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 18, 1996
[ ] 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
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(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
1300 N.W. 22nd Street
Pompano Beach, Florida 33069
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (954) 977-2500
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 [ ]
Number of shares of the Registrant's Common Stock, $ .10 par value,
outstanding as of June 24, 1996 -- 200.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAGE(S)
-------
Consolidated Balance Sheets (Unaudited) -
May 18, 1996 and January 27, 1996...........................3-4
Consolidated Statements of Operations (Unaudited) -
Sixteen weeks ended May 18, 1996 and May 20, 1995.............5
Consolidated Statements of Cash Flows (Unaudited) -
Sixteen weeks ended May 18, 1996 and May 20, 1995.............6
Notes to Consolidated Financial Statements (Unaudited) .....................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................8-11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................12
CONSOLIDATED BALANCE SHEETS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
(UNAUDITED)
MAY 18, JANUARY 27,
1996 1996
---------------- ---------------
ASSETS
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CURRENT ASSETS
Cash and cash equivalents $ 36 $ 6,998
Marketable securities (market value of $1,040 at May 18,
1996 and $888 at January 27, 1996) 1,040 888
Accounts receivable 7,384 10,071
Inventories 65,340 67,237
Assets held for sale 14,500 26,000
Prepaid expenses 18,380 10,670
Deferred income taxes 11,477 9,215
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TOTAL CURRENT ASSETS 118,157 131,079
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PROPERTY AND EQUIPMENT
Land and improvements 18,116 18,116
Buildings and improvements 61,039 60,766
Furniture, fixtures and equipment 96,176 95,591
Leasehold improvements 32,165 31,617
Construction in progress 4,278 4,139
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211,774 210,229
Less accumulated depreciation and amortization 62,651 55,505
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149,123 154,724
Property under capital leases, net 11,176 11,559
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TOTAL PROPERTY AND EQUIPMENT, NET 160,299 166,283
GOODWILL, net of accumulated amortization of $14,629 at
May 18, 1996 and $13,018 at January 27, 1996 187,089 188,700
DEFERRED INCOME TAXES 7,768 10,272
TRADENAMES 32,169 32,436
DEFERRED CHARGES AND OTHER ASSETS 43,421 44,613
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TOTAL ASSETS $ 548,903 $ 573,383
================ ===============
The accompanying notes are an integral part of these financial statements.
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CONSOLIDATED BALANCE SHEETS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
MAY 18, JANUARY 27,
1996 1996
---------------- ---------------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 50,329 $ 65,112
Accrued expenses 40,168 52,610
Salaries, wages and benefits payable 12,112 14,315
Short-term borrowing 13,700 -
Current installments of long-term debt 24,877 29,214
Current obligations under capital leases 905 859
Income taxes payable 121 94
---------------- ---------------
TOTAL CURRENT LIABILITIES 142,212 162,204
LONG-TERM DEBT, net of current portion 86,789 89,477
NOTES PAYABLE 180,000 180,000
CAPITAL LEASE OBLIGATIONS, net of current portion 8,645 8,947
RESERVE FOR SELF-INSURANCE CLAIMS 11,549 12,862
DEFERRED INCOME TAXES 34,040 35,335
OTHER LIABILITIES AND DEFERRED CREDITS 38,789 39,659
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TOTAL LIABILITIES 502,024 528,484
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COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDER'S EQUITY
Common stock, $.10 par value; 200 shares authorized and
issued - -
Additional paid-in capital 91,500 86,500
Accumulated deficit (44,621) (41,601)
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TOTAL STOCKHOLDER'S EQUITY 46,879 44,899
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TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 548,903 $ 573,383
================ ===============
The accompanying notes are an integral part of these financial statements.
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CONSOLIDATED STATEMENTS OF OPERATIONS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
(UNAUDITED)
16 WEEKS 16 WEEKS
ENDED ENDED
MAY 18, MAY 20,
1996 1995
---------------- ---------------
Net sales $ 310,368 $ 352,033
Cost of goods sold 230,301 258,893
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GROSS PROFIT 80,067 93,140
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OPERATING EXPENSES
Selling, general and administrative expenses 62,291 72,451
Depreciation and amortization 12,003 13,323
---------------- ---------------
OPERATING PROFIT 5,773 7,366
Sundry, net (43) (7)
---------------- ---------------
INCOME BEFORE INTEREST AND INCOME TAXES 5,730 7,359
Interest expense on debt (9,096) (9,643)
Interest expense on capital lease obligations (356) (744)
Interest and investment income, net 51 445
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LOSS BEFORE INCOME TAXES (3,671) (2,583)
Income tax benefit 651 645
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NET LOSS $ (3,020) $ (1,938)
================ ===============
The accompanying notes are an integral part of these financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
(UNAUDITED)
16 Weeks 16 Weeks
Ended Ended
May 18, May 20,
1996 1995
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,020) $ (1,938)
Adjustments to reconcile net loss to net cash used in operating
activities, net of effects of disposal of Florida retail operations:
Depreciation and amortization of property and equipment 7,633 9,088
Amortization of intangible and other assets 4,370 4,235
Deferred income taxes (1,053) (1,063)
Loss on disposal of property and equipment, net 90 110
Decrease in deferred charges, goodwill and other assets 493 878
Decrease in reserve for self-insurance claims (322) (132)
Increase (decrease) in other liabilities and deferred credits (613) 288
Changes in operating assets and liabilities:
Decrease in accounts receivable 1,537 663
Decrease in inventories 1,231 2,472
Increase in prepaid expenses (7,930) (8,396)
Decrease in accounts payable and accrued expenses (16,101) (8,142)
Increase in income taxes payable 246 -
---------------- -------------
(13,439) (1,937)
Decrease attributable to disposal of Florida retail operations (14,647) -
---------------- -------------
Net cash used in operating activities (28,086) (1,937)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,796) (3,070)
Proceeds from disposal of property and equipment 1 153
Proceeds from disposal of Florida retail operations 11,500 -
---------------- -------------
Net cash provided by (used in) investing activities 9,705 (2,917)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (7,025) (3,018)
Principal payments on capital lease obligations (256) (400)
Proceeds from short-term borrowing, net 13,700 -
Proceeds from capital contribution 5,000 -
---------------- -------------
Net cash provided by (used in) financing activities 11,419 (3,418)
---------------- -------------
Net decrease in cash and cash equivalents (6,962) (8,272)
Cash and cash equivalents at beginning of period 6,998 15,680
---------------- -------------
Cash and cash equivalents at end of period $ 36 $ 7,408
================ =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 11,138 $ 12,951
Income taxes (net of refunds) 144 497
The accompanying notes are an integral part of these financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(UNAUDITED)
NOTE 1 -- INTERIM FINANCIAL STATEMENTS
With respect to the unaudited financial information for each of the 16
weeks ended May 18, 1996 and May 20, 1995, 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, or as a result of the strategic measures
implemented by the Company described in Note (2)--Unusual Charges or the
business combination described in Note (3)--Acquisitions of the audited
consolidated financial statements contained in the Company's Form 10-K for the
fiscal year ended January 27, 1996 filed with the Securities and Exchange
Commission (hereinafter referred to as the "Form 10-K"). The unaudited financial
information should be read in conjunction with the Company's Form 10-K. The
consolidated balance sheet at January 27, 1996 included herein has been derived
from the audited consolidated financial statements at that date but does not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
Operating results for the 16-week periods ended May 18, 1996 and May
20, 1995 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.
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 -- DEBT
During April 1996, the Company amended the credit facility consisting
of $115.0 million in term loans and a maximum of $60.0 million in revolving
loans (the "Credit Facility") with a syndicate of banks led by The Chase
Manhattan Bank (National Association) and Scotiabank de Puerto Rico. In
accordance with the terms of the amendment, the sole shareholder of the Company,
PXC&M Holdings, Inc. ("Holdings"), contributed $5.0 million in additional
capital to the Company on April 18, 1996 which was immediately used to reduce
the Company's term loans under the Credit Facility. In addition, in connection
with the amendment of the Credit Facility, Holdings has agreed to provide $10.0
million in additional funds to the Company by October 18, 1996 in return for
interest-bearing redeemable subordinated notes bearing interest at a rate not to
exceed that of the Credit Facility, plus 1%. Final maturity of such subordinated
notes will be after the expiration of the Credit Facility and may be redeemed
earlier subject to the Company meeting various performance and financial
criteria. Pursuant to the amendment, the Company may maintain the level of its
$60.0 million revolving facility during the remaining term of the credit
agreement, under certain circumstances. The amendment also provides certain
revised financial covenant requirements and a modification in the Company's
scheduled principal payments of the Credit Facility during the next two fiscal
years.
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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.
SIXTEEN WEEKS SIXTEEN WEEKS
ENDED ENDED
MAY 18, 1996 MAY 20, 1995
------------------- -------------------
SELECTED OPERATING RESULTS
(AS A PERCENTAGE OF SALES)
Gross profit 25.8% 26.5%
Selling, general and
administrative expenses 20.1 20.6
EBITDA (1) 5.7 5.9
Depreciation and amortization 3.9 3.8
Operating profit 1.9 2.1
Loss before income taxes (1.2) (0.7)
Net loss (1.0) (0.6)
- - -----------
(1) Represents income before interest, income taxes and depreciation
and amortization. EBITDA, as 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
The Company operated 52 supermarkets and 22 BLOCKBUSTER video stores
throughout Puerto Rico and the U.S. Virgin Islands as of May 18, 1996 as
compared to 56 supermarkets and 22 BLOCKBUSTER video stores in Puerto Rico,
Florida and the U.S. Virgin Islands at May 20, 1995. Since the end of the
comparable quarter of the prior year, the Company has closed all eight XTRA
stores in Florida as part of its restructuring measures, which included closing
the Florida operating division, and has also opened three new XTRA stores in
Puerto Rico and one new PUEBLO store in the U.S. Virgin Islands. There were no
new store openings during the 16 weeks ended May 18, 1996.
Pursuant to the strategic restructuring measures implemented by
management during the fourth quarter of fiscal 1996 and discussed in detail in
the Company's Form 10-K in Part II, Item 7 thereto, and in Note (2)-- Unusual
Charges of the notes to the Company's consolidated financial statements
referenced in Part II, Item 8 thereto, the Company has completed the closing of
all of its stores in Florida; the last XTRA store was closed on April 30, 1996.
Management continues to believe that its decision to exit the underperforming
Florida retail market will contribute toward improvements in future consolidated
operating results.
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Net sales for the 16-week period ended May 18, 1996 decreased by $41.7
million, or 11.8%, in comparison to the same period last year. A major factor
for this reduction was the closing of the Florida retail operations. Same store
sales for the 16-week period decreased by 1.5%. The reduction in comparable
store sales was attributable to the supermarket operations in Puerto Rico. The
U.S. Virgin Islands supermarket operations and the Blockbuster video store
operations produced favorable sales results. The effects of competition on the
island continue to impact sales in Puerto Rico. The improvement in sales
performance in the U.S. Virgin Islands began in the fourth quarter of fiscal
1996 and is expected by management to continue in the future.
As part of certain strategic measures implemented by the Company in
Puerto Rico, the Company launched a major advertising campaign during this
quarter designed to reemphasize the differences between the store formats
offered to customers. Stores operating under the XTRA format, which are
typically larger and stress everyday low prices, usually appeal to the more
price-conscious families. Stores operating under the PUEBLO format are
conventional supermarkets with an emphasis on high quality products, service
and selection and tend to attract a different consumer group than would an
XTRA store.
Gross profit margin, as a percentage of sales, was 25.8% and 26.5% for
the 16 weeks ended May 18, 1996 and May 20, 1995, respectively. The decrease in
gross margin for the 16-week period compared to the prior year was primarily a
result of an increase in retail shrink as well as unfavorable margin in the meat
department.
The favorable reduction in selling, general and administrative expenses
was experienced in both direct store selling expenses as well as general and
administrative expenses. The decrease in selling expenses principally occurred
as a result of improved labor costs partially offset by higher advertising and
promotion expenses. General and administrative expenses decreased on a constant
dollar basis and as a percentage of sales primarily due to reduced labor costs.
The $1.3 million decrease in depreciation and amortization was
primarily due to the closing of the Florida retail operations effective December
30, 1995 (the "Florida Closing") which included the reclassification of its
related depreciable assets to a non-depreciable category, assets held for sale.
Interest expense, net of interest and investment income, decreased by
$0.5 million principally due to lower interest expense on capital lease
obligations largely caused by the Florida Closing.
The income tax benefit for the 16 weeks ended May 18, 1996 was
relatively comparable to that of the same period of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Company operations have historically provided a sufficient cash flow
which, along with the available credit facility, provides adequate liquidity to
the Company.
Net cash used in operating activities increased from $1.9 million for
the prior year comparable quarter to $28.1 million for the 16-week period ended
May 18, 1996. The increase of $26.2 million was due to cash outlays associated
with the closing of the Florida retail operations combined with changes in
working capital as a result of timing of receipts and disbursements.
The working capital deficit decreased $7.0 million for the 16-week
period ended May 18, 1996 from a deficit of $31.1 million at January 27, 1996 to
a deficit of $24.1 million at May 18, 1996. Primary factors contributing to this
decrease in the working capital deficit were the payment of certain obligations
relating to
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the closing of retail operations in Florida financed, in part, by the sale of
certain assets in the Florida operating division as well as the timing of
certain receipts and disbursements.
Net cash provided by (used in) investing activities was $9.7 million
and $(2.9) million for the 16 weeks ended May 18, 1996 and May 20, 1995,
respectively. The majority of this $12.6 million increase pertains to proceeds
received during the current quarter for the sale of two XTRA stores in Florida.
The monies expended for the capital program were related to remodeling of
certain existing locations.
Of the $60.0 million revolving facility, $22.7 million was outstanding
($14.0 million of which were Section 936 funds) and $24.8 million was utilized
in the form of standby letters of credit, with $12.5 million available to the
Company at May 18, 1996. The Company classified as noncurrent $9.0 million under
the revolving credit facility as a result of its intent to maintain this
obligation on a long-term basis. The Credit Facility matures on July 31, 2000.
The term loans of the Credit Facility are reduced over the term of the facility
on a graduated basis in accordance with the credit agreement. Included in the
$101.7 million outstanding under the Credit Facility, consisting of $79.0
million in term loans and $22.7 million in revolving loans, as of May 18, 1996
are scheduled principal payments aggregating $18.7 million due under the term
loans of the Credit Facility in the succeeding 12-month period. To the extent
that cash flows from operations are less than the cash requirements of the
Company in the near term, it may be necessary to borrow additional amounts under
the revolving credit facility.
Net cash provided by (used in) financing activities was $11.4 million
and $(3.4) million for the 16 weeks ended May 18, 1996 and May 20, 1995,
respectively. During the current quarter, the Company amended its credit
agreement with its bank syndicate (the "Amendment"). In accordance with the
terms of the Amendment, additional capital of $5.0 million was contributed by
Holdings, the sole shareholder of the Company, on April 18, 1996 with the
proceeds thereof used to reduce the Company's term loans under the Credit
Facility. In addition, the Company had net borrowings under the revolving
facility of the Credit Facility of $13.7 million principally resulting from
timing of receipts and disbursements, in part due to the closing of the Florida
retail operations.
In connection with the Amendment, which was executed in April 1996,
Holdings has agreed to lend the Company $10.0 million in return for the issuance
of interest-bearing redeemable subordinated notes (the "Subordinated Notes") by
October 18, 1996 with the proceeds therefrom to be used to reduce the Company's
term loans under the Credit Facility. The Subordinated Notes will bear interest
at a rate not in excess of 1.0% above that of the Credit Facility and will
mature after the expiration of the Credit Facility although the Subordinated
Notes may be redeemed earlier subject to the Company meeting various performance
and financial criteria. Pursuant to the Amendment, the Company may maintain the
level of its $60.0 million revolving facility during the remaining term of the
credit agreement, under certain circumstances. In addition, the Amendment
provides certain revised financial covenant requirements and adjustments to the
Company's scheduled principal payments of the Credit Facility during the next
two fiscal years.
The Company expects to continue to realize significant losses in the
future, much of which pertains to depreciation and amortization and interest
expense related to the July 1993 transaction described in Note (3)--Acquisitions
to the Company's Form 10-K; therefore, it anticipates that it will continue to
have an accumulated earnings deficit that will increase in the foreseeable
future. The Company's future results of operations will be affected by its
ability to react to changes in the competitive environment. However, management
believes that competition and the accumulated earnings deficit will not
significantly affect its ability to fund its liquidity and capital needs.
The Company believes that it will be able to meet its current and
long-term liquidity and capital requirements through the cash flows generated by
its normal business operations and its available revolving
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credit facility.
FORWARD LOOKING STATEMENTS
The foregoing statements regarding the Company's anticipation of
improvements in sales performance in the U.S. Virgin Islands, the expected
contribution toward improvements in future consolidated operating results
arising from the Company's exit from the Florida retail market, the Company's
belief that its current and long-term capital needs will be adequately provided
through the cash flows generated by its normal business operations and its
available revolving credit facility, the Company's expectation that it will
continue to have an accumulated earnings deficit and the Company's belief that
competition and the accumulated earnings deficit will not significantly affect
its ability to fund its liquidity and capital needs are 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,
which represent the Company's expectations and beliefs concerning future events.
The Company cautions that its discussion of these matters is further qualified
by important factors that could cause actual results to differ materially from
those in the forward looking statements, including but not limited to
competitive conditions in the markets in which the Company operates, buying
patterns of consumers and the prospective outcome of litigation as discussed in
Item 3, Legal Proceedings, in the Company's Form 10-K.
-11-
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
-12-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PUEBLO XTRA INTERNATIONAL, INC.
Dated: June 24, 1996 /s/ JEFFREY P. FREIMARK
--------------------------
Jeffrey P. Freimark
Executive Vice President
and Chief Financial Officer
/s/ MARC P. APPLEBAUM
--------------------------
Marc P. Applebaum
Senior Vice President,
Finance and Control
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