EXHIBIT 99.1
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N E W S R E L E A S E
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For: Xxxxx Xxxxx Inc.
Approved By: Xxxx Xxxxx
(000) 000-0000
SVP - Chief Financial Officer
Contact: Xxxx X'Xxxxx/Xxxx Xxxxxxxxx
Press: Xxxxxxx Xxxxxxx
(000) 000-0000
Financial Dynamics
FOR IMMEDIATE RELEASE
XXXXX XXXXX ANNOUNCES CHANGES IN CERTAIN ACCOUNTING PRACTICES AND SUSPENSION
OF ITS OFFER TO EXCHANGE ITS UNREGISTERED SENIOR SECURED FLOATING RATE NOTES DUE
2010 FOR REGISTERED SENIOR SECURED FLOATING RATE NOTES DUE 2010
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New York, New York, March 7, 2005 -- Xxxxx Xxxxx, Inc. (the "Company")
announced today that, to reflect the changes in accounting practices described
below, it will restate consolidated financial statements for (i) its predecessor
company's 2000, 2001, 2002 and 2003 fiscal years, (ii) all of its predecessor
company's 2003 fiscal quarters, (iii) its predecessor company's first two fiscal
quarters of 2004, (iv) its predecessor company's periods from December 28, 2003
to July 30, 2004 and from June 27, 2004 to July 30, 2004, (v) its period from
July 30, 2004 to September 25, 2004 and (vi) its third fiscal quarter of 2004.
As a result, the Company also announced that it will suspend an offer to
exchange (the "Exchange Offer") up to $160,000,000 aggregate principal amount of
its outstanding unregistered Senior Secured Floating Rate Notes due 2010 (the
"Notes") for up to a like aggregate principal amount of Senior Secured Floating
Rate Notes due 2010, which have been registered under the Securities Act of
1933. The Company is currently in the process of finalizing the amounts of the
appropriate restatements and will issue a further press release to disclose the
restatements once such determinations are finalized.
EXPECTED RESTATEMENTS
The Company will restate its financial statements to reflect one-time,
non-cash rent expense adjustments. As has been the case for many companies
within the retail and other industries, this action is being taken to conform
the Company's lease accounting policies to FASB Technical Bulletin No. 85-3 (FTB
85-3).
The Company, based on a review of its lease-related accounting methods,
as well as discussions with its independent auditors and Audit Committee
determined that its previous policy of commencing rent expense when a store
opens (and not at the commencement of the lease), was inconsistent with FTB
85-3. For construction purposes, the Company often takes possession of leased
properties prior to opening. The revised accounting policy will record rent
expense commencing on the date of possession. The Company currently believes
that the restatement will have the effect of changing previously reported net
income and FIFO EBITDA, but, because the adjustments to lease rent expense are
non-cash, the restatements will not have any impact upon historical or future
adjusted FIFO EBITDA, cash flows or the timing of payments under the related
leases.
The Company will also restate reported sales and cost of sales to
reflect revenues from re-sales of certain retail inventory on a gross basis
rather than on a net basis as previously reported. These transactions have
experienced significant growth over the last few years and this change reflects
the need to conform our accounting practice to the provisions of EITF Issue
99-19. The Company currently believes that the impact of this change will be to
increase sales and cost of sales by the same amount for each of the periods
impacted, so this adjustment is expected to have no effect upon historical or
future cash flows, gross profit, operating income, net income, FIFO EBITDA or
adjusted FIFO EBITDA.
The Company will file with the SEC a report on Form 8-K indicating that
the financial statements reported in the Company's Form 10-Q for the period
ended September 25, 2004 and its predecessor financial statements reported on
Forms 10-Q for the periods ended June 26, 2004 and March 27, 2004 and Form
10-K/A for December 27, 2003 should no longer be relied upon. Restated Forms
10-Q for these periods and a Form 10-K for fiscal 2004 reflecting all prior year
restatements are expected to be filed by March 25, 2005.
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SUSPENSION OF EXCHANGE OFFER
As a result of the restatements described above, the Exchange Offer,
initially scheduled to expire at 5:00 p.m., New York City time, on March 7,
2005, has been suspended until further notice. The Company expects to resume the
Exchange Offer, subject to applicable SEC rules and regulations, after the
Company has filed with the SEC its Form 10-K for the year ended December 25,
2004, with appropriate restatements and has updated the prospectus relating to
the Exchange Offer.
All outstanding unregistered Notes tendered to date shall be returned
by U.S. Bank National Association, as exchange agent for the Exchange Offer, to
tendering holders, and any Notes tendered into the Exchange Offer subsequently
shall not be accepted until further notice.
The outstanding Notes have not been registered under the Securities Act
of 1933 and may not be offered or sold except pursuant to an exemption from, or
in a transaction not subject to, the registration requirements of the Securities
Act and applicable state securities laws.
This press release shall not constitute an offer to sell or the
solicitation of an offer to sell or an offer to buy or the solicitation of an
offer to buy any securities and shall not constitute an offer, solicitation or
sale of any securities in any jurisdiction. No offering of securities shall be
made except by means of an appropriate prospectus.
Founded in 1960, Xxxxx Xxxxx is the largest drug store chain in the
metropolitan New York City area, offering a wide variety of prescription and
over-the-counter drugs, health and beauty care items, cosmetics, greeting cards,
photo supplies and photofinishing. As of December 25, 2004, the Company operated
255 stores. Xxxxx Xxxxx maintains a website at xxxx://xxx.xxxxxxxxxx.xxx.
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE STATEMENTS IN
THIS RELEASE AND THE ACCOMPANYING DISCUSSION ON THE EARNINGS CONFERENCE CALL ARE
FORWARD-LOOKING AND MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. IN ADDITION, THIS DOCUMENT MAY CONTAIN
STATEMENTS, ESTIMATES OR PROJECTIONS THAT CONSTITUTE "FORWARD-LOOKING"
STATEMENTS AS DEFINED UNDER U.S. FEDERAL SECURITIES LAWS. FORWARD-LOOKING
STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES, WHICH MAY CAUSE
THE COMPANY'S ACTUAL RESULTS IN FUTURE PERIODS TO DIFFER MATERIALLY FROM
FORECASTED OR EXPECTED RESULTS. THOSE RISKS INCLUDE, AMONG OTHER THINGS, THE
COMPETITIVE ENVIRONMENT IN THE DRUG STORE INDUSTRY IN GENERAL AND IN THE NEW
YORK METROPOLITAN AREA, THE ABILITY TO OPEN AND OPERATE NEW STORES, THE
CONTINUED EFFORTS BY PAYERS AND GOVERNMENT AGENCIES TO REDUCE PRESCRIPTION
REIMBURSEMENT RATES AND PRESCRIPTION DRUG BENEFITS, THE STRENGTH OF THE ECONOMY
IN GENERAL, THE ECONOMIC CONDITIONS IN THE NEW YORK GREATER METROPOLITAN AREA,
CHANGES IN FEDERAL AND STATE LAWS AND REGULATIONS, INCLUDING THE POTENTIAL
IMPACT OF CHANGES IN REGULATIONS SURROUNDING THE IMPORTATION OF PHARMACEUTICALS
FROM FOREIGN COUNTRIES AND CHANGES IN LAWS GOVERNING MINIMUM WAGE REQUIREMENTS,
THE CONTINUING IMPACT OF THE RESTRICTIONS ON SMOKING IN PUBLIC PLACES IN THE
COMPANY'S MARKETS, CHANGES IN THE COMPANY'S OPERATING STRATEGY, CAPITAL
EXPENDITURE PLANS OR DEVELOPMENT PLANS, THE COMPANY'S ABILITY TO ATTRACT, HIRE
AND RETAIN QUALIFIED PHARMACY AND OTHER PERSONNEL, THE COMPANY'S SIGNIFICANT
INDEBTEDNESS, LABOR DISTURBANCES, THE CONTINUED IMPACT OF, OR NEW OCCURRENCES
OF, TERRORIST ATTACKS IN THE NEW YORK GREATER METROPOLITAN AREA AND ANY ACTIONS
THAT MAY BE TAKEN IN RESPONSE, THE COMPANY'S ABILITY TO SUCCESSFULLY IMPLEMENT
AND MANAGE NEW COMPUTER SYSTEMS AND TECHNOLOGIES, DEMOGRAPHIC CHANGES AND THE
COMPANY'S ABILITY TO LIMIT FRAUD AND SHRINK. THOSE AND OTHER RISKS ARE MORE
FULLY DESCRIBED IN XXXXX XXXXX'X REPORTS FILED WITH THE SEC FROM TIME TO TIME,
INCLUDING ITS ANNUAL REPORTS ON FORM 10-K, QUARTERLY REPORTS ON FORM 10-Q AND
CURRENT REPORTS ON FORM 8-K. YOU SHOULD NOT PLACE UNDUE RELIANCE ON
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE THEY ARE MADE.
EXCEPT TO THE EXTENT OTHERWISE REQUIRED BY FEDERAL SECURITIES LAWS, WE DO NOT
UNDERTAKE TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS.
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