FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Pursuant To Section 13 or 15 (d) of
The Securities and Exchange Act of 1934
QUARTER ENDED September 12, 1998 COMMISSION FILE NO. 33-80833
JITNEY-JUNGLE STORES OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
STATE OF INCORPORATION I.R.S. EMPLOYER I.D. NO.
Mississippi 64-0280539
ADDRESS OF PRINCIPAL EXECUTIVE OFFICE
1770 Ellis Avenue, Suite 200, Jackson, MS 39204
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE
601-965-8600
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, and (2) has been subject to
such filing requirements for the past 90 days. YES (X) NO
The number of shares of Registrant's Common Stock, par value one cent
($.01) per share, outstanding at October 15, 1998, was 425,000 shares.
JITNEY-JUNGLE STORES OF AMERICA, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1.Financial Statements:
Condensed Consolidated Balance Sheets
September 12, 1998 (Unaudited) and January 3,1998 2
Condensed Consolidated Statements of Operations
Thirty-six (36) and Twelve (12) Week Periods Ended
September 12, 1998 (Unaudited) and
Thirty-seven (37) and Twelve (12) Week Periods Ended
September 20, 1997 (Unaudited) 3
Condensed Consolidated Statements of Changes in
Stockholders' Deficit for the Thirty-six (36) Week Period
Ended September 12, 1998 (Unaudited) and
Thirty-seven (37) Week Period Ended
September 20, 1997 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
Thirty-six (36) Week Period Ended
September 12, 1998 (Unaudited) and
Thirty-seven (37) Week Period Ended
September 20, 1997 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements
September 12, 1998 (Unaudited) and
September 20, 1997 (Unaudited) 6-8
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-16
PART II.OTHER INFORMATION
Item 1.Legal Proceedings 17
Item 2.Change in Securities 17
Item 3.Defaults Upon Senior Securities 17
Item 4.Submission of Matters to a Vote of Security Holders 17
Item 5.Other Information 17-18
Item 6.Exhibits and Reports on Form 8-K 18
2
PART I. ITEM 1. FINANCIAL STATEMENTS
JITNEY-JUNGLE STORES OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 12, January 3,
1998 1998
(Unaudited)
ASSETS ----------- -----------
Current assets:
Cash and cash equivalents $ 8,494 $ 11,984
Receivables 19,652 13,833
Merchandise inventories 159,849 162,786
Prepaid expenses and other 24,688 11,570
Deferred income taxes 13,701 15,681
---------- ----------
Total current assets 226,384 215,854
---------- ----------
PROPERTY AND EQUIPMENT - net 286,578 303,774
---------- ----------
Other assets
Goodwill, net of amortization of
$3,895 at September 12, 1998
and $1,105 at January 3, 1998 152,077 142,415
Other assets - net 27,209 32,237
Deferred income taxes 6,279
---------- ----------
Total other assets 185,565 174,652
---------- ----------
TOTAL ASSETS $ 698,527 $ 694,280
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 112,273 $ 112,641
Accrued expenses 70,010 75,558
Current portion of capitalized leases 6,772 6,760
Payable to former shareholders of Delchamps, Inc 7,702 26,637
Restructuring obligations 9,238 14,927
---------- ----------
Total current liabilities 205,995 236,523
Noncurrent liabilities:
Long-term debt 503,317 449,831
Obligations under capitalized leases,
excluding current installments 64,717 68,321
Restructuring obligations, excluding
current installments 37,240 40,588
Deferred income taxes 3,875
---------- ----------
Total liabilities 811,269 799,138
Commitments and contingencies
Redeemable Preferred stock (aggregate liquidation
preference value of $70,756 at
September 12, 1998 and $65,077 at
January 3, 1998) 68,865 63,042
Stockholders' deficit:
Class C Preferred stock - Series 1
(at liquidation value) 9,695 9,071
Common stock ($.01 par value, authorized
5,000,000 shares, issued 425,000 shares 4 4
Additional paid-in capital (302,326) (302,326)
Retained earnings 111,020 125,351
---------- ----------
Total stockholders' deficit (181,607) (167,900)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 698,527 $ 694,280
========= =========
See notes to condensed consolidated financial statements.
3
JITNEY-JUNGLE STORES OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Amounts)
36 Weeks 37 Weeks 12 Weeks 12 Weeks
Ended Ended Ended Ended
Sept 12, Sept 20, Sept 12, Sept 20,
1998 1997 1998 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
---------------- ---------------- ------------- ---------------
NET SALES $ 1,432,963 $ 873,590 $ 474,371 $ 286,651
---------------- ---------------- ------------- ---------------
COSTS AND EXPENSES:
Cost of goods sold 1,058,083 652,927 343,789 214,343
Direct store expenses 284,952 147,766 94,920 50,358
Warehouse, administrative
and general expenses 52,87 39,597 17,967 10,926
Nonrecurring charges 5,479 2,742
Interest expense - net 48,27 26,066 16,625 9,414
---------------- ---------------- ------------- ---------------
Total costs and
expenses 1,444,727 871,835 473,301 287,783
---------------- ---------------- ------------- ---------------
Earnings (loss) before taxes
on income (11,764) 1,755 1,070 (1,132)
Income tax expense (benefit) (3,880) 589 403 (460)
---------------- ---------------- ------------- ---------------
Earnings (loss) before
extraordinary item (7,884) 1,166 667 (672)
EXTRAORDINARY ITEM, net of
income tax benefit
of $518 (870) (870)
---------------- ---------------- ------------- ---------------
NET EARNINGS (LOSS) $ (7,884) $ 296 $ 667 $ (1,542)
================ ================ ============= ===============
EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE $ (33.43) $ (12.63) $ (3.37) $ (8.34)
================ ================ ============= ===============
EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE
ASSUMING DILUTION $ (33.43) $ (12.63) $ (3.37) $ (8.34)
================ ================ ============= ===============
See notes to condensed consolidated financial statements.
4
JITNEY-JUNGLE STORES OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE THIRTY-SIX (36) WEEK PERIOD ENDED SEPTEMBER 12, 1998 (Unaudited)
AND THE THIRTY-SEVEN (37) WEEK PERIOD ENDED SEPTEMBER 20, 1997 (Unaudited)
(Dollars in thousands)
Class C
Preferred Stock,
Series 1 Common Stock Additional Treasury
No. of No. of Paid-In Retained Stock at
Shares Amount Shares Amount Capital Earnings Cost
------ ------ ------ ------ ---------- --------- --------
Balance
January 4, 1997 76,042 $ 8,240 425,000 $ 4 $ (302,326) $ 144,027
Net earnings 296
Accretion of discount on Class A
Preferred stock (144)
Cumulation of dividends on
Preferred stock 583 (5,662)
Balance ------- ------- ------- ------ ---------- ------- --------
September 20, 1997 76,042 $ 8,823 425,000 $ 4 $ (302,326) $ 138,517 $
======= ======= ======= ====== ========= ======= ========
Balance
January 3, 1998 76,042 $ 9,071 425,000 $ 4 $ (302,326) $ 125,351
Net loss (7,884)
Purchase of 1700 shares of
treasury stock $ (20)
Sale of 1700 shares of
treasury stock $ 20
Accretion of discount on Class A
Preferred stock (144)
Cumulation of dividends on
Preferred stock 624 (6,303)
Balance ------ ------ ------- ------ ---------- -------- --------
September 12, 1998 76,042 $ 9,695 425,000 $ 4 $ (302,326) $ 111,020 $
====== ====== ======= ====== ========= ======== ========
See notes to condensed consolidated financial statements.
5
JITNEY-JUNGLE STORES OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands) 36 Weeks 37 Weeks
(Unaudited) Ended Ended
September 12, September 20,
1998 1997
OPERATING ACTIVITIES: ----------- -----------
Net earnings (loss) $ (7,884) $ 296
Adjustment to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation 40,046 20,575
Amortization of deferred loan costs 2,358 838
Loss (gain) on disposition of property and
other assets (39) 1,918
Deferred income tax benefit (8,174) (17,707)
Increase (decrease) in restructuring obligation (15,768) 50,748
Changes in assets and liabilities:
Notes and accounts receivable (5,481) (8,718)
Store and warehouse inventories 427 6,633
Prepaid expenses (13,118) (5,879)
Accounts payable (368) 12,277
Accrued expenses (4,561) 13,585
---------- ----------
Net cash provided by (used in)
operating activities (12,562) 74,566
---------- ----------
INVESTING ACTIVITIES:
Capital expenditures (30,012) (17,881)
Proceeds from sale of property and other assets 11,054 7,186
Direct acquistion costs (4,465)
Payment to former shareholders of Delchamps, Inc. (18,935)
Decrease (increase) in other assets 2,523 (250,576)
---------- ----------
Net cash used in investing
activities (39,835) (261,271)
---------- ----------
FINANCING ACTIVITIES:
Proceeds (payments) on long-term debt - net 53,498 192,314
Payments on capitalized lease obligations (3,604) (3,356)
Other liabilities (987)
Merger cost (14)
Purchase of treasury stock (20)
Sale of treasury stock 20
---------- ----------
Net cash provided by
financing activities 48,907 188,944
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,490) 2,239
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 11,984 7,642
---------- ----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 8,494 $ 9,881
========== ==========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $47,735 $ 25,306
========== ==========
Cash paid for income taxes, net of refunds $ 38 $ 5,750
========== ==========
See notes to condensed consolidated financial statements.
6
JITNEY-JUNGLE STORES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 12, 1998 (Unaudited) AND SEPTEMBER 20, 1997 (Unaudited)
(Dollars in thousands)
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements include those of
Jitney-Jungle Stores of America, Inc. and its wholly-owned subsidiaries,
Southern Jitney Jungle Company, Interstate Jitney-Jungle Stores, Inc.,
McCarty-Holman Co., Inc. and subsidiary, Jitney-Jungle Bakery, Inc.,
Delchamps Inc. and subsidiary and JJ Construction Corp. All material
intercompany profits, transactions and balances have been eliminated.
These interim financial statements have been prepared on the basis of
accounting principles used in the annual financial statements for the
35 weeks ended January 3, 1998. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements
contain all adjustments (all of which were of a normal recurring nature)
necessary for a fair statement of consolidated financial position and
results of operations of the Company for the interim periods. The
results of operations of the Company for the thirty-six weeks ended
September 12, 1998, are not necessarily indicative of the results which
may be expected for the entire year.
The Company changed its fiscal year end on January 3, 1998 to the closest
Saturday to December 31. Previously, the Company reported its fiscal year
end results as of the Saturday nearest to April 30. Data included herein
for the third quarter of fiscal 1997 reflect the unaudited results of
operations for the thirty-seven weeks ended September 20, 1997.
2. ACQUISITION
In September 1997, the Company acquired the majority of the common stock
of Delchamps, Inc. Certain shareholders dissented from the merger and
are pursuing their appraisal remedy under Alabama law. Management does
not expect this matter to have a material affect on operations or the
price of the acquisition. The acquisition was accounted for as a
purchase and, accordingly, Delchamps' results of operations were
included in the Company's consolidated financial statements subsequent
to the acquisition date.
The purchase price, net of cash acquired of $84, has been allocated to
the assets acquired and liabilities assumed based upon the estimated
fair values at the date of acquisition, as set forth below. The only
variation between such amounts and the final allocation will be
a final determination of amounts to be paid to former
shareholders of Delchamps who dissented from the merger (and related
professional fees). Management believes, however that when the final
valuation of the net assets acquired is complete, the allocation of the
purchase price will not differ materially from the amounts shown herein.
7
Receivables and other current assets $ 12,569
Inventory 94,347
Property, equipment and leasehold improvements 121,822
Deferred income tax asset 22,739
Other assets 2,106
Goodwill 155,972
Accounts payable and accrued expenses (80,764)
Notes payable and long-term debt , immediately (14,463)
Capital lease obligations (15,760)
Restructuring obligations (62,426)
_____________
Net purchase price $ 236,142
=============
3. RESTRUCTURING OBLIGATIONS
In connection with the Delchamps acquisition, the Company
recorded a restructuring obligation of $63,319 relating to (i) stores
closed by Delchamps prior to the acquisition; (ii) Delchamps stores to
be closed after the acquisition because of unprofitability; (iii) Company
and Delchamps stores required to be divested under a consent decree with
the Federal Trade Commission; (iv) closure of the Delchamps headquarters
in Mobile, Alabama; and (v) closure of the Delchamps warehouse facility
in Hammond, Louisiana. The $63,319 consists of $45,292 of future rental
payments, $2,007 of severance costs, $362 of loss on divestiture of fixed
assets, $1,432 for locations previously closed by Delchamps
and $14,226 of miscellaneous expenses related mainly to the shutdown of
the Mobile and Hammond facilities.
Of the total restructuring costs, $62,426 was recorded as goodwill as
part of the purchase price allocation in the Delchamps acquisition and
$893 was included as a nonrecurring charge in the statement of operations
($599 in the 35 weeks ended January 3, 1998 and $294 in the first quarter
of fiscal 1998).
4. NONRECURRING CHARGES
Nonrecurring charges recorded during the thirty-six week period ended
September 12, 1998 consisted of severance benefits of $250 and loss on
stores sold under the consent decree with the Federal Trade Commission
in the Delchamps acquisition of $294. No nonrecurring charges were
recorded during the third quarter of fiscal 1998. Nonrecurring charges
recorded during the thirty-seven week period ended September 20, 1997
were $5,479 including $958 of severance benefits, $1,779 due to an
employment agreement relating to the Company's former chief executive
officer, $2,008 for bridge loan fees and $734 for stores that have been
or will be closed or sold.
5. EXTRAORDINARY ITEM
In connection with the Delchamps acquisition and the recapitalization
in March 1996 ("Recapitalization"), the Company retired certain long-term
debt prior to its scheduled maturity. Early retirement of such debt
resulted in extraordinary losses of $870 (net of income tax benefit of
$518) during the twelve week and thirty-seven week periods ended
September 20, 1997.
8
6. LONG-TERM DEBT
Long-term debt consisted of the following:
September 12, January 3,
1998 1998
------------ -----------
Senior notes at 12%,
maturing in 2006 $ 200,000 $ 200,000
Senior subordinated notes
at 10.375% 200,000 200,000
maturing in 2007
Senior Credit Facility 103,317 49,831
------------ -----------
Long-term debt $ 503,317 $ 449,831
============ ===========
The Company has available a Senior Credit Facility of $150 million
under which letters of credit aggregating $11,661 were outstanding
at September 12, 1998. In addition, due to the interruption of business
and the recent damage caused to the assets of the Company related to
Hurricane Georges, the availability under the Senior Credit Facility
has been increased by $25 million until January 15, 1999.
7. EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Earnings (loss) per common and common equivalent share is based on net
income (loss) after preferred stock dividend requirements and the
weighted average number of shares outstanding during each interim
period. Cumulative dividends not declared or paid on preferred shares
amounted to $2,101 and $6,303 for the twelve weeks and thirty-six weeks
ended September 12, 1998, respectively. Cumulative dividends not
declared or paid on preferred shares amounted to $2,001 and $5,662 for
the twelve weeks and thirty-seven weeks ended September 20, 1997. The
number of shares used in computing the earnings (loss) per share was
425,000 for the twelve weeks and 424,400 for the thirty-six weeks ended
September 12, 1998 and 425,000 for the twelve weeks and thirty-
seven weeks ended September 20, 1997. Incremental shares attributed to
outstanding warrants were not included in the computation as their
effect on earnings (loss) per share would be antidilutive.
8. COMMITMENTS AND CONTINGENCIES
The Company is a party to certain litigation incurred in the normal
course of business. In the opinion of management, the ultimate
liability, if any, which may result from this litigation will not
have a material adverse effect on the Company's financial position
or results of operations.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Dollars in thousands)
The following is management's discussion and analysis of significant
factors affecting the Company's financial condition and results of
operations during the periods included in the accompanying condensed
consolidated statements of operations.
A table showing the percentage of net sales represented by certain
items in the Company's condensed consolidated statements of operations
is as follows:
36 Weeks 37 Weeks 12 Weeks 12 Weeks
Ended Ended Ended Ended
Sept 12, Sept 20, Sept 12, Sept 20,
1998 1997 1998 1997
-------- -------- --------- ---------
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 26.2 25.3 27.5 25.2
Direct store expenses 19.9 16.9 20.0 17.6
Warehouse, administrative
and general expenses 3.7 4.6 3.8 3.8
Nonrecurring charges 0.0 0.6 0.0 1.0
Operating income 2.6 3.2 3.7 2.9
Interest expense, net 3.4 3.0 3.5 3.4
Earnings (loss) before
income taxes (0.8) 0.2 0.2 (0.5)
Provision for income taxes (0.3) 0.1 0.1 (0.2)
Extraordinary item 0.0 0.1 0.0 0.1
Net earnings (loss) (0.5) 0.0 0.1 (0.6)
EBITDA 5.3 5.1 6.5 6.0
A summary of the period to period changes in certain items included
in the condensed consolidated statements of operations for the
thirty-six and thirty-seven week periods and twelve week periods ended
September 12, 1998 and September 20, 1997, respectively is as follows:
Thirty-six Weeks Ended Twelve Weeks Ended
September 12,1998 September 12,1998
$ % $ %
-------- -------- -------- --------
Net sales $ 559,373 64.0 % $187,720 65.5 %
Gross profit 154,217 n/m 58,274 n/m
Direct store expenses 137,186 n/m 44,562 n/m
Warehouse,
administrative
and general expenses 13,278 n/m 7,041 n/m
Nonrecurring charges (4,935) n/m (2,742) n/m
Operating income 8,688 31.2 9,413 n/m
Interest expense, net 22,207 85.2 7,211 76.6
Earnings (loss) before
income taxes (13,519) n/m 2,202 n/m
Provision for income
taxes (4,469) n/m 863 n/m
Extraordinary item 870 n/m 870 n/m
Net earnings (loss) (8,180) n/m 2,209 n/m
EBITDA 23,304 44.0 13,689 79.3
(n/m - not meaningful
comparison)
10
RESULTS OF OPERATIONS
GENERAL
The results of operations of Delchamps have been included in the
Company's consolidated financial statements since September 12, 1997.
Accordingly, the thirty-seven weeks ended September 20, 1997 only
includes the effects of the Delchamps acquisition from September 12,
1997 through September 20, 1997 whereas the thirty-six weeks ended
September 12, 1998 reflects the acquisition for the entire period. The
percentage change in same store sales has been calculated by comparing
supermarkets open throughout both periods, including, for the thirty-seven
weeks ended September 20, 1997, supermarkets acquired in the Delchamps
acquisition.
During the thirty-six weeks ended September 12, 1998, the Company focused,
among other things, on integrating the operations of Delchamps.
Specifically, the Company replaced Delchamps' shelf tags with the Company's
shelf tags and changed the mix of products offered at Delchamps' stores to
conform to the Company's mix and, in certain cases, local preferences. The
integration of Delchamps into the Company's information systems and
retraining of Delchamps' store employees was also completed. In addition,
the Company closed Delchamps' Hammond warehouse in February 1998, closed
Delchamps' Mobile headquarters in April 1998, and began to use the Company's
in-house printing facilities to print a majority of the print advertising
for Delchamps' stores, which was previously outsourced by Delchamps.
11
PROPERTIES
The following table recaps store data for fiscal year 1998:
Q1 FY98 Q2 FY98 Q3 FY98
Ended Ended Ended
Mar 28, 98 Jun 20, 98 Sep 12, 98
__________ __________ __________
Stores Beginning 217 200 198
Acquired
Opened 2
Closed/sold (17) (2) (1)
________________________________
Ending 200 198 199
================================
Format Conventiona 172 168 167
Combination 11 14 16
Discount 17 16 16
________________________________
Total 200 198 199
================================
Locations Mississippi 81 81 82
Alabama 49 48 49
Arkansas 5 5 5
Florida 15 15 15
Tennessee 7 6 6
Lousiana 43 43 42
________________________________
Total 200 198 199
================================
Gasoline Beginning 54 53 53
Acquired
Opened 1 1
Closed/sold (1) (1)
________________________________
Ending 53 53 54
================================
Locations Mississippi 45 44 45
Alabama 2 2 2
Arkansas 2 2 2
Florida
Tennessee 4 5 5
Lousiana
________________________________
Total 53 53 54
================================
NET SALES
Net sales increased $187,720 or 65.5% in the twelve week period and
$559,373 or 64.0% in the thirty-six week period ended September 12, 1998
as compared to the twelve and thirty-seven week periods ended
September 20, 1997. The net sales increase was primarily attributable
to the Delchamps acquisition. Same store sales decreased approximately
6.2% for the twelve week period and 4.4% for the thirty-six week period
ended September 12, 1998. Sales throughout the thirty-seven weeks
ended September 20, 1997 were positively impacted by the introduction
of the Company's Gold Card, its customer loyalty program, in approximately
79 Jitney-Jungle and Jitney Premier supermarkets in January 1997. Sales
for the thirty-six weeks ended September 12, 1998 were positively impacted
by the introduction of the Gold Card in 52 Delchamps supermarkets in March
1998 and in the remaining Delchamps supermarkets during the second quarter
ended June 20, 1998. The decline in same store sales is attributable
primarily to competion presures [23 competitive openings (of which 6 were
replacement stores) during the thirty-six week period ended September 12,
1998], distribution problems which are being corrected,
a decline in sales at Delchamps supermarkets due to disruptions
caused by the transition process which has been completed, and the fact that
the Gold Card introduction positively impacted sales for most of the
thirty-seven weeks ended September 20, 1997 but only the latter part of
the thirty-six weeks ended September 12, 1998. During the third quarter ended
12
September 12, 1998, the Company opened 2 new stores (in Hattiesburg, MS and
in Jackson, AL) in its newest prototype combination store format and
opened 1 gasoline station. In addition, 1 store was closed. During the
thirty-six weeks ended September 12, 1998 the Company opened 2 new stores
in its combination store format and opened 2 gasoline stations. In addition,
2 gasoline stations and 20 stores were sold or closed including 10 stores that
were required to be sold by the Federal Trade Commission in connection with
the Delchamps acquisition. The Company's store count at the
end of the quarter was 199 supermarkets (16 discount stores, 167 conventional
stores and 16 combination stores) and 54 gasoline stations as compared to 221
supermarkets (18 discount stores, 192 conventional stores and 11 combination
stores) and 53 gasoline stations at September 20, 1997.
GROSS PROFIT
Gross profit for the third quarter of fiscal 1998 increased $58,274 to
$130,582 or 27.5% of net sales, compared to $72,308, or 25.2% of net sales,
for the third quarter of fiscal 1997. Gross profit as a percentage of sales
was 26.2% for the thirty-six week period ended September 12, 1998 as compared
to 25.3% for the thirty-seven week period ended September 20, 1997. Gross
profit increased primarily due to the increase in net sales due to the
Delchamps acquisition. During the second quarter of fiscal 1998 the Company
began to benefit from increased purchasing leverage resulting from the
Delchamps acquisition and this trend continued during the third
quarter ended September 12, 1998. The realized and expected benefits of such
increased purchasing leverage are difficult to quantify precisely. Other
benefits of increased purchasing leverage include reduced costs from volume
incentives. The Company expects to continue to benefit from such purchasing
leverage. The increase in gross profit as a percentage of net sales is
principally due to such increased purchasing leverage and the improvement in
product mix in the combination stores. In addition during the second and
third quarters of fiscal 1998 the Company made significant progress to reduce
store shrink.
DIRECT STORE EXPENSES
Direct store expenses were $94,920 or 20.0% of net sales and $50,358 or 17.6%
of net sales for the twelve week periods and $284,952 or 19.9% of net sales
and $147,766 or 16.9% of net sales for the thirty-six week and thirty-seven
week periods ended September 12, 1998 and September 20, 1997, respectively.
Direct store expenses increased primarily due to an increase in net sales
(due to the Delchamps acquisition). The increase in direct store expenses
as a percentage of net sales was primarily in the areas of rent, labor and
utilities. Rent expense as a percentage of net sales in the Delchamps stores
is more than twice that of the other Company stores. The increase in store
labor as a percentage of net sales was principally due to a temporary
increase in the number of employees, which was necessary in order to
complete retraining required at the Delchamps supermarkets. The increase
in utility costs was principally due to the heat wave across the Southeast.
WAREHOUSE, ADMINISTRATIVE AND GENERAL EXPENSES
Warehouse, administrative and general expenses were $17,967 or 3.8% of net
sales and $10,926 or 3.8% of net sales for the twelve week periods and
$52,875 or 3.7% of net sales and $39,597 or 4.6% of net sales for the
thirty-six week and thirty-seven week periods ended September 12, 1998
and September 20, 1997 respectively. Warehouse, administrative and
general expenses increased primarily due to an increase in net sales
and increased warehousing expenses resulting from the Delchamps
transaction. The decrease in warehouse, administrative and general
expenses as a percent of sales for the thirty-six weeks ended
September 12, 1998 was primarily due to additional sales and a decrease
in administrative expenses as a result of the closing of the Delchamps'
Mobile headquarters in April 1998. The Company has closed Delchamps'
Hammond warehouse, which the Company expects will lead to substantial
cost savings. The resulting increase in volume at the Company's Jackson
warehouse facilities has created operating inefficiencies that are
currently being addressed by the Company's management and are expected to
be resolved by the end of fiscal 1998. As a result of these inefficiencies,
the Company experienced higher warehouse expenses during the thirty-six
weeks ended September 12, 1998 than it expects to experience in the
remainder of fiscal 1998.
NONRECURRING CHARGES
Nonrecurring charges were $544 for the thirty-six week period ended
September 12, 1998 consisting of severance benefits of $250 and loss
on stores sold under the consent decree with the Federal Trade Commission
in the Delchamps acquisition of $294. No nonrecurring charges were recorded
13
during the twelve week period ended September 12, 1998. Nonrecurring
charges consisting of $958 of severance benefits, $1,779 relating to future
payments to be made under an agreement with the Company's former chief
executive officer, $2,008 for bridge loan fees and $734 for stores that
have been or will be closed or sold were recorded during the thirty-seven
week period ended September 20, 1997.
EXTRAORDINARY ITEM
In connection with the Delchamps acquisition and the Recapitalization, the
Company retired certain long-term debt prior to its scheduled maturity.
Early retirement of such debt resulted in extraordinary losses of $870
(net of income tax benefit of $518) during the twelve week and thirty-seven
week periods ended September 20, 1997. There were no extraordinary items
during the thirty-six week period ended September 12, 1998.
OPERATING INCOME
Operating income was $17,695 or 3.7% of net sales and $8,282 or 2.9% of
net sales for the twelve week periods and was $36,509 or 2.6% of net
sales and $27,821 or 3.2% of net sales for the thirty-six week and
thirty-seven week periods ended September 12, 1998 and September 20,
1997, respectively. The increase in operating income was due to the
factors discussed above.
EBITDA
EBITDA represents net income before interest income, interest expense,
income taxes, depreciation and amortization and LIFO charges/credits
and is calculated before any deduction for nonrecurring charges.
EBITDA increased $13,689 or 79.3% to $30,960 or 6.5% of net sales in
the third quarter of fiscal 1998 as compared to $17,271 or 6.0% of net
sales in the third quarter of fiscal 1997. EBITDA increased $23,304 or
44.0% to $76,316 or 5.3% of net sales for the thirty-six week
period ended September 12, 1998 as compared to $53,012 or 6.1% of net
sales for the thirty-seven week period ended September 20, 1997. EBITDA
increased primarily due to an increase in sales due to the Delchamps
acquisition. The decrease in EBITDA as a percentage of net sales for
the thrity-six week period ended September 12, 1998 was
due primarily to the increase in direct store expenses and warehouse
expenses discussed above. EBITDA as presented is consistent with the
definition used for covenant purposes contained in the Indenture
governing the Company's Senior Notes and Senior Subordinated Notes.
EBITDA is a widely accepted financial indicator of a company's ability
to service debt. However, EBITDA should not be construed as an
alternative to operating income, net income or cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) and should not be construed as an indication of the Company's
operating performance or as a measure of liquidity. EBITDA as defined
by the Company may not be comparable to similarly titled measures
reported by other companies.
NET INTEREST EXPENSE
Net interest expense was $16,625 in the third quarter of fiscal 1998
as compared to $9,414 in the third quarter of fiscal 1997 and was $48,273
and $26,066 for the thirty-six week and thirty-seven week periods ended
September 12, 1998 and September 20, 1997, respectively. The increase
in interest expense was primarily due to interest expense on the $200
million Senior subordinated notes issued in September 1997 in connection
with the Delchamps acquisition.
INCOME TAX EXPENSE (BENEFIT)
Income tax expense for the twelve weeks and thirty-seven weeks ended
September 20, 1997 was 40.6% and 33.6%, respectively, of pre-tax income
compared to the federal and state statutory rate of 37.3%. The income
tax benefit for the twelve weeks and thirty-six weeks ended September
12, 1998 was 37.7% and 33.0%, respectively, of pre-tax loss compared
to the federal and state statutory rate of 37.3%; the difference in
rates for the twelve weeks and thirty-six weeks ended September 12, 1998
occurred primarily because goodwill relating to the Delchamps
acquisition is deductible for financial reporting purposes but not
for income tax purposes.
14
NET INCOME (LOSS)
Net income (loss) for the twelve weeks ended September 12, 1998 was
$667 compared to ($1,542) for the twelve weeks ended September 20, 1997.
Net income (loss) for the thirty-six weeks ended September 12, 1998 was
($7,884) compared to $296 for the thirty-seven weeks ended September 20,
1997. The decrease in net income resulted primarily from the increase in
interest expense discussed above. Net income (loss) attributable to common
shareholders decreased to ($14,187) for the thirty-six weeks ended
September 12, 1998 compared to ($5,366) for the thirty-seven weeks ended
September 20, 1997 and reflects the cumulation of dividends on preferred
stock issued in the Recapitalization.
LIQUIDITY AND CAPITAL RESOURCES
Due to the Recapitalization and acquisition of Delchamps in September
1997 the Company has become highly leveraged and has certain restrictions
on its operations. At September 12, 1998, Jitney-Jungle had $574,806 of
total long-term debt (including capitalized leases and current installments)
and a shareholders deficit of $181,607.
The Company's principal uses of liquidity have been to fund working capital,
meet debt service requirements and finance Jitney-Jungle's strategic plans.
The Company's principal sources of liquidity have been cash flow from
operations and borrowings under the Senior Credit Facility. Outstanding
borrowings at September 12, 1998 were $103,317 under the Senior Credit
Facility.
Cash used in operating activities during the thirty-six week period ended
September 12, 1998 was $12,562. Cash provided by operating activities
during the thirty-seven week period ended September 20, 1997 was $74,566.
Restructuring obligations decreased due to the payment of restructuring
obligations. Notes and accounts receivable increased primarily due to an
increase in receivables from vendors. Accrued expenses decreased
primarily due to the payment of interest on Senior Notes, Senior
Subordinated Notes and the Senior Credit Facility.
Net cash used in investing activities was $39,835 and $261,271 for the
thirty-six week and thirty-seven week periods ended September 12, 1998
and September 20, 1997, respectively. The Company paid approximately
$5,137 in cash to former Delchamps shareholders and deposited $13,798
in cash with the clerk of court of Mobile County Alabama as required by
law in connection with the appraisal proceeding described below. The
Company realized proceeds from the sale of 10 stores which were required
to be sold by the Federal Trade Commission due to the Delchamps
acquisition and also sold land for $4,483.
Net cash provided by financing activities was $48,907 and $188,944 for
the thirty-six week and thirty-seven week periods ended September 12,
1998 and September 20, 1997, respectively. The principal sources of
funds in financing activities for the thirty-six week period ended
September 12, 1998 were the borrowings under the Senior Credit Facility.
The principal uses of funds in financing activities for the
thirty-six week period ended September 12, 1998 were the payment of
capital lease obligations.
Management believes that the Company will be able to finance capital
expenditures and other cash requirements for the remainder of fiscal
1998 through cash flows from operations and borrowings under its
Senior Credit Facility. Capital expenditure plans are continuously
evaluated and modified from time to time depending on cash availability
and other economic factors. The Company considers acquisition
opportunities from time to time. Any such future acquisitions may
require the Company to seek additional debt or equity financing.
ENVIRONMENTAL MATTERS
The Company's expenditures to comply with environmental laws and
regulations at its gas stations and supermarkets primarily consist
of those related to closing or upgrading underground storage tanks
and retrofitting chloroflurocarbon ("CFC") chiller units. The Company's
unreimbursed costs for remediation at the 16 locations which have
had leaks or spills have not been material. The Company is in the
process of complying with the requirements of the Resource
Conservation and Recovery Act of 1980, as amended (the "RCRA")
regarding underground storage tanks which must be met by the end
of calendar 1998. In order to comply with the RCRA, the Company
spent $30,000 to close non-compliant tanks during the thirty-six
weeks ended September 12, 1998 and $500,000 to upgrade non-compliant
tanks during fiscal 1997 and the 35 weeks ended January 3, 1998. The
Company estimates that it will cost between $120,000 to $210,000 to
upgrade the remaining non-compliant tanks during the remainder of
fiscal 1998. The Company is in the process of retrofitting all of
its chillers to use non-chloroflurocarbon based refrigerants in
anticipation of the phase out of the manufacture of chloroflurocarbon
15
pursuant to the Clean Air Act. The Company has budgeted $145,000 for
the fourth quarter of fiscal 1998 and $183,000 for fiscal 1999 to
retrofit all of its remaining CFC chiller units.
YEAR 2000
During calendar years 1996 and 1997, the Company's Information Systems
Department conducted an extensive information systems review of all
primary systems, such as financial, payroll, human resources, employee
benefits, purchasing, merchandising, retail/pricing, warehousing and
store management as well as secondary systems such as catering, damage
reclamation and loss prevention. This review evaluated these systems
in terms of their Year 2000 compliance, flexibility to absorb Delchamps'
operations, capacity, general efficiency, compatibility and
competitive advantage. The department recommended, and the Company is
implementing, the replacement or upgrading all of the Company's primary
and secondary systems, most of which were 10 to 15 years old. From
March 1997 to September 12, 1998, the Company spent approximately
$3.3 million to replace its financial, payroll, human resources and
employee benefits systems. The Company's other primary systems
(purchasing, merchandising, retail/pricing, warehousing and
store management, and various operating systems) are either
being upgraded for Year 2000 compliance through regular maintenance
updates or are scheduled to be replaced by May 31, 1999, at an
estimated cost of $3.0 million, at which time all potential Year
2000 problems in the Company's primary systems should be resolved.
Although the Company's operations are not dependent on its secondary
systems, the Company has spent $250,000 as of September 12, 1998
upgrading these systems and anticipates spending approximately an
additional $1 million in order to complete that project by the end
of June 1999, at which time all potential Year 2000 problems
in the Company's secondary systems should be resolved. All of the
funds reported or estimated in this report have been or will be
reported as capital expenditures. The normal annual software support
which includes Year 2000 upgrades are included in the normal
Information Systems Department operating expense budget. All funds
for Year 2000 projects are derived from operating proceeds. No primary
information systems projects have been deferred as a result of the Year
2000 efforts. The Company has engaged an independent contractor to
verify compliance on the primary systems modules. No assurances can
be given, however, that all Year 2000 problems will be effectively
resolved on schedule or before the Year 2000. Any such problems, if
not resolved, could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company has sent a survey to its significant third party suppliers,
financial institutions and insurance companies (i) inquiring into their
Year 2000 compliance status, (ii) seeking commitments of their intention
to become Year 2000 compliant and (iii) gathering information to assess
the effect of any non-compliance on the Company's operations. No
assurances can be given that these third parties will become Year 2000
compliant. Any such non-compliance could have a material adverse effect
on the Company's business, financial condition and results of
operations.
The most reasonably likely worst case Year 2000 scenario would result
in the failure to order or acquire new products for warehouse or store
replenishment. The Company has established a disaster recovery plan that
is available as a reasonable contingency plan. Through this disaster
recovery plan, manual processes are outlined that will enable the Company
to order and obtain available products for delivery to the stores without
reliance on existing primary technology normally used by the Company.
SEASONALITY
No material portion of the Company's business is affected by seasonal
fluctuations, except that sales are generally stronger in the fourth
quarter as a result of Thanksgiving, Christmas and New Year's Day.
CAUTIONARY STATEMENTS
This quarterly report on Form 10-Q may contain forward-looking statements
regarding future expectations about the Company's business, management's
plans for future operations or similar matters. The Company's actual
results could differ materially from those anticipated in such forward-
looking statements due to several important factors including the following:
16
deterioration in economic conditions generally or in the Company's markets,
unusual or unanticipated costs or consequences relating to, or changes in,
the Company's acquisition plans, demands placed on management by the
substantial increase in the Company's size due to the acquisition of
Delchamps, unanticipated or unusual distribution problems, breakdown
of quality control, competitive pressures, labor disturbances and
customer dissatisfaction. Forward-looking statements speak only as of
the date made, and the Company undertakes no obligation to update or
revise such statements to reflect new circumstances or unanticipated
events as they may occur.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In May 1998, the Company's wholly-owned subsidiary Delchamps, Inc.
instituted a proceeding in the Circuit Court of Mobile County, Alabama
petitioning the court to determine the fair value (as defined in the
Alabama Business Corporation Act) of 689,884 shares of former
Delchamps, Inc. common stock held by persons purporting to exercise
dissenters' rights in connection with the Delchamps acquisition.
Delchamps, Inc. estimates such fair value to be $20 per share; the
dissenting shareholders have demanded payment of $68 per share. The
Company has deposited $20 per share in cash with the clerk of the court,
as required by law. In its financial statements, the Company has
accounted for the acquisition of these shares at a price of $30 per
share, which was the price paid by the Company to other former
Delchamps, Inc. shareholders. Any final determination that the
shares formerly held by dissenting shareholders have a fair value
of less or more than $30 per share would be reflected as a decrease
or increase in the Company's goodwill, which is being amortized over
a 40 year period. The Company does not expect the outcome of this
matter to have a material effect on the Company's results of operations
or the price of the acquisition, although no assurances can be given.
The Company is a party to certain litigation incurred in the normal
course of business. In the opinion of management, the ultimate liability,
if any, which may result from this litigation will not have a material
adverse effect on the Company's financial position or results of
operations.
ITEM 2. CHANGE IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
In late September of 1998, the Company's operations were temporarily
affected by Hurricane Georges. As a result of the storm approximately
85 stores were temporarily closed primarily along the Gulf Coast in
the states of Florida, Alabama, Mississippi and Louisiana. Most
stores were closed for only a few hours with the worst affected store
being closed for less than five days. The Company experienced
lost product, limited physical damage to certain of its stores and
equipment, interruptions to its normal business operations and extra
expenses incurred as a result of the storm. The Company is fully
insured for all of the aforementioned adverse consequences resulting
from the storm and is working with its insurance carrier's
17
representatives to document its losses and recover the insurance
proceeds. The amount of such loss is still being assessed by
the Company. On October 5, 1998, the Company secured an amendment
to its Revolving Credit Agreement to add an additional $25 million
of supplemental availability to its existing line of credit to
provide for additional cash flow needs, if necessary, as a result
of the interruption of business caused by the storm. The additional
$25 million of supplemental availability to the Revolving Credit
Agreement expires on January 15, 1999. No funds under the
additional $25 million of supplemental availability have been drawn
to date.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No.
--------------
* 4.1 Amendment and Waiver Agreement No.1 dated April 10,
1998 to Amended and Restated Revolving Credit Agreement
dated September 15, 1997 by and among Fleet Capital
Corporation and the Company.
* 4.2 Amendment and Waiver Agreement No.2 dated June 19, 1998
to Amended and Restated Revolving Credit Agreement dated
September 15, 1997 by and among Fleet Capital Corporation
and the Company.
* 4.3 Amendment and Waiver Agreement No.3 dated October 5, 1998
to the Amended and Restated Revolving Credit Agreement
dated September 15, 1997 by and among Fleet Capital
Corporation and the Company.
* 27.1 Financial Data Schedule
* Filed herewith.
(b) Reports on Form 8-K
None
18
SIGNATURES
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.
JITNEY-JUNGLE STORES OF AMERICA, INC.
(Registrant)
/s/ David R. Black
-----------------------
David R. Black
Senior Vice President - Finance
Chief Financial Officer
Dated: October 27, 1998