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 November 6, 1999
[ ] 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 December 20, 1999 -- 200.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Page(s)
-------
Consolidated Balance Sheets -
November 6, 1999 (Unaudited) and January 30, 1999 . . . . . . 3-4
Consolidated Statements of Operations (Unaudited) -
Twelve and forty weeks ended November 6, 1999
and November 7, 1998. . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows (Unaudited)-
Forty weeks ended November 6, 1999
and November 7, 1998. . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements (Unaudited). . . . . . . . . . 7-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . 9-14
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)
November 6, January 30,
1999 1999
------------- -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 54,506 $ 55,500
Accounts receivable 3,745 4,715
Inventories 59,871 60,189
Prepaid expenses 10,191 8,163
Deferred income taxes 5,626 5,338
--------- ---------
TOTAL CURRENT ASSETS 133,939 133,905
--------- ---------
PROPERTY AND EQUIPMENT
Land and improvements 6,215 16,499
Buildings and improvements 39,198 64,128
Furniture, fixtures and equipment 114,990 113,673
Leasehold improvements 36,260 37,417
Construction in progress 19,563 4,786
--------- ---------
216,226 236,503
Less accumulated depreciation
and amortization 109,379 114,912
--------- ---------
106,847 121,591
Property under capital leases, net 14,846 8,269
--------- ---------
TOTAL PROPERTY AND EQUIPMENT 121,693 129,860
GOODWILL, net of accumulated amortization of
$31,985 at November 6, 1999 and $28,113 at
January 30, 1999 169,733 173,605
DEFERRED INCOME TAX 7,185 7,006
TRADE NAMES 29,172 29,838
DEFERRED CHARGES AND OTHER ASSETS 29,925 32,788
--------- ---------
TOTAL ASSETS $ 491,647 $ 507,002
========= =========
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)
Novermber 6, January 30,
1999 1999
------------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 52,298 $ 74,604
Accrued expenses 38,110 43,545
Salaries, wages and benefits payable 10,067 13,535
Current installment on long-term debt 10,000 -
Current obligations under capital leases 694 643
----------- -----------
TOTAL CURRENT LIABILITIES 111,169 132,327
LONG-TERM DEBT - 10,000
NOTES PAYABLE 259,367 258,475
CAPITAL LEASE OBLIGATIONS, net of
current portion 13,474 6,914
RESERVE FOR SELF-INSURANCE CLAIMS 7,409 9,896
DEFERRED INCOME TAXES 28,539 28,539
OTHER LIABILITIES AND DEFERRED CREDITS 32,119 24,669
----------- -----------
TOTAL LIABILITIES 452,077 470,820
----------- -----------
STOCKHOLDER'S EQUITY
Common stock, $.10 par value; 200 shares
authorized and issued - -
Additional paid-in capital 91,500 91,500
Accumulated deficit (51,930) (55,318)
----------- -----------
TOTAL STOCKHOLDER'S EQUITY 39,570 36,182
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 491,647 $ 507,002
=========== ===========
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 40 weeks 40 weeks
ended ended ended ended
November 6, November 7, November 6, November 7,
1999 1998 1999 1998
----------- ------------ ----------- -----------
Net sales $ 149,146 $ 169,012 $ 519,140 $ 598,246
Cost of goods sold 101,873 111,987 352,749 402,024
----------- ------------ ----------- ------------
GROSS PROFIT 47,273 57,025 166,391 196,222
----------- ------------ ----------- ------------
OPERATING EXPENSES
Selling, general and administrative expenses 38,910 39,800 126,917 138,486
Gain on settlement of insurance claim - - (13,066) -
Gain on disposal of real property - ( 1,840) - ( 2,164)
Depreciation and amortization 6,795 8,119 23,686 28,852
----------- ------------ ----------- ------------
OPERATING PROFIT 1,568 10,946 28,854 31,048
Interest expense on debt (6,558) (6,397) (22,156) (21,968)
Interest expense on capital lease obligations (447) (218) ( 1,187) (781)
Interest and investment income, net 647 272 1,885 789
Loss on sale/leaseback of real property - - ( 1,291) -
----------- ------------ ----------- ------------
INCOME (LOSS) BEFORE TAXES (4,790) 4,603 6,105 9,088
Income tax (expense) benefit 1,228 (4,277) ( 2,717) (5,492)
----------- ------------ ----------- ------------
NET INCOME (LOSS) $ (3,562) $ 326 $ 3,388 $ 3,596
============ ============= ============ ============
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)
For the 40 Weeks Ended
---------------------------------
November 6, 1999 November 7, 1998
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,388 $ 3,596
Adjustments to reconcile net income to net cash
used in operating activities, net of
effects of disposal of Florida retail operations:
Depreciation and amortization of property and equipment 12,967 16,522
Amortization of intangible and other assets 10,719 12,330
Write off of property and equipment destroyed 4,502 -
Amortization of bond discount 892 796
Loss on sale/leaseback of real property 1,291 -
(Gain) loss on disposal of property and equipment, net 57 ( 1,720)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 970 ( 4,545)
Inventories (4,452) (12,512)
Prepaid expenses (2,471) ( 1,081)
Deferred income tax asset ( 467) 5,612
Deferred charges and other assets 1,452 ( 1,185)
Increase (decrease) in:
Accounts payable and accrued expenses (31,209) (13,487)
Reserve for self-insurance claims (2,487) ( 527)
Other liabilities and deferred credits 1,155 ( 2,129)
--------------- ---------------
( 3,693) 1,670
Decrease attributable to disposal
of Florida retail operations (3,022) ( 1,243)
--------------- ---------------
Net cash (used in) provided by operating activities ( 6,715) 427
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (16,255) (13,034)
Reconstruction of property and
replacement of equipment destroyed (13,102) -
Proceeds from disposal of property and equipment 35,546 9,418
--------------- ---------------
Net cash provided by (used in) investing activities 6,189 ( 3,616)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (468) ( 497)
--------------- ---------------
Net cash used in financing activities (468) ( 497)
--------------- ---------------
Net decrease in cash and cash equivalents ( 994) ( 3,686)
Cash and cash equivalents at beginning of period 55,500 28,770
--------------- ---------------
Cash and cash equivalents at end of period $ 54,506 $ 25,084
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 27,163 $ 25,997
Income taxes, net of (refunds) $ 633 $ ( 648)
Noncash investing and financing transactions:
Assets acquired under capital leases $ 7,079 $ -
The accompanying notes are an integral part of these
consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 1 -- INTERIM FINANCIAL STATEMENTS
With respect to the unaudited financial information for the 12 and 40
weeks ended November 6, 1999 and November 7, 1998, 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 settlement of the Hurricane
Georges insurance claim as detailed herein, were of a normal and recurring
nature.
Operating results for the 12 and 40 weeks ended November 6, 1999 and
November 7, 1998 are not necessarily indicative of results that may be expected
for the full fiscal years. The Company's fiscal year ends on the last Saturday
in January.
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.
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
50 supermarkets, 44 of which are in Puerto Rico and 6 of which are in the U. S.
Virgin Islands. The Company is also a Blockbuster Video franchisee and
operates a total of 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 is provided from locations in Puerto Rico and Florida.
Although the Company maintains data by geographic location, its segment
decision making process is based on its two operation segments.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 3 -- DISCLOSURE ON OPERATING SEGMENTS (Continued)
Reportable operating segment financial information is as follows (dollars in
thousands):
Retail Food Videotape Total
For the 40 Weeks Ended and as of November 6, 1999:
Net sales $ 481,739 $ 37,401 $ 519,140
Depreciation and amortization (16,940) ( 6,746) (23,686)
Gain on settlement of insurance claim 11,798 1,268 13,066
Operating profit 23,796 5,058 28,854
Capital expenditures (28,679) ( 678) (29,357)
Total assets 463,594 28,053 491,647
For the 40 Weeks Ended November 7, 1998:
Net sales $ 554,618 $ 43,628 $ 598,246
Depreciation and amortization (20,376) ( 8,476) (28,852)
Operating profit 29,084 1,964 31,048
Capital expenditures (12,794) ( 240) (13,034)
As of January 30, 1999:
Total assets $ 477,155 $ 29,847 $ 507,002
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. 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.
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.
Year 2000 Compliance
In March 1998, the Company completed the planning phase of a project to
modify its information technology systems for compliance with the year 2000 and
beyond. The Company's plan included a review of the implications of the
Year 2000 problem on telecommunications systems, electronic equipment and
facilities systems. The Company has implemented all changes identified during
the planning phase to make systems compliant for Year 2000 with the exception
of several non-critical internal applications scheduled for completion during
December. The financial impact of making the required system changes was not
material to the Company's consolidated financial position, results of
operations or cash flows. The Company has completed formal communications with
all of its significant suppliers and service providers and large customers to
determine the extent to which the Company's interface systems are vulnerable to
those third parties' possible failure to remediate their own year 2000 issues.
Contingency plans have been developed to address both the possibility that
critical third party year 2000 issues and internal "system critical" issues may
not be resolved. There can be no guarantee that the systems of other companies
that the Company does business with, and in some cases with which the Company's
systems interface, will be timely converted and would not have an adverse
effect on the Company's systems.
As of November 6, 1999 the Company has made expenditures of $1.9 million
for consulting and professional services, software, and computer hardware to
modify its information technology systems for compliance with the year 2000 and
beyond. In addition, a substantial portion of the modification work has been
performed by the Company's internal management information systems programming
staff as part of their day to day responsibilities. These internal costs are
not material and have not been segregated. The Company does not expect
material additional expenditures in fiscal 2000 related to the project.
If the Company is unsuccessful or if the remediation efforts of its key
suppliers and service providers and large customers are unsuccessful with
regard to Year 2000, there may be a material adverse impact on the Company's
consolidated results of operations or financial condition. The Company is
unable to estimate the financial impact of this possible eventuality because
it cannot predict the magnitude or time length of potential Year 2000 business
interruptions.
The information contained herein is a "Year 2000 Readiness Disclosure"
under the Year 2000 Information and Readiness Act of 1998.
Selected Operating Results:
(As a percentage of sales)
<CAPTION)
12 WEEKS ENDED 40 WEEKS ENDED
------------------------- -------------------------
November 6, November 7, November 6, November 7,
1999 1998 1999 1998
------------ ----------- ------------- ----------
Gross Profit 31.7% 33.7% 32.1% 32.8%
Selling, General &
Administrative Expenses 26.1 23.5 24.4 23.1
Gain on settlement of insurance claim - - ( 2.5) -
EBITDA, as defined (1) 5.6 11.3 10.1 10.0
Depreciation & Amortization 4.6 4.8 4.6 4.8
Operating Profit 1.1 6.5 5.6 5.2
Income Before Income Taxes (3.2) 2.7 1.2 1.5
Net Income (2.4) 0.2 0.7 0.6
- ----------
(1) EBITDA, as defined, is Earnings Before Interest expense-net, income
Taxes, Depreciation, and Amortization and the loss on the sale/leaseback
transaction. EBITDA, as defined and disclosed herein, is neither a measurement
pursuant to generally accepted accounting principles (GAAP) nor a measurement of
operating results and is included for informative purposes only.
Results of Operations
As of November 6, 1999, the Company operated a total of 50 supermarkets
and 43 Blockbuster locations in Puerto Rico and the U. S. Virgin Islands.
During this quarter 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. The history of store
openings and closings from the end of the third quarter of the prior year on
November 7, 1998 through the end of the third quarter of the current year on
November 6, 1999, as well as the store composition, is set forth in the tables
below:
Stores in Operation:
At November 7, 1998.. . . . . . . . . . . . . . . . . . . . . . 93
Stores opened:
Supermarkets . . . . . . .. . . . . . . . . . . . . . . . . -
Blockbuster video stores
(Reopened store temporarily closed due to hurricane). . . 1
Stores closed:
Puerto Rico - Supermarket . . . . . . . . . . . . . . . . . -
Puerto Rico - Blockbuster . . . . . . . . . . . . . . . . . 1
------
At November 6, 1999 . . .. . . . . . . . . . . . . . . . . . . 93
=======
Remodels . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
=======
November 6, 1999 November 7, 1998
---------------- ----------------
Store Composition at Quarter-End:
By division:
Supermarkets . . . . . . . . . . . . 50 50
Blockbuster video stores . . . . . . 43 43
------- -------
Total 93 93
======= =======
By location:
Puerto Rico . . . . . . . . . . . . . 85 85
U.S. Virgin Islands . . . . . . . . . 8 8
------- -------
Total 93 93
======= =======
The following is the summary of total and comparable store sales:
Percentage increase (decrease) in sales
for the period ended November 6, 1999
------------------------------------------
12 Weeks Ended 40 Weeks Ended
------------------ -------------------
Total Sales (11.8)% (13.2)%
========= =========
Comparable Stores:
Retail Food Division (10.9)% (13.7)%
========= =========
Blockbuster Video (21.6)% (14.9)%
========= =========
Total Comparable Store Sales (11.7)% (13.8)%
========= =========
Total sales for the 12 and 40 weeks ended November 6, 1999 were $149.1
million and $519.1 million, respectively, versus $169.0 million and $598.2
million in the related periods of the prior year representing decreases of
11.8% and 13.2%, respectively. For the comparable 12 and 40 week periods,
same store sales were $147.6 million and $503.4 million, respectively, this
year versus $167.1 million and $583.7 million, respectively, for the prior
year representing declines of 11.7% and 13.8%, respectively. "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. 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
10.9% and 13.7% for the 12 and 40 weeks, respectively, compared to the similar
periods of the prior year. Primary factors contributing to the decline in same
stores sales in the Retail Food Division are the aftermath of hurricane Georges
and the ongoing disruption associated with repairing and replacing damaged
components of stores, increased competition and the effects of repositioning
of Pueblo's supermarkets to offer a broader product mix while eliminating
marginally profitable product lines. Blockbuster Division same store sales
decreased 21.6% and 14.9% for the 12 and 40 weeks, respectively, compared to
the similar periods of the prior year, as a result of increased competition and
fewer new video rental releases than in the comparable periods of the prior
year.
Gross Profit for the 40 weeks ended November 6, 1999 declined $29.8
million compared to the 40 weeks ended November 7, 1998. Approximately $25.9
million of this decline is a result of the decline in sales and the remainder
of $3.9 million is a result of the gross profit rate on sales declining from
32.8% for the 40 weeks ended November 7, 1998 to 32.1% for the 40 weeks ended
November 6, 1999. For the 12 weeks ended November 6 1999 gross profit declined
$9.8 million compared to the 12 weeks ended November 7, 1998. Of this amount
approximately $6.7 million is attributable to the sales decline and the
remainder of $3.1 million is a result of the gross profit rate on sales
declining from 33.7% for the 12 weeks ended November 7, 1998 to 31.7% for the
12 weeks ended November 6, 1999. The decline in the gross profit rate on sales
for the 40 weeks ended November 6, 1999 compared to the 40 weeks ended November
7, 1998 resulted from changes in the mix of merchandise and extent of inventory
shrinkage. These factors had a greater impact in the 12 week period than in
the 40 week period taken as a whole because the mix of sales was skewed to
higher gross margin items and the Company engaged in reduced promotional
activity and experienced little inventory shrinkage, in the weeks immediately
after Hurricane Georges which occurred on September 20 and 21, 1998.
For the 12 and 40 weeks ended November 6, 1999, selling, general, and
administrative expenses as a percentage of sales were 26.1% and 24.4%,
respectively. For the similar 12 and 40 week periods ending November 7, 1998,
selling, general and administrative expenses, as a percentage of sales, were
23.5% and 23.1%, respectively.
For the 12 weeks ended November 6, 1999, selling, general and
administrative expenses declined $0.9 million compared to the similar period
of the prior fiscal year. For the 40 weeks they declined $11.6 million
compared to the 40 weeks ended November 7, 1998.
The 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 33 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.
The variances between the decrease in these costs for the 12 weeks ended
November 6, 1999 and the 40 weeks then ended is a result of the timing of
transactions associated with the re-engineering process and the fact that the
sale/leaseback transaction on June 1, 1999 (discussed in the Liquidity and
Capital Resources section of this Management Discussion and Analysis)
resulted in an increase in rent expense net of rental income of $0.8 million
during this 12 week period of fiscal 2000 versus the prior year's comparable 12
week period for the four properties being leased back pursuant to operating
leases.
Operating profit decreased for the 12 and 40 weeks ended November 6, 1999
by $9.4 million and $2.2 million, respectively, over the comparable periods of
the prior year to $1.6 million and $28.9 million. The operating profit for the
40 weeks ended November 6, 1999 includes $13.1 million from settling the
property and extra expense insurance claim associated with Hurricane Georges.
All of the Company's stores, with the exception of two, have been reopened.
Since the storm, operations have been at varying degrees of full capacity
depending on the extent of damage at each location and the related recovery
efforts.
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
The $13.1 million gain 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 $41.2 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 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.
Net loss for the 12 weeks was $3.6 million, a decrease of $3.9 million
from the $0.3 million net income of the comparable period of the prior year.
Net income for the 40 weeks ended November 6, 1999 compared to the prior year
period decreased by $0.2 million to $3.4 million due primarily to reduced sales
offset by the recognition of gain on the settlement of some of the insurance
claims.
The 40 weeks ended November 6, 1999 includes a $1.2 million charge (net
of the income tax benefit) to provide for a loss on the sale/leaseback
transaction. EBITDA, as defined, (Earnings Before Interest Expense-net, Income
Taxes, Depreciation and Amortization and the loss on sale/leaseback
transaction) was $8.4 million and $52.5 million, respectively, during the 12
and 40 weeks ended November 6, 1999, versus $19.1 million and $59.9 million,
respectively, for the related 12 and 40 weeks of the prior year.
Liquidity and Capital Resources
Company operations have historically provided a cash flow which, along
with its available credit facility, have provided adequate liquidity for the
Company's operational needs.
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.
As discussed above, the Company provided for the related $1.2 million loss
(net of the income tax benefit) during the 40 weeks ended November 6, 1999.
Management believes that the transaction involving the sale of seven shopping
centers with the leaseback of the Company's stores within the centers will
increase 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.
Net cash used in operating activities for the 40 weeks ended November 6,
1999 was $6.7 million versus $0.4 million net cash provided by operating
activities for the comparable period of the prior year.
The increase in net cash used in operating activities of $7.1 million
during the 40 weeks ended November 6, 1999 over the comparable period of the
prior year, which occurred in spite of an increase in earnings before net
interest expense, income taxes, depreciation, and amortization, was due to
changes in components of working capital.
During the first 40 weeks of the current fiscal year net cash provided by
investing activities was $6.1 million provided primarily by $35.5 million in
proceeds on the sale/leaseback transaction, net of a total of $29.4 million
for purchases of property and equipment, reconstruction of property, and
replacement of equipment destroyed by Hurricane Georges. In the prior year
net cash used in investing activities was $3.6 million comprised of $13.0
million used for purchases of property and equipment, less proceeds on sales
of property and equipment of $9.4 million.
Net cash used in financing activities was approximately $ 0.5 million in
the first 40 weeks of both fiscal 2000 and 1999 and was used entirely for
payment on capital lease obligations.
Working capital increased during the 40 weeks ended November 6, 1999 by
$21.2 million to $22.8 million as of November 6, 1999 from $1.6 million as of
January 30, 1999, producing an improved current ratio of 1.20:1 versus the
1.01:1 current ratio as of the beginning of this fiscal year. The increase
occurred primarily due to the sale and leaseback transaction detailed above,
offset by the $10 million bonds detailed below being reclassified to a current
liability.
Outstanding borrowings with a governmental agency of Puerto Rico from the
issuance of industrial revenue bonds were $10.0 million as of November 6, 1999.
Management anticipates that the principal payments due in fiscal 2001 will be
financed by operations.
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.
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
be 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 5 of the
Company's annual consolidated financial statements included in Form 10 - K for
the year ended January 30, 1999, the Company's long-term debt consists of: (i)
senior notes of $265 million at a fixed rate of 9 1/2% due in fiscal 2004 and
(ii) variable rate revenue bonds due in fiscal 2001 of $10 million upon which
the weighted average interest rate was 4.30% and 4.43% at November 6, 1999 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-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' belief that cash flows generated by the Company' normal business
operations together with its available credit facility will be adequate for its
liquidity and capital resource needs, (2) insurance recovery expectations, and,
(3) the extent to which future operations may be inhibited by the hurricane.
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 1999 Form 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 negotiations
with insurers.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule.
(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: December 20, 1999 /s/ Daniel J. O'Leary
-----------------------------
Daniel J. O'Leary,
Executive Vice President
and Chief Financial Officer