<PAGE>
==============================================================================
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
APRIL 29, 2000 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.)
200 MILIK STREET 07008
CARTERET, NEW JERSEY (Zip Code)
(Address of principal executive offices)
(732) 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 June 1, 2000, 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.
==============================================================================
See notes to consolidated financial statements (unaudited).
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
SUPERMARKETS GENERAL HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands)
13 WEEKS ENDED
-----------------------
APRIL 29, MAY 1,
2000 1999
-------- --------
Sales $ 919,196 $ 894,457
Cost of sales (exclusive of depreciation
and amortization shown separately below) 661,544 639,510
--------- ---------
Gross profit 257,652 254,947
Selling, general and administrative expenses 217,849 206,519
Depreciation and amortization 18,928 18,227
--------- ---------
Operating earnings 20,875 30,201
Interest expense (42,136) (39,475)
--------- ---------
Loss before income taxes (21,261) (9,274)
Income tax provision (24) (25)
--------- ---------
Net loss (21,285) (9,299)
Less: non-cash preferred stock accretion and
dividend requirements (4,810) (4,788)
--------- ---------
Net loss attributable to common stockholder $ (26,095) $ (14,087)
========= =========
See notes to consolidated financial statements (unaudited).
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands except per share amounts)
APRIL 29, JANUARY 29,
2000 2000
-------- ---------
ASSETS
Current assets
Cash $ 12,948 $ 16,034
Accounts receivable, net 14,197 15,787
Income taxes receivable 401 709
Merchandise inventories 151,691 141,559
Deferred income taxes, net 2,452 2,598
Prepaid expenses 21,738 21,183
Due from suppliers 47,858 53,975
Other current assets 17,101 18,134
----------- -----------
Total current assets 268,386 269,979
Property and equipment, net 466,019 472,157
Deferred financing costs, net 11,657 11,805
Deferred income taxes, net 45,336 45,190
Other noncurrent assets 48,856 45,436
----------- -----------
$ 840,254 $ 844,567
=========== ===========
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities
Accounts payable and book overdrafts $ 80,759 $ 89,434
Current maturities of long-term debt 1,343,670 78,982
Accrued payroll and payroll taxes 45,463 50,766
Current portion of lease obligations 24,286 25,192
Accrued interest payable 53,830 26,850
Accrued expenses and other current liabilities 84,973 80,058
----------- -----------
Total current liabilities 1,632,981 351,282
----------- -----------
Long-term debt -- 1,264,103
----------- -----------
Lease obligations, long-term 181,488 173,289
----------- -----------
Other noncurrent liabilities 373,221 377,852
----------- -----------
Redeemable securities
Exchangeable preferred stock, $0.01 par value 111,544 111,041
----------- -----------
Authorized: 9,000,000 shares
Issued and outstanding: 4,890,671 shares
Liquidation preference, $25 per share: $122,267
Commitments and contingencies
Stockholder's deficiency
Class A common stock, $0.01 par value 7 7
Authorized: 1,075,000 shares
Issued and outstanding: 650,675 shares
Class B common stock, $0.01 par value 3 3
Authorized: 1,000,000 shares
Issued and outstanding: 320,000 shares
Paid-in capital 194,286 194,677
Accumulated deficit (1,653,276) (1,627,687)
----------- -----------
Total stockholder's deficiency (1,458,980) (1,433,000)
----------- -----------
$ 840,254 $ 844,567
=========== ===========
See notes to consolidated financial statements (unaudited).
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIENCY (UNAUDITED)
(in thousands except per share amounts)
<TABLE>
<CAPTION>
CLASS A CLASS B TOTAL
COMMON COMMON PAID-IN ACCUMULATED STOCKHOLDER'S
STOCK STOCK CAPITAL DEFICIT DEFICIENCY
----- ----- -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance, January 30, 1999 $ 7 $ 3 $ 196,357 $(1,578,601) $(1,382,234)
Net loss -- -- -- (31,871) (31,871)
Accrued dividends on preferred stock
($3.52 per share) -- -- -- (17,215) (17,215)
Accretion on preferred stock -- -- (1,969) -- (1,969)
Capital contribution from SMG-II
Holdings Corporation -- -- 289 -- 289
----------- ----------- ----------- ----------- -----------
Balance, January 29, 2000 7 3 194,677 (1,627,687) (1,433,000)
Net loss -- -- -- (21,285) (21,285)
Accrued dividends on preferred stock
($0.88 per share) -- -- -- (4,304) (4,304)
Accretion on preferred stock -- -- (506) -- (506)
Capital contribution from SMG-II
Holdings Corporation -- -- 115 -- 115
----------- ----------- ----------- ----------- -----------
Balance, April 29, 2000 $ 7 $ 3 $ 194,286 $(1,653,276) $(1,458,980)
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements (unaudited).
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
13 WEEKS ENDED
---------------------
April 29, May 1,
2000 1999
-------- -------
<S> <C> <C>
Operating Activities
Net loss $(21,285) $ (9,299)
Adjustments to reconcile net loss to net cash provided by (used for)
operating activities:
Depreciation and amortization 21,072 19,069
Interest accruable but not payable 8 5,597
Amortization of original issue discount 89 89
Amortization of deferred financing costs 1,108 1,084
Gain on sale or disposal of property and equipment (1,801) (382)
Cash provided by (used for) operating assets and liabilities:
Accounts receivable, net 1,590 929
Income taxes receivable 308 (273)
Merchandise inventories (10,132) (7,307)
Due from suppliers 6,117 2,558
Other current assets (1,653) (3,905)
Noncurrent assets (3,449) (3,604)
Accounts payable (12,005) (4,503)
Accrued interest payable 26,995 18,317
Accrued expenses and other current liabilities (388) (8,601)
Noncurrent liabilities (8,233) (8,414)
-------- --------
Cash provided by (used for) operating activities (1,659) 1,355
-------- --------
Investing Activities
Property and equipment expenditures (9,282) (12,179)
Proceeds from sale or disposal of property and equipment 9,799 880
-------- --------
Cash provided by (used for) investing activities 517 (11,299)
-------- --------
Financing Activities
Increase in Pathmark working capital facility borrowings 6,700 11,900
Repayments of the Pathmark term loan (5,229) (1,892)
Repayment of other long-term debt (982) (605)
Increase in book overdrafts 3,330 6,549
Reduction in lease obligations (4,803) (4,735)
Deferred financing costs (960) (427)
-------- --------
Cash provided by (used for) financing activities (1,944) 10,790
-------- --------
Increase (decrease) in cash (3,086) 846
Cash at beginning of period 16,034 7,726
-------- --------
Cash at end of period $ 12,948 $ 8,572
======== ========
Supplemental Disclosures of Cash Flow Information
Interest paid $ 13,892 $ 14,358
======== ========
Income taxes paid $ 16 $ 354
======== ========
Noncash Investing and Financing Activities
Capital lease obligations $ 12,503 $ 13,840
======== ========
</TABLE>
See notes to consolidated financial statements (unaudited).
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1--MANAGEMENT'S FINANCIAL RESTRUCTURING PLAN
The consolidated financial statements of Supermarkets General Holdings
Corporation (the "Company") indicated that, at April 29, 2000, current
liabilities exceeded current assets by $1.4 billion and the stockholder's
deficiency was $1.5 billion. Historically, cash flows generated from operations,
supplemented by the unused borrowing capacity under the Company's working
capital facility and the availability of capital lease financing were sufficient
to pay the Company's debts as they came due, provide for its capital expenditure
program and meet its other cash requirements.
Management evaluated its Fiscal 2000 cash flow projections and debt
service requirements and based upon this evaluation, the Company does not
anticipate making all of its scheduled debt payments. The Company's Fiscal
2000 debt requirements increase substantially over the prior year due
primarily to the semi-annual interest payments of $12.1 million on the 10.75%
Pathmark Stores, Inc. ("Pathmark") Junior Subordinated Deferred Coupon Notes
(the "Pathmark Junior Subordinated Notes") which, for the first time, were
required to be paid in cash on May 1, 2000 and the sinking fund payment of
$50.0 million on the 11.625% Pathmark Subordinated Notes due 2002 ("Pathmark
Subordinated Notes") on June 15, 2000.
On May 1, 2000, the Company elected not to make interest payments of $21.2
million on its $440 million of 9.625% Pathmark Senior Subordinated Notes due
2003 (the "Pathmark Senior Subordinated Notes") and $12.1 million on its
Pathmark Junior Subordinated Notes. On May 31, 2000, the grace period under
each of the Indentures governing the Pathmark Senior Subordinated Notes and
Pathmark Junior Subordinated Notes expired. The failure to make these
scheduled interest payments constitutes an Event of Default under the
Indentures governing the applicable bonds and also constitutes an Event of
Default pursuant to the Credit Agreement. In addition, the Company was not in
compliance with several of its financial covenants under the Credit Agreement
at April 29, 2000 and based on management's projections, the Company believes
that it most likely will not comply with such covenants throughout Fiscal
2000. However, the Company and its lenders under the Credit Agreement have
entered into a Waiver Agreement pursuant to which said lenders have agreed to
waive compliance by the Company with certain provisions of the Credit
Agreement through July 29, 2000, including financial covenants and any Event
of Default to the extent arising out of a failure to pay any material
indebtedness. As a result of such defaults, the Company's long-term debt in
the amount of $1.3 billion became due currently and has been classified as
current at April 29, 2000.
On March 22, 2000, the Company disclosed that it had retained Wasserstein
Perella & Co. to assist it in developing a financial restructuring plan and
that an ad hoc committee of its bondholders (the "Bondholder Committee") had
been formed. The Company commenced discussions with the Bondholder Committee
towards developing a consensual financial restructuring plan. The Company
announced on June 2, 2000 that it had reached an agreement with the
Bondholder Committee regarding a financial restructuring plan of the Company.
Members of the Bondholder Committee hold or control $445.7 million principal
amount, or approximately 46% of the Company's total bond indebtedness
outstanding, including over 37% of the outstanding principal amount of the
Pathmark Senior Subordinated Notes, 48% of the outstanding principal amount
of the Pathmark Subordinated Notes, 65% of the outstanding principal amount
of the 12.625% Pathmark Subordinated Debentures due 2002 (the "Pathmark
Subordinated Debentures") and 49% of the outstanding principal amount of the
Pathmark Junior Subordinated Notes. Solicitation of acceptances of the
financial restructuring plan, to be accomplished through a prepackaged plan
of reorganization (the "Prepackaged Plan"), commenced on June 8, 2000. The
Prepackaged Plan provides that, upon consummation of the reorganization,
current holders of the Company's bond indebtedness will receive 100% of the
opening common stock of the reorganized Pathmark ("New Common Stock"). Such
ownership is subject to dilution from (1) the exercise of ten-year warrants
to purchase 15% of the diluted New Common Stock of the reorganized Pathmark
(the "New Warrants"), (2) the exercise of any options to purchase New Common
Stock issued pursuant to the Company's long-term management incentive plan,
and (3) the grant to the Chief Executive Officer of restricted New Common
Stock. In addition to New Common Stock, holders of the Pathmark Subordinated
Notes, the Pathmark Subordinated Debentures and the Pathmark Junior
Subordinated Notes will receive New Warrants. The New Warrants will be
exercisable at the opening reorganization equity value established in
connection with the Prepackaged Plan.
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 1--MANAGEMENT'S FINANCIAL RESTRUCTURING PLAN--(CONTINUED)
Pursuant to the Prepackaged Plan and in full satisfaction of their claims,
(1) holders of Pathmark Senior Subordinated Notes will receive 77.57% of the
New Common Stock (2) holders of Pathmark Subordinated Notes and Pathmark
Subordinated Debentures will receive their ratable share of 19.29% of the New
Common Stock and 75% of the New Warrants, (3) holders of Pathmark Junior
Subordinated Notes will receive 2.97% of the New Common Stock and 25% of the
New Warrants, and (4) holders of approximately $0.98 million of the Company's
11.625% Subordinated Notes due 2002, which Subordinated Notes are guaranteed
by Pathmark, will receive 0.17% of the New Common Stock, subject to dilution
as described in the preceding paragraph.
The Prepackaged Plan provides that holders of the Company's Cumulative
Exchangeable Redeemable Preferred Stock ("Exchangeable Preferred Stock") are
to receive their ratable portions of cash of $0.5 million payable upon the
effective date of the Prepackaged Plan.
As part of the Prepackaged Plan, trade creditors will not be affected and
there will be no employee layoffs.
The Company is seeking to obtain acceptances from a majority in number of
holders and at least 66-2/3% of the dollar amount of each class of bonds
voting on the Prepackaged Plan. Unless extended by the Company, the voting
deadline with respect to the Prepackaged Plan is July 7, 2000. Upon the
requisite acceptances being obtained, it is the Company's intention to
promptly file the Prepackaged Plan under Chapter 11 of the U.S. Bankruptcy
Code and to exit from Bankruptcy in the third quarter of this year.
In connection with its financial restructuring plan, the Company received
a commitment from The Chase Manhattan Bank for a $75 million
debtor-in-possession ("DIP") financing facility in support of the Prepackaged
Plan and a $600 million senior secured credit facility (the "Exit
Financing"). The DIP financing, which is subject to approval by the
Bankruptcy Court, will enable the Company to continue normal business
operations during the restructuring proceedings. The Exit Financing will be
used to repay in full the existing Credit Agreement and the DIP financing
facility, pay expenses of the Prepackaged Plan and will provide approximately
$200 million of liquidity for its post-reorganization operations.
The consolidated financial statements of the Company presented herein reflect
$5.1 million of professional fees related to the financial reorganization, of
which $4.2 million is included in accrued expenses.
NOTE 2--ORGANIZATION AND BASIS OF PRESENTATION
The Company, through its indirect wholly owned subsidiary, Pathmark, operated
135 supermarkets as of April 29, 2000, primarily in the New York, New Jersey and
Philadelphia metropolitan areas, and is a wholly owned subsidiary of SMG-II
Holdings Corporation ("SMG-II").
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 January 29, 2000, 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 January 29, 2000.
Income taxes for the interim period are based on the estimated effective
tax rate expected to be applicable for the full fiscal year. The Company has
recorded a valuation allowance related to the income tax benefit for the
first quarters of Fiscal 2000 and Fiscal 1999, therefore, no income tax
benefit has been recognized.
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 3--LONG-TERM DEBT
Long-term debt is comprised of the following (dollars in thousands):
<TABLE>
<CAPTION>
APRIL 29, JANUARY 29,
2000 2000
--------- -----------
<S> <C> <C>
Pathmark Term Loan ("Pathmark Term Loan") $ 236,213 $ 241,442
Pathmark Working Capital Facility ("Pathmark Working
Capital Facility") 116,500 109,800
9.625% Pathmark Senior Subordinated Notes due 2003
("Pathmark Senior Subordinated Notes") 438,933 438,844
11.625% Pathmark Subordinated Notes due 2002
("Pathmark Subordinated Notes") 199,017 199,017
11.625% Holdings Subordinated Notes due 2002
("Holdings Subordinated Notes") 983 983
12.625% Pathmark Subordinated Debentures due 2002
("Pathmark Subordinated Debentures") 95,750 95,750
10.75% Pathmark Junior Subordinated Deferred Coupon Notes
due 2003 ("Pathmark Junior Subordinated Notes") 225,141 225,133
Industrial revenue bonds 8,195 8,217
Other debt (primarily mortgages) 22,938 23,899
---------- ----------
Total debt 1,343,670 1,343,085
Less: current maturities 1,343,670(a) 78,982
---------- ----------
Long-term portion $ -- $1,264,103
========== ==========
</TABLE>
-------
(a) Current maturities would have been $125.8 million without the Event of
Default (see Note 1).
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE 4--INTEREST EXPENSE
Interest expense is comprised of the following (dollars in thousands):
13 WEEKS ENDED
------------------
APRIL 29, MAY 1,
2000 1999
------ ------
Pathmark Term Loan $ 5,180 $ 4,837
Pathmark Working Capital Facility 2,268 1,101
Pathmark Senior Subordinated Notes
Amortization of original issue discount 89 89
Currently payable(a) 10,587 10,587
Pathmark Subordinated Notes 5,813 5,813
Pathmark Subordinated Debentures 3,022 3,022
Pathmark Junior Subordinated Notes
Accrued but not payable 8 5,597
Currently payable(a) 6,053 --
Amortization of debt issuance costs 1,108 1,084
Lease obligations 5,367 5,107
Other, net 2,641 2,238
------- -------
Interest expense $42,136 $39,475
======= =======
-------
(a) See Note 1.
NOTE 5--COMMITMENTS AND CONTINGENCIES
RICKEL:
In connection with the sale of its home centers segment in Fiscal 1994,
the Company, as lessor, entered into ten leases for certain of the Company's
owned real estate properties, including a distribution center, with Rickel as
tenant. In addition, the Company assigned 25 third-party leases to Rickel. In
1996, Rickel filed for bankruptcy protection under Chapter 11 of the United
States Bankruptcy Code. Subsequent to the bankruptcy filing, of the 35
locations leased to Rickel, 16 leases were assigned by Rickel in 1998 to
Staples, Inc., 13 leases have either been terminated, sold or assigned to
third parties, including Rickel's distribution center which was sold by the
Company during Fiscal 1998, and six leases, which were rejected, are being
actively marketed by the Company to other prospective tenants.
Management has assessed its exposure with respect to this matter and has
concluded that it has sufficient reserves to cover any resulting liability which
may occur, including the future rent and real estate taxes, net of expected
recoveries.
INFORMATION SERVICES OUTSOURCING:
In August 1991, the Company entered into a ten-year agreement with IBM to
provide a wide range of information systems services. Under the agreement, IBM
has taken over the Company's data center operations and mainframe processing and
information system functions and is providing business applications and systems
designed to enhance the Company's customer service and efficiency. The charges
under this agreement are based upon the services requested at predetermined
rates. The Company may terminate the agreement upon 90 days notice with payment
of a specified termination charge. The Company is in discussions with IBM for an
extension of the agreement.
OTHER:
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
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, cash flows or business of the
Company.
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SALES:
Sales in the first quarter of Fiscal 2000 were $919.2 million compared to
$894.5 million in the prior year, an increase of 2.8%. The sales increase was
primarily due to new stores opened in Fiscal 2000. In addition, same store sales
increased 0.7% in the first quarter of Fiscal 2000. The Company operated 135 and
133 supermarkets at the end of the first quarters of Fiscal 2000 and Fiscal
1999, respectively.
GROSS PROFIT:
Gross profit in the first quarter of Fiscal 2000 was $257.7 million or 28.0%
of sales compared with $254.9 million or 28.5% of sales in the prior year. The
increase in gross profit dollars for the first quarter of Fiscal 2000 compared
to the prior year was primarily due to higher sales partially offset by higher
shrink and promotional expenses. The cost of goods sold comparisons were
affected by a pretax LIFO charge of $0.4 million in each of the first quarters
of Fiscal 2000 and Fiscal 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A"):
SG&A in the first quarter of Fiscal 2000 increased $11.3 million or 5.5%
compared to the prior year primarily due to higher store labor and
labor-related expenses and nonrecurring expenses of $5.1 million related to
the financial restructuring plan, partially offset by a gain on the sale of
certain real estate of $1.8 million. As a percentage of sales, SG&A was 23.7%
in the first quarter of Fiscal 2000, compared to 23.1% in the prior year.
Excluding the nonrecurring expenses related to the financial restructuring
plan, SG&A as a percentage to sales was 23.1% in the first quarter of Fiscal
2000.
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization of $18.9 million in the first quarter of
Fiscal 2000 was $0.7 million higher than the prior year of $18.2 million
primarily due to property and equipment additions. Depreciation and amortization
excludes video tape amortization, which is recorded in cost of goods sold, of
$2.0 million in the first quarter of Fiscal 2000, compared to $0.8 million in
the prior year.
OPERATING EARNINGS:
Operating earnings in the first quarter of Fiscal 2000 were $20.9 million
compared with the prior year of $30.2 million. The decrease in operating
earnings in the first quarter of Fiscal 2000 compared to the prior year was due
to higher SG&A and depreciation and amortization expense, partially offset by
higher gross profit.
INTEREST EXPENSE:
Interest expense was $42.1 million in the first quarter of Fiscal 2000
compared to $39.5 million in the prior year. The increase in interest expense
in the first quarter of Fiscal 2000 compared to the prior year was primarily
due to higher levels of borrowings and higher rates under the Pathmark
Working Capital Facility and the debt accretion on the Pathmark Junior
Subordinated Notes.
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 Company has
recorded a valuation allowance related to the income tax benefit for the
first quarters of Fiscal 2000 and Fiscal 1999; therefore, no income tax
benefit has been recognized. The Company believes that it is more likely than
not that the net deferred income tax asset of $47.8 million at April 29, 2000
will be realized through the implementation of tax strategies which could
generate taxable income.
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
During the first quarter of Fiscal 2000, the Company made income tax
payments of $0.02 million and received income tax refunds of $0.3 million.
During the first quarter of Fiscal 1999, the Company made income tax payments of
$0.4 million and received income tax refunds of $0.03 million.
SUMMARY OF OPERATIONS:
The Company's net loss in the first quarter of Fiscal 2000 was $21.3 million
compared to a net loss of $9.3 million for the prior year. The increase in net
loss in the first quarter of Fiscal 2000 compared to the prior year was
primarily due to lower operating earnings and higher interest expense.
COMPREHENSIVE INCOME:
The Company has no items of comprehensive income other than net income and,
accordingly, the total comprehensive loss is the same as the reported net loss
for all periods presented.
EBITDA-FIFO:
EBITDA-FIFO was $45.7 million and $49.3 million in the first quarters of
Fiscal 2000 and Fiscal 1999, respectively. EBITDA-FIFO represents net earnings
before interest expense, income taxes, depreciation and amortization, expenses
related to the financial reorganization plan, the gain on sale of certain real
estate and the LIFO charge. EBITDA-FIFO is a widely accepted financial indicator
of a company's ability to service and/or incur debt. EBITDA-FIFO should not be
construed as an alternative to, or a better indicator of, operating earnings or
to cash flows from operating activities, as determined in accordance with
generally accepted accounting principles.
FINANCIAL CONDITION
DEBT SERVICE:
During the first quarter of Fiscal 2000, total debt increased $0.6 million
from Fiscal 1999 year end due to increased borrowings under the Pathmark Working
Capital Facility, partially offset by reductions in the Pathmark Term Loan and a
decrease in certain mortgages. Borrowings under the Pathmark Working Capital
Facility were $116.5 million at April 29, 2000 and $103.3 million at June 7,
2000. In addition, during the first quarter of Fiscal 2000, total lease
obligations increased $7.3 million from Fiscal 1999 year end.
The indebtedness under the Pathmark Working Capital Facility and the
Pathmark Term Loan bear interest at floating rates and, therefore, 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 if deemed appropriate.
LIQUIDITY:
The consolidated financial statements of the Company indicated that, at
April 29, 2000, current liabilities exceeded current assets by $1.4 billion and
the stockholder's deficiency was $1.5 billion. Historically, cash flows
generated from operations, supplemented by the unused borrowing capacity under
the Company's working capital facility and the availability of capital lease
financing were sufficient to pay the Company's debts as they came due, provide
for its capital expenditure program and meet its other cash requirements.
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
Management evaluated its Fiscal 2000 cash flow projections and debt
service requirements and based upon this evaluation, the Company does not
anticipate making all of its scheduled debt payments. The Company's Fiscal
2000 debt requirements increase substantially over the prior year due
primarily to the semi-annual interest payments of $12.1 million on the
Pathmark Junior Subordinated Notes which, for the first time, were required
to be paid in cash on May 1, 2000 and the sinking fund payment of $50.0
million on the Pathmark Subordinated Notes on June 15, 2000.
On May 1, 2000, the Company elected not to make interest payments of $21.2
million on its $440 million of Pathmark Senior Subordinated Notes and $12.1
million on its Pathmark Junior Subordinated Notes. On May 31, 2000, the grace
period under each of the Indentures governing the Pathmark Senior
Subordinated Notes and Pathmark Junior Subordinated Notes expired. The
failure to make these scheduled interest payments constitutes an Event of
Default under the Indentures governing the applicable bonds and also
constitutes an Event of Default pursuant to the Credit Agreement. In
addition, the Company was not in compliance with several of its financial
covenants under the Credit Agreement at April 29, 2000 and based on
management's projections, the Company believes that it most likely will not
comply with such covenants throughout Fiscal 2000. However, the Company and
its lenders under the Credit Agreement have entered into a Waiver Agreement
pursuant to which said lenders have agreed to waive compliance by the Company
with certain provisions of the Credit Agreement through July 29, 2000,
including financial covenants and any Event of Default to the extent arising
out of a failure to pay any material indebtedness. As a result of such
defaults, the Company's long-term debt in the amount of $1.3 billion became
due currently and has been classified as current at April 29, 2000.
On March 22, 2000, the Company disclosed that it had retained Wasserstein
Perella & Co. to assist it in developing a financial restructuring plan and
that the Bondholder Committee had been formed. The Company commenced
discussions with the Bondholder Committee towards developing a consensual
financial restructuring plan. The Company announced on June 2, 2000 that it
had reached an agreement with the Bondholder Committee regarding a financial
restructuring plan of the Company. Members of the Bondholder Committee hold
or control $445.7 million principal amount, or approximately 46% of the
Company's total bond indebtedness outstanding, including over 37% of the
outstanding principal amount of the Pathmark Senior Subordinated Notes, 48%
of the outstanding principal amount of the Pathmark Subordinated Notes, 65%
of the outstanding principal amount of the Pathmark Subordinated Debentures
and 49% of the outstanding principal amount of the Pathmark Junior
Subordinated Notes. Solicitation of acceptances of the financial
restructuring plan, to be accomplished through the Prepackaged Plan,
commenced on June 8, 2000. The Prepackaged Plan provides that, upon
consummation of the reorganization, current holders of the Company's bond
indebtedness will receive 100% of the New Common Stock. Such ownership is
subject to dilution from (1) the exercise of the New Warrants, (2) the
exercise of any options to purchase New Common Stock issued pursuant to the
Company's long-term management incentive plan, and (3) the grant to the Chief
Executive Officer of restricted New Common Stock. In addition to New Common
Stock, holders of the Pathmark Subordinated Notes, the Pathmark Subordinated
Debentures and the Pathmark Junior Subordinated Notes will receive New
Warrants. The New Warrants will be exercisable at the opening reorganization
equity value established in connection with the Prepackaged Plan.
Pursuant to the Prepackaged Plan and in full satisfaction of their claims,
(1) holders of Pathmark Senior Subordinated Notes will receive 77.57% of the
New Common Stock (2) holders of Pathmark Subordinated Notes and Pathmark
Subordinated Debentures will receive their ratable share of 19.29% of the New
Common Stock and 75% of the New Warrants, (3) holders of Pathmark Junior
Subordinated Notes will receive 2.97% of the New Common Stock and 25% of the
New Warrants, and (4) holders of approximately $0.98 million of the Company's
11.625% Subordinated Notes due 2002, which Subordinated Notes are guaranteed
by Pathmark, will receive 0.17% of the New Common Stock, subject to dilution
as described in the preceding paragraph.
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
The Prepackaged Plan provides that holders of the Company's Exchangeable
Preferred Stock are to receive their ratable portions of cash of $0.5 million
payable upon the effective date of the Prepackaged Plan.
As part of the Prepackaged Plan, trade creditors will not be affected and
there will be no employee layoffs.
The Company is seeking to obtain acceptances from a majority in number of
holders and at least 66-2/3% of the dollar amount of each class of bonds
voting on the Prepackaged Plan. Unless extended by the Company, the voting
deadline with respect to the Prepackaged Plan is July 7, 2000. Upon the
requisite acceptances being obtained, it is the Company's intention to
promptly file the Prepackaged Plan under Chapter 11 of the U.S. Bankruptcy
Code and to exit from Bankruptcy in the third quarter of this year.
In connection with its financial restructuring plan, the Company received
a commitment from The Chase Manhattan Bank for a $75 million DIP financing
facility in support of the Prepackaged Plan and $600 million Exit Financing.
The DIP financing, which is subject to approval by the Bankruptcy Court, will
enable the Company to continue normal business operations during the
restructuring proceedings. The Exit Financing will be used to repay in full
the existing Credit Agreement and the DIP financing facility, pay expenses of
the Prepackaged Plan and will provide approximately $200 million of liquidity
for its post-reorganization operations.
The consolidated financial statements of the Company presented herein
reflect $5.1 million of professional fees, of which $4.2 million is included in
accrued expenses.
PREFERRED STOCK DIVIDENDS:
The terms of the Company's 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 April 29, 2000, the unpaid dividends of $129.1 million are
accrued and included in other noncurrent liabilities.
CAPITAL EXPENDITURES:
Capital expenditures for the first quarter of Fiscal 2000, including
property acquired under capital leases, were $21.8 million compared to $26.0
million for the prior year. During the first quarter of Fiscal 2000, the Company
opened one new store as a replacement for one store closed during the quarter
and completed one enlargement to an existing supermarket. Subsequent to April
29, 2000, the Company opened one new store and during the remainder of Fiscal
2000 expects to open two additional stores and complete up to an aggregate of 28
renovations and enlargements. Capital expenditures for Fiscal 2000, including
property to be acquired under capital leases, are estimated to be $101.7
million. 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
provide for the Company's capital expenditure program.
CASH FLOWS:
Cash used for operating activities was $1.7 million in the first quarter
of Fiscal 2000 compared to cash provided by operating activities of $1.4
million in the prior year. The change in cash flow from operating activities
was primarily due to the increase in the net loss, the decrease in noncash
interest expense and the decrease in cash used for operating assets and
liabilities. Cash provided by investing activities was $0.5 million in the
first quarter of Fiscal 2000 compared to cash used for investing activities
of $11.3 million in the prior year. The change in cash flow from investing
activities was primarily due to a decrease in expenditures for property and
equipment and an increase in proceeds from property sales or disposals. Cash
used for financing activities was $1.9 million in the first quarter of Fiscal
2000 compared to cash provided by financing activities of $10.8 million in
the prior year. The change in cash flow from financing activities was
primarily due to a decrease in borrowings under the Pathmark Working Capital
Facility, an increase in repayments of the Pathmark Term Loan and a decrease
in book overdrafts.
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
NEW ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 represents a
comprehensive framework of accounting rules that standardizes the accounting for
all derivatives. SFAS No. 133 applies to all entities and to all types of
derivatives. In June 1999, the FASB issued SFAS No.137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133", which delayed the effective date of SFAS No. 133 for
all fiscal quarters of fiscal years beginning after June 15, 2000. The Company
has not determined the impact, if any, that the adoption of SFAS No. 133 will
have on its financial position or results of operations.
FORWARD-LOOKING INFORMATION
The matters discussed herein, with the exception of historical information,
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 that could cause actual results to differ
materially from future results expressed or implied by such forward-looking
statements. For additional information about the Company and its various risk
factors, see the Company's most recent Form 10-K dated January 29, 2000, as
filed with the Securities and Exchange Commission on April 28, 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact the consolidated
financial position, results of operations or cash flows of the Company due to
adverse changes in financial rates. The Company is exposed to market risk in the
area of interest rates. This exposure is directly related to its Pathmark Term
Loan and borrowing activities under the Pathmark Working Capital Facility. 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.
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
PART II. OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The terms of the Company's 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 April 29, 2000, the unpaid dividends of $129.1 million are
accrued and included in other noncurrent liabilities.
On May 1, 2000, the Company elected not to make interest payments of $21.2
million on its $440 million of 9.625% Pathmark Senior Subordinated Notes due
2003 ("Pathmark Senior Subordinated Notes") and $12.1 million on its $225
million of 10.75% Pathmark Junior Deferred Coupon Notes due 2003 ("Pathmark
Junior Subordinated Notes"). On May 31, 2000, the grace period under each of the
Indentures governing the Pathmark Senior Subordinated Notes and Pathmark Junior
Subordinated Notes, respectively, expired constituting an Event of Default under
each such Indenture. As of the date of the filing of this report, the Company is
in arrears with respect to interest on the Pathmark Senior Subordinated Notes in
the amount of $26.2 million and $14.9 million with respect to the Pathmark
Junior Subordinated Notes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT:
Exhibit 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K: The registrant did not file a report on Form
8-K during the quarter for which this report is filed.
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
Undersigned thereunto duly authorized.
SUPERMARKETS GENERAL HOLDINGS CORPORATION
BY /s/ FRANK VITRANO
-----------------------------------
(FRANK VITRANO)
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
BY /s/ JOSEPH ADELHARDT
-----------------------------------
(JOSEPH ADELHARDT)
SENIOR VICE PRESIDENT AND
CONTROLLER,
CHIEF ACCOUNTING OFFICER
DATE: June 13, 2000
