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 August 14, 1999
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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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 September 27, 1999 -- 200.
2
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Page(s)
-------
Consolidated Balance Sheets -
August 14, 1999 (Unaudited) and January 30, 1999............. 3-4
Consolidated Statements of Operations (Unaudited) -
Twelve and twenty-eight weeks ended August 14, 1999
and August 15, 1998.......................................... 5
Consolidated Statements of Cash Flows (Unaudited)-
Twenty-eight weeks ended August 14, 1999
and August 15, 1998.......................................... 6
Notes to Consolidated Financial Statements (Unaudited)......................... 7-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................... 9-14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................... 14
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CONSOLIDATED BALANCE SHEETS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(Dollars in thousands)
(Unaudited)
August 14, January 30,
1999 1999
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 50,269 $ 55,500
Accounts receivable 10,030 4,715
Inventories 58,682 60,189
Prepaid expenses 12,653 8,163
Deferred income taxes 5,480 5,338
--------- ---------
TOTAL CURRENT ASSETS 137,114 133,905
--------- ---------
PROPERTY AND EQUIPMENT
Land and improvements 6,215 16,499
Buildings and improvements 37,652 64,128
Furniture, fixtures and equipment 115,124 113,673
Leasehold improvements 32,911 37,417
Construction in progress 18,146 4,786
--------- ---------
210,048 236,503
Less accumulated depreciation
and amortization 108,637 114,912
--------- ---------
101,411 121,591
Property under capital leases, net 14,993 8,269
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TOTAL PROPERTY AND EQUIPMENT 116,404 129,860
GOODWILL, net of accumulated amortization of
$30,824 at August 14, 1999 and $28,113 at
January 30, 1999 170,894 173,605
DEFERRED INCOME TAX 7,111 7,006
TRADE NAMES 29,372 29,838
DEFERRED CHARGES AND OTHER ASSETS 30,731 32,788
--------- ---------
TOTAL ASSETS $ 491,626 $ 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)
August 14, January 30,
1999 1999
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LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 51,571 $ 74,604
Accrued expenses 34,215 43,545
Salaries, wages and benefits payable 10,051 13,535
Current obligations under capital leases 673 643
----------- -----------
TOTAL CURRENT LIABILITIES 96,510 132,327
LONG-TERM DEBT 10,000 10,000
NOTES PAYABLE 259,095 258,475
CAPITAL LEASE OBLIGATIONS, net of
current portion 13,641 6,914
RESERVE FOR SELF-INSURANCE CLAIMS 7,390 9,896
DEFERRED INCOME TAXES 28,539 28,539
OTHER LIABILITIES AND DEFERRED CREDITS 33,319 24,669
----------- -----------
TOTAL LIABILITIES 448,494 470,820
----------- -----------
STOCKHOLDER'S EQUITY
Common stock, $.10 par value; 200 shares
authorized and issued -- --
Additional paid-in capital 91,500 91,500
Accumulated deficit (48,368) (55,318)
----------- -----------
TOTAL STOCKHOLDER'S EQUITY 43,132 36,182
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 491,626 $ 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) (Unaudited)
12 weeks 12 weeks 28 weeks 28 weeks
ended ended ended ended
August 14, August 15, August 14, August 15,
1999 1998 1999 1998
----------- ------------ ----------- -----------
Net sales $ 152,777 $ 181,582 $ 369,994 $ 429,234
Cost of goods sold 103,264 121,175 250,876 290,037
----------- ------------ ----------- ------------
GROSS PROFIT 49,513 60,407 119,118 139,197
----------- ------------ ----------- ------------
OPERATING EXPENSES
Selling, general and administrative expenses 40,207 41,301 88,007 98,362
Gain on settlement of insurance claim (13,066) -- (13,066) --
Depreciation and amortization 6,776 8,755 16,891 20,733
----------- ------------ ----------- ------------
OPERATING PROFIT 15,596 10,351 27,286 20,102
Interest expense on debt (6,685) (6,625) (15,598) (15,571)
Interest expense on capital lease obligations (451) (230) (740) (563)
Interest and investment income, net 712 239 1,238 517
Loss on sale/leaseback of real property -- -- (1,291) --
----------- ------------ ----------- ------------
INCOME BEFORE TAXES 9,172 3,735 10,895 4,485
Income tax expense (3,787) (937) (3,945) (1,215)
----------- ------------ ----------- ------------
NET INCOME $ 5,385 $ 2,798 $ 6,950 $ 3,270
============ ============= ============ ============
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 28 Weeks Ended
---------------------------------
August 14, 1999 August 15, 1998
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,950 $ 3,270
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 9,371 12,046
Amortization of intangible and other assets 7,520 8,688
Write off of property and equipment destroyed 5,648 --
Amortization of bond discount 620 552
Loss on sale/leaseback of real property 1,291 --
(Gain) loss on disposal of property and equipment, net 78 (387)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (5,315) 52
Inventories (1,849) (11,584)
Prepaid expenses (4,933) (4,887)
Deferred income tax asset (247) 2,215
Deferred charges and other assets 1,070 388
Increase (decrease) in:
Accounts payable and accrued expenses (35,847) (20,363)
Reserve for self-insurance claims (2,506) (793)
Other liabilities and deferred credits 2,355 (1,672)
--------------- ---------------
(15,794) (12,475)
Decrease attributable to disposal
of Florida retail operations (3,022) (1,222)
--------------- ---------------
Net cash used in operating activities (18,816) (13,697)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (9,277) (10,842)
Reconstruction of property and
replacement of equipment destroyed (12,359) --
Proceeds from disposal of property and equipment 35,543 3,356
--------------- ---------------
Net cash provided by (used in) investing activities 13,907 (7,486)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (322) (352)
--------------- ---------------
Net cash used in financing activities (322) (352)
--------------- ---------------
Net decrease in cash and cash equivalents (5,231) (21,535)
Cash and cash equivalents at beginning of period 55,500 28,770
--------------- ---------------
Cash and cash equivalents at end of period $ 50,269 $ 7,235
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 26,462 $ 26,206
Income taxes, net of refunds $ 606 $ 648
Noncash investing and financing transactions:
Assets acquired under capital leases $ 7,079 $ --
The accompanying notes are an integral part of these
consolidated financial statements
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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 12 and 28
weeks ended August 14, 1999 and August 15, 1998, it is the opinion of
management of Pueblo Xtra International, Inc. and its wholly-owned subsidiaries
(collectively, the "Company") that the adjustments necessary to prepare a fair
statement of the results for such interim periods have been included. Such
adjustments, other than those related to the settlement of the Hurricane
Georges insurance claim as detailed herein, were of a normal and recurring
nature.
Operating results for the 12 and 28 weeks ended August 14, 1999 and
August 15, 1998 are not necessarily indicative of results that may be expected
for the full fiscal years. The Company's fiscal year ends on the last Saturday
in January.
Reclassifications
Certain amounts in the prior year's consolidated financial statements
and related notes have been reclassified to conform to the current year's
presentation.
NOTE 2 -- INVENTORY
The results of the Company's operations reflect the application of the
last-in, first-out ("LIFO") method of valuing certain inventories of grocery,
non-food and dairy products. Since an actual valuation of inventories under the
LIFO method is only made at the end of a fiscal year based on inventory levels
and costs at that time, interim LIFO calculations are based on management's
estimates of expected year-end inventory levels and costs and are subject to
year-end adjustments.
NOTE 3 -- DISCLOSURE ON OPERATING SEGMENTS
The Company has two primary operating segments: retail food sales and
video tape rentals and sales. The Company's retail food division consists of 50
supermarkets, 44 of which are in Puerto Rico and 6 of which are in the U. S.
Virgin Islands. The Company is also a Blockbuster Video franchisee and operates
a total of 44 Blockbuster stores, 42 of which are in Puerto Rico and 2 of which
are in the U. S. Virgin Islands. Most of the Blockbuster stores are adjacent to
or a separate section within a retail food supermarket. Administrative support
is provided from locations in Puerto Rico and Florida. Although the Company
maintains data by geographic location, its segment decision making process is
based on its two operation segments.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 3 -- DISCLOSURE ON OPERATING SEGMENTS (Continued)
Reportable operating segment financial information is as follows (dollars in
thousands):
Retail Food Videotape Total
----------- --------- -----
For the 28 Weeks Ended and as of August 14, 1999:
Net sales $342,161 $27,833 $369,994
Depreciation and amortization (12,151) (4,740) (16,891)
Gain on settlement of insurance claim 11,798 1,268 13,066
Operating profit 22,445 4,841 27,286
Total assets 463,819 27,807 491,626
Capital expenditures (9,148) (129) (9,277)
For the 28 Weeks Ended August 15, 1998:
Net sales $397,840 $31,394 $429,234
Depreciation and amortization (14,742) (5,991) (20,733)
Operating profit 18,582 1,520 20,102
Capital expenditures (10,651) (191) (10,842)
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.
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 August 14, 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.
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.
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Selected Operating Results:
(As a percentage of sales)
12 Weeks Ended 28 Weeks Ended
------------------------- -------------------------
August 14, August 15, August 14, August 15,
1999 1998 1999 1998
------------ ----------- ------------- ----------
Gross Profit 32.4% 33.3% 32.2% 32.4%
Selling, General &
Administrative Expenses 26.3 22.7 23.8 22.9
Gain on settlement of insurance claim (8.6) -- (3.5) --
EBITDA, as defined (1) 14.6 10.5 11.9 9.5
Depreciation & Amortization 4.4 4.8 4.6 4.8
Operating Profit 10.2 5.7 7.4 4.7
Income Before Income Taxes 6.0 2.1 2.9 1.0
Net Income 3.5 1.5 1.9 0.8
- ----------
(1) EBITDA, as defined, is Earnings Before Interest expense-net, income
Taxes, Depreciation, and Amortization and the loss on the
sale/leaseback transaction. EBITDA, as defined and disclosed herein,
is neither a measurement pursuant to generally accepted accounting
principles (GAAP) nor a measurement of operating results and is
included for informative purposes only.
Results of Operations
As of August 14, 1999, the Company operated a total of 50 supermarkets
and 44 Blockbuster locations in Puerto Rico and the U. S. Virgin Islands.
Between August 15, 1998 and August 14, 1999, 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 second quarter
of the prior year on August 15, 1998 through the end of the second quarter of
the current year on August 14, 1999, as well as the store composition, is set
forth in the tables below:
Stores in Operation:
At August 15, 1998................................ 96
Stores opened:
Supermarkets................................... --
Blockbuster video stores....................... --
Stores closed:
Puerto Rico - Supermarket...................... 1
Puerto Rico - Blockbuster...................... 1
-----
At August 14, 1999............................... 94
=====
Remodels........................................... 3
=====
August 14, 1999 August 15, 1998
--------------- ---------------
Store Composition at Quarter-End:
By division:
Supermarkets........................ 50 51
Blockbuster video stores............ 44 45
------- -------
Total 94 96
======= =======
By location:
Puerto Rico.......................... 86 88
U.S. Virgin Islands.................. 8 8
------- -------
Total 94 96
======= =======
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The following is the summary of total and comparable store sales:
Percentage increase, (decrease) in sales
for the period ended August 14, 1999
------------------------------------------
12 Weeks Ended 28 Weeks Ended
------------------ -------------------
Total Sales (15.9)% (13.8)%
========= =========
Comparable Stores:
Retail Food Division (16.8)% (14.8)%
========= =========
Blockbuster Video (13.5)% (12.3)%
========= =========
Total Comparable Store Sales (16.5)% (14.6)%
========= =========
Total sales for the 12 and 28 weeks ended August 14, 1999 were $152.8
million and $370.0 million, respectively, versus $181.6 million and $429.2
million in the related periods of the prior year, decreases of 15.9% and 13.8%,
respectively. For the comparable 12 and 28 week periods, same store sales were
$148.2 million and $359.4 million, respectively, this year versus $177.6
million and $421.0 million, respectively, for the prior year, declines of 16.5%
and 14.6%, respectively. "Same stores" are defined as those stores that were
open as of the beginning of both periods and remained open through the end of
the periods. New stores opened during these periods and the stores closed as a
result of hurricane Georges are excluded from "same stores". Same store sales
in the Retail Food Division declined 16.8% and 14.8% for the 12 and 28 weeks,
respectively, compared to the similar periods of the prior year. Primary
factors contributing to the decline in same stores sales in the Retail Food
Division are the aftermath of hurricane Georges and the ongoing disruption
associated with repairing and replacing damaged components of stores, increased
competition and the effects of repositioning of Pueblo's supermarkets to offer
a broader product mix while eliminating marginally profitable product lines.
Blockbuster Division same store sales decreased 13.5% and 12.3% for the 12 and
28 weeks, respectively compared to the similar periods of the prior year, as a
result of increased competition, fewer new music and video rental releases than
in the comparable periods of the prior year, and the down-sizing of its music
departments.
For the 12 and 28 weeks ended August 14, 1999, selling, general, and
administrative expenses as a percentage of sales were 26.3% and 23.8%,
respectively. For the similar 12 and 28 week periods ending August 15, 1998,
selling, general and administrative expenses, as a percentage of sales, were
22.7% and 22.9%, respectively.
For the 12 weeks ended August 14, 1999, selling, general and
administrative expenses declined $1.0 million compared to the similar period of
the prior fiscal year. For the 28 weeks they declined $10.4 million compared to
the 28 weeks ended August 15, 1998.
The decline in selling, general, and administrative expenses is a
result of the ongoing re-engineering program, which has been in process over
the last 30 months, involves all areas of the Company's operations, and seeks
to eliminate excess costs and to control operating costs in light of declining
sales.
The variances between the decrease in these costs for the 12 weeks
ended August 14, 1999 and the 28 weeks then ended is a result of the timing of
transactions associated with the re-engineering process and the fact that the
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sale/leaseback transaction on June 1, 1999 (discussed in the Liquidity and
Capital Resources section of this Management Discussion and Analysis) resulted
in rent expenses during the 12 week period for the four properties being leased
back pursuant to operating leases.
Operating profit increased for the 12 and 28 weeks ended August 14,
1999 by $5.2 million and $7.2 million, respectively, over the comparable
periods of the prior year to $15.6 million and $27.3 million. The increase was
primarily due to recognition of gain of $13.1 million from settling the
property and extra expense insurance claim associated with Hurricane Georges.
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.
During the quarter ended August 14, 1999, the Company settled its
property damage and extra expenses insurance claim resulting from Hurricane
Georges and realized the gain as discussed below. The settlement for property
damage and extra expenses involved inventory losses, reconstruction of property
and replacement of equipment and expenses the Company incurred specifically as
a result of the storm. The related insurance coverage for losses resulting from
the storm is as follows:
Inventory at retail value
Reconstruction of property and replacement of equipment at replacement
cost
Extra expenses reimbursed dollar for dollar
The $13.1 million gain is a result of the excess of insurance coverage
for inventory, property and equipment over the net book value of these items at
the time the storm occurred.
The Company's insurance policy also includes business interruption
coverage which provides for reimbursement for lost profits as a result of the
storm and coverage for the costs of the construction management firm that
assisted the Company in the reconstruction effort. The claims for both have not
been submitted at this time. The Company expects to submit these claims during
the third quarter and settle them prior to the end of the current fiscal year.
The income statements do not include any anticipated recovery from the business
interruption claim. The accounting for the business interruption claim will be
reported in the period in which it is settled. The construction management
costs are included as a receivable from the insurance carrier in the Company's
balance sheet as of August 14, 1999.
As of the date of this filing, the Company has received $35.0 million
in cash reimbursement from its insurance carrier and anticipates an additional
reimbursement of approximately $6.3 million for property damage, extra
expenses, and construction management costs.
Net income for the 12 and 28 weeks ended August 14, 1999 compared to
the prior year periods increased by $2.6 million and $3.7 million,
respectively, to $5.4 million and $7.0 million, respectively, due primarily to
the recognition of gain on the settlement of some of the insurance claims.
The 28 weeks ended August 14, 1999 includes a $1.2 million charge (net
of the income tax benefit) to provide for a loss on sale/leaseback transaction.
EBITDA, as defined, (Earnings Before Interest Expense-net, Income Taxes,
Depreciation and Amortization and the loss on sale/leaseback transaction) was
$22.4 million and $44.2 million, respectively, during the 12 and 28 weeks ended
August 14, 1999, versus $19.1 million and $40.8 million, respectively, for the
related 12 and 28 weeks of the prior year.
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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.
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 28 weeks ended August 14, 1999.
Management believes that the transaction involving the sale of seven shopping
centers with the leaseback of the Company's stores within the centers will
increase the Company's general liquidity while reducing its real estate
management portfolio, thereby allowing for even greater focus of both effort
and assets on the Company's core retail businesses.
Net cash used in operating activities for the 28 weeks ended August
14, 1999 was $18.8 million versus $13.7 million net cash used in operating
activities for the comparable period of the prior year.
The increase in net cash used in operating activities of $5.1 million
during the 28 weeks ended August 14, 1999 over the comparable period of the
prior year in spite of an increase in earnings before net interest expense,
income taxes, depreciation, and amortization was due to changes in components
of working capital.
During the first 28 weeks of the current fiscal year net cash provided
by investing activities was $13.9 million provided primarily by $35.5 million
in proceeds on the sale/leaseback transaction, net of a total of $21.6 million
for purchases of property and equipment, reconstruction of property, and
replacement of equipment destroyed by Hurricane Georges. In the prior year net
cash used in investing activities was $7.4 million comprised of $10.8 million
used for purchases of property and equipment, less proceeds on sales of
property and equipment of $3.4 million.
Net cash used in financing activities was approximately $ 0.3 million
in the first 28 weeks of both fiscal 2000 and 1999 and was used entirely for
payment on capital lease obligations.
Working capital increased during the first two quarters by $39.0
million to $40.6 million as of August 14, 1999 from $1.6 million as of January
30, 1999, producing an improved current ratio of 1.42:1 versus the 1.01:1
current ratio as of the beginning of this fiscal year. This occurred primarily
due to the sale and leaseback transaction detailed above.
Outstanding borrowings with a governmental agency of Puerto Rico from
the issuance of industrial revenue bonds were $10.0 million as of August 14,
1999. Management anticipates that the principal payments due in fiscal 2001
will be financed by operations.
The Company's management believes that the cash flows generated by its
normal business operations together with its available revolving credit
facility will be adequate for its liquidity and capital resource needs.
Impact of Inflation, Currency Fluctuations, and Market Risk
The inflation rate for food prices continues to be lower than the
overall increase in the U.S. Consumer Price Index. The Company's primary costs,
products and labor, usually increase with inflation. Increases in inventory
costs can typically be passed on to the customer. Other cost increases must be
recovered through operating efficiencies and improved gross margins. Currency
in Puerto Rico and the U.S. Virgin Islands is the U.S. dollar. As such, the
Company has no exposure to foreign currency fluctuations.
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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 fiscal 2001 of $10 million upon which the weighted average
interest rate was 4.21% and 4.43% at August 14, 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, which continue
as a result of the Refinancing Plan (including limitations on the Company's
ability to obtain additional financing and trade credit, to apply operating
cash flow for purposes in addition to debt service, to respond to price
competition in economic downturns and to dispose of assets pledged to secure
such indebtedness or to freely use proceeds of any such dispositions), the
Company's limited geographic markets and competitive conditions in the markets
in which the Company operates, buying patterns of consumers, and the outcome of
negotiations with insurers.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule.
(b) Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PUEBLO XTRA INTERNATIONAL, INC.
Dated: September 27, 1999 /s/ Daniel J. O'Leary
-----------------------------
Daniel J. O'Leary,
Executive Vice President
and Chief Financial Officer
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