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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE QUARTER ENDED COMMISSION FILE NUMBER
AUGUST 2, 1997 0-16404
SUPERMARKETS GENERAL HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3408704
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 BLAIR ROAD, P.O. BOX 5301 07095-0915
WOODBRIDGE, NEW JERSEY (Zip Code)
(Address of principal executive offices)
(732) 499-3000
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
$3.52 CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
As of August 2, 1997, there were outstanding 650,675 shares of $0.01 par
value Class A Common Stock (voting) and 320,000 shares of $0.01 par value Class
B Common Stock (non-voting), all of which are privately owned and not traded on
a public market.
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PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
SUPERMARKETS GENERAL HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands)
13 WEEKS ENDED 26 WEEKS ENDED
------------------------- -------------------------
AUGUST 2, AUGUST 3, AUGUST 2, AUGUST 3,
1997 1996 1997 1996
---------- ---------- ---------- ----------
Sales $ 931,909 $ 931,363 $1,854,307 $1,844,335
Cost of sales (exclusive of depreciation and
amortization shown separately below) 669,466 656,412 1,332,384 1,303,361
---------- ---------- ---------- ----------
Gross profit 262,443 274,951 521,923 540,974
Selling, general and administrative expenses 213,130 214,987 425,478 428,697
Depreciation and amortization 19,984 21,458 40,200 42,132
---------- ---------- ---------- ----------
Operating earnings 29,329 38,506 56,245 70,145
Interest expense (41,903) (41,106) (83,788) (81,695)
---------- ---------- ---------- ----------
Loss before income tax benefit and
extraordinary items (12,574) (2,600) (27,543) (11,550)
Income tax benefit 5,022 878 10,888 4,503
Loss before extraordinary items (7,552) (1,722) (16,655) (7,047)
Extraordinary items, net of an income tax benefit (7,488) (204) (7,488) (997)
---------- ---------- ---------- ----------
Net loss (15,040) (1,926) (24,143) (8,044)
Less: non-cash preferred stock accretion and
dividend requirements (4,754) (4,736) (9,504) (9,469)
---------- ---------- ---------- ----------
Net loss attributable to common stockholder $ (19,794) $ (6,662) $ (33,647) $ (17,513)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
See notes to consolidated financial statements (unaudited).
1
SUPERMARKETS GENERAL HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands except share amounts)
AUGUST 2, FEBRUARY 1,
1997 1997
---------- ----------
ASSETS
Current Assets
Cash and cash equivalents $ 8,698 $ 10,967
Accounts receivable, net 11,961 12,799
Merchandise inventories 196,710 217,440
Income taxes receivable 4,759 2,120
Deferred income taxes 9,887 9,969
Prepaid expenses 25,018 24,970
Due from suppliers 10,856 13,950
Other current assets 7,753 5,942
---------- ----------
Total Current Assets 275,642 298,157
Property and Equipment, Net 561,915 604,955
Deferred Financing Costs, Net 20,802 28,743
Deferred Income Taxes 55,955 39,530
Other Assets 47,347 45,200
---------- ----------
$ 961,661 $1,016,585
========== ==========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current Liabilities
Accounts payable $ 150,515 $ 167,446
Book overdrafts 32,779 41,086
Current maturities of
long-term debt 17,661 74,431
Accrued payroll and payroll taxes 57,593 56,414
Current portion of lease
obligations 22,566 23,208
Accrued interest payable 19,001 20,712
Accrued expense and other
current liabilities 88,245 90,629
---------- ----------
Total Current Liabilities 388,360 473,926
---------- ----------
Long-Term Debt 1,282,009 1,213,081
---------- ----------
Lease Obligations, Long-Term 172,250 175,628
---------- ----------
Other Noncurrent Liabilities 304,576 306,733
---------- ----------
Redeemable Securities
Exchangeable Preferred Stock,
$.01 par value 106,268 105,372
---------- ----------
Authorized: 9,000,000 shares
Issued and outstanding: 4,890,671
Liquidation preference,
$25 per share: $122,267
Commitments and Contingencies (Note 4)
Stockholder's Deficit
Class A Common Stock, $.01 par value 7 7
Authorized: 1,075,000 shares
Issued and outstanding: 650,675
Class B Common Stock, $.01 par value 3 3
Authorized: 1,000,000 shares
Issued and outstanding: 320,000
Paid-in Capital 198,436 199,332
Accumulated Deficit (1,490,248) (1,457,497)
---------- ----------
Total Stockholder's Deficit (1,291,802) (1,258,155)
---------- ----------
$ 961,661 $1,016,585
========== ==========
See notes to consolidated financial statements (unaudited).
2
SUPERMARKETS GENERAL HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT (Unaudited)
(in thousands except per share amounts)
CLASS A CLASS B TOTAL
COMMON COMMON PAID-IN ACCUMULATED STOCKHOLDER'S
STOCK STOCK CAPITAL DEFICIT DEFICIT
----- ----- ------- ------- -------
Balance, February 1, 1997 $ 7 $ 3 $199,332 $(1,457,497) $(1,258,155)
Net loss -- -- -- (24,143) (24,143)
Accrued dividends on preferred stock
($1.76 per share) -- -- -- (8,608) (8,608)
Accretion on preferred stock -- -- (896) -- (896)
---- ---- -------- ----------- -----------
Balance, August 2, 1997 $ 7 $ 3 $198,436 $(1,490,248) $(1,291,802)
---- ---- -------- ----------- -----------
---- ---- -------- ----------- -----------
Balance, February 3, 1996 $ 7 $ 3 $197,671 $(1,420,138) $(1,222,457)
Net loss -- -- -- (8,044) (8,044)
Accrued dividends on preferred stock
($1.76 per share) -- -- -- (8,608) (8,608)
Accretion on preferred stock -- -- (861) -- (861)
---- ---- -------- ----------- -----------
Balance, August 3, 1996 $ 7 $ 3 $196,810 $(1,436,790) $(1,239,970)
---- ---- -------- ----------- -----------
---- ---- -------- ----------- -----------
See notes to consolidated financial statements (unaudited).
3
SUPERMARKETS GENERAL HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
26 WEEKS ENDED
----------------------------
AUGUST 2, AUGUST 3,
1997 1996
-------- --------
Operating Activities
Net loss $(24,143) $ (8,044)
Adjustments to reconcile net loss to net cash provided by operating activities:
Extraordinary loss on early extinguishment of debt 7,488 997
Depreciation and amortization 42,217 43,824
Deferred income tax benefit (16,343) (1,685)
Interest accruable but not payable 9,013 8,122
Amortization of original issue discount 1,632 1,566
Amortization of debt issuance costs 3,510 3,637
(Gain) loss on disposal of property and equipment 89 (5,461)
Cash provided by (used for) operating assets and liabilities:
Accounts receivable, net 838 (135)
Merchandise inventories 20,730 17,851
Income taxes 2,817 (2,081)
Other current assets (524) (855)
Other assets (1,792) (3,272)
Accounts payable (16,931) (10,546)
Accrued interest payable (1,711) 1,823
Accrued expenses and other current liabilities (1,146) (8,458)
Other noncurrent liabilities (14,001) 1,964
-------- --------
Cash provided by operating activities 11,743 39,247
-------- --------
Investing Activities
Property and equipment expenditures (13,614) (23,799)
Proceeds from disposition of property and equipment 25,470 6,655
-------- --------
Cash provided for (used for) investing activities 11,856 (17,144)
-------- --------
Financing Activities
Borrowings under Term Loan in connection with the new Credit Agreement 300,000 --
Repayments of former term loan (243,127) (20,799)
Increase (decrease) in working capital facility borrowings (52,600) 16,000
Increase (decrease) in book overdrafts (8,307) 529
Increase in other borrowings 1,562 875
Repayment of other long-term borrowings (4,322) (6,457)
Reduction in lease obligations (10,650) (10,048)
Premiums incurred in redemption of PTK Exchangeable
Guaranteed Debentures and other borrowings (132) (554)
Deferred financing fees (8,292) (1,566)
Repayment of PTK Exchangeable Guaranteed Debentures -- (3,007)
-------- --------
Cash used for financing activities (25,868) (25,027)
-------- --------
Decrease in cash and cash equivalents (2,269) (2,924)
Cash and cash equivalents at beginning of period 10,967 12,526
-------- --------
Cash and cash equivalents at end of period $ 8,698 $ 9,602
======== ========
Supplemental Disclosures of Cash Flow Information
Interest paid $ 71,288 $ 66,260
======== ========
Income taxes paid $ 3,197 $ 3,995
======== ========
Noncash Investing and Financing Activities
Capital lease obligations $ 13,669 $ 19,790
======== ========
See notes to consolidated financial statements (unaudited).
4
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(UNAUDITED)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION
Supermarkets General Holdings Corporation (the "Company" or "Holdings"),
through its indirect wholly owned subsidiary Pathmark Stores, Inc. ("Pathmark"),
operated 138 supermarkets as of August 2, 1997, primarily in the New York-New
Jersey and Philadelphia metropolitan areas, and is a wholly owned subsidiary of
SMG-II Holdings Corporation ("SMG-II").
The unaudited consolidated financial statements included herein have been
prepared by the Company in accordance with the same accounting principles
followed in the presentation of the Company's annual financial statements for
the year ended February 1, 1997, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the
consolidated financial statements included herein reflect all adjustments which
are of a normal and recurring nature and are necessary to present fairly the
results of operations and financial position of the Company. This report should
be read in conjunction with the financial statements and notes thereto included
in the Company's Form 10-K Annual Report for the year ended February 1, 1997.
Income taxes for the interim period are based on the estimated effective
tax rate expected to be applicable for the full fiscal year.
NOTE 2--LONG-TERM DEBT
Long-term debt is comprised of the following (dollars in thousands):
AUGUST 2, FEBRUARY 1,
1997 1997
---------- ----------
Pathmark Term Loan $ 300,000 $ --
Pathmark Working Capital Facility 20,900 --
Former Pathmark term loan -- 243,127
Former Pathmark working capital facility -- 73,500
9.625% Pathmark Senior Subordinated
Notes due 2003 (Pathmark Senior \
Subordinated Notes) 437,957 437,780
11.625% Pathmark Subordinated Notes
due 2002 (Pathmark Subordinated
Notes) 199,017 199,017
11.625% Holdings Subordinated Notes
due 2002
(Holdings Subordinated Notes) 983 983
12.625% Pathmark Subordinated Debentures
due 2002 (Pathmark Subordinated
Debentures) 95,750 95,750
10.75% Pathmark Deferred Coupon Notes
due 2003 (Pathmark Deferred
Coupon Notes) 177,572 168,559
10.25% PTK Exchangeable Guaranteed
Debentures due 2003 (PTK
Exchangeable Guaranteed Debentures) 28,897 27,442
Industrial revenue bonds 6,375 6,375
Other debt (primarily mortgages) 32,219 34,979
---------- ----------
Total debt 1,299,670 1,287,512
Less: current maturities 17,661 74,431
---------- ----------
Long-term portion $1,282,009 $1,213,081
========== ==========
5
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(UNAUDITED)-(CONTINUED)
NOTE 2--LONG-TERM DEBT--(CONTINUED)
On June 30, 1997, the Company, through its Pathmark subsidiary, entered
into a new $500 million bank credit agreement (the "Credit Agreement") with a
group of lenders led by The Chase Manhattan Bank. The Credit Agreement includes
a $300 million term loan (the "Term Loan") and a $200 million working capital
facility (the "Working Capital Facility"). The Company repaid in full the
former term loan and former working capital facility with the borrowings
obtained under the Credit Agreement.
Under the Credit Agreement, the Term Loan and Working Capital Facility bear
interest at floating rates, ranging from LIBOR plus 2.25% to LIBOR plus 2.50%.
The Company is required to repay a portion of its borrowings under the Term Loan
each year, so as to retire such indebtedness in its entirety by December 15,
2001. Under the Working Capital Facility, which expires on June 15, 2001, the
Company can borrow or obtain letters of credit in an aggregate amount not to
exceed $200 million, of which the maximum of $125 million can be in letters of
credit. In addition, pursuant to Permitted Subordinated Debt Refinancing (as
defined in the Credit Agreement), the Working Capital Facility and a portion of
the Term Loan can be extended up to an additional two and one-half years and the
remainder of the Term Loan can be extended up to an additional three and
one-half years from the original expiration dates.
The Credit Agreement contains certain covenants, including financial
covenants concerning levels of operating cash flow, minimum interest and rent
expense coverage, maximum leverage ratio, maximum senior debt leverage ratio,
maximum consolidated rental payments and maximum capital expenditures. The
Credit Agreement also contains other covenants including, but not limited to,
covenants with respect to the following matters: (i) limitation on
indebtedness; (ii) limitation on liens; (iii) restriction on mergers; (iv)
restriction on investments, loans, advances, guarantees and acquisitions;
(v) restriction on assets sales and sale/leaseback transactions; (vi)
restriction on certain payments of indebtedness and incurrence of certain
agreements and (vii) restriction on transactions with affiliates.
NOTE 3--INTEREST EXPENSE
Interest expense is comprised of the following (dollars in thousands):
13 WEEKS ENDED 26 WEEKS ENDED
------------------------- -------------------------
AUGUST 2, AUGUST 3, AUGUST 2, AUGUST 3,
1997 1996 1997 1996
---------- ---------- ---------- ----------
Pathmark term loans $ 5,393 $ 5,813 $ 10,523 $ 11,714
Pathmark working capital facilities 1,705 1,446 3,472 2,656
Pathmark Senior Subordinated Notes
Amortization of original issue discount 89 89 177 177
Currently payable 10,587 10,587 21,175 21,175
Pathmark Deferred Coupon Notes
Accrued but not payable 4,565 4,114 9,013 8,122
Pathmark Subordinated Debentures 3,022 3,022 6,044 6,044
Pathmark Subordinated Notes 5,812 5,812 11,625 11,625
PTK Exchangeable Guaranteed Debentures
Amortization of original issue discount 729 658 1,455 1,389
Amortization of debt issuance costs 1,609 1,821 3,510 3,637
Lease obligations 5,598 4,798 11,089 9,245
Other, net 2,794 2,946 5,705 5,911
---------- ---------- ---------- ----------
Interest expense $ 41,903 $ 41,106 $ 83,788 $ 81,695
========== ========== ========== ==========
The majority of the cash interest payments are scheduled in the second and
fourth quarters.
6
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(UNAUDITED)-(CONTINUED)
NOTE 4--CONTINGENCIES
RICKEL:
In connection with the sale of its home centers segment in Fiscal
1994, the Company, as lessor, entered into leases for certain of the Company's
owned real estate properties with Rickel, as tenant (the "Leases"), pursuant to
which the Company is entitled to receive annual aggregate rentals of
approximately $4.2 million. In addition, as part of the sale, the Company
assigned to Rickel and Rickel assumed various liabilities of the home centers
segment, primarily third party leases (the "Assumed Liabilities"). As of August
2, 1997, the estimated present value of obligations under the Assumed
Liabilities approximated $27.6 million.
In January 1996, Rickel filed for bankruptcy protection under Chapter
11 of the United States Bankruptcy Code. Since the inception of Rickel's
bankruptcy, Rickel has rejected five Leases and two third party leases. The
five rejected Leases had annual rentals of approximately $2.7 million. One of
the rejected third party leases has been settled with the landlord and the
estimated present value of the other third party lease obligation is
approximately $4.2 million at August 2, 1997. The Company is actively marketing
these properties to other prospective tenants. Management has concluded that
the Company has sufficient reserves to cover any resulting liability which may
occur with respect to these rejected leases. Since the bankruptcy is not
concluded, the Company cannot determine whether Rickel will reject any
additional Leases or the extent to which the Company will become liable with
respect to the Assumed Liabilities in the event of Rickel's nonpayment thereof.
OTHER:
The Company is also a party to a number of legal proceedings in the
ordinary course of business. Management believes that the ultimate resolution
of these proceedings will not, in the aggregate, have a material adverse impact
on the financial condition, results of operations or business of the Company.
7
SUPERMARKETS GENERAL HOLDINGS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The matters discussed herein, with the exception of historical
information, are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements are
subject to risks, uncertainties and other factors which could cause actual
results to differ materially from future results expressed or implied by such
forward-looking statements. Potential risks and uncertainties include, but are
not limited to, the competitive environment in which the Company operates and
the general economic conditions in the Company's trading areas.
RESULTS OF OPERATIONS
SALES:
Sales in the second quarter of Fiscal 1997 were $931.9 million
compared to $931.4 million in the prior year, an increase of 0.1%. For the
six-month period of Fiscal 1997, sales were $1,854.3 million compared to
$1,844.3 million in the prior year, an increase of 0.5%. Same store sales
increased 1.1% and 0.9% for the second quarter and six-month period,
respectively, primarily from the Company's promotional pricing program which
commenced in the first quarter of Fiscal 1997. Sales in Fiscal 1997 compared to
Fiscal 1996 were also impacted by new store openings and remodels offset by sold
and closed stores. The Company operated 138 and 143 supermarkets at the end of
the second quarters of Fiscal 1997 and Fiscal 1996, respectively, including 55
and 51 Pathmark 2000 format stores, respectively.
GROSS PROFIT:
Gross profit in the second quarter of Fiscal 1997 was $262.4 million
or 28.2% of sales compared to $275.0 million or 29.5% of sales for the prior
year. For the six-month period of Fiscal 1997, gross profit was $521.9 million
or 28.1% of sales compared to $541.0 million or 29.3% for the prior year. The
decrease in gross profit in both dollars and as a percentage of sales for the
second quarter and six-month period of Fiscal 1997 compared to the prior year
was primarily due to the promotional pricing program introduced during the first
quarter of Fiscal 1997. The cost of goods sold comparisons were affected by a
pretax LIFO charge of $0.5 million and $0.8 million in the second quarters of
Fiscal 1997 and Fiscal 1996, respectively, and a pretax LIFO charge of $0.9
million and $1.7 million in the six-month period of Fiscal 1997 and Fiscal 1996,
respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A"):
SG&A in the second quarter of Fiscal 1997 decreased $1.9 million or
0.9% compared to the prior year and decreased $3.2 million or 0.8% in the
six-month period of Fiscal 1997 compared to the prior year. As a percentage of
sales, SG&A was 22.9% in the second quarter of Fiscal 1997, down from 23.1% in
the prior year and was 22.9% for the six-month period of Fiscal 1997 down from
23.2% the prior year. The decrease in SG&A as a percentage of sales in the
second quarter and six-month period of Fiscal 1997 compared to the prior year
was primarily due to lower administrative, advertising and utilities expenses,
partially offset by higher store labor expenses.
8
SUPERMARKETS GENERAL HOLDINGS CORPORATION
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization of $20.0 million in the second quarter
of Fiscal 1997 was $1.5 million lower than the prior year of $21.5 million. For
the six-month period of Fiscal 1997, depreciation and amortization of $40.2
million was $1.9 million lower than the prior year of $42.1 million. The
decrease in depreciation and amortization expense in the second quarter and
six-month period of Fiscal 1997 compared to the prior year was primarily due to
the write down in the fourth quarter of Fiscal 1996 of certain fixed assets held
for sale, principally in the Company's southern region, partially offset by
capital expenditures in Fiscal 1997. Depreciation and amortization excludes
video tape amortization, which is recorded in cost of goods sold, of $0.9
million and $0.75 million in the second quarters of Fiscal 1997 and Fiscal 1996,
respectively, and $1.7 million and $1.5 million in the six-month period of
Fiscal 1997 and Fiscal 1996, respectively.
OPERATING EARNINGS:
Operating earnings in the second quarter of Fiscal 1997 were $29.3
million compared to the prior year of $38.5 million. For the six-month period
of Fiscal 1997, operating earnings were $56.2 million compared with $70.1
million in the prior year. The decrease in operating earnings in the second
quarter and six-month period of Fiscal 1997 compared to the prior year was due
to lower gross profit, partially offset by lower SG&A and depreciation and
amortization expense.
INTEREST EXPENSE:
Interest expense was $41.9 million in the second quarter of Fiscal
1997 compared to $41.1 million in the prior year and $83.8 million for the
six-month period of Fiscal 1997 compared to $81.7 million in the prior year,
primarily due to increases in lease obligations, the debt accretion on the
Deferred Coupon Notes, higher levels of borrowings under the former working
capital facility and higher interest rates, partially offset by reductions in
the former term loan.
INCOME TAXES:
Income taxes for the interim period are based on the estimated
effective tax rate expected to be applicable for the full fiscal year. The
income tax benefit in the second quarter and six-month period of Fiscal 1997 was
$5.0 million and $10.9 million, respectively. The income tax benefit for the
second quarter and six-month period of Fiscal 1996 was $0.9 million and $4.5
million, respectively.
During the six-month period of Fiscal 1997, the Company made income
tax payments of $3.2 million and received income tax refunds of $0.5 million.
During the six-month period of Fiscal 1996, the Company made income tax payments
of $4.0 million and received income tax refunds of $2.9 million.
EXTRAORDINARY ITEMS:
During the second quarter of Fiscal 1997, in connection with the
Credit Agreement, the Company wrote off deferred financing fees of $12.8 million
related to the former bank credit agreement, resulting in a net loss on early
extinguishment of debt of $7.4 million. In addition, during the second quarter
of Fiscal 1997, in connection with the sale of certain mortgaged property, the
Company made a mortgage paydown of $2.9 million, including accrued interest and
debt premiums, resulting in a net loss on early extinguishment of debt of $0.1
million.
9
SUPERMARKETS GENERAL HOLDINGS CORPORATION
During the second quarter of Fiscal 1996, in connection with the sale
of certain mortgaged property, the Company made a mortgage paydown of $5.3
million, including accrued interest and debt premiums, resulting in a net loss
on early extinguishment of debt of $0.2 million. In addition, during the first
quarter of Fiscal 1996, in connection with the termination of the Plainbridge,
Inc. credit agreement due to the reacquisition of Plainbridge, Inc. by Pathmark,
the Company wrote off deferred financing fees resulting in a net loss on early
extinguishment of debt of $0.7 million. During the first quarter of Fiscal
1996, the Company also made a paydown of $3.2 million of PTK Exchangeable
Guaranteed Debentures. The premium paid, including original issue discount,
resulted in a net loss on early extinguishment of debt of $0.1 million.
SUMMARY OF OPERATIONS:
For the second quarter of Fiscal 1997, the Company's net loss was
$15.0 million compared to a net loss of $1.9 million for the prior year. For
the six-month period of Fiscal 1997, the Company's net loss was $24.1 million
compared to a net loss of $8.0 in the prior year. The increase in net loss in
the second quarter and six-month period of Fiscal 1997 compared to the prior
year was primarily due to lower operating earnings, the extraordinary loss on
early extinguishment of debt and higher interest expense, partially offset by a
higher income tax benefit.
EBITDA-FIFO:
EBITDA-FIFO was $50.9 million and $61.7 million in the second quarters
of Fiscal 1997 and Fiscal 1996, respectively, and $99.4 million and $115.9
million for the six-month period of Fiscal 1997 and Fiscal 1996, respectively.
EBITDA-FIFO represents net earnings before interest expense, income taxes,
depreciation, amortization, the LIFO charge (credit) and unusual transactions.
EBITDA-FIFO is a widely accepted financial indicator of a company's ability to
service and/or incur debt and should not be construed as an alternative to, or a
better indicator of, operating income or cash flows from operating activities,
as determined in accordance with generally accepted accounting principles.
FINANCIAL CONDITION
DEBT SERVICE:
During the six-month period of Fiscal 1997, total debt increased $12.2
million from Fiscal 1996 year end primarily due to debt accretion on the
Pathmark Deferred Coupon Notes and the PTK Exchangeable Guaranteed Debentures.
On June 30, 1997, the Company, through its Pathmark subsidiary, entered into the
Credit Agreement with a group of lenders led by The Chase Manhattan Bank. The
Credit Agreement includes a $300 million Term Loan and a $200 million Working
Capital Facility. In connection with this refinancing, the Company repaid in
full the former Pathmark term loan ($230.5 million) and the former Pathmark
working capital facility ($57.5 million) with the borrowings obtained under the
Credit Agreement. Borrowings under the Working Capital Facility were $20.9
million at August 2, 1997 and have decreased to $19.5 million at September 11,
1997.
During the second quarter of Fiscal 1997, the Company sold four of the
12 supermarkets that it announced for divestiture at the end of Fiscal 1996 for
$14.9 million and sold two former operating sites, primarily drug stores, for
$11.1 million. There was no gain or loss recognized on these transactions. The
proceeds were used to paydown a portion of the former working capital facility
and certain mortgages.
10
SUPERMARKETS GENERAL HOLDINGS CORPORATION
Under the Credit Agreement, the Term Loan and Working Capital Facility
bear interest at floating rates, ranging from LIBOR plus 2.25% to LIBOR plus
2.50%. The Company is required to repay a portion of its borrowings under the
Term Loan each year, so as to retire such indebtedness in its entirety by
December 15, 2001. Under the Working Capital Facility, which expires on June
15, 2001, the Company can borrow or obtain letters of credit in an aggregate
amount not to exceed $200 million, of which the maximum of $125 million can be
in letters of credit. In addition, pursuant to a Permitted Subordinated Debt
Refinancing (as defined in the Credit Agreement), the Working Capital Facility
and a portion of the Term Loan can be extended up to an additional two and
one-half years and the remainder of the Term Loan can be extended up to an
additional three and one-half years from the original expiration dates.
However, there can be no assurance that the Company will undertake such
refinancing.
The Credit Agreement contains covenants, including financial covenants
concerning levels of operating cash flow, minimum interest and rent expense
coverage, maximum leverage ratio, maximum senior debt leverage ratio, maximum
consolidated rental payments and maximum capital expenditures. The Credit
Agreement also contains other covenants including, but not limited to, covenants
with respect to the following matters: (i) limitation on indebtedness; (ii)
limitation on liens; (iii) restriction on mergers; (iv) restriction on
investments, loans, advances, guarantees and acquisitions; (v) restriction on
assets sales and sale/leaseback transactions; (vi) restriction on certain
payments of indebtedness and incurrence of certain agreements and (vii)
restriction on transactions with affiliates.
The Company does not currently maintain any interest rate hedging
arrangements. The Company is continuously evaluating this risk and will
implement interest rate hedging arrangements if deemed appropriate.
The majority of the cash interest payments are scheduled in the second
and fourth quarters.
The amount of principal payments required each year on outstanding
long-term debt (excluding the original issue discount with respect to the
Pathmark Deferred Coupon Notes and the PTK Exchangeable Guaranteed Debentures)
are as follows (dollars in millions):
PRINCIPAL
FISCAL YEARS PAYMENTS
------------ --------
1997(a) $ 12.7
1998 37.5
1999 16.5
2000 81.6
2001 311.2
2002 195.8
2003 644.4
- ----------------
(a) Subsequent to August 2, 1997.
LIQUIDITY:
The consolidated financial statements of the Company indicate that, at
August 2, 1997, current liabilities exceeded current assets by $112.7 and
stockholder's deficit was $1.29 billion. Management believes that cash flows
generated from operations, supplemented by the unused borrowing capacity under
the Pathmark Working Capital Facility and the availability of capital lease
financing will be sufficient to pay the Company's debts as they come due,
provide for its capital expenditure program and meets its other cash
requirements.
11
SUPERMARKETS GENERAL HOLDINGS CORPORATION
The Company believes that it will be able to make the scheduled
payments or refinance its obligations with respect to its indebtedness through a
combination of operating funds and borrowing facilities. Future refinancing
will be necessary if the Company's cash flow from operations is not sufficient
to meet its debt service requirements related to the maturity of certain
mortgages in Fiscal 1998, the maturity of the Term Loan and Working Capital
Facility in Fiscal 2001 and the maturity of the Pathmark Subordinated Notes and
Pathmark Subordinated Debentures in Fiscal 2002. The Company expects that it
will be necessary to refinance all or a portion of the Pathmark Senior
Subordinated Notes and the Pathmark Deferred Coupon Notes due in Fiscal 2003 and
the PTK Exchangeable Guaranteed Debentures due in Fiscal 2003. The Company may
undertake a refinancing of some or all of such indebtedness sometime prior to
its maturity. The Company was in compliance with its various debt covenants at
August 2, 1997, and, based on management's operating projections for Fiscal
1997, the Company believes that it will continue to be in compliance with its
debt covenants. The Company's ability to make scheduled payments, to refinance
or otherwise meet its obligations with respect to its indebtedness depends on
its financial and operating performance, which in turn, is subject to prevailing
economic conditions and to financial, business and other factors beyond its
control. Although the Company's cash flow from its operations and borrowings
has been sufficient to meet its debt service obligations, there can be no
assurance that the Company's operating results will continue to be sufficient or
that future borrowing facilities will be available for payment or refinancing of
Pathmark's and PTK's indebtedness.
The Board of Directors has approved, to the extent permitted by the
new Credit Agreement, that the Company may repurchase a portion of the
Subordinated Notes and Subordinated Debentures in such amounts and for such
consideration as the Company shall determine, in light of prevailing market
conditions.
While it is the Company's intention to enter into other refinancings
that it considers advantageous, there can be no assurances that the prevailing
market conditions will be favorable to the Company. In the event the Company
obtains any future refinancing on less than favorable terms, the holders of
outstanding indebtedness could experience increased credit risk and could
experience a decrease in the market value of their investment, because the
Company might be forced to operate under terms that would restrict its
operations and might find its cash flow reduced.
PREFERRED STOCK DIVIDENDS:
The terms of the Exchangeable Preferred Stock provide for cumulative
quarterly dividends at an annual rate of $3.52 per share when, and if declared
by the Board of Directors of the Company. Dividends for the first 20 quarterly
dividend periods (through October 15, 1992) were paid at the Company's option in
additional shares of Exchangeable Preferred Stock. Since January 15, 1993, all
dividends not paid in cash will cumulate at the rate of $3.52 per share per
annum, without interest, until declared and paid. As such, at August 2, 1997,
the unpaid dividends of $81.8 million were accrued and included in other
noncurrent liabilities.
CAPITAL EXPENDITURES:
Capital expenditures for the second quarter of Fiscal 1997, including
property acquired under capital leases, were $15.5 million compared to $27.9
million for the prior year and for the six-month period of Fiscal 1997 were
$27.3 million compared to $43.6 million for the prior year. During the
six-month period of Fiscal 1997, the Company opened two new Pathmark 2000 format
stores, completed five major renovations and enlargements to existing
supermarkets and sold four and closed four of the 12 stores announced for
divestiture at the end of Fiscal 1996. Subsequent to the second quarter of
Fiscal 1997, the Company closed an additional three of the 12 stores announced
for divestiture. During the remainder of Fiscal 1997, the Company does not plan
to open any new Pathmark 2000 format stores and expects to complete up to an
aggregate of seven major renovations and enlargements.
12
SUPERMARKETS GENERAL HOLDINGS CORPORATION
CASH FLOWS:
Cash provided by operating activities amounted to $11.7 million in the
six-month period of Fiscal 1997 compared to $39.2 million in the prior year.
The decrease in net cash provided by operating activities was primarily due to
an increase in the net loss and an increase in cash used for operating assets
and liabilities. Cash provided by investing activities was $11.9 million in the
six-month period of Fiscal 1997 compared to cash used for investing activities
of $17.1 million in the prior year. The increase in cash provided by investing
activities was primarily due to an increase in proceeds from property
dispositions and a decrease in expenditures of property and equipment. Cash
used for financing activities was $25.9 million in the six-month period of
Fiscal 1997 compared to $25.0 million in the prior year. The increase in cash
used for financing activities was primarily due to a decrease in bank overdrafts
and an increase in deferred financing fees related to the Credit Agreement,
partially offset by a decrease in the repayment of PTK Exchangeable Guaranteed
Debentures and an increase in borrowings in conjunction with the Credit
Agreement, net of repaying in full the former Pathmark term loan and former
Pathmark working capital facility.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
NO. DESCRIPTION
--- -----------
4.4 Credit Agreement dated as of June 30, 1997 among Pathmark
Stores, Inc., the Lenders listed therein and The Chase
Manhattan Bank as Administrative Agent.
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K have been filed during the quarter for which
this report has been filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
Undersigned thereunto duly authorized.
SUPERMARKETS GENERAL HOLDINGS CORPORATION
BY /S/ RON MARSHALL
------------------------------------
(RON MARSHALL)
EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
BY /S/ JOSEPH ADELHARDT
------------------------------------
(JOSEPH ADELHARDT)
SENIOR VICE PRESIDENT AND CONTROLLER,
CHIEF ACCOUNTING OFFICER
DATE: September 16, 1997
14