UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended February 23, 2002
[ ] 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-Q or any
amendment to this Form 10-Q. [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 9, 2002 -- 200.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Page(s)
-------
Consolidated Balance Sheets -
February 23, 2002 (Unaudited) and November 3, 2001. . . . . . 3-4
Consolidated Statements of Operations (Unaudited) -
Sixteen weeks ended February 23, 2002
and February 24, 2001 . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows (Unaudited)-
Sixteen weeks ended February 23, 2002
and February 24, 2001 . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements (Unaudited). . . . . . . . . . 7-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . .10-13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. . . 13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . 15
CONSOLIDATED BALANCE SHEETS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(Dollars in thousands)
(Unaudited)
February 23, November 3,
2002 2001
------------- -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,806 $ 2,169
Accounts receivable, net of allowance for
doubtful accounts of $477 at February 23,
2002 and $520 at November 3, 2001 2,686 3,450
Inventories 52,939 54,228
Prepaid expenses 6,745 8,997
Deferred income taxes 14,534 14,534
--------- ---------
TOTAL CURRENT ASSETS 82,710 83,378
--------- ---------
PROPERTY AND EQUIPMENT
Land and improvements 6,299 6,299
Buildings and improvements 40,032 40,051
Furniture, fixtures and equipment 100,138 99,758
Leasehold improvements 44,249 43,736
Construction in progress 2,023 2,803
--------- ---------
192,741 192,647
Less accumulated depreciation
and amortization 97,223 94,110
--------- ---------
95,518 98,537
Property under capital leases, net 12,391 12,690
--------- ---------
TOTAL PROPERTY AND EQUIPMENT 107,909 111,227
GOODWILL, net of accumulated amortization of
$43,279 at February 23, 2002 and $41,821
at November 3, 2001 148,759 150,217
DEFERRED INCOME TAX 1,080 1,080
TRADE NAMES, net of accumulated amortization
of $11,326 at February 23, 2002 and $11,059
at November 3, 2001 27,174 27,441
DEFERRED CHARGES AND OTHER ASSETS 20,037 20,816
--------- ---------
TOTAL ASSETS $ 387,669 $ 394,159
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(Dollars in thousands, except share data)
(Unaudited)
February 23, November 3,
2002 2001
------------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 53,496 $ 53,539
Accrued interest 1,173 4,432
Accrued expenses 16,453 16,669
Salaries, wages and benefits payable 8,846 7,862
Current obligations under capital leases 648 623
Borrowings under revolving credit
facility 30,000 -
----------- -----------
TOTAL CURRENT LIABILITIES 110,616 83,125
BORROWINGS UNDER REVOLVING CREDIT
FACILITY - LONG-TERM PORTION - 30,000
NOTES PAYABLE 175,668 175,358
CAPITAL LEASE OBLIGATIONS, net of
current portion 12,086 12,296
RESERVE FOR SELF-INSURANCE CLAIMS 6,035 6,008
DEFERRED INCOME TAXES 20,479 20,486
OTHER LIABILITIES AND DEFERRED CREDITS 31,990 31,501
----------- -----------
TOTAL LIABILITIES 356,874 358,774
----------- -----------
STOCKHOLDER'S EQUITY
Common stock, $.10 par value; 200 shares
authorized and issued - -
Additional paid-in capital 91,500 91,500
Accumulated deficit (60,705) (56,115)
----------- -----------
TOTAL STOCKHOLDER'S EQUITY 30,795 35,385
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 387,669 $ 394,159
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(Dollars in thousands)
(Unaudited)
16 weeks ended
--------------------------------
February 23, February 24,
2002 2001
-------------- --------------
Net sales $187,281 $187,736
Cost of goods sold 125,880 127,683
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GROSS PROFIT 61,401 60,053
OPERATING EXPENSES
Selling, general and administrative expenses 50,144 50,663
Store closings:
Write down of impaired assets - (44)
Depreciation and amortization 8,712 10,426
-------------- --------------
OPERATING PROFIT (LOSS) 2,545 (992)
Interest expense on debt (6,641) (6,924)
Interest expense on capital lease obligations (559) (521)
Interest and investment income, net 65 340
-------------- --------------
LOSS BEFORE TAXES (4,590) (8,097)
Income tax benefit - 3,281
-------------- --------------
NET LOSS $(4,590) $(4,816)
============== ==============
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(Dollars in thousands)
(Unaudited)
16 weeks ended
---------------------------------
February 23, February 24,
2002 2001
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,590) $(4,816)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization of property and equipment 4,967 6,345
Amortization of intangible and other assets 3,745 4,081
Amortization of bond discount 310 276
Gain on disposal of property and equipment, net (21) (17)
Provision for deferred income taxes - (3,281)
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable 764 708
Inventories (268) 1,429
Prepaid expenses 2,252 (372)
Other assets 316 424
(Decrease) increase in:
Accounts payable, accrued expenses and accrued interest (2,507) (2,648)
Other liabilities and deferred credits 482 4,851
--------------- --------------
Net cash provided by operating activities 5,450 6,980
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,649) (1,553)
Proceeds from disposal of property and equipment 21 19
--------------- --------------
Net cash used in investing activities (1,628) (1,534)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (185) (187)
--------------- --------------
Net cash used in financing activities (185) (187)
--------------- --------------
Net increase in cash and cash equivalents 3,637 5,259
Cash and cash equivalents at beginning of period 2,169 6,663
--------------- --------------
Cash and cash equivalents at end of period $5,806 $11,922
=============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $9,607 $9,951
Income taxes, net of refunds $0 $3,750
The accompanying notes are an integral part of these
consolidated financial statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 1 -- INTERIM FINANCIAL STATEMENTS
On November 2, 2001 the Company changed its fiscal year end from the
Saturday closest to January 31 to the Saturday closest to October 31.
Consequently, the first quarter of the current fiscal year is the 16 weeks
ended February 23, 2002. The comparable period is the 16 weeks ended
February 24, 2001 which is presented for comparison purposes and has never
been reported separately in filings with the Securities and Exchange
Commission. Operating results for the 16 weeks ended February 23, 2002 and
February 24, 2001 are not necessarily indicative of results that may be
expected for a full fiscal year.
With respect to the unaudited financial information for the 16 weeks
ended February 23, 2002 and February 24, 2001, it is the opinion of
management of Pueblo Xtra International, Inc. and its wholly-owned
subsidiaries (collectively, the "Company") that the adjustments necessary to
prepare a fair statement of the results for such interim periods have been
included. Such adjustments, other than those related to the final accounting
for the settlement of the Hurricane Georges insurance claim as detailed
herein, were of a normal and recurring nature.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared on
a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company
has experienced a decrease in sales and profitability over the past several
years. As a result, the Company's financial position has been negatively
impacted including a working capital deficit of approximately $27.9 million.
Management believes the decrease in sales and profitability is due to the
negative effects of Hurricane Georges, which occurred in September 1998,
increased competition and weakness in the economy in both Puerto Rico and the
U.S. Virgin Islands. The working capital deficit is due to the Company's
revolving credit facility coming due within the next year (February 1, 2003).
These factors indicate that the Company may be unable to continue as a going
concern for a reasonable period of time.
The Company has taken certain initiatives to improve its profitability
and financial position, including repurchase of $87.7 million principal
amount of its 9 1/2% Notes due 2003 (the "Notes") and its 9 1/2% Series C
Senior Notes due 2003 (the "Series C Senior Notes") during the fiscal year
ending January 27, 2001 for $51.5 million (including expenses), operating
cost reductions, closing under performing stores, remodeling the majority of
its remaining stores and the introduction of its PuebloCard loyalty and
discount program. Additionally, the Company will seek to refinance its
revolving credit facility prior to its due date of February 1, 2003.
Although no assurances can be given, management believes the above steps will
improve the Company's operating performance and cash flows. The accompanying
consolidated financial statements do not include any adjustments relating to
the recoverability and classification of assets or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 2 -- INVENTORY
The results of the Company's operations reflect the application of the
last-in, first-out ("LIFO") method of valuing certain inventories of grocery,
non-food and dairy products. Since an actual valuation of inventories under
the LIFO method is only made at the end of a fiscal year based on inventory
levels and costs at that time, interim LIFO calculations are based on
management's estimates of expected year-end inventory levels and costs and
are subject to year-end adjustments.
NOTE 3 -- 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
47 supermarkets, 41 of which are in Puerto Rico and 6 of which are in the
U.S. Virgin Islands. The Company also operates 41 video tape rental stores,
39 of which are in Puerto Rico and 2 of which are in the U.S. Virgin Islands.
Most of the video tape rental stores are adjacent to or a separate section
within one of the Company's retail food supermarkets. Administrative
headquarters are in Florida. Although the Company maintains data by
geographic location, its segment decision making process is based on its two
product lines.
Reportable operating segment financial information is as follows (dollars in
thousands):
Retail Food Video Rental Total
For the 16 Weeks Ended and as of February 23, 2002:
Net sales $ 173,551 $ 13,730 $ 187,281
Depreciation and amortization (6,583) (2,129) (8,712)
Operating profit (a) 614 1,931 2,545
Total assets 367,269 20,400 387,669
Capital expenditures (1,646) (3) (1,649)
For the 16 Weeks Ended February 24, 2001:
Net sales $ 173,835 $ 13,901 $ 187,736
Depreciation and amortization (7,917) (2,509) (10,426)
Operating (loss) profit (a) (2,861) 1,869 (992)
Capital expenditures (1,504) (49) (1,553)
As of November 3, 2001:
Total assets $ 371,899 $ 22,260 $ 394,159
Because the Retail Food and Video Rental Divisions are not segregated by
corporate entity structure, the operating segment amounts shown above do not
represent totals for any subsidiary of the Company. 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.
(a) See Management's Discussion and Analysis for discussions of gross profit
and selling, general and administrative expenses.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 4 -- RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB")issued
SFAS No. 141 "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 141 requires that all business combinations be
accounted for under the purchase method. The statement further requires
separate recognition of intangible assets that meet one of two criteria. The
statement applies to all business combinations initiated after June 30, 2001.
SFAS No. 142 requires that an intangible asset that is acquired shall
be initially recognized and measured based on its fair value. The statement
also provides that goodwill should not be amortized, but shall be tested for
impairment annually, or more frequently if circumstances indicate potential
impairment, through a comparison of fair value to its carrying amount.
Existing goodwill will continue to be amortized through the remainder of
fiscal year ending November 2, 2002, at which time amortization will cease
and the Company will perform a transitional goodwill impairment test. SFAS
No. 142 is effective for fiscal periods beginning after December 15, 2001.
The Company is currently evaluating the impact of the new accounting
standards on existing goodwill and other intangible assets. Goodwill
amortization expense was $1.5 million for both the 16 weeks ended February
23, 2002 and February 24, 2001.
In July 2001, the FASB issued SFAS No. 144,"Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of long-
lived assets. This statement supercedes SFAS No. 121 on the same topic and
the accounting and certain reporting provisions of Accounting Principles
Board ("APB") Opinion No. 30, "Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions", for the disposal
of a segment of a business (as defined in that Opinion). This Statement also
amends Accounting Research Bulletin No. 51, "Consolidated Financial
Statements," to eliminate the exception to consolidation for a subsidiary for
which control is likely to be temporary. SFAS No. 144 is effective for
fiscal periods beginning after December 15, 2001. The Company is currently
evaluating the impact of the new accounting standards on existing long-lived
assets.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview and Basis of Presentation
The following discussion of the Company's financial condition and results
of operations should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this Form 10-Q.
Selected Operating Results
(As a percentage of sales)
<CAPTION)
16 WEEKS ENDED
--------------------------------------
February 23, February 24,
2002 2001
-------------- --------------
Gross Profit 32.8 % 32.0%
Selling, General & Administrative Expenses 26.8 27.0
EBITDA, as defined (1) 6.1 5.1
Depreciation & Amortization 4.7 5.6
Operating Profit (loss) 1.4 (0.5)
Loss Before Income Taxes (2.5) (4.3)
Net Loss (2.5) (2.6)
- ----------
(1) EBITDA, as defined, is Earnings Before Interest expense-net, income
Taxes, Depreciation, and Amortization and the write down of impaired
assets. EBITDA, as defined and disclosed herein, is neither a
measurement pursuant to accounting principles generally accepted in the
United States of America nor a measurement of operating results and is
included for informative purposes only.
Results of Operations
As of February 23, 2002, the Company operated a total of 47 supermarkets
and 41 video rental locations in Puerto Rico and the U. S. Virgin Islands.
Between February 24, 2001 and February 23, 2002, the Company closed one of
its supermarkets and two of its video rental stores in Puerto Rico. The
history of store openings and closings from February 24, 2001 through the end
of the first quarter of the current year on February 23, 2002, as well as the
store composition, is set forth in the tables below:
Stores in Operation:
At February 24, 2001 . . . . . . . . . . . 91
Stores opened:
Supermarkets . . . . . . . . . . . . . 0
Video tape rental stores . . . . . . . 0
Stores closed:
Supermarket . . . . . . . . . . . . . . 1
Video tape rental stores . . . . . . . 2
-------
At February 23, 2002 . . . . . . . . . . . 88
=======
Remodels . . . . . . . . . . . . . . . . . 2
=======
February 23, February 24,
2002 2001
------------ ------------
Store Composition at Quarter-End:
By division:
Supermarkets . . . . . . . . . . . . 47 48
Video tape rental stores . . . . . . 41 43
------- -------
Total 88 91
======= =======
By location:
Puerto Rico . . . . . . . . . . . . . 80 83
U.S. Virgin Islands . . . . . . . . . 8 8
------- -------
Total 88 91
======= =======
The following is the summary of total and comparable store sales:
Percentage (decrease) increase in sales
for the 16 weeks ended February 23, 2002
------------------------------------------
Total Sales (0.2)%
=======
Comparable Stores:
Retail Food Division 0.3%
=======
Video Tape Rental Division (0.4%)
=======
Total Comparable Store Sales 0.2%
=======
Total sales for the first quarter (16 weeks) ended February 23, 2002 were
$187.3 million, versus $187.7 million for the 16 comparable weeks ended
February 24, 2001, a decrease of 0.2%; however same store sales increased by
0.2%. For the 16 weeks ended February 23, 2002, same store sales were $185.6
million versus $185.2 million for the 16 comparable weeks ended February 24,
2001. "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 increased 0.3% from the 16
comparable weeks ended February 24, 2001. The principal factors contributing
to the increase in same stores sales in the Retail Food Division, despite
continued growth in competition, are the Company's PuebloCard, a customer
loyalty card program launched in March 2001, and the Company's repositioning
efforts, also begun in March 2001. Video Rental Division same store sales
decreased 0.4% from the 16 comparable weeks ended February 24, 2001.
Gross profit increased for the quarter (16 weeks) ended February 23, 2002
by $1.3 million to $61.4 million from $60.1 million for the comparable period
of the prior year (16 weeks) ended February 24, 2001. The rate of gross
profit (as a percentage of sales), for the quarter (16 weeks) ended February
23, 2002 was 32.8% compared to 32.0% for the comparable period of the prior
year (16 weeks) ended February 24, 2001, an increase of 0.8%. The primary
reason for the improvement in gross profit and the rate of gross profit was
the impact of the Company's loyalty program in its Retail Food division,
which began in March of 2001. In addition to providing loyal customers with
enhanced values the program provides the Company the ability to improve
control of its promotional programs. The program is based on the PuebloCard
which identifies the card holder as a member of the program and the special
pricing the card holder is entitled to on the specific item(s) being checked
out. Currently, Pueblo is the only supermarket retailer offering such a
program in Puerto Rico and the U. S. Virgin Islands.
Selling, general and administrative expenses were $50.1 million for the
quarter (16 weeks) ended February 23, 2002 compared to $50.7 million for the
comparable period of the prior year (16 weeks) ended February 24, 2001, a
decrease of $0.6 million.
Depreciation and amortization was $8.7 million for the quarter (16 weeks)
ended February 23, 2002 compared to $10.4 million for the comparable period
of the prior year, a decrease of $1.7 million. This decrease was primarily a
result of the write off, during the 16 weeks ended February 24, 2001, of
property and equipment that had been replaced during fiscal years 2001 and
2000 when the majority of the Company's store remodels were completed.
The effective tax rate for the 16 weeks ended February 23, 2002 was 0.0%
compared to 40.5% for the comparable 16 weeks ended February 24, 2001. The
variance is a result of the variance in tax rates among the tax jurisdictions
in which the Company operates and the results of operations in those specific
jurisdictions.
The Company recorded a net loss for the quarter (16 weeks) ended February
23, 2002 of $4.6 million, a $0.2 million improvement from the net loss of
$4.8 million for the 16 comparable weeks ended February 24, 2001.
EBITDA, as defined (Earnings Before Interest expense-net, income Taxes,
Depreciation and Amortization, and the write down of impaired assets), was
$11.3 million for the quarter (16 weeks) ended February 23, 2002, versus $9.4
million for the comparable 16 weeks ended February 24, 2001, an increase of
$1.9 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.
The Company has agreed with the banks providing the credit facility that
total borrowings (cash and letters of credit) under the facility will be
limited to $43.0 million through May 18, 2002 and to $40.0 million from May
19, 2002 through the termination date of the facility, which is February 1,
2003. The Company believes such availability will be sufficient to meet its
working capital needs until February 2003. The Company will continue to
explore its options for such financing after this date, but no assurances
can be given that such financing can be obtained on acceptable terms or at
all. As of February 23, 2002, the company had cash borrowings of $30.0
million and letters of credit outstanding of $3.9 million.
Net cash provided by operating activities for the 16 weeks ended February
23, 2002 was $5.5 million versus $7.0 million for the comparable period of
the prior year. The difference is a result of an increase in cash used for
components of working capital partially offset by an increase in earnings.
Net cash used in investing activities for purchases of property and
equipment, net of proceeds on sales of property and equipment, was $1.6
million for the 16 weeks ended February 23, 2002 versus $1.5 million for the
comparable period of the prior year.
Net cash used in financing activities was $0.2 million for both the 16
weeks ended February 23, 2002 and February 24, 2001.
Working capital decreased during the first quarter by $28.2 million to
$(27.9) million as of February 23, 2002 from $0.3 million as of November 3,
2001 producing a current ratio of 0.75:1 as of February 23, 2002 versus
1.00:1 as of November 3, 2001. The decrease in working capital is a result
of the classification of the company's $30.0 million borrowings under its
revolving credit facility as current as of February 23, 2002 as the facility
expires on February 1, 2003.
The Company's management believes that the cash flows generated by its
normal business operations together with its available revolving credit
facility, or potential replacement thereof, will be adequate for its
liquidity and capital resource needs.
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 $4.3 million as of February 23, 2002 and is anticipated to be funded with
cash provided by operating activities.
The Company is considering potential options regarding the refinancing or
payment of its outstanding Notes and Series C Senior Notes which mature on
August 1, 2003. There can be no assurance that such a refinancing can be
obtained on acceptable terms or at all.
Impact of Inflation and Currency Fluctuations
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.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 of the Form 10 - K for the 40 weeks ended November 3, 2001
- Debt in the financial statements, the Company's long-term debt consists of:
(i) senior notes of $177.3 million at a fixed rate of 9 1/2% due in 2003 and
(ii) borrowings under the Company's revolving credit facility of $30
million upon which the weighted average interest rate was 6.0% and 10.6% for
the 16 weeks ended February 23, 2002 and February 24, 2001, respectively.
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. During fiscal year 2000, the Company settled the
property portion of its hurricane insurance claims for approximately $42.0
million and, with the exception of some minor items outstanding, all agreed
amounts have been paid.
The Company's insurance also includes business interruption coverage
which provides for reimbursement for lost profits as a result of the storm.
On December 1, 2000 the Company submitted to its insurance carriers a $69.4
million proof of loss for business interruption losses to its grocery stores
and video outlets in Puerto Rico and the U. S. Virgin Islands (the "claim")
as a result of Hurricane Georges. The claim is based on the Company's
management's estimate of the impact the storm had on its business from the
time the storm occurred through September 9, 2000, which is, in management's
opinion, the end of the applicable indemnity period. During the Company's
fiscal year that ended January 27, 2001, the carriers invoked the appraisal
provisions of the policy which, essentially, require an arbitration process
to value the claim. The Company and the carriers have been unable to agree
which court has jurisdiction over appointing the umpire. Consequently, the
appointment of the umpire is being litigated in two jurisdictions. On
October 30, 2001, the Federal Court for the Southern District of Florida
appointed an umpire as a result of litigation initiated by the Company. The
insurance carriers have asked that the appraisal process in Florida be stayed
while they appeal the appointment of the umpire to the U.S. Court of Appeals
for the Eleventh District. The request for a stay of the appraisal process
in Florida has been denied and no decision has been rendered by the U. S.
Court of Appeals. The litigation initiated in Puerto Rico by the carriers
for the appointment of an umpire has been stayed pending the outcome of the
appeal in the Florida litigation to the U.S. Court of Appeals. The company
has received $6.9 million which is comprised of a $5.0 million advance and
reimbursement of $1.9 million of the Company's claim preparation fees in
connection with the $69.4 million proof of loss. The $6.9 million was
received prior to the quarter (16 weeks) ended February 23, 2002 and the
$5.0 million advance will not be included in income until such time as the
claim is settled and the related gain is realized. The Company is unable to
predict when the appraisal process will conclude or what total amount
eventually may be recovered.
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-Q 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)
management's belief that cash flows generated by the Company's normal
business operations together with its available credit facility will be
adequate for its liquidity and capital resource needs and (2) insurance
recovery expectations. 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 described in the Company's fiscal year 2000 10-K (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, buying patterns of
consumers, and the outcome of the claims process with insurers.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirement 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 9, 2002 /s/ Daniel J. O'Leary
-----------------------------
Daniel J. O'Leary,
Executive Vice President
and Chief Financial Officer
17
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