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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 10, 2002
[ ] 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
NUTRITIONAL SOURCING CORPORATION
(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 August 28, 2002 -- 200.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Page(s)
-------
Consolidated Balance Sheets -
August 10, 2002 (Unaudited) and November 3, 2001. . . . .. . . 3-4
Consolidated Statements of Operations (Unaudited) -
Twelve and forty weeks ended August 10, 2002
and August 11, 2001 . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows (Unaudited)-
Forty weeks ended August 10, 2002
and August 11, 2001 .. . . . . . . . . . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements (Unaudited). . . . . 7-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . .11-16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. . . 16
PART II. OTHER INFORMATION
ITEM 3. DEFAULTS ON SENIOR SECURIITES . . . . . . . . . . . . . . . . . 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . 17
CONSOLIDATED BALANCE SHEETS
NUTRITIONAL SOURCING CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
(Unaudited)
August 10, November 3,
2002 2001
------------- -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 24,765 $ 2,169
Accounts receivable, net of allowance for
doubtful accounts of $415 at August 10,
2002 and $520 at November 3, 2001 2,504 3,450
Inventories 51,126 54,228
Prepaid expenses 12,122 8,997
Deferred income taxes 14,534 14,534
--------- ---------
TOTAL CURRENT ASSETS 105,051 83,378
--------- ---------
PROPERTY AND EQUIPMENT
Land and improvements 6,307 6,299
Buildings and improvements 40,032 40,051
Furniture, fixtures and equipment 100,062 99,758
Leasehold improvements 44,335 43,736
Construction in progress 4,409 2,803
--------- ---------
195,145 192,647
Less accumulated depreciation
and amortization 103,273 94,110
--------- ---------
91,872 98,537
Property under capital leases, net 11,944 12,690
--------- ---------
TOTAL PROPERTY AND EQUIPMENT 103,816 111,227
GOODWILL, net of accumulated amortization of
$45,467 at August 10, 2002 and $41,821
at November 3, 2001 146,571 150,217
DEFERRED INCOME TAX 6,002 1,080
TRADE NAMES, net of accumulated amortization
of $11,726 at August 10, 2002 and $11,059
at November 3, 2001 26,774 27,441
DEFERRED CHARGES AND OTHER ASSETS 20,377 20,816
--------- ---------
TOTAL ASSETS $ 408,591 $ 394,159
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
NUTRITIONAL SOURCING CORPORATION AND SUBSIDIARIES
(Dollars in thousands, except share data)
(Unaudited)
August 10, November 3,
2002 2001
------------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 49,574 $ 53,539
Accrued interest 8,971 4,432
Accrued expenses 16,773 16,669
Salaries, wages and benefits payable 8,942 7,862
Income taxes currently payable 1,753 -
Current deferred tax liability 2,314 -
Current obligations under capital leases 685 623
Borrowings under revolving credit
Facility, current 32,000 -
Notes payable, current 176,160 -
----------- -----------
TOTAL CURRENT LIABILITIES 297,172 83,125
BORROWINGS UNDER REVOLVING CREDIT
FACILITY - 30,000
NOTES PAYABLE - 175,358
CAPITAL LEASE OBLIGATIONS, net of
current portion 11,754 12,296
DEFERRED INCOME TAXES 26,208 20,486
RESERVE FOR SELF-INSURANCE CLAIMS 6,084 6,008
OTHER LIABILITIES AND DEFERRED CREDITS 30,642 31,501
----------- -----------
TOTAL LIABILITIES 371,860 358,774
----------- -----------
STOCKHOLDER'S EQUITY
Common stock, $.10 par value; 200 shares
authorized and issued - -
Additional paid-in capital 91,500 91,500
Accumulated deficit (54,769) (56,115)
----------- -----------
TOTAL STOCKHOLDER'S EQUITY 36,731 35,385
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 408,591 $ 394,159
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
NUTRITIONAL SOURCING CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
(Unaudited) (Unaudited)
12 weeks 12 weeks 40 weeks 40 weeks
ended ended ended ended
August 10, August 11, August 10, August 11,
2002 2001 2002 2001
----------- ---------- ----------- ----------
Net sales $135,770 $127,640 $459,240 $447,090
Cost of goods sold 91,203 85,120 308,039 301,120
----------- ----------- ----------- ---------
GROSS PROFIT 44,567 42,520 151,201 145,970
OPERATING EXPENSES
Selling, general and administrative expenses 34,477 33,065 120,402 120,324
Gain on insurance settlement (14,693) - (14,693) -
Write down of impaired assets-store closings - - - (44)
Depreciation and amortization 6,296 6,701 21,235 23,823
----------- ----------- ----------- ---------
OPERATING PROFIT 18,487 2,754 24,257 1,867
Interest expense on debt (5,092) (5,079) (16,812) (17,147)
Interest expense on capital lease obligations (422) (432) (1,402) (1,385)
Interest and investment income, net 75 105 177 612
----------- ----------- ----------- ---------
INCOME (LOSS) BEFORE TAXES 13,048 (2,652) 6,220 (16,053)
Income tax (expense) benefit (4,874) 1,183 (4,874) 6,829
----------- ----------- ----------- ---------
NET INCOME (LOSS) $ 8,174 ($1,469) $1,346 ($9,224)
=========== ============ =========== =========
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NUTRITIONAL SOURCING CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
(Unaudited)
40 weeks ended
---------------------------------
August 10, August 11,
2002 2001
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $1,346 ($9,224)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization of property and equipment 12,241 13,718
Amortization of intangibles, other assets and inventories 8,994 10,105
Amortization of bond discount 802 714
Provision for deferred income taxes 807 (6,829)
Gain on disposal of property and equipment, net (39) (27)
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable 946 1,539
Inventories (421) 3,583
Prepaid expenses (3,125) (1,286)
Other assets (719) 1,074
(Decrease) increase in:
Accounts payable, accrued expenses and accrued interest 671 (16,588)
Salaries, wages and benefits payable 1,080 (1,681)
Income taxes currently payable 1,753 -
Current deferred tax liability 2,314 -
Other liabilities and deferred credits and reserve for
self-insurance claims (783) 7,088
--------------- --------------
Net cash provided by operating activities 25,867 2,186
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (4,830) (4,593)
Proceeds from disposal of property and equipment 39 36
--------------- --------------
Net cash used in investing activities (4,791) (4,557)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facility 4,000 25,000
Pay back of revolving credit facility (2,000) (25,000)
Principal payments on capital lease obligations (480) (519)
--------------- --------------
Net cash provided by (used in) financing activities 1,520 (519)
--------------- --------------
Net increase (decrease) in cash and cash equivalents 22,596 (2,890)
Cash and cash equivalents at beginning of period 2,169 6,663
--------------- --------------
Cash and cash equivalents at end of period $24,765 $3,773
=============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $11,456 $20,700
Income taxes paid (refunded), net ($597) $3,750
The accompanying notes are an integral part of these
consolidated financial statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NUTRITIONAL SOURCING CORPORATION AND SUBSIDIARIES
NOTE 1 -- INTERIM FINANCIAL STATEMENTS
On November 2, 2001 the Company changed its fiscal year end from the
Saturday closest to January 31 to the Saturday closest to October 31.
Consequently, the third quarter of the current fiscal year is the 12 weeks
ended August 10, 2002 and the first three quarters of the current fiscal year
are the 40 weeks ended August 10, 2002. The comparable periods are the 12 and
40 weeks ended August 11, 2001, which are presented herein for comparison
purposes. The 40 weeks ended August 11, 2001 has never been reported
separately in filings with the Securities and Exchange Commission. Operating
results for the 12 and 40 weeks ended August 10, 2002 and August 11, 2001 are
not necessarily indicative of results that may be expected for a full fiscal
year.
Effective July 22, 2002 the registrant changed its name from Pueblo Xtra
International, Inc. to Nutritional Sourcing Corporation. With respect to the
unaudited financial information for the 12 and 40 weeks ended August 10, 2002
and August 11, 2001, it is the opinion of management of Nutritional Sourcing
Corporation 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 final accounting for the settlement of the Hurricane Georges
insurance claim as detailed herein, were of a normal and recurring nature.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared on
a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company's
sales, operating earnings and net loss have improved during the 40 weeks
ended August 10, 2002. However, the Company experienced a decrease in sales
and profitability over the past several years. As a result, the Company's
financial position has been negatively impacted including a working capital
deficit of approximately $192.1 million. Management believes the decrease in
sales and profitability was due to the negative effects of Hurricane Georges,
which occurred in September 1998, and increased competition and weakness in
the economy in both Puerto Rico and the U.S. Virgin Islands. The working
capital deficit is due to the Company's revolving credit facility and its
9.5% Senior Notes and 9.5% Series C Senior Notes (collectively the "Notes")
coming due within the next year (February 1, 2003 and August
1, 2003, respectively).
The Company's operating subsidiaries (Pueblo International, LLC, Xtra
Super Food Centers, Inc. and Pueblo Entertainment, Inc.) did not pay $8.4
million of intercompany interest due to the Company on August 1, 2002.
Consequently, the Company was unable to pay the semi-annual interest payment
of $8.4 million due to third parties on the Notes which was due on that date.
The Company and certain of its noteholders have initiated discussions
concerning the possible restructuring of this indebtedness.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NUTRITIONAL SOURCING CORPORATION AND SUBSIDIARIES
BASIS OF PRESENTATION (continued)
The lender banks involved in the revolving credit facility under which
the operating subsidiaries have cash borrowings of $32.0 million and letters
of credit outstanding of $3.9 million have agreed to forbear, subject to
certain terms and conditions, from enforcing their rights or remedies
pursuant to the credit documents as a result of the non-payment of
interest on the Notes (see Exhibit 10.1). In addition, the lender banks and
the Company have agreed to permanently reduce the total availability under
the revolving credit facility to $38.0 million through the termination date
of the facility, which is February 1, 2003. Total availability had been
previously limited to $40.0 million.
Based upon the circumstances described above, unless the Company is
successful in refinancing its revolving credit facility and its outstanding
Notes, the Company may be unable to continue as a going concern.
The Company has taken certain initiatives to improve its profitability
and financial position, including repurchase of $87.7 million principal
amount of its 9.5% Notes due 2003 and its 9.5% Series C Senior Notes due 2003
during the fiscal year ending January 27, 2001 for $51.5 million (including
expenses), operating cost reductions, closing under performing stores,
remodeling the majority of its remaining stores and the introduction of its
PuebloCard loyalty and discount program. Although no assurances can be given,
management believes the above steps will improve the Company's operating
performance and cash flows. Additionally, the Company is seeking to refinance
its revolving credit facility prior to its due date of February 1, 2003 and
refinance or restructure its Senior Notes and Series C Senior Notes prior to
their due date of August 1, 2003. No assurance can be given that the Company
will be successful in these refinancing and restructuring efforts. The
accompanying consolidated financial statements do not include any adjustments
relating to the recoverability and classification of assets or the amounts
and classification of liabilities that might be necessary should the Company
be unable to continue as a going concern.
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, with
headquarters in Puerto Rico, consists of 47 supermarkets, 41 of which are in
Puerto Rico and 6 of which are in the U.S. Virgin Islands. The Company also
operates 41 video tape rental stores, 39 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 one of the Company's retail food
supermarkets. The Company's 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NUTRITIONAL SOURCING CORPORATION AND SUBSIDIARIES
NOTE 3 -- DISCLOSURE ON OPERATING SEGMENTS (continued)
Reportable operating segment financial information is as follows
(dollars in thousands):
Retail Food Video Rental Total
For the 40 Weeks Ended and as of August 10, 2002:
Net sales $ 427,593 $ 31,647 $ 459,240
Depreciation and amortization (16,282) (4,953) (21,235)
Gain on settlement of insurance claim (a) 13,421 1,272 14,693
Operating profit (a) (b) 18,097 6,160 24,257
Total assets 388,119 20,472 408,591
Capital expenditures (4,780) (50) (4,830)
For the 40 Weeks Ended August 11, 2001:
Net sales $ 414,553 $ 32,537 $ 447,090
Depreciation and amortization (17,606) (6,217) (23,823)
Operating (loss) profit (b) (1,799) 3,666 1,867
Capital expenditures (4,540) (53) (4,593)
As of November 3, 2001:
Total assets $ 371,899 $ 22,260 $ 394,159
(a) The 40 weeks ended August 10, 2002 include a $14.7 million gain (before
income taxes) realized upon the settlement of the business interruption
portion of the Company's Hurricane Georges insurance claim.
(b) 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 -- RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB")issued
SFAS No. 141 "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 141 requires that all business combinations
initiated after June 30, 2001 be accounted for under the purchase method. The
statement further requires separate recognition of intangible assets that
meet one of two criteria. The statement applies to all business combinations
initiated after June 30, 2001.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NUTRITIONAL SOURCING CORPORATION AND SUBSIDIARIES
NOTE 4 -- RECENT ACCOUNTING PRONOUNCEMENTS (continued)
SFAS No. 142 requires that an intangible asset that is acquired shall
be initially recognized and measured based on its fair value. The statement
also provides that goodwill should not be amortized, but shall be tested for
impairment annually, or more frequently if circumstances indicate potential
impairment, through a comparison of fair value to its carrying amount.
Existing goodwill will continue to be amortized through the remainder of
fiscal year ending November 2, 2002, at which time amortization will cease
and the Company will perform a transitional goodwill impairment test. SFAS
No. 142 is effective for fiscal periods beginning after December 15, 2001.
The Company is currently evaluating the impact of the new accounting
standards on existing goodwill and other intangible assets. However, it
expects a significant write down to be recorded during the fiscal year ending
November 1, 2003. Goodwill amortization expense was $3.6 million for the 40
weeks ended August 10, 2002 versus $3.7 million for the 40 weeks ended August
11, 2001.
In July 2001, the FASB issued SFAS No. 144,"Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of long-
lived assets. This statement supercedes SFAS No. 121 on the same topic and
the accounting and certain reporting provisions of Accounting Principles
Board ("APB") Opinion No. 30, "Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions", for the disposal
of a segment of a business (as defined in that Opinion). This Statement also
amends Accounting Research Bulletin No. 51, "Consolidated Financial
Statements," to eliminate the exception to consolidation for a subsidiary for
which control is likely to be temporary. SFAS No. 144 is effective for
fiscal periods beginning after December 15, 2001. The Company is currently
evaluating the impact of the new accounting standards on existing long-lived
assets.
In April 2002, the FASB issued SFAS No. 145, Rescission of the FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. SFAS No. 145 eliminates the requirement to classify
gains and losses from the extinguishment of indebtedness as extraordinary,
requires certain lease modifications to be treated the same as a sale-
leaseback transaction, and makes other non-substantive technical corrections
to existing pronouncements. SFAS No. 145 is effective for fiscal years
beginning after May 15, 2002, with earlier adoption encouraged. The Company
cannot determine the potential effects that the adoption of SFAS 145 will
have on its consolidated financial statements.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 requires companies
to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operations, plant closing, or other exit or disposal activities.
SFAS No. 146 is effective prospectively for exit or disposal activities
initiated after December 31, 2002, with earlier adoption encouraged. As the
provisions of SFAS No. 146 are required to be applied prospectively after the
adoption date, the Company cannot determine the potential effects that
adoption of SFAS No. 146 will have on its consolidated financial statements.
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.
Selected Operating Results
(As a percentage of sales)
12 WEEKS ENDED 40 WEEKS ENDED
------------------------- -------------------------
August 10, August 11, August 10, August 11,
2002 2001 2002 2001
------------ ----------- ------------- ----------
Gross Profit 32.8% 33.3% 32.9% 32.6%
Selling, General &
Administrative Expenses 25.4 25.9 26.2 26.9
Gain on insurance settlement (10.8) - (3.2) -
EBITDA, as defined (1) 18.3 7.4 9.9 5.7
Depreciation & Amortization 4.6 5.2 4.6 5.3
Operating Profit 13.6 2.2 5.3 0.4
Profit (Loss) Before Income Taxes 9.6 (2.1) 1.4 (3.6)
Net Profit (Loss) 6.0 (1.2) 0.3 (2.1)
----------
(1) EBITDA, as defined, is Earnings Before Interest expense-net, income
Taxes, Depreciation, and Amortization and the 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 informative purposes only.
Results of Operations
As of August 10, 2002, the Company operated a total of 47 supermarkets
and 41 video rental locations in Puerto Rico and the U. S. Virgin Islands.
Between August 11, 2001 and August 10, 2002, the Company closed one of
its supermarkets in Puerto Rico. The history of store openings and closings
from August 11, 2001 through the end of the third quarter of the current year
on August 10, 2002, as well as the store composition, is set forth in the
tables below:
Stores in Operation:
At August 11, 2001. . . .. . . . . . . . . . 89
Stores opened:
Supermarkets . . . . . . . . . . . . . 0
Video tape rental stores . . . . . . . 0
Stores closed:
Supermarket . . . . . . . . . . . . . . 1
Video tape rental stores . . . . . . . 0
-------
At August 10, 2002. . . . . . . . . . . . . 88
=======
Remodels . . . . . . . . . . . . . . . . . 2
=======
August 10, August 11,
2002 2001
------------ ------------
Store Composition at Quarter-End:
By division:
Supermarkets . . . . . . . . . . . . 47 48
Video tape rental stores . . . . . . 41 41
------- -------
Total 88 89
======= =======
By location:
Puerto Rico . . . . . . . . . . . . . 80 81
U.S. Virgin Islands . . . . . . . . . 8 8
------- -------
Total 88 89
======= =======
The following is the summary of total and comparable store sales:
Percentage increase (decrease) in sales
for the period ended August 10, 2002
------------------------------------------
12 Weeks Ended 40 Weeks Ended
------------------ -------------------
Total Sales 6.4% 2.7%
========= =========
Comparable Stores:
Retail Food Division 8.2% 3.9%
========= =========
Video tape rental division (3.4)% (2.1)%
========= =========
Total Comparable Store Sales 7.3% 3.5%
========= =========
Total sales for the 12 and 40 weeks ended August 10, 2002 were $135.8
million and $459.2 million, respectively, versus $127.6 million and $447.1
million for the 12 and 40 weeks ended August 11, 2001, increases of 6.4% and
2.7%, respectively. For the 12 and 40 weeks ended August 10, 2002, same store
sales were $135.8 million and $457.3 million, respectively, versus $126.5
million and $441.8 million, respectively for the 12 and 40 comparable weeks
ended August 11, 2001, increases of 7.3% and 3.5%, 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. For the 12 and
40 weeks ended August 10, 2002, same store sales in the Retail Food Division
increased 8.2% and 3.9%, respectively, from the 12 and 40 comparable weeks
ended August 11, 2001. The principal factors contributing to the increase in
same stores sales in the Retail Food Division, despite continued growth in
competition, are the Company's PuebloCard, a customer loyalty card program
launched in March 2001, and the Company's repositioning efforts, also begun
in March 2001. For the 12 and 40 weeks ended August 10, 2002, Video Rental
Division same store sales decreased 3.4% and 2.1%, respectively, from the 12
and 40 comparable weeks ended August 11, 2001. The decreases in Video Rental
Division sales were a result of a decline in the number of new releases and
in customer response to new releases for both rental and sell-through videos.
Gross profit increased for the 12 and 40 weeks ended August 10, 2002
by $2.1 million and $5.2 million, respectively, to $44.6 million and $151.2
million, respectively, from $42.5 million and $146.0 million for the 12 and
40 weeks ended August 11, 2001. The rate of gross profit (as a percentage of
sales), for the 12 and 40 weeks ended August 10, 2002 was 32.8% and 32.9%,
respectively, compared to 33.3% and 32.6%, respectively, for the 12 and 40
weeks ended August 11, 2001, a decrease of 0.5% for the 12 weeks and an
increase 0.3% for the 40 weeks. The primary reason for the improvement in
gross profit and the rate of gross profit for the 40 weeks ended August 10,
2002 was the impact of the Company's loyalty program in its Retail Food
division, which began in March of 2001. In addition to providing loyal
customers with enhanced values the program provides the Company the ability
to improve control of its promotional programs. The program is based on the
PuebloCard which identifies the card holder as a member of the program and
the special pricing the card holder is entitled to on the specific item(s)
being checked out. Currently, Pueblo is the only supermarket retailer
offering such a program in Puerto Rico and the U. S. Virgin Islands.
Selling, general and administrative expenses were $34.5 million and 120.4
million, respectively, for the 12 and 40 weeks ended August 10, 2002 compared
to $33.1 million and $120.3 million, respectively, for the 12 and 40 weeks
ended August 11, 2001, increases of $1.4 million and $0.1 million,
respectively. The increases are principally a result of the increase in the
variable components of selling, general, and administrative expenses caused
by the increase in sales.
Depreciation and amortization was $6.3 million and $21.2 million,
respectively, for the 12 and 40 weeks ended August 10, 2002 compared to $6.7
million and $23.8 million for the 12 and 40 weeks ended August 11, 2001,
decreases of $0.4 million and $2.6 million, respectively. The decrease
for the 40 weeks ended August 11, 2001, is primarily a result of the write
off of property and equipment that had been replaced during fiscal years 2001
and 2000, when the majority of the Company's store remodels were completed.
The effective tax rate was 78.4% for the 40 weeks ended August 10, 2002,
compared to 42.5% for the comparable 40 weeks ended August 11, 2001. The
variance is a result of the variance in tax rates among the tax jurisdictions
in which the Company operates and the results of operations in those specific
jurisdictions.
Net income for the 12 and 40 weeks ended August 10, 2002 was $8.2
million and $1.3 million, respectively, improvements of $9.7 million and
$10.5 million, respectively, from the net losses of $1.5 million and $9.2
million, respectively, for the 12 and 40 weeks ended August 11, 2001. The net
income for the 12 and 40 weeks ended August 10, 2002 included a gain from the
settlement of the Company's business interruption insurance claim as a result
of Hurricane Georges of $3.2 million, net of taxes.
EBITDA, (defined as Earnings Before Interest expense-net, income Taxes,
Depreciation and Amortization, and the write down of impaired assets) for the
12 and 40 weeks ended August 10, 2002 was $24.8 million and $45.5 million,
respectively, versus $9.5 million and $25.7 million, respectively, for the
comparable periods of the prior year, increases of $15.3 million and $19.8
million, respectively. EBITDA for the 12 and 40 weeks ended August 10, 2002
includes a pre-tax gain of $14.7 million from the settlement of the Company's
business interruption insurance claim. The remaining $0.6 million and $5.1
million improvements in EBITDA for the 12 and 40 weeks ended August 10, 2002,
respectively, versus the comparable periods of the prior year, are primarily
the results of increased sales, while maintaining its rate of gross margins
as a percentage of sales and the cost reductions implemented in late April of
2001.
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's operating subsidiaries (Pueblo International, LLC, Xtra
Super Food Centers, Inc. and Pueblo Entertainment, Inc.) did not pay $8.4
million of intercompany interest due to the Company on August 1, 2002.
Consequently, the Company was unable to pay the semi-annual interest payment
of $8.4 million due to third parties on its 9.5% Senior Notes and its 9.5%
Series C Senior Notes (collectively the "Notes") which was due on that date.
The Notes, which total $177.3 million principal amount, are due in August
2003. The Company and certain of its noteholders have initiated discussions
concerning the possible restructuring of this indebtedness.
The lender banks involved in the revolving credit facility under which
the operating subsidiaries have cash borrowings of $32.0 million and letters
of credit outstanding of $3.9 million have agreed to forbear, subject to
certain terms and conditions, from enforcing their rights or remedies
pursuant to the credit documents as a result of the non-payment of interest
on the Notes (see Exhibit 10.1). In addition, the lender banks and the
Company have agreed to permanently reduce the total availability under the
revolving credit facility to $38.0 million through the termination date of
the facility, which is February 1, 2003. Total availability had been
previously limited to $40.0 million.
Net cash provided by operating activities for the 40 weeks ended August
10, 2002 was $25.9 million versus $2.2 million for the comparable 40 weeks
ended August 11, 2001, an increase of $23.7 million. The reasons for the
increase in cash from operations are $10.5 million of net business
interruption insurance proceeds received in July of 2002, $8.4 million of
cash retained by the Company as a result of not paying the interest due
August 1, 2002 on the Company's 9.5% Notes and the increase in EBITDA,
excluding the $14.7 million pre-tax gain from the insurance settlement, of
$5.1 million.
Net cash used in investing activities for purchases of property and
equipment, net of proceeds from disposal of property and equipment, was $4.8
million for the 40 weeks ended August 10, 2002 versus $4.6 million for the
comparable 40 weeks ended August 11, 2001.
Net cash provided by financing activities was $1.5 million for the 40
weeks ended August 10, 2002 versus net cash used of $0.5 million for the
comparable 40 weeks ended August 11, 2001. During the 40 weeks ended August
10, 2002, the Company borrowed a net additional amount of $2.0 million under
its revolving credit facility.
Working capital decreased by $192.4 million to a deficit of $192.1
million as of August 10, 2002 from $0.3 million as of November 3, 2001
producing a current ratio of 0.35:1 as of August 10, 2002 versus 1.00:1 as of
November 3, 2001. The reason for the negative working capital is the
reclassification, from long-term to current, of the Company's $32.0 million
of borrowings under its revolving credit facility and $176.2 million of its
Notes. The facility expires on February 1, 2003 and the Notes mature on
August 1, 2003.
The Company's management believes that the cash flows generated by its
normal business operations will not be adequate for its liquidity and capital
resource needs unless augmented by the existing revolving credit facility or
replacement facility. The Company is seeking to refinance its revolving
credit facility prior to its due date of February 1, 2003. No assurances can
be given that the Company will be successful in its refinancing efforts.
The Company's general liability and certain of its workers compensation
insurance programs are self-insured. The Company maintains general liability
insurance coverage for claims in excess of $250,000 or $500,000, depending on
the Company's operating area. The current portion of the reserve,
representing amounts expected to be paid in the next fiscal year, is $4.3
million as of August 10, 2002 and is anticipated to be funded with cash
provided by operating activities.
The Company is seeking to refinance or restructure its outstanding Senior
Notes and Series C Senior Notes which mature on August 1, 2003. The Company
and certain of its noteholders have initiated discussions concerning the
possible restructuring of its indebtedness. There can be no assurance that
such a refinancing or restructuring can be achieved on acceptable terms or at
all.
Hurricane Georges Insurance Recovery
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.
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 Puerto Rico and the U. S. Virgin Islands (the "claim")
as a result of Hurricane Georges. The Company's insurance carriers invoked
the appraisal provisions of the polity which, essentially, required an
arbitration process to value the claim.
On June 13, 2002 the Umpire, appointed in Florida, and the appraisers for
both the Company and the insurance carriers all agreed that the value of the
claim was $18.2 million. Prior to November 3, 2001, the Company had received
approximately $6.9 million of this amount. During the quarter (12 weeks)
ended August 10, 2002, the Company received the remaining $11.3 million due
under the settlement agreement and consequently recorded a pre-tax gain of
$14.7 million, net of expenses.
Impact of Inflation and Currency Fluctuations
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
by 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.
Critical Accounting Policies
The Company's critical accounting policies, including the assumptions and
judgments underlying them, are disclosed in the Notes to the Consolidated
Financial Statements in our Annual Report on Form 10-K for the 40 weeks ended
November 3, 2001.
The policies have been consistently applied in all material respects and
address such matters as: inventories, impairment of long-lived assets
(including goodwill), accrued self-insurance and realization of deferred tax
assets.
While the estimates and judgments associated with the application of
these policies may be affected by different assumptions and conditions, the
Company believes the estimates and judgments associated with the reported
amounts are appropriate in the circumstances.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 40 weeks ended November 3, 2001
- Debt in the financial statements, the Company's debt consists of: (i)
senior notes of $177.3 million principal amount at a fixed rate of 9.5% due
in 2003 and (ii) borrowings under the Company's revolving credit facility of
$32.0 million at August 10, 2002 and $30.0 million at August 11, 2001 upon
which the weighted average interest rate was 6.0% and 9.5% for the 40 weeks
ended August 10, 2002 and August 11, 2001, 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) management's belief that cash flows generated by the Company's normal
business operations will not be adequate for its liquidity and capital
resource needs unless augmented by the existing revolving credit facility or
a replacement facility, and (2) the Company seeking to replace its current
revolving credit facility which expires on February 1, 2003 and seeking to
refinance or restructure its outstanding Senior Notes and Series C Senior
Notes which mature on August 1, 2003. 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, and
buying patterns of consumers.
PART II. OTHER INFORMATION
ITEM 3. DEFAULTS ON SENIOR SECURITIES
See the Management Discussion and Analysis in Part I, Item 2 for
discussion concerning non-payment of interest on the Company's 9.5% Senior
Notes and 9.5% Series C Senior notes as well as the forbearance agreement
concerning the Company's revolving credit facility.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Consent Agreement dated as of August 1, 2002 ("Consent
Agreement") made by and among PXI, the Borrower, Xtra,
the Agents and the Banks.
99.1 Certification of CEO pursuant to 18 U.S.C. Section 1350
as adopted pursuant to Section 906 of the Surbanes-
Oxley Act of 2002.
99.2 Certification of CFO pursuant to 18 U.S.C. Section 1350
as adopted pursuant to Section 906 of the Surbanes-
Oxley Act of 2002.
(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.
NUTRITIONAL SOURCING CORPORATION
Dated: August 28, 2002 /s/ Daniel J. O'Leary
-----------------------------
Daniel J. O'Leary,
Executive Vice President
and Chief Financial Officer
Exhibit 10.1
CONSENT AGREEMENT
This Consent Agreement, dated as of August 1, 2002 ("Consent
Agreement"), is made by and among PXI, the Borrower, Xtra, the Agents andthe
Banks (see below for defined terms).
BACKGROUND
A. Reference is made to the Amended and Restated Credit
Agreement dated as of April 29, 1997 (as amended to from time to time, the
"Credit Agreement"), among Nutritional Sourcing Corporation, a Delaware
corporation (f/k/a Pueblo Xtra International, Inc.) ("PXI"), Pueblo
International, LLC, a Delaware limited liability company and successor to
Pueblo International, Inc. (the "Borrower"), Xtra SuperFood Centers, Inc., a
Delaware corporation ("Xtra"), the Syndication Agent, the Administrative
Agent (together, the "Agents"), and the Banks party thereto from time to
time. All capitalized terms used in this Consent Agreement and not otherwise
defined shall have the respective meanings provided such terms in the Credit
Agreement.
B. The Borrower has informed the Banks that it will not pay
certain interest due and payable on August 1, 2002 to PXI, which in turn will
likely result in the failure of PXI to pay required interest to the United
States Trust Company of New York pursuant to the terms of the indentures,
dated as of July 28, 1993 and April 29, 1997, on August 1, 2002 (which is the
next due date for interest) in respect of the PXI Senior Notes (collectively
referred to as "Interest Payment Defaults"). The Interest Payment Defaults
constitute Events of Default under Section 9.04(a)(i) of the Credit
Agreement. The Interest Payment Defaults constitute defaults in payment
under the indentures referred to above, and (if not cured) will constitute
"Events of Default" under and as defined in such indentures 30 days following
non-payment.
C. In connection with the Interest Payment Defaults, the
Borrower has requested that the Banks forbear from exercising their rights
and remedies under the Credit Documents. Subject to the terms and conditions
of this Consent Agreement, the Banks have agreed to this request.
AGREEMENT
NOW THEREFORE, for good and valuable consideration, the receipt
and legal sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, subject to the satisfaction of Article III hereof, the
parties hereto agree as of the date hereof (the "Consent Agreement Effective
Date") as follows:
ARTICLE I
ACKNOWLEDGMENTS AND AGREEMENTS
1.1 Acknowledgment of Existing Interest Payment Defaults;
Existing Credit Documents. PXI, the Borrower and Xtra acknowledge and agree
that: (a) the Interest Payment Defaults are material in nature and constitute
Events of Default; (b) the Credit Documents are valid and enforceable against
PXI, the Borrower, Xtra and the Subsidiary Guarantors in every respect and
all of the terms and conditions thereof are binding upon PXI, the Borrower,
Xtra and the Subsidiary Guarantors; (c) the PXI Senior Notes are structurally
subordinated to the Obligations (as defined in Section 1.3 below) of the
Borrower; and (d) the Subordinated Intercompany Notes are contractually
subordinated and subject in right of payment to the prior payment in full of
the Obligations. PXI, the Borrower, Xtra, and the Subsidiary Guarantors
further acknowledge and agree that, as a result of the Interest Payment
Defaults, the Banks are entitled upon notice to the Borrower to accelerate
the Obligations pursuant to the Credit Documents and to exercise all rights
and remedies under the Credit Documents, applicable law or otherwise. With
respect to the Interest Payment Defaults, to the extent that any of the
Credit Documents require notification by the Banks to PXI, the Borrower, Xtra
or the Subsidiary Guarantors of the existence of a default or an opportunity
for PXI, the Borrower, Xtra or the Subsidiary Guarantors to cure such a
default, or both, such notice and period for cure have been properly given by
the Banks or are hereby waived by PXI, the Borrower, Xtra and the Subsidiary
Guarantors.
1.2 Acknowledgment of Current Outstanding Obligations. As of
the Consent Agreement Effective Date, the Borrower is indebted to the Banks
in an aggregate amount equal to:
(i) the principal sum of $35,911,516 apportioned as follows:
Revolving loans: $32,000,000
Swingline Loans: zero
L/C Outstandings: $3,911,516;
(ii) plus accrued but unpaid interest, L/C Fees, Facing Fees and
Commitment Commissions;
(iii) plus a fee of $200,000.00 to each of The Bank of Nova Scotia and
Bank of America, N.A. in consideration of the execution of this Consent
Agreement (the "Consent Fee");
(iv) plus the costs and expenses (including, without limitation,
reasonable attorneys' fees) incurred by the Banks in connection with
negotiation and preparation of this Consent Agreement and the documents
related hereto and/or in connection with the Interest Payment Defaults.
The foregoing amounts, items 1.2(i) through 1.2(iv), inclusive, are hereafter
collectively referred to as the "Current Outstanding Obligations".
All such indebtedness is owing by the Borrower and guaranteed by PXI, Xtra
and each Subsidiary Guarantor without any rights of offset, counterclaims or
defenses of any kind. Nothing contained herein shall alter, amend, modify or
extinguish the obligation of any Credit Party to repay the Current
Outstanding Obligations, and neither this Consent Agreement nor any of the
other documents related hereto constitutes a novation or modification of any
of the Credit Documents.
1.3 Acknowledgment of Liens and Priority. Pursuant to the Credit
Documents and to the Borrower's best knowledge, the Banks hold (directly or
through the Collateral Agent for their benefit) first priority, perfected
security interests in and liens upon all of the Borrower's, Xtra's and the
Subsidiary Guarantors' assets, wherever located, including assets now owned
or hereafter acquired, and as more specifically described in the Credit
Documents. PXI, the Borrower, Xtra and the Subsidiary Guarantors will
promptly take all actions and execute all documents requested by the Agents
in regard to such security interests and liens, and will establish cash
concentration accounts with the Collateral Agent for the management of the
Borrower's cash and liquid investments on terms reasonably satisfactory to
the Banks within thirty days of the Consent Agreement Effective Date. Such
security interests and liens secure all of the Obligations now or hereafter
incurred, including, without limitation, the Current Outstanding Obligations
and all other amounts now or hereafter owed by the Credit Parties to the
Banks under the Credit Documents. For purposes of this Consent Agreement,
the word "Obligations" shall have the meaning assigned to such term in the
Credit Agreement, and also includes the Current Outstanding Obligations.
1.4 Reaffirmation of Security Interests. (a) All of the assets
of the Credit Parties which were pledged, assigned, conveyed, mortgaged,
hypothecated or transferred to or in favor of the Banks pursuant to the
Credit Documents including, without limitation, the Collateral, constitute
collateral security for all of the Obligations. Each Credit Party hereby
reaffirms its respective prior conveyance to or in favor of the Banks of a
continuing security interest in and lien on the Collateral as well as a
security interest in and lien upon any and all funds and/or monies of such
Credit Party.
(b) Within seven days of the Consent Agreement Effective Date,
the Borrower will request (on an expedited basis where available) from the
relevant filing offices in Puerto Rico, Florida, Delaware (and other relevant
jurisdictions) UCC lien searches (or title searches in the case of real
property) in respect of PXI and each of its Subsidiaries and the Mortgaged
Properties, and thereafter will forward a copy of the results of such
searches to the Administrative Agent and White & Case LLP immediately upon
receipt.
1.5 Deferred Fee. The Borrower shall pay to each Bank pro rata
on the basis of their respective Revolving Commitments a deferred fee
accruing (in the aggregate for all Banks) at the rate of $66,000 per month,
commencing on August 1, 2002, which shall be due and payable in full on
February, 1, 2003, if the Obligations then due and owing have not been paid
in full in cash on such date.
1.6 Name Change. The Banks consent pursuant to Section
8.12(a)(ii) of the Credit Agreement to an amendment to the certificate of
incorporation of PXI changing its name to Nutritional Sourcing Corporation.
Each Credit Party acknowledges and agrees that such name change has no effect
on any of its or any other Credit Party's obligations under this Agreement,
the Credit Agreement, or any other Credit Document.
1.7 Reduction of Commitment. Pursuant to Section 3.02 of the
Credit Agreement, this Consent Agreement shall constitute written notice to
the Administrative Agent from the Borrower that, effective August 1, 2002, an
amount of $27.0 million of the Total Unutilized Revolving Commitment is
terminated. The Administrative Agent and the Banks waive the requirement of
at least three days' prior written notice of such termination, and agree
together with the Borrower that such termination shall be effective
immediately on August 1, 2002. Upon such termination, the Total Revolving
Commitment shall equal $38.0 million.
1.8 Subsequent Drawdowns. Notwithstanding any provision of the
Credit Agreement to the contrary, at any time following the Consent Agreement
Effective Date the aggregate outstanding principal amount of Revolving Loans
and Swingline Loans shall not exceed $36.0 million. Prior to the Consent
Termination Date, the Events of Default referred to in Section 2.1(b) below
will not constitute a failure to satisfy a condition to any Credit Event
under Section 5.02(a) of the Credit Agreement. Each Credit Party will, if
requested by the Administrative Agent, execute an amendment to the Credit
Agreement to give further effect to the intent of this Section 1.8.
ARTICLE II
FORBEARANCE
2.1 Forbearance Period. (a) Subject to the terms and conditions
of this Consent Agreement, and without waiving the Interest Payment Defaults
or other Defaults or Events of Default that may exist, the Banks agree to
forbear from enforcing their rights or remedies pursuant to the Credit
Documents and applicable law as a result of the occurrence of the Interest
Payment Defaults until the earliest to occur of the following (as the case
may be, the "Consent Termination Date"): (i) February 1, 2003, (ii) the
occurrence of an Event of Default under this Consent Agreement (as provided
in Article V below), the Credit Agreement, any other Credit Document or any
other loan or credit agreement or other document evidencing a debt obligation
of PXI or any of its Subsidiaries, including without limitation the PXI
Senior Notes Documents, (iii) the exercise of any rights or taking of any
action by any party (including, without limitation, the sending of any
notice) to any loan or credit agreement or other document evidencing a debt
obligation, including, without limitation, the PXI Senior Notes, which the
Required Banks consider to be materially adverse to their interests, (iv) the
payment, redemption, purchase, defeasance or any other partial or full
satisfaction in any manner by PXI or any of its Subsidiaries of any
principal, interest, premiums, fees, expenses or any other amounts in respect
of the obligations of PXI under the PXI Senior Notes or any other
Indebtedness incurred by PXI or any of its Subsidiaries to any holder of any
PXI Senior Notes on or after the date hereof, and (v) the exercise of any
right or taking of any action (including with respect to the Collateral) by
any Credit Party or any other Person which the Required Banks consider to be
materially adverse to their interests.
(b) Notwithstanding Section 2.1(a)(ii) above, the Consent
Termination Date shall not occur as a result of (i) the Interest Payment
Defaults, and (ii) an Event of Default, if any, under the PXI Senior Note
Documents (and thereby under Section 9.04(a)(ii) of the Credit Agreement)
occurring solely as a result of the execution by any Credit Party of this
Consent Agreement.
2.2 Payments to Affiliates; Subordinated Payments. (a) Until
the satisfaction of all Obligations owing to the Banks, neither PXI, nor the
Borrower, nor any Subsidiary Guarantors, nor any Subsidiary of any of the
foregoing, will (i) pay, redeem, purchase, defease or otherwise partially or
fully satisfy in any manner, whether in respect of interest, principal,
premiums, fees, expenses or otherwise, the PXI Senior Notes or any other
Indebtedness (other than the Obligations) due and payable or (ii) make any
other payment, whether as a dividend, distribution, compensation, management
fee, bonus, principal or interest on any intercompany obligation or
otherwise, to any Affiliate of such payor; provided that the Borrower may pay
up to (A) an aggregate amount not to exceed $5.0 million to PXI for the
purpose of making the payments to the payees and in the amounts set forth in
the Approved Budget (as defined below), and (B) an aggregate amount not to
exceed $250,000 to PXI for the purpose of making the payments to the payees
and in the amounts set forth in the list of scheduled expenses provided to
the Agents and the Banks pursuant to Section 3.1(c).
(b) The limitations in Section 2.2(a) shall not apply to
payments in respect of advances, loans, and contributions otherwise permitted
under Sections 8.05(g), and payments otherwise permitted under clause (x) of
Section 8.05(h) of the Credit Agreement.
2.3 Compliance. In addition to using its best efforts to
provide all the information required to be provided to the Banks under the
Credit Agreement, including without limitation the information required to be
provided under Section 7.01 of the Credit Agreement, the Borrower shall
deliver to the Agents (i) copies of any documents, presentations, forecasts,
restructuring plans or other material distributed to the holders (or their
advisors, representatives, or trustee) of the PXI Senior Notes, and (ii) on
or prior to the 10th day of each financial month of the Borrower, commencing
with the financial month that begins in September 2002, cash flow forecasts
for such financial month on both a consolidated and consolidating basis in
substantially the same form delivered to the Banks with respect to the
financial month of the Borrower beginning in August 2002. The cash flow
forecasts shall be on a rolling basis, shall reflect actual receipts and
disbursements, shall compare actual cash flow for the past financial month of
the Borrower to the previously projected amounts for such past month and
shall reflect the actual cash on hand as of the date of the forecasts. The
cash flow forecast in respect of the financial month of the Borrower
beginning in August 2002 shall be delivered to the Agents within five days of
the Consent Agreement Effective Date in a form reasonably satisfactory to the
Required Banks.
ARTICLE III
CONDITIONS TO CLOSING
3.1 Conditions Precedent. The obligations of the Agents and the
Banks under this Consent Agreement and the effectiveness of this Consent
Agreement are subject to the receipt by the Banks of the following:
(a) this Consent Agreement duly executed by PXI, Xtra, the Borrower,
and each of the Subsidiary Guarantors;
(b) all fees, costs, expenses and disbursements owing to the Agents,
including without limitation, the Consent Fee and the fees and
disbursements of White & Case LLP, shall have been paid; and
(c) a budget satisfactory to the Required Banks detailing the costs
and expenses (not to exceed $5.0 million) associated with the
restructuring of PXI (the "Approved Budget"), together with a list
satisfactory to the Banks of up to $250,000 of routine expenses
to be paid by PXI between August 1, 2002 and February 3, 2003.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Banks to enter into this Consent Agreement and as
partial consideration for the terms and conditions contained herein, each of
PXI, the Borrower, Xtra and each Subsidiary Guarantor, for itself and its
Subsidiaries, make the following representations and warranties to the Banks,
each and all of which shall survive the execution and delivery of this
Consent Agreement and all of the other documents executed in connection
herewith:
4.1 Organization. (a) PXI, the Borrower, Xtra and the
Subsidiary Guarantors are corporations or limited liability companies duly
incorporated or organized, and validly existing and in good standing under
the laws of their respective states of incorporation or organization, and are
duly authorized to do business and are duly qualified as foreign corporations
or limited liability companies in all jurisdictions wherein the nature of
their businesses or properties make such qualification necessary, and have
the corporate or limited liability company power to own their respective
properties and to carry on their respective businesses as now conducted; and
(b) PXI, the Borrower, Xtra and the Subsidiary Guarantors have
the requisite corporate or limited liability company power and authority to
execute, deliver and perform this Consent Agreement and all of the documents
executed by them in connection herewith.
(c) The only Subsidiaries of PXI are the Borrower, Xtra, and
the Subsidiary Guarantors party to this Consent Agreement, and CaribAd, Inc.,
a wholly-owned direct Subsidiary of the Borrower.
4.2 Authorization; Valid and Binding Agreement. All corporate
or limited liability company action required to be taken by PXI, the
Borrower, Xtra, and the Subsidiary Guarantors and their respective officers,
directors and stockholders for the authorization, execution, delivery and
performance of this Consent Agreement and other documents contemplated hereby
have been taken. Each person executing this Consent Agreement on behalf of
PXI, the Borrower, Xtra, and the Subsidiary Guarantors is an authorized
officer, respectively, of PXI, the Borrower, Xtra, and the Subsidiary
Guarantors. This Consent Agreement is, and each of the documents executed
pursuant hereto will be, legal, valid, and binding obligations of the party
or parties thereto, enforceable against each such party in accordance with
their respective terms, subject only to bankruptcy, insolvency,
reorganization, moratorium and other laws or equitable principles affecting
creditors rights generally.
4.3 Third Party Consents. The execution, delivery and
performance by PXI, the Borrower, Xtra, and the Subsidiary Guarantors of this
Consent Agreement and the documents related hereto will not:
(a)require any consent or approval of any person or entity which
has not been obtained prior to, and which is not in full force and effect as
of, the Consent Agreement Effective Date;
(b) result in the breach of, or default under, or cause the
acceleration of any obligation owed under, any loan, credit agreement, note,
security agreement, lease, indenture, mortgage, loan document or other
agreement by which any of them are bound or affected (except to the extent
referred to in Section 2.1(b)); or
(c)result in, or require the creation or imposition of, any lien
or encumbrance on any of their respective properties other than those liens
or security interests in favor of the Agents or the liens or security
interests disclosed to the Agents in the Credit Documents.
ARTICLE V
DEFAULTS AND REMEDIES
It shall constitute an immediate Event of Default under this Consent
Agreement, if PXI, the Borrower, Xtra, or any Subsidiary Guarantor (i) fails
to perform or observe any covenant, term, agreement or condition in this
Consent Agreement, (ii) is in violation of or non-compliance with any
provision of this Consent Agreement, the Credit Agreement or any of the other
Credit Documents (other than to the extent referred to in Section 2.1(b)),
the PXI Senior Notes Documents (other than to the extent referred to in
Section 2.1(b)), or the terms of any other Indebtedness, in each case after
the expiry of any cure period related thereto, or (iii) pays, redeems,
purchases, defeases or otherwise partially or fully satisfies in any manner
any principal, interest, premiums, fees, expenses or any other payments in
respect of the PXI Senior Notes Documents or any other Indebtedness incurred
by PXI or any of its Subsidiaries (other than the Obligations) either before
or after the date hereof. PXI, the Borrower, Xtra and the Subsidiary
Guarantors specifically agree that, upon and at any time after the Consent
Termination Date, the Banks (and/or the Collateral Agent) may in their sole
discretion, exercise or enforce any or all of their rights and remedies under
this Consent Agreement, the Credit Agreement, the other Credit Documents,
and/or applicable law, against any one or more of PXI, the Borrower, Xtra, or
the Subsidiary Guarantors.
ARTICLE VI
MISCELLANEOUS
6.1 Submission to Jurisdiction; Selection of Forum; Judicial
Proceeding. Each of the parties hereto agree that the provisions of Section
12.08 of the Credit Agreement shall be incorporated herein by reference and
shall apply to any action with respect to this Consent Agreement as if fully
set forth herein.
6.2 Cooperation; Other Documents. At all times following the
execution of this Consent Agreement, PXI, the Borrower, Xtra and the
Subsidiary Guarantors shall execute and deliver to the Banks, or shall cause
to be executed and delivered to the Banks, and shall do or cause to be done
all such other acts and things as the Required Banks may reasonably deem to
be necessary or desirable to assure the Banks of the benefit of this Consent
Agreement and the documents comprising or relating to this Consent Agreement.
This Consent Agreement is a Credit Document.
6.3 Remedies Cumulative; No Waiver. The respective rights,
powers and remedies of the Banks in this Consent Agreement, the Credit
Agreement and the other Credit Documents are cumulative and not exclusive of
any right, power or remedy provided in the Credit Agreement and/or the other
Credit Documents, by law or equity and no failure or delay on the part of the
Banks in the exercise of any right, power or remedy shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
remedy preclude any other or further exercise thereof, or the exercise of any
other right, power or remedy. Nothing contained in this Consent Agreement or
in any prior communications between or among any Credit Party and any Bank,
Agent or the Collateral Agent shall constitute a waiver or modification of
any rights or remedies that the Banks may have under the Credit Agreement,
the other Credit Documents and/or applicable law. The Banks expressly
reserve and preserve all of their rights and remedies.
6.4 Notices. Each of the parties hereto agree that the
provisions of Section 12.03 of the Credit Agreement shall be incorporated
herein by reference and shall apply to any action with respect to this
Consent Agreement as if fully set forth herein.
6.5 Indemnification. If, after receipt of any payment of all or
any part of the Obligations, the Banks are compelled to surrender such
payment to any person or entity for any reason (including, without
limitation, a determination that such payment is void or voidable as a
preference or fraudulent conveyance, an impermissible setoff, or a diversion
of trust funds), then each Credit Party shall be jointly and severally liable
for, and shall indemnify, defend and hold harmless the Banks with respect to
the full amount so surrendered. The provisions of this section shall survive
the termination of this Consent Agreement, the Credit Agreement and the other
Credit Documents and shall be and remain effective notwithstanding the
payment of the Obligations, the cancellation of the Notes, the release of any
lien, security interest or other encumbrance securing the Obligations or any
other action which the Banks may have taken in reliance upon their receipt of
such payment. Any cancellation of the Notes, release of any such encumbrance
or other such action shall be deemed to have been conditioned upon any
payment of the Obligations having become final and irrevocable.
6.6 RELEASE. PXI, THE BORROWER, XTRA AND EACH OF THE SUBSIDIARY
GUARANTORS, ON BEHALF OF THEMSELVES, AND ALL PERSONS AND ENTITIES CLAIMING
BY, THROUGH, OR UNDER ANY ONE OR MORE OF THEM, HEREBY JOINTLY AND SEVERALLY
RELEASE, WAIVE AND FOREVER DISCHARGE THE AGENTS, THE COLLATERAL AGENT, EACH
BANK, AND THEIR OFFICERS, DIRECTORS, ATTORNEYS, AGENTS, AFFILIATES, AND
SUCCESSORS AND ASSIGNS (COLLECTIVELY THE "RELEASEES"), OF, FROM, AND WITH
RESPECT TO ANY AND ALL MANNER OF ACTION AND ACTIONS, CAUSE AND CAUSES OF
ACTIONS, SUITS, DISPUTES, CLAIMS AND DEFENSES, COUNTERCLAIMS AND/OR
LIABILITIES, CROSS CLAIMS, AND DEFENSES, THAT ARE KNOWN OR UNKNOWN, SUSPECTED
OR UNSUSPECTED, PAST OR PRESENT, ASSERTED OR UNASSERTED, CONTINGENT OR
LIQUIDATED, WHETHER OR NOT WELL FOUNDED IN FACT OR LAW, WHETHER IN CONTRACT,
IN TORT OR OTHERWISE, AT LAW OR IN EQUITY, BASED UPON, RELATING TO OR
ARISING OUT OF ANY AND ALL TRANSACTIONS, RELATIONSHIPS OR DEALINGS WITH OR
LOANS MADE TO THE BORROWER PURSUANT TO THE CREDIT AGREEMENT OR THE OTHER
CREDIT DOCUMENTS PRIOR TO THE DATE HEREOF WHICH PXI, THE BORROWER, XTRA OR
ANY SUBSIDIARY GUARANTOR HAD, NOW HAVE OR MAY CLAIM TO HAVE AGAINST ANY
AGENT, THE COLLATERAL AGENT, ANY BANK OR ANY OTHER RELEASEE.
6.7 Survival of Representations and Warranties. All
representations and warranties of PXI, the Borrower, Xtra and the Subsidiary
Guarantors contained in this Consent Agreement and in all other documents and
instruments executed in connection herewith or otherwise relating to this
Consent Agreement shall survive the execution of this Consent Agreement and
are material and have been or will be relied upon by the Banks,
notwithstanding any investigation made by any person, entity or organization
on the Banks' behalf. No implied representations or warranties are created
or arise as a result of this Consent Agreement or the documents comprising or
relating to this Consent Agreement.
6.8 Governing Law. This Consent Agreement and all documents and
instruments executed in connection herewith or otherwise relating to this
Consent Agreement shall be construed in accordance with and governed by the
internal laws of the State of New York without reference to conflict of laws
principles.
6.9 Amendment and Waiver. No amendment of this Consent
Agreement, and no waiver, discharge or termination of any one or more of the
provisions thereof, shall be effective unless set forth in writing and signed
by all of the parties hereto.
6.10 Successors and Assigns. This Consent Agreement and the
other Credit Documents, (i) shall be binding upon the Banks, PXI, the
Borrower, Xtra and the Subsidiary Guarantors, and their respective heirs,
nominees, successors and assigns, and (ii) shall inure to the benefit of the
Banks, PXI, the Borrower, Xtra and the Subsidiary Guarantors, and their
respective heirs, nominees, successors and assigns; provided, however, that
none of PXI, the Borrower, Xtra, or the Subsidiary Guarantors may assign any
rights hereunder or any interest herein without obtaining the prior written
consent of each Bank, and any such assignment or attempted assignment
(without such consent) shall be void and of no effect with respect to the
Banks.
6.11 Severability of Provisions. Any provision of this Consent
Agreement that is held to be inoperative, unenforceable, void or invalid in
any jurisdiction shall, as to that jurisdiction, be ineffective,
unenforceable, void or invalid without affecting the remaining provisions in
that jurisdiction or the operation, enforceability or validity of that
provision in any other jurisdiction, and to this end the provisions of this
Consent Agreement are declared to be severable.
6.12 Counterparts; Effectiveness. This Consent Agreement may be
executed in any number of counterparts and by the different parties on
separate counterparts, and each such counterpart shall be deemed to be an
original, but all such counterparts shall together constitute one and the
same Consent Agreement.
6.13 Confidentiality. Each Agent and Bank agrees that it shall
keep confidential and not disclose to any third Person (other than its
Affiliates who are required to be bound by this confidentiality provision)
any information received from a Credit Party (or delivered on their behalf)
pursuant to Section 2.3(i) of this Consent Agreement, provided that such
Agent, Bank, or Affiliate may disclose information (i) as has become
generally available to the public other than as a result of disclosure by
such Agent, Bank, or Affiliate or any of their representatives, (ii) as may
be required or appropriate in any report, statement, or testimony submitted
to any municipal, state or national (including non-U.S.) regulatory body
having jurisdiction over such Agent, Bank, or Affiliate or any applicable
self-regulatory body, (iii) as may be required in response to any summons or
subpoena or in connection with any litigation, (iv) to such Agent, Bank, or
Affiliate's accountants, attorneys, advisors, and representatives who have
been retained in connection with the subject matter of this Consent Agreement
and are required to be bound by this confidentiality provision, and (v) to
the extent necessary to comply with any law, order, regulation or ruling
applicable to such, Agent, Bank, or Affiliate.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first written above.
NUTRITIONAL SOURCING
CORPORATION (f/k/a PUEBLO XTRA
INTERNATIONAL, INC.)
By: /s/ Daniel J. O'Leary
Name: Daniel J. O'Leary
Title: Executive Vice President & Chief
Financial Officer
PUEBLO INTERNATIONAL, LLC (f/k/a
PUEBLO INTERNATIONAL, INC.)
By: /s/ Daniel J. O'Leary
Name: Daniel J. O'Leary
Title: Executive Vice President & Chief
Financial Officer
XTRA SUPER FOOD CENTERS, INC.
By: /s/ Daniel J. O'Leary
Name: Daniel J. O'Leary
Title: Executive Vice President & Chief
Financial Officer
THE BANK OF NOVA SCOTIA
By: /s/ William E. Zarrett
Name: William E. Zarrett
Title: Managing Director
BANK OF AMERICA, N.A.
By: /s/ Wayne R. Porritt
Name: Wayne R. Porritt
Title: Managing Director
ACKNOWLEDGED AND AGREED
ALL TRUCK, INC.,
as a Subsidiary Guarantor
By: /s/ Daniel J. O'Leary
Name: Daniel J. O'Leary
Title: Executive Vice President & Chief
Financial Officer
PUEBLO ENTERTAINMENT, INC.,
as a Subsidiary Guarantor
By: /s/ Daniel J. O'Leary
Name: Daniel J. O'Leary
Title: Executive Vice President & Chief
Financial Officer
XTRA MERGER CORPORATION
as a Subsidiary Guarantor
By: /s/ Daniel J. O'Leary
Name: Daniel J. O'Leary
Title: Executive Vice President & Chief
Financial Officer
Exhibit 99.1
CERTIFICATION OF CEO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Nutritional Sourcing
Corporation (the "Company") on Form 10Q for the quarterly period ending
August 10, 2002, as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), I, William T. Keon III, Chief Executive Officer
of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best
of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
Dated: August 28, 2002
/s/ William T. Keon III
---------------------------
William T. Keon III
Chief Executive Officer
Exhibit 99.2
CERTIFICATION OF CFO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Nutritional Sourcing
Corporation (the "Company") on Form 10Q for the quarterly period ending
August 10, 2002 as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), I, Daniel J. O'Leary, Chief Financial Officer of
the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my
knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
Dated: August 28, 2002
/s/ Daniel J. O'Leary
---------------------------
Daniel J. O'Leary
Chief Financial Officer
NEWYORK 931489 v1 (2K)
4
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