National warehouse clubs
and mass merchandisers, which have entered the Puerto Rico and U.S. Virgin
Islands markets since 1990 offering various bulk grocery and general
merchandise items, have increased pricing pressures on grocery retailers
including the Company.
Puerto Rico
The Company operates its supermarkets under the names Pueblo and
PuebloXtra with emphasis on service, variety and high quality products at
competitive prices. In Puerto Rico, the Company has a grocery retailing
market share of approximately 23%. In addition, the Company estimates that
it has a 32% market share in the greater San Juan metropolitan area, the most
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densely populated region of Puerto Rico, with more than one-third of the
island's 3.8 million residents. In fiscal year 2000 in Puerto Rico, the
Company's stores averaged approximately 42,000 gross sq. ft. and generated an
average of approximately $491 of sales per selling square foot. Since the
Acquisition, the Company has constructed six new supermarkets and remodeled
22 existing supermarkets in Puerto Rico.
U.S. Virgin Islands
In fiscal 2000, the six supermarkets in the U.S. Virgin Islands averaged
31,634 gross sq. ft. and generated an average of approximately $427 sales per
selling square foot. The Company has an estimated U.S. Virgin Islands
grocery retailing market share of approximately 40%. Since the Acquisition,
the Company has added one new supermarket and remodeled five existing
supermarkets in the U.S. Virgin Islands.
Video Operations
The Company has been the franchisee of Blockbuster locations in Puerto
Rico since 1989 and in the U.S. Virgin Islands since 1993 and currently
operates 43 Blockbuster locations in Puerto Rico and the U.S. Virgin Islands.
In Puerto Rico, the Company operates 18 in-store Blockbuster outlets and 23
free-standing Blockbuster stores, most of which are adjacent to its
supermarkets. In the U.S. Virgin Islands, the Company operates two
Blockbuster stores. The Company's free-standing Blockbuster stores average
approximately 5,700 gross square feet, while the Company's in-store
Blockbuster outlets average approximately 3,800 gross square feet. During
fiscal 1997, the Company converted all of the remaining video outlets which
it operated in its supermarkets under the name Pueblo Video Clubs into
Blockbuster outlets. In order to increase customer traffic in its
supermarkets, the Company's typical in-store Blockbuster outlet has a
separate entrance but its principal exit leads into the supermarket. In
addition, the Company is able to take advantage of cross-marketing
opportunities with its supermarket operations, including promotional video
rental and merchandising offers.
The Company's Blockbuster operations are currently the largest major
video chain operating in Puerto Rico and the U.S. Virgin Islands. In the
last several years Video Avenue has opened 11 stores in competition with the
Company. Each free-standing Blockbuster location carries an average of
approximately 9,900 tapes dedicated to video rental whereas an in-store
Blockbuster location carries approximately 7,300. Each location also offers
for sale a selection of recorded and blank video tapes, music compact
discs, video game cartridges, self-activated cellular phones, prepaid phone
cards, accessories, and snack food products. For promotions of its
Blockbuster operations, the Company primarily utilizes print, television,
radio, billboards and in-store signage. BI also provides product and support
services to the Company. These include, among other things, marketing
programs and computer software.
The Company's successful development of the Blockbuster franchise has
been the result of its ability to leverage its knowledge of Puerto Rico and
existing market and retailing expertise. The Company's knowledge of real
estate and its existing portfolio of desirable supermarket locations has
enabled its Blockbuster division to obtain attractive, high traffic
locations. The Company will continue to evaluate expansion opportunities in
its markets.
The Company's Development Agreements with BI provide for the Company's
right to open Blockbuster locations in Puerto Rico and the U.S. Virgin
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Islands during the term of such agreements. The Development Agreements
contain development quotas which the Company has fulfilled requiring the
Company to open a certain number of Blockbuster locations in Puerto Rico and
in the U.S. Virgin Islands. Each Blockbuster location is subject to a
Franchise Agreement with BI that provides the right for such location to
conduct Blockbuster operations for a 20-year period.
Disposal of Florida Retail Operations
On January 16, 1996, the Company announced its decision to discontinue
its retail operations in Florida (the "Florida Disposal"). The announcement
was made as part of the Company's restructuring plans whereby the Company
would exit the under-performing Florida retail market and place more emphasis
on the strength of its operations in Puerto Rico and the U.S. Virgin Islands.
The Florida Disposal, which included the disposal of all eight supermarkets
and one warehouse and distribution center, by sale or abandonment, was
completed in the first quarter of fiscal year 1997. All property related to
the discontinued Florida operations has been disposed of.
Store Composition
Since the Acquisition, the Company has made capital expenditures of
approximately $94.9 million in its supermarket operations in Puerto Rico and
the U.S. Virgin Islands, including the opening of six new supermarkets, the
acquisition of one new supermarket and the remodeling of 27 existing
supermarkets. In the same period, the Company has made capital expenditures
totaling approximately $10.9 million in its Blockbuster operations. The
history of store openings, closings and remodelings, beginning with fiscal
1996, is set forth in the table below:
Fiscal Year
----------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Stores in Operation:
At beginning of year . . . . . . . 94 94 77 82 79
Stores opened:
Supermarkets . . . . . . . . . - 1 - - 4
Blockbuster video stores . . . - 1 17** 5 -
Stores closed:
Puerto Rico - Supermarket . . - 1* - 2 1
Puerto Rico - Blockbuster . . 1 1* - - -
Florida . . . . . . . . . . . - - - 8 -
---- ---- ---- ---- ----
At end of year . . . . . . . . . 93 94 94 77 82
==== ==== ==== ==== ====
Remodels and/or conversions . . . 9 2 16 9 1
==== ==== ==== ==== ====
Store Composition at Year-End:
By division:
Supermarkets . . . . . . . . 50 50 50 50 60
Blockbuster video stores . . 43 44 44 27 22
---- ---- ---- ---- ----
Total 93 94 94 77 82
==== ==== ==== ==== ====
By location:
Puerto Rico . . . . . . . . 85 86 86 70 67
Florida . . . . . . . . . . - - - - 8
U.S. Virgin Islands . . . . 8 8 8 7 7
---- ---- ---- ---- ----
Total 93 94 94 77 82
==== ==== ==== ==== ====
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* Closed as a result of Hurricane Georges; will not be reopened.
** Includes conversion of Pueblo Video Clubs into Blockbuster stores.
Supermarket Purchasing and Distribution
The Company's buying staff actively purchases products from distributors,
as well as directly from the producer or manufacturer. The Company generally
controls shipping from the point of purchase in an effort to reduce costs and
control delivery times. The Company currently buys approximately 57% of its
total dollar volume of product purchases directly from manufacturers and is
seeking to increase this percentage to reduce costs and to obtain superior
payment terms.
The Company owns a 300,000 square foot full-line distribution center in
greater San Juan. The only facility of its type on the island with both
refrigerated and freezer capacity, the San Juan distribution center has
capacity to store approximately 1.5 million cases of assorted products and
acts as the Company's central distribution center for the island. The
distribution center is equipped with a computerized tracking system
which is integrated with the Company's purchasing, inventory management and
shipping systems. This system enables the Company to make rapid procurement
decisions, optimize inventory levels and increase labor productivity. In
fiscal 2000, this facility provided approximately 58% of the goods (measured
by purchase cost) supplied to the Company's stores in Puerto Rico.
Supermarket Merchandising
General
The Company's merchandising strategies integrate one-stop shopping
convenience, premium quality products, attractive pricing and effective
advertising and promotions. The Company reinforces its merchandising
strategies with friendly and efficient service, effective promotional
programs, in-store activities, and both brand name and high quality private
label product offerings.
Product Offerings
Over the past several years management greatly increased the number of
items offered, analyzed the preferences of its customers, and then eliminated
certain low demand items. The Company expanded its supermarket stock keeping
units ("SKU") from approximately 23,000 to approximately 67,000. Management
believes the Company's supermarkets offer the greatest product variety within
their market areas, as its competitors generally lack the sales volume, store
size and procurement efficiencies to stock and merchandise the wide variety
of products and services offered by the Company. The Company's management
believes that the convenience and quality of its specialty department
products contribute to customer satisfaction.
The following table sets forth the mix of products sold (as measured in
sales dollars) in the Company's supermarkets for the fiscal years indicated:
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Fiscal Year Ended
-------------------------------------------
January 29, January 30, January 31,
Product Category 2000 1999 1998
----------- ----------- -----------
Grocery . . . . . . . . . . . . 45.7% 46.8% 46.7%
Health/Beauty Care/General Merchandise 7.7 7.7 6.5
Dairy . . . . . . . . . . . . . . 18.0 17.5 17.4
Meat/Seafood . . . . . . . . . . . 14.4 14.7 15.4
Produce . . . . . . . . . . . . . . 9.7 9.0 9.5
Deli/Bakery . . . . . . . . . . . . 4.5 4.3 4.3
Video Club . . . . . . . . . . . . 0.0 0.0 0.2
------ ------ ------
Total . . . . . . . . . . . . 100.0% 100.0% 100.0%
====== ====== ======
Pricing
As the largest grocery store chain operator in its markets, the Company
is able to take advantage of volume purchase discounts and shipping
efficiencies in order to offer competitive pricing at its supermarkets.
Weekly circulars are used to emphasize special offers.
Private Label
During fiscal 1998 the Company began selling Pueblo brand private label
grocery, dairy, and frozen food items in its supermarkets. During fiscal
2000 the Company continued to introduce Pueblo brand items and as of fiscal
2000 year-end there were approximately 350 SKU's of manufactured Pueblo brand
items offered in the Company's supermarkets. Product selection has been
based on the ability to ensure quality that is equal to or better than
competitive national brand products and sourcing that will enhance gross
margin.
Historically, the Company utilized only Food Club manufactured private
label products through the Company's membership with Topco Associates, Inc.
Utilization of these products has not been discontinued. Rather, product
offerings among Pueblo private label products, Food Club private label
products and national brands are evaluated on performance based on quality,
costs, gross margin and sales volume in order to offer what management
believes is the best selection and value to customers.
The Company's private label program consists of the products discussed
in the two preceding paragraphs as well as Pueblo private label products sold
in its Bakery and Deli departments and a variety of brand labels sold
exclusively at its supermarkets. Total sales of the private label program
are approximately 16% of total supermarket sales.
Category Management
During fiscal 1998, the Company implemented a category management system
designed to combine traditional buying, reordering and pricing functions
under the leadership of corporate level category merchandisers. The system
allows the company to assign profit management to the individual responsible
for a product category. The Company believes that such a system improves
sales, optimizes inventory levels, reduces purchase costs and thereby
enhances gross profit and operating profit margins.
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Advertising and Promotion
The Company primarily utilizes newspaper, radio, television and in-store
advertising in both Puerto Rico and the U.S. Virgin Islands. The Company's
grocery operations run multi-page newspaper inserts and full-page color
advertisements.
All advertising is created and designed through the Company's
wholly-owned advertising agency, CaribAd, Inc. ("Adteam"). Adteam, based in
Puerto Rico, develops promotional programs for all of the Company's markets,
thereby providing advertising cost advantages over the Company's competitors.
Competition
The grocery retailing business is highly competitive. Competition is
based primarily on price, quality of goods and service, convenience and
product mix. The number and type of competitors, and the degree of
competition experienced by individual stores, vary by location.
The Company competes with local food chains, such as Supermercados Amigo,
Supermercados Grande, Supermercados Econo, Mr. Special Supermarkets, Plaza
Gigante Supermarkets, and Supermercados Selecto in Puerto Rico, and Plaza
Extra and Cost-U-Less in the U. S. Virgin Islands, as well as numerous
independent operations throughout Puerto Rico and the U.S. Virgin Islands.
In addition, several warehouse clubs and mass merchandisers, such as Sam's
Warehouse Clubs, Wal-Mart, Kmart (including its Big K format) and Walgreens,
have opened locations in Puerto Rico and the U.S. Virgin Islands. Despite
these competitive challenges, the Company continues to maintain its position
as market share leader in each of its respective markets.
Although the Company's Blockbuster operations constitute the largest
video chain in Puerto Rico and the U.S. Virgin Islands, the Company competes
with 11 Video Avenue stores and numerous local, independent video retailers.
In addition, the Company's Blockbuster video stores compete against
television, cable, satellite broadcasting, movie theaters and other forms of
entertainment.
Management Information Systems
The Company believes that high levels of automation and technology are
essential to its operations and has invested considerable resources in
computer hardware, systems applications and networking capabilities. These
systems integrate all major aspects of the Company's business, including the
monitoring of store sales, inventory control, merchandise planning, labor
utilization, distribution and financial reporting.
All of the Company's stores are equipped with state-of-the-art point of
sale terminals with full price look-up capabilities that capture sales at the
time of transaction down to the SKU level through the use of bar-code
scanners. These scanners facilitate customer check-out and provide, by
store, valuable stock-replenishment information for buyers and financial
information used by management. Similar scanning technology is used by each
store for electronically recording goods received and orders generated. To
provide the best service possible, the Company has installed a labor
scheduling system that schedules the optimal staffing based on sales,
customer traffic and defined service objectives. In addition, the Company
has installed software to monitor cash register check out transactions, by
cashier, according to type and frequency in order to improve check out
operations and reduce inventory shrinkage. The Company's management
information systems at its Blockbuster operations are state-of-the art
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systems which are licensed to the Company by BI.
Employees
As of January 29, 2000, the Company had approximately 4,800 employees
(full- and part-time) of whom approximately 3,700 were employed at the
supermarket level, 500 at the administrative and financial services offices
and distribution center and 600 by the Blockbuster division. Approximately
59% of the Company's supermarket employees are employed on a part-time basis.
Approximately 3,000 store employees are represented by a nonaffiliated
collective bargaining organization under a contract expiring in 2002. The
Company considers its relations with its employees to be good.
Trademarks, Tradenames and Service Marks
The Company owns certain trademarks, tradenames and service marks used in
its business, which are duly registered with the U. S. Patent and Trade
office, and the appropriate governmental authorities in Florida, Puerto Rico,
the U. S. Virgin Islands, and selected foreign jurisdictions. The Company
believes that its trademarks, tradenames, and service marks, including
Pueblo, PuebloXtra, and Xtra, are valuable assets due to the fact that brand
name recognition and logos are important considerations in the Company's
consumer markets. As a franchisee, the Company has rights to use the
Blockbuster trademark in its specified franchise territories.
Regulation
Compliance by the Company with federal, state and local environmental
protection laws has not had, and is not expected to have, a material effect
on capital expenditures, earnings or the competitive position of the Company.
ITEM 2. PROPERTIES
The following table sets forth information as of January 29, 2000 with
respect to the owned and leased stores and support facilities used by Pueblo
in its business:
Owned (1) Leased Total
----------------- ----------------- ----------------
No. Gross Sq. Ft. No. Gross Sq. Ft. No. Gross Sq. Ft
--- ------------- --- ------------- --- ------------
Supermarkets . . . . . . . . 6 270,000 44 1,758,000 50 2,028,000
Blockbuster video stores . . 3 17,000 40 194,000 43 211,000
Distribution center & offices 1 300,000 1 13,000 2 313,000
- ----------
(1) On four of the owned stores the Company owns the building and leases
the land, three of which are in Puerto Rico, and one of which is in the U.S.
Virgin Islands.
The majority of the Company's supermarket operations are conducted on
leased premises which have initial terms generally ranging from 20 to 25
years. The lease terms typically contain renewal options allowing the
Company to extend the lease term in five to ten year increments. The leases
provide for fixed monthly rental payments subject to various periodic
adjustments. The leases often require the Company to pay percentage annual
rent and certain expenses related to the premises such as insurance, taxes
and maintenance. See Note (5)-- Leases and Leasehold Interests of the notes
to the Company's consolidated financial statements referenced in Part II,
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Item 8 of this Form 10-K. The Company does not anticipate any difficulties
in renewing its leases as they expire.
The construction of owned facilities is financed principally with
internally generated funds. All owned properties of Pueblo are pledged as
collateral (by a pledge of the assets of the Company's subsidiaries) under
the Company's existing bank credit agreement dated as of April 29, 1997 (the
"New Bank Credit Agreement") with a syndicate of banks (see Note (4)-- Debt
of the notes to the Company's consolidated financial statements referenced in
Part II, Item 8 of this Form 10-K).
The Company owns its headquarters, which includes the supermarket and
Blockbuster offices and the Distribution Center located in Carolina, Puerto
Rico (near San Juan), and leases its administrative offices located in
Pompano Beach, Florida.
The Company's management believes that its properties are adequately
maintained and sufficient for its business needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to a number of legal proceedings involving
claims for money damages arising in the ordinary course of conducting its
business which are either covered by insurance or are within the Company's
self-insurance program, and in a number of other proceedings which are not
deemed material. The Company's management does not believe that the ultimate
resolution of any of these matters could have a material adverse effect on
the Company's results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the quarter ended January 29, 2000.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Market Information
There is no established public trading market for the Company's common
equity.
Holders
The Company is a wholly-owned subsidiary of PXC&M Holdings, Inc. a
Delaware Corporation ("Holdings"). Holdings is beneficially owned by a trust
for the benefit of the family of Gustavo Cisneros, and a trust for the
benefit of the family of Ricardo Cisneros, with each trust having a 50%
indirect beneficial interest in Holdings. These trusts are referred to
herein as the "Principal Shareholders." Messrs. Gustavo and Ricardo Cisneros
disclaim beneficial ownership of the shares.
Dividends
No cash dividends have been declared on the common stock since the
Company's inception. Certain restrictive covenants in the New Bank Credit
Agreement impose limitations on the declaration or payment of dividends by
the Company. Additionally, dividend payments by Pueblo to the Company are
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restricted under the terms of the New Bank Credit Agreement. The New Bank
Credit Agreement, however, provides that so long as no default or event of
default (as defined in the New Bank Credit Agreement) exists, or would exist
as a result, Pueblo is permitted to pay cash dividends to the Company in an
aggregate amount necessary to pay interest on the Company's 9 1/2 % Senior
Notes due 2003 (the "Notes") and the Company's 9 1/2 % Series C Notes due
2003 (the "Series C Senior Notes") then due and payable in accordance with
the terms thereof (see Note (4)-- Notes to Consolidated Financial
Statements).
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except average sales per selling square
foot amounts)
Fiscal Year Ended
--------------------------------------------------------------
January 29, January 30, January 31, January 25, January 27,
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- ----------
Operating Statement Data
Net sales $674,145 $784,774 $938,506 $1,020,056 $1,145,370
Cost of goods sold 456,143 528,395 667,043 760,329 848,490
--------- --------- ----------- ---------- ----------
Gross profit 218,002 256,379 271,463 259,727 296,880
Selling, general and admin-
istrative expenses (1) 163,785 172,964 204,185 213,485 240,219
Gain on insurance claim (8) (15,066) - - - -
Depreciation and amortization 31,632 36,529 40,175 41,128 43,669
Division closure costs (2) - - - 4,160 28,012
--------- --------- ----------- ----------- ----------
Operating profit (loss) 37,651 46,886 27,103 954 (15,020)
Sundry, net - (36) 122 (52)
Interest expense-debt and
capital lease obligations (30,371) (29,556) (30,527) (30,458) (34,221)
Interest and investment
income, net 2,750 1,379 910 276 875
Loss on sale of real
property (9) (1,291) - - - -
Income tax (expense) benefit (4,015) (9,832) (583) 9,535 18,615
--------- --------- ----------- ----------- ----------
Income (loss) before
extraordinary item 4,724 8,877 (3,133) (19,571) (29,803)
Extraordinary item (3) - - (2,444) - -
-------- --------- ----------- ----------- ----------
Net income (loss) $4,724 $8,877 $(5,577) $(19,571) $(29,803)
======== ========= =========== =========== ==========
See notes to Selected Financial Data at the end of Item 6.
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As of
-------------------------------------------------------------------
January 29, January 30, January 31, January 25, January 27,
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
Balance Sheet Data
Cash and cash equivalents (4) $95,711 $55,500 $28,770 $12,148 $6,998
Working capital (deficit) 22,214 1,578 (23,535) (56,217) (28,571)
Property and equipment, net 122,263 129,860 135,844 150,915 166,283
Total assets 521,564 507,002 502,176 522,641 571,788
Total debt and capital
lease obligations 283,705 276,032 275,576 295,204 308,497
Stockholder's equity 40,906 36,182 27,305 32,882 47,453
For the Fiscal Year Ended
-------------------------------------------------------------------
January 29, January 30, January 31, January 25, January 27,
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
Certain Financial Ratios
and Other Data
EBITDA (as defined) (5) $69,283 $83,415 $67,278 $42,082 $28,649
Cash flow provided by (used
in) investing activities (9) 1,077 (8,209) 187 (1,364) (21,832)
Cash flow used in
financing activities (576) (591) (20,343) (8,298) (10,915)
Cash flow provided by
operating activities 39,710 35,530 36,778 14,812 24,065
Capital expenditures 21,650 * 15,271 10,938 14,455 22,334
EBITDA (as defined) margin (5) 10.3% 10.6% 7.2% 4.1% 2.5%
Debt to EBITDA (as defined) 4.09:1 3.30:1 4.10:1 7.01:1 10.77:1
* Excludes replacements of approximately $13.1 million as a result of damages
from Hurricane Georges.
See notes to Selected Financial Data at the end of Item 6.
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Fiscal Year
------------------------------------------------------
2000 1999 1998 1997 1996
--------- -------- --------- -------- --------
RETAIL FOOD DIVISION DATA
Puerto Rico
Number of stores (at fiscal year-end) 44 44 44 44 46
Average sales per store (6) $12,901 $ 14,804 $ 18,221 $ 19,672 $ 19,808
Average selling square footage 28,243 27,179 26,455 27,652 27,055
Average sales per selling square foot (6) $491 $ 590 $ 701 $ 711 $ 732
Total sales $567,658 $650,816 $801,732 $886,765 $877,603
Same store sales % change (13.1)% (17.8)% (10.2)% (2.6)% (2.8)%
U.S. Virgin Islands
Number of stores (at fiscal year-end) 6 6 6 6 6
Average sales per store (6) $8,364 $ 11,326 $ 14,777 $ 15,110 $ 14,952
Average selling square footage 19,421 19,421 19,421 20,104 20,625
Average sales per selling square foot (6) $427 $ 580 $ 754 $ 752 $ 725
Total sales $50,185 $ 67,958 $ 88,659 $ 90,659 $ 76,813
Same store sales % change (26.2)% (21.7)% (3.9)% 7.0% (3.3)%
BLOCKBUSTER DIVISION DATA
Blockbuster Stores
Number of stores (at fiscal year-end) 43 44 44 27 22
Average sales per store (6) $1,146 $ 1,381 $ 1,371 $ 1,588 $ 1,443
Average weekly sales $ 962 $ 1,184 $ 683 $ 794 $ 608
Total sales $49,920 $ 60,972 $48,115 $ 35,938 $ 31,295
Same store sales % change (18.6)% 10.8% (4.5)% 10.5% 14.0%
DISCONTINUED OPERATIONS DATA
Florida (7)
Number of stores (at fiscal year-end) - - - - 8
Average sales per store (6) - - - - $ 21,518
Average selling square footage - - - - 50,398
Average sales per selling square foot (6) - - - - $ 427
Total sales - - - - $159,659
Same store sales % change - - - - -
See notes to Selected Financial Data at the end of Item 6.
NOTES TO SELECTED FINANCIAL DATA
(1) Selling, general and administrative expenses for fiscal years 1996 and
1997 include certain expenses and charges related to the implementation
of the Company's strategic initiatives and other matters. See
"Management's Discussion and Analysis of Financial Conditions and
Results of Operations -- General".
(2) The Company recorded charges of approximately $25.8 million in fiscal
1996 and $4.2 million in fiscal 1997 as a result of the Company's exit
from the Florida market and a charge of $2.2 million in fiscal 1996 as
a result of the Company's restructuring of its Puerto Rico operations.
Costs associated with such closings, when recognized, are included in
selling, general and administrative expenses.
(3) Amount relates to a loss on the early extinguishment of debt, net of
deferred income taxes of $1,567.
(4) Highly liquid investments purchased with a maturity of three months or
less are considered cash equivalents.
(5) EBITDA (as defined) represents Earnings Before Interest, Taxes,
Depreciation and Amortization, the loss on sale/leaseback transaction,
and sundry. EBITDA (as defined) is not intended to represent cash flow
from operations as defined by accounting principles generally accepted
in the United States of America and should not be considered as an
alternative to net income (loss) as an indication of the Company's
operating performance or to cash flows as a measure of liquidity.
EBITDA (as defined) is included as it is the basis upon which the
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Company assesses its financial performance. EBITDA (as defined) margin
represents EBITDA (as defined) divided by net sales.
(6) For all periods presented, average sales are weighted for the period of
time stores are open during the year.
(7) All supermarkets in Florida were closed in the first quarter of
fiscal 1997.
(8) The Company realized a gain from an insurance settlement relating to
Hurricane Georges on the excess of replacement costs over book value of
assets replaced that were damaged by the storm.
(9) The Company received $35.5 million in cash and incurred a loss in a
sale/leaseback of real estate.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The Company was organized in 1993 to acquire Pueblo in the Acquisition.
In connection with the Acquisition, the Company incurred significant
indebtedness and recorded significant goodwill. Following the Acquisition,
the Company continued an existing operating strategy designed to expand its
supermarket penetration through new supermarket openings in Puerto Rico and
Florida and new Blockbuster locations in Puerto Rico. The number of the
Company's supermarkets in Puerto Rico and the U.S. Virgin Islands grew from
46 to 50 and the number of the Company's Blockbuster locations (including
conversions) grew from 20 to 43, in each case measured from the Acquisition
through the end of fiscal 2000. In addition, the Company added one new
supermarket in Florida after the Acquisition which was subsequently closed in
fiscal 1997, as described below. From the Acquisition through fiscal 2000,
the Company made capital expenditures totaling $114.9 million, of which
$105.8 million related to Puerto Rico and the U.S. Virgin Islands.
Throughout this time period, the Company's markets have been affected by
an increasing level of competition from local supermarket chains, independent
supermarkets, warehouse club stores, discount drug stores and convenience
stores. Warehouse club stores and mass merchandisers, which have entered the
Puerto Rico and U.S. Virgin Islands markets since 1990 offering various
grocery and general merchandise items, have increased pricing pressures on
grocery retailers including the Company. In addition, low inflation in food
prices in recent years has made it difficult for the Company and other grocery
store operators to increase prices and has intensified the competitive
environment by causing such retailers to emphasize promotional activities and
discount pricing to maintain or gain market share.
The Company's focus from the date of Acquisition through the end of
fiscal 1997 on new supermarket development rather than supermarket
operations, as well as the effects of increased competition, resulted in
declines in net sales (from $1,199.1 million in fiscal 1994 to $1,020.1
million in fiscal 1997), same store sales (from $931.3 million in fiscal 1994
to $861.1 million in fiscal 1997), and consolidated operating results (from
$27.4 million in fiscal 1994 to $1.0 million in fiscal 1997). The declining
operating results together with the Company's high level of interest expense
resulting from its significant indebtedness resulted in annual net losses
from fiscal 1994 through fiscal 1998.
In October 1995, William T. Keon, III was named President and Chief
Executive Officer of the Company. Following his arrival at the Company, Mr.
Keon conducted a thorough review of the Company's operating business
practices and its financial performance. As a result of such review, the
Company determined in January 1996 to discontinue its retail operations in
the competitive Florida market in order to focus on its core markets where it
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has a stronger competitive position and greater profit opportunities. In
fiscal 1996, management also began to take several other actions designed to
improve the financial performance of the Company, including the closing of
two under-performing supermarkets in Puerto Rico, an increase in the
Company's advertising expenditures in Puerto Rico, and the conversion of six
Pueblo Video Clubs into in-store Blockbuster outlets. Throughout fiscal 1997
through 2000, the Company continued its program to convert Pueblo Video Clubs
into Blockbuster outlets, to remodel existing stores, and to open new stores
in appropriate locations. In 1999 one new supermarket and one new
Blockbuster store were opened in Puerto Rico. Although the remodeling
program was delayed in fiscal 1999 due to the business interruption as a
result of Hurricane Georges, the Company continued the program in fiscal 2000
with completion of nine remodels.
In the summer of 1996, in conjunction with implementation of a revised
business strategy, the Company retained a retail industry consulting firm to
assist management in analyzing the Company's operating practices. One result
of such analysis was the reorganization of labor scheduling practices, which
enabled the Company to eliminate 440 store employees in January 1997 and
reduce annual labor costs in fiscal 1998 by approximately $9.0 million. It
is management's belief that the decision to exit the Florida market, together
with the actions which the Company began to take in the spring of 1996 and
the implementation of its revised business strategy, has contributed toward
improved operating results. Management's comprehensive program to refocus on
repositioning the business in terms of product mix and modernizing stores
contributed to net losses decreasing from fiscal 1996 through fiscal 1998 and
in fiscal years 1999 and 2000 the Company realized net income of $8.9 million
and $4.7 million, respectively.
Other measures being undertaken by the Company include: (i) continual
evaluation of the supermarket formats to expand the breadth of product and
values offered to customers and to increase customer traffic and convenience,
such as adding in-store banking and fast food restaurants for select
locations and (ii) adding products such as music department items,
self-activated cellular phones, and prepaid phone cards to the Blockbuster
stores to expand their entertainment offerings. The Company's management
believes that these measures will enhance sales by increasing customer
traffic in its supermarkets and Blockbuster stores.
In connection with the strategic initiatives begun in January 1996, the
Company has incurred a number of charges and other items that have adversely
affected the Company's operating profit, including the following items which
aggregated $31.9 million in fiscal 1996 and $12.3 million in fiscal 1997.
The Company recorded charges of approximately $25.8 million in fiscal 1996
and $4.2 million in fiscal 1997 as a result of the Company's exit from the
Florida market, and a charge of $2.2 million in fiscal 1996 as a result of
the Company's restructuring of its Puerto Rico operations. Other items which
adversely affected the Company's operating profit and were related to the
implementation of the Company's strategic initiatives included the following,
which aggregated $3.9 million in fiscal 1996 and $8.1 million in fiscal 1997.
In fiscal 1996, an adjustment to the net realizable value of certain
nonoperating real property in Puerto Rico caused a charge of $3.9 million. In
addition, in fiscal 1997, the elimination of 440 store employees resulted in
a charge of approximately $1.1 million in severance costs and the closing of
two Puerto Rico stores resulted in a $2.9 million charge. Additionally, the
Company established reserves totaling $5.6 million during fiscal years 1994
through 1998 pursuant to claims, all of which have been settled.
The Company has no operations of its own, and its only assets are its
equity interest in Pueblo and intercompany notes issued to the Company by its
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subsidiaries in connection with its investment of the net proceeds of the 9
1/2% senior note (the "Notes") and the 9 1/2% Series C Senior Note Due 2003
the "Series C Senior Notes"). The Company has no source of cash to meet its
obligations, including its obligations under the Notes and the Series C
Senior Notes, other than payments by its subsidiaries on such intercompany
notes, which are restricted and effectively subordinated to Pueblo's
obligations under the New Bank Credit Agreement, and dividends from its
subsidiaries. The New Bank Credit Agreement contains an exception to the
restriction on the payment of dividends which provides that so long as no
default or event of default (as defined in the New Bank Credit Agreement)
exists, or would exist as a result thereof, Pueblo is permitted to pay cash
dividends to the Company in an aggregate amount necessary to pay interest on
the Notes then due and payable in accordance with the terms thereof.
Hurricane Georges
Hurricane Georges struck all of the Company's operating facilities on
September 20 and 21, 1998. All of the Company's stores, with the exception
of two, were reopened. Since the storm, operations have been at varying
degrees of capacity depending on the extent of damage at each location.
The insurance claim settlement for property damage and extra expenses
involved inventory losses, reconstruction of property and replacement of
equipment, and expenses the Company incurred specifically as a result of the
storm. The related insurance coverage for losses resulting from the storm is
as follows:
Inventory at retail value
Reconstruction of property and replacement of equipment at replacement
cost
Extra expenses reimbursed dollar for dollar
During this fiscal year the Company recorded a $15.1 million gain as a
result of the excess of insurance coverage for inventory, property and
equipment over the net book value of these items at the time the storm
occurred.
The Company received $41.3 million in cash reimbursement from its
insurance carrier under the settlement.
The Company's insurance policy also includes business interruption
coverage which provides for reimbursement for lost profits as a result of the
storm. On December 2, 1999 the Company presented its initial interim business
interruption claim covering the 35 weeks ended on May 22, 1999, the period
immediately subsequent to the storm. The total claim, when completed, will
involve the period from the date of the storm through 12 months after the date
the Company's reconstruction efforts are deemed to have been substantially
completed. The interim claim is for a material amount of lost profits as will
be the total claim when completed. As of this filing, reconstruction efforts
have been substantially completed. The Company has provided its view as to
the date of substantial completion to the insurance carriers. However, the
insurance carriers have not yet either expressed their agreement with this
date or suggested a different date. In the absence of both this information
and any substantive activities to adjust the interim claim or establish a
time period for doing so, management is unable to determine the amount of the
total claim or provide an estimate as to how long the adjustment process may
take. The accompanying financial statements do not include any anticipated
recovery from the business interruption claim as all recoveries will be
pretax gains which may be included only at such time as they are settled and
realized.
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Sale/Leaseback Transaction
On June 1, 1999, the Company realized approximately $35.2 million in cash
from the sale of seven shopping centers that are located in Puerto Rico and
the U.S. Virgin Islands. The portions of these centers in which the Company's
retail stores are located are being leased back pursuant to long-term leases.
The Company incurred a $1.2 million loss (net of the income tax benefit) in
the transaction. Management feels that the transaction involving the sale of
seven shopping centers with the leaseback of the Company's stores within the
centers has increased the Company's general liquidity while reducing its real
estate management portfolio, thereby allowing for even greater focus of both
effort and assets on the Company's core retail businesses.
Year 2000 Compliance
From March 1998 through the end of calendar 1999 the Company spent
approximately $1.9 million to modify its information technology systems for
compliance with the year 2000 and beyond. All of the Company's systems were
upgraded on a timely basis, the Company did not experience any adverse
effects related to the reprogramming requirements, and systems have continued
to operate without related problems to the date of this filing.
Results of Operations
Fiscal 2000 vs. Fiscal 1999
As of January 29, 2000, the Company operated a total of 50 supermarkets
and 43 Blockbuster locations in Puerto Rico and the U. S. Virgin Islands. In
fiscal 2000 the Company continued its re-engineering of the entire business
including the remodeling process scheduled for all of its stores while
reconstructing its facilities at all of its locations damaged by Hurricane
Georges. During fiscal 2000 one Blockbuster store within a supermarket was
closed to better utilize floor space for supermarket operations. The Company
is investigating alternative locations for the video store.
Total sales for the year ended January 29, 2000 were $674.1 million
versus $784.8 million in the year ended January 30, 1999, a decrease of
14.1%. Same store sales were $653.3 million this year versus $765.3 million
for the prior year, a decline of 14.6%. "Same stores" are defined as those
stores that were open as of the beginning of both periods and remained open
through the end of the periods. Same store sales in the Retail Food Division
declined 14.3% for the year from the prior year. The principal factors
contributing to the decline in same stores sales in the Retail Food
Divisionare increased competition, the disruption over the past 16 months
caused by repairing and replacing components of the stores damaged by
Hurricane Georges, and the disruption associated with remodeling stores.
While essentially all of the repairs are complete, the adverse effect on the
Company's customer base caused by the disruption continues. Blockbuster
Division same store sales decreased 18.6% from the prior year. The decrease
in Blockbuster same store sales was a result of increased competition, a
lackluster year for popular new releases of both rental and sell-through
videos and the down-sizing of the music departments. The lack of new
releases impacted the video sell-through business to a greater extent than
the rental business. Increased competition has been in two forms. One is
new competing video outlets. Second, a more significant factor, is the
result of mass merchandising of self-activated cellular phones and
prepaid phone cards on the island of Puerto Rico during the fiscal year that
ended January 29, 2000. During the prior year Blockbuster enjoyed a
leadership position in this special segment of the market as it was the only
island-wide retailer.
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Gross profit percentages were 32.3% and 32.7% for fiscal years 2000 and
1999 compared to the 28.9% of fiscal 1998. The improved gross margin in
recent years is attributed to the re-engineering processes implemented by
management as detailed above. The reduction of 0.4% between fiscal 2000 and
fiscal 1999 is primarily due to increased costs associated with changes in
distribution practices.
Selling, general, and administrative expenses were 24.3% as a percentage
of sales compared to the 22.0% as a percentage of sales of the prior year.
The $9.2 million decline in selling, general, and administrative expenses is
a result of the Company's ongoing re-engineering program, which has been in
process over the last 36 months. The program involves all areas of the
Company's operations and seeks to eliminate excess costs and to control
operating costs in light of declining sales.
Depreciation and amortization decreased by $4.9 million from $36.5
million to $31.6 million. Approximately $3.5 million of the decrease was a
result of various assets becoming fully depreciated during the fiscal year.
The remaining $1.4 million is a result of the sale/leaseback transaction
previously discussed.
Interest expense, net of interest income decreased by $0.6 million due
to a $1.4 million increase in interest income due primarily to maintenance of
larger balances of cash and cash equivalents on hand throughout the year.
The decrease was offset by an increase in interest expense on capital leases
and other interest expense of $0.8 million due primarily to establishment of
new capital leases in the sale/leaseback transaction.
Income tax provision decreased by $5.8 million from $9.8 million to $4.0
million due to the decrease in pretax income. The effective rates for fiscal
2000 and 1999 were 45.9% and 52.6%, respectively. Variances in the effective
tax rate are a result of variances in tax rates among the tax jurisdictions
in which the Company operates and the results of operations in those specific
jurisdictions.
Net income for the year ended January 29, 2000 was $4.7 million, a
decrease of $4.2 million from the $8.9 million net income of the prior year.
Net income includes a $9.2 million gain, net of applicable income taxes,
from the settlement of the Hurricane Georges insurance claim and a $1.2
million loss, net of applicable income taxes, on the sale/leaseback
transaction.
Fiscal 1999 vs. Fiscal 1998
As of January 30, 1999, the Company operated a total of 50 supermarkets
and 44 Blockbuster locations in Puerto Rico and the U. S. Virgin Islands. In
fiscal 1998, the Company converted its remaining Pueblo Video Clubs into
in-store Blockbuster outlets, 15 in Puerto Rico and one in the U. S. Virgin
Islands. In fiscal 1999, the Company opened one new supermarket and one new
Blockbuster store both of which are in Puerto Rico. One supermarket and one
Blockbuster store were closed due to hurricane damage and were not reopened.
Net sales decreased by $153.7 million or 16.4% in fiscal 1999 compared
to fiscal 1998. For the comparable 52 week period same store sales were
$749.8 million versus $903.0 million for the prior year, a decline of 17.0%.
New stores opened during these periods and the stores closed as a result of
Hurricane Georges are excluded from "same stores." Same store sales in the
Retail Food Division declined 18.3% from $863.7 million to $706.3 million.
Primary factors contributing to the decline in same stores sales in the
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Retail Food Division are the aftermath of Hurricane Georges, increased
competition including a large number of competitive new store openings and
increase in selling square footage, and the effects of repositioning of
Pueblo's supermarkets to offer a broader product mix while eliminating
marginally profitable product lines. Blockbuster same store sales increased
10.8% from $39.3 million to $43.5 million. The $4.2 million increase was
primarily a result of increased product sales.
Gross profit margin in fiscal 1999, as a percentage of sales, improved
to 32.7% compared to 28.9% in the prior year, resulting in a 380 basis point
increase. Approximately two thirds of this improvement in the Company's
consolidated gross profit margin, as a percentage of sales, is a result of
increased gross profit margins in the Retail Food Division. The improvement
in the Retail Food Division margin is a result of continuing programs begun
in the prior year including implementation of new merchandising strategies,
implementation of the Pueblo private label products program, greater use of
the Company's distribution facilities and importing capabilities, and
reduction of shrink. The remainder of the improvement in the Company's
consolidated gross profit margin, as a percentage of sales, is attributed to
increased sales in the Blockbuster Division.
Selling, general and administrative expenses decreased by $31.2 million
to $173.0 million from the prior year amount of $204.2 million, or 15.3%,
primarily as a result of labor scheduling practices and other cost control
programs reducing direct store selling expenses.
Depreciation and amortization decreased $3.7 million from $40.2 million in
fiscal 1998 to $36.5 million in fiscal 1999.
Interest expense, net of interest and investment income, of $28.2
million decreased by $1.4 million, or 4.7%, as compared to fiscal 1998. The
decrease is due to a decline in the interest expense as a result of the
Refinancing Plan (see "Liquidity and Capital Resources"), and by an increase
in investment income earned from maintaining larger investment balances.
The increase in the income tax expense of $9.2 million was primarily the
result of the tax effects of the $19.8 million increase in operating profit.
Results for fiscal 1999 were net income for the year of $8.9 million
compared to a $5.6 million loss for the prior year which included an
extraordinary charge for early extinguishment of debt of $2.4 million.
Improvement in net income was $14.5 million.
Liquidity and Capital Resources
Company operations have historically provided a cash flow which, along
with the available credit facility, have provided adequate liquidity for the
Company's operational needs.
On April 29, 1997 the Company entered into a refinancing plan (the
"Refinancing Plan") in connection with which it issued $85.0 million
principal amount of Series C Senior Notes. The net proceeds from the sale of
the Series C Senior Notes of approximately $73.9 million after deducting
expenses, together with available cash of the Company, were used to repay the
senior secured indebtedness outstanding under a bank agreement dated July 31,
1993 (the "Old Bank Credit Agreement.") In connection with the
Refinancing Plan, the Company entered into an amended bank agreement (the
"New Bank Credit Agreement"), which provides for a $65.0 million revolving
credit facility with less restrictive covenants compared to the Old Bank
Credit Agreement. After the issuance of standby letters of credit in the
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amount of $13.6 million, as of January 29, 2000, the Company had borrowing
availability on a revolving basis of $51.4 million under the New Bank Credit
Agreement. At the date of this filing, the Company had no cash borrowings
outstanding under the revolver of the New Bank Credit Agreement.
Cash provided by operating activities was $39.7 million compared to
$35.5 million in the prior year.
Net cash provided by (used in) investing activities was $1.1 million,
($8.2) million, and $0.2 million in fiscal years 2000, 1999, and 1998,
respectively. During fiscal year 2000, the Company invested $21.6 million in
improvements to property and equipment and $13.1 million in reconstruction of
property and replacement of equipment destroyed in Hurricane Georges. The
Company received proceeds of $35.8 million from disposition of assets during
the year, primarily from the sale/leaseback transaction detailed above.
Net cash used in financing activities was $0.6 million, $ 0.6 million,
and $20.3 million in fiscal years 2000, 1999, and 1998, respectively. During
fiscal years 2000 and 1999 the only financing activity was payment of a
portion of the capital lease obligations. During fiscal 1998 the Company
entered into a Refinancing Plan on April 29, 1997 (as described above) which
provided net proceeds of $73.9 million. These proceeds together with
available cash were used to repay $63.0 million in term loans and $16
million in revolving loans under the Old Bank Credit Agreement. The Company
also satisfied $10.0 million of indebtedness payable to a related party. In
addition, the Company, in December of 1997, paid $7.5 million of indebtedness
payable to a Puerto Rico governmental agency.
Working capital during fiscal 2000 increased by $20.6 million to $22.2
million from $1.6 million at the end of fiscal 1999. The increase was
primarily due to the sale/leaseback transaction in which the Company received
$35.5 million in proceeds. The increase was offset by the reclassification
of $10 million in long-term debt this year to a current liability. Working
capital during fiscal 1999 increased by $25.1 million from a deficit of $23.5
million at the end of fiscal 1998 to positive working capital of $1.6
million at the end of fiscal 1999. Working capital during fiscal 1998
increased $32.7 million from a deficit of $56.2 million at the end of fiscal
1997 to a deficit of $23.5 million at the end of fiscal 1998.
Outstanding borrowings with a governmental agency of Puerto Rico from
the issuance of industrial revenue bonds were $10.0 million as of January 29,
2000. Management anticipates that the principal payments due in fiscal 2001
will be financed by operations.
The Company's general liability and certain of its workers compensation
insurance programs are self-insured. The Company maintains insurance
coverage for claims in excess of $250,000. The current portion of the
reserve, representing amounts expected to be paid in the next fiscal year, is
$6.5 million as of January 29, 2000 and is anticipated to be funded with cash
provided by operating activities.
Capital expenditures for fiscal 2001 are expected to be approximately
$19 million. This capital program (which is subject to continuing change and
review) includes the remodeling of certain existing locations and updating of
equipment and software.
The Company's management believes that the cash flows generated by its
normal business operations together with its available revolving credit
facility will be adequate for its liquidity and capital resource needs.
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Impact of Inflation, Currency Fluctuations, and Market Risk
The inflation rate for food prices continues to be lower than the
overall increase in the U.S. Consumer Price Index. The Company's primary
costs, products and labor, usually increase with inflation. Increases in
inventory costs can typically be passed on to the customer. Other cost
increases must by recovered through operating efficiencies and improved gross
margins. Currency in Puerto Rico and the U.S. Virgin Islands is the
U.S. dollar. As such, the Company has no exposure to foreign currency
fluctuations.
The Company is exposed to certain market risks from transactions that
are entered into during the normal course of business. The Company does not
trade or speculate in derivative financial instruments. The Company's
primary market risk exposure relates to interest rate risk. The Company
manages its interest rate risk in order to balance its exposure between fixed
and variable rates while attempting to minimize its interest costs. As
detailed in Note 4-- Debt in the financial statements, the Company's long-term
debt consists of: (i) senior notes of $265 million at a fixed rate of 9 1/2%
due in 2003 and (ii) variable rate revenue bonds due in 2001 of $10 million
upon which the weighted average interest rate was 4.40% and 4.43% at January
29, 2000 and January 30, 1999, respectively.
Forward Looking Statements
Statements, other than statements of historical information, under the
caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and elsewhere in this Form 10-K may constitute
forward looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. Such statements include, among others, statements
concerning: (1) Company management's belief that the cash flows generated by
its normal business operations together with its available credit
facility will be adequate for its liquidity and capital resource needs, (2)
insurance recovery expectations, (3) the extent to which future operations
may be inhibited by, and the expected period to recover from, the hurricane,
and (4) anticipated capital expenditures. These statements are based on
Company management's expectations and are subject to various risks and
uncertainties. Actual results could differ materially from those anticipated
due to a number of factors, including but not limited to the Company's
substantial indebtedness and high degree of leverage, which continue as
a result of the Refinancing Plan (including limitations on the Company's
ability to obtain additional financing and trade credit, to apply operating
cash flow for purposes in addition to debt service, to respond to price
competition in economic downturns and to dispose of assets pledged to secure
such indebtedness or to freely use proceeds of any such dispositions), the
Company's limited geographic markets and competitive conditions in the
markets in which the Company operates and buying patterns of consumers.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages F-1 through F-24 and S-1 through S-4 appearing at the end of
this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There have been no disagreements with the Company's accountants on
accounting and financial disclosure during the applicable periods.
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PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following is a list, as of the date of this filing, of the names of
the directors and executive officers of the Company, their respective ages
and their respective positions with the Company. The terms of the directors
and executive officers of the Company expire annually upon the holding of the
annual meeting of stockholders.
Directors
- ---------
Name Age Position
- ---- ---- --------
Gustavo A. Cisneros . . .54 Chairman of the Board; Member of the
Executive Committee
William T. Keon, III. . .53 Director; President and Chief Executive
Officer; Chairman of the Executive
Committee; Chairman of
the Audit and Risk Committee; Member of
the Compensation and Benefits Committee
David L. Aston. . . . . .53 Director; Executive Vice President;
President of Retail Food Division
Steven I. Bandel. . . . .46 Director; Member of the Executive
Committee; Chairman
of the Compensation and Benefits Committee
Guillermo A. Cisneros ...28 Director
Cristina Pieretti . . . .48 Director
Alejandro Rivera. . . . .57 Director; Member of the Audit and Risk
Committee; Member of the
Compensation and Benefits Committee
Executive Officers
- ------------------
William T. Keon, III. . .53 President and Chief Executive Officer
David L. Aston. . . . . .53 Executive Vice President; President of
Retail Food Division
Daniel J. O'Leary . . . .53 Executive Vice President and Chief
Financial Officer, Assistant Secretary
Fernando J. Bonilla . . .39 Vice President, General Counsel and
Secretary
Alicia Echevarria . . . .47 Vice President of Human Resources,
Assistant Secretary
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Max Treon .............. 63 Vice President of Operations-Retail Food
Division
Chuck Newsom ........... 50 Vice President of Merchandising-Retail
Food Division
Gustavo A. Cisneros has been the Chairman of the Board of the Company
since its inception (July 28, 1993). He was appointed to the Executive
Committee in October 1995. Since prior to 1992, he has been a direct or
indirect beneficial owner of interests in and a director of certain companies
that own or are engaged in a number of diverse commercial enterprises in
Venezuela, the United States, Brazil, Chile and Mexico (the "Cisneros
Group"), including the Company. He is a member of the board of directors of
Pan American Beverages Corporation, Spalding Holdings Corporation, and RSL
Communications, Inc.
William T. Keon, III has been a Director of the Company since October
1995. He assumed the position of President and Chief Executive Officer and
was appointed Chairman of the Executive Committee and Audit and Risk
Committee also in October 1995. He is also a member of the Compensation and
Benefits Committee. Since January 1983, Mr. Keon has served in senior
managerial roles in the Cisneros Group.
David L. Aston joined the Company in March 1997 as a Director, Executive
Vice President and President of the Puerto Rico Food Division. In January
1998, Mr. Aston assumed responsibility for operations of the entire Retail
Food Division. From June 1993 until the time he joined the Company, Mr.
Aston served as president of Waldbaums and Superfresh Foods, units of the A&P
Company, a supermarket chain in the New York area. Prior to June 1993, he
served as Vice President of Merchandising and Operations for the Kroger
Company.
Steven I. Bandel has been a Director of the Company since the
Acquisition. He was appointed to the Executive Committee in October 1995.
Since prior to 1992, he has been actively involved in the operations and
management of certain companies in the Cisneros Group, other than a period
from February 1990 to May 1992 during which he was a partner in a Venezuelan
investment banking firm.
Guillermo A. Cisneros was appointed a Director in April, 1998. Since
1998 he has been Program Director for a non-profit educational television
station in Caracas, Venezuela. Prior to 1998 he participated in several
internships. He is the son of Gustavo Cisneros and the nephew of Ricardo
Cisneros.
Cristina Pieretti was appointed a Director in March 1997. During most
of the last eight years, she has been actively involved in operations of
companies in the Cisneros Group in areas related to consumer goods, retailing
and telecommunications, other than a period from March 1995 to February 1997
during which she was a partner in a consulting firm.
Alejandro Rivera has been a Director of the Company since April 1, 1997.
He was previously a Director of the Company from the Acquisition until June
30, 1995. Since 1976, he has been actively involved in the operations and
management of certain companies in the Cisneros Group. Mr. Rivera is also a
Director of Univision Communications, Inc. Mr. Rivera is a member of the
Audit and Risk Committee and of the Compensation and Benefits Committee.
Daniel J. O'Leary joined the Company in June 1997 as Executive Vice
-22-
23
President and Chief Financial Officer. From December 1992 until the time he
joined the Company, Mr. O'Leary served as Senior Vice President of Finance
and Chief Financial Officer of Phar-Mor, Inc., a deep discount drugstore
chain. Prior to that time, he served as a Director and, at various times,
President and Chief Operating Officer, Executive Vice President, Vice
President of Finance and Chief Financial Officer at Fay's, Inc., a
multi-concept retailer with drugstores and auto parts stores. From 1969 to
1987, Mr. O'Leary was a member of the accounting firm of Touche, Ross & Co.
(now known as Deloitte & Touche LLP).
Fernando J. Bonilla joined the Company in September 1997 as Vice
President, General Counsel and Secretary. Before joining the Company, Mr.
Bonilla served as General Counsel and Secretary to the Board of Directors of
the Puerto Rico Maritime Shipping Authority and a junior partner of Fiddler
Gonzalez and Rodriguez, a law firm in Puerto Rico.
Alicia Echevarria joined the Company in April 1996 as Vice President of
Human Resources for the Puerto Rico Division. In March 1997 she became
Assistant Secretary to the Company. Prior to joining the Company, she was
Director of Human Resources for R.J. Reynolds Tobacco Company (Inc.) in
Puerto Rico, where she was employed for 15 years.
Max Treon joined the Company in April, 1997 and has over 44 years
experience in the retail food business. Mr. Treon worked for Kroger for 42
years and held positions of Store Manager, District Manager, and Director of
Operations.
Charles Newsom joined the Company in June, 1997 and has over 30 years
experience in the retail grocery business. Mr. Newsom worked for Kroger for
15 years as Store Manager, District Manager, Human Resource Manager, and head
of Store Manager Training. Mr. Newsom also worked for Big V Supermarkets in
New York as Vice President of Operations and Bruno's Supermarket as Vice
President of Merchandising.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid or
distributed by the Company through January 29, 2000 to, or accrued through such
date for the account of the Chief Executive Officer as well as each of the four
most highly compensated executive officers of the Company serving at January
29, 2000.
-23-
24
SUMMARY COMPENSATION TABLE
Annual Compensation
--------------------------------------------------------------
(a) (b) (c) (d) (e) (f)
Other
Name Annual All Other
and Compen- Compen-
Principal Fiscal Salary Bonus sation sation
Position Year ($) ($) ($) ($)
- -------------------------- -------- -------- --------- ----------- -----------
William T. Keon, III, 2000 450,000 425,000 19,460(2) 19,500(1)
President and Chief 1999 360,000 715,000 22,014(2) 32,586(1)
Executive Officer 1998 340,015 328,288 21,647(2) 20,049(1)
David L. Aston 2000 304,654 60,000 14,293(3) 9,140(1)
Executive Vice President; 1999 289,279 347,515 15,461(3) 19,104(1)
President, Puerto Rico 1998 243,270 97,308 8,636(3) 7,996(1)
Division
Daniel J. O'Leary 2000 245,193 60,000 18,174(4) -
Executive Vice President; 1999 232,452 279,231 13,920(4) -
Chief Financial Officer 1998 138,462 55,758 5,320(4) -
Charles R. Newsom 2000 191,057 30,300 10,450(5) -
Vice President of 1999 181,072 162,963 12,831(5) -
Merchandising 1998 120,954 36,546 6,928(5) -
Max Treon 2000 164,973 30,300 14,118(6) -
Vice President of 1999 155,934 - 10,235(6) 23,679(7)
Operations 1998 117,708 - 7,650(6) -
NOTES TO SUMMARY COMPENSATION TABLE
(1) Amount represents the Company matching contribution to an elective
non-qualified deferred compensation plan maintained by the Company.
(2) Includes costs related to the reimbursement of executive medical
expense of $7,110, $9,976, and $10,022 and an automobile allowance in the
amount of $12,350, $12,038 and $11,625 for fiscal 2000, 1999, and 1998,
respectively.
(3) Includes costs related to the reimbursement of executive medical
expense of $3,243, $4,723, and $4,636 and an automobile allowance in the
amount of $11,050, $10,738, and $4,000 for fiscal 2000, 1999, and 1998,
respectively.
(4) Includes costs related to the reimbursement of executive medical
expense of $7,774, $3,832, and $1,570 and an automobile allowance in the
amount of $10,400, $10,088, and $3,750 for fiscal 2000, 1999, and 1998,
respectively.
(5) Includes costs related to the reimbursement of medical expenses of
$700, $3,081 and $178 in fiscal 2000, 1999, and 1998, respectively. Also
includes automobile allowances in the amounts of $9,750, $9,750 and $6,750
in fiscal 2000, 1999, and 1998, respectively.
(6) Includes costs related to the reimbursement of medical expenses of
$4,368, $485, and $-0- in fiscal 2000, 1999, and 1998, respectively. Also
includes automobile allowances in the amount of $9,750, $9,750, and $7,650
in fiscal 2000, 1999 and 1998, respectively.
(7) Other compensation is reimbursement for moving expenses of $23,679 in
fiscal 1999.
-24-
25
PENSION PLAN TABLES
-------------------
The Company sponsors two defined benefit plans. The Pueblo
International, Inc. Employees' Retirement Plan (the "Retirement Plan") is
tax-qualified under the Internal Revenue Code and covers all full-time and
certain part-time employees of the Company over age 21 with one year of
service. It provides an annual benefit equal to 1% of the average annual
compensation over a five-year period per year of service. The Supplemental
Executive Retirement Plan (the "SERP") is non-qualified and covers all
officers of the Company and its subsidiaries. It provides an annual benefit
equal to 3% of the average compensation over a five-year period per year of
service (up to 20 years). Full vesting for the Retirement Plan and the SERP
occurs upon completion of five years of service. The following tables give
the estimated annual benefit payable upon retirement for participants in the
Retirement Plan and the SERP. The SERP benefits are offset by the Retirement
Plan benefits and by 100% of social security benefits. These offsets are
reflected in the benefits shown in the SERP table. The Company does not
sponsor any other defined benefit or actuarial plans.
Table 1. Retirement Plan
Years of Service
---------------------------------------------------------------------------
Remuneration 5 10 15 20 25 30 35
---------------------------------------------------------------------------
125,000 . . . . . . 6,250 12,500 18,750 25,000 31,250 37,500 43,750
150,000 . . . . . . 7,500 15,000 22,500 30,000 37,500 45,000 52,500
175,000 . . . . . . 8,000 16,000 24,000 32,000 40,000 48,000 56,000
Table 2. Supplemental Executive Retirement Plan
Years of Service
---------------------------------------------------------------------------
Remuneration 5 10 15 20 25 30 35
---------------------------------------------------------------------------
125,000 . . . . . . . - 9,069 21,569 34,069 27,819 21,569 15,319
150,000 . . . . . . . - 14,069 29,069 44,069 36,569 29,069 21,569
175,000 . . . . . . . 2,319 20,569 38,819 57,069 49,069 41,069 33,069
200,000 . . . . . . . 6,069 28,069 50,069 72,069 64,069 56,069 48,069
225,000 . . . . . . . 9,819 35,569 61,319 87,069 79,069 71,069 63,069
250,000 . . . . . . . 13,569 43,069 72,569 102,069 94,069 86,069 78,069
275,000 . . . . . . . 17,319 50,569 83,819 117,069 109,069 101,069 93,069
300,000 . . . . . . . 21,069 58,069 95,069 132,069 124,069 116,069 108,069
325,000 . . . . . . . 24,819 65,569 106,319 147,069 139,069 131,069 123,069
350,000 . . . . . . . 28,569 73,069 117,569 162,069 154,069 146,069 138,069
375,000 . . . . . . . 32,319 80,569 128,819 177,069 169,069 161,069 153,069
400,000 . . . . . . . 36,069 88,069 140,069 192,069 184,069 176,069 168,069
425,000 . . . . . . . 39,819 95,569 151,319 207,069 199,069 191,069 183,069
450,000 . . . . . . . 43,569 103,069 162,569 222,069 214,069 206,069 198,069
475,000 . . . . . . . 47,319 110,569 173,819 237,069 229,069 221,069 213,069
500,000 . . . . . . . 51,069 118,069 185,069 252,069 244,069 236,069 228,069
Compensation covered by the qualified Retirement Plan is equal to the
total compensation (excluding compensation attributable to the redemption of
certain stock options) paid to an employee during a plan year prior to any
reduction under a salary reduction agreement entered into by the employee
pursuant to a plan maintained by the employer which qualifies under Section
401(k) of the Internal Revenue Code of 1986, as amended (the "Code"), or
pursuant to a plan maintained by the employer which qualifies under Section
125 of the Code. Compensation in excess of $160,000 shall be disregarded,
provided, however, that such $160,000 limitation shall be adjusted at the
same time and in such manner as the maximum compensation limit is adjusted
under Section 401(a)(17) of the Code.
Compensation covered by the non-qualified Supplemental Executive
Retirement Plan is the same as the qualified Retirement Plan, except that the
$160,000 limit is not applicable.
-25-
26
The estimated years of credited service and age, respectively, for
purposes of calculating benefits through January 29, 2000 for Mr. Keon is six
and 53, respectively, for Mr. Aston is three and 53, respectively, and for
Mr. O'Leary is three and 53, respectively. The benefits provided by both the
Retirement Plan and the SERP are on a straight-life annuity basis, as are the
examples in the Retirement Plan table. Compensation Committee Interlocks and
Insider Participation
Messrs. Keon, Bandel, and Rivera served as members of the Compensation
and Benefits Committee of the Board of Directors of the Company during all or
a portion of the fiscal years ended January 29, 2000, January 30, 1999, and
January 31, 1998. Mr. Keon also served as an officer of the Company during
the fiscal year ended January 31, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
a) Security Ownership of Certain Beneficial Owners
As discussed in Part II, Item 5 - Market for the Registrant's Common
Equity and Related Shareholder Matters, the Company is a wholly-owned
subsidiary of Holdings.
The following table sets forth certain information regarding the
beneficial ownership of more than 5% of the common stock of Holdings as of
the date of this filing. By virtue of its ownership of the Holdings common
stock, the following entity may be deemed to own a corresponding percentage
of the Company's common stock.
Shares
Beneficially Owned
---------------------------------------------
Name and Address Number Percent
- --------------------------------- -------------------- ------------------
Bothwell Corporation
c/o Finser Corporation
Arias, Fabrega & Fabrega Trust Co.
BVI Limited, 325 Waterfront Drive
Omar Hodge Bldg., 2nd Floor
Wickhams Cay, Road Town
Tortola, British Virgin Islands 1,000 100.0%
The shares of Holdings described above are beneficially owned by the
Principal Shareholders by virtue of their indirect ownership of the entity
listed above. The principal business address of the Principal Shareholders
is Paseo Enrique Eraso, Centro Commercial Paseo Las Mercedes, Caracas,
-26-
27
Venezuela.
(b) Security Ownership of Management
As of the date of this filing, the directors and executive officers of
the Company have no beneficial ownership of Holdings.
(c) Changes in Control
The borrowings outstanding under the New Bank Credit Agreement are
collateralized by a pledge of the assets of the Company's subsidiaries, by
the capital stock of, and intercompany notes issued by, the Company's
subsidiaries and by the capital stock of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 18, 1996, Holdings contributed additional capital of $5.0
million to the Company which, under the terms of the Old Bank Credit
Agreement, as amended in April 1996, was used to reduce the Company's term
loans under the Old Bank Credit Agreement. In addition, Holdings provided
$10.0 million in additional funds to the Company on October 18, 1996 in
return for a non-interest-bearing redeemable note payable to a related party
(the "Holdings Note"). Proceeds from the Holdings Note were used to reduce
the Company's term loans under the Old Bank Credit Agreement in accordance
with terms set forth in the Old Bank Credit Agreement, as amended. The
Holdings Note was satisfied in fiscal 1998 by the Company's transfer of its
interest in two real estate properties from its closed Florida operations to
Holdings.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) Documents filed as part of this report:
Page
(1) Consolidated Financial Statements:
Independent Auditors' Report F - 1
Consolidated Balance Sheets as of January 29, 2000 and
January 30, 1999 F - 2 through F - 3
Fiscal years ended January 29, 2000, January 30, 1999,
and January 31, 1998:
Consolidated Statements of Operations F - 4
Consolidated Statements of Cash Flows F - 5
Consolidated Statements of Stockholder's Equity F - 6
Notes to Consolidated Financial Statements F - 7 through F -24
(2) Financial Statement Schedules:
Schedule II - Financial Information of Registrant..S-1 through S-3
Schedule V - Valuation and Qualifying Accounts.............. S-4
(3) Exhibits - None.
-27-
28
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION OF EXHIBIT NUMBERED PAGE
- ------------------- ------------------------------------------- ----------------
3.1 RESTATED CERTIFICATE OF INCORPORATION OF
THE COMPANY (INCORPORATED BY REFERENCE TO
EXHIBIT 3.1 TO THE COMPANY'S REGISTRATION
STATEMENT NO. 33-63372 ON FORM S-1)
3.2 AMENDED AND RESTATED BY-LAWS OF THE
COMPANY (INCORPORATED BY REFERENCE TO
EXHIBIT 3.2 TO THE COMPANY'S REGISTRATION
STATEMENT NO. 33-63372 ON FORM S-1)
4.1 SPECIMEN NOTE FOR COMPANY'S 9 1/2% SENIOR
NOTES DUE 2003 (INCLUDED IN EXHIBIT 4.2)*
4.2 INDENTURE DATED AS OF JULY 28, 1993
BETWEEN THE COMPANY AND UNITED STATES
TRUST COMPANY OF NEW YORK, AS TRUSTEE*
4.3 SPECIMEN NOTE FOR THE COMPANY'S 91/2%
SERIES C SENIOR NOTES DUE 2003 (INCLUDED
IN EXHIBIT 4.4)
4.4 INDENTURE, DATED AS OF APRIL 24, 1997,
BETWEEN THE COMPANY AND UNITED STATES
TRUST COMPANY OF NEW YORK, AS TRUSTEE
(INCORPORATED BY REFERENCE TO EXHIBIT 4.2
TO THE COMPANY'S REGISTRATION STATEMENT
NO. 333-27523 ON FORM S-3)
4.5 REGISTRATION RIGHTS AGREEMENT, DATED AS
OF APRIL 29, 1997, BETWEEN THE COMPANY
AND NATIONSBANC CAPITAL MARKETS, INC. AND
SCOTIA CAPITAL MARKETS (USA) INC.
(INCORPORATED BY REFERENCE TO EXHIBIT 4.3
TO THE COMPANY'S REGISTRATION STATEMENT
NO. 333-27523 ON FORM S-3)
10.1 CREDIT AGREEMENT AMONG THE COMPANY,
PUEBLO MERGER CORPORATION, PUEBLO
INTERNATIONAL, INC., XTRA SUPER FOOD
CENTERS, INC., VARIOUS LENDING
INSTITUTIONS, THE CHASE MANHATTAN BANK,
N.A. AND SCOTIABANK DE PUERTO RICO, AS
CO-MANAGING AGENTS AND SCOTIABANK DE
PUERTO RICO, AS ADMINISTRATIVE AGENT (THE
"OLD BANK CREDIT AGREEMENT")*
10.2 FIRST AMENDMENT, DATED AS OF AUGUST 2,
1993, OF THE OLD BANK CREDIT AGREEMENT*
-28-
29
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION OF EXHIBIT NUMBERED PAGE
- ------------------- ------------------------------------------- ----------------
10.3 SECOND AMENDMENT, DATED AS OF DECEMBER
15, 1993, TO THE OLD BANK CREDIT
AGREEMENT (INCORPORATED BY REFERENCE TO
EXHIBIT 10.1 TO THE COMPANY'S QUARTERLY
REPORT ON FORM 10-Q FOR THE QUARTER ENDED
NOVEMBER 6, 1993)
10.4 THIRD AMENDMENT, DATED AS OF JANUARY 31,
1994 (EFFECTIVE AS OF NOVEMBER 5, 1993),
TO THE OLD BANK CREDIT AGREEMENT*
10.11 MEMBERSHIP CORRESPONDENCE CONCERNING
TOPCO ASSOCIATES, INC. (INCORPORATED BY
REFERENCE TO EXHIBIT 10.3 TO COMPANY'S
REGISTRATION STATEMENT NO. 33-63372 ON
FORM S-1)
10.12 MORTGAGE NOTES DATED JUNE 6, AND 10, 1986
DUE FISCAL 1997 (INCORPORATED BY
REFERENCE TO EXHIBIT 10.4 TO THE
COMPANY'S REGISTRATION STATEMENT NO.
33-63372 ON FORM S-1)
10.13 AGREEMENT BETWEEN THE CHASE MANHATTAN
BANK (NATIONAL ASSOCIATION) (THE "BANK"),
PUERTO RICO INDUSTRIAL, MEDICAL AND
ENVIRONMENTAL POLLUTION CONTROL
FACILITIES FINANCING AUTHORITY (THE
"AUTHORITY") AND THE COMPANY; TRUST
AGREEMENT BETWEEN THE AUTHORITY AND BANCO
POPULAR DE PUERTO RICO, AS TRUSTEE;
GUARANTEE AND CONTINGENT PURCHASE
AGREEMENT BETWEEN THE REGISTRANT AND THE
BANK; LOAN AGREEMENT BETWEEN THE
AUTHORITY AND THE REGISTRANT; TENDER
AGENT AGREEMENT AMONG THE AUTHORITY;
BANCO POPULAR DE PUERTO RICO AS TRUSTEE;
RE-MARKETING AGREEMENT BETWEEN CHASE
MANHATTAN CAPITAL MARKETS CORPORATION AND
THE REGISTRANT; EACH DATED OCTOBER 1,
1985, RELATING TO A $5,000,000 FINANCING
IN OCTOBER 1985 (SUBSTANTIALLY IDENTICAL
DOCUMENTS WERE EXECUTED FOR AN ADDITIONAL
$5,000,000 FINANCING IN NOVEMBER 1985 AND
$7,500,000 IN DECEMBER 1985)
(INCORPORATED BY REFERENCE HEREIN AS
FILED WITH PUEBLO'S REGISTRATION
STATEMENT NO. 1-6376 ON FORM S-2 DATED
JANUARY 23, 1986)
10.20 EXECUTED FOURTH AMENDMENT, DATED AS OF
APRIL 8, 1994, TO THE OLD BANK CREDIT
AGREEMENT (INCORPORATED BY REFERENCE TO
EXHIBIT 10.1 TO THE COMPANY'S QUARTERLY
REPORT ON FORM 10-Q FOR THE QUARTER ENDED
MAY 21, 1994)
-29-
30
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION OF EXHIBIT NUMBERED PAGE
- ------------------- ------------------------------------------- ----------------
10.21 EXECUTED FIFTH AMENDMENT, DATED AS OF
AUGUST 11, 1995, TO THE OLD BANK CREDIT
AGREEMENT (INCORPORATED BY REFERENCE TO
EXHIBIT 10.1 TO THE COMPANY'S QUARTERLY
REPORT ON FORM 10-Q FOR THE QUARTER ENDED
NOVEMBER 4, 1995)
10.22 EXECUTED SIXTH AMENDMENT, DATED AS OF
NOVEMBER 3, 1995, TO THE OLD BANK CREDIT
AGREEMENT (INCORPORATED BY REFERENCE TO
EXHIBIT 10.2 TO THE COMPANY'S QUARTERLY
REPORT ON FORM 10-Q FOR THE QUARTER ENDED
NOVEMBER 4, 1995)
10.23 EMPLOYMENT AGREEMENT, DATED FEBRUARY 28,
1996, BETWEEN PUEBLO INTERNATIONAL, INC.
AND EDWIN PEREZ
10.24 AGREEMENT, DATED MARCH 1, 1996, BETWEEN
PUEBLO INTERNATIONAL, INC. AND HECTOR G.
QUINONES
10.25 EXECUTED SEVENTH AMENDMENT, DATED AS OF
JANUARY 26, 1996, TO THE OLD BANK CREDIT
AGREEMENTS
10.29 RECEIPT AND AGREEMENT BY PXC&M HOLDINGS,
INC. FROM BOTHWELL CORPORATION DATED
OCTOBER 18, 1996 (INCORPORATED BY
REFERENCE TO EXHIBIT 10.1 TO THE
COMPANY'S QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED NOVEMBER 2, 1996)
10.30 RECEIPT AND AGREEMENT BY PUEBLO XTRA
INTERNATIONAL, INC. FROM PXC&M HOLDINGS,
INC. DATED OCTOBER 18, 1996 (INCORPORATED
BY REFERENCE TO EXHIBIT 10.2 TO THE
COMPANY'S QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED NOVEMBER 2, 1996)
10.31 CONSENT EXECUTED BY SCOTIABANK DE PUERTO
RICO, AS ADMINISTRATIVE AGENT, DATED
OCTOBER 18, 1996 (INCORPORATED BY
REFERENCE TO EXHIBIT 10.3 TO THE
COMPANY'S QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED NOVEMBER 2, 1996)
10.32 EIGHTH AMENDMENT, DATED AS OF NOVEMBER 1,
1996, TO THE OLD CREDIT AGREEMENT AMONG
PUEBLO XTRA INTERNATIONAL, INC., PUEBLO
INTERNATIONAL, INC., XTRA SUPER FOOD
CENTERS, INC., VARIOUS LENDING
INSTITUTIONS, THE CHASE MANHATTAN BANK,
N.A. AND SCOTIABANK DE PUERTO RICO, AS
ADMINISTRATIVE AGENT (INCORPORATED BY
REFERENCE TO EXHIBIT 10.4 TO THE
COMPANY'S QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED NOVEMBER 2, 1996)
-30-
31
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION OF EXHIBIT NUMBERED PAGE
- ------------------- ------------------------------------------- ----------------
10.33 NINTH AMENDMENT, DATED AS OF JANUARY 25,
1997, TO THE OLD CREDIT AGREEMENT AMONG
PUEBLO XTRA INTERNATIONAL, INC., PUEBLO
INTERNATIONAL, INC., XTRA SUPER FOOD
CENTERS, INC., VARIOUS LENDING
INSTITUTIONS, THE CHASE MANHATTAN BANK,
N.A. AND SCOTIABANK DE PUERTO RICO, AS
ADMINISTRATIVE AGENTS
10.34 EMPLOYMENT AGREEMENT, DATED MARCH 20, 1997,
BETWEEN PUEBLO INTERNATIONAL, INC. AND
DAVID L. ASTON*****
21.1 SUBSIDIARIES OF THE COMPANY****
21.2 AMENDED AND RESTATED CREDIT AGREEMENT,
DATED AS OF APRIL 29, 1997, OF THE OLD
BANK CREDIT AGREEMENT (THE "NEW BANK
CREDIT AGREEMENT")*****
* Previously filed and incorporated by reference to corresponding
exhibits in the Company's Form 10-K for fiscal year ended January 29,
1994.
** Previously filed and incorporated by reference to corresponding
exhibits in the Company's Form 10-K for fiscal year ended January 28,
1995.
*** Previously filed and incorporated by reference to corresponding
exhibits in the Company's Form 10-K for fiscal year ended January 27,
1996.
**** Previously filed and incorporated by reference to corresponding
exhibits in the Company's Form 10-K for fiscal year ended January 25,
1997.
***** Filed and incorporated by reference to corresponding exhibits in the
Company's Form 10-K for fiscal year ended January 31, 1998.
(B) Reports on Form 8-K
None
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT
No annual report to security holders covering the Company's last
fiscal year and no proxy statement, form of proxy or other proxy soliciting
material with respect to any annual or other meeting of security holders has,
as of the date hereof, been sent to security holders by the Company. If such
report or proxy material is to be furnished to security holders subsequent to
the filing of the annual report of this Form 10-K, the Company will furnish
copies of such material to the Commission when it is sent to the security
holders.
-31-
32
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) 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.
PUEBLO XTRA INTERNATIONAL, INC.
Dated: April 27, 2000 /s/ Daniel J. O'Leary
Daniel J. O'Leary,
Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- ---------------- ------------------------------ ------------
/s/ Gustavo A. Cisneros Chairman of the Board
Gustavo A. Cisneros
/s/ William T. Keon, III Director; President; and Chief
William T. Keon, III Executive Officer
/s/ Daniel J. O'Leary Executive Vice President and Chief
Daniel J. O'Leary Financial Officer
/s/ Robert F. Kendall Controller
Robert F. Kendall, CPA
/s/ David L. Aston Director
David L. Aston
/s/ Steven I. Bandel Director
Steven I. Bandel
/s/ Guillermo A. Cisneros Director
Director
/s/ Cristina Pieretti Director
Cristina Pieretti
/s/ Alejandro Rivera Director
Alejandro Rivera
-32-
33
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
Pueblo Xtra International, Inc.
San Juan, Puerto Rico
We have audited the accompanying consolidated balance sheets of Pueblo Xtra
International, Inc. and subsidiaries (the "Company") as of January 29, 2000
and January 30, 1999, and the related consolidated statements of operations,
cash flows and stockholder's equity for each of the three years in the period
ended January 29, 2000. Our audits also included the financial statement
schedules listed in the Index at Item 14. These financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Pueblo Xtra International, Inc.
and subsidiaries as of January 29, 2000 and January 30, 1999 and the results
of operations and cash flows for each of the three years in the period ended
January 29, 2000 in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, such financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
Deloitte & Touche LLP
Certified Public Accountants
Miami, Florida
February 18, 2000
F-1
34
CONSOLIDATED BALANCE SHEETS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(Dollars in thousands)
January 29, January 30,
2000 1999
------------- -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 95,711 $ 55,500
Accounts receivable 4,012 4,715
Inventories 57,161 60,189
Prepaid expenses 7,871 8,163
Deferred income taxes 3,489 5,338
--------- ---------
TOTAL CURRENT ASSETS 168,244 133,905
--------- ---------
PROPERTY AND EQUIPMENT
Land and improvements 6,215 16,499
Buildings and improvements 39,221 64,128
Furniture, fixtures and equipment 120,103 113,673
Leasehold improvements 39,605 37,417
Construction in progress 9,928 4,786
--------- ---------
215,072 236,503
Less accumulated depreciation and amortization 107,254 114,912
--------- ---------
107,818 121,591
Property under capital leases, net 14,445 8,269
--------- ---------
TOTAL PROPERTY AND EQUIPMENT 122,263 129,860
GOODWILL, net of accumulated amortization of $33,146 at
January 29, 2000 and $28,113 at January 30, 1999 165,835 173,605
DEFERRED INCOME TAX 7,137 7,006
TRADE NAMES, net of accumulated amortization of $9,527 at
January 29, 2000 and $8,662 at January 30, 1999 28,973 29,838
DEFERRED CHARGES AND OTHER ASSETS 29,112 32,788
--------- ---------
TOTAL ASSETS $ 521,564 $ 507,002
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
35
CONSOLIDATED BALANCE SHEETS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(Dollars in thousands, except share data)
January 29, January 30,
2000 1999
------------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 84,366 $ 74,604
Accrued expenses 41,226 43,545
Salaries, wages and benefits payable 9,724 13,535
Current portion of long-term debt 10,000 -
Current obligations under capital leases 714 643
----------- -----------
TOTAL CURRENT LIABILITIES 146,030 132,327
LONG-TERM DEBT, net of current portion - 10,000
NOTES PAYABLE 259,645 258,475
CAPITAL LEASE OBLIGATIONS, net of current portion 13,346 6,914
RESERVE FOR SELF-INSURANCE CLAIMS 5,610 9,896
DEFERRED INCOME TAXES 23,100 28,539
OTHER LIABILITIES AND DEFERRED CREDITS 32,927 24,669
----------- -----------
TOTAL LIABILITIES 480,658 470,820
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 10)
STOCKHOLDER'S EQUITY
Common stock, $.10 par value; 200 shares
authorized and issued - -
Additional paid-in capital 91,500 91,500
Accumulated deficit (50,594) (55,318)
----------- -----------
TOTAL STOCKHOLDER'S EQUITY 40,906 36,182
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 521,564 $ 507,002
============ ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
36
CONSOLIDATED STATEMENTS OF OPERATIONS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(Dollars in thousands)
Fiscal
---------------------------------------
2000 1999 1998
---------- ---------- -----------
Net sales $ 674,145 $ 784,774 $ 938,506
Cost of goods sold 456,143 528,395 667,043
---------- ---------- -----------
GROSS PROFIT 218,002 256,379 271,463
OPERATING EXPENSES
Selling, general and administrative expenses 163,785 172,964 204,185
Gain on insurance settlement ( 15,066) - -
Depreciation and amortization 31,632 36,529 40,175
---------- ---------- -----------
OPERATING PROFIT 37,651 46,886 27,103
Sundry, net - - (36)
---------- ---------- -----------
INCOME BEFORE INTEREST, INCOME TAXES,
AND EXTRAORDINARY ITEM 37,651 46,886 27,067
Interest expense on debt (28,738) (28,556) (29,367)
Interest expense on capital lease obligations (1,633) (1,000) (1,160)
Interest and investment income, net 2,750 1,379 910
Loss on sale of real property (1,291) - -
---------- ---------- -----------
INCOME (LOSS) BEFORE INCOME TAXES,
AND EXTRAORDINARY ITEM 8,739 18,709 (2,550)
Income tax expense (4,015) (9,832) (583)
---------- ---------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 4,724 8,877 (3,133)
Extraordinary Item: Loss on early
extinguishment of debt, net of deferred
income taxes of $1,567 - - (2,444)
---------- ---------- -----------
NET INCOME (LOSS) $ 4,724 $ 8,877 $ (5,577)
========== ========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
37
CONSOLIDATED STATEMENTS OF CASH FLOWS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(Dollars in thousands)
Fiscal
-----------------------------------
2000 1999 1998
---------- ---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,724 $ 8,877 $ (5,577)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities, net of effects of disposal
of Florida retail operations:
Depreciation and amortization of property and equipment 17,615 20,782 23,855
Amortization of intangible and other assets 14,017 15,747 16,321
Amortization of bond discount 1,170 1,047 716
Loss on sale/leaseback of real estate 1,291 - -
Write off of property and equipment destroyed 4,423 - -
(Gain) loss on disposal of property and equipment, net 30 (2,182) (273)
Write off of goodwill in sale/leaseback transaction 2,737 - -
Provision for deferred income taxes (3,375) 9,349 230
Provision (benefit) in deferred charges and other assets 1,838 1,499 (1,543)
Amortization (benefit) in other liabilities and deferred credits 1,963 (2,221) (500)
Benefit from reduction of reserve for self-insurance claims (4,286) (1,310) (995)
Extraordinary loss on early extinguishment of debt, net - - 2,444
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 703 (1,566) 1,598
Inventories (3,253) (12,259) (5,039)
Prepaid expenses ( 151) 2,298 (33)
Increase (decrease) in:
Accounts payable and accrued expenses 3,286 (941) 10,190
--------- --------- ----------
42,732 39,120 41,394
Decrease attributable to disposal of Florida retail operations (3,022) (3,590) (4,616)
--------- --------- ----------
Net cash provided by operating activities 39,710 35,530 36,778
--------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (21,650) (15,271) (10,938)
Reconstruction of property and replacement of equipment destroyed (13,102) - -
Proceeds from disposal of property and equipment 35,829 7,062 1,036
Proceeds from sales of marketable securities - - 89
Proceeds from disposal of Florida retail operations - - 10,000
--------- --------- ----------
Net cash provided by, (used in), investing activities 1,077 (8,209) 187
--------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (576) (591) (579)
Principal payment from notes payable to a related party - - (10,000)
Principal payments on long-term debt - - (68,727)
Principal payments on short-term debt - - (21,750)
Proceeds from long-term borrowing - - 80,713
--------- --------- ----------
Net cash used in financing activities (576) (591) (20,343)
--------- --------- ----------
Net increase in cash and cash equivalents 40,211 26,730 16,622
Cash and cash equivalents at beginning of year 55,500 28,770 12,148
--------- --------- ----------
Cash and cash equivalents at end of year $ 95,711 $ 55,500 $ 28,770
========== ========= ==========
The accompanying notes are an integral part of these
consolidated financial statements
F-5
38
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
Fiscal 2000, 1999, and 1998
(Dollars in thousands)
Additional Total
Common Paid-in Accumulated Stockholder's
Stock Capital Deficit Equity
--------- ------------ ------------- -------------
Balance at January 25, 1997 $ - $ 91,500 $ (58,618) $ 32,882
Net loss for the year - - (5,577) (5,577)
--------- ----------- ------------- -------------
Balance at January 31, 1998 - 91,500 (64,195) 27,305
Net income for the year - - 8,877 8,877
--------- ----------- ------------- -------------
Balance at January 30, 1999 - 91,500 (55,318) 36,182
Net income for the year - - 4,724 4,724
--------- ----------- ------------- -------------
Balance at January 29, 2000 $ - $ 91,500 $ (50,594) $ 40,906
========= =========== ============= =============
The accompanying notes are an integral part of these
consolidated financial statements
F-6
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Pueblo
Xtra International, Inc. and its wholly-owned subsidiaries (the "Company").
The Company, a wholly owned subsidiary of PXC&M Holdings, Inc., operated
retail supermarkets and video rental locations in Puerto Rico and the U. S.
Virgin Islands during fiscal years 2000, 1999, and 1998. Intercompany
accounts and transactions are eliminated in consolidation.
The Company operates and reports financial results on a fiscal year of
52 or 53 weeks ending on the last Saturday in January. Accordingly, fiscal
year 2000 ended on January 29, 2000, fiscal 1999 ended on January 30, 1999,
and fiscal 1998 ended on January 31, 1998. Fiscal 1998 comprised 53 weeks,
all other noted fiscal years comprised 52 weeks.
Cash and Cash Equivalents
Highly liquid investments purchased with a maturity of three months or
less are considered cash equivalents.
Inventories
Inventories held for sale are stated at the lower of cost or market. The
cost of inventories held for sale is determined, depending on the nature of
the product, either by the last-in, first-out (LIFO) method or by the
first-in, first-out (FIFO) method. Videocassette rental inventories are
recorded at cost, net of accumulated amortization. Videocassettes held for
rental are amortized over 12 months on a straight-line basis.
Property and Equipment
Property and equipment, including expenditures for remodeling and
improvements, are carried at cost. Routine maintenance, repairs and minor
betterments are charged to operations as incurred. Depreciation and
amortization are computed on a straight-line basis over the estimated useful
lives of the assets or, in relation to leasehold improvements and property
under capital leases, over the lesser of the asset's useful life or the lease
term, not to exceed 20 years. Estimated useful lives are 20 years for
buildings and improvements, 5 to 12 years for furniture, fixtures and
equipment, 4 years for automotive equipment and 3 years for computer hardware
and software.
Upon the sale, retirement or other disposition of assets, the related
cost and accumulated depreciation or amortization are eliminated from the
accounts. Any resulting gains or losses from disposals are included in the
consolidated statements of operations.
F-7
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (Continued)
Goodwill and Other Intangibles
Goodwill represents the excess of cost over the estimated fair value of
the net tangible and other intangible assets acquired in connection with the
transaction described in Note (2)-- Goodwill. Tradenames acquired at the
time of the transaction were valued by independent appraisers. Goodwill and
other intangibles are being amortized using the straight-line method over
periods not exceeding 40 years. The Company periodically evaluates the
carrying amount of goodwill and other intangibles to recognize and measure
the possible impairment of these assets. Based on the recoverability from
cash flows method (which includes evaluating the probability that estimated
undiscounted cash flows from related operations will be less than the
carrying amount of goodwill and other long-lived assets), the Company
believes there is no impairment to goodwill and other intangibles.
Self-Insurance
The Company's general liability, certain of its workers compensation,
and certain of its health insurance programs are self-insured. The general
liability and workers compensation reserves for self-insurance claims are
based upon an annual review by the Company and its independent actuary of
claims filed and claims incurred but not yet reported. Due to inherent
uncertainties in the estimation process, it is at least reasonably possible
that the Company's estimate of the reserve for self-insurance claims could
change in the near term. The liability for self-insurance is not discounted.
Individual self-insured losses are limited to $250,000 per occurrence for
general liability and certain workers compensation. The Company maintains
insurance coverage for claims in excess of $250,000. The current portion of
the reserve for general liability and workers compensation, representing the
amount expected to be paid in the next fiscal year, was $6.5 million at
January 29, 2000 and January 30, 1999 and is included in the consolidated
balance sheets as accrued expense. The reserve for health insurance programs
was $1.3 million and $2.5 million at January 29, 2000 and January 30, 1999,
respectively, and is also included in the consolidated balance sheets as
salaries, wages, and benefits payable.
Pre-Opening Expenses
Store pre-opening expenses are charged to operations as they are
incurred.
Advertising Expenses
Advertising expenses are charged to operations as they are incurred.
During fiscal 2000, fiscal 1999, and fiscal 1998, advertising expenses were
$11.7 million, $11.9 million, and $9.3 million, respectively.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").
SFAS 109 requires deferred tax assets and liabilities to be determined based
on the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates currently in effect.
F-8
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings Per Common Share
The Company is a wholly-owned subsidiary of PXC&M Holdings, Inc.
("Holdings") with a total of 200 shares of common stock issued and
outstanding. Earnings per share is not meaningful to the presentation of the
consolidated financial statements and is therefore excluded.
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial statements
and the reported amount of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities."
Among other provisions, SFAS No. 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities. It also
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. In June 1999, the FASB issued SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of SFAS Statement No. 133," which changes the
effective date of SFAS 133 for financial statements for fiscal years
beginning after June 15, 2000. The Company does not deal with derivative
instruments and does not engage in hedging activities. Accordingly, the
Company expects no impact from adoption of SFAS No. 133.
Reclassifications
Certain amounts in the prior year's consolidated financial statements
and related notes have been reclassified to conform to the current year's
presentation.
F-9
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 2 -- GOODWILL
In July 1993, the Company acquired all of the outstanding shares of the
common stock of Pueblo International, Inc. and subsidiaries for an aggregate
purchase price of $283.6 million plus transaction costs. The shares were
acquired from an investor group including affiliates of Metropolitan Life
Insurance Company, The First Boston Corporation and certain current and
former members of the Company's management and its Board of Directors.
The acquisition of shares was accounted for as a purchase effective July
31, 1993. Accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed. The excess of the aggregate purchase price
over the fair market value of net assets acquired of approximately $210.2
million was recognized as goodwill and is being amortized over 40 years.
During the fiscal year ended January 29, 2000, goodwill of $2.7 million
was written off in conjunction with the sale/leaseback transaction (Note 12).
The reduction in goodwill is to adjust for the preferential tax rate
applicable to this transaction. Upon disposition of such assets, a capital
gain was realized for tax purposes. Capital gains in Puerto Rico are taxed at
a rate of 25%. Because a deferred tax liability at the statutory tax rate of
39% was recorded on the books upon the initial acquisition of the assets on
July 28, 1993, the tax rate differential of 14% has been recorded as a
reduction of goodwill.
NOTE 3 -- INVENTORIES
The cost of approximately 81% and 80% of total inventories at January
29, 2000 and January 30, 1999, respectively, is determined by the LIFO
method. The excess of current cost over inventories valued by the LIFO
method was $2.0 million and $2.2 million as of January 29, 2000 and January
30, 1999, respectively.
NOTE 4 -- DEBT
Total debt consists of the following (in thousands):
January 29, January 30,
2000 1999
----------- -----------
Senior notes due 2003, net of unamortized
discount of $5,355 and $6,525 in 2000
and 1999, respectively $ 259,645 $ 258,475
Payable to a Puerto Rico governmental
agency 10,000 10,000
------------ ------------
$ 269,645 $ 268,475
============ ============
F-10
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 4 -- DEBT (Continued)
In 1993 the Company issued $180 million in 10-year, 9 1/2% senior notes
(the "Notes"). On April 29, 1997, the Company entered into a refinancing
plan (the "Refinancing Plan"), which included the issuance and sale of $85.0
million principal amount of 9 1/2% Series C Senior Notes Due 2003 (the
"Series C Senior Notes"), the terms of which are substantially identical to
those of the Series B Senior Notes. The net proceeds from the sale of the
Series C Senior Notes of approximately $73.9 million after deducting
expenses, together with available cash of the Company, were used to repay the
senior secured indebtedness outstanding under a bank credit agreement dated
July 31, 1993 (the "Old Bank Credit Agreement"). The weighted average
interest rate on the Old Bank Credit Agreement, which approximates that of
short-term borrowings under the revolving facility, was 8.52% during fiscal
1998.
In connection with the Refinancing Plan, the Company entered into an
amended bank credit agreement (the "New Bank Credit Agreement"), which
provides for a $65.0 million revolving credit facility (the "New Credit
Facility") with less restrictive covenants compared to the Old Bank Credit
Agreement. After the issuance of standby letters of credit in the amount of
$13.6 million, as of January 29, 2000, the Company has borrowing availability
on a revolving basis of $51.4 million under the New Bank Credit Agreement.
In fiscal year 1998, this transaction resulted in an extraordinary charge of
$2.4 million, net of deferred income taxes of $1.6 million, by reason of
early extinguishment of debt. The Company pays a fee of .30% per annum
on unused commitments under the $65.0 million revolving facility. Interest on
the New Credit Facility fluctuates based on the availability of Section 936
funds in Puerto Rico, Euroloan rates and the prime rate. As of January 29,
2000, the Company had no borrowings outstanding under the revolver of the New
Bank Credit Agreement.
Also in connection with the Refinancing Plan, on April 29, 1997, the
Company satisfied $10.0 million of indebtedness payable to a related party by
transferring its interest in two real estate properties from its closed
Florida operations to such related party.
The New Credit Facility is collateralized by a pledge of the assets of
the Company, by the capital stock of, and intercompany notes issued by, the
Company's subsidiaries and by the capital stock of the Company. The Company
is required, under the terms of the New Credit Facility, to meet certain
financial covenants which include minimum consolidated net worth levels,
interest and fixed charges coverage ratios and minimum EBITDA (Earnings
Before Interest, Taxes, Depreciation, and Amortization as defined in the
credit agreement). The agreement also contains certain restrictions on
additional indebtedness, capital expenditures and the declaration and payment
of dividends.
The Notes and Series C Senior Notes, which mature on August 1, 2003, are
general unsecured obligations of the Company subordinate in right of payment
to all existing and future liabilities (including, without limitation,
obligations under the New Credit Facility) of its subsidiaries. The Notes and
Series C Senior Notes may be called by the holders of the notes at 101% in
the event of a change in control of the Company (as defined in the
indenture). The Notes and Series C Senior Notes are senior to all future
subordinated indebtedness which the Company may from time to time incur. The
F-11
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 4 -- DEBT (Continued)
Notes and Series C Senior Notes bear interest at 9.50% per annum which is
payable semiannually on February 1st and August 1st. Terms of the Notes and
Series C Senior Notes include covenants which restrict the Company and its
subsidiaries from engaging in certain activities and transactions.
Outstanding borrowings from a governmental agency of the Commonwealth of
Puerto Rico from the issuance of industrial revenue bonds were $10.0 million
as of fiscal year end 2000 and 1999. The bonds, which bear interest at
variable rates based on an index of tax-exempt borrowing, have a weighted
average interest rate of 4.40% and 4.43% at January 29, 2000 and January 30,
1999, respectively. A principal payment of $7.5 million was made in fiscal
1998 and another principal payment in fiscal 2001 for $10 million is due,
which correspond to the maturity dates of the bonds. Payment of the bonds is
guaranteed by standby letters of credit totaling $10.2 million, issued under
the $65.0 million revolving credit facility discussed above.
Annual maturities of the Company's debt are as follows (in thousands):
Fiscal Year Amount
------------- ----------
2001 10,000
2004 259,645
---------
Total $269,645
=========
Total interest paid on debt was $24.9 million, $25.6 million, and $14.1
million for fiscal 2000, fiscal 1999, and fiscal 1998, respectively.
Interest payable as of both January 29, 2000 and January 30, 1999 was $12.5
million.
NOTE 5 -- LEASES AND LEASEHOLD INTERESTS
The Company conducts the major part of its operations on leased premises
which have initial terms generally ranging from 20 to 25 years.
Substantially, all leases contain renewal options which extend the lease
terms in increments of 5 to 10 years and include escalation clauses. The
Company also has certain equipment leases which have terms of up to five
years. Realty and equipment leases generally require the Company to pay
operating expenses such as insurance, taxes and maintenance. Certain store
leases provide for percentage rentals based upon sales above specified
levels.
The Company leases retail space to tenants in certain of its owned and
leased properties. The lease terms generally range from two to five years.
F-12
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 5 -- LEASES AND LEASEHOLD INTERESTS (Continued)
Property recorded as assets under capital leases consists of real estate
as follows (in thousands):
January 29, January 30,
2000 1999
--------------- --------------
Real estate $ 19,192 $ 12,113
Less accumulated amortization 4,747 3,844
--------------- --------------
Property under capital leases, net $ 14,445 $ 8,269
=============== ==============
Amortization of assets recorded under capital leases is included with
depreciation and amortization expense in the consolidated statements of
operations. Minimum rentals payments to be made under noncancelable leases
at January 29, 2000 as well as rent to be received as lessor of owned
property and as lessor in sublease rentals of portions of leased property are
as follows (in thousands):
Capital Operating Operating
Lease Lease Lease
Payments Payments Receipts
Fiscal Year (As Lessee) (As Lessee) (As Lessor)
- -------------------------------- ------------ ------------ ------------
2001 $ 2,591 $ 12,529 $ 49
2002 2,523 11,923 51
2003 2,435 10,801 51
2004 2,405 9,810 51
2005 2,252 9,622 51
2006 and thereafter 24,577 97,053 608
------------ ------------ ------------
36,783 $151,738 $ 861
============ ============
Less executory costs 40
-----------
Net minimum lease payments 36,743
Less amount representing interest 22,683
-----------
Present value of net minimum lease
payments under capital lease
obligations 14,060
Less: current portion 714
----------
Capital lease obligations,
net of current portion $13,334
==========
F-13
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 5 -- LEASES AND LEASEHOLD INTERESTS (Continued)
Sublease rental receipts to be received from capital and operating leases:
Capital Operating
Leases Leases
----------- ------------
Total minimum sublease rentals
to be received in the future $ 1,355 $ 6,879
=========== ============
Rent expense and the related contingent rentals under operating leases
were $15.7 million and $0.2 million for fiscal 2000, respectively, $13.2
million and $0.3 million for fiscal 1999, respectively, and $12.3 million and
$0.4 million for fiscal 1998, respectively.
Contingent rentals under capital leases, which are directly related to
sales, were $0.1 million for fiscal 2000, $0.2 million for fiscal 1999 and
$0.3 million for fiscal 1998. Interest paid on capital lease obligations was
$1.6 million for fiscal 2000, $1.0 million for fiscal 1999, and $1.2 million
for fiscal 1998.
Sublease rental income for operating and capital leases was $4.2 million
for fiscal 2000, $3.1 million for fiscal 1999, and $2.6 million for fiscal
1998.
NOTE 6 -- INCOME TAXES
As described in Note (1)-- Significant Accounting Policies, the
Company's method of accounting for income taxes is the liability method as
required by SFAS No. 109.
The components of income tax expense, excluding extraordinary items, are
as follows (in thousands):
Fiscal Fiscal Fiscal
2000 1999 1998
----------- ----------- ------------
Current
Federal $ 46 $ 53 $ (40)
State 17 7 1
U.S. Possessions 4,348 423 392
----------- ----------- ------------
4,411 483 353
----------- ----------- ------------
Deferred
Federal 1,738 3,083 2,608
State 26 69 (124)
U.S. Possessions (2,160) 6,197 (2,254)
----------- ----------- ------------
(396) 9,349 230
----------- ----------- ------------
Total income tax
expense $ 4,015 $ 9,832 $ 583
=========== =========== ============
F-14
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 6 -- INCOME TAXES (Continued)
The significant components of the net deferred tax liabilities are as
follows (in thousands):
January 29, January 30,
2000 1999
--------------- --------------
Deferred tax assets:
Reserve for self-insurance claims $ 5,130 $ 6,941
Employee benefit plans 6,399 6,467
Property and equipment 2,225 2,704
Reserve for closed stores - 1,113
Accrued expenses and other liabilities
and deferred credits 6,863 3,928
Other operating loss and tax credit
carry forwards 3,525 4,455
All other 980 922
--------------- --------------
Total deferred tax assets 25,122 26,530
--------------- --------------
Deferred tax liabilities:
Property and equipment (12,748) (16,440)
Tradenames (11,581) (11,927)
Operating leases (5,984) (6,495)
Inventories (4,229) (4,268)
Other assets (1,843) (2,056)
Accrued expenses and other liabilities
and deferred credits (1,809) (1,540)
--------------- --------------
Total deferred tax liabilities (38,194) (42,726)
--------------- --------------
Net deferred tax liabilities $(13,072) $ (16,196)
=============== ==============
F-15
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 6 -- INCOME TAXES (Continued)
A reconciliation of the difference between actual income tax expense and
income taxes computed at U. S. Federal statutory tax rates is as follows (in
thousands):
Fiscal Fiscal Fiscal
2000 1999 1998
----------- ----------- -----------
U.S. Federal Statutory rate of 35%
applied to pretax income (loss) $ 3,059 $ 6,548 $ (892)
Effect of varying rates
applicable in other taxing
jurisdictions 272 663 (219)
Amortization of goodwill 1,761 1,761 1,761
State and local taxes 40 53 (141)
Alternative minimum taxes - 413 -
Branch taxes (possession -
US/VI) (686) 92 79
All others, net (431) 302 (5)
----------- ----------- -----------
Income tax expense $ 4,015 $ 9,832 $ 583
=========== =========== ===========
F-16
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 6 -- INCOME TAXES (Continued)
The Company's operations are located in U. S. possessions where they are
subject to U. S. and local taxation.
The net deferred tax liability decreased by $3.1 million during the
year. Of this amount, $0.4 million was recorded as a deferred tax benefit and
$2.7 million was recorded as a reduction of goodwill (See Note 2 --Goodwill.)
As of January 29, 2000, the Company has unused net operating loss
carryforwards of $ 3.2 million and $ 2.8 million available to offset future
taxable income in the United States, and the U. S. Virgin Islands through
fiscal years 2011 and 2020, respectively.
The Company has unused investment tax credits of approximately $0.7
million available to offset future United States income tax liabilities.
Such investment tax credits expire as follows: 2000 - $447,000; 2001 -
$228,000; and 2002 - $20,000. Utilization of the investment tax credit
carryforward may be limited each year.
The Company also has unused alternative minimum tax credits in the
amount of $0.2 million and $0.1 million to offset future income tax
liabilities in Puerto Rico and the United States, respectively. These
credits are carried forward indefinitely.
Total income taxes paid were $0.7 million during fiscal 2000, $0.05
million during fiscal 1999, and $0.6 million during fiscal 1998.
NOTE 7 -- RETIREMENT BENEFITS
The Company has a noncontributory defined benefit plan (the "Retirement
Plan") covering substantially all full-time and certain part-time associates.
Retirement Plan benefits are based on years of service and a base level of
compensation. The Company funds retirement plan costs in accordance with the
requirements of the Employee Retirement Income Security Act of 1974.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future.
Retirement Plan assets consist primarily of stocks, bonds and U. S.
Government securities. Full vesting for the Retirement Plan occurs upon the
completion of five years of service.
F-17
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 7 -- RETIREMENT BENEFITS (Continued)
Net pension cost under the Retirement Plan includes the following
components (in thousands):
Fiscal Fiscal Fiscal
2000 1999 1998
----------- ----------- -----------
Service cost - benefits
earned during the period $ 1,546 $ 1,370 $ 1,443
Interest cost on projected
benefit obligation 1,509 1,433 1,452
Expected return on plan
assets (1,262) (1,157) (1,083)
Net amortization and
deferrals (6) (6) (6)
----------- ----------- -----------
NET PENSION COST $ 1,787 $ 1,640 $ 1,806
=========== =========== ===========
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of the net periodic pension
cost for the Retirement Plan are 7.75% and 5.0%, respectively, for fiscal
2000, 6.75% and 5.0%, respectively, for fiscal 1999, and 7.5% and 5.0%,
respectively, for fiscal 1998. The average expected long-term rate of return
on plan assets is 9.0% for the three-year period.
The funded status and amounts recognized in the Company's consolidated balance
sheets for the Retirement Plan are as follows (in thousands):
January 29, January 30,
2000 1999
--------------- --------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $13,834 at January 29,
2000 and $16,693 at January 30, 1999 $14,708 $ 18,117
=============== ==============
Plan assets at fair value - beginning of the year $14,562 $ 12,908
Actual return on plan assets 2,792 1,690
Employer contributions 1,306 1,574
Benefits paid (1,814) (1,610)
--------------- --------------
Plan assets at fair value - end of the year 16,846 14,562
--------------- --------------
Projected benefit obligation for service
rendered to date - beginning of the year (23,433) (20,190)
Service cost (1,546) (1,370)
Interest cost (1,509) (1,433)
Actuarial gain (loss) 2,064 (2,050)
Benefit paid 1,814 1,610
--------------- --------------
Projected benefit obligation for service
rendered to date - end of the year (22,610) (23,433)
--------------- --------------
FUNDED STATUS (5,764) (8,871)
Unrecognized net gain (4,068) (474)
Unrecognized prior service cost (61) (67)
--------------- --------------
NET PENSION LIABILITY $ (9,893) $ (9,412)
=============== ==============
F-18
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 7 -- RETIREMENT BENEFITS (Continued)
The Company maintains a Supplemental Executive Retirement Plan (the
"Supplemental Plan") for its officers under which the Company will pay, from
general corporate funds, a supplemental pension equal to the difference
between the annual amount of pension calculated under the Supplemental Plan
and the amount the participant will receive under the Retirement Plan.
Effective January 1, 1992, the Board of Directors amended the Supplemental
Plan in order to conform various provisions and definitions with those of the
Retirement Plan. The pension benefit calculation under the Supplemental Plan
is limited to a total of 20 years employment and is based on a specified
percentage of the average annual compensation received for the five highest
consecutive years during a participant's last 10 years of service, reduced by
the participant's annual Retirement Plan and social security benefits. Full
vesting for the Supplemental Plan occurs upon the completion of five years of
service.
Net pension cost under the Supplemental Plan includes the following
components (in thousands):
Fiscal Fiscal Fiscal
2000 1999 1998
----------- ----------- -----------
Service cost - benefits earned
during the period $ 260 $ 150 $ 124
Interest cost on projected
benefit obligation 271 309 317
Net amortization and deferrals (79) (94) (83)
----------- ----------- -----------
NET PENSION COST $ 452 $ 365 $ 358
=========== =========== ===========
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of the net periodic pension
cost for the Supplemental Plan are 7.75% and 5%, respectively, for fiscal
2000, 6.75% and 5%, respectively, for fiscal 1999, and 7.5% and 5%,
respectively, for fiscal 1998.
F-19
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 7 -- RETIREMENT BENEFITS (Continued)
The funded status and amounts recognized in the Company's consolidated balance
sheets for the Supplemental Plan are as follows (in thousands):
January 29, January 30,
2000 1999
--------------- --------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $3,173 at January 29,
2000 and $3,663 at January 30, 1999 $ 3,180 $ 3,678
=============== ==============
Projected benefit obligation for service
rendered to date $ (3,467) $ (4,179)
--------------- --------------
FUNDED STATUS (3,467) (4,179)
Unrecognized net gain (2,194) (1,347)
Unrecognized prior service cost 30 37
--------------- --------------
NET PENSION LIABILITY $ (5,631) $ (5,489)
=============== ==============
Change in benefit obligations was as follows (in thousands):
January 29, January 30,
2000 1999
--------------- --------------
Benefit obligation as of beginning of the year $ 4,179 $ 4,306
Service costs 260 150
Interest costs 271 309
Actuarial (gain) loss (933) 86
Benefits paid (310) (672)
--------------- --------------
Benefit obligation as of end of the year $ 3,467 $ 4,179
=============== ==============
Change in plan assets were as follows (in thousands):
January 29, January 30,
2000 1999
--------------- --------------
Fair value of assets as of beginning of the year $ - $ -
Employer contribution 310 672
Benefits paid (310) (672)
--------------- --------------
Fair value of assets as of end of the year $ - $ -
=============== ==============
F-20
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 7 -- RETIREMENT BENEFITS (Continued)
The Company has a noncontributory defined contribution plan covering its
eligible associates in Puerto Rico and the U. S. Virgin Islands.
Contributions to this plan are at the discretion of the Board of Directors.
The Company also has a contributory thrift savings plan in which it matches
eligible contributions made by participating eligible associates in the
United States. Expenses related to these plans, which are recognized in the
year the cost is incurred, were $620,000 for fiscal 2000, $758,000 for fiscal
1999, and $818,000 for fiscal 1998.
NOTE 8 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments.
Cash and Cash Equivalents
The carrying amount of cash and cash equivalents approximates fair value
due to the short maturity of these instruments.
Debt
The fair value of the Company's indebtedness, excluding the Senior
Notes, is estimated based on quoted market prices for similar instruments.
The fair value of the Senior Notes is determined based on market quotes.
The estimated fair value of the Company's financial instruments are as
follows (in thousands):
January 29, January 30,
2000 1999
---------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- ---------- ------------ ---------
Cash and cash equivalents $ 95,711 $95,711 $ 55,500 $ 55,500
Debt (269,645) (129,308) (268,475) (253,852)
F-21
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 9 -- CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents.
The Company places its temporary cash investments with highly-rated
financial institutions in investment grade short-term debt instruments.
NOTE 10 -- CONTINGENCIES
At January 29, 2000, the Company was party to a number of legal
proceedings involving claims for money damages arising in the ordinary course
of conducting its business which are either covered by insurance or are
within the Company's self-insurance program, and in a number of other
proceedings which are not deemed material. Management believes there were no
material contingencies as of January 29, 2000. It is not possible to
determine the ultimate outcome of these matters; however, management is of
the opinion that the final resolution of any threatened or pending litigation
is not likely to have a material adverse effect on the financial position or
results of operations of the Company.
NOTE 11 -- HURRICANE GEORGES
Hurricane Georges struck all of the Company's operating facilities on
September 20 and 21, 1998. All of the Company's stores, with the exception
of two, were reopened. Since the storm, operations have been at varying
degrees of capacity depending on the extent of damage at each location.
The insurance claim settlement for property damage and extra expenses
involved inventory losses, reconstruction of property and replacement of
equipment and expenses the Company incurred specifically as a result of the
storm. The related insurance coverage for losses resulting from the storm is
as follows:
Inventory at retail value
Reconstruction of property and replacement of equipment at replacement
cost
Extra expenses reimbursed dollar for dollar
During this fiscal year the Company recorded a $15.1 million gain which
is a result of the excess of insurance coverage for inventory, property, and
equipment over the net book value of these items at the time the storm
occurred.
The Company received $41.3 million in cash reimbursement from its
insurance carrier under the settlement.
The Company's insurance policy also includes business interruption
coverage which provides for reimbursement for lost profits as a result of the
storm. On December 2, 1999 the Company presented its initial interim
business interruption claim covering the 35 weeks ended on May 22, 1999, the
period immediately subsequent to the storm. The total claim, when completed,
will involve the period from the date of the storm through 12 months after
the date the Company's reconstruction efforts are deemed to have been
substantially completed. As of this filing, reconstruction efforts have been
substantially completed. However, the Company and its insurance carriers
have not yet agreed upon the date of substantial completion for purposes of
F-22
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 11 -- HURRICANE GEORGES (Continued)
the business interruption claim. The accompanying financial statements do
not include any anticipated recovery from the business interruption claim as
all recoveries will be pretax gains which may be included only at such time
as they are settled and realized.
NOTE 12-- SALE/LEASEBACK TRANSACTION
Sale/Leaseback Transaction
On June 1, 1999, the Company realized approximately $35.2 million in cash
from the sale of seven shopping centers that are located in Puerto Rico and
the U.S. Virgin Islands. The portions of these centers in which the Company's
retail stores are located are being leased back pursuant to long-term leases.
The Company incurred a $1.2 million loss (net of the income tax benefit and
a $6.9 million deferred gain) in the transaction.
NOTE 13-- DISCLOSURE ON OPERATING SEGMENTS
The Company has two primary operating segments: retail food sales
and video tape rentals and sales. The Company's retail food division
consists of 50 supermarkets, 44 of which are in Puerto Rico and 6 of which
are in the U. S. Virgin Islands. The Company also has the exclusive
franchise rights to Blockbuster video stores for Puerto Rico and the U. S.
Virgin Islands operated through 43 Blockbuster stores, 41 of which are in
Puerto Rico and 2 of which are in the U. S. Virgin Islands. Most of the
Blockbuster stores are adjacent to, or a separate section within, a retail
food supermarket. Administrative support functions are in Florida. Although
the Company maintains data by geographic location, its segment decision
making process is based on its two product lines.
F-23
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 13-- DISCLOSURE ON OPERATING SEGMENTS (Continued)
Reportable operating segment financial information is as follows (dollars in
thousands):
Retail Food Videotape Total
Fiscal Year Ended 2000
Net sales $ 624,225 $ 49,920 $ 674,145
Depreciation and amortization (22,838) ( 8,794) (31,632)
Operating profit 30,851* 6,800* 37,651*
Total assets 494,482 27,082 521,564
Capital expenditures (21,443) ( 207) (21,650)
Fiscal Year Ended 1999
Net sales $ 723,802 $ 60,972 $ 784,774
Depreciation and amortization (25,834) (10,695) (36,529)
Operating profit 41,746 5,140 46,886
Total assets 477,155 29,847 507,002
Capital expenditures (14,965) (306) (15,271)
Fiscal Year Ended 1998
Net sales $ 890,391 $ 48,115 $ 938,506
Depreciation and amortization (29,947) (10,228) (40,175)
Operating profit 23,711 3,392 27,103
Capital expenditures (5,807) (5,131) (10,938)
* Includes gain on settlement of insurance claim related to Hurricane Georges
of $15,066 of which $13,798 was in the Retail Food segment and $1,268 was in the
Videotape segment.
Because the Retail Food and Videotape Divisions are not segregated by
corporate entity structure, the operating segment amounts shown above do not
represent totals for any subsidiary of the Company and do not include the
effects of intercompany eliminations. All overhead expenses including
depreciation on assets of administrative departments are allocated to
operations. Amounts shown in the total column above correspond to amounts in
the consolidated financial statements.
F-24
57
Schedule II
PUEBLO XTRA INTERNATIONAL, INC.
BALANCE SHEETS-PARENT COMPANY ONLY
(Dollars in thousands)
January 29, January 30,
2000 1999
------------- -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 13,002 $ 12,697
Prepaid expenses 158 158
------------- -----------
TOTAL CURRENT ASSETS 13,160 12,855
------------- -----------
INVESTMENT IN SUBSIDIARIES 53,503 47,918
NOTE RECEIVABLE-MIRROR LOAN 256,961 255,858
DEFERRED INCOME TAXES 1,185 726
DEFERRED CHARGES AND OTHER ASSETS 2,461 3,166
------------ -----------
TOTAL ASSETS $ 327,270 $ 320,523
============ ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accrued expenses $ 12,451 $ 12,520
Intercompany payable, net 14,268 13,346
------------- -----------
TOTAL CURRENT LIABILITIES 26,719 25,866
NOTES PAYABLE 259,645 258,475
------------- -----------
TOTAL LIABILITIES 286,364 284,341
------------- -----------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDER'S EQUITY
Common stock - -
Additional paid-in capital 91,500 91,500
Retained earnings (accumulated deficit) (50,594) (55,318)
------------- ------------
TOTAL STOCKHOLDER'S EQUITY 40,906 36,182
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 327,270 $ 320,523
============= =============
(Continued)
S-1
58
Schedule II
PUEBLO XTRA INTERNATIONAL, INC.
STATEMENT OF OPERATIONS-PARENT COMPANY ONLY
(Dollars in thousands)
2000 1999 1998
--------- ---------- -----------
Interest income $ 25,868 $ 25,744 $ 24,039
Interest expense on debt (26,981) (26,856) (24,891)
Selling, general and administrative expenses (206) (59) -
---------- ---------- -----------
LOSS BEFORE INCOME, TAXES AND
EQUITY LOSSES FROM SUBSIDIARIES (1,319) (1,171) (852)
Income tax benefit (expense) 458 427 299
---------- ---------- -----------
LOSS BEFORE EQUITY LOSSES FROM
SUBSIDIARIES ( 861) (744) (553)
Equity gain (loss) from subsidiaries 5,585 9,621 (5,024)
---------- ---------- -----------
NET INCOME (LOSS) $ 4,724 $ 8,877 $ (5,577)
========== ========== ===========
(Continued)
S-2
59
Schedule II
PUEBLO XTRA INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS-PARENT COMPANY ONLY
(Dollars in thousands)
2000 1999 1998
---------- ---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,724 $ 8,877 $ (5,577)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
(Increase) decrease in deferred income taxes ( 459) (427) (299)
Decrease in deferred charges and other assets 705 701 704
Amortization of bond discount - - 715
Changes in operating assets and liabilities:
(Increase) decrease in:
Notes/accounts receivable - - (66,087)
Prepaid expenses - - 279
Interest receivable, net - 13,792 (5,160)
Increase (decrease) in:
Accounts payable and accrued expenses (69) (66) 12,586
Intercompany payable, net 922 578 3,690
--------- --------- ----------
Net cash provided by (used in) operating activities 5,823 23,455 (59,149)
--------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in investment in subsidiaries (5,585) (9,622) 5,024
--------- --------- ----------
Net cash provided by (used in) investing activities (5,585) (9,622) 5,024
--------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment from notes payable to a related party (1,103) (14,771) (10,000)
Proceeds from long-term borrowing - - 76,713
Proceeds from notes payable to a related party 1,170 1,047 -
--------- --------- ----------
Net cash provided by (used in) financing activities 67 (13,724) 66,713
--------- --------- ----------
Net increase in cash and cash equivalents 305 109 12,588
Cash and cash equivalents at beginning of period 12,697 12,588 -
--------- --------- ----------
Cash and cash equivalents at end of period $13,002 $ 12,697 $ 12,588
========= ========= ==========
(Concluded)
S-3
60
Schedule V
Pueblo Xtra International, Inc. and Subsidiaries
Valuation and Qualifying Accounts
For the fiscal years ended January 29, 2000, January 30, 1999,
and January 31, 1998
(Dollars in thousands)
Balance at Additions Balance
Beginning Charged to at End
of Year/ Costs and of Year/
Description Period Expenses Deductions (1) Period (2)
- ----------------------------- ----------- ----------- --------------- -----------
Fiscal 2000
Reserves not deducted
from assets:
Reserve for self-
insurance claims.... $ 16,377 $ 794 $ 5,080 $ 12,091
Fiscal 1999
Reserves not deducted
from assets:
Reserve for self-
insurance claims.... $ 17,687 $ 4,957 $ 6,267 $ 16,377
Fiscal 1998
Reserves not deducted
from assets:
Reserve for self-
insurance claims.... $ 18,929 $ 6,241 $ 7,483 $ 17,687
- ----------
(1) Amounts consist primarily of payments on claims.
(2) Amounts represent both the current and long-term portions.
S-4