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 quarterly period ended
September 28, 1996 Commission File Number 0-27050
-------
- ----- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
------------- ------------
PHAR-MOR, INC.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1466309
- ------------------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20 Federal Plaza West, Youngstown, Ohio 44501-0400
- -------------------------------------------- ----------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (330) 746-6641
---------------
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 whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES X No
-------- ------
As of October 11, 1996, 12,157,054 shares of the registrant's common
stock were outstanding .<PAGE>
<PAGE> 2
PHAR-MOR, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 28, 1996
I N D E X
Page
Part I: Financial Information
Condensed Consolidated Balance Sheets of the Successor
Company as of September 28, 1996 and June 29, 1996 3
Condensed Consolidated Statements of Operations of the
Successor Company for the Thirteen Weeks Ended
September 28, 1996 and the Four Weeks Ended
September 30, 1995 and the Predecessor Company for the
Nine Weeks Ended September 2, 1995 4
Condensed Consolidated Statements of Cash Flows of the
Successor Company for the Thirteen Weeks Ended
September 28, 1996 and the Four Weeks Ended
September 30, 1995 and the Predecessor Company for the
Nine Weeks Ended September 2, 1995 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II: Other Information
Exhibits and Reports on Form 8-K 12
<PAGE>
<PAGE> 3
<TABLE>
<CAPTION>
PHAR-MOR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
Successor Successor
Company Company
------------ -------------
September 28, June 29,
1996 1996
------------ -------------
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 96,990 $ 104,265
Accounts receivable - net 22,372 20,834
Merchandise inventories 168,551 152,904
Prepaid expenses and other current assets 5,475 5,572
------------ ------------
Total current assets 293,388 283,575
PROPERTY AND EQUIPMENT - NET 67,775 66,550
DEFERRED TAX ASSET 10,845 9,382
OTHER ASSETS 4,064 3,956
----------- -----------
Total assets $ 376,072 $ 363,463
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 67,006 $ 46,010
Related party accounts payable 7,721 7,751
Accrued expenses and other current liabilities 33,520 37,291
Reserve for costs of rightsizing program 3,029 3,451
Current portion of long-term debt
and capital lease obligations 8,074 8,922
------------ -----------
Total current liabilities 119,350 103,425
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 147,345 149,163
LONG-TERM SELF INSURANCE RESERVES 7,476 7,226
DEFERRED RENT AND UNFAVORABLE LEASE
LIABILITY - NET 11,528 11,081
------------ -----------
Total liabilities 285,699 270,895
------------ -----------
COMMITMENTS AND CONTINGENCIES
MINORITY INTERESTS 535 535
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock 122 122
Additional paid-in capital 89,385 89,385
Retained earnings 331 2,526
------------ ------------
Total stockholders' equity 89,838 92,033
------------ ------------
Total liabilities and stockholders' equity $ 376,072 $ 363,463
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.<PAGE>
<PAGE>4
<TABLE>
<CAPTION>
PHAR-MOR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Successor Successor Predecessor
Company Company Company
----------------- ------------------ ----------------
Thirteen Four Nine
Weeks Ended Weeks Ended Weeks Ended
September 28, 1996 September 30, 1995 September 2, 1995
------------------ ------------------ -----------------
<S> <C> <C> <C>
Sales $ 264,551 $ 72,877 | $ 181,968
|
Less: |
Cost of goods sold, including |
occupancy and distribution costs 219,091 58,843 | 147,124
Selling, general and administrative |
expenses 41,272 12,264 | 27,057
Depreciation and amortization 4,908 1,221 | 3,732
----------- --------- | ----------
Income (loss) from operations before |
interest expense, reorganization items, |
fresh-start revaluation, income taxes |
and extraordinary item (720) 549 | 4,055
|
Interest expense - net 2,939 403 | 5,689
----------- --------- | --------
|
Income (loss) before reorganization |
items, fresh-start revaluation, income |
taxes and extraordinary item (3,659) 146 | (1,634)
|
Reorganization items - - | (16,798)
Fresh-start revaluation - - | 8,043
----------- -------- | --------
|
Income (loss) before income taxes and |
extraordinary item (3,659) 146 | (10,389)
Income tax provision (benefit) (1,464) 58 | -
---------- -------- | --------
|
Income (loss) before extraordinary item (2,195) 88 | (10,389)
Extraordinary item - gain on debt |
discharge - - | 775,073
----------- --------- | ----------
Net income (loss) $ (2,195) $ 88 | $ 764,684
----------- --------- | ----------
----------- --------- | ----------
|
Net income (loss) per common share: |
Income (loss) before extraordinary item $ (.18) $ .01 | $ (.19)
Extraordinary item - - | 14.33
----------- --------- | ----------
Net income (loss) $ (.18) $ .01 | $ 14.14
----------- --------- | ----------
----------- --------- | ----------
|
Weighted average number of common shares |
outstanding 12,157,054 12,156,250 | 54,066,463
----------- ---------- | ----------
----------- ---------- | ----------
The accompanying notes are an integral part of these condensed
consolidated financial statements.
/TABLE
<PAGE>
<PAGE>5
<TABLE>
<CAPTION>
PHAR-MOR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Successor Successor Predecessor
Company Company Company
----------------- ------------------ ----------------
Thirteen Four Nine
Weeks Ended Weeks Ended Weeks Ended
September 28, 1996 September 30, 1995 September 2, 1995
------------------ ------------------ -----------------
<S> <C> <C> | <C>
OPERATING ACTIVITIES |
Net income (loss) $ (2,195) $ 88 | $ 764,684
Adjustments to reconcile net |
income (loss) to net cash provided by |
(used for) operating activities: |
Items not requiring the outlay of cash: |
Extraordinary gain on debt discharge - - | (775,073)
Fresh-start revaluation - - | (8,043)
Noncash charges included in |
reorganization items - - | 16,500
Depreciation 2,759 808 | 2,388
Amortization of video rental tapes 2,149 413 | 1,333
Amortization of deferred financing |
costs 93 55 | 73
Deferred income taxes (1,464) - | -
Deferred rent 447 (13) | (89)
Changes in assets and liabilities: |
Accounts receivable (1,538) (91) | 11,997
Merchandise inventories (15,539) (1,663) | (6,922)
Prepaid expenses 97 (162) | 2,441
Other assets (213) (60) | 449
Accounts payable and related party |
accounts payable 20,966 (3,174) | (8,865)
Accrued expenses and other current |
liabilities (3,521) (7,660) | 6,706
Reserve for costs of rightsizing |
program (422) (776) | 550
----------- ------------| -----------
Net cash provided by (used for) |
operating activities 1,619 (12,235) | 8,129
----------- ------------| -----------
|
INVESTING ACTIVITIES |
Additions to rental videotapes (2,245) (550) | (1,874)
Additions to property and equipment (3,983) (322) | (649)
Purchase of partnership interests - (145) | -
----------- ------------| -----------
Net cash used for investing activities (6,228) (1,017) | (2,523)
----------- ------------| -----------
|
FINANCING ACTIVITIES |
Principal payments on long-term debt (1,210) - | -
Principal payments on capital |
lease obligations (1,456) (433) | -
----------- ------------| -----------
Net cash used for financing activities (2,666) (433) | -
----------- ------------| -----------
|
REORGANIZATION ACTIVITIES |
Cash distribution pursuant to the plan |
of reorganization - - | (105,381)
Payment of reclamation claims - - | (23,961)
Decrease in all other liabilities |
subject to settlement under |
reorganization proceedings - - | (2,076)
Proceeds from the sale of new |
common stock - - | 9,500
Debtor-in-possession financing costs - - | (15)
----------- ------------| -----------
Net cash used for reorganization |
activities - - | (121,933)
----------- ------------| -----------
|
Decrease in cash and cash equivalents (7,275) (13,685) | (116,327)
Cash and cash equivalents, beginning |
of period 104,265 107,930 | 224,257
---------- ----------- | -----------
Cash and cash equivalents, end of period $ 96,990 $ 94,245 | $ 107,930
---------- ----------- | -----------
---------- ----------- | -----------
The accompanying notes are an integral part of these condensed
consolidated financial statements.
/TABLE
<PAGE>
<PAGE>6
PHAR-MOR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- ------------------------------------------------------------------------------
1. PROPOSED BUSINESS COMBINATION
Phar-Mor, Inc. (together with its subsidiaries, the "Company") entered
into an Agreement and Plan of Reorganization dated September 7, 1996 (as
amended and restated as of October 9, 1996) with ShopKo Stores, Inc.
("ShopKo"), a retailer specializing in prescription and vision benefit
management and health decision support services, to combine the
respective companies under Cabot Noble, Inc. ("Cabot Noble"), a newly
organized Delaware holding company (the "Proposed Transaction"). Under
the terms of the Proposed Transaction, each issued and outstanding share
of the Company's common stock will be exchanged for one share of Cabot
Noble common stock. Each issued and outstanding share of ShopKo common
stock will be exchanged for 2.4 shares of Cabot Noble common stock,
subject to adjustment in the event the value of the exchange
consideration falls outside a range between $17.25 and $18.00 (based on
the average daily closing sale prices of the Company's common stock over
a specified 30 day period).
In connection with the Proposed Transaction, SUPERVALU INC.
("SuperValu"), which currently owns approximately 46% of the issued and
outstanding shares of ShopKo common stock, has entered into an Amended
and Restated Stock Purchase Agreement (the "Stock Purchase Agreement")
with Cabot Noble whereby SuperValu has agreed to sell 90% of the Cabot
Noble shares it receives in the Proposed Transaction to Cabot Noble
immediately after the Proposed Transaction is completed at $16.86 per
share of ShopKo common stock held by SuperValu prior to the Proposed
Transaction. The Stock Purchase Agreement provides that SuperValu will
receive a combination of cash and a short-term note at closing.
Consummation of the Reorganization is subject to certain conditions,
including (a) receipt of financing of at least $75,000 (as of November 8,
1996, no financing commitment had been obtained), (b) approval by
shareholders of ShopKo and the Company, (c) receipt of necessary
regulatory approvals, and (d) other conditions to closing customary in
transactions of this type.
Completion of the Proposed Transaction may result in the reduction of
available net operating loss carryforwards.
Reference should be made to the Cabot Noble's Registration Statement on
Form S-4 (SEC Registration No. 333-14051) for additional disclosures and
pro forma financial information relating to the Proposed Transaction.
2. BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information. They do not
include all information and footnotes which would be required by
generally accepted accounting principles for complete financial<PAGE>
<PAGE>7
statements. In the opinion of management of the Company, these interim
financial statements contain all adjustments considered necessary for a
fair presentation of financial position, results of operations and cash
flows for the periods presented. Reference should be made to the
Company's Annual Report on Form 10-K for the fiscal year ended June 29,
1996 for additional disclosures, including a summary of the Company's
accounting policies, which have not changed. Operating results for the
thirteen weeks ended September 28, 1996 are not necessarily indicative of
the results that may be expected for the fifty-two weeks ending June 28,
1997.
3. REORGANIZATION
On August 17, 1992, the Company filed petitions for relief under Chapter
11 of the United States Bankruptcy Code ("Chapter 11"). From that time
until September 11, 1995, the Company operated its business as a
debtor-in-possession subject to the jurisdiction of the United States
Bankruptcy Court for the Northern District of Ohio (the "Bankruptcy
Court"). On September 11, 1995 (the "Effective Date"), the Company
emerged from reorganization proceedings under Chapter 11 pursuant to the
confirmation order entered on August 29, 1995 by the Bankruptcy Court
confirming the Third Amended Joint Plan of Reorganization dated May 25,
1995 (the "Joint Plan").
The consolidated financial statements of the Company during the
bankruptcy proceedings (the "Predecessor Company financial statements")
are presented in accordance with American Institute of Certified Public
Accountants Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization under the Bankruptcy Code" ("SOP 90-7"). Pursuant to
guidance provided by SOP 90-7, the Company adopted fresh-start reporting
as of September 2, 1995, the closest fiscal month end to the Effective
Date. Under fresh-start reporting, a new reporting entity is deemed to
be created and the recorded amounts of assets and liabilities were
adjusted to reflect their estimated fair values at the Effective Date
(hereinafter, the term "Predecessor Company" refers to the Company prior
to September 2, 1995 and the "Successor Company" refers to the Company
from and after September 2, 1995). A black line has been drawn to
separate the Successor Company financial statements from the Predecessor
Company financial statements because the respective financial statements
are those of different reporting entities which have not been prepared on
a comparable basis.
The Joint Plan provided for, among other things, settlement of all
liabilities subject to settlement under reorganization proceedings in
exchange for cash, new debt, 12,156,250 shares of common stock, warrants
to purchase 1,250,000 shares of common stock and an interest in a limited
liability company ("LLC") which was established pursuant to the Joint
Plan. The Company's cause of action against its former auditor and
certain other causes of action were assigned to such LLC. The
Predecessor Company's creditors and former shareholders are the
beneficiaries of the LLC.
<PAGE>
<PAGE> 8
<TABLE>
<CAPTION>
The net cash disbursements upon the effectiveness of the Joint Plan were
comprised as follows:
<S> <C>
Payment to the holders of claims
under the prepetition credit agreement
and prepetition senior secured notes $ 103,708
Payment to fund litigation of LLC
causes of action 400
Payment of origination costs for revolving
credit facility for the Successor Company 1,273
-----------
105,381
Receipt of net proceeds from the sale of
new common stock (9,500)
-----------
$ 95,881
-----------
-----------
</TABLE>
The value of cash, notes and securities required to be distributed under
the Joint Plan was less than the value of the allowed claims on and
interests in the Predecessor Company; accordingly, the Predecessor
Company recorded an extraordinary gain of $775,073 related to the
discharge of prepetition liabilities in the period ended September 2,
1995.
4. RECLASSIFICATIONS
Certain reclassifications have been made to prior year financial
statements to conform with current year presentation.
5. RECENT ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 123, "Accounting
for Stock-Based Compensation." This statement is effective beginning in
fiscal 1997. The new standard defines a fair value method of accounting
for stock options and similar equity instruments. Pursuant to the new
standard, companies are encouraged, but not required, to adopt the fair
value method of accounting for employee stock-based transactions.
Companies are permitted to continue to account for such transactions
under Accounting Principles Board Opinion ("APBO") No. 25, "Accounting
for Stock Issued to Employees," but would be required to disclose in a
note to the financial statements pro forma net income and earnings per
share as if the Company had applied the new method of accounting. In the
first quarter, the Company elected not to adopt the fair value method of
accounting for employee stock-based transactions and will continue to
account for such transactions under the provisions of APBO No. 25.
<PAGE>
<PAGE> 9
6. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
The following unaudited pro forma statement of operations presents the
results of operations of the Predecessor Company during the pendency of
the Chapter 11 case for the nine weeks ended September 2, 1995, as
adjusted to reflect the implementation of fresh-start reporting, the
elimination of the effects of nonrecurring transactions resulting from
the reorganization and certain payments to creditors pursuant to the
Joint Plan. This information should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results
of Operations.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Thirteen weeks ended September 30, 1995
(In thousands, except per share data)
Successor Predecessor
--------- ----------- Pro Forma
Four Weeks Nine Weeks Thirteen
Ended Ended Pro Forma Adjustments Weeks Ended
September 30, September 2, Per Note September 30,
1995 1995 (1) (2) 1995
------------- ------------ -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Sales $ 72,877 |$ 181,968 - - $ 254,845
|
Less: |
Cost of goods sold, |
including occupancy |
and distribution costs 58,843 | 147,124 $ (101) - 205,866
Selling, general and |
administrative expenses 12,264 | 27,057 - - 39,321
Depreciation and |
amortization 1,221| 3,732 - $ (304)(a) 4,649
-----------| ----------- ------- ------------ ------------
|
Income from operations |
before interest expense, |
reorganization items, |
fresh-start revaluation, |
income taxes and |
extraordinary item 549| 4,055 101 304 5,009
|
Interest expense - net 403| 5,689 164 (2,731)(b) 3,525
-----------| ----------- ------ ---------- ----------
|
Income (loss) before |
reorganization items, |
fresh-start revaluation, |
income taxes and |
extraordinary item 146| (1,634) (63) 3,035 1,484
|
Reorganization items -| (16,798) - 16,798 (c) -
Fresh-start revaluation -| 8,043 - (8,043)(c) -
-----------| ------------ ------- ---------- ---------
|
Income (loss) before income |
taxes and extraordinary item 146| (10,389) (63) 11,790 1,484
|
Income tax provision 58| - - 536 (d) 594
-----------| ------------ ------ ---------- ----------
|
Income (loss) before |
extraordinary item 88| (10,389) (63) 11,254 890
|
Extraordinary item - |
gain on debt discharge -| 775,073 - (775,073)(c) -
-----------| ----------- ------ ------------ ----------
|
Net income $ 88|$ 764,684 $ (63) $(763,819) $ 890
-----------| ----------- ------- ------------- ----------
-----------| ----------- ------- ------------- ----------
|
Net income per common share $ 0.07
----------
----------
The pro forma reporting adjustments:
(1) Adjust for the rent credit and additional interest expense from
the amortization of the "unfavorable lease liability"; and
(2) Adjust for the effect of the Joint Plan as if it had been
effective as of the beginning of the period. This includes
adjustments to:
(a) Reduce historical depreciation to reflect the
adjustment to property and equipment values in accordance
with fresh-start reporting.
(b) Reverse historical interest expense and record
interest expense on the debt incurred in connection with
the Joint Plan.
(c) Eliminate the effects of nonrecurring
reorganization items, fresh-start revaluation and gain on
debt discharge due to the emergence from the Chapter 11
case.
(d) Record estimated income tax provision at an
effective rate of 40% based on a statutory federal tax rate
of 35% and a combined state and local tax rate, net of
federal tax benefits, of 5%.
Pro forma earnings per share are calculated based on weighted average shares of
common stock outstanding of 12,156,250.
/TABLE
<PAGE>
<PAGE> 10
PHAR-MOR, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
The Company adopted the principles of fresh-start reporting as of the
Effective Date to reflect the impact of the Chapter 11 reorganization.
As a result of the application of fresh-start reporting, the financial
condition and results of operations of the Company for dates and periods
subsequent to the Effective Date will not necessarily be comparable to those
prior to the Effective Date.
The Company's results of operations and financial condition reflect the impact
of the recapitalization effected pursuant to the Joint Plan and the
consolidation of operations following August 17, 1992 (the "Petition Date").
The Company has significantly restructured its debt obligations. The Company
has converted approximately $855 million of debt obligations to equity,
obtained a $9.5 million net cash equity infusion, and entered into the
Revolving Credit Facility. See "Financial Condition and Liquidity" below.
In addition, since August 1992, the Company has put in place a series of
programs that are designed to reduce its expense structure and improve its
operations. These programs resulted in the closing of 209 stores and three
warehouses, the elimination of 75% of corporate level staff positions and the
implementation of three major information system improvements.
Management believes that the recapitalization and the specific steps taken to
streamline the Company's business operations since the Petition Date yielded
an improvement in the operating and financial profile of the Company. The
restructuring of the Company's debt obligations reduced interest expense and
increased financial flexibility. As a result of this consolidation program,
the Company has reduced the fixed cost elements of cost of sales and selling,
general and administrative expenses partially offset by declines in sales and
gross margin dollars.
Although there can be no assurance, management believes that the Company now
is in a position to enhance future profitability as economic and competitive
conditions improve in its markets. Management also believes that additional
gains may be realized through further reduction of expenses and refinement of
the Company's business operations.
The Company entered into an Agreement and Plan of Reorganization with ShopKo
dated September 7, 1996 (as amended and restated as of October 9, 1996)
concerning the Proposed Transaction. See "NOTE 1-Proposed Business
Combination of Notes to Condensed Consolidated Financial Statements."
<PAGE>
<PAGE> 11
RESULTS OF OPERATIONS (ALL DOLLAR AMOUNTS IN THOUSANDS)
THIRTEEN WEEKS ENDED SEPTEMBER 28, 1996 VERSUS
PRO FORMA THIRTEEN WEEKS ENDED SEPTEMBER 30, 1995
To facilitate a meaningful comparison of the Company's fiscal 1997 and 1996
operating performance, the following discussions of results of operations on a
consolidated basis are presented using the Unaudited Pro Forma Consolidated
Statement of Operations (see Note 6 of Notes to Condensed Consolidated
Financial Statements). Consequently, the information presented below does not
reflect the thirteen weeks ended September 30, 1995 as it is presented in the
Condensed Consolidated Statements of Operations.
Sales for the first quarter of fiscal 1997, which included 102 comparable
stores in both years, increased 3.8% compared to the first quarter of fiscal
1996 primarily due to the Company's new marketing approach, which was launched
January 14, 1996. The new marketing approach included price reductions on
over 3,000 items and the consequent reduction of gross profit margins, and was
implemented in order to increase sales volume. At the same time the Company
adopted an "everyday low price" strategy on substantially all products and
increased advertising by expanding the size of circulars.
Cost of sales as a percentage of sales was 82.8% in fiscal 1997 compared to
80.8% in fiscal 1996, a 2.0% increase. This increase is primarily due to
lower product margins resulting from the Company's new everyday low price
marketing plan.
Selling, general and administrative expenses as a percentage of sales was
15.6% in fiscal 1997 compared to 15.4% in fiscal 1996. This increase is
primarily due to increased advertising associated with the Company's new
marketing plan.
Depreciation and amortization expense was $4,908 in fiscal 1997 compared to
$4,649 in fiscal 1996, an increase of $259. The increase is the result of
depreciation on capital expenditures made since the first quarter of fiscal
1996.
There was net interest expense of $2,939 in fiscal 1997 compared to net
interest expense of $3,525 in fiscal 1996, a $586 decrease. The decrease in
interest expense is primarily due to an increase in interest income in fiscal
1997. The pro forma fiscal 1996 results assumed the Company would not have
earned any interest income prior to its emergence from bankruptcy in
September, 1995.
FINANCIAL CONDITION AND LIQUIDITY (all dollar amounts in thousands)
The Company's cash position as of September 28, 1996 was $96,990. The
Company's cash position may fluctuate as a result of seasonal merchandise
purchases and timing of payments.
Pursuant to the Joint Plan, which was effective on September 11, 1995, the
Company and its lenders agreed to a restructuring of the Company's
obligations. <PAGE>
<PAGE> 12
On September 11, 1995, the Company entered into the Revolving Credit Facility
(the "Facility") with BankAmerica Business Credit, Inc. ("BABC"), as agent,
and other financial institutions (collectively, the "Lenders"), that
established a credit facility in the maximum amount of $100,000.
Borrowings under the Facility may be used for working capital needs and
general corporate purposes. Up to $50,000 of the Facility at any time may be
used for standby and documentary letters of credit. The Facility includes
restrictions on, among other things, additional debt, capital expenditures,
investments, dividends and other distributions, mergers and acquisitions, and
contains covenants requiring the Company to meet a specified quarterly minimum
EBITDA Coverage Ratio (the sum of earnings before interest, taxes,
depreciation and amortization, as defined, divided by interest expense),
calculated on a rolling four quarter basis, and a monthly minimum net worth
test. As of the date hereof, the Company is in compliance with all such
financial covenants.
Credit availability under the Facility at any time is the lesser of the
Aggregate Availability (as defined in the Facility) or $100,000. The Facility
establishes a first priority lien and security interest in the current assets
of the Company, including, among other items, cash, accounts receivable and
inventory. Advances made under the Facility bear interest at the BankAmerica
reference rate plus 1/2% or, at the option of the Company, the London
Interbank Offered Rate ("LIBOR") plus the applicable margin (as defined in the
Facility), which ranges between 1.50% and 2.00%. Under the terms of the
Facility, the Company is required to pay a commitment fee of 0.28125% per
annum on the unused portion of the Facility, letter of credit fees and certain
other fees. As of September 28, 1996, there were outstanding under the
Facility letters of credit totaling $5,384. The Facility expires on August
30, 1998.
THIRTEEN WEEKS ENDED SEPTEMBER 28, 1996
During the thirteen weeks ended September 28, 1996, the Company's cash
position decreased by $7,275. Net cash provided from operating activities was
$1,619. The major sources of cash from operating activities were
depreciation and amortization of $4,908 and an increase in accounts payable of
$20,966 which were partially offset by a net loss of $2,195, an increase in
merchandise inventories of $15,539 and a decrease in accrued expenses and
other current liabilities of $3,521.
Capital expenditures of $3,983 and additions to video rental tapes of $2,245
were paid for with funds from operations and the Company's excess cash
position.
Net cash used for financing activities of $2,666 consists of principal
payments on lease obligations of $1,456 and principal payments on term debt of
$1,210.
<PAGE>
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(none)
(b) Reports on Form 8-K
The following reports on Form 8-K were filed with the Securities
and Exchange Commission during the quarter ended September 28,
1996:
Date of Report Date of Filing Description
-------------- -------------- -----------
September 7, 1996 September 10, 1996 Agreement and Plan of
Reorganization by and among the
Company, ShopKo Stores, Inc.
and Cabot Noble, Inc. (amended
on Form 8-K dated October 11,
1996 and filed October 16,
1996).
<PAGE>
<PAGE> 14
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.
PHAR-MOR, INC.
Date: November 12, 1996 By: /s/ M.David Schwartz
------------------------------
M. David Schwartz
President and Chief Operating
Officer
Date: November 12, 1996 By: /s/ Daniel J. O'Leary
--------------------------------
Daniel J. O'Leary
Senior Vice President and
Chief Financial Officer
Date: November 12, 1996 By: /s/ John R. Ficarro
---------------------------------
John R. Ficarro
Senior Vice President, Secretary
and General Counsel
