| For the Fiscal Quarter Ended May 1, 2004 |
Commission File Number 1-5287 |
Pathmark Stores, Inc.
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) |
22-2879612 (I.R.S. Employer Identification No.) |
|
200 Milik Street Carteret, New Jersey (Address of principal executive office) |
07008 (Zip Code) |
|
(732) 499-3000 (Registrant's telephone number, including area code) |
||
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
Warrants to purchase Common Stock
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes ý No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes ý No o
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes ý No o
As of June 1, 2004, 30,071,192 shares of the Common Stock were outstanding.
| 13 Weeks Ended |
||||||||
|---|---|---|---|---|---|---|---|---|
| May 1, 2004 |
May 3, 2003 | |||||||
| Sales | $ | 990.1 | $ | 1,004.7 | ||||
| Cost of goods sold | (710.7 | ) | (718.9 | ) | ||||
| Gross profit | 279.4 | 285.8 | ||||||
| Selling, general and administrative expenses | (244.6 | ) | (246.2 | ) | ||||
| Depreciation and amortization | (21.5 | ) | (21.2 | ) | ||||
| Operating earnings | 13.3 | 18.4 | ||||||
| Interest expense | (16.5 | ) | (16.9 | ) | ||||
| Earnings (loss) before income taxes | (3.2 | ) | 1.5 | |||||
| Income tax benefit (provision) | 1.4 | (0.6 | ) | |||||
| Net earnings (loss) | $ | (1.8 | ) | $ | 0.9 | |||
| Weighted average number of shares outstanding – basic | 30.1 | 30.1 | ||||||
| Weighted average number of shares outstanding – diluted | 30.1 | 30.3 | ||||||
| Net earnings (loss) per share – basic and diluted | $ | (0.06 | ) | $ | 0.03 | |||
See notes to consolidated financial statements (unaudited).
2
| (Unaudited) May 1, 2004 |
January 31, 2004 | |||||||
|---|---|---|---|---|---|---|---|---|
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 11.8 | $ | 8.9 | ||||
| Accounts receivable, net | 20.6 | 21.2 | ||||||
| Merchandise inventories | 200.9 | 185.8 | ||||||
| Due from suppliers | 66.1 | 81.3 | ||||||
| Other current assets | 27.6 | 33.4 | ||||||
| Total current assets | 327.0 | 330.6 | ||||||
| Property and equipment, net | 586.9 | 584.5 | ||||||
| Goodwill | 438.5 | 434.0 | ||||||
| Other noncurrent assets | 180.0 | 171.8 | ||||||
| Total assets | $ | 1,532.4 | $ | 1,520.9 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 93.8 | $ | 87.2 | ||||
| Current maturities of long-term debt | 22.0 | 7.1 | ||||||
| Current portion of lease obligations | 16.4 | 17.6 | ||||||
| Other accrued expenses and other current liabilities | 143.6 | 148.2 | ||||||
| Total current liabilities | 275.8 | 260.1 | ||||||
| Long-term debt | 421.0 | 421.3 | ||||||
| Long-term lease obligations | 182.8 | 178.9 | ||||||
| Deferred income taxes | 91.1 | 93.6 | ||||||
| Other noncurrent liabilities | 188.5 | 192.0 | ||||||
| Total liabilities | 1,159.2 | 1,145.9 | ||||||
| Stockholders' equity | ||||||||
| Preferred stock | — | — | ||||||
| Authorized: 5,000,000 shares; no shares issued | ||||||||
| Common stock, par value $0.01 per share | 0.3 | 0.3 | ||||||
| Authorized: 100,000,000 shares; issued: 30,099,510 shares | ||||||||
| at May 1, 2004 and at January 31, 2004 | ||||||||
| Common stock warrants | 60.0 | 60.0 | ||||||
| Paid-in capital | 607.9 | 607.9 | ||||||
| Accumulated deficit | (291.5 | ) | (289.7 | ) | ||||
| Accumulated other comprehensive loss | (2.8 | ) | (2.8 | ) | ||||
| Treasury stock, at cost: 28,318 shares at May 1, 2004 and | ||||||||
| at January 31, 2004 | (0.7 | ) | (0.7 | ) | ||||
| Total stockholders' equity | 373.2 | 375.0 | ||||||
| Total liabilities and stockholders' equity | $ | 1,532.4 | $ | 1,520.9 | ||||
See notes to consolidated financial statements (unaudited).
3
| 13 Weeks Ended |
||||||||
|---|---|---|---|---|---|---|---|---|
| May 1, 2004 |
May 3, 2003 | |||||||
| Operating Activities | ||||||||
| Net earnings (loss) | $ | (1.8 | ) | $ | 0.9 | |||
| Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 21.5 | 21.2 | ||||||
| Amortization of deferred financing costs | 0.5 | 0.6 | ||||||
| Gain on sale of real estate | (1.2 | ) | (1.6 | ) | ||||
| Deferred income tax provision | (2.3 | ) | 0.3 | |||||
| Cash provided by (used for) operating assets and liabilities: | ||||||||
| Accounts receivable | 0.6 | (0.2 | ) | |||||
| Merchandise inventories | (13.7 | ) | (13.9 | ) | ||||
| Due from suppliers | 15.2 | 5.7 | ||||||
| Other current assets | 2.7 | 0.9 | ||||||
| Other noncurrent assets | (1.9 | ) | (1.0 | ) | ||||
| Accounts payable | 6.6 | (1.1 | ) | |||||
| Accrued interest | (7.2 | ) | (3.8 | ) | ||||
| Other accrued expenses and other current liabilities | 2.6 | 8.6 | ||||||
| Other | (4.4 | ) | (3.2 | ) | ||||
| Cash provided by operating activities | 17.2 | 13.4 | ||||||
| Investing Activities | ||||||||
| Capital expenditures, including technology investments | (22.1 | ) | (7.9 | ) | ||||
| Acquisition of Community Supermarket Corporation | (4.5 | ) | — | |||||
| Proceeds from sale of real estate | 2.5 | 3.0 | ||||||
| Cash used for investing activities | (24.1 | ) | (4.9 | ) | ||||
| Financing Activities | ||||||||
| Borrowings (repayments) under the working capital facility, net | 15.9 | (1.2 | ) | |||||
| Repayments of capital lease obligations | (3.9 | ) | (3.8 | ) | ||||
| Repayments of other debt, net | (2.2 | ) | (1.2 | ) | ||||
| Proceeds from lease financings | — | 1.8 | ||||||
| Repayments of the term loan | — | (0.2 | ) | |||||
| Cash provided by (used for) financing activities | 9.8 | (4.6 | ) | |||||
| Increase in cash | 2.9 | 3.9 | ||||||
| Cash at beginning of period | 8.9 | 11.3 | ||||||
| Cash at end of period | $ | 11.8 | $ | 15.2 | ||||
| Supplemental Disclosures of Cash Flow Information | ||||||||
| Interest paid | $ | 23.3 | $ | 20.1 | ||||
| Income taxes paid | $ | 0.7 | $ | 0.4 | ||||
| Noncash Investing and Financing Activities | ||||||||
| Capital lease obligations incurred | $ | 8.8 | $ | 5.1 | ||||
See notes to consolidated financial statements (unaudited).
4
Business. Pathmark Stores, Inc. (the "Company" or "Pathmark") operated 142 supermarkets as of May 1, 2004, primarily in the New York-New Jersey and Philadelphia metropolitan areas.
Basis of Presentation. The unaudited consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of management, the consolidated financial statements included herein reflect all adjustments which are of a normal and recurring nature and are necessary to present fairly the results of operations and financial position of the Company. This report should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended January 31, 2004.
Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are 100% owned. All intercompany transactions have been eliminated in consolidation.
Stock-Based Compensation. The Company accounts for stock-based compensation plans using the intrinsic value recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Since the exercise price of all stock options granted under the Company’s stock-based compensation plans was equal to the market price of the underlying common stock on the grant date, no stock-based compensation expense is recognized in the Company’s operating results.
The following pro forma disclosure illustrates the effect on net earnings (loss) and net earnings (loss) per share if the Company had applied the fair value recognition provisions of the Financial Accounting Standard Board’s (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 123, as amended by SFAS No. 148 (in millions, except per share amounts):
| 13 Weeks Ended |
||||||||
|---|---|---|---|---|---|---|---|---|
| May 1, 2004 |
May 3, 2003 | |||||||
| Net earnings (loss), as reported | $ | (1.8 | ) | $ | 0.9 | |||
| Less: stock-based compensation expense, net of related tax effect | (1.1 | ) | (1.0 | ) | ||||
| Net loss, pro forma | $ | (2.9 | ) | $ | (0.1 | ) | ||
| Weighted average number of shares outstanding - basic | 30.1 | 30.1 | ||||||
| Weighted average number of shares outstanding - diluted | 30.1 | 30.3 | ||||||
| Net earnings (loss) per share - basic and diluted, as reported | $ | (0.06 | ) | $ | 0.03 | |||
| Less: stock-based compensation expense, net of related tax effect | (0.04 | ) | (0.03 | ) | ||||
| Net loss per share - basic and diluted, pro forma | $ | (0.10 | ) | $ | — | |||
5
Long-term debt is comprised of the following (in millions):
| May 1, 2004 |
January 31, 2004 | |||||||
|---|---|---|---|---|---|---|---|---|
| Senior subordinated notes | $ | 353.7 | $ | 353.9 | ||||
| Term loan | 45.8 | 45.8 | ||||||
| Working capital facility | 20.4 | 4.5 | ||||||
| Mortgages | 21.3 | 21.4 | ||||||
| Other debt | 1.8 | 2.8 | ||||||
| Total debt | 443.0 | 428.4 | ||||||
| Less: current maturities and the working capital facility | (22.0 | ) | (7.1 | ) | ||||
| Long-term debt | $ | 421.0 | $ | 421.3 | ||||
The Company was in compliance with all debt covenants as of May 1, 2004.
Interest expense is comprised of the following (in millions):
| 13 Weeks Ended |
||||||||
|---|---|---|---|---|---|---|---|---|
| May 1, 2004 |
May 3, 2003 | |||||||
| Senior subordinated notes | $ | 7.7 | $ | 4.4 | ||||
| Term loan | 0.6 | 4.4 | ||||||
| Working capital facility | 0.5 | 0.4 | ||||||
| Mortgages | 0.4 | 0.4 | ||||||
| Lease obligations | 5.1 | 5.2 | ||||||
| Amortization of deferred financing costs | 0.5 | 0.6 | ||||||
| Other | 1.7 | 1.5 | ||||||
| Interest expense | $ | 16.5 | $ | 16.9 | ||||
Comprehensive earnings (loss) is comprised of the following (in millions):
| 13 Weeks Ended |
||||||||
|---|---|---|---|---|---|---|---|---|
| May 1, 2004 |
May 3, 2003 | |||||||
| Net earnings (loss) | $ | (1.8 | ) | $ | 0.9 | |||
| Other comprehensive earnings: | ||||||||
| Unrealized gain on cash flow hedge, net of tax | — | 0.3 | ||||||
| Comprehensive earnings (loss) | $ | (1.8 | ) | $ | 1.2 | |||
6
In the normal course of business, the Company has assigned to third parties various leases related to former businesses that the Company sold as well as former operating Pathmark supermarkets (the “Assigned Leases”). When the Assigned Leases were assigned, the Company generally remained secondarily liable with respect to these lease obligations. As such, if any of the assignees were to become unable to continue making payments under the Assigned Leases, the Company could be required to assume the lease obligation. As of January 31, 2004, 68 Assigned Leases remain in place. Assuming that each respective assignee became unable to continue to make payments under an Assigned Lease, an event the Company believes to be remote, management estimates its maximum potential obligation with respect to the Assigned Leases to be approximately $121.5 million, which could be partially or totally offset by reassigning or subletting such leases. The Company has recognized a liability on its consolidated balance sheet as of May 1, 2004 of approximately $2.8 million, which represents certain guarantees attributable to the Company’s secondary liability in connection with Assigned Leases assigned after December 31, 2002.
The Company sponsors a qualified pension plan and several nonqualified pension plans for its associates as well as retiree health and life insurance benefits, primarily for union groups and retired non-union associates. The components of net periodic cost (cost reduction) are as follows (in millions):
| Pension Benefits for the 13 Weeks Ended |
|
Other Postretirement Benefits for the 13 Weeks Ended | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| May 1, 2004 |
May 3, 2003 |
May 1, 2004 |
May 3, 2003 | ||||||||||||
| Service cost | $ | 0.8 | $ | 0.8 | $ | 0.3 | $ | 0.2 | |||||||
| Interest cost | 3.0 | 3.0 | 0.5 | 0.4 | |||||||||||
| Expected return on plan assets | (5.6 | ) | (5.6 | ) | — | — | |||||||||
| Amortization of prior service costs | 0.1 | — | — | — | |||||||||||
| Amortization of losses | 0.7 | 0.2 | 0.2 | 0.1 | |||||||||||
| Retirement incentive program | — | 2.1 | — | 0.4 | |||||||||||
| Net periodic benefit cost (cost reduction) | $ | (1.0 | ) | $ | 0.5 | $ | 1.0 | $ | 1.1 | ||||||
On February 20, 2004, the Company purchased the remaining 67% of the common stock of Community Supermarket Corporation (“CSC”) that it did not already own from the other shareholder for $4.5 million in cash (the “Acquisition”). As a result of the Acquisition, the Company owns 100% of CSC. CSC has been a tenant under a lease for a supermarket in Newark, New Jersey (the “Newark Store”) and prior to the acquisition, had retained the Company to manage the supermarket for it. The Acquisition was accounted for utilizing the purchase method, in which the purchase price was allocated to the fair value of assets acquired and liabilities assumed, and resulted in additional goodwill of $4.5 million. The results of operations of CSC are included in the Company’s consolidated financial statements subsequent to the acquisition date.
7
The following represents the consolidating financial statements of Pathmark and its 100% owned guarantor and nonguarantor subsidiaries. The guarantor subsidiaries are comprised of seven 100% owned entities, including Pathmark’s distribution subsidiary, and guarantee on a full and unconditional and joint and several basis, the 8.75% Senior Subordinated Notes, due 2012 (the “Senior Subordinated Notes.”) The nonguarantor subsidiaries are comprised of four 100% owned single-purpose entities. Each of those entities owns the real estate on which a supermarket leased to Pathmark is located.
| Pathmark |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Intercompany Elimination |
Consolidated Total |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in millions) | |||||||||||||||||
| Consolidating Statements of Operations: | |||||||||||||||||
| For the 13 Weeks Ended May 1, 2004 | |||||||||||||||||
| Sales | $ | 990.1 | $ | 601.8 | $ | — | $ | (601.8 | ) | $ | 990.1 | ||||||
| Cost of goods sold | (711.4 | ) | (601.1 | ) | — | 601.8 | (710.7 | ) | |||||||||
| Gross profit | 278.7 | 0.7 | — | — | 279.4 | ||||||||||||
| Selling, general and administrative expenses | (247.0 | ) | 1.5 | 0.9 | — | (244.6 | ) | ||||||||||
| Depreciation and amortization | (19.4 | ) | (1.8 | ) | (0.3 | ) | — | (21.5 | ) | ||||||||
| Operating earnings | 12.3 | 0.4 | 0.6 | — | 13.3 | ||||||||||||
| Interest expense | (16.0 | ) | (0.1 | ) | (0.4 | ) | — | (16.5 | ) | ||||||||
| Equity in earnings of subsidiaries | 0.5 | — | — | (0.5 | ) | — | |||||||||||
| Earnings (loss) before income taxes | (3.2 | ) | 0.3 | 0.2 | (0.5 | ) | (3.2 | ) | |||||||||
| Income tax benefit | 1.4 | — | — | — | 1.4 | ||||||||||||
| Net earnings (loss) | $ | (1.8 | ) | $ | 0.3 | $ | 0.2 | $ | (0.5 | ) | $ | (1.8 | ) | ||||
| For the 13 Weeks Ended May 3, 2003 | |||||||||||||||||
| Sales | $ | 1,004.7 | $ | 608.9 | $ | — | $ | (608.9 | ) | $ | 1,004.7 | ||||||
| Cost of goods sold | (716.4 | ) | (611.4 | ) | — | 608.9 | (718.9 | ) | |||||||||
| Gross profit (loss) | 288.3 | (2.5 | ) | — | — | 285.8 | |||||||||||
| Selling, general and administrative expenses | (248.4 | ) | 1.3 | 0.9 | — | (246.2 | ) | ||||||||||
| Depreciation and amortization | (19.0 | ) | (1.8 | ) | (0.4 | ) | — | (21.2 | ) | ||||||||
| Operating earnings (loss) | 20.9 | (3.0 | ) | 0.5 | — | 18.4 | |||||||||||
| Interest expense | (16.3 | ) | (0.2 | ) | (0.4 | ) | — | (16.9 | ) | ||||||||
| Equity in loss of subsidiaries | (3.1 | ) | — | — | 3.1 | — | |||||||||||
| Earnings (loss) before income taxes | 1.5 | (3.2 | ) | 0.1 | 3.1 | 1.5 | |||||||||||
| Income tax provision | (0.6 | ) | — | — | — | (0.6 | ) | ||||||||||
| Net earnings (loss) | $ | 0.9 | $ | (3.2 | ) | $ | 0.1 | $ | 3.1 | $ | 0.9 | ||||||
8
| Pathmark |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Intercompany Elimination |
Consolidated Total |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|