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 May 18, 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 June 20, 2002 -- 200.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Page(s)
-------
Consolidated Balance Sheets -
May 18, 2002 (Unaudited) and November 3, 2001. . . . . . . . . 3-4
Consolidated Statements of Operations (Unaudited) -
Twelve and twenty-eight weeks ended May 18, 2002
and May 19, 2001 . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows (Unaudited)-
Twenty-eight weeks ended May 18, 2002
and May 19, 2001 . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements (Unaudited). . . . . 7-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . .10-15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. . . 15
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . 16
CONSOLIDATED BALANCE SHEETS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(Dollars in thousands)
(Unaudited)
May 18, November 3,
2002 2001
------------- -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,385 $ 2,169
Accounts receivable, net of allowance for
doubtful accounts of $446 at May 18,
2002 and $520 at November 3, 2001 2,537 3,450
Inventories 52,233 54,228
Prepaid expenses 14,009 8,997
Deferred income taxes 10,964 14,534
--------- ---------
TOTAL CURRENT ASSETS 84,128 83,378
--------- ---------
PROPERTY AND EQUIPMENT
Land and improvements 6,299 6,299
Buildings and improvements 40,032 40,051
Furniture, fixtures and equipment 100,078 99,758
Leasehold improvements 44,253 43,736
Construction in progress 3,411 2,803
--------- ---------
194,073 192,647
Less accumulated depreciation
and amortization 100,476 94,110
--------- ---------
93,597 98,537
Property under capital leases, net 12,167 12,690
--------- ---------
TOTAL PROPERTY AND EQUIPMENT 105,764 111,227
GOODWILL, net of accumulated amortization of
$44,373 at May 18, 2002 and $41,821
at November 3, 2001 147,665 150,217
DEFERRED INCOME TAX 6,153 1,080
TRADE NAMES, net of accumulated amortization
of $11,525 at May 18, 2002 and $11,059
at November 3, 2001 26,975 27,441
DEFERRED CHARGES AND OTHER ASSETS 19,227 20,816
--------- ---------
TOTAL ASSETS $ 389,912 $ 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)
May 18, November 3,
2002 2001
------------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 53,913 $ 53,539
Accrued interest 5,095 4,432
Accrued expenses 15,490 16,669
Salaries, wages and benefits payable 8,209 7,862
Current obligations under capital leases 667 623
Borrowings under revolving credit
facility 30,000 -
----------- -----------
TOTAL CURRENT LIABILITIES 113,374 83,125
BORROWINGS UNDER REVOLVING CREDIT
FACILITY - LONG-TERM PORTION - 30,000
NOTES PAYABLE 175,911 175,358
CAPITAL LEASE OBLIGATIONS, net of
current portion 11,918 12,296
DEFERRED INCOME TAXES 21,982 20,486
RESERVE FOR SELF-INSURANCE CLAIMS 6,085 6,008
OTHER LIABILITIES AND DEFERRED CREDITS 32,088 31,501
----------- -----------
TOTAL LIABILITIES 361,358 358,774
----------- -----------
STOCKHOLDER'S EQUITY
Common stock, $.10 par value; 200 shares
authorized and issued - -
Additional paid-in capital 91,500 91,500
Accumulated deficit (62,946) (56,115)
----------- -----------
TOTAL STOCKHOLDER'S EQUITY 28,554 35,385
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 389,912 $ 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) (Unaudited)
12 weeks 12 weeks 28 weeks 28 weeks
ended ended ended ended
May 18, May 19, May 18, May 19,
2002 2001 2002 2001
----------- ---------- ----------- ----------
Net sales $136,189 $131,714 $323,470 $319,450
Cost of goods sold 90,957 88,317 216,837 216,000
----------- ----------- ----------- ---------
GROSS PROFIT 45,232 43,397 106,633 103,450
OPERATING EXPENSES
Selling, general and administrative expenses 35,783 36,596 85,927 87,259
Write down of impaired assets-store closings - - - (44)
Depreciation and amortization 6,227 6,696 14,939 17,122
----------- ----------- ----------- ---------
OPERATING PROFIT (LOSS) 3,222 105 5,767 (887)
Interest expense on debt (5,079) (5,144) (11,720) (12,068)
Interest expense on capital lease obligations (421) (432) (980) (953)
Interest and investment income, net 37 167 102 507
----------- ----------- ----------- ---------
LOSS BEFORE TAXES (2,241) (5,304) (6,831) (13,401)
Income tax benefit - 2,365 - 5,646
----------- ----------- ----------- ---------
NET LOSS $(2,241) $(2,939) $(6,831) $(7,755)
=========== ============ =========== =========
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)
28 weeks ended
---------------------------------
May 18, May 19,
2002 2001
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(6,831) $(7,755)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization of property and equipment 8,531 9,995
Amortization of intangibles, other assets and inventories 6,408 7,127
Amortization of bond discount 553 492
Provision for deferred income taxes - (5,646)
Gain on disposal of property and equipment, net (37) (30)
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable 913 1,579
Inventories (584) 587
Prepaid expenses (5,012) (3,954)
Other assets 778 772
(Decrease) increase in:
Accounts payable, accrued expenses and accrued interest (149) 7,298
Salaries, wages and benefits payable 347 (180)
Other liabilities and deferred credits and reserve for
self-insurance claims 664 6,447
--------------- --------------
Net cash provided by operating activities 5,581 16,732
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,068) (3,196)
Proceeds from disposal of property and equipment 37 32
--------------- --------------
Net cash used in investing activities (3,031) (3,164)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facility 2,000 10,000
Pay back of revolving credit facility (2,000) (25,000)
Principal payments on capital lease obligations (334) (352)
--------------- --------------
Net cash used in financing activities (334) (15,352)
--------------- --------------
Net increase (decrease) in cash and cash equivalents 2,216 (1,784)
Cash and cash equivalents at beginning of period 2,169 6,663
--------------- --------------
Cash and cash equivalents at end of period $4,385 $4,879
=============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $10,503 $11,102
Income taxes paid (refunded), net ($597) $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 second quarter of the current fiscal year is the 12 weeks
ended May 18, 2002 and the first two quarters of the current fiscal year are
the 28 weeks ended May 18, 2002. The comparable periods are the 12 and 28
weeks ended May 19, 2001, which are presented herein for comparison purposes
and have never been reported separately in filings with the Securities and
Exchange Commission. Operating results for the 12 and 28 weeks ended May 18,
2002 and May 19, 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 12 and 28
weeks ended May 18, 2002 and May 19, 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's
sales, operating earnings and net loss have improved during the 28 weeks
ended May 18, 2002. However, the Company 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 $29.2 million. Management believes the decrease in
sales and profitability was due to the negative effects of Hurricane Georges,
which occurred in September 1998, and 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). Based upon the circumstances
described above, unless the Company is successful in refinancing its
revolving credit facility and its outstanding Notes and Series C Senior
Notes, the Company may be unable to continue as a going concern.
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, with
headquarters in Puerto Rico, 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. The Company's 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 28 Weeks Ended and as of May 18, 2002:
Net sales $ 301,153 $ 22,317 $ 323,470
Depreciation and amortization (11,368) (3,571) (14,939)
Operating profit (a) 2,518 3,249 5,767
Total assets 369,175 20,737 389,912
Capital expenditures (3,052) (16) (3,068)
For the 28 Weeks Ended May 19, 2001:
Net sales $ 296,598 $ 22,852 $ 319,450
Depreciation and amortization (12,735) (4,387) (17,122)
Operating (loss) profit (a) (3,061) 2,174 (887)
Capital expenditures (3,148) (48) (3,196)
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 $2.6 million for both the 28 weeks ended May 18,
2002 and May 19, 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)
12 WEEKS ENDED 28 WEEKS ENDED
------------------------- -------------------------
May 18, May 19, May 18, May 19,
2002 2001 2002 2001
------------ ----------- ------------- ----------
Gross Profit 33.2% 32.9% 33.0% 32.4%
Selling, General &
Administrative Expenses 26.3 27.8 26.6 27.3
EBITDA, as defined (1) 7.0 5.2 6.4 5.1
Depreciation & Amortization 4.6 5.1 4.6 5.4
Operating Profit (Loss) 2.4 0.1 1.8 (0.3)
Loss Before Income Taxes (1.6) (4.0) (2.1) (4.2)
Net Loss (1.6) (2.2) (2.1) (2.4)
----------
(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 May 18, 2002, the Company operated a total of 47 supermarkets
and 41 video rental locations in Puerto Rico and the U. S. Virgin Islands.
Between May 19, 2001 and May 18, 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 May 19, 2001 through the end
of the second quarter of the current year on May 18, 2002, as well as the
store composition, is set forth in the tables below:
Stores in Operation:
At May 19, 2001. . . .. . . . . . . . . . . 91
Stores opened:
Supermarkets . . . . . . . . . . . . . 0
Video tape rental stores . . . . . . . 0
Stores closed:
Supermarket . . . . . . . . . . . . . . 1
Video tape rental stores . . . . . . . 2
-------
At May 18, 2002. . . . . . . . . . . . . . 88
=======
Remodels . . . . . . . . . . . . . . . . . 3
=======
May 18, May 19,
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 increase (decrease) in sales
for the period ended May 18, 2002
------------------------------------------
12 Weeks Ended 28 Weeks Ended
------------------ -------------------
Total Sales 3.4% 1.3%
========= =========
Comparable Stores:
Retail Food Division 6.0% 3.2%
========= =========
Video tape rental division (2.9)% (1.4)%
========= =========
Total Comparable Store Sales 4.4% 2.0%
========= =========
Total sales for the 12 and 28 weeks ended May 18, 2002 were $136.2
million and $323.5 million, respectively, versus $131.7 million and $319.5
million for the 12 and 28 weeks ended May 19, 2001, increases of 3.4% and
1.3%, respectively. Same store sales increased by 4.4% and 2.0%,
respectively. For the 12 and 28 weeks ended May 18, 2002, same store sales
were $136.2 million and $321.6 million, respectively, versus $130.4 million
and $315.4 million, respectively for the 12 and 28 comparable weeks ended May
19, 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 5.0% and 2.2%,
respectively, from the 12 and 28 comparable weeks ended May 19, 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 2.9% and 1.4%, respectively, from
the 12 and 28 comparable weeks ended May 19, 2001. The decrease in Video
Rental Division sales for the quarter was a result of a decline in the number
of new releases and customer response to new releases for both rental and
sell-through videos.
Gross profit increased for the 12 and 28 weeks ended May 18, 2002
by $1.8 million and $3.1 million, respectively, to $45.2 million and $106.6
million, respectively, from $43.4 million and $103.5 million for the
12 and 28 weeks ended May 19, 2001. The rate of gross profit (as a percentage
of sales), for the 12 and 28 weeks ended May 18, 2002 was 33.2% and 33.0%,
respectively, compared to 32.9% and 32.4%, respectively for the 12 and 28
weeks ended May 19, 2001, increases of 0.3% and 0.6%, respectively. 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 $35.8 million and $85.9
million, respectively, for the 12 and 28 weeks ended May 18, 2002 compared to
$36.6 million and $87.3 million, respectively, for the 12 and 28 weeks ended
May 19, 2001, decreases of $0.8 million and $1.4 million, respectively. The
decreases are a result of cost reductions implemented in late April of 2001.
Depreciation and amortization was $6.2 million and $14.9 million,
respectively, for the 12 and 28 weeks ended May 18, 2002 compared to $6.7
million and $17.1 million for the 12 and 28 weeks ended May 19, 2001,
decreases of $0.5 million and $2.2 million, respectively. These decreases
are primarily a result of the write off, during the 12 and 28 weeks ended May
19, 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 both the 12 and 28 weeks ended May 18, 2002
was 0.0% compared to 44.6% and 42.1%, respectively, for the comparable 12
and 28 weeks ended May 19, 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 12 and 28 weeks ended May 18,
2002 of $2.2 million and $6.8 million, respectively, a $0.7 million and $1.0
million improvement, respectively, from the net loss of $2.9 million and $7.8
million, respectively, for the 12 and 28 comparable weeks ended May 19, 2001.
EBITDA, as defined (Earnings Before Interest expense-net, income Taxes,
Depreciation and Amortization, and the write down of impaired assets), was
$9.4 million and $20.7 million for the 12 and 28 weeks ended May 18, 2002,
versus $6.8 million and $16.2 million, respectively, for the comparable 12
and 28 weeks ended May 19, 2001, increases of $2.6 million and $4.5
million, respectively.
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 were limited
to $43.0 million through May 18, 2002 and will be limited 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 is
exploring its options for replacing 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 May 18, 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 28 weeks ended May 18,
2002 was $5.6 million versus $16.7 million for the comparable 28 weeks ended
May 19, 2001. As shown in detail on page 6 of this Form 10-Q the Changes In
Operating Assets and Liabilities provided cash of $12.5 million during the 28
weeks ended May 19, 2001 and used $3.0 million in cash during the 28 weeks
ended May 18, 2002. This $15.5 million decline was offset by a $4.5 million
improvement in EBITDA during the 28 weeks ended May 18, 2002 compared to the
28 weeks ended May 19, 2001.
Net cash used in investing activities for purchases of property and
equipment, net of proceeds on sales of property and equipment, was $3.0
million for the 28 weeks ended May 18, 2002 versus $3.2 million for the
comparable 28 weeks ended May 19, 2001.
Net cash used in financing activities was $0.3 million for the 28 weeks
ended May 18, 2002 versus $15.4 million for the comparable 28 weeks ended May
19, 2001. The difference is a result of the repayment of borrowings under the
Company's revolving credit facility during the 28 weeks ended May 19, 2001.
Working capital decreased during the second quarter by $29.5 million to
$(29.2) million as of May 18, 2002 from $0.3 million as of November 3,2001
producing a current ratio of 0.74:1 as of May 18, 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 May 18, 2002 as the facility expires on
February 1, 2003.
The Company's management believes that the cash flows generated by its
normal business operations will not be adequate for its liquidity and capital
resource needs unless augmented by the existing revolving credit facility or
its potential replacement.
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 or $500,000, depending on the
Company's operating area. The current portion of the reserve, representing
amounts expected to be paid in the next fiscal year, is $4.3 million as of
May 18, 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.
Hurricane Georges insurance recovery
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 carriers invoked the appraisal
provisions of the policy which, essentially, required 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 was 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 was 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.
On June 13, 2002 the Umpire, appointed in Florida and the appraisers for
both the Company and the insurance carriers all agreed that the value of the
claim is $18.2 million. Prior to the 28 weeks ended May 18, 2002 the company
had received approximately $6.9 million of this amount. Consequently, the net
amount due to the Company, as a result of the appraisal process in Florida,
is $11.3 million and the Company is currently pursuing collection. The $18.2
million may not be included in income until at such time as the claim is
settled and the related gain ($18.2 million less expenses)is realized. Total
expenses are estimated to be $3.5 million, $2.5 million of which have been
previously paid.
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.
Critical Accounting Policies
The Company's critical accounting policies, including the assumptions and
judgments underlying them, are disclosed in the Notes to the Consolidated
Financial Statements in our Annual Report on Form 10-K for the 40 weeks ended
November 3, 2001.
The policies have been consistently applied in all material respects and
address such matters as: inventories, impairment of long-lived assets,
accrued self-insurance and realization of deferred tax assets.
While the estimates and judgments associated with the application of
these policies may be affected by different assumptions and conditions, the
Company believes the estimates and judgments associated with the reported
amounts are appropriate in the circumstances.
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 $30.0
million upon which the weighted average interest rate was 6.0% and 10.1% for
the 28 weeks ended May 18, 2002 and May 19, 2001, 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-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: June 20, 2002 /s/ Daniel J. O'Leary
-----------------------------
Daniel J. O'Leary,
Executive Vice President
and Chief Financial Officer
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