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 April 1, 2000 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
----- -----
On April 13, 2000, there were 12,240,865 shares of the registrant's common stock
outstanding before deducting 1,207,979 shares which represent the Company's
25.2% equity interest in common stock of the Company owned by Avatex, Inc.
<PAGE>2
PHAR-MOR, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED APRIL 1, 2000
I N D E X
Page
- --------------------------------------------------------------------------------
Part I: Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of April 1,
2000 and July 3, 1999 3
Condensed Consolidated Statements of Operations for the
Thirteen Weeks Ended April 1, 2000 and March 27, 1999 4
Condensed Consolidated Statements of Operations for the
Thirty-nine Weeks Ended April 1, 2000 and March 27, 1999 5
Condensed Consolidated Statements of Cash Flows for the
Thirty-nine Weeks Ended April 1, 2000 and March 27, 1999 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II: Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit Index 15
<PAGE>3
<TABLE>
<CAPTION>
PHAR-MOR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS (Unaudited)
April 1, July 3,
2000 1999
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 15,593 $ 17,346
Marketable securities -- 3,254
Accounts receivable - net 27,962 28,293
Merchandise inventories 216,772 218,945
Prepaid expenses and other current assets 6,679 7,418
------- -------
Total current assets 267,006 275,256
Property and equipment - net 92,757 93,738
Goodwill 15,761 16,234
Deferred tax asset 7,734 9,049
Investments 25,341 8,314
Investment in Avatex 4,084 --
Other assets 4,530 5,133
------- -------
Total assets $ 417,213 $ 407,724
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 98,511 $ 119,843
Accrued expenses and other current liabilities 39,369 37,104
Current portion of long-term debt and capital lease
obligations 6,559 8,946
------- -------
Total current liabilities 144,439 165,893
Long-term debt and capital lease obligations 173,536 142,947
Long-term self insurance reserves 8,047 8,032
Deferred rent and unfavorable lease liability - net 10,587 11,073
------- -------
Total liabilities 336,609 327,945
------- -------
Commitments and contingencies -- --
Minority interests 535 535
------- -------
Stockholders' equity:
Preferred stock -- --
Common stock 122 122
Additional paid-in capital 90,007 90,007
Stock options outstanding 2,200 2,105
Retained deficit (5,901) (7,989)
------- -------
86,428 84,245
Less: equity in cost of common stock of the Company
held by Avatex, Inc (6,359) (5,001)
------- -------
Total stockholders' equity 80,069 79,244
------- -------
Total liabilities and stockholders' equity $ 417,213 $ 407,724
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>4
<TABLE>
<CAPTION>
PHAR-MOR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
Thirteen Thirteen
Weeks Ended Weeks Ended
April 1, 2000 March 27, 1999
------------- --------------
<S> <C> <C>
Sales $ 308,663 $ 290,928
Less:
Cost of goods sold, including occupancy and
distribution costs 254,103 235,910
Selling, general and administrative expenses 50,635 44,388
Depreciation and amortization 5,741 6,086
------------ ------------
(Loss) income from operations before interest expense,
interest income, investment income, equity in loss of
affiliates, income taxes and extraordinary gain (1,816) 4,544
Interest expense (4,672) (3,877)
Interest income 91 797
Investment income 2,839 483
------------ ------------
(Loss) income before equity in loss of affiliates, income
taxes and extraordinary gain (3,558) 1,947
Equity in loss of affiliates (281) --
------------ ------------
(Loss) income before income taxes and extraordinary gain (3,839) 1,947
Income taxes (1,536) 780
------------ ------------
(Loss) income before extraordinary gain (2,303) 1,167
Extraordinary gain on extinguishment of debt - net of
$310 tax 464 --
------------ ------------
Net (loss) income $ (1,839) $ 1,167
============ ============
(Loss) income per basic common share:
(Loss) income before extraordinary gain $ (.21) $ .10
Extraordinary gain .04 --
------------ ------------
Net (loss) income $ (.17) $ .10
============ ============
(Loss) income per diluted common share:
(Loss) income before extraordinary gain $ (.21) $ .10
Extraordinary gain .04 --
------------ ------------
Net (loss) income $ (.17) $ .10
============ ============
Weighted average number of basic common shares outstanding 11,032,886 11,516,185
Weighted average number of diluted common shares outstanding 11,032,886 11,592,371
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>5
<TABLE>
<CAPTION>
PHAR-MOR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
Thirty-nine Thirty-nine
Weeks Ended Weeks Ended
April 1, 2000 March 27, 1999
------------- --------------
<S> <C> <C>
Sales $ 976,909 $ 857,329
Less:
Cost of goods sold, including occupancy and
distribution costs 791,236 692,792
Selling, general and administrative expenses 158,083 130,444
Depreciation and amortization 19,008 17,507
------------ ------------
Income from operations before interest expense, interest
income, investment income (loss), equity in loss of
affiliates, income taxes and extraordinary gain 8,582 16,586
Interest expense (14,110) (11,761)
Interest income 111 1,568
Investment income (loss) 8,061 (721)
------------ ------------
Income before equity in loss of affiliates, income taxes and
extraordinary gain 2,644 5,672
Equity in loss of affiliates (281) --
------------ ------------
Income before income taxes and extraordinary gain 2,363 5,672
Income taxes 945 2,270
------------ ------------
Income before extraordinary gain 1,418 3,402
Extraordinary gain on extinguishment of debt- net of $447 tax 670 --
------------ ------------
Net income $ 2,088 $ 3,402
============ ============
Income per basic common share:
Income before extraordinary gain $ .12 $ .30
Extraordinary gain .06 --
------------ ------------
Net income $ .18 $ .30
Income per diluted common share:
Income before extraordinary gain $ .12 $ .29
Extraordinary gain .06 --
------------ ------------
Net income $ .18 $ .29
============ ============
Weighted average number of basic common shares outstanding 11,310,827 11,524,813
Weighted average number of diluted common shares outstanding 11,310,827 11,590,616
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>6
<TABLE>
<CAPTION>
PHAR-MOR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Thirty-nine Thirty-nine
Weeks Ended Weeks Ended
April 1, 2000 March 27, 1999
------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,088 $ 3,402
Adjustments to reconcile net income to net
cash provided by(used for) operating activities:
Items not requiring the outlay of cash:
Depreciation 13,894 11,813
Amortization of video rental tapes 4,101 5,374
Stock option expense 95 549
Amortization of deferred financing costs and goodwill 1,211 183
Deferred income taxes 1,392 2,270
Deferred rent (486) (483)
Gain on other investment (8,721) (735)
Equity in loss of affiliates 281 --
Gain on extinguishment of debt (1,117) --
Changes in assets and liabilities:
Accounts receivable 287 (586)
Marketable securities 3,254 5,596
Merchandise inventories (792) (15,271)
Prepaid expenses 662 586
Other assets (135) (21)
Accounts payable (17,070) (5,711)
Accrued expenses and other current liabilities 2,295 (9,960)
-------- --------
Net cash provided by (used for) operating activities 1,239 (2,994)
-------- --------
INVESTING ACTIVITIES
Additions to rental videotapes (1,136) (6,000)
Additions to property and equipment (12,949) (18,631)
Proceeds on sale of property and equipment 33 110
Investment in Avatex (5,724) (1,000)
Investment in Pharmhouse Corp., net of $3,292 cash acquired -- (4,608)
Proceeds from sale of equity securities 3,000 --
Investment in equity securities (11,261) (2,291)
-------- --------
Net cash used for investing activities (28,037) (32,420)
-------- --------
FINANCING ACTIVITIES
Borrowings under revolving credit facility 45,053 20,050
Bank overdrafts (4,274) 21,687
Principal payments on long-term debt (10,184) (28,959)
Principal payments on capital lease obligations (5,550) (5,280)
Additions to long-term debt -- 250
Issuance of common stock -- 31
-------- --------
Net cash provided by (used for) financing activities 25,045 7,779
-------- --------
Decrease in cash and cash equivalents (1,753) (27,635)
Cash and cash equivalents, beginning of period 17,346 44,655
-------- --------
Cash and cash equivalents, end of period $ 15,593 $ 17,020
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>7
PHAR-MOR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
1. 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
statements. In the opinion of management of Phar-Mor, Inc. (the
"Company") and its subsidiaries, 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 July 3, 1999 for
additional disclosures, including a summary of the Company's accounting
policies, which have not changed. Operating results for the thirty-nine
weeks ended April 1, 2000 are not necessarily indicative of the results
that may be expected for the fifty-two weeks ending July 1, 2000.
2. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments and for
hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value, with
the potential effect on operations dependent upon certain conditions
being met. SFAS No. 133 (as amended by SFAS No. 137) is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000.
Management does not believe that the adoption of SFAS No. 133 will have
a material impact on its financial position or results of operations.
3. LITIGATION
The Company and its subsidiaries are involved in legal proceedings,
claims and litigation arising in the ordinary course of business. In
the opinion of management, the outcome of such current legal
proceedings, claims and litigation will not have a material impact of
the Company's consolidated financial position or results of operations.
4. INVESTMENT IN AVATEX
On December 6, 1999, the Company invested $5,724 to purchase an
additional 2,862,400 shares of Avatex common stock, increasing its
investment from 15.1% to approximately 25.2% of Avatex's total
outstanding common stock. Accordingly, the Company changed its method
of accounting for the investment from cost to equity basis as required
by generally accepted accounting principles and treats Avatex's
investment in the Company's common stock similar to treasury stock,
with a reduction in the number of shares outstanding for calculating
earnings per share of 1,207,979. The financial statements of prior
years have been restated to reflect the adoption of the equity method
in a manner consistent with the accounting of a step by step
acquisition of Avatex. The effect of the restatement was to increase
net income for fiscal 1999 by $2,188, eliminate comprehensive income
(loss) for all prior periods and reclassify all of the Company's
investment in Avatex common stock prior to fiscal 2000 from Investment
in Avatex to Equity in cost of common stock of the Company held by
Avatex, Inc. on the Condensed Consolidated Balance Sheets.
The Company's investment in Avatex includes the unamortized excess of
the Company's investment over its equity in Avatex's net assets. The
original excess was $3,628 at January 1, 2000 and is being amortized on
a straight-line basis over 20 years.
<PAGE>8
5. BUSINESS COMBINATION
On March 15, 1999, Phar-Mor, Inc. ("Phar-Mor") completed the merger of
its wholly owned subsidiary Pharmacy Acquisition Corp. ("PAC") with and
into Pharmhouse Corp. ("Pharmhouse"), pursuant to the Agreement and
Plan of Merger dated as of December 17, 1998 among Phar-Mor, PAC and
Pharmhouse (the "Merger Agreement"). As a result of the merger
Pharmhouse became a wholly owned subsidiary of Phar-Mor. In addition,
subject to the terms of the Merger Agreement, each share of the common
stock of Pharmhouse was converted into the right to receive $2.88 per
share in cash (the "Merger").
Phar-Mor and PAC financed the payment of the purchase price and all
other fees and expenses associated with the Merger through cash from
operations and from borrowings under the Company's revolving credit
facility.
The Merger was accounted for under the purchase method of accounting.
The results of operations of Pharmhouse from March 16, 1999 through
March 27, 1999 have been included in the Condensed Consolidated
Statements of Operations for both the thirteen and thirty-nine weeks
ended March 27, 1999. The total purchase price payable in connection
with the Merger was approximately $34.2 million, consisting of $7.5
million in cash and the assumption of $26.7 million in debt. Goodwill
is being amortized using the straight-line method over a period of 25
years. The fair value of the assets acquired and liabilities assumed
was as follows:
Identifiable assets acquired $54,962
Liabilities (61,954)
Goodwill 14,866
-------
Cash $ 7,874
=======
<PAGE>9
PHAR-MOR, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS (all dollar amounts in thousands)
Thirteen Weeks Ended April 1, 2000 versus
Thirteen Weeks Ended March 27, 1999
Sales for the third quarter of fiscal year 2000 ("Fiscal 2000") increased 6.1%
compared to the third quarter of fiscal year 1999 ("Fiscal 1999") primarily due
to the acquisition of the 32 Pharmhouse stores which were acquired in March
1999. Comparable store sales decreased 5.1% from $281,574 for Fiscal 1999 to
$267,156 for Fiscal 2000. Comparable store sales were impacted by the shift of
Easter to the third week in April in Fiscal 2000 from the first week in April in
Fiscal 1999, 21 days of inclement weather in Fiscal 2000 and a much milder and
shorter flu season in Fiscal 2000. Comparable store pharmacy sales increased
4.2% in Fiscal 2000.
Cost of sales as a percentage of sales was 82.3% in Fiscal 2000 compared to
81.1% in Fiscal 1999, an increase of 1.2% of sales. The increase was primarily
due to a reduction in video rental tape sales and gross margin due to the
elimination of underperforming video rental departments in approximately 50% of
the stores and a reduction in the amount of video rental tapes purchased in the
continuing video rental departments, a $2,505 partial settlement received in
Fiscal 1999 from a class action lawsuit against pharmaceutical manufacturers,
related to certain product overcharges, combined with a full three months of the
higher store occupancy charges in the Pharmhouse stores as a percentage of sales
in Fiscal 2000 compared to two weeks of Pharmhouse results included in Fiscal
1999.
Selling, general and administrative expenses as a percentage of sales were 16.4%
in Fiscal 2000 compared to 15.3% in Fiscal 1999, an increase of 1.1% of sales.
This increase was primarily due to higher wages and other store operating
expenses as a percentage of sales partially offset by lower corporate expenses
as a percentage of sales. The increase in wages was due to the inclusion of the
lower volume Pharmhouse stores and a 5.8% increase in the average hourly rate
paid to store level employees. The market for pharmacists is very competitive
and as a result the average hourly rate paid to pharmacists has increased 8.2%
over the past year. The increase in other expenses was primarily due to the
inclusion of a full quarter of the lower volume Pharmhouse stores.
Depreciation and amortization expense was $5,741 in Fiscal 2000 compared to
$6,086 in Fiscal 1999, a decrease of $345. Depreciation expense increased $499
as a result of an increase in depreciation on capital expenditures made since
the third quarter of Fiscal 1999 and the depreciation on the assets acquired in
the Pharmhouse acquisition. Amortization of goodwill and other intangibles
increased $206 as a result of the assets acquired in the Pharmhouse acquisition.
These increases were more than offset by a $1,050 decrease in video tape
amortization due to the closure of approximately one half of its poorer
performing video rental departments in the past year combined with lower video
rental tape purchases in continuing video rental departments.
Interest income was $91 in Fiscal 2000 compared to interest income of $797 in
Fiscal 1999, a $706 decrease. The decrease in interest income was due to a
decrease in the amount of excess funds available for investment in Fiscal 2000.
Investment income was $2,839 in Fiscal 2000 compared to investment income of
$483 in Fiscal 1999, a $2,356 increase. The increase was primarily due to an
increase in the value of the Company's limited partnership interest in an
investment partnership.
The Company repurchased $7,039 of its 11.72% senior notes during Fiscal 2000 at
a discount that resulted in a pretax extraordinary gain of $774.
<PAGE>10
Thirty-nine Weeks Ended April 1, 2000 versus
Thirty-nine Weeks Ended March 27, 1999
Sales for the thirty-nine weeks ended April 1, 2000 increased 14.0% due to the
acquisition of the 32 Pharmhouse stores which were acquired in March 1999.
Comparable store sales increased 0.5% from $841,064 for the thirty-nine weeks
ended March 27, 1999 to $844,943 for the thirty-nine weeks ended April 1, 2000.
The increase in comparable store sales was primarily due to a 8.0% comparable
store pharmacy sales increase.
Cost of sales as a percentage of sales was 81.0% in the thirty-nine weeks ended
April 1, 2000, compared to 80.8% in the thirty-nine weeks ended March 27, 1999,
a 0.2% increase. The increase was primarily due to a reduction in video rental
tape sales and gross margin, a $2,505 partial settlement received in the
thirty-nine weeks ended March 27, 1999 from a class action lawsuit against
pharmaceutical manufacturers, related to certain product overcharges, combined
with a full nine months of the higher store occupancy charges in the Pharmhouse
stores as a percentage of sales in compared to two weeks of Pharmhouse results
included in the thirty-nine weeks of the prior year. These increases were
partially offset by increased vendor income related to the remerchandising
activities in the Pharmhouse stores. In the last year the Company closed
approximately one half of its poorer performing video rental departments and
liquidated the video rental tape inventory in those stores.
Selling, general and administrative expenses as a percentage of sales were 16.2%
in the thirty-nine weeks ended April 1, 2000 compared to 15.2% in the
thirty-nine weeks ended March 27, 1999. This increase was primarily due to
higher wages, advertising and other store operating expenses as a percentage of
sales due to the inclusion of the lower volume Pharmhouse stores partially
offset by lower corporate expenses as a percentage of sales.
Depreciation and amortization expense was $19,008 in the thirty-nine weeks ended
April 1, 2000 compared to $17,507 in the thirty-nine weeks ended March 27, 1999,
an increase of $1,501. The increase is the result of depreciation on capital
expenditures made since the second quarter of Fiscal 1999 and the depreciation
and amortization on the assets acquired in the Pharmhouse acquisition, partialy
offset by a $1,287 decrease in video tape amortization due to the closure of
approximately one half of its poorer performing video rental departments in the
past year combined with lower video rental tape purchases in continuing video
rental departments.
Interest income was $111 in the thirty-nine weeks ended April 1, 2000 compared
to interest income of $1,568 in the thirty-nine weeks ended March 27, 1999, a
$1,457 decrease. The decrease in interest income was due to a decrease in the
amount of excess funds available for investment in the thirty-nine weeks ended
April 1, 2000.
Investment income was $8,061 in the thirty-nine weeks ended April 1, 2000
compared to an investment loss of $721 in the thirty-nine weeks ended March 27,
1999, a $8,782 increase. The increase was primarily due to an increase in the
value of the Company's limited partnership interest in an investment
partnership.
<PAGE>11
The Company repurchased $10,149 of its 11.72% senior notes during the
thirty-nine weeks ended April 1, 2000 at a discount that resulted in a pretax
extraordinary gain of $1,117.
FINANCIAL CONDITION AND LIQUIDITY (all dollar amounts in thousands)
The Company's cash position as of April 1, 2000 was $15,593. The Company's cash
position may fluctuate as a result of seasonal merchandise purchases and timing
of payments.
The Company entered into an Amended and Restated Revolving Credit Facility (the
"Amended Facility") effective September 10, 1998 with BABC, as agent, and other
financial institutions that establishes a credit facility in the maximum amount
of $100,000.
Borrowings under the Amended Facility may be used for working capital needs and
general corporate purposes. Up to $50,000 of the Amended Facility at any time
may be used for standby and documentary letters of credit. The Amended Facility
includes restrictions on, among other things, additional debt, investments,
dividends and other distributions, mergers and acquisitions and contains no
financial covenants.
Credit availability under the Amended Facility at any time is the lesser of the
aggregate availability (as defined in the Amended Facility) or $100,000. The
Amended 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 Amended Facility bear interest at the BankAmerica
reference rate plus 1/2% or LIBOR plus 2.00%. Under the terms of the Amended
Facility, the Company is required to pay a commitment fee of between 0.25% and
0.35% per annum on the unused portion of the facility, letter of credit fees and
certain other fees.
Unused availability under the Amended Facility, after subtracting amounts used
for outstanding letters of credit, was $29,797 at April 1, 2000.
The Amended Facility expires on March 14, 2002.
Thirty-nine weeks ended April 1, 2000
During the thirty-nine weeks ended April 1, 2000, the Company's cash position
decreased by $1,753. Net cash provided by operating activities was $1,239. The
major sources of cash from operating activities were net income of $2,088,
depreciation expense of $13,894, amortization of video rental tapes of $4,101,
decrease in marketable securities of $3,254 and an increase in accrued expenses
and other current liabilities of $2,295 offset by a decrease in accounts payable
of $17,070.
Capital expenditures of $12,949, additions to video rental tapes of $1,136, an
investment in equity securities of $11,261 and an additional $5,724 investment
in Avatex were paid for with $3,000 proceeds from the sale of equity securities
in the Company's investment partnership and borrowings under the Company's
revolving credit facility.
Net cash provided by financing activities of $25,045 consisted of borrowings
under the revolving credit facility partially offset by decreases in bank
overdrafts, principal payments on lease obligations and principal payments on
long-term debt.
The Company is exposed to certain market risks from transactions that are
entered into during the normal course of business. The Company's policies do not
permit active trading of, or speculation 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.
<PAGE>12
Trends, Demands, Commitments, Events or Uncertainties (all dollar amounts in
thousands)
Certain Company information systems had potential operational problems in
connection with applications that contain a date and/or use a date in a
comparative manner as the date transitions into the Year 2000. The Company
implemented a comprehensive program to identify and remediate potential problems
related to the Year 2000 in its information systems, infrastructure, logistics
and retail facilities. In addition, the Company initiated formal communication
with all of its significant vendors and other external interfaces to determine
the extent to which the Company was vulnerable to a third-party's failure to
remediate their own potential problems related to the Year 2000. The inability
of the Company or significant vendors and/or external interfaces of the Company
to adequately address Year 2000 issues could have caused disruption of the
Company's systems.
The Company completed all of the software modifications necessary to make its
systems Year 2000 compliant and as a result has not experienced any major
operational problems or disruptions.
The Company incurred approximately $1,300 related to the assessment of, and
efforts in connection with, its Year 2000 program and remediation plan. The
Company accelerated by one year the purchase of approximately $5,000 in
replacement hardware in order to ensure the associated system was Year 2000
compliant.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value,
with the potential effect on operations dependent upon certain conditions being
met. SFAS No. 133 (as amended by SFAS No. 137) is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. Management does not
believe that the adoption of SFAS No. 133 will have a material impact on its
financial position or results of operations.
<PAGE>13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Exhibit Index on page 15.
(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
April 1, 2000
None.
<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: May 11, 2000 By: /s/ Sankar Krishnan
-----------------------
Sankar Krishnan
Senior Vice President and Chief
Financial Officer
Date: May 11, 2000 By: /s/ John R. Ficarro
-----------------------
John R. Ficarro
Senior Vice President and Chief
Administrative Officer
<PAGE>15
PHAR-MOR, INC.
INDEX TO EXHIBITS
Exhibit No.
*3.1 Amended and Restated Articles of Incorporation
**3.2 Amended and Restated By-laws
*4.1 Indenture dated September 11, 1995 between Phar-Mor, Inc. and
IBJ Schroder Bank & Trust Company
*4.2 Warrant Agreement dated September 11, 1995 between Phar-Mor,
Inc. and Society National Bank
***10.1 Loan and Security Agreement, dated as of September 10, 1998,
by and among the financial institutions listed on the
signature pages therein, BankAmerica Business Credit, Inc., as
agent, and Phar-Mor, Inc., Phar-Mor, Inc., LLC, Phar-Mor of
Delaware, Inc., Phar-Mor of Florida, Inc., Phar-Mor of Ohio,
Inc., Phar-Mor of Virginia, Inc., and Phar-Mor of Wisconsin,
Inc.
27 Financial Data Schedule
- --------------------------------------------------------------------------------
* Previously filed in connection with the filing of Phar-Mor's Form 10,
on October 23, 1995
** Previously filed in connection with the filing of Phar-Mor's quarterly
report on Form 10-Q, on May 1, 1998
*** Previously filed in connection with the filing of Phar-Mor's quarterly
report on Form 10-Q, on November 2, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-1-2000
<PERIOD-END> APR-1-2000
<CASH> 15,593
<SECURITIES> 0
<RECEIVABLES> 27,962
<ALLOWANCES> 0
<INVENTORY> 216,772
<CURRENT-ASSETS> 267,006
<PP&E> 92,757
<DEPRECIATION> 0
<TOTAL-ASSETS> 417,213
<CURRENT-LIABILITIES> 144,439
<BONDS> 173,536
0
0
<COMMON> 122
<OTHER-SE> 79,947
<TOTAL-LIABILITY-AND-EQUITY> 417,213
<SALES> 976,909
<TOTAL-REVENUES> 976,909
<CGS> 791,236
<TOTAL-COSTS> 791,236
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,110
<INCOME-PRETAX> 2,363
<INCOME-TAX> 945
<INCOME-CONTINUING> 1,418
<DISCONTINUED> 0
<EXTRAORDINARY> 670
<CHANGES> 0
<NET-INCOME> 2,088
<EPS-BASIC> 0.18
<EPS-DILUTED> 0.18
</TABLE>
