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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________
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
August 3, 1996 0-16404
Supermarkets General Holdings Corporation
(Exact name of registrant as specified in its charter)
Delaware 13-3408704
(State of 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
offices)
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
___________________
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 August 3, 1996, 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 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
SUPERMARKETS GENERAL HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands)
<TABLE><CAPTION>
13 Weeks Ended 26 Weeks Ended
--------------------------------------------------------------
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
----------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Sales ........................................................... $ 994,715 $ 1,020,788 $ 1,955,945 $ 2,053,973
Cost of sales (exclusive of depreciation and amortization
shown separately below) ..................................... 697,514 726,333 1,374,130 1,462,195
--------- ----------- ----------- -----------
Gross profit .................................................... 297,201 294,455 581,815 591,778
Selling, general and administrative expenses .................... 237,237 233,342 469,538 466,835
Depreciation and amortization ................................... 21,458 20,117 42,132 40,096
----------- ------------ ------------- ------------
Operating earnings .............................................. 38,506 40,996 70,145 84,847
Gain on disposition of freestanding drug stores ................. -- 15,535 -- 15,535
Interest expense ................................................ (41,106) (43,750) (81,695) (86,920)
----------- ------------ ------------- ------------
Earnings (loss) before income tax benefit and extraordinary
items ....................................................... (2,600) 12,781 (11,550) 13,462
Income tax benefit ............................................. 878 19,941 4,503 19,840
----------- ------------ ------------- ------------
Earnings (loss) before extraordinary items ...................... (1,722) 32,722 (7,047) 33,302
Extraordinary items, net of an income tax benefit ............... (204) (675) (997) (927)
----------- ------------ ------------- ------------
Net earnings (loss) ............................................. (1,926) 32,047 (8,044) 32,375
Less: non-cash preferred stock accretion and dividend requirements (4,736) (4,721) (9,469) (9,437)
----------- ------------ ------------- ------------
Net income (loss) attributable to common stockholder............. $ (6,662) $ 27,326 $ (17,513) $ 22,938
=========== ============ ============= ============
</TABLE>
See notes to consolidated financial statements (unaudited).
1
<PAGE>
<TABLE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands except share amounts)
<CAPTION>
August 3, February 3,
1996 1996
---------- ------------
<S> <C> <C>
ASSETS
Currents Assets
Cash and cash equivalents .................................... $ 9,602 $ 12,526
Accounts receivable, net...................................... 10,975 10,840
Merchandise inventories....................................... 207,929 225,780
Income taxes receivable....................................... 3,939 1,163
Deferred income taxes ........................................ 7,848 8,254
Prepaid expenses.............................................. 25,068 25,211
Due from suppliers............................................ 14,661 13,178
Other current assets.......................................... 4,274 5,868
---------- ------------
Total Current Assets ................................... 284,296 302,820
Property and Equipment, Net....................................... 600,642 603,832
Deferred Financing Costs, Net..................................... 30,500 33,685
Deferred Income Taxes............................................. 29,200 26,805
Other Assets...................................................... 43,989 41,628
---------- ------------
$ 988,627 $ 1,008,770
========== ============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current Liabilities
Accounts payable.............................................. $ 174,782 $ 185,328
Book overdrafts .............................................. 44,518 43,989
Current maturities of long-term debt.......................... 58,639 51,753
Accrued payroll and payroll taxes............................. 51,679 54,427
Current portion of obligations under capital leases........... 20,677 20,684
Accrued interest payable...................................... 21,132 19,309
Accrued expense and other liabilities......................... 91,832 96,084
---------- ------------
Total Current Liabilities.............................. 463,259 471,574
---------- ------------
Long-Term Debt.................................................... 1,231,737 1,242,324
---------- ------------
Obligations Under Capital Leases, Long-Term....................... 145,004 140,166
---------- ------------
Other Noncurrent Liabilities...................................... 284,103 273,530
---------- ------------
Redeemable Securities
Exchangeable Preferred Stock, $.01 par value................... 104,494 103,633
Authorized: 9,000,000 shares
Issued and outstanding: 4,890,671 at August 3, 1996
and February 3, 1996
Liquidation preference, $25 per share: $122,267 at
August 3, 1996 and February 3, 1996
---------- ------------
Total Redeemable Securities............................. 104,494 103,633
---------- ------------
Commitments and Contingencies (Note 6)
Stockholder's Deficit
Class A Common Stock, $.01 par value.......................... 7 7
Authorized: 1,075,000 shares
Issued and outstanding: 650,675 shares at August 3,
1996 and February 3, 1996
Class B Common Stock, $.01 par value.......................... 3 3
Authorized: 1,000,000 shares
Issued and outstanding: 320,000 shares at August 3,
1996 and February 3, 1996
Paid-in Capital............................................... 196,810 197,671
Accumulated Deficit........................................... (1,436,790) (1,420,138)
---------- ------------
Total Stockholder's Deficit............................. (1,239,970) (1,222,457)
---------- ------------
$ 988,627 $ 1,008,770
========== ============
</TABLE>
See notes to consolidated financial statements (unaudited).
2
<PAGE>
<TABLE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT (Unaudited)
(in thousands except per share amounts)
<CAPTION>
Class A Class B Total
Common Common Paid-in Accumulated Stockholder'
Stock Stock Capital Deficit Deficit
------- ------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, February 3, 1996...................... $ 7 $ 3 $ 197,671 $ (1,420,138) $ (1,222,457)
Net loss .................................. - - - (8,044) (8,044)
Accrued dividends on preferred stock
($.88 per share)..................... - - - (8,608) (8,608)
Accretion on preferred stock............... - - (861) - (861)
------- ------- ---------- ------------- -------------
Balance, August 3, 1996........................ $ 7 $ 3 $ 196,810 $ (1,436,790) $ (1,239,970)
======= ======= ========== ============= =============
Balance at January 28, 1995.................... $ 7 $ 3 $ 199,135 $ (1,479,450) $ (1,280,305)
Net earnings............................... - - - 32,375 32,375
Accrued dividends on preferred stock
($.88 per share)..................... - - - (8,608) (8,608)
Accretion on preferred stock............... - - (829) - (829)
------- ------- ---------- ------------- -------------
Balance, July 29, 1995........................ $ 7 $ 3 $ 198,306 $ (1,455,683) $ (1,257,367)
======= ======= ========== ============= =============
</TABLE>
See notes to consolidated financial statements (unaudited).
3
<PAGE>
<TABLE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
<CAPTION>
26 Weeks Ended
---------------------------
August 3, July 29,
1996 1995
--------- ---------
<S> <C> <C>
Operating Activities
Net earnings (loss) ........................................................... $ (8,044) $ 32,375
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Extraordinary loss on early extinguishment of debt .................... 997 927
Depreciation and amortization ......................................... 43,824 41,396
Deferred income tax benefit ........................................... (1,685) (36,538)
Interest accrued but not payable ...................................... 8,122 7,318
Amortization of original issue discount ............................... 1,566 4,193
Amortization of debt issuance costs ................................... 3,637 3,558
Gain on disposal of property and equipment ............................ (5,461) (42)
Gain on disposition of freestanding drug stores ....................... -- (15,535)
Cash provided by (used for) operating assets and liabilities:
Accounts receivable, net .......................................... (135) 727
Merchandise inventories ........................................... 17,851 8,393
Income taxes ..................................................... (2,081) 17,629
Other current assets............................................... (855) 5,976
Other assets ...................................................... (3,272) (1,849)
Accounts payable .................................................. (10,546) (9,570)
Accrued interest payable .......................................... 1,823 1,183
Accrued expenses and other current liabilities .................... (8,458) (7,768)
Other noncurrent liabilities ...................................... 1,964 4,931
--------- ---------
Cash provided by operating activities ........................ 39,247 57,304
--------- ---------
Investing Activities
Property and equipment expenditures ........................................... (23,799) (26,430)
Proceeds from disposition of property and equipment ........................... 6,655 717
Proceeds from disposal of home centers segment ................................ -- 4,706
Proceeds from disposition of freestanding drug stores ......................... -- 60,521
--------- ---------
Cash provided by (used for) investing activities ............. (17,144) 39,514
--------- ---------
Financing Activities
Increase (decrease) in Working Capital Facilities borrowings .................. 16,000 (34,000)
Decrease in Pathmark Term Loan ................................................ (20,799) (42,500)
Increase in book overdrafts ................................................... 529 4,463
Increase in other borrowings................................................... 875 808
Repayment of other long-term borrowings ....................................... (6,457) (2,346)
Reduction in obligations under capital leases ................................. (10,048) (8,864)
Repayment of PTK Exchangeable Guaranteed Debentures .......................... (3,007) (25,113)
Premiums incurred in redemption of PTK Exchangeable Guaranteed Debentures
and other borrowings........................................................ (554) (1,392)
Deferred financing fees ....................................................... (1,566) --
--------- ---------
Cash used for financing activities ............................ (25,027) (108,944)
--------- ---------
Decrease in cash and cash equivalents ............................................. (2,924) (12,126)
Cash and cash equivalents at beginning of period .................................. 12,526 23,247
--------- ---------
Cash and cash equivalents at end of period ........................................ $ 9,602 $ 11,121
========= =========
Supplemental Disclosures of Cash Flow Information:
Interest paid ................................................................ $ 63,777 $ 67,565
========= =========
Income taxes paid ............................................................ $ 3,995 $ 2,419
========= =========
Noncash Investing and Financing Activities:
Capital lease obligations ..................................................... $ 19,790 $ 10,575
========= =========
See notes to consolidated financial statements (unaudited).
4
</TABLE>
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Unaudited)
Note 1-Organization and Basis of Presentation
Supermarkets General Holdings Corporation (the "Company" or "Holdings"),
through its indirect wholly owned subsidiary Pathmark Stores, Inc. ("Pathmark"),
operates 143 supermarkets, including 51 Pathmark 2000 format stores, in the
Middle Atlantic States, primarily in the New York-New Jersey and Philadelphia
metropolitan areas, and is a wholly owned subsidiary of SMG-II Holdings
Corporation ("SMG-II").
On March 1, 1996, Pathmark reacquired all of the outstanding capital stock
of Plainbridge, Inc. ("Plainbridge") by means of a capital contribution from its
parent, PTK, Inc. ("PTK").
The unaudited consolidated financial statements included herein have been
prepared by the Company in accordance with the same accounting principles
followed in the presentation of the Company's annual financial statements for
the year ended February 3, 1996, except for the new accounting standard adopted
effective February 4, 1996 (see Note 2), pursuant to the rules and regulations
of the Securities and Exchange Commission. In the opinion of management, the
consolidated financial statements included herein reflect all adjustments which
are of a normal and recurring nature and are necessary to present fairly the
results of operations and financial position of the Company. This report should
be read in conjunction with the financial statements and notes thereto included
in the Company's Form 10-K Annual Report for the year ended February 3, 1996.
The accompanying consolidated financial statements of the Company indicate
that at August 3, 1996 current liabilities exceed its current assets by $179.0
million and the Company's stockholder's deficit approximates $1.24 billion.
Management believes that cash flows generated from operations supplemented by
the unused borrowing capacity under the Working Capital Facility 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.
Income taxes for the interim period are based on the estimated effective tax
rate expected to be applicable for the full fiscal year.
Since the Company is a wholly owned subsidiary, earnings (loss) per share
information is not presented.
Note 2-New Accounting Standard
Effective February 4, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"). SFAS No.
121 establishes accounting standards for the measurement of the impairment of
long-lived assets, certain identifiable intangibles and goodwill related to
those assets. SFAS No. 121 requires that an asset to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
The Company has performed its review based upon groups of assets and the
undiscounted estimated future cash flows from such assets and determined that
the carrying value of such assets were recoverable from the respective cash
flows. The adoption of SFAS No. 121 did not have an effect on the financial
position or results of operations of the Company.
5
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Unaudited)-(Continued)
Note 2-New Accounting Standard-(Continued)
Selling, general and administrative expenses for the 26 weeks ended August
3, 1996 are net of a gain of $5.6 million related to the sale of certain real
estate.
Note 3-Long-Term Debt
Long-term debt is comprised of the following (dollars in thousands):
<TABLE>
<CAPTION>
August 3, February 3,
1996 1996
---------- ----------
<S> <C> <C>
Pathmark Term Loan.............................................. $ 267,156 $ 287,955
Working Capital Facilities...................................... 62,000 46,000
10.25% PTK Exchangeable Guaranteed Debentures due 2003.......... 26,060 27,679
9.625% Pathmark Senior Subordinated Notes due 2003............... 437,603 437,426
10.75% Pathmark Deferred Coupon Notes due 2003................... 160,002 151,881
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)................................. 35,430 41,011
---------- ----------
Total debt....................................................... 1,290,376 1,294,077
Less: current maturities......................................... 58,639 51,753
---------- ----------
Long-term portion................................................ $1,231,737 $1,242,324
========== ==========
</TABLE>
Note 4-Interest Expense
Interest expense is comprised of the following (dollars in thousands):
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
-------------------- --------------------
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Pathmark Term Loan................................ $ 5,813 $7,730 $11,714 $15,655
Working Capital Facilities........................ 1,446 1,690 2,656 2,980
9.625% Pathmark Senior Subordinated Notes.........
due 2003....................................
Amortization of original issue discount... 89 89 177 177
Currently payable......................... 10,587 10,587 21,175 21,175
10.75% Pathmark Deferred Coupon Notes
due 2003
Accrued but not payable................... 4,114 3,707 8,122 7,318
12.625% Pathmark Subordinated Debentures
due 2002.................................... 3,022 3,022 6,044 6,044
11.625% Pathmark Subordinated Notes due 2002...... 5,812 5,812 11,625 11,625
10.25% PTK Exchangeable Guaranteed
Debentures due 2003
Amortization of original issue discount... 658 1,940 1,389 4,016
Amortization of debt issuance costs............... 1,821 1,779 3,637 3,558
Obligations under capital leases.................. 4,698 4,036 9,040 8,084
Other, net........................................ 3,046 3,358 6,116 6,288
------- ------- ------- -------
Interest expense.................................. $41,106 $43,750 $81,695 $86,920
======= ======= ======= =======
The majority of the cash interest payments are scheduled in the second and fourth quarters.
</TABLE>
6
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Unaudited) - (Continued)
Note 5-Extraordinary Items
The extraordinary items, representing the loss on early extinguishment of
indebtedness, consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
------------------------ ------------------------
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Loss before income taxes $(352) $(1,140) $(1,692) $(1,392)
Income tax benefit 148 465 695 465
--------- -------- -------- --------
Extraordinary items, net of a tax benefit $(204) $ (675) $ (997) $ (927)
========= ======== ======== ========
</TABLE>
During the second quarter of Fiscal 1996, in connection with the proceeds
from the sale of certain mortgaged property, the Company made a mortgage paydown
of $5.3 million, including accrued interest and debt premium, resulting in a net
loss on early extinguishment of debt of $0.2 million, net of an income tax
benefit of $0.1 million.
During the first quarter of Fiscal 1996, in connection with the termination
of the Plainbridge credit agreement due to the reacquisition of Plainbridge by
Pathmark, the Company wrote off deferred financing fees, resulting in a net loss
on early extinguishment of debt of $0.7 million, net of an income tax benefit of
$0.5 million.
During the first quarter of Fiscal 1996, the Company also made a paydown of
$3.2 million of PTK Exchangeable Guaranteed Debentures, 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 $0.1
million, net of an income tax benefit of $0.1 million.
During the second quarter of Fiscal 1995, in connection with the proceeds
received related to the sale of 30 of its freestanding drug stores, the Company
was required to paydown $21.8 million of PTK Exchangeable Guaranteed Debentures.
The premium paid, including original issue discount, resulted in a net loss on
early extinguishment of debt of $0.7 million. During the first quarter of
Fiscal 1995, in connection with the final proceeds received related to the
disposition of the home centers segment, the Company was required to paydown
$4.7 million of PTK Exchangeable Guaranteed Debentures. The premium paid,
including original issue discount, resulted in a net loss on early
extinguishment of debt of $0.2 million.
Note 6-Contingencies
In connection with the sale of its home centers segment the Company has, as
lessor, entered into leases for certain real property with Rickel Home Centers
Inc. ("Rickel"), as tenant (the "Leases"), pursuant to which the Company is
entitled to receive annual aggregate rentals of approximately $6.9 million.
In addition, as part of the sale, the Company assigned to Rickel, and Rickel
assumed, various liabilities of the home centers segment, primarily third party
leases (the "Assumed Liabilities"). As of February 3, 1996, the estimated
present value of obligations under the Assumed Liabilities is approximately
$33.0 million. In January 1996, Rickel filed for bankruptcy protection under
Chapter 11 of the United States Bankruptcy Code. On April 29, 1996, the Company
filed its proofs of claim in connection with the bankruptcy proceedings. On
August 6, 1996, Rickel filed an order with the Bankruptcy Court to reject the
lease at Totowa, NJ. The estimated present value of this lease
7
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Unaudited) - (Continued)
Note 6 - Contingencies - (Continued)
obligation is approximately $5.1 million. Since the The bankruptcy is in its
early stages and it is too early to determine whether Rickel will reject any
additional Leases or the extent to which the Company may become liable with
respect to the Assumed Liabilities in the event of Rickel's nonpayment thereof.
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.
8
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
With the exception of historical information, the matters discussed herein
are "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to
risks, uncertainties and other factors which could cause actual results to
differ materially from future results expressed or implied by such
forward-looking statements. Potential risks and uncertainties include, but are
not limited to, the competitive environment in which the Company operates and
the general economic conditions in the Company's trading areas.
Results of Operations
Sales:
Sales for the second quarter of Fiscal 1996 were $994.71 million compared
to $1,020.8 million in the prior year. For the six-month period, sales were
$1,955.9 million compared to $2,054.0 million in the prior year. Fiscal 1996
sales were impacted by the disposition of the freestanding drug stores during
Fiscal 1995. Sales generated by the freestanding drug stores were $41.0 million
in the second quarter of Fiscal 1995 and $86.5 million in the six-month period
of Fiscal 1995. Same store sales from supermarkets increased 0.8% in the second
quarter and decreased 1.4% in the six-month period. The same store sales for
the six-month period of Fiscal 1996 were negatively impacted by the 3.5%
decrease in same store sales during the first quarter due to the inclement
weather during the quarter compared to the unusually mild weather in the same
period last year, as well as a significant increase in competitive new store
openings and remodels.
At quarter end, the Company operated 143 supermarkets, including 51
Pathmark 2000 format stores compared with the end of Fiscal 1995 when the
Company operated 144 supermarkets, including 44 Pathmark 2000 format stores.
Gross Profit:
Gross profit for the second quarter of Fiscal 1996 was $297.2 million or
29.9% of sales compared with $294.5 million or 28.8% of sales for the prior
year and for the six-month period of Fiscal 1996 was $581.8 million or 29.7%
of sales compared with $591.8 million or 28.8% of sales for the prior year.
Excluding the impact of the disposition of the freestanding drug stores, gross
profit as a percentage of sales was 29.1% for both the second quarter and
six-month period of Fiscal 1995. The improvement in gross profit as a
percentage of sales for the second quarter and six-month period compared to the
prior years was primarily due to increased focus on merchandising programs, the
impact of the disposition of the freestanding drug stores, as well as the
Company's continuing emphasis on the Pathmark 2000 format stores which allow
expanded variety in all departments particularly high margin perishables. The
decrease in gross profit for the six-month period of Fiscal 1996 of $581.8
million compared to the prior year of $591.8 million was primarily attributable
to the lower sales in the first quarter of Fiscal 1996. The cost of goods sold
comparisons were affected by a pretax LIFO charge of $0.8 million and $0.5
million for the second quarter of Fiscal 1996 and Fiscal 1995, respectively, and
a pretax LIFO charge of $1.7 million and $1.3 million for the six-month period
of Fiscal 1996 and Fiscal 1995, respectively.
Selling, General and Administrative Expenses ("SG&A"):
SG&A for the second quarter of Fiscal 1996 increased $3.9 million or 1.7%
compared to the prior year and increased $2.7 million or 0.6% for the six-month
period of Fiscal 1996 compared with the prior year. SG&A, on a proforma basis
eliminating the SG&A impact of the freestanding drug stores in prior year,
increased 5.9% and 5.2%, respectively, for the second quarter and six-month
period compared to the prior year. As a percentage of sales, SG&A were 23.8%
for the second quarter of Fiscal 1996, up from 22.9% in the prior year and were
24.0% for the six-month period of Fiscal 1996, up from 22.7% for the prior year.
The increase in SG&A as a percentage of sales for the second quarter and
six-month period of Fiscal 1996 compared to the prior years was primarily due to
higher labor and labor related expenses, promotional expenses and occupancy
costs, partially offset by the the impact of the disposition of the freestanding
drug stores in Fiscal 1995 and a curtailment gain of $2.0 million due to
9
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
the elimination of all retiree medical coverage for active non-union associates
in Fiscal 1996. SG&A for the six-month period of Fiscal 1996 also included a
first quarter provision of $5.8 million representing the termination costs for
two former executives of the Company and a first quarter gain of $5.6
million recognized on the sale of certain real estate.
Depreciation and Amortization:
Depreciation and amortization of $21.5 million for the second quarter of
Fiscal 1996 was $1.3 million higher than the prior year of $20.1 million.
For the six-month period of Fiscal 1996 depreciation and amortization of $42.1
million was $2.0 million higher than the prior year of $40.1 million. The
increase in depreciation and amortization expense for the second quarter and
six-month period of Fiscal 1996 compared to the prior years was primarily due to
capital expenditures. Depreciation and amortization excludes video tape
amortization, which is recorded in cost of goods sold, of $0.75 million and
$0.65 million in the second quarter of Fiscal 1996 and Fiscal 1995,
respectively, and $1.5 million and $1.3 million for the six-month period of
Fiscal 1996 and Fiscal 1995, respectively.
Disposition of Freestanding Drug Stores:
During the second quarter of Fiscal 1995, the Company made a decision to
dispose of its 36 freestanding drug stores and on July 28, 1995, through its
Pathmark subsidiary, completed the sale of 30 of its freestanding drug stores,
including merchandise inventory, to Rite-Aid Corporation for $59.9 million.
The Company recorded a pretax gain on the disposition of its freestanding drug
stores of $15.5 million, net of a $19.0 million charge related to the estimated
exit costs of the remaining six freestanding drug stores. Five of the remaining
six freestanding drug stores were closed during Fiscal 1995 and the sixth store
was closed during the second quarter of Fiscal 1996.
Operating Earnings:
Operating earnings for the second quarter of Fiscal 1996 were $38.5
million compared with the prior year of $41.0 million. For the six-month period
of Fiscal 1996, operating earnings were $70.1 million compared with $84.8
million for the prior year. The decrease in operating earnings during the
second quarter of Fiscal 1996 compared to the prior year was due to higher SG&A
and depreciation and amortization expense, partially offset by higher gross
profit. The decrease in operating earnings during the six-month period of
Fiscal 1996 compared to the prior year was due to lower sales in the first
quarter of Fiscal 1996 and higher SG&A and depreciation and amortization
expense.
Interest Expense:
Interest expense was $41.1 million for the second quarter of Fiscal 1996
compared to $43.8 million in the prior year and $81.7 million for the six-
month period of Fiscal 1996 compared to $86.9 million in the prior year due to
reductions in the Term Loan and the reduction in the amortization of PTK
Exchangeable Guaranteed Debentures original issue discount as a result of their
early paydown, along with lower interest rates.
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
benefit for the second quarter and the six-month period of Fiscal 1996 was $0.9
million and $4.5 million, respectively. Although the Company generated a
$4.5 million income tax benefit for the six-month period, management
expects an annual tax provision as a result of taxable income for the full
fiscal year. The income tax benefit for the second quarter and the six-month
period of Fiscal 1995 was $19.9 million and $19.8 million, respectively,
reflecting the reversal of the valuation allowance related to the deferred
income tax assets.
10
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
During the six-month period of Fiscal 1996, the Company made income
tax payments of $4.0 million and received income tax refunds of $2.9 million.
During the six-month period of Fiscal 1995, the Company made income tax payments
of $2.4 million and received income tax refunds of $8.0 million.
Extraordinary Items:
During the second quarter of Fiscal 1996, in connection with the proceeds
from the sale of certain mortgaged property, the Company made a mortgage paydown
of $5.3 million, including accrued interest and debt premiums, resulting in a
net loss on early extinguishment of debt of $0.2 million.
During the first quarter of Fiscal 1996, in connection with the termination
of the Plainbridge credit agreement due to the reacquisition of Plainbridge by
Pathmark, the Company wrote off deferred financing fees, resulting in a net loss
on early extinguishment of debt of $0.7 million.
During the first quarter of Fiscal 1996, the Company also made a paydown of
$3.2 million of PTK Exchangeable Guaranteed Debentures. The premium paid,
including original issue discount, resulted in a net loss on early
extinguishment of debt of $0.1 million.
During the second quarter of Fiscal 1995 in connection with the proceeds
received related to the sale of 30 of its freestanding drug stores, the Company
was required to paydown $21.8 million of PTK Exchangeable Guaranteed Debentures.
The premium paid, including original issue discount, resulted in a net loss on
early extinguishment of debt of $0.7 million.
During the first quarter of Fiscal 1995, in connection with the proceeds
received related to the disposition of the home centers segment, the Company
made a paydown of $4.7 million of PTK Exchangeable Guaranteed Debentures. The
premium paid, including original issue discount, resulted in a net loss on early
extinguishment of debt of $0.3 million.
Summary of Operations:
For the second quarter of Fiscal 1996, the Company's net loss was $1.9
million compared to net earnings of $32.0 million for the prior year and for
the six-month period of Fiscal 1996, the Company's net loss was $8.0 million
compared to earnings of $32.4 million for the prior year. The decrease in
earnings for the second quarter and six-month period of Fiscal 1996 compared
to the prior year was primarily due to lower operating earnings, the gain on
disposition of the freestanding drug stores in Fiscal 1995, and a higher income
tax benefit in Fiscal 1995, partially offset by lower interest expense in Fiscal
1996.
Financial Condition
Debt Service:
During the six-month period of Fiscal 1996, total debt decreased $3.7
million from Fiscal 1995 year end primarily due to scheduled Pathmark Term Loan
repayments and the paydown of the PTK Exchangeable Guaranteed Debentures,
partially offset by borrowings under the Pathmark Working Capital Facility and
debt accretion on Pathmark Deferred Coupon Notes and PTK Exchangeable Guaranteed
Debentures. Borrowings under the Pathmark Working Capital Facility were $62.0
million at August 3, 1996 and have decreased to $28.5 million at September 12,
1996.
11
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
In conjunction with the Pathmark reacquisition of the Plainbridge capital
stock, the outstanding obligations of Plainbridge under its credit agreement
were satisfied by Pathmark and the Plainbridge credit agreement was terminated.
The Company, through its Pathmark subsidiary, simultaneously entered into an
amendment to its credit agreement with its existing lenders increasing the
Company's Working Capital Facility from $175 million to $200 million (of which
the maximum of $125.0 million can be in letters of credit) to satisfy any
additional liquidity needs and prospectively modifying certain of its financial
covenants to take into account the operations of Plainbridge. The Pathmark
Working Capital Facility is subject to an annual cleandown provision. Under the
terms of the cleandown provision, in each fiscal year loans cannot exceed $60.0
million (formerly $50.0 million) under the Pathmark Working Capital Facility for
a period of 30 consecutive days. Pathmark satisfied the terms of the Fiscal
1996 cleandown provision during the first quarter.
The indebtedness under the Pathmark Working Capital Facility 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 very 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 if 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 Exchangeable Guaranteed Debentures) are as
follows (dollars in million):
Principal
Fiscal Years Payments
------------ --------
1996(a) ................................. $ 30.7
1997 .................................... 55.5
1998 .................................... 156.0
1999 .................................... 128.1
2000 .................................... 50.2
2001 .................................... 50.0
2002 .................................... 194.8
2003 .................................... 625.1
__________
(a) Subsequent to August 3, 1996.
Liquidity:
The consolidated financial statements of the Company indicate that at
August 3, 1996, current liabilities exceed its current assets by $179.0 million
and the stockholder's deficit approximates $1.24 billion. Management believes
that cash flows generated from operations, supplemented by the unused borrowing
capacity under the Pathmark Working Capital Facility 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.
12
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
The Company 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
will be necessary if the Company's cash flow from operations is not sufficient
to meet its debt service requirements related to the maturity of a portion of
the Pathmark Term Loan, the Pathmark Working Capital Facility and certain
mortgages in Fiscal 1998, the amortization and subsequent maturity of the
balance 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 Exchangeable Guaranteed Debentures 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 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 refinancing 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, 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 August 3, 1996,
the unpaid dividends of $64.6 million were accrued and included in other
noncurrent liabilities.
Capital Expenditures:
Capital expenditures for the second quarter of Fiscal 1996, including
property acquired under capital leases, were approximately $27.9 million
compared to approximately $20.8 million for the prior year and for the six-month
period of Fiscal 1996 were approximately $43.6 million compared to $37.0
million for the prior year. During the six-month period of Fiscal 1996, the
Company opened three new Pathmark 2000 format stores, two of which replaced
smaller stores, and completed six major renovations and enlargements to existing
supermarkets. During the remainder of Fiscal 1996, the Company plans to open as
many as three new Pathmark 2000 format stores and plans to complete up to 21
major renovations and enlargements.
Cash Flows:
Cash provided by operating activities amounted to $39.2 million in the six-
month period of Fiscal 1996 compared to $57.3 million in the prior year. The
decrease in net cash provided by operating activities is primarily due to a
decline in cash provided by operating assets and liabilities and a decrease in
net earnings. Cash used for investing activities in the six-month period of
Fiscal 1996 was $17.1 million primarily due to expenditures of property and
equipment, partially offset by proceeds from property dispositions. During the
six-month period of Fiscal 1995, cash provided by investing activities was $39.5
million primarily reflecting the proceeds from the disposition of the
freestanding
13
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
drug stores and the disposal of the home centers segment, partially
offset by the expenditures for property and equipment. Cash used for financing
activities in the six-month period of Fiscal 1996 was $25.0 million compared to
$108.9 million in the prior year. The decrease in cash used for financing
activities is primarily due to an increase in borrowings under the Working
Capital Facility, a decrease in the repayment of PTK Exchangeable Guaranteed
Debentures and a paydown of $25.0 million on the Term Loan in Fiscal 1995 in
conjunction with the disposition of the freestanding drug stores, partially
offset by a decrease in book overdrafts.
14
<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)
Senior Vice President and Controller,
Chief Accounting Officer
Date: September 16, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM SUPERMARKETS GENERAL
HOLDINGS CORPORATION'S CONSOLIDATED FINANCIAL STATEMENT OF OPERATIONS FOR THE 26
WEEKS ENDED AUGUST 3, 1996 AND CONSOLIDATED BALANCE SHEET AS OF AUGUST 3, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> AUG-03-1996
<CASH> 9,602
<SECURITIES> 0
<RECEIVABLES> 12,298
<ALLOWANCES> (1,323)
<INVENTORY> 207,929
<CURRENT-ASSETS> 284,296
<PP&E> 980,832
<DEPRECIATION> (380,190)
<TOTAL-ASSETS> 988,627
<CURRENT-LIABILITIES> 463,259
<BONDS> 1,231,737
104,494
0
<COMMON> 10
<OTHER-SE> (1,239,980)
<TOTAL-LIABILITY-AND-EQUITY> 988,627
<SALES> 1,955,945
<TOTAL-REVENUES> 1,955,945
<CGS> 1,374,130
<TOTAL-COSTS> 1,374,130
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 72
<INTEREST-EXPENSE> (81,695)
<INCOME-PRETAX> (11,550)
<INCOME-TAX> 4,503
<INCOME-CONTINUING> (7,047)
<DISCONTINUED> 0
<EXTRAORDINARY> (997)
<CHANGES> 0
<NET-INCOME> (8,044)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
