UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securiti
Exchange Act of 1934
For the quarter ended November 4, 2000
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number: 33-63372
PUEBLO XTRA INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 65-0415593
------------------------------------ -----------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
1300 N.W. 22nd Street
Pompano Beach, Florida 33069
------------------------------------ -----------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (954) 977-2500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 45 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-Q or any amendment to this Form 10-Q. [X]
No voting stock of the Registrant is held by non-affiliates of the
Registrant.
Number of shares of the Registrant's Common Stock, $ .10 par value,
outstanding as of December 13, 2000 -- 200.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
Page(s)
-------
<S> <C>
Consolidated Balance Sheets -
November 4, 2000 (Unaudited) and January 29, 2000 . . . . . 3-4
Consolidated Statements of Operations (Unaudited) -
Twelve and forty weeks ended November 4, 2000
and November 6, 1999. . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows (Unaudited)-
Forty weeks ended November 4, 2000
and November 6, 1999. . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements (Unaudited). . . . . . . . 7-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .. . . . . . . . . . . . 10-15
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . 16
</TABLE>
CONSOLIDATED BALANCE SHEETS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(Dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited)
November 4, January 29,
2000 2000
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $6,663 $95,711
Accounts receivable 3,558 4,012
Inventories 56,404 57,161
Prepaid expenses 10,061 7,871
Deferred income taxes 3,489 3,489
--------- ---------
TOTAL CURRENT ASSETS 80,175 168,244
--------- ---------
PROPERTY AND EQUIPMENT
Land and improvements 6,284 6,215
Buildings and improvements 39,386 39,221
Furniture, fixtures and equipment 100,524 120,103
Leasehold improvements 40,593 39,605
Construction in progress 12,634 9,928
--------- ---------
199,421 215,072
Less accumulated depreciation
and amortization 90,818 107,254
--------- ---------
108,603 107,818
Property under capital leases, net 13,660 14,445
--------- ---------
TOTAL PROPERTY AND EQUIPMENT 122,263 122,263
GOODWILL, net of accumulated amortization of
$37,016 at November 4, 2000 and $33,146 at
January 29, 2000 161,965 165,835
DEFERRED INCOME TAX 7,137 7,137
TRADE NAMES 28,306 28,973
DEFERRED CHARGES AND OTHER ASSETS 23,589 29,112
--------- ---------
TOTAL ASSETS $423,435 $521,564
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
(Unaudited)
November 4, January 29,
2000 2000
------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $59,034 $84,366
Accrued expenses 30,399 41,226
Salaries, wages and benefits payable 8,002 9,724
Current installment on long-term debt 30,000 10,000
Current obligations under capital leases 639 714
----------- -----------
TOTAL CURRENT LIABILITIES 128,074 146,030
NOTES PAYABLE 174,420 259,645
CAPITAL LEASE OBLIGATIONS, net of
current portion 12,914 13,346
RESERVE FOR SELF-INSURANCE CLAIMS 4,018 5,610
DEFERRED INCOME TAXES 23,542 23,100
OTHER LIABILITIES AND DEFERRED CREDITS 33,589 32,927
----------- -----------
TOTAL LIABILITIES 376,557 480,658
----------- -----------
STOCKHOLDER'S EQUITY
Common stock, $.10 par value; 200 shares
authorized and issued - -
Additional paid-in capital 91,500 91,500
Accumulated deficit (44,622) (50,594)
----------- -----------
TOTAL STOCKHOLDER'S EQUITY 46,878 40,906
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $423,435 $521,564
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(Dollars in thousands)
<TABLE>
<CAPTION> (Unaudited) (Unaudited)
12 weeks 12 weeks 40 weeks 40 weeks
ended ended ended ended
November 4, November 6, November 4, November 6,
2000 1999 2000 1999
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net sales $138,620 $149,146 $478,799 $519,140
Cost of goods sold 95,338 101,873 326,066 352,749
---------- ------------ ----------- -----------
GROSS PROFIT 43,282 47,273 152,733 166,391
---------- ------------ ----------- -----------
OPERATING EXPENSES
Selling, general and administrative expenses 38,434 38,910 127,101 126,917
Gain on settlement of insurance claim - - (2,464) (13,066)
Store closings:
Exit costs - - 685 -
Write down of impaired assets - - 3,578 -
Depreciation and amortization 7,757 6,795 25,945 23,686
---------- ------------ ----------- -----------
OPERATING (LOSS) PROFIT (2,909) 1,568 (2,112) 28,854
Interest expense on debt (6,230) (6,558) (21,779) (22,156)
Interest expense on capital lease obligations (448) (447) (1,493) (1,187)
Interest and investment income, net 526 647 2,256 1,885
Loss on sale/leaseback of real property - - - (1,291)
----------- ------------ ----------- -----------
(LOSS) INCOME BEFORE TAXES
AND EXTRAORDINARY ITEM (9,061) (4,790) (23,128) 6,105
Income tax benefit (expense) 3,402 1,228 8,497 (2,717)
----------- ------------ ----------- -----------
(LOSS) INCOME BEFORE EXTRAORDINARY ITEM (5,659) (3,562) (14,631) 3,388
Extraordinary item: gain on early
extinguishment of debt, net of
income taxes of $13,264 20,603 - 20,603 -
----------- ------------ ----------- -----------
NET INCOME (LOSS) $14,944 $(3,562) $5,972 $3,388
=========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(Dollars in thousands)
<TABLE>
<CAPTION> (Unaudited)
For the 40 Weeks Ended
---------------------------------
November 4, 2000 November 6, 1999
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $5,972 $3,388
Adjustments to reconcile net income to net cash
used in operating activities, net of
effects of disposal of Florida retail operations:
Extraordinary gain on early extinguishment of debt (20,603) -
Depreciation and amortization of property and equipment 15,041 12,967
Amortization of intangible and other assets 10,904 10,719
Write off of property and equipment destroyed - 4,502
Amortization of bond discount 933 892
Loss on sale/leaseback of real property - 1,291
Gain on insurance settlement (2,464) -
Accrual for exit costs on store closings 685 -
Write down of impaired assets for store closings 3,577 -
(Gain) loss on disposal of property and equipment, net (102) 57
Benefit from reduction of reserves for self-insurance
claims (1,592) (2,487)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 454 970
Inventories (3,954) (4,452)
Prepaid expenses (2,385) (2,471)
Deferred income tax asset - (467)
Deferred charges and other assets (17) 1,452
Increase (decrease) in:
Accounts payable and accrued expenses (49,216) (31,209)
Deferred income tax liability 442 -
Other liabilities and deferred credits 662 1,155
--------------- ---------------
(41,663) (3,693)
Decrease attributable to disposal
of Florida retail operations - (3,022)
--------------- ---------------
Net cash used in operating activities (41,663) (6,715)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (16,154) (16,255)
Reconstruction of property and
replacement of equipment destroyed - (13,102)
Proceeds from disposal of property and equipment 184 35,546
--------------- ---------------
Net cash (used in) provided by investing activities (15,970) 6,189
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (507) (468)
Purchase of senior notes due 2003 (50,908) -
Payment of industrial revenue bonds (10,000) -
Cash borrowings 30,000 -
--------------- ---------------
Net cash used in financing activities (31,415) (468)
--------------- ---------------
Net decrease in cash and cash equivalents (89,048) (994)
Cash and cash equivalents at beginning of period 95,711 55,500
--------------- ---------------
Cash and cash equivalents at end of period $6,663 $54,506
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $29,154 $27,163
Income taxes, net of (refunds) $4,134 $633
Noncash investing and financing transactions:
Assets acquired under capital leases - $7,079
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 1 -- INTERIM FINANCIAL STATEMENTS
With respect to the unaudited financial information for the 12 and 40
weeks ended November 4, 2000 and November 6, 1999, it is the opinion of
management of Pueblo Xtra International, Inc. and its wholly-owned
subsidiaries (collectively, the "Company") that the adjustments necessary to
prepare a fair statement of the results for such interim periods have been
included. Such adjustments, other than those related to the settlement of
the Hurricane Georges property insurance claim, the accrual for exit costs of
stores that will be closed and the write down of related assets, and the gain
on early extinguishment of debt as detailed herein, were of a normal and
recurring nature.
Operating results for the 12 and 40 weeks ended November 4, 2000 and
November 6, 1999 are not necessarily indicative of results that may be
expected for the full fiscal years. The Company's fiscal year ends on the
last Saturday in January.
Reclassifications
Certain amounts in the prior year's consolidated financial statements
and related notes have been reclassified to conform to the current year's
presentation.
NOTE 2 -- INVENTORY
The results of the Company's operations reflect the application of the
last-in, first-out ("LIFO") method of valuing certain inventories of grocery,
non-food and dairy products. Since an actual valuation of inventories under
the LIFO method is only made at the end of a fiscal year based on inventory
levels and costs at that time, interim LIFO calculations are based on
management's estimates of expected year-end inventory levels and costs and
may be subject to significant year-end adjustments.
NOTE 3 -- DISCLOSURE ON OPERATING SEGMENTS
The Company has two primary operating segments: retail food sales and
video tape rentals and sales. The Company's retail food division consists of
50 supermarkets, 44 of which are in Puerto Rico and 6 of which are in the
U. S. Virgin Islands. The Company also operates 43 video tape rental stores,
41 of which are in Puerto Rico and 2 of which are in the U.S. Virgin Islands.
Most of the video tape rental stores are adjacent to or a separate section
within a retail food supermarket. Administrative headquarters are in
Florida. Although the Company maintains data by geographic location, its
segment decision making process is based on its primary operating segments.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE 3 -- DISCLOSURE ON OPERATING SEGMENTS (Continued)
Reportable operating segment financial information is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Retail Food Video rental Total
<S> <C> <C> <C>
For the 40 Weeks Ended and as of November 4, 2000:
Net sales $446,715 $32,084 $478,799
Depreciation and amortization (19,368) (6,577) (25,945)
Gain on settlement of insurance claim (a) 2,464 - 2,464
Loss on store closings (b) 4,168 95 4,263
Operating (loss) profit (c) (3,433) 1,321 (2,112)
Capital expenditures (16,115) (39) (16,154)
Total assets 399,209 24,226 423,435
For the 40 Weeks Ended and as of November 6, 1999:
Net sales $481,739 $37,401 $519,140
Depreciation and amortization (16,940) (6,746) (23,686)
Gain on settlement of insurance claim (a) 11,798 1,268 13,066
Operating profit 23,796 5,058 28,854
Capital expenditures (28,679) (678) (29,357)
As of January 29, 2000:
Total assets $494,482 $27,082 $521,564
</TABLE>
--------
(a) The 40 weeks ended November 4, 2000 include a $2.5 million gain (before
income taxes) realized upon completion of the repairs for the damages
caused by Hurricane Georges in September 1998 and the related final
accounting for such. The 40 weeks ended November 6, 1999 include a
$13.1 million gain (before income taxes) on the initial settlement of
the property and extra expense portion of the Hurricane Georges
insurance settlement.
(b) The 40 weeks ended November 4, 2000 include a $4.3 million loss
(before income taxes) for the estimated carrying costs of stores that
will be closed and the write down of related assets. The estimated
carrying costs of these stores was $0.7 million (before income taxes)
while the write down of related assets totaled $3.6 million (before
income taxes).
(c) See Management's Discussion and Analysis for discussions of stores
closed subsequent to November 4, 2000, gross profit and selling, general
and administrative expenses.
Because the Retail Food and Video Rental Divisions are not segregated by
corporate entity structure, the operating segment amounts shown above do not
represent totals for any subsidiary of the Company. All overhead expenses
including depreciation on assets of administrative departments are allocated
to operations. Amounts shown in the total column above correspond to amounts
in the consolidated financial statements.
NOTE 4 -- CREDIT AGREEMENT
Company operations have historically provided a cash flow which, along
with the available credit facility, have provided adequate liquidity for the
Company's operational needs. The Company has signed an agreement with its
lender banks to amend or adjust certain covenants in its credit facility
principally to adapt the financial covenants to changes in the Company's
performance.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview and Basis of Presentation
The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this Form 10-Q.
Hurricane Georges
Hurricane Georges struck all of the Company's operating facilities on
September 20 and 21, 1998. All of the Company's stores, with the exception
of two, were reopened. During fiscal year 2000, the Company settled the
property portion of its hurricane insurance claims for approximately $42.0
million and, with the exception of some minor items outstanding, all agreed
amounts have been paid. As a result, during the 40 weeks ended November 6,
1999, the Company recorded an insurance settlement gain of $8.4 million, net
of applicable income taxes. During the 40 weeks ended November 4, 2000, the
Company recorded an additional $1.5 million gain, net of applicable income
taxes, realized upon completion of the repairs for the damages caused by the
hurricane and the related final accounting for the same. The impact of the
gain on EBITDA was $2.5 million for the 40 weeks ended November 4, 2000 and
$13.1 million for the 40 weeks ended November 6, 1999.
The Company's insurance also includes business interruption coverage
which provides for reimbursement for lost profits as a result of the
storm. On December 1, 2000 the Company submitted to its insurance carriers a
$69.4 million proof of loss for business interruption losses to its grocery
stores and video outlets in both Puerto Rico and the U. S. Virgin Islands
(the "claim") as a result of Hurricane Georges. The claim is based on the
Company's estimate of the impact the storm had on its business from the time
the storm occurred through September 9, 2000, which is the end of the
applicable indemnity period. The carriers have invoked the appraisal
provisions of the policy which, essentially, require an arbitration process
to value the claim. Consequently, the Company is unable to predict what
amount, if any, eventually will be recovered or when the appraisal process
will conclude. The Company has not recorded any anticipated recovery from
the business interruption portion of the claim as all recoveries will be
gains which may be recorded only at such time as they are settled and
realized.
Selected Operating Results:
(As a percentage of sales)
<TABLE>
<CAPTION>
12 WEEKS ENDED 40 WEEKS ENDED
------------------------- -------------------------
November 4, November 6, November 4, November 6,
2000 1999 2000 1999
------------ ----------- ------------- ----------
<C> <C> <C> <C>
Gross Profit 31.2% 31.7% 31.9% 32.1%
Selling, General &
Administrative Expenses 27.7 26.1 26.5 24.4
Gain on settlement of insurance claim - - (0.5) (2.5)
Exit costs on store closings - - 0.1 -
EBITDA, as defined (1) 3.5 5.6 5.7 10.1
Loss on write down of impaired assets - - 0.7 -
Depreciation & Amortization 5.6 4.6 5.4 4.6
Operating (Loss) Profit (2.1) 1.1 (0.4) 5.6
(Loss) Income Before Income Taxes and
Extraordinary Item (6.5) (3.2) (4.8) 1.2
(Loss) Income Before Extraordinary Item (4.1) (2.4) (3.1) 0.7
Gain on early extinguishment of debt 14.9 - 4.3 -
Net Income (Loss) 10.8 (2.4) 1.2 0.7
</TABLE>
----------
(1) EBITDA, as defined, is Earnings Before Interest expense-net, income
Taxes, Depreciation, and Amortization, the loss on the sale/leaseback
transaction and write down of impaired assets. EBITDA, as defined and
disclosed herein, is neither a measurement pursuant to accounting
principals generally accepted in the United States of America nor a
measurement of operating results and is included for information
purposes only.
Results of Operations
As of November 4, 2000, the Company operated a total of 50 supermarkets
and 43 video rental locations in Puerto Rico and the U. S. Virgin Islands.
Additionally, subsequent to November 4, 2000 the Company closed one of its
supermarkets and moved one of its video rental stores in Puerto Rico. Both
stores had been identified for closure when the Company established the
related reserve for carrying costs during the quarter ended August 12, 2000.
An additional supermarket identified for closure at that time will be closed
during the fourth quarter of the current fiscal year. The history of store
openings and closings from the end of the third quarter of the prior year on
November 6, 1999 through the end of the third quarter of the current year on
November 4, 2000, as well as the store composition, is set forth in the
tables below:
<TABLE>
<CAPTION>
<S> <C>
Stores in Operation:
At November 6, 1999 . . . . . . . . . . . . . . . . . . . . . . 93
Stores opened:
Supermarkets . . . . . . . . . . . . . . . . . . . . . . . . -
Video tape rental stores . . . . . . . . . . . . . . . . . . -
Stores closed:
Supermarkets . . . . . . . . . . . . . . . . . . . . . . . -
Video tape rental stores . . . . . . . . . . . . . . . . . -
------
At November 4, 2000 . . . . . . . . . . . . . . . . . . . . . 93
=======
Remodels . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
=======
</TABLE>
<TABLE>
<CAPTION>
November 4, 2000 November 6, 1999
---------------- ----------------
<S> <C> <C>
Store Composition at Quarter-End:
By division:
Supermarkets . . . . . . . . . . . . 50 50
Video rental stores . . . . . . . . 43 43
------- -------
Total 93 93
======= =======
By location:
Puerto Rico . . . . . . . . . . . . . 85 85
U.S. Virgin Islands . . . . . . . . . 8 8
------- -------
Total 93 93
======= =======
</TABLE>
The following is the summary of total and comparable store sales:
<TABLE>
<CAPTION>
Percentage increase (decrease) in sales
for the period ended November 4, 2000
------------------------------------------
12 Weeks Ended 40 Weeks Ended
------------------ -------------------
<S> <C> <C>
Total Sales (7.1)% (7.8)%
========= =========
Comparable Stores:
Retail Food Division (6.9)% (7.3)%
========= =========
Video Rental Division (9.5)% (13.8)%
========= =========
Total Comparable Store Sales (7.1)% (7.7)%
========= =========
</TABLE>
Total sales for the 12 and 40 weeks ended November 4, 2000 were $138.6
million and $478.8 million, respectively, versus $149.1 million and $519.1
million in the related periods of the prior year, decreases of 7.1% and 7.8%,
respectively. For the comparable 12 and 40 week periods, same store sales
were $138.6 million and $478.8 million, respectively, this year versus $149.1
million and $519.0 million, respectively, for the prior year, declines of
7.1% and 7.7%, respectively. "Same stores" are defined as those stores that were
open as of the beginning of both periods and remained open through the
end of the periods. Same store sales in the Retail Food Division declined
6.9% and 7.3% for the 12 and 40 weeks, respectively. The principal factors
contributing to the decline in same store sales in the Retail Food Division
are increased competition, the ongoing disruption to its customer base caused
by Hurricane Georges, and the disruption associated with remodeling stores.
Video Rental Division same store sales decreased 9.5% and 13.8% for the 12
and 40 weeks, respectively. The decrease in Video Rental Division same store
sales for the quarter was a result of increased competition, the ongoing
disruption to its customer base caused by Hurricane Georges, and a decline in
the customer response to new releases for both rental and sell-through
videos. Increased competition has come from new competing video outlets and
more significantly from increased competition from mass merchandising, in
Puerto Rico, of self-activated cellular phones and prepaid phone cards.
Gross profit for the 12 and 40 weeks ended November 4, 2000 was $43.3
million and $152.7 million, respectively, versus $47.3 million and $166.4
million in the related periods of the prior year. Gross profit for the
Retail Food Division was $36.7 million and 127.8 million for the 12 and 40
weeks ended November 4, 2000, respectively, declines of $3.3 million and
$10.5 million from the same periods of the prior year. The declines
resulted primarily from a combination of the decline in sales and the retail
pricing adjustments made as part of the fiscal 2001 marketing plan to
reintroduce the consumers in our markets to the "new Pueblo". The rate of
gross profit for the Retail Food Division (as a percentage of Retail Food
Division sales) was 28.3% and 28.6% for the 12 and 40 weeks ended November 4,
2000, respectively, compared to 28.6% and 28.7% for the comparable periods of
the prior year, declines of 0.3% and 0.1% respectively. The decrease in
gross profit rates resulted from the effects of the retail pricing changes
mentioned above. The gross profit for the Video Rental Division decreased by
$0.7 million and $3.2 million for the 12 and 40 weeks ended November 4, 2000,
respectively, to $6.6 million and $25.0 million. The gross profit rate (as a
percentage of sales) for the Video Rental Division has decreased by 0.5% for
the 12 weeks ended November 4, 2000 to 75.7%. The gross profit rate for the
40 weeks then ended increased by 2.7%, to 77.8%. The increase for the 40
weeks ended November 4, 2000 is a result of an increase in video rental
sales, which have a higher gross margin rate than product sales, as a
percentage of total Video Rental Division sales.
Selling, general and administrative expenses were $38.4 million and
$127.1 million for the 12 and 40 weeks ended November 4, 2000 as compared to
$38.9 million and $126.9 million for the comparable periods of the prior year
(the 12 and 40 weeks ended November 6, 1999). The decline of $0.5 million
between the 12 weeks ended November 4, 2000 and the comparable period of the
prior year was primarily a result of operational efficiencies, but was offset
by an ongoing increase in utility expenses due to rate increases in both
Puerto Rico and the U.S. Virgin Islands. Additionally, the 12 weeks ended
November 6, 1999 include an adjustment to reduce Selling, general and
administrative expenses by $1.5 million resulting from the benefit of the
Company's re-engineering program in the area of general liability claims
costs. Selling, general and administrative expenses increased by $0.2
million between the 40 weeks ended November 4, 2000 and the comparable period
of the prior year. The sale/leaseback transaction that occurred in the first
quarter of the prior fiscal year resulted in an increase in rental expense,
net of rental income, of $1.4 million for the 40 weeks ended November 4, 2000
versus the comparable period of the prior year. The benefit of the Company's
re-engineering programs in the areas of health insurance and general
liability claims costs and the closure of its Florida retail locations has
also impacted the comparability of Selling, general and administrative costs
for the 40 weeks ended November 4, 2000 and November 6, 1999. These programs
resulted in reductions in Selling, general and administrative costs of $1.2
million for the 40 weeks ended November 4, 2000, whereas they reduced
Selling, general and administrative costs for the comparable period of the
prior year by $5.1 million. The final disposition of, and related accounting
for, the Company's Florida retail locations reduced Selling, general, and
administrative costs for the 40 weeks ended November 6, 1999 by $1.2 million.
The 40 weeks ended November 4, 2000 include a charge of $0.7 million for
the estimated carrying costs of stores that will be closed and $3.6 million
for the write down of related assets.
Net income for the 12 and 40 weeks ended November 4, 2000 was $14.9
million and $6.0 million, respectively. The comparable periods of the prior
year, the 12 and 40 weeks ended November 6, 1999, resulted in a net loss of
$3.6 million and net income of $3.4 million, respectively. Consequently, the
net income for the 12 and 40 weeks ended November 4, 2000 was an increase of
$18.5 million and $2.6 million, respectively, over the comparable periods of
the prior year. As explained below, the 12 and 40 weeks ended November 4,
2000 include a $20.6 million extraordinary gain, net of applicable income
taxes, from early extinguishment of the Company's debt. The 40 weeks ended
November 6, 1999 include an $8.4 million gain, net of applicable income
taxes, from the Company's Hurricane Georges property damage insurance
settlement that was recorded in the second quarter, the 12 weeks ended August
14, 1999. The 40 weeks ended November 4, 2000 include a charge of $2.7
million, net of applicable income taxes, pertaining to the estimated carrying
cost of stores that will be closed and the write down of related assets that
was recorded in the second quarter, the 12 weeks ended August 12, 2000. The
40 weeks ended November 4, 2000 also include a $1.5 million gain, net of
applicable income taxes, related to the final accounting for the property
damaged by Hurricane Georges. In addition, the 40 weeks ended November 6,
1999 include a $1.2 million loss, net of applicable income taxes, on a
sale/leaseback transaction that was recorded in the first quarter, the 16
weeks ended May 22, 1999.
The 12 and 40 weeks ended November 4, 2000 include a $20.6 million
extraordinary gain, net of applicable income taxes, resulting from the
Company's purchase of $87.7 million principal amount of its 9-1/2% Senior
Notes due 2003 and 9-1/2% Series C Senior Notes due 2003 (collectively, the
"Notes").
Liquidity and Capital Resources
Company operations have historically provided a cash flow which, along
with the available credit facility, have provided adequate liquidity for the
Company's operational needs. In August 2000 the Company signed an agreement
with its lender banks to amend or adjust certain covenants in its credit
facility principally to adapt the financial covenants to changes in the
Company's performance and the impact of the Company's purchase, discussed in
the preceding paragraph, of $87.7 million of principal amount of its Notes
due 2003. Adjustment of the covenants for the impact of the purchase of the
Notes has not yet been completed.
Net cash used in operating activities for the 40 weeks ended November 4,
2000 was $41.7 million versus $6.7 million net cash used in operating
activities for the comparable period of the prior year. The difference is
a result of a decline in earnings and the increase in cash used for
components of working capital.
During the first 40 weeks of the current fiscal year net cash used in
investing activities was $16.0 million and consisted almost entirely of
purchases of property and equipment. In the prior year net cash provided
by investing activities was $6.2 million comprised primarily of $35.5
million in proceeds on the sale/leaseback transaction, net of a total of
$16.3 million for purchases of property and equipment and $13.1 million for
the reconstruction of property and replacement of equipment destroyed by
Hurricane Georges.
Net cash used in financing activities was $31.4 million in the first 40
weeks of fiscal 2001 versus $0.5 million for the comparable period of fiscal
2000, a difference of $30.9 million. The difference was a result of the
$50.9 million used to purchase $87.7 million principal amount of its Notes
due in 2003, including expenses, $10.0 million used to repay industrial
revenue bonds due in the 12 weeks ended November 4, 2000 and $30.0 million
borrowed under the Company's $65.0 million revolving credit facility. The
company also has approximately $3.3 million in letters of credit outstanding
under the revolving credit facility.
Working capital as of November 4, 2000 was a deficit of $48.0, a decrease
of $70.2 million from the $22.2 million positive working capital as of January
29, 2000, producing a current ratio of 0.63:1 versus the 1.15:1current ratio
as of the beginning of this fiscal year. The primary reasons for this decrease
are discussed in the three preceding paragraphs.
Impact of Inflation, Currency Fluctuations, and Market Risk
The inflation rate for food prices continues to be lower than the
overall increase in the U.S. Consumer Price Index. The Company's primary
costs, products and labor, usually increase with inflation. Increases in
inventory costs can typically be passed on to the customer. Other cost
increases must be recovered through operating efficiencies and improved gross
margins. Currency in Puerto Rico and the U.S. Virgin Islands is the U.S.
dollar. As such, the Company has no exposure to foreign currency
fluctuations.
The Company is exposed to certain market risks from transactions that
are entered into during the normal course of business. The Company does not
trade or speculate in derivative financial instruments. The Company's
primary market risk exposure relates to interest rate risk. The Company
manages its interest rate risk in order to balance its exposure between fixed
and variable rates while attempting to minimize its interest costs. As of
November 4, 2000, the Company's long-term debt consists of senior notes of
$177.3 million at a fixed rate of 9 1/2% due in 2003.
Forward Looking Statements
Statements, other than statements of historical information, under the
caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and elsewhere in this Form 10-Q may constitute
forward looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Such statements include, among others,
statements concerning: (1) Management's belief that cash flows generated by
the Company's normal business operations together with its available credit
facility will be adequate for its liquidity and capital resource needs, (2)
insurance recovery expectations, (3) store closings and (4) the extent to
which future operations may be inhibited by, and the expected period to
recover from, effects of the hurricane. These statements are based on Company
management's expectations and are subject to various risks and uncertainties.
Actual results could differ materially from those anticipated due to a number
of factors, including but not limited to the Company's substantial
indebtedness and high degree of leverage, which continue as a result of the
Refinancing Plan described in the Company's fiscal year 2000 10-K (including
limitations on the Company's ability to obtain additional financing and trade
credit, to apply operating cash flow for purposes in addition to debt
service, to respond to price competition in economic downturns and to dispose
of assets pledged to secure such indebtedness or to freely use proceeds of
any such dispositions), the Company's limited geographic markets and
competitive conditions in the markets in which the Company operates, buying
patterns of consumers, and the outcome of negotiations with insurers.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule.
(b) Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, there unto duly authorized.
PUEBLO XTRA INTERNATIONAL, INC.
Dated: December 13, 2000 /s/ Daniel J. O'Leary
-----------------------------
Daniel J. O'Leary,
Executive Vice President
and Chief Financial Officer
