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 quarterly period ended June 30, 1996
OR
[ ] 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 33-73592-01
_______________________
THRIFTY PAYLESS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4388795
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9275 Southwest Peyton Lane, Wilsonville, Oregon 97070
(Address of principal executive offices and zip code)
(503) 682-4100
Registrant's telephone number, including area code
______________________
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 [ ]
Shares of Class A common stock outstanding at August 9, 1996 - 16,804,002
Shares of Class B common stock outstanding at August 9, 1996 - 42,697,805
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
THRIFTY PAYLESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
For the 13 Week For the 13 Week For the 39 Week For the 39 Week
Period Ended Period Ended Period Ended Period Ended
June 30, 1996 July 2, 1995 June 30, 1996 July 2, 1995
---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Sales ................................. $ 1,213.4 $ 1,172.7 $ 3,643.6 $ 3,572.2
Cost of goods sold, buying and
occupancy .......................... 895.3 860.1 2,673.8 2,609.4
------------ ----------- ------------ ------------
Gross profit .................... 318.1 312.6 969.8 962.8
Costs and expenses:
Selling and administration .......... 259.8 264.0 781.4 807.7
Depreciation and Amortization ....... 16.8 16.0 51.4 47.9
------------ ----------- ------------ ------------
Operating profit ................ 41.5 32.6 137.0 107.2
Interest expense, net ................. 24.6 34.4 95.1 102.1
------------ ----------- ------------ ------------
Income (loss) before income taxes
and extraordinary loss ...... 16.9 (1.8) 41.9 5.1
Income tax expense (benefit) .......... 7.1 (0.4) 17.8 1.1
------------ ----------- ------------ ------------
Income (loss) before
extraordinary loss .......... 9.8 (1.4) 24.1 4.0
Extraordinary loss on early
extinguishment of debt, net of
tax benefit of $14.8 ............... 117.8 -- 117.8 --
------------ ----------- ------------ ------------
Net income (loss) ........ $ (108.0) $ (1.4) $ (93.7) $ 4.0
============ =========== ============ ============
Earnings (loss) per Class A & B
common share:
Income (loss) before
extraordinary loss .............. $ 0.18 $ (0.04) $ 0.57 $ 0.11
Extraordinary loss ................ (2.11) -- (2.80) --
------------ ----------- ------------ ------------
Net earnings (loss) per share ..... $ (1.93) $ (0.04) $ (2.23) $ 0.11
============ =========== ============ ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statement
<PAGE>
THRIFTY PAYLESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Dollars in millions)
ASSETS
<TABLE>
<CAPTION>
June 30, October 1,
1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................... $ 0.8 $ -
Receivables ................................. 98.9 82.8
Inventories ................................. 1,097.0 1,160.7
Prepaid expenses and other current assets ... 34.4 42.8
---------- ----------
Total current assets .................... 1,231.1 1,286.3
Property, plant and equipment, net ............. 560.1 581.9
Leasehold interests, net ....................... 88.4 94.1
Deferred income taxes .......................... 40.3 17.3
Other assets ................................... 95.7 114.4
---------- ----------
$ 2,015.6 $ 2,094.0
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ........ $ 28.4 $ 27.1
Accounts payable ............................ 288.4 342.7
Accrued expenses ............................ 205.0 251.7
Deferred income taxes ....................... 176.7 152.0
---------- ----------
Total current liabilities ............... 698.5 773.5
Long-term debt, excluding current maturities ... 836.1 1,052.6
Other long-term liabilities .................... 106.0 106.5
---------- ----------
Total liabilities 1,640.6 1,932.6
---------- ----------
Commitments and Contingencies
Shareholders' equity:
Common stock, class A, B and C .............. 0.6 0.9
Additional paid-in capital .................. 506.6 198.8
Treasury stock, at cost ..................... (10.3) (10.3)
Receivables from sale of common stock ....... (3.2) (3.0)
Accumulated deficit ......................... (118.7) (25.0)
---------- ----------
Total shareholders' equity .............. 375.0 161.4
---------- ----------
$ 2,015.6 $ 2,094.0
========== ==========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
<PAGE>
THRIFTY PAYLESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in millions)
<TABLE>
<CAPTION>
For the 39 Week For the 39 Week
Period Ended Period Ended
June 30, 1996 July 2, 1995
--------------- ---------------
<S> <C> <C>
Operating activities:
Net income (loss)............................. $ (93.7) $ 4.0
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization ............. 51.4 47.9
Debt discount and fee amortization ........ 5.8 5.9
Deferred tax provision .................... 16.5 1.8
Loss (gain) on sale of assets ............. (3.7) 0.2
Interest on Senior Notes paid-in-kind ..... 11.9 14.1
Extraordinary loss on early extinguishment
of debt ................................. 117.8 --
Changes in operating assets and liabilities:
Receivables .................................. (16.1) (3.2)
Inventories .................................. 63.7 71.2
Prepaid expenses and other current assets .... 8.4 (12.5)
Accounts payable ............................. (54.3) (117.7)
Accrued expenses and other liabilities ....... (45.0) (61.1)
----------- ----------
Net cash provided by (used in) operating
activities .......................... 62.7 (49.4)
----------- ----------
Investing activities:
Purchases of property, plant and equipment ... (28.8) (44.2)
Proceeds from disposition of properties ...... 12.4 22.1
Increase in other assets ..................... (8.1) (5.7)
----------- ----------
Net cash used in investing activities ... (24.5) (27.8)
----------- ----------
Financing activities:
New borrowings ............................... 708.6 99.0
Proceeds from stock issuance ................. 307.3 0.6
Treasury stock acquired ...................... -- (0.5)
Repayment of long-term debt and bank fees .... (1,053.3) (25.9)
----------- ----------
Net cash provided by (used in) financing
activities .......................... (37.4) 73.2
----------- ----------
Increase (decrease) in cash and cash
equivalents .................................. 0.8 (4.0)
Cash and cash equivalents, beginning of period . -- 4.0
----------- ----------
Cash and cash equivalents, end of period ....... $ 0.8 $ --
=========== ==========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statement
<PAGE>
THRIFTY PAYLESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) The condensed consolidated financial statements have been prepared by
Thrifty PayLess Holdings, Inc. (the "Company" or "TPH"), without audit, in
accordance with generally accepted accounting principles. Pursuant to the
rules and regulations of the Securities and Exchange Commission, certain
information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been omitted or condensed. It is management's belief that the
disclosures made are adequate to make the information presented not misleading
and reflect all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of financial position and results of
operations for the periods presented. The results of operations for the
periods presented should not necessarily be considered indicative of
operations for the full year. It is recommended that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements for the year ended October 1, 1995 and the notes thereto
included in the Company's 10-K and the registration statement filed on Form S-
1 dated April 15, 1996.
(2) Certain reclassifications have been made to prior period financial
statements in order to conform to the current period presentation.
(3) The condensed consolidated financial statements have been prepared using
the last-in, first-out (LIFO) method of accounting for inventories. If these
inventories had been valued using the first-in, first-out (FIFO) method of
inventory valuation, the inventory values would have been approximately $23.3
million and $8.2 million higher at June 30, 1996 and October 1, 1995,
respectively. The charge to cost of goods sold for LIFO valuation for the 13
week periods ended June 30, 1996 and July 2, 1995, and the 39 week periods
ended June 30, 1996 and July 2, 1995 was $4.2 million, $2.6 million, $15.1
million and $7.8 million, respectively. A final valuation of inventory under
the LIFO method can be made only after year-end based on ending inventory
levels and inflation rates for the year. Interim LIFO calculations are based
upon management's estimates of year-end inventory levels and inflation rates
for the year.
(4) Earnings (loss) per Class A and B common share are computed on the basis
of the aggregate weighted average number of shares of common stock outstanding
plus dilutive common equivalent shares arising from TPH's outstanding stock
options, using the treasury stock method. All periods presented give effect
to the following events related to the Company's Recapitalization as described
in Note (5): (i) the conversion of the Company's Class C common shares into
shares of Class B common shares at a conversion rate of 20 to 1 and (ii) the
6-for-1 forward stock split of all of the Company's outstanding shares of
common stock. The weighted average number of shares for the 13 week periods
ended June 30, 1996 and July 2, 1995, and the 39 week periods ended June 30,
1996 and July 2, 1995 were 55,763,345, 35,210,082, 42,097,653 and 35,281,668,
respectively.
<PAGE>
THRIFTY PAYLESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(5) In April 1996, the Company consummated an initial public offering of its
common stock, the repurchase and redemption of certain debt obligations and
the procurement of a new bank facility (the "Recapitalization"). The
objectives of the Recapitalization were to reduce indebtedness and interest
expense, improve operating and financial flexibility and increase
stockholders' equity. The Recapitalization includes the following components:
(i) the offering of 24.3 million of the Company's Class B common stock with
net proceeds to the Company of approximately $307.3 million; (ii) the
redemptions, with proceeds of the offering, of $105.0 million in outstanding
principal amount of Thrifty PayLess, Inc.'s ("TPI") 12 1/4% Senior
Subordinated Notes due 2004 and $175.5 million in outstanding principal amount
of the Company's 11 5/8% Senior Notes due 2006 (the "PIK Notes"); (iii) the
repurchase, with proceeds of the offering, of $12.8 million of the remaining
outstanding principal amount of PIK Notes that were not redeemable; (iv) the
repurchase, with borrowings under the new bank facility (the "New Bank
Facility") of $249.6 million in outstanding principal amount of TPI's 11 3/4%
Senior Notes due 2003; and, (v) the procurement of the $1 billion New Bank
Facility which (a) refinanced the Company's existing indebtedness under its
Credit Agreement ("Old Bank Facility"), dated July 20, 1994, as amended, (b)
provided financing used to repurchase the 11 3/4% Senior Notes and, (c)
provided for a lower interest rate on the Company's indebtedness. Under the
Old Bank Facility, interest rates were at LIBOR plus a spread ranging between
2.625% and 3.375% with respect to various tranches. The New Bank Facility
interest rate is LIBOR plus 1.50%, subject to reduction upon achieving certain
performance measures. As a result of the Recapitalization, the Company
incurred an extraordinary charge in the third quarter of $117.8 million (net
of a $14.8 million tax benefit) to write-off deferred financing fees,
original issue discounts, consent fees, premiums, and other expenses.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
13 Week Period Ended June 30, 1996 ("third quarter 1996") compared with the
13 Week Period Ended July 2, 1995 ("third quarter 1995")
Sales for third quarter 1996 were $1,213.4 million compared to
$1,172.7 million for third quarter 1995, an increase of $40.7 million or
3.5%. The Company operated 1,049 stores as of June 30, 1996 versus 1,040
stores as of July 2, 1995. Total same-store sales increased by 2.9% compared
to third quarter 1995 with a 12.8% increase in pharmacy sales and a 1.7%
decrease in non-pharmacy sales.
Pharmacy sales as a percentage of total sales were approximately 34.0%
for third quarter 1996 as compared to approximately 31.1% for third quarter
1995. The growth in prescription sales was primarily the result of
increased third-party pharmacy sales. Third-party pharmacy sales as a
percentage of total pharmacy sales represented approximately 75.8% for third
quarter 1996 as compared to approximately 70.5% for third quarter 1995. The
Company expects pharmacy sales to third-party payors, in terms of both
dollar volume and as a percentage of total pharmacy sales, to continue to
increase in fiscal 1996 and thereafter.
Gross profit as a percent of sales decreased to 26.2% for third
quarter 1996 from 26.7% for third quarter 1995. The decrease resulted
primarily from continued pressure on pharmacy gross margins related to
increased lower margin third-party pharmacy sales and an increase in the
estimated LIFO valuation charge.
Selling and administrative expenses decreased $4.2 million to $259.8
million or 21.4% of sales in third quarter 1996 compared with $264.0 million
or 22.5% of sales in third quarter 1995. The decrease resulted primarily
from cost reductions including combined PayLess and Thrifty Drug California
dual logo advertising programs. The decrease was partially offset by higher
store labor expenses.
Operating profit was $41.5 million for third quarter 1996 compared to
$32.6 million for third quarter 1995, an increase of $8.9 million or 27.3%.
The increase is the result of the items discussed above.
Net interest expense was $24.6 million for third quarter 1996 compared
to $34.4 million for third quarter 1995, a decrease of $9.8 million. The
decrease was primarily a result of the Recapitalization.
The effective income tax rate, excluding the impact of the
extraordinary loss, for third quarter 1996 was 42.0% compared to 22.2% in
third quarter 1995. The change in the effective tax rate resulted from
goodwill amortization and other items not deductible for income tax
purposes.
During the third quarter, the Company completed the Recapitalization
as discussed in note 5 to the condensed consolidated financial statements.
The Recapitalization resulted in a $117.8 million extraordinary loss, net of
a $14.8 million income tax benefit, to write-off deferred financing fees,
original issue discounts, consent fees, premiums, and other expenses.
Net loss for third quarter 1996 was $108.0 million compared to $1.4
million in third quarter 1995. The increase in net loss is related to the
extraordinary loss on the early extinguishment of debt noted above.
Operating profit plus depreciation and amortization expense and LIFO
provision (EBITDAL) was $62.5 million or 5.2% of sales in third quarter
1996, compared to $51.2 million or 4.4% of sales for third quarter 1995.
EBITDAL IS NOT INTENDED TO REPRESENT CASH FLOW OR ANY MEASURE OF PERFORMANCE
IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. EBITDAL IS
INCLUDED BECAUSE MANAGEMENT BELIEVES THAT CERTAIN INVESTORS FIND IT USEFUL
IN MEASURING A COMPANY'S ABILITY TO SERVICE DEBT.
39 Week Period Ended June 30, 1996 ("year-to-date 1996") compared with the
39 Week Period Ended July 2, 1995 ("year-to-date 1995")
Sales for year-to-date 1996 were $3,643.6 million compared to $3,572.2
million for year-to-date 1995, an increase of $71.4 million or 2.0%. Total
same-store sales increased by 2.6% compared to year-to-date 1995 with a
12.1% increase in pharmacy sales and a 1.5% decrease in non-pharmacy sales.
Pharmacy sales as a percentage of total sales were approximately 32.9%
for year-to-date 1996 as compared to approximately 30.1% for year-to-date
1995. The growth in prescription sales was primarily the result of
increased third-party pharmacy sales. Third-party pharmacy sales as a
percentage of total pharmacy sales represented approximately 74.3% for year-
to-date 1996 as compared to approximately 69.5% for year-to-date 1995. The
Company expects pharmacy sales to third-party payors, in terms of both
dollar volume and as a percentage of total pharmacy sales, to continue to
increase in fiscal 1996 and thereafter.
Gross profit as a percent of sales decreased to 26.6% for year-to-date
1996 from 27.0% for year-to-date 1995. The decrease results primarily from
continued pressure on pharmacy gross margins related to increased lower
margin third-party pharmacy sales and an increase in the estimated LIFO
valuation charge.
Selling and administrative expenses decreased $26.3 million to $781.4
million or 21.4% of sales in year-to-date 1996 compared with $807.7 million
or 22.6% of sales in year-to-date 1995. The decrease resulted primarily
from cost reductions as the Company combined administrative services of
PayLess and Thrifty Drug stores to one location and combined PayLess and
Thrifty Drug California dual logo advertising programs.
Operating profit was $137.0 million for year-to-date 1996 compared to
$107.2 million for year-to-date 1995, an increase of $29.8 million or 27.8%.
The increase is the result of the items discussed above.
Net interest expense was $95.1 million for year-to-date 1996 compared
to $102.1 million for year-to-date 1995. The decrease was primarily the
result of the Recapitalization, partially offset by increased borrowings
under the revolving line of credit during the first half of the year.
The effective income tax rate, excluding the impact of the
extraordinary loss, for year-to-date 1996 was 42.5% compared to 21.6% in
year-to-date 1995. The change in the effective tax rate resulted from
goodwill amortization and other items not deductible for income tax
purposes.
During the third quarter, the Company completed the Recapitalization,
which resulted in a $117.8 million extraordinary loss, net of a $14.8
million tax benefit, to write-off deferred financing fees, original issue
discounts, consent fees, premiums, and other expenses.
Net loss for year-to-date 1996 was $93.7 million compared to net
income of $4.0 million for year-to-date 1995. The net loss is attributable
to the extraordinary loss on the early extinguishment of debt noted above.
EBITDAL was $203.5 million or 5.6% of sales in year-to-date 1996,
compared to $162.9 million or 4.6% of sales for year-to-date 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flow from
operations and a $750.0 million revolving credit facility under the New Bank
Facility. Cash requirements are for debt service, capital expenditures and
working capital. Working capital requirements follow the seasonal trend of
the retailing industry, peaking in November. At August 9, 1996, the Company
had borrowed $383.8 million and had $125.6 million in letters of credit
outstanding under the available revolving credit facility.
Cash provided by operating activities for year-to-date 1996 was $62.7
million due in part to improved results of operations and a reduction in
inventory level, partially offset by a decrease in accounts payable
attributable to seasonality and an increase in receivables related primarily
to increased pharmacy sales to third-party plans and vendor allowances.
Cash used in investing activities was $24.5 million with capital
expenditures of $28.8 million in year-to-date 1996.
Management believes that cash from operations, combined with
borrowings under the New Bank Facility and other financing sources will be
sufficient to enable the Company to meet all of its obligations when due.
The Company has adopted various tax positions (including the adoption
of the LIFO method of inventory accounting), which positions it believes
comply with applicable tax laws and regulations. However, in the event such
positions are challenged and are not upheld, there could be a material
adverse effect on the Company's liquidity and financial condition. The
Company's consolidated federal tax returns for the fiscal years 1992 through
1994 are currently being examined by the Internal Revenue Service.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is from time to time involved in litigation
incidental to the conduct of its business. Management regularly
reviews all pending litigation matters in which it is involved
and establishes reserves deemed appropriate for such litigation
matters. Management believes that no such pending litigation
matters will have a material adverse effect on the Company's
financial statements taken as a whole.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during this quarter.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THRIFTY PAYLESS HOLDINGS, INC.
Date: August 12, 1996 /s/David R. Jessick
--------------------
David R. Jessick
Executive Vice President,
Chief Financial Officer and officer
duly authorized to sign this Form 10-Q
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------------------------------------------- ----
EX-27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at June 30, 1996 (unaudited) and the
Condensed Consolidated Statement of Operations for the 39 week period ended
June 30, 1996 (unaudited), and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-29-1996
<PERIOD-START> OCT-02-1995
<PERIOD-END> JUN-30-1996
<CASH> 800
<SECURITIES> 0
<RECEIVABLES> 98900
<ALLOWANCES> 0
<INVENTORY> 1097000
<CURRENT-ASSETS> 1231100
<PP&E> 560100
<DEPRECIATION> 0
<TOTAL-ASSETS> 2015600
<CURRENT-LIABILITIES> 698500
<BONDS> 836100
0
0
<COMMON> 600
<OTHER-SE> 374400
<TOTAL-LIABILITY-AND-EQUITY> 2015600
<SALES> 3643600
<TOTAL-REVENUES> 3643600
<CGS> 2673800
<TOTAL-COSTS> 2673800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 95100
<INCOME-PRETAX> 41900
<INCOME-TAX> 17800
<INCOME-CONTINUING> 24100
<DISCONTINUED> 0
<EXTRAORDINARY> 117800
<CHANGES> 0
<NET-INCOME> (93700)
<EPS-PRIMARY> (2.23)
<EPS-DILUTED> (2.23)
</TABLE>
