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 Securities
Exchange Act of 1934
For the quarter ended August 12, 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 90 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 September 1, 2000 -- 200.
INDEX
PART I. FINANCIAL INFORMATION
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Page(s)
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ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -
August 12, 2000 (Unaudited) and January 29, 2000 . . . . . . 3-4
Consolidated Statements of Operations (Unaudited) -
Twelve and twenty-eight weeks ended August 12, 2000
and August 14, 1999. . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows (Unaudited)-
Twenty-eight weeks ended August 12, 2000
and August 14, 1999. . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements (Unaudited). . . . . . . . . . 7-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . 10-16
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . 17
</TABLE>
CONSOLIDATED BALANCE SHEETS
PUEBLO XTRA INTERNATIONAL, INC. AND SUBSIDIARIES
(Dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited)
August 12, January 29,
2000 2000
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $47,123 $95,711
Accounts receivable 3,540 4,012
Inventories 55,895 57,161
Prepaid expenses 12,722 7,871
Deferred income taxes 3,489 3,489
--------- ---------
TOTAL CURRENT ASSETS 122,769 168,244
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PROPERTY AND EQUIPMENT
Land and improvements 6,283 6,215
Buildings and improvements 39,118 39,221
Furniture, fixtures and equipment 104,769 120,103
Leasehold improvements 40,234 39,605
Construction in progress 11,958 9,928
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202,362 215,072
Less accumulated depreciation
and amortization 93,542 107,254
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108,820 107,818
Property under capital leases, net 13,893 14,445
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TOTAL PROPERTY AND EQUIPMENT 122,713 122,263
GOODWILL, net of accumulated amortization of
$35,855 at August 12, 2000 and $33,146 at
January 29, 2000 163,126 165,835
DEFERRED INCOME TAX 7,194 7,137
TRADE NAMES 28,506 28,973
DEFERRED CHARGES AND OTHER ASSETS 24,585 29,112
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TOTAL ASSETS $468,893 $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)
August 12, January 29,
2000 2000
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<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $67,010 $84,366
Accrued expenses 17,329 41,226
Salaries, wages and benefits payable 7,809 9,724
Current obligations under capital leases 644 714
Current installment long-term debt 10,000 10,000
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TOTAL CURRENT LIABILITIES 102,792 146,030
NOTES PAYABLE 260,333 259,645
CAPITAL LEASE OBLIGATIONS, net of
current portion 13,056 13,346
RESERVE FOR SELF-INSURANCE CLAIMS 4,018 5,610
DEFERRED INCOME TAXES 23,484 23,100
OTHER LIABILITIES AND DEFERRED CREDITS 33,276 32,927
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TOTAL LIABILITIES 436,959 480,658
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STOCKHOLDER'S EQUITY
Common stock, $.10 par value; 200 shares
authorized and issued - -
Additional paid-in capital 91,500 91,500
Accumulated deficit (59,566) (50,594)
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TOTAL STOCKHOLDER'S EQUITY 31,934 40,906
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TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $468,893 $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 28 weeks 28 weeks
ended ended ended ended
August 12, August 14, August 12, August 14,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Net sales $143,105 $152,777 $340,179 $369,994
Cost of goods sold 97,657 103,264 230,728 250,876
----------- ----------- ----------- ---------
GROSS PROFIT 45,448 49,513 109,451 119,118
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OPERATING EXPENSES
Selling, general and administrative expenses 39,472 40,207 88,667 88,007
Gain on settlement of insurance claim - (13,066) (2,464) (13,066)
Store closings:
Exit costs 685 - 685 -
Write down of impaired assets 3,578 - 3,578 -
Depreciation and amortization 8,064 6,776 18,188 16,891
----------- ----------- ----------- ---------
OPERATING (LOSS) PROFIT (6,351) 15,596 797 27,286
Interest expense on debt (6,676) (6,685) (15,549) (15,598)
Interest expense on capital lease obligations (447) (451) (1,045) (740)
Interest and investment income, net 684 712 1,730 1,238
Loss on sale/leaseback of real property - - - (1,291)
----------- ----------- ----------- ---------
(LOSS) INCOME BEFORE TAXES (12,790) 9,172 (14,067) 10,895
Income tax benefit (expense) 4,634 (3,787) 5,095 (3,945)
----------- ----------- ----------- ---------
NET (LOSS) INCOME $(8,156) $5,385 $(8,972) $6,950
=========== ============ =========== =========
</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 28 Weeks Ended
---------------------------------
August 12, 2000 August 14, 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(8,972) $6,950
Adjustments to reconcile net (loss) income to net cash
used in operating activities, net of
effects of disposal of Florida retail operations:
Depreciation and amortization of property and equipment 10,357 9,371
Amortization of intangible and other assets 7,831 7,520
Write off of property and equipment destroyed - 5,648
Amortization of bond discount 688 620
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 3,578 -
(Gain) loss on disposal of property and equipment, net (73) 78
Benefit from reduction of reserves for self-insurance
claims (1,592) (2,506)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 472 (5,315)
Inventories (2,088) (1,849)
Prepaid expenses (4,851) (4,933)
Deferred income tax asset (57) (247)
Other assets 530 1,070
Increase (decrease) in:
Accounts payable and accrued expenses (41,239) (35,847)
Other liabilities and deferred credits 349 2,355
Deferred income tax liability 384 -
--------------- ---------------
(36,462) (15,794)
Decrease attributable to disposal
of Florida retail operations - (3,022)
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Net cash used in operating activities (36,462) (18,816)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (11,900) (9,277)
Reconstruction of property and
replacement of equipment destroyed - (12,359)
Proceeds from disposal of property and equipment 134 35,543
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Net cash provided by (used in) investing activities (11,766) 13,907
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (360) (322)
--------------- ---------------
Net cash used in financing activities (360) (322)
--------------- ---------------
Net decrease in cash and cash equivalents (48,588) (5,231)
Cash and cash equivalents at beginning of period 95,711 55,500
--------------- ---------------
Cash and cash equivalents at end of period $47,123 $50,269
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $26,713 $26,462
Income taxes, net of refunds $4,134 $606
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 28
weeks ended August 12, 2000 and August 14, 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 insurance claim and the accrual for exit costs of
stores that will be closed and the write down of related assets as detailed
herein, were of a normal and recurring nature.
Operating results for the 12 and 28 weeks ended August 12, 2000 and
August 14, 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
are subject to 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 two product lines.
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 28 Weeks Ended and as of August 12, 2000:
Net sales $316,747 $23,432 $340,179
Depreciation and amortization (13,466) (4,722) (18,188)
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) (656) 1,453 797
Capital expenditures (11,866) (34) (11,900)
Total assets 444,233 24,660 468,893
For the 28 Weeks Ended August 14, 1999:
Net sales $342,161 $27,833 $369,994
Depreciation and amortization (12,151) (4,740) (16,891)
Gain on settlement of insurance claim (a) 11,798 1,268 13,066
Operating profit (c) 22,445 4,841 27,286
Capital expenditures (9,148) (129) (9,277)
As of January 29, 2000:
Total assets $494,482 $27,082 $521,564
</TABLE>
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(a) The 12 and 28 weeks ended August 14, 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.
The 28 weeks ended August 12, 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.
(b) The 12 and 28 weeks ended August 12, 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 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
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 and to permit
the tender offer for the Company's Notes. This amendment is included as
Exhibit 10.1 in this Form 10-Q.
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 2000, the Company settled the property
portion of its hurricane insurance claims. As a result, during the fiscal
year (52 weeks) ended January 29, 2000 the Company received $41.3 million in
cash reimbursement from its insurance carriers under the settlement. During
the 12 and 28 weeks ended August 14, 1999, the Company also recorded an
insurance settlement gain of $8.1 million, net of applicable income taxes.
During the 28 weeks ended August 12, 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 28 weeks ended August 12, 2000 and $13.1 for the 12 and
28 weeks ended August 14, 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 2, 1999 the Company presented its initial interim
business interruption claim covering the 35 weeks ended on May 22, 1999, the
period immediately subsequent to the storm. The total claim, when completed,
will involve the period from the date of the storm through 12 months after
the date the Company's reconstruction efforts are deemed to have been
substantially completed. The interim claim is for a material amount of lost
profits as will be the total claim when completed. As of this filing,
activities to adjust its business interruption insurance claims resulting
from Hurricane Georges are continuing. However, the Company is unable to
estimate what amount, if any, eventually will be recovered or when the
adjustment/settlement process will conclude. The accompanying financial
statements do not include any anticipated recovery from the business
interruption claims as all recoveries will be pretax gains which may be
included only at such time as they are settled and realized.
Selected Operating Results:
(As a percentage of sales)
<TABLE>
<CAPTION)
12 WEEKS ENDED 28 WEEKS ENDED
------------------------- -------------------------
August 12, August 14, August 12, August 14,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Gross Profit 31.8% 32.4% 32.2% 32.2%
Selling, General &
Administrative Expenses 27.6 26.3 26.1 23.8
Gain on settlement of insurance claim - (8.6) (0.7) (3.5)
Exit costs on store closings 0.5 - 0.2 -
EBITDA, as defined (1) 3.7 14.6 6.6 11.9
Loss on write down of impaired assets 2.5 - 1.1 -
Depreciation & Amortization 5.6 4.4 5.3 4.6
Operating (Loss) Profit (4.4) 10.2 0.2 7.4
(Loss) Income Before Income Taxes (8.9) 6.0 (4.1) 2.9
Net (Loss) Income (5.7) 3.5 (2.6) 1.9
</TABLE>
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(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
principles 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 August 12, 2000, the Company operated a total of 50 supermarkets
and 43 video tape rental locations in Puerto Rico and the U.S. Virgin
Islands. Between August 14, 1999 and August 12, 2000, the Company closed one
video tape rental store in Puerto Rico. The history of store openings and
closings from the end of the second quarter of the prior year on August 14,
1999 through the end of the second quarter of the current year on August 12,
2000, as well as the store composition, is set forth in the tables below:
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<S> <C>
Stores in Operation:
At August 14, 1999.. . . . . . . . . . . . 94
Stores opened:
Supermarkets . . . . . . . . . . . . . -
Video tape rental stores . . . . . . . -
Store closed:
Supermarkets . . . . . . . . . . . . . -
Video tape rental - Puerto Rico . . . . 1
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At August 12, 2000 . . . . . . . . . . . . . 93
=======
Remodels . . . . . . . . . . . . . . . . . . . 13
=======
</TABLE>
<TABLE>
<CAPTION>
August 12, 2000 August 14, 1999
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<S> <C> <C>
Store Composition at Quarter-End:
By division:
Supermarkets . . . . . . . . . . . . 50 50
Video tape rental stores . . . . . . 43 44
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Total 93 94
======= =======
By location:
Puerto Rico . . . . . . . . . . . . . 85 86
U.S. Virgin Islands . . . . . . . . . 8 8
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Total 93 94
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</TABLE>
The following is the summary of total and comparable store sales:
<TABLE>
<CAPTION>
Percentage (decrease) in sales
for the period ended August 12, 2000
------------------------------------------
12 Weeks Ended 28 Weeks Ended
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<S> <C> <C>
Total Sales (6.3)% (8.1)%
========= =========
Comparable Stores:
Retail Food Division (5.7)% (7.4)%
========= =========
Video Rental Division (13.4)% (15.3)%
========= =========
Total Comparable Store Sales (6.3)% (8.0)%
========= =========
</TABLE>
Total sales for the 12 and 28 weeks ended August 12, 2000 were $143.1
million and $340.2 million, respectively, versus $152.8 million and $370.0
million in the related periods of the prior year, decreases of 6.3% and
8.1%, respectively. For the comparable 12 and 28 week periods, same store
sales were $143.1 million and $340.2 million, respectively, this year versus
$152.7 million and $369.8 million, respectively, for the prior year, declines
of 6.3% and 8.0%, 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 5.7% and 7.4% for the 12 and 28 weeks, respectively. The principal
factors contributing to the decline in same store sales in the Retail Food
Division are increased competition, the impact on the customer base caused
by repairing and replacing components of stores damaged by Hurricane Georges
and the disruption associated with remodeling stores. Video Rental Division
same store sales decreased 13.4% and 15.3% for the 12 and 28 weeks,
respectively. The decrease in Video Rental Division same store sales was a
result of increased competition, the impact of 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 video
outlets and more significantly, increased competition from mass
merchandising, in Puerto Rico, of self-activated cellular telephones and
prepaid phone cards.
Gross profit for the 12 and 28 weeks ended August 12, 2000 was $45.4
million and $109.5 million, respectively, versus $49.5 million and $119.1
million in the related periods of the prior year. Gross profit for the
Retail Food Division declined by $3.2 million and $7.3 million for the 12 and
28 weeks ended August 12, 2000, respectively to $37.2 million and $91.0
million. The net decline in the Retail Food Division includes a decline of
$3.2 million and $9.5 million for the 12 and 28 weeks ended August 12, 2000
resulting 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 decline for the 28 weeks
ended August 12, 2000 for the Retail Food Division as compared to the same 28
weeks of the prior year was partially offset by adjustments totaling $2.2
million resulting from reevaluation of the methodology and need for certain
product reserves. Gross profit for the Retail Food Division (as a percentage
of Retail Food Division sales) for both the 28 weeks ended August 12, 2000
and August 14, 1999 was 28.7%. The adjustments totaling $2.2 million
negatively impacted the gross profit for the Retail Food Division by 0.7% for
the 28 weeks ended August 12, 2000. The percentage rate of gross profit
excluding the impact of these adjustments was 28.0% for the 28 weeks ended
August 12, 2000. The gross profit for the Video Rental Division decreased by
$0.8 million and $2.4 million for the 12 and 28 weeks ended August 12, 2000,
respectively, to $8.2 million and $18.4 million. Gross profit (as a
percentage of sales) for the Video Rental Division, however, has increased by
4.1% and 3.8% for the 12 and 28 weeks ended August 12, 2000, respectively, to
81.4% and 78.6%. These increases are a result of an increase in the mix of
video rental sales, which have a higher gross margin rate than product sales.
As mentioned above, product sales in the Video Rental Division have declined
primarily because of increased competition.
Selling, general and administrative expenses were $39.5 million and
$88.7 million for the 12 and 28 weeks ended August 12, 2000 as compared to
$40.2 million and $88.0 million for the comparable periods of the prior year
(the 12 and 28 weeks ended August 14, 1999). The decline of $0.7 million
between the 12 weeks ended August 12, 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 and gas expenses in both Puerto Rico and
the U.S. Virgin Islands. Selling, general and administrative expenses
increased by $0.7 million between the 28 weeks ended August 12, 2000 and the
comparable period of the prior year. The sale/leaseback transaction that
was included 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 28
weeks ended August 12, 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 28 weeks ended August 12, 2000 and August 14,
1999. These programs resulted in reductions in Selling, general and
administrative costs of $1.2 million for the 28 weeks ended August 12, 2000,
whereas they reduced Selling, general and administrative costs for the
comparable period of the prior year by $3.3 million. The final disposition
of, and related accounting for, the Company's Florida retail locations
reduced Selling, general, and administrative costs for the 28 weeks ended
August 14, 1999 by $1.2 million.
The 12 and 28 weeks ended August 12, 2000 include a charge of $4.3
million for the estimated carrying costs of stores that will be closed and
the write down of related assets. The charge for the estimated carrying
costs of stores that will be closed was $0.7 million while the write down of
related assets totaled $3.6 million.
The net loss for the 12 and 28 weeks ended August 12, 2000 was $8.2
million and $9.0 million, respectively. The net income for the comparable
periods of the prior year (the 12 and 28 weeks ended August 14, 1999) was
$5.4 million and $7.0 million, respectively. Consequently, the net loss for
the 12 and 28 weeks ended August 12, 2000 is a decline of $13.6 million and
$16.0 million, respectively, from the net income in the comparable periods of
the prior year. The 12 and 28 weeks ended August 14, 1999 include an $8.4
million gain, net of applicable income taxes, from the property insurance
settlements previously discussed. The 28 weeks ended August 14, 1999 include
a $1.2 million loss, net of applicable income taxes, on a sale/leaseback
transaction that was recorded during the first quarter (16 weeks ended May
22, 1999). The 28 weeks ended August 12, 2000 include a $1.5 million gain,
net of applicable income taxes, from the insurance settlement previously
discussed that was recorded in the first quarter (16 weeks ended May 20,
2000). The 12 and 28 weeks ended August 12, 2000 also include a charge of
$2.7 million, net of applicable income taxes, pertaining to the estimated
carrying costs of stores that will be closed and the write down of related
assets.
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. 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 and to permit the tender offer for the Company's Notes described
below. This amendment is included as Exhibit 10.1 in this Form 10-Q.
Net cash used in operating activities for the 28 weeks ended August 12,
2000 was $36.5 million versus $18.8 million for the comparable period of the
prior year. The primary reasons for the difference between both periods are
the change in net earnings of $16.0 million and the impact of the write off of
property and equipment destroyed as a result of Hurricane Georges and the
related accounting for the same.
During the first 28 weeks of the current fiscal year net cash used in
investing activities was $11.8 million. In the prior year net cash provided
by investing activities was $13.9 million comprised primarily of $35.5
million in proceeds on the sale/leaseback transaction, net of a total of
$21.6 million for purchases of property and equipment, reconstruction of
property, and replacement of equipment destroyed by Hurricane Georges.
Net cash used in financing activities was approximately $ 0.4 million in
the first 28 weeks of fiscal 2001 versus $0.3 million for the comparable
period of fiscal 2000 and was used entirely for payment on capital lease
obligations.
Working capital decreased during the first two quarters by $2.2 million
to $20.0 million as of August 12, 2000 from $22.2 million as of January 29,
2000, producing a current ratio of 1.19:1 versus the 1.15:1 current
ratio as of the beginning of this fiscal year.
Outstanding borrowings with a governmental agency of Puerto Rico from
the issuance of industrial revenue bonds were $10.0 million as of August 12,
2000.
The Company's management believes that the cash flows generated by its
normal business operations together with its available revolving credit
facility will be adequate for its liquidity and capital resource needs.
Note Tender Offer
On August 30, 2000 the Company announced commencement of a tender offer
(the "Invitation") for its outstanding 9-1/2% Senior Notes due 2003 and
9-1/2% Series C Senior Notes due 2003 (collectively, the "Notes"). The
company has a total of $50.0 million available to fund purchases of the
Notes, and therefore will accept for purchase less than all of the
outstanding Notes.
The Company is offering to purchase the Notes for cash, at a purchase
price designated by the holder subject to a minimum of $570 per $1,000
principal amount and a maximum of $600 per $1,000 principal amount, upon the
terms and conditions specified in the Invitation.
The Company is making the offer by way of a "Modified Dutch Auction"
procedure. Under this procedure, the Company will accept offers in the order
of lowest to highest offer prices, continuing until the Company has purchased
Notes at an aggregate purchase price (excluding accrued interest) of $50.0
million. Under this procedure, the Company will pay to each holder whose
offer is accepted the highest price offered for Notes and accepted by the
Company (the "Clearing Price"), even if that price is higher than the price
offered by such holder. Under this procedure, all offers of Notes below the
Clearing Price will be accepted and all offers above the Clearing Price will
be rejected. However, to the extent acceptance of all offers at the Clearing
Price would cause the aggregate purchase price (excluding accrued interest)
to exceed $50.0 million, the Company will allocate its acceptance of offers
at the Clearing Price among all such offers on a pro rata basis.
The Invitation is subject to certain conditions, including but not
limited to, the valid tender of at least $30.0 million in aggregate principal
amount of Notes.
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
detailed in Note 4 of the Form 10 - K for the year ended January 29, 2000 --
Debt in the financial statements, the Company's long-term debt consists of:
(i) senior notes of $265 million at a fixed rate of 9 1/2% due in 2003 and
(ii) variable rate revenue bonds due in fiscal 2001 of $10 million upon which
the weighted average interest rate was 5.24% and 4.40% at August 12, 2000 and
January 29, 2000, respectively.
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) future sales, (2) store closings, (3) 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, (4) insurance recovery expectations,
and the expected period to recover from the 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
10.1 Second Amendment, dated as of August 11, 2000, to the
Amended and Restated Credit Agreement, dated as of
April 29, 1997, among Pueblo Xtra International, Inc.,
Pueblo International, Inc., Xtra Super Food Centers,
Inc., the Syndication Agent, the Administrative Agent, and
the Banks party thereto from time to time.
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, thereunto duly authorized.
PUEBLO XTRA INTERNATIONAL, INC.
Dated: September 1, 2000 /s/ Daniel J. O'Leary
-----------------------------
Daniel J. O'Leary,
Executive Vice President
and Chief Financial Officer
SECOND AMENDMENT
SECOND AMENDMENT dated as of August 11, 2000 (the "Amendment") to the
Amended and Restated Credit Agreement dated as of April 29, 1997 (as amended
to date, the "Credit Agreement") among PUEBLO XTRA INTERNATIONAL, INC., a
Delaware corporation ("PXI"), PUEBLO INTERNATIONAL, INC., a Delaware
corporation (the "Borrower"), XTRA SUPER FOOD CENTERS, INC., a Delaware
corporation ("XTRA"), the Syndication Agent, the Administrative Agent, and
the Banks party thereto from time to time. All capitalized terms used in this
Amendment and not otherwise defined shall have the respective meanings
provided such terms in the Credit Agreement.
W I T N E S S E T H :
WHEREAS, PXI and the Borrower have requested certain amendments to the
Credit Agreement; and
WHEREAS, in accordance with Section 12.11 of the Credit Agreement the
Required Banks are willing to amend the Credit Agreement as herein provided;
NOW, THEREFORE, it is agreed:
1. Section 8.04(a) of the Credit Agreement is hereby amended and
restated in its entirety as follows:
8.04 Capital Expenditures. (a) PXI will not, and will not permit any
of its Subsidiaries to, incur Capital Expenditures except Capital
Expenditures made in compliance with this Section 8.04. During each fiscal
year of PXI ending after the Restatement Effective Date, Capital Expenditures
shall be permitted to be made by the Borrower, Xtra and their respective
Subsidiaries in an aggregate amount for all such Persons not in excess of
$35,000,000 (or pro rata portion thereof for the portion of the then-current
fiscal year that has elapsed prior to the Maturity Date) other than Capital
Expenditures made with funds received by the Borrower pursuant to Section
8.05(l).
2. Section 8.09 of the Credit Agreement is hereby amended and restated
in its entirety as follows:
8.09 EBITDAR to Total Cash Interest Expense. PXI will not permit the
ratio of (x) EBITDAR to (y) Total Cash Interest Expense for any Test Period
ending on the last day of any fiscal quarter set forth below to be less than
the amount set forth opposite such fiscal quarter below:
Fiscal Quarter Ending Ratio
May 18, 1997 1.50:1.00
August 9, 1997 1.50:1.00
November 1, 1997 1.50:1.00
January 31, 1998 1.50:1.00
May 23, 1998 1.50:1.00
August 15, 1998 1.50:1.00
November 7, 1998 1.50:1.00
January 30, 1999 1.75:1.00
May 22, 1999 1.75:1.00
August 14, 1999 1.75:1.00
November 6, 1999 1.75:1.00
January 29, 2000 2.00:1.00
May 20, 2000 2.00:1.00
August 12, 2000 1.50:1.00
November 4, 2000 1.45:1.00
January 27, 2001 1.25:1.00
May 19, 2001 1.15:1.00
August 11, 2001 1.50:1.00
November 3, 2001 1.50:1.00
January 26, 2002 1.50:1.00
May 18, 2002 1.50:1.00
August 10, 2002 1.50:1.00
November 2, 2002 1.50:1.00
January 25, 2003 1.50:1.00
3. Section 8.10 of the Credit Agreement is hereby amended and restated
in its entirety as follows:
8.10 Consolidated Indebtedness to EBITDA. PXI will not permit the
ratio of (i) Consolidated Indebtedness on the last day of any fiscal quarter
set forth below to (ii) EBITDA for the Test Period ending at the end of such
fiscal quarter to be greater than the amount set forth opposite such fiscal
quarter below:
Fiscal Quarter Ending Ratio
May 18, 1997 6.50:1.00
August 9, 1997 6.75:1.00
November 1, 1997 6.75:1.00
January 31, 1998 6.50:1.00
May 23, 1998 6.25:1.00
August 15, 1998 6.00:1.00
November 7, 1998 5.75:1.00
January 30, 1999 5.50:1.00
May 22, 1999 5.50:1.00
August 14, 1999 5.50:1.00
November 6, 1999 5.50:1.00
January 29, 2000 5.00:1.00
May 20, 2000 5.00:1.00
August 12, 2000 6.55:1.00
November 4, 2000 6.60:1.00
January 27, 2001 7.95:1.00
May 19, 2001 8.80:1.00
August 11, 2001 4.50:1.00
November 3, 2001 4.50:1.00
January 26, 2002 4.50:1.00
May 18, 2002 4.50:1.00
August 10, 2002 4.50:1.00
November 2, 2002 4.50:1.00
January 25, 2003 4.50:1.00
4. Section 8.12 of the Credit Agreement is hereby amended by inserting
the following new clause (c):
(c) Notwithstanding the foregoing Section 8.12(a) and so long as no
Default or Event of Default then exists (before or after giving effect to the
prepayment and repurchase described below), (i) PXI may apply up to
$50,000,000 to the repurchase of principal of PXI Senior Notes and pay
accrued interest on the repurchased PXI Senior Notes and associated
transaction expenses pursuant to the Permitted Tender Offer, and (ii) the
Borrower may make a prepayment of principal to PXI in respect of the
Subordinated Intercompany Real Estate Note in an amount equal to the total
cash consideration paid by PXI in respect of principal to the holders of the
PXI Senior Notes pursuant to the Permitted Tender Offer plus accrued interest
and associated transaction expenses, provided (x) that the aggregate amount
of such prepayment shall not exceed $50,000,000 (excluding accrued interest
and the amount of PXI's associated transaction expenses), and (y) that the
Borrower shall not apply proceeds of more than $10,000,000 from Revolving
Loans to such prepayment.
5. The defined terms "Base Rate Margin", "CC Percentage" and
"Eurodollar Margin" set forth in Section 10 of the Credit Agreement are
hereby amended and restated in their entirety as follows:
"Base Rate Margin" shall mean 3.00% minus the then applicable Reduction
Percentage.
"CC Percentage" shall mean at all times 0.50%.
"Eurodollar Margin" shall mean 4.00% less the then applicable Reduction
Percentage.
6. The defined term "Reduction Percentage" set forth in Section 10 of
the Credit Agreement is hereby amended by deleting the chart appearing
therein in respect of the "Leverage Ratio" and the "Reduction Percentage" and
inserting in place thereof the following:
Leverage Ratio Reduction Percentage
4.5:1 or greater 1/2 of 1%
but less than 5.0.1
4.0:1 or greater 3/4 of 1%
but less than 4.5:1
less than 4.0:1 1%
7. Notwithstanding anything set forth to the contrary in the definition
of the term "Reduction Percentage" in Section 10 of the Credit Agreement, the
Reduction Percentage shall be zero from the period commencing on August 12,
2000 and ending on the last day of the fiscal quarter of PXI during which
financial statements and officer's certificates complying with Sections
7.01(a) and 7.01(e) shall have been delivered to each Bank in respect of the
fiscal year ending January 27, 2001.
8. The defined terms "Capital Expenditures", "EBITDA", "Tape
Expenditures" and "Total Cash Interest Expense" set forth in Section 10 of
the Credit Agreement are hereby amended and restated in their entirety as
follows:
"Capital Expenditures" shall mean, for any period, the aggregate of all
expenditures (whether paid in cash or accrued as liabilities, including
Capitalized Lease Obligations and including Tape Expenditures, by PXI and its
Subsidiaries during that period that, in conformity with GAAP, are or are
required to be included in the property, plant or equipment reflected in the
balance sheet of PXI and its Subsidiaries, provided that Capital Expenditures
shall in any event include the purchase price paid in connection with the
acquisition of any Person (including through the purchase of all of the
capital stock or other ownership interests of such Person or through merger
or consolidation) to the extent allocable to property, plant and equipment.
"EBITDA" for any period shall mean EBIT, adjusted by adding thereto the
amount during such period of all amortization of intangibles and depreciation
plus all non-cash charges in respect of deferred profit sharing plans,
deferred compensation plans, pension plans, employee health plans, and
charges up to $750,000 and $4,000,000 (for non-cash write downs), related to
the closing of stores during the period of four fiscal quarters commencing on
August 12, 2000; provided that for purposes of determining EBITDA for
Sections 8.09, 8.10 and 8.11 for any period ending in May, August or
November, EBITDA shall not include any adjustment for non-cash charges in
respect of deferred profit-sharing plans, deferred compensation plans,
pension plans and employee health plans during such period, but EBITDA
determined for any period ending in January shall include all such
adjustments since the end of the preceding fiscal year. In calculating
EBITDA for purposes of Sections 8.10 and 8.11, EBITDA for the Test Period
ending (i) on May 17, 1997 shall be multiplied by 4.0, (ii) on August 9, 1997
shall be multiplied by 2.0 and (iii) on November 1, 1997 shall be multiplied
by 4/3.
"Tape Expenditures" shall mean all cash payments in respect of the
acquisition by Blockbuster PR or Blockbuster VI of video tapes, games,
software, and other products held for rental (not for re-sale).
"Total Cash Interest Expense" shall mean for any period the sum of (i)
total interest expense (net of interest income) of PXI and its Subsidiaries
on a consolidated basis (including, without limitation, the interest expense
associated with Capitalized Lease Obligations but excluding expense for
interest not payable in cash) and (ii) Rental Payments.
9. Section 10 of the Credit Agreement is hereby amended by inserting
the following defined terms in the appropriate alphabetical order:
"EBITDAR" for any period shall mean EBITDA, adjusted by adding thereto
the amount of Rental Payments during such period.
"Rental Payments" for any period shall mean the aggregate sum due and
payable during such period under any leases for real property of PXI and its
Subsidiaries (excluding any such payments comprising Capitalized Lease
Obligations).
"Permitted Tender Offer" shall mean a tender offer to be launched by PXI
on or about August 28, 2000 to purchase PXI Senior Notes (subject to terms
and conditions as may be separately agreed to in writing by the Required
Banks, PXI, and the Borrower) for a total cash consideration of up to
$50,000,000 (excluding accrued interest and the cost of associated
transaction expenses).
10. In order to induce the Required Banks to enter into this Amendment,
PXI and the Borrower hereby represent and warrant that:
(a) no Default or Event of Default exists as of the Second Amendment
Effective Date (as defined below), both before and after giving effect to
this Amendment (except to the extent reflected in Section 1 of this
Amendment); and
(b) all of the representations and warranties contained in the Credit
Agreement or the other Credit Documents are true and correct in all material
respects on and as of the Second Amendment Effective Date both before and
after giving effect to this Amendment (it being understood that any
representation or warranty made as of a specific date shall be true and
correct in all material respects as of such specific date).
11. Within sixty (60) days following completion by PXI of the Permitted
Tender Offer, the Borrower and the Agent shall agree on revised covenant
levels for the remaining term of the Credit Agreement, for purposes of
Sections 8.09, 8.10, and 8.11 to reflect the impact of the Permitted Tender
Offer, which shall be set forth in a written instrument signed by the
Borrower, PXI and the Agent, which shall thereafter constitute amendments to
Section 8.09, 8.10, and 8.11.
12. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
13. This Amendment may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument. A complete set
of counterparts shall be lodged with the Borrower and the Administrative
Agent.
14. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF
THE STATE OF NEW YORK.
15. This Amendment shall become effective as of August 11, 2000 on the
date (the "Second Amendment Effective Date") when (i) each of PXI, the
Borrower, Xtra, the Subsidiary Guarantors and the Required Banks shall have
signed a counterpart hereof (whether the same or different counterparts) and
shall have delivered (including by way of facsimile transmission) the same to
the Administrative Agent at its Notice Office, and (ii) the Borrower shall
have paid to the Administrative Agent for payment to the Banks in proportion
to their Revolving Commitments an amendment fee in the aggregate amount of
$325,000 (which shall include any amendment fee related to any agreement
related to revised covenant levels for purposes of Sections 8.09, 8.10 and
8.11 of the Credit Agreement pursuant to Section 11 hereof, it being
understood that no additional commission or fee, other than legal expenses of
counsel for the Lenders, shall be paid in connection with such Amendment),
and (iii) PXI and the Borrower shall have delivered to the Administrative
Agent accurate and complete copies of the documents effecting the Permitted
Tender Offer which shall be satisfactory in form and substance to the
Required Banks.
16. From and after the Second Amendment Effective Date, all references
in the Credit Agreement and each of the other Credit Documents to the Credit
Agreement shall be deemed to be references to the Credit Agreement as amended
hereby.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Amendment as of the date first above
written.
PUEBLO XTRA INTERNATIONAL, INC.
By:________________________________
Title:
PUEBLO INTERNATIONAL, INC.
By: ________________________________
Title:
THE BANK OF NOVA SCOTIA
By:_________________________________
Title:
BANK OF AMERICA, N.A.
By:________________________________
Title:
ACKNOWLEDGED:
XTRA SUPER FOOD CENTERS, INC.
By:________________________________
Title:
PUEBLO MARKETS, INC.
By:________________________________
Title:
PUEBLO SUPER VIDEOS, INC.
By:________________________________
Title:
ALL TRUCK, INC.
By:________________________________
Title:
XTRA DRUGSTORE, INC.
By:________________________________
Title:
PUEBLO CARIBBEAN VIDEOS, INC.
By:________________________________
Title:
