- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
-------------------
FOR THE QUARTER ENDED COMMISSION FILE NUMBER
JULY 30, 1994 0-16404
SUPERMARKETS GENERAL HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3408704
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 BLAIR ROAD, P. O. BOX 5301 07095-0915
WOODBRIDGE, NJ (Zip Code)
(Address of principal executive office)
908-499-3000
(Registrant's telephone number, including area code)
-------------------
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
(Title of Class)
-------------------
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 July 30, 1994, 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SUPERMARKETS GENERAL HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)
13 WEEKS ENDED 26 WEEKS ENDED
----------------------- -----------------------
JULY 30, JULY 31, JULY 30, JULY 31,
1994 1993 1994 1993
---------- ---------- ---------- ----------
Sales......................................... $1,024,885 $1,003,055 $2,043,901 $2,074,362
Cost of sales (exclusive of depreciation and
amortization shown separately below).......... 735,082 729,683 1,464,840 1,505,337
---------- ---------- ---------- ----------
Gross profit.................................. 289,803 273,372 579,061 569,025
Selling, general and administrative
expenses...................................... 224,062 227,292 458,644 465,831
Provision for store closings.................. -- 5,975 -- 5,975
Depreciation and amortization................. 16,159 17,644 31,901 34,804
---------- ---------- ---------- ----------
Operating earnings............................ 49,582 22,461 88,516 62,415
Interest expense.............................. 42,292 49,522 82,833 98,453
Interest income allocated to discontinued
operations.................................... -- 2,715 -- 5,933
---------- ---------- ---------- ----------
Earnings (loss) from continuing operations
before income taxes, extraordinary items and
cumulative effect of accounting changes....... 7,290 (24,346) 5,683 (30,105)
Income tax provision (benefit)................ 1,450 (9,129) 1,492 (10,321)
---------- ---------- ---------- ----------
Earnings (loss) from continuing operations
before extraordinary items and cumulative
effect of accounting changes................ 5,840 (15,217) 4,191 (19,784)
Earnings (loss) from discontinued
operations.................................... 1,096 1,984 (5,603) 25
---------- ---------- ---------- ----------
Earnings (loss) before extraordinary items and
cumulative effect of accounting changes....... 6,936 (13,233) (1,412) (19,759)
Extraordinary items, net of an income tax
benefit of $28 and $99 in the 13 and 26
weeks ended July 31, 1993, respectively..... -- (39) -- (138)
---------- ---------- ---------- ----------
Earnings (loss) before cumulative effect of
accounting changes............................ 6,936 (13,272) (1,412) (19,897)
Cumulative effect of accounting changes
Postretirement benefits other than pensions,
net of an income tax benefit of $11,289... -- -- -- (15,636)
Postemployment benefits, net of an income
tax benefit of $1,813..................... -- -- -- (2,488)
Change in the determination of the discount
rate utilized to record the present value
of certain noncurrent liabilities, net of
an income tax benefit of $8,430........... -- -- -- (11,570)
Change in the method utilized to calculate
last-in, first-out (LIFO) inventories, net
of an income tax benefit of $7,770........ -- -- -- (10,664)
---------- ---------- ---------- ----------
Net earnings (loss)........................... 6,936 (13,272) (1,412) (60,255)
Less non-cash preferred stock accretion and
dividend requirements....................... (4,705) (4,691) (9,407) (9,377)
---------- ---------- ---------- ----------
Net earnings (loss) attributable to its common
stockholder................................... $ 2,231 $ (17,963) $ (10,819) $ (69,632)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
See notes to consolidated financial statements.
1
SUPERMARKETS GENERAL HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
JULY 30, JANUARY 29,
1994 1994
----------- -----------
ASSETS
Current Assets
Cash............................................................... $ 9,140 $ 6,168
Accounts receivable, net........................................... 14,128 15,428
Merchandise inventories............................................ 321,402 323,036
Income taxes receivable............................................ -- 22,422
Prepaid expenses................................................... 25,486 21,838
Due from suppliers................................................. 17,143 20,600
Other current assets............................................... 15,195 12,432
----------- -----------
Total Current Assets........................................... 402,494 421,924
Property and Equipment, Net......................................... 637,743 645,843
Deferred Financing Costs, Net....................................... 42,994 46,497
Deferred Income Taxes............................................... 4,159 2,890
Investment in Purity Supreme (net of valuation allowance of $30,017
at July 30, 1994 and January 29, 1994)............................. -- --
Other Assets........................................................ 21,285 27,736
----------- -----------
$ 1,108,675 $ 1,144,890
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current Liabilities
Accounts payable................................................... $ 261,251 $ 282,771
Current maturities of long-term debt............................... 45,868 46,244
Accrued payroll and payroll taxes.................................. 52,477 60,204
Income taxes payable............................................... 294 --
Current portion of obligations under capital leases................ 18,468 18,844
Accrued interest payable........................................... 17,037 16,633
Accrued expenses and other current liabilities..................... 114,512 114,431
----------- -----------
Total Current Liabilities...................................... 509,907 539,127
----------- -----------
Long-Term Debt...................................................... 1,411,090 1,415,236
----------- -----------
Obligations Under Capital Leases, Long-Term......................... 127,437 131,506
----------- -----------
Other Noncurrent Liabilities........................................ 254,625 243,385
----------- -----------
Redeemable Securities
Exchangeable Preferred Stock, $.01 par value....................... 101,145 100,346
Authorized: 9,000,000 shares
Issued and outstanding: 4,890,671 shares at July 30, 1994 and
January 29, 1994
Liquidation preference, $25 per share: $122,267 at July 30, 1994
and January 29, 1994
----------- -----------
Total Redeemable Securities.................................... 101,145 100,346
----------- -----------
Commitments and Contingencies
Stockholder's Deficit
Class A Common Stock, $.01 par value............................... 7 7
Authorized: 1,075,000 shares
Issued and outstanding: 650,675 shares at July 30, 1994 and
January 29, 1994
Class B Common Stock, $.01 par value............................... 3 3
Authorized: 1,000,000 shares
Issued and outstanding: 320,000 shares at July 30, 1994 and
January 29, 1994
Paid-in Capital.................................................... 199,949 200,748
Accumulated Deficit................................................ (1,495,488) (1,485,468)
----------- -----------
Total Stockholder's Deficit.................................... (1,295,529) (1,284,710)
----------- -----------
$ 1,108,675 $ 1,144,890
----------- -----------
----------- -----------
See notes to consolidated financial statements.
2
SUPERMARKETS GENERAL HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
CLASS A CLASS B TOTAL
COMMON COMMON PAID-IN ACCUMULATED STOCKHOLDER'S
STOCK STOCK CAPITAL DEFICIT DEFICIT
------- ------- -------- ----------- -------------
Balance at January 29, 1994................. $ 7 $ 3 $200,748 $(1,485,468) $ (1,284,710)
Net loss.................................. -- -- -- (1,412) (1,412)
Accrued dividends on preferred stock ($.88
per share).............................. -- -- -- (8,608) (8,608)
Accretion on preferred stock.............. -- -- (799) -- (799)
------- ------- -------- ----------- -------------
Balance July 30, 1994....................... $ 7 $ 3 $199,949 $(1,495,488) $ (1,295,529)
------- ------- -------- ----------- -------------
------- ------- -------- ----------- -------------
Balance, January 30, 1993................... $ 7 $ 3 $202,303 $(1,305,025) $ (1,102,712)
Net loss.................................. -- -- -- (60,255) (60,255)
Accrued dividends on preferred stock ($.88
per share).............................. -- -- -- (8,607) (8,607)
Accretion on preferred stock.............. -- -- (771) -- (771)
------- ------- -------- ----------- -------------
Balance July 31, 1993....................... $ 7 $ 3 $201,532 $(1,373,887) $ (1,172,345)
------- ------- -------- ----------- -------------
------- ------- -------- ----------- -------------
See notes to consolidated financial statements.
3
SUPERMARKETS GENERAL HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
26 WEEKS ENDED
--------------------
JULY 30, JULY 31,
1994 1993
-------- --------
Operating Activities
Net loss............................................................. $ (1,412) $(60,255)
Adjustments to reconcile net loss to net cash provided by
operating activities
Extraordinary loss on early extinguishment of debt............... -- 138
Cumulative effect of accounting changes.......................... -- 40,358
Depreciation and amortization.................................... 31,901 34,804
Deferred income tax benefit...................................... (2,051) (10,192)
Interest accruable but not payable............................... 6,594 --
Amortization of original issue discount.......................... 6,988 634
Amortization of debt issuance costs.............................. 3,244 2,072
(Gain) loss on disposal of property and equipment................ 63 (109)
(Earnings) loss from discontinued operations..................... 5,603 (25)
Cash provided by (used for) operating assets and liabilities
Accounts receivable, net....................................... 1,300 912
Merchandise inventories........................................ 1,634 4,313
Income taxes................................................... 22,716 225
Other current assets........................................... (2,954) 3,701
Accounts payable............................................... (21,520) (33,871)
Other current liabilities...................................... (1,607) (10,578)
Other noncurrent assets and liabilities, net................... 9,907 11,305
-------- --------
Cash provided by (used for) operating activities............. 60,406 (16,568)
-------- --------
Investing Activities
Property and equipment expenditures.................................. (31,233) (30,088)
Proceeds from disposition of property and equipment.................. 668 819
-------- --------
Cash used for investing activities........................... (30,565) (29,269)
-------- --------
Financing Activities
Increase in Working Capital Facilities borrowings.................... 500 --
Decrease in Pathmark Term Loan....................................... (17,500) --
Increase in Old Working Capital Facility borrowings.................. -- 63,000
Increase in other borrowings......................................... 898 669
Repayment of other long-term borrowings.............................. (2,004) (9,824)
Reduction in obligations under capital leases........................ (8,763) (7,084)
-------- --------
Cash provided by (used for) financing activities............. (26,869) 46,761
-------- --------
Increase in cash....................................................... 2,972 924
Cash at beginning of period............................................ 6,168 3,806
-------- --------
Cash at end of period.................................................. $ 9,140 $ 4,730
-------- --------
-------- --------
See notes to consolidated financial statements.
4
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION
On February 4, 1991, Supermarkets General Holdings Corporation (the
"Company"), through the consummation of an exchange offer (the "Exchange Offer")
pursuant to which the then existing common stockholders exchanged on a
one-for-one basis shares of the Company's common stock for shares of common
stock of SMG-II Holdings Corporation ("SMG-II"), became a wholly owned
subsidiary of SMG-II. As a result of the Exchange Offer, SMG-II owns all of the
Company's common stock and is effectively a holding company for the operations
of the Company. The holders of SMG-II's common stock include certain limited
partnerships controlled directly or indirectly by Merrill Lynch Capital
Partners, Inc., together with certain indirectly wholly owned subsidiaries of
Merrill Lynch & Co., Inc., certain members of the Company's management,
Manufacturers Hanover Capital Partners, Inc. and the Equitable Life Assurance
Society of the United States and certain of its affiliates.
The consolidated financial statements included herein reflect all
adjustments which, in the opinion of management, are of a normal and recurring
nature and are necessary to present fairly the results of operations and
financial position of the Company and have been prepared in accordance with the
same accounting principles followed in the presentation of the Company's annual
financial statements for the year ended January 29, 1994. The reader is referred
to the Company's Form 10-K Annual Report for the year ended January 29, 1994,
Notes to Consolidated Financial Statements, for a summary of significant
accounting policies.
The accompanying consolidated financial statements of the Company indicate
that at July 30, 1994 current liabilities exceed its current assets by $107.4
million and the Company's stockholder's deficit approximates $1.3 billion.
Management believes that cash flows generated from operations supplemented by
the unused borrowing capacity under the Pathmark and Plainbridge Working Capital
Facilities 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 meet its seasonal cash requirements. Further, the Company believes
it will continue to be in compliance with its various debt covenants.
Since the Company is a wholly owned subsidiary, earnings (loss) per share
information is not presented.
NOTE 2--RECAPITALIZATION AND DISCONTINUED OPERATIONS
During Fiscal 1993, the Board of Directors authorized management of the
Company to proceed with a recapitalization plan (the "Recapitalization")
consisting of a refinancing of the Company's debt.
On October 26, 1993, the Recapitalization was consummated. Pathmark Stores,
Inc. (formerly Supermarkets General Corporation, hereinafter referred to as
"Pathmark") borrowed $450.0 million under a bank credit agreement, consisting of
$400.0 million under a term loan facility ("the Pathmark Term Loan") and $50.0
million under a $175.0 million working capital facility (the "Pathmark Working
Capital Facility"), borrowed $436.6 million from the issuance of its 9.625%
Senior Subordinated Notes due 2003 (the "Pathmark Senior Subordinated Notes"),
issued $120.0 million initial principal amount of its 10.75% Junior Subordinated
Deferred Coupon Notes due 2003 (the "Pathmark Deferred Coupon Notes"), exchanged
$95.8 million principal amount of its 12.625% Subordinated Debentures due 2002
(the "Pathmark Subordinated Debentures") for $95.8 million principal amount
outstanding of Holdings Subordinated Debentures and exchanged $198.5 million
principal amount of its 11.625% Subordinated Notes due 2002 (the "Pathmark
Subordinated Notes") for $198.5 million principal amount outstanding of the
Holdings Subordinated Notes. As part of the Recapitalization, PTK Holdings, Inc.
("PTK"), a newly formed wholly owned subsidiary of Holdings, borrowed
5
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 2--RECAPITALIZATION AND DISCONTINUED OPERATIONS--(CONTINUED)
$126.1 million through the issuance of its $130.0 million aggregate principal
amount 10.25% Exchangeable Guaranteed Debentures due 2003 (the "PTK DIBs") in a
private placement, which bonds the Company has guaranteed. The proceeds from the
aforementioned borrowings were used to redeem the Old Working Capital Facility,
Holdings 14.5% Senior Subordinated Notes due 1997 (the "Holdings Senior
Subordinated Notes") and Holdings 13.125% Junior Subordinated Discount
Debentures due 2003 (the "Holdings Discount Debentures") and to purchase $185.0
million aggregate principal amount of the Holdings 12.625% Subordinated
Debentures due 2002 (the "Holdings Subordinated Debentures") from the Equitable
Affiliates. In addition, on October 26, 1993, Plainbridge, Inc. ("Plainbridge"),
a newly formed indirectly wholly owned subsidiary of the Company, borrowed $3.5
million under a $50.0 million bank revolving credit agreement (the "Plainbridge
Working Capital Facility").
In conjunction with the Recapitalization, the assets, liabilities and
related operations of the Company's home centers segment as well as certain
assets and liabilities of the warehouse, distribution and processing facilities
which service Pathmark's supermarkets and drug stores and certain inventories
and real property, were contributed by Pathmark to Plainbridge and the shares of
Plainbridge were distributed to PTK (the "Plainbridge Spin-Off"). As a result,
PTK holds 100% of the capital stock of both Plainbridge and Pathmark. The
Company intends to further spin-off Plainbridge to its common stockholder,
although there can be no assurance that such spin-off will be consummated. Any
such spin-off would require satisfying the dividend restrictions with respect to
Holding's Exchangeable Preferred Stock (see Note 12) as well as obtaining
consents from various lenders to Plainbridge and PTK. Accordingly, the
accompanying consolidated statements of operations for all periods presented
include the operating results of the Company's home centers segment as
discontinued operations. The results of operations related to the warehouse,
transportation and certain real estate are included in the continuing operating
results of the Company for the first six-month period of Fiscal 1993 since such
operations represented a portion of the supermarkets and drug stores segment.
Subsequent to the Plainbridge Spin-Off, the operating results related to the
warehouse, transportation and certain real estate are included as discontinued
operations. The net assets of Plainbridge as of July 30, 1994 and January 29,
1994 were approximately $220.4 million and $223.5 million, respectively.
In conjunction with the Recapitalization, Pathmark entered into a 10-year
logistical services agreement with Plainbridge (see Note 11). The terms of the
logistical services agreement were designed to require Plainbridge to continue
to provide Pathmark with substantially the same level of supply and other
logistical services as was available from the warehouse, distribution and
processing facilities prior to the Plainbridge Spin-Off at substantially the
same or a lower cost. Subsequent to the Plainbridge Spin-Off, these intercompany
purchases from Plainbridge are included in the Company's continuing operations.
The corresponding revenues generated by Plainbridge from such transactions are
included in the Company's discontinued operations.
6
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 2--RECAPITALIZATION AND DISCONTINUED OPERATIONS--(CONTINUED)
Operating results of the discontinued operations were as follows (dollars in
thousands):
13 WEEKS ENDED 26 WEEKS ENDED
-------------------- ----------------------
JULY 30, JULY 31, JULY 30, JULY 31,
1994(A) 1993(B) 1994 1993
-------- -------- ---------- --------
Revenues
Affiliate................................. $656,371 $ -- $1,322,424 $ --
Rickel home centers....................... 107,118 106,518 182,577 183,509
Rental income............................. 1,520 -- 3,016 --
Other..................................... 6,546 -- 11,161 --
-------- -------- ---------- --------
Total revenues.............................. $771,555 $106,518 $1,519,178 $183,509
-------- -------- ---------- --------
-------- -------- ---------- --------
Earnings (loss) before income taxes......... $ 1,096 $ 3,417(c) $ (5,603) $ 44(c)
Income tax provision........................ -- 1,433 -- 19
-------- -------- ---------- --------
Net earnings (loss) from discontinued
operations.................................. $ 1,096 $ 1,984 $ (5,603) $ 25
-------- -------- ---------- --------
-------- -------- ---------- --------
- ------------
(a) Represents the results of operations related to the warehouse, transportation and
certain real estate as well as the home centers segment.
(b) Represents the results of operations related to the home centers segment.
(c) The home centers segment was not allocated any portion of the Company's Acquisition
debt. However, the Company charged the home centers segment interest expense relating
to a proportionate share of certain borrowings. These charges amounted to $2.7 million
and $5.9 million for the second quarter and the first six-month period of Fiscal 1993,
respectively, and are included in the results of the discontinued operations.
NOTE 3--MERCHANDISE INVENTORIES
Merchandise inventories are comprised of the following (dollars in
thousands):
JULY 30, JANUARY 29,
1994 1994
-------- -----------
Merchandise inventories at FIFO cost............................... $378,132 $ 377,516
Less LIFO reserve.................................................. 56,730 54,480
-------- -----------
Merchandise inventories at LIFO cost............................... $321,402 $ 323,036
-------- -----------
-------- -----------
Effective January 31, 1993, the Company changed its method utilized to
calculate LIFO store inventories related to its indirect wholly owned Pathmark
subsidiary (see Note 8).
7
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following (dollars in
thousands):
JULY 30, JANUARY 29,
1994 1994
---------- -----------
Land................................................................ $ 66,269 $ 65,840
Buildings and building improvements................................. 201,332 196,212
Fixtures and equipment.............................................. 233,586 225,582
Leasehold costs and improvements.................................... 320,836 309,995
Transportation equipment............................................ 20,030 19,771
Construction in progress............................................ -- 680
---------- -----------
Property and equipment, owned....................................... 842,053 818,080
Property and equipment under capital leases......................... 176,660 176,496
---------- -----------
Property and equipment, at cost..................................... 1,018,713 994,576
Less accumulated depreciation and amortization...................... 380,970 348,733
---------- -----------
Property and equipment, net......................................... $ 637,743 $ 645,843
---------- -----------
---------- -----------
NOTE 5--OTHER ASSETS
The reduction in other assets at July 30, 1994 compared to January 29, 1994
is primarily due to the utilization of the asset related to the Company's
corporate owned life insurance policy.
NOTE 6--LONG-TERM DEBT
Long-term debt is comprised of the following (dollars in thousands):
JULY 30, JANUARY 29,
1994 1994
---------- -----------
Pathmark Term Loan................................................. $ 367,500 $ 385,000
Pathmark Working Capital Facility.................................. 38,000 29,000
Plainbridge Working Capital Facility............................... -- 8,500
10.25% PTK Exchangeable Guaranteed Debentures due 2003............. 136,460 129,649
9.625% Pathmark Senior Subordinated Notes due 2003................. 436,895 436,718
10.75% Pathmark Deferred Coupon Notes due 2003..................... 129,906 123,312
12.625% Pathmark Subordinated Debentures due 2002.................. 95,750 95,750
11.625% Pathmark Subordinated Notes due 2002....................... 198,517 198,517
11.625% Holdings Subordinated Notes due 2002....................... 1,483 1,483
Industrial Revenue Bonds........................................... 6,375 6,375
Other Debt (primarily mortgages)................................... 46,072 47,176
---------- -----------
Total debt......................................................... 1,456,958 1,461,480
Less current maturities............................................ 45,868 46,244
---------- -----------
Long-term portion.................................................. $1,411,090 $ 1,415,236
---------- -----------
---------- -----------
8
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 7--INTEREST EXPENSE
Interest expense is comprised of the following (dollars in thousands):
13 WEEKS ENDED 26 WEEKS ENDED
------------------ ------------------
JULY JULY JULY JULY
30, 31, 30, 31,
1994 1993 1994 1993
------- ------- ------- -------
Pathmark Term Loan.................................... $ 6,654 $ -- $12,550 $ --
Pathmark Working Capital Facility..................... 1,378 -- 1,908 --
Pathmark Senior Subordinated Notes
Amortization of original issue discount............. 10,587 -- 21,175 --
Currently payable................................... 88 -- 176 --
Pathmark Deferred Coupon Notes
Accruable but not payable........................... 3,340 -- 6,594 --
Pathmark Subordinated Debentures...................... 3,022 -- 6,044 --
Pathmark Subordinated Notes........................... 5,698 -- 11,511 --
Amortization of PTK DIBs original issue discount...... 3,412 -- 6,811 --
Old Working Capital Facility.......................... -- 1,671 -- 2,826
Holdings Senior Subordinated Notes.................... -- 14,072 -- 28,127
Holdings Subordinated Debentures...................... -- 13,098 -- 26,196
Holdings Subordinated Notes........................... -- 5,812 -- 11,625
Holdings Discount Debentures.......................... -- 7,073 -- 14,147
Amortization of Holdings original issue discount...... -- 317 -- 634
Amortization of debt issuance costs................... 1,622 1,036 3,244 2,072
Obligations under capital leases...................... 3,679 3,806 7,378 7,589
Mortgages............................................. 48 1,115 100 2,312
Other, net............................................ 2,764 1,522 5,342 2,925
------- ------- ------- -------
Interest expense...................................... $42,292 $49,522 $82,833 $98,453
------- ------- ------- -------
------- ------- ------- -------
The Company made cash interest payments of $51.6 million and $43.8 million
during the second quarters of Fiscal 1994 and Fiscal 1993, respectively and
$63.1 million and $90.6 million during the first six-month periods of Fiscal
1994 and Fiscal 1993, respectively. As a result of the Recapitalization, the
majority of the cash interest payments are scheduled in the second and fourth
quarters.
NOTE 8--CUMULATIVE EFFECT OF ACCOUNTING CHANGES
The Company made the following accounting changes:
Inventory:
Effective January 31, 1993, the Company changed its method utilized to
calculate LIFO store inventories related to its indirect wholly owned
subsidiary, Pathmark. Prior to Fiscal 1993, the Company utilized a retail
approach to determine current cost and a general warehouse purchase index to
measure inflation in the cost of its merchandise inventories in its stores. The
Company's change arose from the development and utilization in Fiscal 1993 of
internal cost indices based on the specific identification of merchandise in its
stores to measure inflation in the prices, thereby eliminating the averaging and
estimation inherent in the retail and general warehouse purchase index methods.
The Company believes the use of such specific costs and internal indices results
in a more accurate
9
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 8--CUMULATIVE EFFECT OF ACCOUNTING CHANGES--(CONTINUED)
measurement of the impact of inflation in the cost of its store merchandise. The
effect of this change resulted in a charge to income of $10.7 million, net of an
income tax benefit of $7.8 million, and has been presented as a cumulative
effect of a change in accounting method in the accompanying consolidated
statements of operations for the first quarter of Fiscal 1993.
Postretirement Benefits other than Pensions:
Effective January 31, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
other than Pensions" which resulted in a charge to income of $15.6 million, net
of an income tax benefit of $11.3 million, immediately upon adoption.
Postemployment Benefits:
Effective January 31, 1993, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" which resulted in a charge to income of $2.5 million, net of an income
tax benefit of $1.8 million, immediately upon adoption.
Income Taxes:
Effective January 31, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". The implementation
of SFAS No. 109 had no effect on the consolidated statements of operations,
however, it resulted in a reclassification of the current and noncurrent
deferred taxes.
Present Value Discount Rate Determination:
Effective January 31, 1993, the Company made a change in the determination
of the discount rate utilized to record the present value of certain noncurrent
liabilities (self-insured liabilities and closed store liabilities) and reduced
such rate from 12%, representing the Company's effective interest rate, to a
risk free rate, estimated at 4% in Fiscal 1993. The cumulative effect of this
accounting change as of January 31, 1993 totalled $11.6 million, net of an
income tax benefit of $8.4 million.
NOTE 9--LEASES
The Company incurred capital lease obligations of $4.5 million and $6.0
million during the first six-month periods of Fiscal 1994 and Fiscal 1993,
respectively, in connection with lease agreements to acquire property and
equipment.
NOTE 10--EXTRAORDINARY ITEMS
During the second quarter of Fiscal 1993, in connection with the
Recapitalization, Pathmark repaid $2.5 million principal amount of indebtedness
secured by mortgages on two retail properties subsequently transferred to
Plainbridge. This repayment resulted in a net loss on early extinguishment of
debt of $0.04 million.
During the first quarter of Fiscal 1993, in connection with the
Recapitalization, Pathmark repaid $5.7 million aggregate principal amount of
indebtedness secured by a mortgage on the distribution center of the home
centers segment subsequently transferred to Plainbridge. This repayment resulted
in a net loss on early extinguishment of debt of $0.1 million.
10
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 11--RELATED PARTY TRANSACTIONS
During the fourth quarter of Fiscal 1993, Pathmark and Plainbridge entered
into related party agreements and transactions. Refer to the Company's Form 10-K
Annual Report for the year ended January 29, 1994, Notes to the Consolidated
Financial Statements, for a more detailed description of such agreements. These
related party agreements and transactions are summarized as follows:
1) Spin-Off
A) Services Agreements:
Pathmark and Plainbridge entered into agreements pursuant to which Pathmark
will continue to provide certain administrative services relating to the
warehouse, distribution and home centers operations of Plainbridge and certain
administrative services to Chefmark. The cost of the services under the
Plainbridge and Chefmark service agreements in the aggregate was $3.6 million
and $7.0 million during the second quarter and the first six-month period of
Fiscal 1994, respectively.
B) The Logistical Services Agreements:
Under the Logistical Services Agreement, Plainbridge supplies Pathmark most
of the merchandise sold in Pathmark's retail stores and for the provision of
warehousing, distribution and other logistical services relating to the supply
of such merchandise. The cost of fees related to the Logistical Services
Agreement in the aggregate was $33.9 million and $69.1 million during the second
quarter and the first six-month period of Fiscal 1994, respectively. Pathmark
also received an allowance of $6.3 million and $12.6 million during the second
quarter and first six-month period of Fiscal 1994, respectively, based on the
amount of merchandise purchased by Plainbridge at Pathmark's direction. At July
30, 1994, Pathmark has guaranteed approximately $31.7 million of such
merchandise purchases by Plainbridge.
2) Other:
In conjunction with the Plainbridge Spin-Off, certain real property with a
net book value of $64.5 million was transferred to Plainbridge and is being
leased to Pathmark at rentals which the Company believes approximate fair value.
During the second quarter and the first six-month period of Fiscal 1994, such
rentals amounted to $1.1 million and $2.2 million, respectively, in connection
with these related party leases.
In addition, Pathmark is leasing six store properties to Plainbridge with a
net book value of $9.1 million. The Company believes that the rentals received
from Plainbridge approximate fair value. During the second quarter and the first
six-month period of Fiscal 1994, such rentals amounted to $1.0 million and $2.0
million, respectively, and are recorded as a reduction in Pathmark's selling,
general and administrative expenses in the accompanying consolidated statements
of operations.
Pathmark earned interest income on advances to affiliates of $2.7 million
and $5.9 million during the second quarter and the first six-month period of
Fiscal 1993, respectively.
NOTE 12--CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK
Exchangeable Preferred Stock activity during the first six-month period of
Fiscal 1994 was as follows (dollars in thousands):
NUMBER OF
SHARES AMOUNT
--------- --------
Balance, January 29, 1994............................................. 4,890,671 $100,346
Accretion on preferred stock.......................................... -- 799
--------- --------
Balance, July 30, 1994................................................ 4,890,671 $101,145
--------- --------
--------- --------
11
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 12--CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK--(CONTINUED)
The terms of the Exchangeable Preferred Stock provide for cumulative
quarterly dividends at an annual rate of $3.52 per share when, as, 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 July 30,
1994, the unpaid dividends of $30.1 million were accrued and included in other
noncurrent liabilities.
NOTE 13--INCOME TAXES
Income taxes are based on the estimated effective tax rate expected to be
applicable for the full fiscal year. The income tax provision of $1.5 million
for the first six-month period of Fiscal 1994 is net of a reduction in the net
deferred tax asset and related valuation allowance of $1.3 million due to the
utilization of the net operating loss carryforwards. An income tax benefit of
$10.3 million was provided for the first six-month period of Fiscal 1993.
During the first six-month period of Fiscal 1994, the Company made income
tax payments of $0.5 million and received income tax refunds of $23.2 million.
During the first six-month period of Fiscal 1993, the Company made income tax
payments of $1.3 million and received income tax refunds of $1.9 million.
NOTE 14--PROVISION FOR STORE CLOSINGS
Effective with the beginning of the second quarter of Fiscal 1993, the
Company made a decision to close or dispose of five supermarkets (the "Five
Stores") which the Company believes will continue to be unprofitable. As a
result, operating results for the Five Stores have been excluded from the
consolidated statements of operations since the beginning of the second quarter
of Fiscal 1993.
NOTE 15--CONTINGENCIES
The Company is contingently liable for certain obligations of the Purity
Operations under certain instruments, primarily approximately 60 leases for real
property, in the event of default thereunder by the purchaser of the Purity
Operations. As of January 29, 1994, the estimated present value of such lease
obligations approximated $115.0 million. The Company is also contingently liable
for a loan guarantee of approximately $1.4 million at July 30, 1994.
On March 1, 1993 the Company was served with a summons and complaint which
alleges, among other things, that the Company and other co-defendants induced
processors of Tropicana orange juice to provide it with a favorable price and
other terms that discriminated against other sellers of orange juice in
violation of the price discrimination provisions of the Robinson-Patman Act. The
prayer for relief does not claim any specific amount of damages. After
consultation with counsel, the Company believes that this lawsuit is without
merit and intends to defend the action vigorously.
In addition to the litigation referred to above, the Company is 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.
12
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 16--SUBSEQUENT EVENT
On August 24, 1994, the Company announced that its Plainbridge subsidiary
had signed a definitive asset purchase agreement (the "Agreement") with a
purchaser to sell its home centers segment. Under the terms of the Agreement,
the purchaser will acquire certain assets and liabilities as specified in the
Agreement. The transaction, anticipated to be closed later in Fiscal 1994, is
subject to a number of conditions, including regulatory approvals. The Company
will use the proceeds from this transaction to repay debt.
13
SUPERMARKETS GENERAL HOLDINGS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion and analysis of the Company's financial
condition and results from continuing operations. The Company intends to
spin-off Plainbridge to its common stockholder, although there can be no
assurance that such spin-off will be consummated. Accordingly, discontinued
operations represent the results of operations related to the home centers
segment in the second quarters and the first six-month periods of Fiscal 1993
and Fiscal 1994 and the warehouse, distribution and certain real estate
operations in the second quarter and the first six-month period of Fiscal 1994.
The warehouse, distribution and certain real estate operations were reflected in
continuing operations in the second quarter and the first six-month period of
Fiscal 1993 since such operations represent a portion of the supermarkets and
drug stores segment. Although the discontinued operations have generated
positive operating cash flows, the Company believes that the impact of such
spin-off on the Company's liquidity is not material. References to the Company
in this section refers to the Company and its subsidiaries, on a consolidated
basis, except as otherwise stated herein.
RESULTS OF OPERATIONS
Sales:
Sales for the second quarter of Fiscal 1994 were $1.02 billion compared to
$1.00 billion in the prior-year period. The sales increase is primarily due to
the negative impact of the strike and lockouts in the second quarter of Fiscal
1993. Sales for stores opened in both second quarter periods increased by 3.3%.
Sales for the first six-month period of Fiscal 1994 were $2.04 billion compared
to $2.07 billion in the prior-year period. The decrease is primarily due to the
exclusion from the reported results of the sales since the beginning of the
second quarter of Fiscal 1993 of the Five Stores anticipated to be closed or
disposed as part of the provision for store closings, partially offset by the
negative impact of the strike and lockouts in the second quarter of Fiscal 1993.
Sales for stores opened in both six-month periods increased 0.2%. At quarter
end, the Company operated 140 supermarkets, including 131 Pathmark Super Centers
compared with the end of Fiscal 1993 when the Company operated 143 supermarkets,
including 136 Pathmark Super Centers. The Company also operated 30 freestanding
Pathmark drug stores and five "deep discount" drug stores at quarter end
compared with the end of Fiscal 1993 when the Company operated 31 freestanding
Pathmark drug stores and two "deep discount" drug stores. In order to improve
sales and profitability, the Company is continuing to focus on its enlargement
and renovation program.
Gross Profit:
Gross profit for the second quarter of Fiscal 1994 was $289.8 million or
28.3% of sales compared with $273.4 million or 27.3% of sales for the second
quarter of Fiscal 1993 and for the first six-month period of Fiscal 1994 was
$579.1 million or 28.3% of sales compared with $569.0 million or 27.4% for the
prior-year period. This improvement in gross profit as a percentage of sales
during the second quarter and the first six-month period of Fiscal 1994 is
attributable to the Company's continuing emphasis on large super centers
allowing expanded variety in all departments, particularly higher margin
perishables, as well as an increased focus on merchandising programs (see
"Selling, General and Administrative Expenses"). The cost of goods sold
comparisons were affected by a pretax LIFO charge of $0.5 million for the second
quarter of Fiscal 1994, compared with a pretax LIFO credit of $0.7 million for
the prior-year period and a pretax LIFO charge of $1.0 million for the first
six-month period of Fiscal 1994 compared with a pretax LIFO credit of $1.4
million for the prior-year period.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses for the second quarter of
Fiscal 1994 decreased $3.2 million or 1.4% compared to the prior-year period and
decreased $7.2 million or 1.5% for the first six-month period of Fiscal 1994
compared with the prior-year period. As a percentage of sales, selling,
14
general and administrative expenses were 21.9% for the second quarter of Fiscal
1994, down from 22.7% in the prior-year period and were 22.4% for the first
six-month period of Fiscal 1994 down from 22.5% for the prior-year period. The
decrease as a percentage of sales in the second quarter and for the six-month
period of Fiscal 1994 compared to the prior-year periods was primarily
attributable to the negative impact of the strike and lockouts during the second
quarter of Fiscal 1993.
Depreciation and Amortization:
Depreciation and amortization of $16.2 million for the second quarter of
Fiscal 1994 was $1.4 million less than the prior-year period of $17.6 million.
For the first six-month period of Fiscal 1994, depreciation and amortization of
$31.9 million was $2.9 million lower than the prior-year period of $34.8
million. The decrease in depreciation and amortization expense for the second
quarter and the first six-month period of Fiscal 1994 compared to the prior-year
periods was primarily due to the impact of the assets transferred to Plainbridge
as part of the Plainbridge Spin-Off.
Operating Earnings:
Operating earnings for the second quarter of Fiscal 1994 were $49.6 million
compared with the prior-year period of $22.5 million. For the first six-month
period of Fiscal 1994, operating earnings were $88.5 million compared with $62.4
million for the prior-year period. The increase in operating earnings during the
second quarter and the first six-month period of Fiscal 1994 compared to the
prior-year periods was primarily due to the impact during the second quarter of
Fiscal 1993 of the strike and lockouts and the $6.0 million provision for store
closings recorded in the second quarter of Fiscal 1993.
Interest Expense:
Interest expense of $42.3 million for the second quarter of Fiscal 1994 was
$7.2 million less than the prior-year period of $49.5 million and for the first
six-month period of Fiscal 1994 was $15.7 million lower than the prior year's
$98.5 million. The decrease in both periods was primarily due to the benefit of
the lower interest rates on the debt incurred with the Recapitalization.
Income Taxes:
Income taxes are based on the estimated effective tax rate expected to be
applicable for the full fiscal year. The income tax provision of $1.5 million
for the second quarter of Fiscal 1994 is net of a reduction in the net deferred
tax asset and related valuation allowance of $2.1 million due to utilization of
the net operating loss carryforwards. An income tax benefit of $9.1 million was
provided in the second quarter of Fiscal 1993. The income tax provision for the
first six-month period of Fiscal 1994 was $1.5 million compared to an income tax
benefit of $10.3 million for the prior-year period.
During the first six-month period of Fiscal 1994, the Company made income
tax payments of $0.5 million and received income tax refunds of $23.2 million.
During the first six-month period of Fiscal 1993, the Company made income tax
payments of $1.3 million and received income tax refunds of $1.9 million.
Summary of Operations:
For the second quarter of Fiscal 1994, the Company's earnings from
continuing operations before extraordinary items and cumulative effect of
accounting changes was $5.8 million compared to a loss of $15.2 million for the
prior-year period. For the first six-month period of Fiscal 1994, the Company's
earnings from continuing operations before extraordinary items and cumulative
effect of accounting changes was $4.2 million compared to a loss of $19.8
million for the prior-year period. The increase in earnings in both periods are
primarily due to the impact during the second quarter of Fiscal 1993 of the
strike and lockouts and the $6.0 million provision for store closings recorded
in the second quarter of Fiscal 1993.
15
Extraordinary Items:
During the second quarter of Fiscal 1993, in connection with the
Recapitalization, Pathmark repaid $2.5 million principal amount of indebtedness
secured by mortgages on two retail properties subsequently transferred to
Plainbridge. This repayment resulted in a net loss on early extinguishment of
debt of $0.04 million.
During the first quarter of Fiscal 1993, in connection with the
Recapitalization, Pathmark repaid $5.7 million aggregate principal amount of
indebtedness secured by a mortgage on the distribution center of the home
centers segment subsequently transferred to Plainbridge. This payment resulted
in a net loss on early extinguishment of debt of $0.1 million.
Cumulative Effect of Accounting Changes:
Refer to Note 8 of the Consolidated Financial Statements for a discussion
related to the cumulative effect of accounting changes, effective January 31,
1993.
FINANCIAL CONDITION
Debt Service:
During the first six-month period of Fiscal 1994, total debt decreased $4.5
million from year end primarily due to the scheduled Term Loan repayments
partially offset by an increase in borrowings under the Pathmark Working Capital
Facility and by debt accretion on Pathmark Deferred Coupon Notes and PTK DIBs.
Borrowings under the Pathmark Working Capital Facility were $38.0 million at
July 30, 1994 and have decreased to $20.0 million at September 8, 1994. There
were no outstanding borrowings under the Plainbridge Working Capital Facility at
July 30, 1994 and September 8, 1994.
Under the Pathmark Working Capital Facility, which expires on July 31, 1998,
Pathmark can borrow or obtain letters of credit in an aggregate amount not to
exceed $175.0 million subject to an annual cleandown provision. Under the terms
of the Pathmark cleandown provision, in each fiscal year loans cannot exceed
$50.0 million under the Pathmark Working Capital Facility for a period of 30
consecutive days. Under the Plainbridge Working Capital Facility, which expires
October 26, 1996, Plainbridge can borrow or obtain letters of credit in an
aggregate amount not to exceed $50.0 million subject to an annual cleanup
provision. Under the terms of the Plainbridge cleanup provision, in each fiscal
year, loans cannot be made for a period of 30 consecutive days. The Company
satisfied the terms of the Pathmark cleandown provision during the first quarter
of Fiscal 1994 as well as the Plainbridge cleanup provision during the second
quarter of Fiscal 1994.
Pathmark is required to repay a portion of its borrowings under the Pathmark
Term Loan each year, which commenced in January 1994, so as to retire such
indebtedness in its entirety by Fiscal 1999. Pathmark is also required to make
sinking fund payments on the Pathmark Subordinated Notes in the amount of 25% of
the original aggregate principal amount of the Pathmark Subordinated Notes on
each of June 15, 2000 and June 15, 2001. The Pathmark Subordinated Debentures
and the remaining Pathmark Subordinated Notes mature on June 15, 2002. The
Pathmark Senior Subordinated Notes and the Pathmark Deferred Coupon Notes mature
in Fiscal 2003.
The indebtedness under the Pathmark and Plainbridge Working Capital
Facilities and the Pathmark Term Loan bear interest at floating rates. To the
extent that certain indebtedness of the Company bears interest at floating
rates, cash interest payments on that indebtedness may vary in future years. The
Company does not currently maintain any interest rate hedging arrangements due
to the reasonable risk that near term interest rates will not rise
significantly. The Company is continuously evaluating this risk and will
implement interest rate hedging arrangements when deemed appropriate.
As a result of the Recapitalization, the majority of the cash interest
payments are scheduled in the second and fourth quarters.
16
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 DIBs) are as follows (dollars in millions):
PRINCIPAL
FISCAL YEARS PAYMENTS
- ---------------------------------------------------------- ------------------
1994(a)................................................. $ 27.6
1995.................................................... 38.2
1996.................................................... 48.2
1997.................................................... 58.3
1998.................................................... 144.7
1999.................................................... 138.8
2000.................................................... 50.6
2001.................................................... 50.0
2002.................................................... 194.2
2003.................................................... 692.7
- ------------
(a) Subsequent to July 30, 1994
Liquidity:
The consolidated financial statements of the Company indicates that at July
30, 1994, current liabilities exceed its current assets by $107.4 million and
the Company's stockholder's deficit approximates $1.3 billion. Management
believes that cash flows generated from operations, supplemented by the unused
borrowing capacity under the Pathmark and Plainbridge Working Capital Facilities
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 meet its seasonal cash requirements. Further, the Company believes it will
continue to be in compliance with its various debt covenants.
Holdings 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 future borrowing facilities not currently in place.
Future refinancing may be necessary if cash flow from operations is not
sufficient to meet its debt service requirements related to the amortization of
the Pathmark Term Loan and the maturity of the Pathmark Working Capital Facility
and certain mortgages in Fiscal 1998, the maturity of the Pathmark Term Loan in
Fiscal 1999, 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, the Pathmark Deferred Coupon Notes and the PTK DIBs due in Fiscal 2003.
The Company may undertake a refinancing of some or all of such indebtedness
sometime prior to its maturity. The Company's ability to make scheduled payments
or to refinance 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 for payment
of Pathmark's and PTK's indebtedness or that future borrowing facilities will be
available. While it is the Company's intention to enter into 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 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 potentially result in reduced
cash flow.
17
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, as, 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 July 30,
1994, the unpaid dividends of $30.1 million were accrued and included in other
noncurrent liabilities.
Capital Expenditures:
Capital expenditures related to Pathmark supermarkets and drug stores for
the second quarter of Fiscal 1994, including property acquired under capital
leases, were approximately $17.7 million compared to approximately $18.3 million
for the prior-year period and for the first six-month period of Fiscal 1994,
including property acquired under capital leases, were approximately $30.9
million compared to $33.0 million for the prior-year period. During the first
six-month period of Fiscal 1994, the company opened three "deep discount" drug
stores and expects to open one additional "deep discount" drug store during the
remainder of Fiscal 1994. Additionally, the Company completed eight enlargements
and three renovations to existing supermarkets. During the remainder of Fiscal
1994, the Company expects to open up to four new Pathmark Super Centers, three
of which will replace smaller stores, and to complete up to 10 major renovations
and eight enlargements. During the current and next two fiscal years, Pathmark
plans to open an aggregate of 18 new Pathmark Super Centers, nine of which will
replace smaller stores, and to complete up to 85 major renovations and
enlargements, at a total investment of approximately $340.0 million, including
properties acquired under capital leases. Realization of this plan would
increase supermarket selling square footage by more than 14% over the three-year
period, although no assurance can be given that Pathmark will be able to
successfully complete the number of store openings, renovations and enlargements
planned for each year during the period. Pathmark intends to fund this program
through cash provided from operations and, to a lesser extent, the leasing of
certain properties and equipment. The extent of lease financing will depend on
the availability of such financing on favorable terms and the amount of cash
provided from operations. Expansion of selling square footage may also occur as
a result of the acquisition of new stores.
Cash Flows:
Net cash provided by operating activities amounted to $60.4 million in the
six-month period of Fiscal 1994 compared to cash used for operating activities
$16.6 million in the prior-year period. The increase in net cash provided by
operating activities in the first six-month period of Fiscal 1994 compared to
Fiscal 1993 is primarily due to the improvement in net earnings, income tax
refunds of $23.2 million and the reduction in cash interest payments in Fiscal
1994 compared to the prior-year period. Cash used for financing activities for
six-month period of Fiscal 1994 was $26.9 million compared to cash provided by
financing activities of $46.8 million for the prior-year period. The increase in
cash used for financing activities was primarily due to repayments of the
Working Capital Facilities and Pathmark Term Loan in the 26 weeks of Fiscal 1994
compared to an increase in the Old Working Capital Facility borrowings of $63.0
million in Fiscal 1993. Cash used for investing activities for the six-month
period of Fiscal 1994 was $30.6 million compared to $29.3 million for the
prior-year period, primarily reflecting the expenditures for property and
equipment in each period.
Subsequent Event:
On August 24, 1994, the Company announced that its Plainbridge subsidiary
had signed a definitive asset purchase agreement (the "Agreement") with a
purchaser to sell its home centers segment. Under the terms of the Agreement,
the purchaser will acquire certain assets and liabilities as specified in the
Agreement. The transaction, anticipated to be closed later in Fiscal 1994, is
subject to a number of conditions, including regulatory approvals. The Company
will use the proceeds from this transaction to repay debt.
18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On December 7, 1990, a lawsuit (the "Action") was commenced by a holder of
the Exchangeable Preferred Stock, Stanley D. Bernstein, as custodian for
Michelle Bernstein, against the Company, SMG-II Holdings Corp. ("SMG-II"),
Merrill Lynch Capital Partners, Inc. ("ML Capital Partners"), ML & Co. and the
directors of the Company in the Chancery Court, New Castle County, Delaware (the
"Court"). The Action purported to be a class action and alleged that the
original terms of the Exchangeable Preferred Stock Offer, at $5 per share,
constituted a coercive tender offer and a breach of fiduciary duties owed to
holders of Exchangeable Preferred Stock. The complaint in the Action sought
declaratory and injunctive relief, as well as monetary damages, with respect to
the Exchangeable Preferred Stock Offer, but no motions seeking any such relief
on a provisional or permanent basis were ever filed. On July 7, 1994, pursuant
to the terms of a settlement agreement approved by the Court, the Action was
settled. Under the terms of the settlement, the Action was certified as a class
action and dismissed on the merits with prejudice, and SMG-II paid attorneys'
fees and reimbursement of expenses in the amount of $0.2 million (including
interest) to plaintiff's counsel.
ITEM 6. EXHIBITS AND 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/ ANTHONY CUTI
...................................
(Anthony Cuti)
President and Chief
Financial Officer
By /s/ JOSEPH ADELHARDT
...................................
(Joseph Adelhardt)
Vice President and Controller,
Chief Accounting Officer
Date: September 13, 1994
19
SUPERMARKETS GENERAL HOLDINGS CORPORATION
3012 Blair Road, Woodbridge, New Jersey 07095
This schedule contains summary financial information extracted from
Supermarkets General Holdings Corporation's Consolidated Statements of
Operations for the 26 weeks ended July 30, 1994 and the Consolidated Balance
Sheet as of July 30, 1994 and is qualified in its entirely by reference to
such financial statements.