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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
-------------------
FOR THE QUARTER ENDED COMMISSION FILE NUMBER
APRIL 29, 1995 0-16404
SUPERMARKETS GENERAL HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3408704
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 BLAIR ROAD, P. O. BOX 5301 07095-0915
WOODBRIDGE, NEW JERSEY (Zip Code)
(Address of principal executive office)
908-499-3000
(Registrant's telephone number, including area code)
-------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
$3.52 CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK
(Title of Class)
-------------------
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 __
As of April 29, 1995, there were outstanding 650,675 shares of $0.01 par
value Class A Common Stock (voting) and 320,000 shares of $0.01 par value Class
B Common Stock (non-voting), all of which are privately owned and not traded on
a public market.
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SUPERMARKETS GENERAL HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
13 WEEKS ENDED
------------------------
APRIL 29, APRIL 30,
1995 1994
---------- ----------
<S> <C> <C>
Sales.............................................................. $1,039,368 $1,033,091
Cost of sales (exclusive of depreciation and amortization shown
separately below)................................................ 742,045 745,355
---------- ----------
Gross profit....................................................... 297,323 287,736
Selling, general and administrative expenses....................... 233,493 235,391
Depreciation and amortization...................................... 19,979 18,303
---------- ----------
Operating earnings................................................. 43,851 34,042
Interest expense................................................... (43,170) (41,320)
Interest charged to discontinued operations........................ -- 3,677
---------- ----------
Earnings (loss) from continuing operations before income taxes and
extraordinary item............................................... 681 (3,601)
Income tax provision............................................... 101 42
---------- ----------
Earnings (loss) from continuing operations before extraordinary
item............................................................. 580 (3,643)
Loss from discontinued operations.................................. -- (4,705)
---------- ----------
Earnings (loss) before extraordinary item.......................... 580 (8,348)
Extraordinary item................................................. (252) --
---------- ----------
Net earnings (loss)................................................ 328 (8,348)
Less: non-cash preferred stock accretion and dividend
requirements..................................................... (4,716) (4,702)
---------- ----------
Net loss attributable to its common stockholder.................... $ (4,388) $ (13,050)
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
APRIL 29, JANUARY 28,
1995 1995
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and marketable securities..................................... $ 21,468 $ 23,247
Accounts receivable, net........................................... 12,665 13,380
Merchandise inventories............................................ 254,622 255,631
Income taxes receivable............................................ -- 7,756
Prepaid expenses................................................... 26,319 26,580
Due from suppliers................................................. 14,836 18,256
Other current assets............................................... 15,950 29,541
----------- -----------
Total Current Assets........................................... 345,860 374,391
Property and Equipment, Net......................................... 594,310 598,801
Deferred Financing Costs, Net....................................... 38,712 40,446
Deferred Income Taxes............................................... 8,112 5,969
Investment in Purity Supreme (net of valuation allowance of $24,100
at April 29, 1995 and January 28, 1995)........................... -- --
Other Assets........................................................ 24,869 23,951
----------- -----------
$ 1,011,863 $ 1,043,558
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current Liabilities
Accounts payable................................................... $ 228,194 $ 239,752
Current maturities of long-term debt............................... 48,447 46,310
Accrued payroll and payroll taxes.................................. 51,092 53,638
Income taxes payable............................................... 1,043 --
Current portion of obligations under capital leases................ 18,978 18,298
Accrued interest payable........................................... 39,408 19,672
Accrued expenses and other current liabilities..................... 90,147 94,630
----------- -----------
Total Current Liabilities...................................... 477,309 472,300
----------- -----------
Long-Term Debt...................................................... 1,325,855 1,365,571
----------- -----------
Obligations Under Capital Leases, Long-Term......................... 127,832 127,122
----------- -----------
Other Noncurrent Liabilities........................................ 263,189 256,911
----------- -----------
Redeemable Securities
Exchangeable Preferred Stock, $.01 par value....................... 102,371 101,959
Authorized: 9,000,000 shares
Issued and outstanding: 4,890,671 shares at April 29, 1995 and
January 28, 1995
Liquidation preference, $25 per share: $122,267 at April 29, 1995
and January 28, 1995
----------- -----------
Total Redeemable Securities.................................... 102,371 101,959
----------- -----------
Commitments and Contingencies (Note 12)
Stockholder's Deficit
Class A Common Stock, $.01 par value............................... 7 7
Authorized: 1,075,000 shares
Issued and outstanding: 650,675 shares at April 29, 1995 and
January 28, 1995
Class B Common Stock, $.01 par value............................... 3 3
Authorized: 1,000,000 shares
Issued and outstanding: 320,000 shares at April 29, 1995 and
January 28, 1995
Paid-in Capital.................................................... 198,723 199,135
Accumulated Deficit................................................ (1,483,426) (1,479,450)
----------- -----------
Total Stockholder's Deficit.................................... (1,284,693) (1,280,305)
----------- -----------
$ 1,011,863 $ 1,043,558
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS A CLASS B TOTAL
COMMON COMMON PAID-IN ACCUMULATED STOCKHOLDER'S
STOCK STOCK CAPITAL DEFICIT DEFICIT
------- ------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 28, 1995................. $ 7 $ 3 $199,135 $(1,479,450) $ (1,280,305)
Net income................................ -- -- -- 328 328
Accrued dividends on preferred stock ($.88
per share per quarter).................. -- -- -- (4,304) (4,304)
Accretion on preferred stock.............. -- -- (412) -- (412)
------- ------- -------- ----------- -------------
Balance April 29, 1995...................... $ 7 $ 3 $198,723 $(1,483,426) $ (1,284,693)
------- ------- -------- ----------- -------------
------- ------- -------- ----------- -------------
Balance, January 29, 1994................... $ 7 $ 3 $200,748 $(1,485,468) $ (1,284,710)
Net loss.................................. -- -- -- (8,348) (8,348)
Accrued dividends on preferred stock ($.88
per share per quarter).................. -- -- -- (4,304) (4,304)
Accretion on preferred stock.............. -- -- (398) -- (398)
------- ------- -------- ----------- -------------
Balance April 30, 1994...................... $ 7 $ 3 $200,350 $(1,498,120) $ (1,297,760)
------- ------- -------- ----------- -------------
------- ------- -------- ----------- -------------
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
13 WEEKS ENDED
----------------------
APRIL 29, APRIL 30,
1995 1994
--------- ---------
<S> <C> <C>
Operating Activities
Net earnings (loss).................................................. $ 328 $ (8,348)
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities
Depreciation and amortization.................................... 20,629 18,951
Deferred income tax provision (benefit).......................... (2,942) 2,811
Extraordinary item............................................... 252 --
Interest accruable but not payable............................... 3,611 3,254
Amortization of original issue discount.......................... 2,164 3,487
Amortization of debt issuance costs.............................. 1,779 1,717
Gain on disposal of property and equipment....................... (93) (120)
Loss from discontinued operations................................ -- 4,705
Cash provided by (used for) operating assets and liabilities
Accounts receivable, net....................................... 715 (1,378)
Merchandise inventories........................................ 1,009 (18,527)
Income taxes................................................... 8,799 19,423
Prepaid expenses............................................... (389) (4,576)
Due from suppliers............................................. 3,420 3,749
Other current assets........................................... 8,885 (2,250)
Other assets................................................... (905) 6,290
Accounts payable............................................... (11,558) (17,552)
Accrued payroll and payroll taxes.............................. (2,546) (5,233)
Accrued interest payable....................................... 19,736 19,330
Accrued expenses and other current liabilities................. (4,634) 341
Other noncurrent liabilities................................... 2,774 1,466
--------- ---------
Cash provided by operating activities........................ 51,034 27,540
--------- ---------
Investing Activities
Property and equipment expenditures.................................. (10,034) (13,429)
Proceeds from disposition of property and equipment.................. 559 578
Proceeds from disposal of home centers segment....................... 4,706 --
--------- ---------
Cash used for investing activities........................... (4,769) (12,851)
--------- ---------
Financing Activities
Decrease in Working Capital Facilities borrowings.................... (28,500) (1,500)
Decrease in Pathmark Term Loan....................................... (8,750) (8,750)
Repayment of PTK Exchangeable Guaranteed Debentures.................. (4,454) --
Premiums incurred in redemption of PTK Exchangeable Guaranteed
Debentures......................................................... (252) --
Repayment of other long-term borrowings.............................. (1,651) (815)
Reduction in obligations under capital leases........................ (4,437) (4,287)
--------- ---------
Cash used for financing activities........................... (48,044) (15,352)
--------- ---------
Decrease in cash and marketable securities............................. (1,779) (663)
Cash and marketable securities at beginning of period.................. 23,247 6,168
--------- ---------
Cash and marketable securities at end of period........................ $ 21,468 $ 5,505
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION
On February 4, 1991, Supermarkets General Holdings Corporation (the
"Company" or "Holdings"), through the consummation of an exchange offer (the
"Exchange Offer") pursuant to which the then existing common stockholders
exchanged on a one-for-one basis shares of the Company's common stock for shares
of common stock of SMG-II Holdings Corporation ("SMG-II"), became a wholly owned
subsidiary of SMG-II. As a result of the Exchange Offer, SMG-II owns all of the
Company's common stock and is effectively a holding company for the operations
of the Company. The holders of SMG-II's common stock include certain limited
partnerships controlled directly or indirectly by Merrill Lynch Capital
Partners, Inc., together with certain indirectly wholly owned subsidiaries of
Merrill Lynch & Co., Inc., certain members of the Company's management, CBC
Capital Partners, Inc. and the Equitable Life Assurance Society of the United
States and certain of its affiliates.
Pathmark Stores, Inc. ("Pathmark") and Plainbridge, Inc. ("Plainbridge") are
wholly owned subsidiaries of PTK Holdings, Inc. ("PTK"), which is a wholly owned
subsidiary of the Company.
The results from discontinued operations represent the operations of the
Company's home centers segment which was sold during Fiscal 1994 (see Note 2).
At the time of a recapitalization in Fiscal 1993, Holdings intended to further
spin off Plainbridge to Holdings' common stockholder. Such further spin-off
would have required the satisfaction of dividend restrictions with respect to
Holdings' Exchangeable Preferred Stock, as well as, obtaining consents from
various lenders to Plainbridge and PTK. During the fourth quarter of Fiscal
1994, as a result of the aforementioned dividend restrictions, Holdings has
concluded that a further spin-off of Plainbridge to Holdings' common stockholder
is not likely to occur. Accordingly, prior year financial statements which had
included the results of Plainbridge's warehouse, transportation and real estate
operations as discontinued operations have been reclassified to include such
results in continuing operations.
The consolidated financial statements included herein reflect all
adjustments which, in the opinion of management, are of a normal and recurring
nature and are necessary to present fairly the results of operations and
financial position of the Company and have been prepared in accordance with the
same accounting principles followed in the presentation of the Company's annual
financial statements for the year ended January 28, 1995. The report should be
read in conjunction with the Company's Form 10-K Annual Report for the year
ended January 28, 1995, Notes to Consolidated Financial Statements.
The accompanying consolidated financial statements of the Company indicate
that at April 29, 1995 current liabilities exceed its current assets by $131.4
million and the Company's stockholder's deficit approximates $1.3 billion.
Management believes that cash flows generated from operations supplemented by
the unused borrowing capacity under the Pathmark and Plainbridge Working Capital
Facilities and the availability of capital lease financing will be sufficient to
pay the Company's debts as they come due, provide for its capital expenditure
program and meet its seasonal cash requirements. Further, the Company believes
it will continue to be in compliance with its various debt covenants.
Since the Company is a wholly owned subsidiary, earnings (loss) per share
information is not presented.
NOTE 2--DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEM
On November 4, 1994, the Company's Plainbridge subsidiary completed the sale
of its home centers segment for approximately $88.7 million in cash, plus the
assumption of certain indebtedness. The Company used net cash proceeds of $66.6
million in Fiscal 1994 and $4.7 million in the first quarter
5
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 2--DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEM--(CONTINUED)
of Fiscal 1995 to pay down the PTK DIBs, including accrued interest and debt
premium. The debt premium paid, including original issue discount, resulted in a
net loss on early extinguishment of debt of $0.3 million in the first quarter of
Fiscal 1995.
As of the date of sale, the net assets of the home centers segment were as
follows (dollars in thousands):
Current assets....................................................... $ 67,713
Property and equipment............................................... 60,062
Other assets......................................................... 3,244
--------
Total assets......................................................... 131,019
--------
Current liabilities.................................................. 39,841
Noncurrent liabilities............................................... 22,219
--------
Total liabilities.................................................... 62,060
--------
Net assets........................................................... $ 68,959
--------
--------
Through the date of sale, the Company reported the home center segment as
discontinued operations. Operating results of such discontinued operations were
as follows (dollars in thousands):
13 WEEKS
ENDED
APRIL 30,
1994
---------
Sales........................................................... $ 75,459
---------
---------
Loss before income taxes........................................ $ (4,705)(a)
Income tax provision............................................ --
---------
Net loss from discontinued operations........................... $ (4,705)
---------
---------
- ------------
(a) The Company charged the home centers segment interest expense relating
to a proportionate share of certain borrowings. These charges amounted
to $3.7 million in the first quarter of Fiscal 1994 and are included in
the results of the discontinued operations.
NOTE 3--MERCHANDISE INVENTORIES
Merchandise inventories are comprised of the following (dollars in
thousands):
APRIL 29, JANUARY 28,
1995 1995
--------- -----------
Merchandise inventories at FIFO cost............... $ 298,603 $ 298,812
Less LIFO reserve.................................. 43,981 43,181
--------- -----------
Merchandise inventories at LIFO cost............... $ 254,622 $ 255,631
--------- -----------
--------- -----------
6
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 4--OTHER CURRENT ASSETS
The reduction in other current assets at April 29, 1995 compared to January
28, 1995 is primarily due to a reduction in assets held for sale in the normal
course of business.
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following (dollars in
thousands):
APRIL 29, JANUARY 28,
1995 1995
--------- -----------
Land................................................. $ 65,231 $ 65,142
Buildings and building improvements.................. 204,698 201,553
Fixtures and equipment............................... 203,933 200,015
Leasehold costs and improvements..................... 270,313 268,165
Transportation equipment............................. 19,101 19,828
--------- -----------
Property and equipment, owned........................ 763,276 754,703
Property and equipment under capital leases.......... 177,928 173,175
--------- -----------
Property and equipment, at cost...................... 941,204 927,878
Less accumulated depreciation and amortization....... 346,894 329,077
--------- -----------
Property and equipment, net.......................... $ 594,310 $ 598,801
--------- -----------
--------- -----------
NOTE 6--LONG-TERM DEBT
Long-term debt is comprised of the following (dollars in thousands):
APRIL 29, JANUARY 28,
1995 1995
---------- -----------
Pathmark Term Loan.................................. $ 339,500 $ 348,250
Pathmark Working Capital Facility................... 34,500 63,000
10.25% PTK Exchangeable Guaranteed Debentures
due 2003.......................................... 76,879 79,257
9.625% Pathmark Senior Subordinated Notes due
2003.............................................. 437,160 437,072
10.75% Pathmark Deferred Coupon Notes due 2003...... 140,464 136,853
12.625% Pathmark Subordinated Debentures due
2002.............................................. 95,750 95,750
11.625% Pathmark Subordinated Notes due 2002........ 199,017 199,017
11.625% Holdings Subordinated Notes due 2002........ 983 983
Industrial Revenue Bonds............................ 6,375 6,375
Other Debt (primarily mortgages).................... 43,674 45,324
---------- -----------
Total debt.......................................... 1,374,302 1,411,881
Less current maturities............................. 48,447 46,310
---------- -----------
Long-term portion................................... $1,325,855 $ 1,365,571
---------- -----------
---------- -----------
7
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 7--INTEREST EXPENSE
Interest expense is comprised of the following (dollars in thousands):
13 WEEKS ENDED
----------------------
APRIL 29, APRIL 30,
1995 1994
--------- ---------
Pathmark Term Loan..................................... $ 7,925 $ 5,896
Pathmark Working Capital Facility...................... 1,269 530
Plainbridge Working Capital Facility................... 21 274
Pathmark Senior Subordinated Notes
Amortization of original issue discount.............. 88 88
Currently payable.................................... 10,588 10,588
Pathmark Deferred Coupon Notes
Accruable but not payable............................ 3,611 3,254
Pathmark Subordinated Debentures....................... 3,022 3,022
Pathmark Subordinated Notes............................ 5,813 5,813
Amortization of PTK DIBs original issue
discount............................................. 2,076 3,399
Amortization of debt issuance costs.................... 1,779 1,717
Obligations under capital leases....................... 4,047 3,894
Mortgages.............................................. 98 135
Other, net............................................. 2,833 2,710
--------- ---------
Interest expense....................................... $ 43,170 $ 41,320
--------- ---------
--------- ---------
The Company made cash interest payments of $14.0 million and $12.0 million
during the first quarters of Fiscal 1995 and Fiscal 1994, respectively. The
majority of the cash interest payments are scheduled in the second and fourth
quarters.
NOTE 8--LEASES
The Company incurred capital lease obligations of $6.1 million and $1.5
million during the first quarters of Fiscal 1995 and Fiscal 1994, respectively,
in connection with lease agreements to acquire property and equipment.
NOTE 9--RELATED PARTY TRANSACTIONS
During the third quarter of Fiscal 1993, Pathmark and Plainbridge entered
into related party agreements and transactions. Refer to the Company's Form 10-K
Annual Report for the year ended January 28, 1995, Notes to the Consolidated
Financial Statements, for a more detailed description of such agreements. These
related party agreements and transactions are summarized as follows:
1) Spin-Off
A) Services Agreements:
Pathmark, Plainbridge and the Company are parties to agreements pursuant to
which Pathmark will continue to provide certain administrative services relating
to the warehouse, distribution and home centers operations of Plainbridge and
certain administrative services to Chefmark. Such services include, among other
things, legal, human resources, data processing, insurance, accounting, tax,
treasury and property management services. Each of the agreements have an
initial term of five years, with renewal options at the end of such term. The
cost of the services charged to Plainbridge and Chefmark under these agreements
in the aggregate was approximately $3.0 million and $3.4 million during the
first quarter of Fiscal 1995 and Fiscal 1994, respectively.
8
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 9--RELATED PARTY TRANSACTIONS--(CONTINUED)
B) The Logistical Services Agreements:
Under the Logistical Services Agreement, Plainbridge supplies Pathmark most
of the merchandise sold in Pathmark's retail stores and for the provision of
warehousing, distribution and other logistical services relating to the supply
of such merchandise. The cost of fees paid by Pathmark to Plainbridge related to
the Logistical Services Agreement in the aggregate was approximately $33.5
million and $35.2 million during the first quarter of Fiscal 1995 and Fiscal
1994, respectively. Pathmark also received an allowance of approximately $6.1
million and $6.3 million during the first quarter of Fiscal 1995 and Fiscal
1994, respectively, based on the amount of merchandise purchased by Plainbridge
at Pathmark's direction. Pursuant to the Logistical Services Agreement, Pathmark
directs the purchase of the merchandise to be provided to it by Plainbridge.
Pathmark negotiates directly with vendors regarding the types of merchandise
required, the quantities needed, the delivery schedules, the pricing, and all
the other terms and conditions of sale. All merchandise is ordered by Pathmark
for the account of Plainbridge, which will pay for and will retain title to such
merchandise until it has been delivered to Pathmark. If requested by a vendor,
Pathmark in its sole discretion, may guarantee payment of such orders by
Plainbridge. Pathmark guaranteed approximately $31.3 million and $38.3 million
of such merchandise purchases by Plainbridge at April 29, 1995 and April 30,
1994, respectively.
2) Other:
In conjunction with the Plainbridge Spin-Off, certain real property was
transferred to Plainbridge and is being leased to Pathmark at rentals which the
Company believes approximate fair value. During each of the first quarters of
Fiscal 1995 and Fiscal 1994, such rentals amounted to $1.1 million.
In addition, Pathmark is leasing six store properties to Plainbridge with a
net book value of $8.9 million at April 29, 1995. The Company believes that the
rentals received from Plainbridge approximate fair value. During each of the
first quarters of Fiscal 1995 and Fiscal 1994, such rentals amounted to $1.0
million.
Certain Management Investors issued Recourse Notes to the Company related to
the purchase of the Company's Class A common stock. These Management Investors
have pledged shares of SMG-II Class A common stock to secure the repayment of
the Recourse Notes. Recourse Notes in the amount of $1.7 million were
outstanding at April 29, 1995 and January 28, 1995.
NOTE 10--CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK
Exchangeable Preferred Stock activity during the first quarter of Fiscal
1995 was as follows (dollars in thousands):
NUMBER OF
SHARES AMOUNT
--------- --------
Balance, January 28, 1995.............................. 4,890,671 $101,959
Accretion on preferred stock........................... -- 412
--------- --------
Balance, April 29, 1995................................ 4,890,671 $102,371
--------- --------
--------- --------
The terms of the Exchangeable Preferred Stock provide for cumulative
quarterly dividends at an annual rate of $3.52 per share when, as, and if
declared by the Board of Directors of the Company. Dividends for the first 20
quarterly dividend periods (through October 15, 1992) were paid at the Company's
option in additional shares of Exchangeable Preferred Stock since the Company
did not meet the conditions permitting cash dividend payments on the
Exchangeable Preferred Stock. Holdings does not expect to receive cash flow
sufficient to permit payments of dividends on the Exchangeable Preferred Stock
in the foreseeable future. All dividends not paid in cash will cumulate at the
rate of $3.52 per share per annum, without interest, until declared and paid. As
such, at April 29, 1995, the unpaid dividends of $43.0 million were accrued and
included in other noncurrent liabilities.
9
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 10--CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK--(CONTINUED)
Pursuant to the Certificate of Stock Designation for the Exchangeable
Preferred Stock (the "Certificate of Designation"), the Company was required to
pay cash dividends to the Exchangeable Preferred Stockholders at an annual rate
of $3.52 per share beginning on January 15, 1993. The Certificate of Designation
provides that the Exchangeable Preferred Stock is non-voting except that if an
amount equal to six quarterly dividends is in arrears in whole, or in part, the
Exchangeable Preferred Stockholders voting as a class are entitled to elect an
additional two members to the Board of Directors of the Company. The Company is
currently in arrears on the payment of ten quarterly dividends. Accordingly, the
Exchangeable Preferred Stockholders at a stockholders' meeting held on June 8,
1995, elected two members to the Company's Board of Directors.
NOTE 11--INCOME TAXES
Income taxes for the interim period are based on the estimated effective tax
rate expected to be applicable for the full fiscal year. The income tax
provision for the first quarter of Fiscal 1995 relates to state income taxes
primarily in those states where the Company is unable to utilize its state tax
loss carryforwards. The federal income tax provision for the first quarter of
Fiscal 1995 was reduced by a corresponding reversal in the valuation allowance
since the Company would be able to realize such deferred income tax assets
through future deductions. At April 29, 1995 the Company has net deferred income
tax assets of $33.3 million and a valuation allowance of $25.2 million. The net
unreserved deferred income tax assets of approximately $8.1 million consist of
alternative minimum tax credit carryforwards of approximately $6.0 million and
other deferred income tax assets which could be recovered of approximately $2.1
million. The Company is continuing to assess the likelihood of realizing its
deferred income tax assets which have a corresponding valuation allowance and
will adjust the valuation allowance when and if, in the opinion of management,
significant positive evidence exists which indicates that it is more likely than
not that the Company will be able to realize such deferred income tax assets.
Such reductions in the valuation allowance, if any, will be reflected as a
component of income tax expense. The income tax provision for the first quarter
of Fiscal 1994 is net of an increase in deferred income tax assets and related
valuation allowance of $0.4 million due to additonal net operating loss
carryforwards.
During the first quarter of Fiscal 1995, the Company made income tax
payments of $0.2 million and received income tax refunds of $8.0 million. During
the first quarter of Fiscal 1994, the Company made income tax payments of $.04
million and received income tax refunds of $22.5 million.
NOTE 12--CONTINGENCIES
The Company is contingently liable for certain obligations of the Purity
Operations primarily consisting of approximately 60 leases for real property, in
the event of default thereunder by the purchaser of the Purity Operations. As of
January 28, 1995, the estimated present value of such lease obligations
approximated $109.5 million. The Company is also contingently liable for a loan
guarantee of approximately $1.1 million at April 29, 1995.
The Company is also contingently liable for certain obligations of the
recently sold home centers segment primarily consisting of 19 leases for real
property, in the event of default thereunder by the purchaser of the recently
sold home centers segment. As of January 28, 1995, the estimated present value
of such lease obligations approximated $27.6 million.
10
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 12--CONTINGENCIES--(CONTINUED)
The Company is a party to a number of legal proceedings in the ordinary
course of business. Management believes that the ultimate resolution of these
proceedings will not, in the aggregate, have a material adverse impact on the
financial condition, results of operations or business of the Company.
NOTE 13--INVESTMENT IN PURITY SUPREME
On April 24, 1995, a strategic buyer announced its plans to purchase Purity
Supreme, Inc. ("Purity"), subject to completion of regulatory approval and
compliance with terms and conditions of the purchase agreement. The sale is
expected to close later in 1995, with the Company expecting to receive
approximately $16 million based upon the announced price. Until the proposed
transaction is consummated, no adjustment will be made to the valuation
allowance related to the securities representing the Company's investment in
Purity. Further, based on the announced price, if the proposed transaction is
consummated, a capital tax loss carryforward of approximately $70 million will
be generated. The benefit of such capital tax loss carryforward will only be
realized to the extent the Company generates capital gains.
11
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion and analysis of the Company's financial
condition and results from continuing operations. The results from discontinued
operations for all periods presented represent the operations of the Company's
home centers segment which was sold during Fiscal 1994. At the time of
Recapitalization, Holdings intended to further spin off Plainbridge to Holdings'
common stockholder. Such further spin-off would have required the satisfaction
of dividend restrictions with respect to Holdings' Exchangeable Preferred Stock,
as well as, obtaining consents from various lenders to Plainbridge and PTK.
During the fourth quarter of Fiscal 1994, as a result of the aforementioned
dividend restrictions, Holdings has concluded that a further spin-off of
Plainbridge to Holdings' common stockholder is not likely to occur. Accordingly,
prior year financial statements which had included the results of Plainbridge's
warehouse, transportation and real estate operations as discontinued operations
have been reclassified to include such results in continuing operations.
RESULTS OF OPERATIONS
Sales:
Sales for the first quarter of Fiscal 1995 were $1.039 billion compared to
$1.033 billion in the prior-year period. Sales for stores opened in both years,
including replacement stores, increased 0.8%. At quarter end, the Company
operated 142 supermarkets, including 32 Pathmark 2000 format stores compared
with the end of Fiscal 1994 when the Company operated 143 supermarkets,
including 29 Pathmark 2000 format stores. The Company also operated 30
freestanding Pathmark drug stores and six "deep discount" drug stores at quarter
end and the end of Fiscal 1994. In order to improve sales and profitability, the
Company is continuing to focus on its enlargement and renovation program.
Gross Profit:
Gross profit for the first quarter of Fiscal 1995 was $297.3 million or
28.6% of sales compared with $287.7 million or 27.9% of sales for the first
quarter of Fiscal 1994. This improvement in gross profit as a percentage of
sales is primarily due to lower inventory shrink, increased focus on
merchandising programs as well as to the Company's continuing emphasis on the
Pathmark 2000 format stores which allow expanded variety in all departments,
particularly higher margin perishables. The cost of goods sold comparisons were
affected by a pretax LIFO charge of $0.8 million for the first quarters of both
Fiscal 1995 and Fiscal 1994.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses for the first quarter of Fiscal
1995 decreased $1.9 million or 0.8% compared to the prior-year period. As a
percentage of sales, selling, general and administrative expenses were 22.5% for
the quarter of Fiscal 1995, down from 22.8% in the prior-year period. The
decrease as a percentage of sales in the first quarter compared to the
prior-year period was due to lower promotional costs this year and the weather
related expenses that adversely affected last year's first quarter.
Depreciation and Amortization:
Depreciation and amortization of $20.0 million for the first quarter of
Fiscal 1995 was $1.7 million more than the prior-year period of $18.3 million.
The increase in depreciation and amortization expense for the first quarter of
Fiscal 1995 compared to the prior-year period was primarily due to capital
expenditures. Depreciation and amortization excludes video tape amortization of
$0.7 million in each of the first quarters of Fiscal 1995 and Fiscal 1994 which
is recorded in cost of goods sold.
12
<PAGE>
Operating Earnings:
Operating earnings for the first quarter of Fiscal 1995 were $43.9 million
compared with the prior-year period of $34.0 million. The increase in operating
earnings during the quarter compared to the prior-year period was primarily due
to the improved gross profit and lower operating expenses.
Interest Expense:
Interest expense of $43.2 million for the first quarter of Fiscal 1995 was
$1.9 million more than the prior-year period of $41.3 million. The increase was
primarily due to the higher interest rates on the Company's floating rate bank
debt.
Income Taxes:
Income taxes are based on the estimated effective tax rate expected to be
applicable for the full fiscal year. The income tax provision relates to state
income taxes primarily in those states where the Company is unable to utilize
its state tax loss carryforwards. The Federal income tax provision for the first
quarter of Fiscal 1995 was reduced by a corresponding reversal in the net
deferred income tax valuation allowance since the Company would be able to
realize such deferred income tax assets through future reductions. The income
tax provision for the first quarter of Fiscal 1994 of $0.04 million is net of an
adjustment in deferred income tax assets and related valuation allowance of $0.4
million due to additional net operating loss carryforwards.
During the first quarter of Fiscal 1995, the Company made income tax
payments of $0.2 million and received income tax refunds of $8.0 million. During
the first quarter of Fiscal 1994, the Company made income tax payments of $.04
million and received income tax refunds of $22.5 million.
Summary of Operations:
For the first quarter of Fiscal 1995, the Company's earnings from continuing
operations before extraordinary items were $0.6 million compared to a loss of
$3.6 million for the prior-year period. The increase in earnings is primarily
due to the increased operating earnings, partially offset by higher interest
expense.
Extraordinary Items:
During the first quarter of Fiscal 1995, in connection with the proceeds
received related to the disposal of the home centers segment, the Company was
required to paydown $4.7 million of PTK DIBs. The premium paid, including
original issue discount, resulted in a net loss on early extinguishment of debt
of $0.3 million.
FINANCIAL CONDITION
Debt Service:
During the first quarter of Fiscal 1995, total debt decreased $37.6 million
from year end primarily due to the scheduled Term Loan repayments, a decrease in
borrowings under the Pathmark Working Capital Facility as well as the required
paydown of the PTK DIB's with the home center disposal proceeds partially offset
by debt accretion on Pathmark Deferred Coupon Notes and PTK DIBs. Borrowings
under the Pathmark Working Capital Facility were $34.5 million at April 29, 1995
and have increased as a result of seasonal borrowing needs to $39.0 million at
June 6, 1995. There were no outstanding borrowings under the Plainbridge Working
Capital Facility at April 29, 1995 and June 6, 1995.
Under the Pathmark Working Capital Facility, which expires in Fiscal 1998,
Pathmark can borrow or obtain letters of credit in an aggregate amount not to
exceed $175.0 million (of which the maximum of $100.0 million can be in letters
of credit) subject to an annual cleandown provision. Under the terms of the
Pathmark cleandown provision, in each fiscal year loans cannot exceed $50.0
million under the Pathmark Working Capital Facility for a period of 30
consecutive days. Pathmark satisfied the terms of
13
<PAGE>
the Fiscal 1995 cleandown provision during the first quarter. Under the
Plainbridge Working Capital Facility, which expires in Fiscal 1997, Plainbridge
can borrow or obtain letters of credit in an aggregate amount not to exceed
$40.0 million (of which the maximum of $30.0 million can be in letters of
credit).
The indebtedness under the Pathmark and Plainbridge Working Capital
Facilities and the Pathmark Term Loan bear interest at floating rates. To the
extent that certain indebtedness of the Company bears interest at floating
rates, cash interest payments on that indebtedness may vary in future years. The
Company does not currently maintain any interest rate hedging arrangements due
to the reasonable risk that near term interest rates will not rise
significantly. The Company is continuously evaluating this risk and will
implement interest rate hedging arrangements when deemed appropriate.
The majority of the cash interest payments are scheduled in the second and
fourth quarters.
The amount of principal payments required each year on outstanding long-term
debt (excluding the original issue discount with respect to the Pathmark
Deferred Coupon Notes and the PTK DIBs) are as follows (dollars in millions):
PRINCIPAL
FISCAL YEARS PAYMENTS
- ------------ ----------
1995(a)................................................. $ 36.5
1996.................................................... 48.0
1997.................................................... 58.1
1998.................................................... 141.0
1999.................................................... 138.8
2000.................................................... 50.6
2001.................................................... 50.0
2002.................................................... 195.8
2003.................................................... 655.5
- ------------
(a) Subsequent to April 29, 1995
Liquidity:
The consolidated financial statements of the Company indicate that at April
29, 1995, current liabilities exceed its current assets by $131.4 million and
the Company's stockholder's deficit approximates $1.3 billion. Management
believes that cash flows generated from operations, supplemented by the unused
borrowing capacity under the Pathmark and Plainbridge Working Capital Facilities
and the availability of capital lease financing will be sufficient to pay the
Company's debts as they come due, provide for its capital expenditure program
and meet its seasonal cash requirements. Further, the Company believes it will
continue to be in compliance with its various debt covenants, which include
certain levels of operating cash flow (as defined), minimum interest coverage
and a maximum leverage ratio.
Holdings believes that it will be able to make the scheduled payments or
refinance its obligations with respect to its indebtedness through a combination
of operating funds and the Company's borrowing facilities. Future refinancing
may be necessary if cash flow from operations is not sufficient to meet its debt
service requirements related to the maturity of the Plainbridge Working Capital
Facility in Fiscal 1997, the maturity of the Pathmark Working Capital Facility
and certain mortgages in Fiscal 1998, the amortization and subsequent maturity
of the Pathmark Term Loan in Fiscal 1999 and the maturity of the Pathmark
Subordinated Notes and Pathmark Subordinated Debentures in Fiscal 2002. The
Company expects that it will be necessary to refinance all or a portion of the
Pathmark Senior Subordinated Notes, the Pathmark Deferred Coupon Notes and the
PTK DIBs due in Fiscal 2003. The Company may undertake a refinancing of some or
all of such indebtedness sometime prior to its maturity. The Company's ability
to make scheduled payments or to refinance its obligations with respect to its
indebtedness depends on its financial and operating performance, which, in turn,
is subject to prevailing economic conditions and to financial, business and
other factors beyond its control. Although the Company's cash flow from its
operations and borrowings has been sufficient to meet its debt service
obligations, there can be no assurance that the Company's operating results will
continue to
14
<PAGE>
be sufficient or that future borrowing facilities will be available for payment
or refinancing of Pathmark's and PTK's indebtedness or that future borrowing
facilities will be available. While it is the Company's intention to enter into
refinancings that it considers advantageous, there can be no assurances that the
prevailing market conditions will be favorable to the Company. In the event the
Company obtains any future refinancing on less than favorable terms, the holders
of outstanding indebtedness could experience increased credit risk and could
experience a decrease in the market value of their investment, because the
Company might be forced to operate under terms that would restrict its
operations and might find its cash flow reduced.
Preferred Stock Dividends:
The terms of the Exchangeable Preferred Stock provide for cumulative
quarterly dividends at an annual rate of $3.52 per share when, as, and if
declared by the Board of Directors of the Company. Dividends for the first 20
quarterly dividend periods (through October 15, 1992) were paid at the Company's
option in additional shares of Exchangeable Preferred Stock. Since January 15,
1993, all dividends not paid in cash will cumulate at the rate of $3.52 per
share per annum, without interest, until declared and paid. As such, at April
29, 1995, the unpaid dividends of $43.0 million were accrued and included in
other noncurrent liabilities.
Capital Expenditures:
Capital expenditures related to Pathmark supermarkets and drug stores for
the first quarter of Fiscal 1995, including property acquired under capital
leases, were approximately $15.6 million compared to approximately $13.2 million
for the prior-year period. During the first quarter of Fiscal 1995, the Company
completed three major renovations to existing supermarkets. During the remainder
of Fiscal 1995, the Company plans to open up to six new Pathmark 2000 format
stores, four of which will replace smaller stores, and plans to complete up to
29 major renovations and enlargements.
Cash Flows:
Net cash provided by operating activities amounted to $51.0 million in the
first quarter of Fiscal 1995 compared to $27.5 million in the prior-year period.
The increase in net cash provided by operating activities is primarily due to an
increase in net earnings and an improvement in cash provided by operating assets
and liabilities. Cash used for investing activities in the first quarter of
Fiscal 1995 was $4.8 million, primarily due to expenditures of property and
equipment of $10.0 million, partially offset by the proceeds of $4.8 million
related to the disposal of the home centers segment, compared to $12.9 million
in the first quarter of Fiscal 1994, primarily reflecting the expenditures for
property and equipment. Cash used for financing activities in the first quarter
of Fiscal 1995 was $48.0 million compared to $15.4 million in the prior-year
period. The increase in cash used for financing activities is primarily due to
the scheduled Term Loan repayments and a decrease in borrowings under the
Working Capital Facilities in Fiscal 1995.
Investment in Purity Supreme:
On April 24, 1995, a strategic buyer announced its plans to purchase Purity,
subject to completion of regulatory approval and compliance with terms and
conditions of the purchase agreement. The sale is expected to close later in
1995, with the Company expecting to receive approximately $16 million based upon
the announced price. Until the proposed transaction is consummated, no
adjustment will be made to the valuation allowance related to the securities
representing the Company's investment in Purity. Further, based on the announced
price, if the proposed transaction is consummated, a capital tax loss
carryforward of approximately $70 million will be generated. The benefit of such
capital tax loss carryforward will only be realized to the extent the Company
generates capital gains.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the quarter for which this
report has been filed.
SIGNATURE
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.
SUPERMARKETS GENERAL HOLDINGS CORPORATION
By /s/ RON MARSHALL
...................................
(Ron Marshall)
Executive Vice President
and Chief Financial Officer
By /s/ JOSEPH ADELHARDT
...................................
(Joseph Adelhardt)
Vice President and Controller,
Chief Accounting Officer
Date: June 13, 1995
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Supermarkets General Holdings Corporation's Consolidated Statements
of Operations for the 13 weeks ended April 29, 1995 and
Consolidated Balance Sheets as of April 29, 1995 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-3-1996
<PERIOD-END> APR-29-1995
<CASH> 6068
<SECURITIES> 15400
<RECEIVABLES> 13523
<ALLOWANCES> (858)
<INVENTORY> 254622
<CURRENT-ASSETS> 345860
<PP&E> 941204
<DEPRECIATION> (346894)
<TOTAL-ASSETS> 1011863
<CURRENT-LIABILITIES> 477309
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<COMMON> 10
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<TOTAL-LIABILITY-AND-EQUITY> 1011863
<SALES> 1039368
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<CGS> 742045
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</TABLE>
