-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L6kv8aBniTrAPvk9TIUfuPxag6JMH3WAF/lqO26o3+Nv5IEcRfoSW0Y0CyJJUePe Dg0TfFlcnRgCSTj0Y9RXaQ== 0000916641-99-000517.txt : 19990616 0000916641-99-000517.hdr.sgml : 19990616 ACCESSION NUMBER: 0000916641-99-000517 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990501 FILED AS OF DATE: 19990615 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHOPPERS FOOD WAREHOUSE CORP CENTRAL INDEX KEY: 0001043065 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 522014682 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-32825 FILM NUMBER: 99646983 BUSINESS ADDRESS: STREET 1: 4600 FORBES BLVD CITY: LANHAM STATE: MD ZIP: 20706 BUSINESS PHONE: 3013068600 MAIL ADDRESS: STREET 1: 4600 FORBES BLVD CITY: LENHAM STATE: MD ZIP: 20706 10-Q 1 SHOPPERS FOOD WAREHOUSE CORP. 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED May 1, 1999 ( ) 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 333-32825 SHOPPERS FOOD WAREHOUSE CORP. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 53-0231809 - ---------------------------------------------- ------------------ (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 4600 Forbes Blvd., Lanham, Maryland, 20706 ------------------------------------------ (Address of principal executive office) (Zip Code) (301) 306-9600 ---------------------------------------------------- (Registrant's telephone number, including area code) ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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 At June 15, 1999, the registrant had 23,333 shares of Class A Common Stock, non-voting, $5.00 par value per share, outstanding and 10,000 shares of Class B Common Stock, voting, $5.00 par value per share, outstanding. The common stock of Shoppers Food Warehouse Corp. is not publicly traded. 1 Item 1. Financial Statements The consolidated financial statements included herein have been prepared by Shoppers Food Warehouse Corp. ("Shoppers" or the "Company") without audit (except for the consolidated balance sheet as of January 30, 1999, which has been derived from the audited consolidated balance sheet as of that date) pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, although Shoppers believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in Shoppers' Annual Report on Form 10-K for the fiscal year ended January 30, 1999. 2 SHOPPERS FOOD WAREHOUSE CORP. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (dollars and shares in thousands, except per share data) Thirteen Weeks Ended May 1, May 2, 1999 1998 --------- -------- (Post-Acquisition)| Sales $220,069 | $213,998 Cost of sales 164,985 | 164,508 -------- ------- Gross profit 55,084 | 49,490 | Selling and administrative expenses 43,864 | 40,192 Depreciation and amortization 3,903 | 2,864 -------- -------- Operating income 7,317 | 6,434 | Interest income 874 | 1,314 Interest expense 4,329 | 5,470 -------- -------- Income before income taxes 3,862 | 2,278 | Provision for income taxes 2,162 | 1,071 -------- -------- | Net Income $ 1,700 | $ 1,207 ======== ======== | Earnings per common share data (Basic and Diluted): | | Earnings per common share $ 51.00 | $ 36.21 ======== ======== | Weighted average common shares outstanding 33 | 33 ======== ======== The accompanying notes are an integral part of these statements. 3 SHOPPERS FOOD WAREHOUSE CORP. CONSOLIDATED BALANCE SHEETS (dollars in thousands) (Unaudited) (Audited) May 1, January 30, ASSETS 1999 1999 ---------- ----------- Current Assets: Cash and cash equivalents $ 1,448 $ 6,602 Marketable debt securities 45 - Accounts receivable, net of allowance of $1,007 and $500 7,880 13,263 Merchandise inventories 30,189 31,477 Deferred income taxes 3,166 3,432 Prepaid expenses 2,553 1,612 ------- -------- Total current assets 45,281 56,386 ------- -------- Property and Equipment, at cost: Land and buildings 9,000 9,000 Furniture, fixtures and equipment 45,997 45,276 Leasehold improvements 2,453 2,388 ------- -------- 57,450 56,664 Accumulated depreciation and amortization 5,371 3,763 ------- -------- Net property and equipment 52,079 52,901 ------- -------- Goodwill, net of accumulated amortization of $7,853 and $5,809 309,331 311,371 Lease Rights 28,827 29,031 Note Receivable from Dart Group 39,663 38,860 Other Assets 732 1,240 ------- -------- Total assets $475,913 $489,789 ======== ======== The accompanying notes are an integral part of these balance sheets. 4 SHOPPERS FOOD WAREHOUSE CORP. CONSOLIDATED BALANCE SHEETS (dollars in thousands) (Unaudited) (Audited) May 1, January 30, LIABILITIES AND STOCKHOLDER'S EQUITY 1999 1999 --------- ----------- Current Liabilities: Accounts payable $ 7,649 $ 12,283 Accrued expenses Salaries and benefits 4,581 5,401 Taxes other than income 2,152 2,525 Interest 7,130 2,378 Insurance 2,596 4,881 Other 5,121 5,840 Current portion of capital lease obligations 557 531 Income taxes payable 800 800 Due to affiliates 12,416 26,038 ------- ------- Total current liabilities 43,002 60,677 ------- ------- Senior Notes Due 2004 210,967 211,764 Capital Lease Obligations 12,511 12,709 Deferred Income Taxes 16,349 12,832 Other Liabilities 6,404 6,827 ------- ------- Total Liabilities 289,233 304,809 ------- ------- Commitments and Contingencies Stockholder's Equity: Class A common stock, nonvoting, par value $5.00 per share, 25,000 shares authorized; 23,333 1/3 shares issued and outstanding 117 117 Class B common stock, voting, par value $5.00 per share, 25,000 shares authorized; 10,000 shares issued and outstanding 50 50 Paid-in-capital 178,924 178,924 Retained earnings 7,589 5,889 ------- ------- Total stockholder's equity 186,680 184,980 ------- ------- Total liabilities and stockholders' equity $475,913 $489,789 ======== ======== The accompanying notes are an integral part of these balance sheets. 5 SHOPPERS FOOD WAREHOUSE CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (dollars in thousands) Thirteen Weeks Ended May 1, May 2, 1999 1998 ----------- ---------- Cash Flows from Operating Activities: (Post-Acquisition)| ---------------- Net income $ 1,700 | $ 1,207 Adjustments to reconcile net income to net | cash provided by (used in) | operating activities: | Depreciation and amortization 3,852 | 2,864 Amortization of fair market value adjustment (797)| - Amortization of deferred financing costs - | 248 Increase in deferred rent liability - | 252 Increase (decrease) in deferred taxes 3,783 | (276) Change in assets and liabilities: | Accounts receivable 5,383 | (529) Merchandise inventories 1,288 | 2,173 Due to affiliates (13,622)| (652) Prepaid expenses (941)| 311 Other assets (295)| 97 Prepaid income taxes - | 705 Accounts payable (4,634)| 1,009 Accrued expenses (4,197)| 229 Accrued interest 4,752 | 4,005 Other (423)| (109) ----------- --------- Net cash provided by (used in) | operating activities $ (4,151)| $ 11,534 ----------- --------- | Cash Flows from Investing Activities: | Capital expenditures $ (786)| $ (2,650) Purchase of short-term investments (45)| (2,090) ----------- ---------- Net cash used in investing activities $ (831)| $ (4,740) ----------- ---------- | Cash Flows from Financing Activities: | Payments for acquisition and deferred financing | costs $ - | $ (294) Principal payments under capital lease obligations (172)| (26) ----------- ---------- Net cash used in financing activities $ (172)| $ (320) ----------- ---------- | Net increase (decrease) | in cash and equivalents (5,154)| 6,474 Cash and equivalents, beginning of period 6,602 | 4,027 ----------- --------- Cash and equivalents, end of period $ 1,448 | $ 10,501 =========== ========= | Supplemental Disclosure of Cash Flow Information: | Cash paid for | Interest $ 282 | $ 282 Income taxes 325 | 1,242 The accompanying notes are an integral part of these statements. 6 SHOPPERS FOOD WAREHOUSE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS May 1, 1999 and May 2, 1998 --------------------------- (Unaudited) NOTE 1 - GENERAL The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. The accompanying consolidated financial statements as of May 1, 1999 and for the 13 weeks ended May 1, 1999, and May 2, 1998, of the Company has been prepared by the Company without an audit. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles ("GAAP") have been omitted from the accompanying consolidated financial statements. In the opinion of the Company, the accompanying consolidated financial statements reflect all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position of the Company as of May 1, 1999, and the results of its operations for the 13 weeks ended May 1, 1999, and May 2, 1998. As a result of the Dart Acquisition (defined in Note 2) certain financial statement and related footnote amounts for periods prior to the Dart Acquisition are not comparable to corresponding amounts subsequent to the Dart Acquisition. In addition, the results of operations for the 13 weeks ended May 1, 1999, are not necessarily indicative of the results that may be achieved for the fiscal year ending January 29, 2000. NOTE 2 - ACQUISITION On May 18, 1998, a wholly-owned subsidiary ("Acquisition Subsidiary") of Richfood Holdings, Inc. ("Richfood") acquired all of the outstanding shares of Dart Group Corporation ("Dart"), which indirectly owns 100% of the outstanding common stock of the Company, for $160 per share, net to the seller in cash, or approximately $201 million (the "Dart Acquisition"). In connection with the Dart Acquisition, Richfood caused the Acquisition Subsidiary to merge with and into Dart (the "Merger") in a transaction in which Dart became a wholly-owned subsidiary of Richfood. As a result of the Merger, Richfood indirectly owns 100% of the outstanding common stock of the Company. Richfood has accounted for the Dart Acquisition using the purchase method of accounting, and accordingly, a new accounting basis began as of the effective date. The assets and liabilities of Shoppers have been adjusted to reflect their estimated fair values as of the effective date of the Dart Acquisition. The excess of the Dart Acquisition purchase price over net assets acquired (goodwill) has been pushed-down to Shoppers. This goodwill of approximately $317 million is being amortized on a straight line basis over 40 years. Richfood is operating Shoppers as a distinct unit separate from its other retail and wholesale operations and has indicated that it does not presently plan to make any material changes to Shoppers' strategic focus or operational format. 7 NOTE 3 - EARNINGS PER SHARE Earnings per common share is based on the weighted average number of common shares and common share equivalents outstanding during the periods presented. The Company has no dilutive securities, therefore, earnings per common share represents both basic and diluted earnings per common share. NOTE 4 - LITIGATION In the ordinary course of business, Shoppers is a party to various legal actions that the Company believes are routine in nature and incidental to the operation of its business. The Company believes that the outcome of the proceedings to which Shoppers currently is a party will not have a material adverse effect upon Shoppers' business, financial condition or results of operations. NOTE 5 - INCOME TAXES The Company's effective income tax rate increased to 56.0% for the 13 weeks ended May 1, 1999, from 47.0% for the 13 weeks ended May 2, 1998. This increase is primarily attributable to an increase in nondeductible amortization associated with goodwill arising from the Dart Acquisition. NOTE 6 - MERGER OF RICHFOOD On June 9, 1999, Richfood announced that it had entered into an Agreement and Plan of Merger (the "Agreement"), dated as of June 9, 1999, among SUPERVALU INC., a Delaware corporation ("SUPERVALU"), Winter Acquisition, Inc., a Delaware corporation and wholly-owned subsidiary of SUPERVALU ("Acquisition"), and Richfood. Under the terms of the Agreement, Richfood will be merged with and into Acquisition (the "Merger") with Acquisition being the surviving corporation. The transaction is subject to regulatory approval and the approval by Richfood's shareholders, as well as other customary conditions, and is expected to be consummated prior to the end of calendar 1999. Following the consummation of the Merger, the Company will become an indirect, wholly-owned subsidiary of SUPERVALU. NOTE 7 - TRANSACTIONS WITH AFFILIATES Transactions with Richfood - -------------------------- The May 1, 1999 Consolidated Balance Sheet includes $12.4 million due to affiliates. This amount consists primarily of amounts due for income taxes, inventory purchases, and general and administrative expenses. Transactions with Dart - ---------------------- On September 26, 1997, Shoppers loaned Dart $25.0 million that Dart used to fund a portion of the settlement with certain members of the Haft family who were stockholders of Dart. On January 28, 1998, Shoppers loaned Dart an additional $25.0 million used to fund a settlement with Herbert H. Haft, who was a stockholder of Dart. Both of the loans are in the form of promissory notes that bear interest at 9 3/4% per annum, compounded annually. Interest and principal are payable on June 15, 2004. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Outlook - ------- Except for historical information, statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations are forward-looking 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. Actual results may differ materially due to a variety of factors, including the Company's ability to open new stores and the effect of regional economic conditions. Shoppers undertakes no obligation and does not intend to update, revise or otherwise publicly release any revisions to these forward-looking statements that may be made to reflect future events or circumstances, other than through its regular quarterly and annual reports filed with the SEC. Richfood operates Shoppers as a distinct unit within its retail division and does not presently plan to make any material changes to Shoppers' strategic focus or operational format. On June 9, 1999, Richfood announced that it had entered into an Agreement and Plan of Merger (the "Agreement"), dated as of June 9, 1999, among SUPERVALU INC., a Delaware corporation ("SUPERVALU"), Winter Acquisition, Inc., a Delaware corporation and wholly-owned subsidiary of SUPERVALU ("Acquisition"), and Richfood. Under the terms of the Agreement, Richfood will be merged with and into Acquisition (the "Merger") with Acquisition being the surviving corporation. The transaction is subject to regulatory approval and the approval by Richfood's shareholders, as well as other customary conditions, and is expected to be consummated prior to the end of calendar 1999. Following the consummation of the Merger, the Company will become an indirect, wholly-owned subsidiary of SUPERVALU. Results of Operations - --------------------- 13 Weeks Ended May 1, 1999 Compared with the 13 Weeks - ----------------------------------------------------- Ended May 2, 1998 (unaudited) - ----------------------------- Sales increased by $6.1 million (2.8%), from $214.0 million during the 13 weeks ended May 2, 1998, to $220.1 million during the 13 weeks ended May 1, 1999. The sales increase was primarily due to one new store opened in July 1998 and the maturation of stores that opened in 1997, offset, in part, by the closure of one store in the thirteen week period ended May 1, 1999. Comparable store sales decreased 1.2 % during the 13 weeks ended May 1, 1999. The decrease in comparable store sales was primarily due to the new stores drawing customers from existing Shoppers stores and competitive market conditions. Gross profit increased by $5.6 million (11.3%), from $49.5 million during the 13 weeks ended May 2, 1998, to $55.1 million during the 13 weeks ended May 1, 1999. Gross profit, as a percentage of sales, increased to 25.0% during the 13 weeks ended May 1, 1999, from 23.1% during the 13 weeks ended May 2, 1998. The increase was primarily due to a pro-active pricing strategy on selected items, a reduction of the number of items offered on special discount, and higher allowance income achieved through increased vendor participation. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Selling and administrative expenses increased by approximately $3.7 million (9.2%), from $40.2 million during the 13 weeks ended May 2, 1998, to $43.9 million during the 13 weeks ended May 1, 1999. Selling and administrative expenses, as a percentage of sales, increased from 18.8% during the 13 weeks ended May 2, 1998, to 19.9 % during the 13 weeks ended May 1, 1999. The increase was primarily attributable to increased payroll costs associated with negotiated union rates and to expenses associated with a new store that opened in July 1998. Depreciation and amortization increased by $1.0 million from $2.9 million during the 13 weeks ended May 2, 1998, to $3.9 million during the 13 weeks ended May 1, 1999. The increase was primarily due to additional amortization of acquisition related goodwill, and to additional depreciation and amortization of fixed assets purchased for the new store opening. Operating income was $7.3 million for the 13 weeks ended May 1, 1999 compared to $6.4 million during the same period in the prior year. The increase was primarily due to increased gross profit, and partially offset by increased selling and administrative expenses. Interest income decreased $0.4 million during the 13 weeks ended May 1, 1999, compared to the 13 weeks ended May 2, 1998, primarily due to a reduction in the amount of cash available for investment purposes. Interest expense decreased approximately $1.1 million from $5.5 million during the 13 weeks ended May 2, 1998, to $4.4 million during the 13 weeks ended May 1, 1999, primarily as a result of the increased amortization associated with the write-up of the Company's Senior Notes, due 2004, in connection with the Dart Acquisition. The effective income tax rate for the 13 weeks ended May 1, 1999, was 56.0% compared to 47.0% for the 13 weeks ended May 2, 1998. The increase is primarily attributable to nondeductible amortization of acquisition related goodwill. Net income increased by $0.5 million, from $ 1.2 million during the 13 weeks ended May 2, 1998, to $1.7 million during the 13 weeks ended May 1, 1999. The increase was primarily attributable to increased gross margins and decreased interest expense, and was offset, in part, by increased selling and general administrative expenses and income tax expense. Liquidity and Capital Resources - ------------------------------- The Company's principal source of liquidity is expected to be cash flow from operations. It is anticipated that Shoppers' principal uses of liquidity will be to provide working capital, finance capital expenditures and meet debt service requirements. During the thirteen weeks ended May 1, 1999, operating activities used net cash of $4.2 million, compared to generating net cash of $11.5 million during the thirteen weeks ended May 2, 1998. The decrease was primarily due to cash 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) generated from operating activities for the thirteen weeks ended May 1, 1999 that was used to fund amounts due to an affiliate. The balance due to affiliate was $12.4 million at May 1, 1999, compared to $26.0 million at January 30, 1999. For the 13 weeks ended May 1, 1999, investing activities used approximately $0.8 million of Shoppers' funds for capital expenditures. For the thirteen weeks ended May 2, 1998, investing activities used approximately $2.7 million of Shoppers' funds for capital expenditures and $2.1 million for the purchase of short-term investments. Shoppers estimates that it will make total capital expenditures of approximately $22.5 million during the 52 weeks ending January 29, 2000. Financing activities used $0.2 million of the Company's funds during the 13 weeks ended May 1, 1999 compared to $0.3 million during the 13 weeks ended May 2, 1998. The Company believes that cash flows from Shoppers' operations will be adequate to meet its anticipated requirements for working capital, debt service and capital expenditures over the next few years. Year 2000 Compliance - -------------------- References herein to Richfood are based on information provided by Richfood to the Company. The "Year 2000" issue is the result of computer systems and software programs using only two digits rather than four to define a year. As a result, computer systems that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. Unless remedied, the Year 2000 issue could result in system failures, miscalculations, and the inability to process necessary transactions or engage in similar normal business activities. In addition to computer systems and software, any equipment using embedded chips, such as switch gear, controllers and telephone exchanges, could also be at risk. As a result of the Dart Acquisition, the Company's computer systems and software programs are being incorporated into Richfood's. Richfood has developed, and has begun implementing, a strategic, long-term information technology plan (the "Strategic Plan") to upgrade its core application systems. Concurrently, Richfood has developed and is implementing a plan (the "Y2K Plan") to ensure that its information systems are Year 2000 compliant. The Y2K Plan focuses on the following three major areas: o Information technology systems ("IT"). o Embedded technology and other systems ("Non-IT"). o Key third party relationships. Based on the Strategic Plan and assessments conducted as part of the Y2K Plan, Richfood determined that it would be necessary to modify or replace portions of its software and certain hardware systems so that such systems will properly recognize dates beyond December 31, 1999. Richfood presently believes that with 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) the modification or replacement of existing software and certain hardware systems, the Year 2000 issue can be significantly mitigated. However, if such modifications and replacements are not made, or are not completed in a timely manner, the Year 2000 issue could have a material adverse effect on the financial condition or results of operations of the Company. Richfood's Y2K Plan, as it pertains to the Company, involves the following three phases: o Assessment -- locating, listing and prioritizing the specific technology that is potentially subject to Year 2000 issues, assessing the actual exposure of such technology to the Year 2000 issue, and planning/scheduling the allocation of internal and third party resources for the remediation effort. o Remediation/Testing of non-compliant systems - selecting and executing the method necessary to resolve the Year 2000 issues that were identified, including replacement, upgrade, repair or abandonment and testing the remediated or converted technology to determine the efficacy of the resolutions. o Implementation- placing remediated technology into operation. The assessment phase has been completed with respect to IT and Non-IT systems that Richfood believes could be adversely affected by the Year 2000 issue. The assessment indicated that many of the Company's significant information systems could be adversely affected, particularly the general ledger, human resources, payroll, and point of sale systems. Non-IT systems, including telephones, loss-prevention and food production systems, are also being validated; however, the Company believes that non-compliance of the Non-IT systems does not pose a significant risk to the Company's financial condition or results of operations. With respect to IT systems, the remediation/testing phase is approximately 88% complete, with an expected completion date of September 1999, and the implementation phase is expected to continue until October 1999. Certain point of sale software systems and all time and attendance systems will be upgraded or replaced during 1999. Additionally, human resources, payroll and general ledger system software upgrades are expected to be completed by August 1999. The majority of the Company's Non-IT systems are currently Year 2000 compliant; however, certain systems, which include telephones, will need to be upgraded or replaced. The Non-IT systems remediation/testing phase is approximately 77% complete and full implementation is expected by July 1999. Richfood's evaluation of the Year 2000 readiness of the Company's material suppliers (Richfood is the Company's primary supplier), customers and other third parties, has not identified any class of third party providers that could materially impact the Company's results of operations in the event of their failure to become Year 2000 compliant. However, there can be no assurance that the failure of any unrelated third parties to become Year 2000 compliant in a timely manner would not result in a material adverse effect on the Company's results of operations or financial condition. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Total costs associated with the Company's Year 2000 remediation are expected to be approximately $3.4 million. Of this amount, approximately $3.0 million has, or is expected to be capitalized, in accordance with GAAP, with approximately $650,000 capitalized to date, and the Company expects to pay the majority of the remaining costs over the next five months. All expenditures by the Company related to the Y2K Plan will be funded by cash flow from operations and are not expected to impact other operating or investment plans. No material information technology projects have been deferred as a result of the implementation of the Y2K Plan. The aforementioned costs of the Y2K Plan and the completion dates are based on management's best estimates, which were derived from assumptions of future events, including the availability of resources, key third party modification plans and other factors. There can be no assurance that these estimates will prove to be accurate, and actual results could vary due to uncertainties. Although the Y2K Plan is expected to be adequate to address the Company's Year 2000 concerns, the Company could experience a material adverse effect on its results of operations or financial condition if its Year 2000 compliance schedule is not met, if the costs to remediate the Company's Year 2000 issues significantly exceed current estimates or if material suppliers, customers and other businesses encounter serious problems in their Year 2000 remediation efforts. Therefore, Richfood and the Company are in the process of developing plans to address such contingencies, with a focus on mission critical systems. The Company and Richfood expect to complete contingency plans in September 1999 and expect that such plans may include provisions relating to, among other things, manual workarounds and adjusting staffing strategies, and will describe the communications, operations and IT activities that will be utilized if the contingency plans must be executed. Richfood's Year 2000 efforts are ongoing and the Y2K Plan will continue to evolve as new information becomes available. The failure to correct a material Year 2000 issue could result in an interruption in certain normal business activities and operations. Due to the general uncertainty inherent in the Year 2000 issue, resulting in part from the uncertainty of the Year 2000 readiness of third parties upon whom Richfood and the Company rely, the Company is unable to determine at this time whether the consequences of Year 2000 failures will have a material adverse effect on the Company's financial condition or results of operations. However, the Company believes that, with the implementation of the Y2K Plan as scheduled, the possibility of significant interruptions of normal operations should be reduced. Item 2A. Quantitative and Qualitative Disclosures about Market Risk The registrant's market risk exposure is not material. Interest on both the Company's notes receivable and Senior Notes are at fixed rates. The Company does not have any other financial instruments that result in material exposure to interest rate risk. 13 PART II Item 6. Exhibits and Reports on Form 8-K (A) Exhibit 27.1 Financial Data Schedule (B) Reports on Form 8-K None 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SHOPPERS FOOD WAREHOUSE CORP. Date: June 15, 1999 By: JOHN C. BELKNAP ---------------------- -------------------------- JOHN C. BELKNAP Executive Vice President And Secretary Date: June 15, 1999 By: DAVID W. HOOVER ---------------------- -------------------------------- DAVID W. HOOVER Vice President EX-27 2 EXHIBIT 27.1 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRTEEN WEEK PERIOD ENDED MAY 1, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS JAN-29-2000 JAN-31-1999 MAY-01-1999 1,448 45 8,887 1,007 30,189 45,281 57,450 5,371 475,913 43,002 210,967 0 0 167 186,513 475,913 220,069 220,943 164,985 164,985 47,767 0 4,329 3,862 2,162 1,700 0 0 0 1,700 51.00 51.00
-----END PRIVACY-ENHANCED MESSAGE-----