1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended May 22, 1999
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission file number: 33-63372
PUEBLO XTRA INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 65-0415593
------------------------------------ ------------------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
1300 N.W. 22nd Street
Pompano Beach, Florida 33069
------------------------------------ -----------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (954) 977-2500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
No voting stock of the Registrant is held by non-affiliates of the
Registrant.
Number of shares of the Registrant's Common Stock, $ .10 par value,
outstanding as of July 1, 1999 -- 200.
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INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Page(s)
-------
Consolidated Balance Sheets -
May 22, 1999 (Unaudited) and January 30, 1999 .................... 3-4
Consolidated Statements of Operations (Unaudited) -
Sixteen weeks ended May 22, 1999
and May 23, 1998 ................................................ 5
Consolidated Statements of Cash Flows (Unaudited)-
Sixteen weeks ended May 22, 1999
and May 23, 1998 ................................................ 6
Notes to Consolidated Financial Statements (Unaudited) ................... 7-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .............................. 9-12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ................................. 12
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CONSOLIDATED BALANCE SHEETS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(Dollars in thousands)
(Unaudited) (Audited)
May 22, January 30,
1999 1999
----------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 30,816 $ 55,500
Accounts receivable 6,809 4,715
Inventories 62,553 60,189
Prepaid expenses 15,343 8,163
Deferred income taxes 5,669 5,338
-------- --------
TOTAL CURRENT ASSETS 121,190 133,905
-------- --------
PROPERTY AND EQUIPMENT
Land and improvements 16,499 16,499
Buildings and improvements 63,206 64,128
Furniture, fixtures and equipment 115,138 113,673
Leasehold improvements 37,790 37,417
Construction in progress 4,555 4,786
-------- --------
237,188 236,503
Less accumulated depreciation
and amortization 119,937 114,912
-------- --------
117,251 121,591
Property under capital leases, net 8,063 8,269
-------- --------
TOTAL PROPERTY AND EQUIPMENT 125,314 129,860
GOODWILL, net of accumulated amortization of
$29,661 at May 22, 1999 and $28,113 at
January 30, 1999 172,057 173,605
DEFERRED INCOME TAX 7,109 7,006
TRADE NAMES 29,572 29,838
DEFERRED CHARGES AND OTHER ASSETS 31,753 32,788
-------- --------
TOTAL ASSETS $486,995 $507,002
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
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CONSOLIDATED BALANCE SHEETS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(Dollars in thousands, except share data)
(Unaudited) (Audited)
May 22, January 30,
1999 1999
--------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 70,187 $ 74,604
Accrued expenses 32,397 43,545
Salaries, wages and benefits payable 9,437 13,535
Current obligations under capital leases 668 643
--------- ---------
TOTAL CURRENT LIABILITIES 112,689 132,327
LONG-TERM DEBT 10,000 10,000
NOTES PAYABLE 258,825 258,475
CAPITAL LEASE OBLIGATIONS, net of
current portion 6,700 6,914
RESERVE FOR SELF-INSURANCE CLAIMS 7,524 9,896
DEFERRED INCOME TAXES 28,539 28,539
OTHER LIABILITIES AND DEFERRED CREDITS 24,971 24,669
--------- ---------
TOTAL LIABILITIES 449,248 470,820
--------- ---------
STOCKHOLDER'S EQUITY
Common stock, $.10 par value; 200 shares
authorized and issued -- --
Additional paid-in capital 91,500 91,500
Accumulated deficit (53,753) (55,318)
--------- ---------
TOTAL STOCKHOLDER'S EQUITY 37,747 36,182
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 486,995 $ 507,002
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
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CONSOLIDATED STATEMENTS OF OPERATIONS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(Dollars in thousands)
(Unaudited)
For the 16 Weeks Ended
--------------------------------
May 22, 1999 May 23, 1998
------------ ------------
Net sales $ 217,217 $ 247,652
Cost of goods sold 147,612 168,862
--------- ---------
GROSS PROFIT 69,605 78,790
OPERATING EXPENSES
Selling, general and administrative expenses 47,800 57,060
Depreciation and amortization 10,115 11,979
--------- ---------
OPERATING PROFIT 11,690 9,751
Interest expense on debt (8,913) (8,946)
Interest expense on capital lease obligations (289) (333)
Interest and investment income, net 526 278
Loss on sale/leaseback of real property (1,291) --
--------- ---------
INCOME BEFORE TAXES 1,723 750
Income tax expense (158) (278)
--------- ---------
NET INCOME $ 1,565 $ 472
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(Dollars in thousands)
(Unaudited)
For the 16 Weeks Ended
--------------------------------
May 22, 1999 May 23, 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,565 $ 472
Adjustments to reconcile net income to net cash
used in operating activities,
net of effects of disposal of Florida retail operations:
Depreciation and amortization of property and equipment 5,750 7,022
Amortization of intangible and other assets 4,365 4,956
Amortization of bond discount 350 312
Loss on sale/leaseback of real property 1,291 --
(Gain) loss on disposal of property and equipment, net 89 (454)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (2,094) (3,562)
Inventories (4,349) (7,366)
Prepaid expenses (7,530) (5,879)
Deferred income tax asset 469 37
Increase (decrease) in:
Accounts payable and accrued expenses (19,663) (14,351)
Reserve for self-insurance claims (2,372) (654)
Deferred income tax liability (434) 15
Other liabilities and deferred credits 3,324 (77)
-------- --------
(19,239) (19,529)
Decrease attributable to disposal
of Florida retail operations (3,022) (925)
-------- --------
Net cash used in operating activities (22,261) (20,454)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,320) (6,049)
Proceeds from disposal of property and equipment 86 3,327
-------- --------
Net cash used in investing activities (2,234) (2,722)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (189) (197)
-------- --------
Net cash used in financing activities (189) (197)
-------- --------
Net decrease in cash and cash equivalents (24,684) (23,373)
Cash and cash equivalents at beginning of period 55,500 28,770
-------- --------
Cash and cash equivalents at end of period $ 30,816 $ 5,397
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 13,173 $ 13,214
Income taxes, net of refunds $ 401 $ 597
The accompanying notes are an integral part of these
Consolidated financial statements
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 1 -- INTERIM FINANCIAL STATEMENTS
With respect to the unaudited financial information for the 16 weeks
ended May 22, 1999 and May 23, 1998, it is the opinion of management of Pueblo
Xtra International, Inc. and its wholly-owned subsidiaries (collectively, the
"Company") that the adjustments necessary to prepare a fair statement of the
results for such interim periods have been included. Such adjustments were of a
normal and recurring nature.
Operating results for the 16 weeks ended May 22, 1999 and May 23, 1998
are not necessarily indicative of results that may be expected for the full
fiscal years. The Company's fiscal year ends on the last Saturday in January.
Reclassifications
Certain amounts in the prior year's consolidated financial statements
and related notes have been reclassified to conform to the current year's
presentation.
NOTE 2 -- INVENTORY
The results of the Company's operations reflect the application of the
last-in, first-out ("LIFO") method of valuing certain inventories of grocery,
non-food and dairy products. Since an actual valuation of inventories under the
LIFO method is only made at the end of a fiscal year based on inventory levels
and costs at that time, interim LIFO calculations are based on management's
estimates of expected year-end inventory levels and costs and are subject to
year-end adjustments.
NOTE 3 -- DISCLOSURE ON OPERATING SEGMENTS
The Company has two primary operating segments: retail food sales and
video tape rentals and sales. The Company's retail food division consists of 50
supermarkets, 44 of which are in Puerto Rico and 6 of which are in the Virgin
Islands. The Company also has the exclusive franchise rights to Blockbuster
video stores for Puerto Rico and the Virgin Islands operated through 44
Blockbuster stores, 42 of which are in Puerto Rico and 2 of which are in the
Virgin Islands. Most of the Blockbuster stores are adjacent to or a separate
section within a retail food supermarket. Administrative headquarters are in
Florida. Although the Company maintains data by geographic location, its segment
decision making process is based on its two product lines.
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Reportable operating segment financial information is as follows (dollars in
thousands):
Retail Food Videotape Total
For the 16 Weeks Ended and as of May 22, 1999:
Net sales $ 201,109 $ 16,108 $ 217,217
Depreciation and amortization (7,330) (2,785) (10,115)
Operating profit 9,689 2,001 11,690
Total assets 455,659 31,336 486,995
Capital expenditures (2,211) (109) (2,320)
For the 16 Weeks Ended May 23, 1998:
Net sales $ 229,684 $ 17,968 $ 247,652
Depreciation and amortization (8,574) (3,405) (11,979)
Operating profit 8,743 1,008 9,751
Capital expenditures (5,868) (181) (6,049)
As of January 30, 1999:
Total assets $ 477,155 $ 29,847 $ 507,002
Because the Retail Food and Videotape Divisions are not segregated by
corporate entity structure, the operating segment amounts shown above do not
represent totals for any subsidiary of the Company. All overhead expenses
including depreciation on assets of administrative departments are allocated to
operations. Amounts shown in the total column above correspond to amounts in the
consolidated financial statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview and Basis of Presentation
The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this Form 10-Q.
Selected Operating Results
(as a percentage of sales)
16 WEEKS ENDED
--------------------------------------
May 22, 1999 May 23, 1998
-------------- --------------
Gross Profit 32.0% 31.8%
Selling, General & Administrative Expenses 22.0 23.0
EBITDA, as defined (1) 10.0 8.8
Depreciation & Amortization 4.7 4.8
Operating Profit 5.4 4.0
Income (loss) Before Income Taxes 0.8 0.3
Net Income 0.7 0.2
- ----------
(1) EBITDA, as defined, is Earnings Before Interest expense-net, income Taxes,
Depreciation, and Amortization and the loss on the sale/leaseback
transaction described below. EBITDA, as defined and disclosed herein, is
neither a measurement pursuant to generally accepted accounting principles
(GAAP) nor a measurement of operating results and is included for
information purposes only.
Results of Operations
As of May 22, 1999, the Company operated a total of 50 supermarkets and
44 Blockbuster locations in Puerto Rico and the U. S. Virgin Islands. Between
May 23, 1998 and May 22, 1999, the Company opened one new supermarket and one
new Blockbuster store both of which are in Puerto Rico. One supermarket and one
Blockbuster store were closed due to hurricane damage and will not be reopened.
The history of store openings and closings from the end of the first quarter of
the prior year on May 23, 1998 through the end of the first quarter of the
current year on May 22, 1999, as well as the store composition, is set forth in
the tables below:
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Stores in Operation:
At May 23, 1998 .......................... 94
Stores opened:
Supermarkets ........................... 1
Blockbuster video stores ............... 1
Stores closed:
Supermarkets ........................... 1
Blockbuster video stores ............... 1
--
At May 22, 1999 .......................... 94
==
Remodels .................................... 3
==
May 22, 1999 May 23, 1998
------------ ------------
Store Composition at Quarter-End:
By division:
Supermarkets ................... 50 50
Blockbuster video stores ....... 44 44
-- --
Total ................................ 94 94
== ==
By location:
Puerto Rico ..................... 86 86
U.S. Virgin Islands ............. 8 8
-- --
Total ................................ 94 94
== ==
The following is the summary of total and comparable store sales:
Percentage increase, (decrease) in sales
for the 16 weeks ended May 22, 1999
----------------------------------------
Total Sales (12.3)%
=======
Comparable Stores:
Retail Food Division (13.4)%
=======
Blockbuster Video (11.4)%
=======
Total Comparable Store Sales (13.3)%
=======
Total sales for the first quarter (16 weeks ended May 22, 1999) were
$217.2 million, versus $247.7 million in sales for the first quarter of the
prior year, a 12.3% decrease. For the comparable 16 week period same store sales
were $211.2 million versus $243.5 million for the prior year, a decline of
13.3%. "Same stores" are defined as those stores that were open as of the
beginning of both periods and remained open through the end of the periods. New
stores opened during these periods and the stores permanently closed as a result
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of hurricane Georges are excluded from "same stores". Same store sales in the
Retail Food Division declined 13.4%. Primary factors contributing to the decline
in same stores sales in the Retail Food Division are the aftermath of hurricane
Georges and the on going disruption associated with repairing and replacing
damaged components of stores, increased competition and the affects of
repositioning of Pueblo's supermarkets to offer a broader product mix while
eliminating marginally profitable product lines. Blockbuster Division same store
sales decreased 11.4% for the quarter as a result of increased competition,
fewer new music and video rental releases than in the comparable period of the
prior year and the down-sizing of its music departments.
Net income for the quarter (16 weeks ended May 22, 1999) improved $1.1
Million to $1.6 million versus $0.5 million in the first quarter of the prior
year. The 16 weeks ended May 22, 1999 includes a $1.2 million charge (net of
the income tax benefit) to provide for a loss on the sale/leaseback transaction
described below. EBITDA, as defined, (Earnings Before Interest Expense-net,
Income Taxes, Depreciation and Amortization and the loss on sale/leaseback
transaction) was $21.8 million this quarter (16 weeks ended May 22, 1999),
versus $21.7 million for the first quarter of the prior year (16 weeks ended May
23, 1998).
Hurricane Georges struck all of the Company's operating facilities on
September 20 and 21, 1998. All of the Company's stores, with the exception of
two, have been reopened. Since the storm, operations have been at varying
degrees of full capacity depending on the extent of damage at each location and
the related recovery efforts. The Company's insurance is expected to cover
losses associated with the storm, including the retail value of lost inventory,
the replacement cost of damaged or destroyed operating assets, recovery costs
and the impact of business interruption. The Company's insurance carriers have
advanced $35.0 million to date (approximately $11.3 million of which was
received subsequent to May 22, 1999). The Company does not expect to record any
losses as a result of the hurricane in the carrying value of its assets or
recovery related costs. Any gains will be recorded at such time as final
proceeds are realized.
Liquidity and Capital Resources
Company operations have historically provided a cash flow which, along
with the available credit facility, have provided adequate liquidity for the
Company's operational needs.
Subsequent to the end of the quarter, on June 1, 1999, the Company realized
approximately $35.2 million in cash from the sale of seven shopping centers that
are located in Puerto Rico and the U.S. Virgin Islands. The portions of these
centers in which the Company's retail stores are located are being leased back
pursuant to long-term leases. As discussed above, the Company provided for the
related $1.2 million loss (net of the income tax benefit) during the 16 weeks
ended May 22, 1999. Management believes that the transaction involving the sale
of seven shopping centers with the leaseback of the Company's stores within the
centers has increased the Company's general liquidity while reducing its real
estate management portfolio, thereby allowing for greater focus of both effort
and assets on the Company's core retail businesses.
Net cash used in operating activities for the 16 weeks ended May 22,
1999 was $1.8 million more than in the same period of the prior year primarily
due to a decrease of approximately $3 million in the reserve for disposal of
Florida operations. This was the final adjustment to the reserve due to the
disposition of the last remaining properties related to discontinued Florida
operations.
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Net cash used in investing activities for purchases of property and
equipment, net of proceeds on sales of property and equipment, was $2.2 million
and $2.7 million in the first quarters of fiscal 2000 and 1999, respectively.
Net cash used in financing activities was $ 0.2 million in the first
quarters of both fiscal 2000 and 1999 and was used entirely for payment on
capital lease obligations.
Working capital increased during the first quarter by $6.9 million to
$8.5 million as of May 22, 1999 from $1.6 million as of January 30, 1999
producing an improved current ratio of 1.07:1 versus 1.01:1.
Outstanding borrowings with a governmental agency of Puerto Rico from
the issuance of industrial revenue bonds were $10.0 million as of May 22, 1999.
Management anticipates that the principal payments due in fiscal 2001 will be
financed by operations.
The Company's management believes that the cash flows generated by its
normal business operations together with its available revolving credit facility
will be adequate for its liquidity and capital resource needs.
Year 2000 Compliance
In March 1998, the Company completed the planning phase of a project to
modify its information technology systems for compliance with the year 2000 and
beyond. The Company's plan also includes a review of the implications of the
Year 2000 problem on telecommunications systems, electronic equipment and
facilities systems. The Company is now in the process of executing its plan and
estimates that all systems will be compliant by October of 1999. This is later
than the "mid-calendar 1999" time frame indicated in the Company's Form 10-K for
the fiscal year ended January 30, 1999 as a result of rescheduling certain store
systems changes for the Year 2000 Compliance to efficiently coincide with
various operating activities. The financial impact of making the required system
changes is not expected to be material to the Company's consolidated financial
position, results of operations or cash flows. The Company has initiated formal
communications with all of its significant suppliers and service providers and
large customers to determine the extent to which the Company's interface systems
are vulnerable to those third parties' possible failure to remediate their own
year 2000 issues. There can be no guarantee that the systems of other companies
that the Company does business with, and in some cases with which the Company's
systems interface, will be timely converted and would not have an adverse effect
on the Company's systems.
Contingency plans are being developed to address the possibility that
critical internal and third party year 2000 issues are not resolved in the time
frame outlined in the preceding paragraph.
As of May 22, 1999 the Company had made expenditures of $1.9 million
for consulting and professional services, software, and computer hardware to
modify its information technology systems for compliance with the year 2000 and
beyond. In addition, a substantial portion of the modification work has been
performed by the Company's internal management information systems programming
staff as part of their day to day responsibilities. These internal costs are not
material and have not been segregated. The Company does not expect material
additional expenditures in fiscal 2000 related to the project.
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If the Company is unsuccessful or if the remediation efforts of its key
suppliers and service providers and large customers are unsuccessful with regard
to Year 2000, there may be a material adverse impact on the Company's
consolidated results of operations or financial condition. The Company is unable
to estimate the financial impact of this possible eventuality because it cannot
predict the magnitude or time length of potential Year 2000 business
interruptions.
The information contained herein is a "Year 2000 Readiness Disclosure"
under the Year 2000 Information and Readiness Act of 1998.
Impact of Inflation, Currency Fluctuations, and Market Risk
The inflation rate for food prices continues to be lower than the
overall increase in the U.S. Consumer Price Index. The Company's primary costs,
products and labor, usually increase with inflation. Increases in inventory
costs can typically be passed on to the customer. Other cost increases must by
recovered through operating efficiencies and improved gross margins. Currency in
Puerto Rico and the U.S. Virgin Islands is the U.S. dollar. As such, the Company
has no exposure to foreign currency fluctuations.
The Company is exposed to certain market risks from transactions that
are entered into during the normal course of business. The Company does not
trade or speculate in derivative financial instruments. The Company's primary
market risk exposure relates to interest rate risk. The Company manages its
interest rate risk in order to balance its exposure between fixed and variable
rates while attempting to minimize its interest costs. As detailed in Note 5 of
the Form 10-K for the year ended January 30, 1999 -- Debt in the financial
statements, the Company's long-term debt consists of: (i) senior notes of $265
million at a fixed rate of 9 1/2% due in 2003 and (ii) variable rate revenue
bonds due in 2001 of $10 million upon which the weighted average interest rate
was 4.18% and 4.43% at May 22, 1999 and January 30, 1999, respectively.
Forward Looking Statements
Statements, other than statements of historical information, under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and elsewhere in this Form 10-Q may constitute forward looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Such statements include, among others, statements concerning: (1) management's
belief that cash flows generated by the Company's normal business operations
together with its available credit facility will be adequate for its liquidity
and capital resource needs, (2) insurance recovery expectations, and, (3) the
extent to which future operations may be inhibited by the hurricane. These
statements are based on Company management's expectations and are subject to
various risks and uncertainties. Actual results could differ materially from
those anticipated due to a number of factors, including but not limited to the
Company's substantial indebtedness and high degree of leverage (including
limitations on the Company's ability to obtain additional financing and trade
credit, to apply operating cash flow for purposes in addition to debt service,
to respond to price competition in economic downturns and to dispose of assets
pledged to secure such indebtedness or to freely use proceeds of any such
dispositions), the Company's limited geographic markets and competitive
conditions in the markets in which the Company operates and buying patterns of
consumers.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule.
(b) Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PUEBLO XTRA INTERNATIONAL, INC.
Dated: July 1, 1999 /s/ Daniel J. O'Leary
-----------------------------
Daniel J. O'Leary,
Executive Vice President
and Chief Financial Officer
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