-----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, FL38Efy/24pj2y2u0IfRnafeLtSTVfTfg8pDLGmMpP2Ieh2nY+lw4x45ZtVu2g43 63SvwMVbo08ksMYYTwbeRg== 0001045969-01-000417.txt : 20010418 0001045969-01-000417.hdr.sgml : 20010418 ACCESSION NUMBER: 0001045969-01-000417 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010127 FILED AS OF DATE: 20010417 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: 0130 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-32825 FILM NUMBER: 1604375 BUSINESS ADDRESS: STREET 1: 11840 VALLEY VIEW RD CITY: EDEN PRAIRIE STATE: MN ZIP: 55344 BUSINESS PHONE: 3013068600 MAIL ADDRESS: STREET 1: 4600 FORBES BLVD CITY: LENHAM STATE: MD ZIP: 20706 10-K405 1 0001.txt FORM 10-K405 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) (X) Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended January 27, 2001 ---------------- ( ) 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 (I.R.S. Employer incorporation or organization) Identification No.) 11840 Valley View Road, Eden Prairie, Minnesota 55344 ----------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (958) 828-4000 -------------- 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 the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) At March 6, 2001, the registrant had 23,333 shares of Class A Common Stock, nonvoting, $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. The registrant meets the conditions as set forth in General Instructions I(1)(a) and (b) of Form 10-K and is therefore filing this Form with the reduced disclosure format. The exhibit index begins at page 28 of this Form 10-K. Table of Contents
PART I ------ Page ---- Item 1. Business 3 Item 2. Properties 6 Item 3. Legal Proceedings 6 Item 4. Submission of Matters to a Vote of Security Holders 6 PART II ------- Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 6 Item 6. Selected Financial Data 6 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 9 Item 8. Financial Statements and Supplementary Data 10 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 24 PART III -------- Item 10. Directors, Executive Officers, Promoter and Control Persons of the Registrant 24 Item 11. Executive Compensation 24 Item 12. Security Ownership of Certain Beneficial Owners and Management 24 Item 13. Certain Relationships and Related Transactions 24 PART IV ------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 24
2 PART I ------ Forward Looking Statements - -------------------------- Statements in this report that are not historical in nature, including references to beliefs, anticipations or expectations, 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. Such statements are subject to a wide variety of risks and uncertainties that could cause actual results to differ materially from those projected including, without limitation, the ability of the Company (as defined below) to open new stores, the effect of regional economic conditions, the effect of increased competition in the markets in which the Company operates and other risks described from time to time in the Company's filings with the Securities and Exchange Commission. The Company undertakes no obligation and does not intend to update, revise or otherwise publicly release any revisions to these forward-looking statements, which revisions may be made to reflect any future events or circumstances, other than through its regular quarterly and annual reports filed with the Securities and Exchange Commission (the "SEC"). Item 1. Business - ------ -------- Shoppers Food Warehouse Corp. ("Shoppers" or the "Company") was incorporated in Delaware in 1956. In June 1988, Dart indirectly acquired an initial 50% interest of Shoppers, and on February 6, 1997, indirectly acquired the remaining 50% interest. On May 18, 1998, a wholly-owned subsidiary of Richfood Holdings, Inc. ("Richfood") acquired all of the outstanding shares of Dart. In connection with that acquisition, Richfood caused the subsidiary to merge with and into Dart in a transaction in which Dart became a wholly-owned subsidiary of Richfood. As a result of the Merger, Richfood indirectly owned 100% of the outstanding common stock of Shoppers. On August 31, 1999, Richfood was acquired in a merger by a wholly-owned subsidiary of SUPERVALU INC., a Delaware corporation ("SUPERVALU"), and the Company became an indirect, wholly-owned subsidiary of SUPERVALU. SUPERVALU is operating Shoppers as a distinct unit within its retail division. Shoppers' principal executive offices are located at 11840 Valley View Road, Eden Prairie, Minnesota, 55344. The telephone number of Shoppers is 952-828- 4000. Operations - ---------- Shoppers is a leading supermarket operator in Greater Washington, D.C. (as defined below), operating 40 stores under the "Shoppers Food Warehouse" and "Shoppers Club" names, that targets the price-conscious segment of its market area in densely populated suburban areas. Shoppers operates warehouse-style, price impact supermarkets that are designed to offer the lowest overall prices in its market area by passing on to the consumer savings achieved through labor efficiencies and lower overhead associated with the warehouse format, while providing the product selection and quality associated with a conventional supermarket format. Shoppers' stores are generally open 18 hours per day seven days a week (allowing for shelf restocking while the stores are closed) and offer a full range of fresh produce, fresh baked goods, fresh meats and seafood, frozen foods, traditional grocery items and certain non-food items such as health and beauty aids, cookware, greeting cards, magazines and seasonal items. Shoppers' stores also have service delicatessens, with some stores offering hot and cold prepared food and self-service soup and salad bars. All 40 of the Company's supermarkets have a delicatessen, a bakery and a floral department and 21 stores have a beer and wine department. Shoppers' store equipment and facilities are generally in good condition. The Company's stores range in size from approximately 20,000 to 77,000 total square feet and average approximately 47,000 square feet. Shoppers' stores can be categorized by size as follows: (i) 9 stores smaller than 40,000 square feet; (ii) 11 stores ranging from 40,000 to 50,000 square feet; and (iii) 20 stores between 50,000 and 77,000 square feet. The stores in the first category generally are older stores located in densely populated areas. Despite their age and size, as a group, these stores generally continue to perform well in terms of sales per square foot and profitability. The next size category represents stores that more closely resemble the store sizes operated by conventional supermarket competitors in the local area. Finally, the category representing the largest size stores includes the nine "Shoppers Club" 3 supermarkets (averaging approximately 67,900 total square feet per store). These larger size supermarkets generally have more space devoted to specialty departments and offer more "club pack" size products. Store Expansion and Remodeling - ------------------------------ Shoppers has plans to open large new stores and upgrade existing stores. Shoppers has opened 8 new stores since July 1997 and is currently considering expanding or remodeling at least 6 stores during fiscal 2002. Of its existing 40 stores, 31 are larger than 40,000 square feet, and all but one of the Company's stores were opened, remodeled or expanded during the last ten years, 15 of which occurred within the last five years. The Company believes that its existing supermarkets generally have well-established locations with favorable lease terms (including multiple options), are in good condition and require only routine maintenance. The following chart sets forth certain information concerning Shoppers stores during the past five fiscal years:
Fiscal Year ----------------- 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- Number of Stores at Beginning of Period 34 34 37 38 36 New Stores Opened 0 3 1 0 4 Stores Closed 0 0 0 2 0 - - - - - Stores at End of Period 34 37 38 36 40 Remodeled/Expanded 2 0 2 2 1
Product Selection - ----------------- The Company believes that in recent years consumers have shown an increasing preference for food stores that offer not only the wide variety of food and non-food items carried by conventional supermarkets, but also an expanded assortment of high-quality specialty food items and fresh produce. To respond to this trend, Shoppers offers a complete line of produce, fresh baked goods, fresh packaged meat, seafood products and floral assortments and provides service in these departments at the customer's request. This strategy provides consumers with a wider selection of higher quality products and convenience foods, while shifting its sales mix toward higher gross margin products. Shoppers' largest supermarkets carry over 45,000 Stock Keeping Units ("SKU's"). Its merchandising program is designed to offer customers a wide selection of products at prices that are generally below those of its primary supermarket competitors. Shoppers accomplishes this by carrying slightly fewer items than its local supermarket competitors, primarily through pursuing less duplication of products in smaller sizes. This program also includes a critical assessment of existing store layouts, shelving and product mix. The Company monitors SKUs to identify slow-moving products that may be replaced with new products. Shoppers stores carry a variety of grocery and general merchandise under private label names, including "Richfood" and "Shoppers Food Warehouse," which currently account for approximately 10% of its sales. Private label products are of a quality generally comparable to that of national brands, at significantly lower prices, while Shoppers' gross margins on private label products are generally higher than on national brands. Purchasing, Warehousing and Distribution - ---------------------------------------- Shoppers purchases approximately 75% of its inventory from the Eastern Region of SUPERVALU. Because Shoppers' stores receive most of their deliveries from SUPERVALU almost daily, Shoppers maintains no warehouse storage space. SUPERVALU's large volume purchasing results in significant cost savings to Shoppers. Shoppers also purchases merchandise sold in its supermarkets, in particular, beverages and snack products, from sources other than SUPERVALU. Advertising and Promotion - ------------------------- Shoppers uses a broad-based advertising program to emphasize its "Low Price" image. Over two million 12 page, four color circulars are printed and distributed weekly in the Washington Post to subscribers, and to nonsubscribers via the "Post-Plus" program, which insures that the circulars are placed in every home in the Greater Washington, D.C. Market. 4 The "Low price" image is reinforced with a television and radio campaign supported by vendors' and Shoppers' funds. Media broadcasts support the Bonus Saving Program, in which manufacturers' allowances are passed on to customers in the form of lower priced products. Broadcasts also support Shoppers Discounted Program, whereby pre-priced items are discounted 10% to 40% for the customer. Extensive in-store point of purchase signs are located throughout the stores to communicate Shoppers' low price image. Competition - ----------- The supermarket industry is highly competitive and characterized by narrow profit margins. Shoppers' competitors include national, regional and local supermarket chains, independent grocery stores, specialty food stores, warehouse club stores, drug stores and convenience stores. Supermarket chains generally compete on the basis of location, quality of products, service, price, product variety and store condition. Shoppers competes by providing its customers with exceptional value by offering quality produce and fresh foods, an unusual combination of higher-end specialty departments with self-service and discount price features, and a selection of national brand groceries and private label goods, all at competitive prices. Shoppers is the largest supermarket chain targeting the price-conscious segment in Greater Washington, D.C. While similar in most respects to conventional supermarket operators, Shoppers' stores offer a greater selection of "club size" products, along with popular-sized brands. Through this approach, Shoppers has established a unique niche among supermarket operators in Greater Washington, D.C. The two primary competitors of Shoppers are Giant Food, Inc. ("Giant") and Safeway Inc. ("Safeway"), conventional supermarket chains, both of which operate in the higher-service, higher-price segment. Giant and Safeway have market shares in Greater Washington, D.C. of approximately 44% and 26%, respectively. The Company believes that Shoppers' market share is approximately 13%, the third largest market share in Greater Washington, D.C. "Greater Washington, D.C." includes Washington, D.C.; Calvert, Charles, Frederick, Montgomery and Prince Georges counties in Maryland; Arlington, Fairfax, Loudoun, Prince William and Stafford counties in Virginia; and the independent cities of Alexandria, Fairfax and Falls Church in Virginia. Shoppers does not, however, operate any stores in the city of Washington, D.C. The Company's ability to remain competitive in its markets depends in part on its ability to remodel and update its stores in response to remodelings and new store openings by its competitors. Shoppers believes that it will face increased competition in the future from other supermarket chains and intends to compete aggressively against existing and new competition. Employees - --------- As of January 27, 2001, Shoppers employed approximately 5,000 people, of whom approximately 1,500 were full-time. Approximately 4,800 employees were covered by collective bargaining agreements with various locals of two unions. Shoppers has an agreement with United Food and Commercial Workers, Local 400, which will expire July 1, 2004 and covers approximately 4,500 retail clerks and meat cutters, and an agreement with United Food and Commercial Workers, Local 27, which will expire September 30, 2001 and covers approximately 300 retail clerks and meat cutters. Trade Names, Service Marks and Trademarks - ----------------------------------------- Shoppers uses a variety of trade names, service marks and trademarks. Except for "Shoppers," "SFW," "Shoppers Food Warehouse" and "Shoppers Club," Shoppers does not believe any of such trade names, service marks or trademarks are material to its business. Shoppers presently has federal registrations of the "Shoppers Food Warehouse" and "Colossal Donuts" trademarks. It has federal registration of "Shoppers Club" as a service mark and is seeking federal registration of it as a trademark. Shoppers also has federally registered "Shoppers," "Shoppers Food Warehouse" and "SFW" as service marks and has also registered the "Shoppers Food Warehouse" and "SFW" designs. Government Regulation - --------------------- Shoppers is subject to regulation by a variety of governmental agencies, including, but not limited to, the U.S. Food and Drug Administration, the U.S. Department of Agriculture and state and local health departments and other agencies, including those regulating the sale of beer and wine. 5 Environmental Matters - --------------------- Shoppers is subject to federal, state and local laws, regulations and ordinances that (i) govern activities or operations that may have adverse environmental effects, such as discharges to air and water, as well as handling and disposal practices for solid and hazardous wastes, and (ii) impose liability for the costs of cleaning up, and certain damages resulting from, sites of past spills, disposals or other releases of hazardous materials. Shoppers believes it conducts its operations in compliance with applicable environmental laws. Shoppers has not incurred material capital expenditures for environmental controls during the previous three years. Item 2. Properties - ------ ---------- Shoppers has 18 supermarkets in Virginia and 22 in Maryland, all of which are leased. Most of the Company's long-term leases have favorable terms. Shoppers leases an 86,000 square foot office building located in Lanham, MD that serves as its corporate offices. The lease commenced in 1990 and expires in 2010. The Company subleases approximately 24,251 square feet of this office building to unrelated third parties. Item 3. Legal Proceedings - ------ ----------------- There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business of the Company. Item 4. Submission of Matters to a Vote of Security Holders - ------ --------------------------------------------------- Information omitted in accordance with General Instruction I (2)(c). Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters - ------ --------------------------------------------------------------------- The Common Stock of Shoppers Food Warehouse Corp. is not publicly traded. Item 6. Selected Financial Data - ------ ----------------------- Information omitted in accordance with General Instruction I(2)(a). Item 7. Management's Discussion and Analysis of Financial Condition and Results - ------------------------------------------------------------------------------- of Operations - ------------- 6 Outlook - ------- Except for historical information, statements in the 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. Basis of Presentation - --------------------- Management's Discussion and Analysis, for analysis purposes, is comparing post-acquisition information for the current quarter and year to date with both pre and post-acquisition information for the same periods of last year. There are two different bases of accounting being used each of the two prior years, but management believes the comparison is useful. Results of Operations - --------------------- Reference to "fiscal 2001" means the 52 weeks ended January 27, 2001, "fiscal 2000" means the 52 weeks ended January 29, 2000 and "fiscal 1999" means the 52 weeks ended January 30, 1999. The results of operations in the financial statements present split periods due to the acquisition of Richfood by SUPERVALU that occurred August 30, 1999 and the acquisition of Dart by Richfood in 1998. SUPERVALU operates Shoppers as a distinct unit within its retail division. Management's Discussion and Analysis of Financial Condition and Results of Operations is based on results for the full year. Fiscal 2001 Compared with Fiscal 2000 - ------------------------------------- Sales were $892.5 million in 2001 compared to $885.4 million in fiscal 2000, an increase of 0.8%. The sales increase was primarily due to the opening of four new stores during fiscal 2001, offset by a decrease of 3.1% in comparable store sales compared to the prior year. The comparable store sales decrease is primarily due to cannibalization of existing Shoppers' stores and competitive market conditions. Gross profit, as a percentage of sales, increased to 25.1% during fiscal 2001 compared to 24.7% during fiscal 2000. The increase in gross profit was primarily due to higher allowance income received from vendors and better buying. Selling and administrative expenses, as a percentage of sales, remained flat at 19.9% during fiscal 2001 compared to fiscal 2000. Operating income was $29.7 million for fiscal 2001 compared to $27.7 million in fiscal 2000. The increase was primarily due to the increase in gross profit as a percentage of sales during the current year, partially offset by increased selling and administrative expenses and increased amortization of goodwill and fixed assets as a result of the Richfood acquisition by SUPERVALU. Interest income increased by approximately $0.8 million during fiscal 2001 compared to fiscal 2000 due to an increase in the outstanding balance of the note receivable. Interest expense decreased approximately $0.2 million from $15.5 million during fiscal 2000 to $15.3 million during fiscal 2001. The reduction in interest expense was due to the retirement of $24.6 million of the Senior Notes in October 1999. The effective income tax rate for fiscal 2001 was 53.7% compared to 56.4% for fiscal 2000. The decrease is primarily attributable to increased taxable earnings in relation to the fixed amount of non-deductible goodwill associated with the SUPERVALU acquisition. Net income was $8.8 million during fiscal 2001 compared to $6.9 million in fiscal 2000, an increase of 26.9%. 7 Fiscal 2000 Compared with Fiscal 1999 - ------------------------------------- Sales remained relatively flat, at $885.4 million in 2000 compared to $885.6 million in fiscal 1999. The sales decrease was primarily due to the closing of two stores during fiscal 2000. Comparable store sales were flat during fiscal 2000 and 1999. Gross profit, as a percentage of sales, increased to 24.7% during fiscal 2000 compared to 24.1% during fiscal 1999. The increase in gross profit was primarily due to merchandising initiatives. Selling and administrative expenses, as a percentage of sales, increased to 19.9% during fiscal 2000 from 19.2% during fiscal 1999. The increase was primarily attributable to an increase in payroll and benefits costs as well as higher advertising expenses. Operating income was $27.7 million for fiscal 2000 compared to $29.8 million for fiscal 1999. The decrease was primarily due to the increased selling and administrative expenses and increased amortization of goodwill and fixed assets. Interest income decreased approximately $0.5 million during fiscal 2000 compared to fiscal 1999 due to the fact that fewer investments were made as a result of a lower cash balance held during fiscal 2000. Interest expense decreased approximately $3.0 million from $18.5 million during fiscal 1999 to $15.5 million during fiscal 2000. The reduction in interest expense was primarily driven by lower debt levels due to the purchase of $24.6 million of the Senior Notes in October 1999. The effective income tax rate for fiscal 2000 was 56.4% compared to 54.3% for fiscal 1999. The increase was attributable to a full year's worth of additional acquisition-related goodwill as a result of the Dart Acquisition by Richfood in May 1998. Net income was $6.9 million during fiscal 2000 compared to $7.1 million in fiscal 1999, a decrease of 2.4%. Effects of Inflation - -------------------- During the last three fiscal years, the rate of general inflation has not had a significant impact on Shoppers' net sales or income. Liquidity and Capital Resources - ------------------------------- During fiscal 2001, operating activities generated net cash of $10.1 million compared to generating $21.1 million during the prior fiscal year. The decrease was primarily due to an increase in accounts receivable, resulting from outstanding tenant allowance billings of over $6.0 million. Investing activities used $17.3 million of Shoppers' cash during fiscal 2001 compared to $17.7 million during fiscal 2000. The decrease in cash usage was due primarily to a $4.4 million reimbursement from a landlord for renovation costs during the current year, offset by additional expenditures incurred in conjunction with the opening of four new stores. The Company made total capital expenditures of $32.5 million during fiscal 2001, of which $15.2 million relates to capital leases for new stores. Financing activities generated $6.7 million during fiscal 2001 compared to $6.6 million used in the prior year. The change was primarily due to the $26.7 million bond purchase in the previous year, which was financed by an increase in the balance due to affiliates of $21.6 million. The Company believes that cash flows from Shoppers' operations as well as cash provided by affiliated companies will be adequate to meet its anticipated requirements for working capital, debt service and capital expenditures. 8 New Accounting Standards - ------------------------ Accounting for Derivative Instruments and Hedging Activities Statement of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued in June 1998. This statement, as amended by SFAS No. 137, establishes comprehensive accounting and reporting standards for derivative instruments and hedging activities. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No. 133, an Amendment of SFAS 133," which defers the effective date of SFAS No. 133 to all fiscal quarters of fiscal years beginning after June 15, 2000. Management does not expect the implementation of these pronouncements to have a material effect on the Company's financial condition or results of operations. Revenue Recognition In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements' ("SAB No. 101"). SAB No. 101, as amended, summarizes the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. The adoption of SAB No. 101 in fiscal 2001 did not have a material effect on the Company's financial position or results of operations. The provisions for SAB No. 101 are effective for fiscal 2001, and for FASB No. 133, they are effective for fiscal 2002. The financial Accounting Standards Board has recently issued an exposure draft for Business Combinations and Intangible Assets. One of the provisions of this exposure draft is to require use of a non-amortization approach to account for purchased goodwill. Under that approach, goodwill would not be amortized to earnings over a period of time. Instead, it would be reviewed for impairment and expensed against earnings only in the periods in which the recorded value of goodwill is more than its implied fair value. Goodwill amortization reduced the basic and diluted net earnings per share by $.36 and $.26 in 2001 and 2000, respectively. This exposure draft is not final and may change before any new accounting standard is adopted. Item 7A. 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 market value of the fixed rate notes is subject to change due to fluctuations in market interest rates. The Company does not have any other financial instruments that result in material exposure to interest rate risk. Cautionary Statements for Purposes of the Safe Harbor Provisions of the Private - ------------------------------------------------------------------------------- Securities Litigation Reform Act of 1995 - ---------------------------------------- Any statements in this report regarding Shoppers' outlook for its businesses and their respective markets, such as projections of future performance, statements of management's plans and objectives, forecasts of market trends and other matters, are forward-looking statements based of management's assumptions and beliefs. Such statements may be identified by such words or phrases as "will likely result," "are expected to," "will continue," "outlook," "is anticipated," "estimate," "project," "management believes" or similar expressions. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those discussed in such forward-looking statements and no assurance can be given that the results in any forward-looking statement will be achieved. For these statements, Shoppers claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The following is a summary of certain factors, the results of which, if markedly different from Shoppers' planning assumptions, could cause Shoppers' future results to differ materially from those expressed in any forward-looking statements contained in this report: (1) the impact of changing economic or business conditions; (2) competitive practices in the retail and food industries; (3) the nature and extent of the consolidation of the retail food and food distribution industries; (4) the ability of the Company to continue to recruit, train and retain quality franchise, licensed and corporate retail store operators; (5) the availability of favorable credit and trade terms; (6) food price changes; and (7) other risk factors inherent in the retail food business; (8) the ability of the Company's parent organization, SUPERVALU, to implement and achieve the expected benefits of its company-wide asset review program. 9 Item 8. Financial Statements and Supplementary Data - ------ -------------------------------------------
Financial Statements Page - -------------------- ---- Independent Auditors' Report of KPMG LLP 11 Report of Independent Auditors of Ernst and Young, LLP 12 Consolidated Balance Sheets 13 Consolidated Statements of Earnings 14 Consolidated Statements of Stockholder's Equity 15 Consolidated Statements of Cash Flows 16 Notes to Consolidated Financial Statements 17
10 INDEPENDENT AUDITORS' REPORT - ---------------------------- THE BOARD OF DIRECTORS SHOPPERS FOOD WAREHOUSE CORP. We have audited the accompanying consolidated balance sheets of Shoppers Food Warehouse Corp. and subsidiaries ("the Company") as of January 27, 2001 and January 29, 2000, and the related consolidated statements of operations, stockholder's equity and cash flows for the 52 weeks ended January 27, 2001, the 22 weeks ended January 29, 2000, and the 30 weeks ended August 30, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Shoppers Food Warehouse Corp. and subsidiaries as of January 27, 2001 and January 29, 2000, and the results of their operations and their cash flows for the 52 weeks ended January 27, 2001, the 22 weeks ended January 29, 2000, and the 30 weeks ended August 30, 1999, in conformity with accounting principles generally accepted in the United States of America. Norfolk, Virginia March 9, 2001 11 THE BOARD OF DIRECTORS SHOPPERS FOOD WAREHOUSE CORP.: We have audited the accompanying consolidated statement of operations, stockholder's equity and cash flows of Shoppers Food Warehouse Corp. (a Delaware corporation and wholly owned indirect subsidiary of Dart Group Corporation) and subsidiaries (the "Company") for the thirty-seven week period ended January 30, 1999 and the fifteen week period ended May 18, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of the operations and cash flows of Shoppers Food Warehouse Corp. and subsidaries for the thirty-seven week period ended January 30, 1999 and the fifteen week period ended May 18, 1998, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Richmond, Virginia April 26, 1999 12 SHOPPERS FOOD WAREHOUSE CORP. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data)
January 27, January 29, 2001 2000 ------------ ------------ Assets Current assets: Cash and cash equivalents $ 2,966 $ 3,390 Accounts receivable, net of allowance of $101 at January 27, 2001 And $400 at January 29, 2000 20,120 10,275 Merchandise inventories 38,065 31,324 Deferred income taxes 3,365 4,185 Other current assets 1,921 2,761 ------------ ------------ Total current assets 66,437 51,935 Property and equipment, net 88,400 64,017 Goodwill, net of accumulated amortization of $10,489 at January 27, 2001 and $2,784 at January 29, 2000 297,725 305,431 Lease rights, net of accumulated amortization of $1,716 at January 27, 2001 and $477 at January 29, 2000 26,706 27,945 Note receivable, related party 46,897 42,491 Other assets 825 751 ------------ ------------ Total assets $ 526,990 $ 492,570 ============ ============ Liabilities and Stockholder's equity Current liabilities: Accounts payable $ 8,861 $ 6,245 Accrued expenses 23,388 23,706 Due to affiliates 63,677 51,992 Accrued income taxes 16,122 9,315 Current maturities of capital lease obligations 658 618 ------------ ------------ Total current liabilities 112,706 91,876 Senior notes due 2004 178,370 181,748 Capital lease obligations 26,619 12,034 Deferred income taxes 7,955 14,218 Other liabilities 678 803 ------------ ------------ Total liabilities 326,328 300,679 ------------ ------------ Stockholder's equity: Class A common stock, nonvoting, par value $5 per share, 25,000 shares authorized; 23,333 1/3 shares issued and outstanding 117 117 Class B common stock, voting, par value $5 per share, 25,000 shares authorized, 10,000 shares issued and outstanding 50 50 Additional paid-in capital 189,241 189,241 Retained earnings 11,254 2,483 ------------ ------------ Total stockholder's equity 200,662 191,891 ------------ ------------ Total liabilities and stockholder's equity $ 526,990 $ 492,570 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 13 SHOPPERS FOOD WAREHOUSE CORP. CONSOLIDATED STATEMENTS OF EARNINGS (in thousands)
Post- Post- Pre- SUPERVALU SUPERVALU SUPERVALU Post-Dart Pre-Dart Acquisition Acquisition Acquisition Acquisition Acquisition -------------- -------------- -------------- ------------- ----------- January 27, January 29, August 30, January 30, May 18, 2001 2000 1999 1999 1998 -------------- -------------- -------------- ------------- ----------- (52 weeks) (22 weeks) (30 weeks) (37 weeks) (15 weeks) Sales $ 892,450 $ 379,975 $ 505,398 $ 636,507 $ 249,052 Cost of Sales 668,432 288,983 377,496 481,205 190,799 ------------- ------------- ------------- ------------ ----------- Gross profit 224,018 90,992 127,902 155,302 58,253 Selling and administrative expenses 177,256 72,928 102,968 122,306 47,990 Depreciation and amortization 17,039 6,601 8,706 10,130 3,354 ------------- ------------- ------------- ------------ ----------- Operating income 29,723 11,463 16,228 22,866 6,909 Interest income 4,497 1,048 2,652 2,684 1,544 Interest expense 15,298 6,588 8,942 12,156 6,371 ------------- ------------- ------------- ------------ ----------- Net interest expense 10,801 5,540 6,290 9,472 4,827 Earnings before income taxes 18,922 5,923 9,938 13,394 2,082 Provision for income taxes 10,151 3,440 5,510 7,505 890 ------------- ------------- ------------- ------------ ----------- Net earnings $ 8,771 $ 2,483 $ 4,428 $ 5,889 $ 1,192 ============= ============= ============= ============ ===========
The accompanying notes are an integral part of these consolidated financial statements. 14 SHOPPERS FOOD WAREHOUSE CORP. CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (in thousands)
Post- Post- Pre- SUPERVALU SUPERVALU SUPERVALU Post-Dart Pre-Dart Acquisition Acquisition Acquisition Acquisition Acquisition --------------- ---------------- ---------------- --------------- ------------- January 27, January 29, August 30, January 30, May 18, 2001 2000 1999 1999 1998 --------------- ---------------- ---------------- --------------- ------------- 52 weeks) (22 weeks) (30 weeks) (37 weeks) (15 weeks) Common Stock - Class A: Balance, beginning and end of Period $ 117 $ 117 $ 117 $ 117 $ 117 =============== ================ ================ =============== ============= Common Stock - Class B: Balance, beginning and end of $ 50 $ 50 $ 50 $ 50 $ 50 =============== ================ ================ =============== ============= Period Paid-in-Capital: Balance, beginning of period $ 189,241 $ 189,241 $ 178,924 $ 178,924 $ - Retire predecessor retained earnings - - 10,317 - 6,973 Acquisition consideration in excess of par value - - - - 171,951 --------------- ---------------- ---------------- --------------- ------------- Balance, end of period $ 189,241 $ 189,241 $ 189,241 $ 178,924 $ 178,924 Retained Earnings: Balance, beginning of period 2,483 - 5,889 - 5,781 Net income 8,771 2,483 4,428 5,889 1,192 Acquisition - - (10,317 - (6,973) --------------- ---------------- ---------------- --------------- ------------- Balance, end of period $ 11,254 $ 2,483 $ - $ 5,889 $ - =============== ================ ================ =============== ============= Common Stock Outstanding: Balance, beginning and end of Period 33 33 33 33 33 =============== ================ ================ =============== =============
The accompanying notes are an integral part of these consolidated financial statements. 15 SHOPPERS FOOD WAREHOUSE CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Post- Post- Pre- SUPERVALU SUPERVALU SUPERVALU Post-Dart Pre-Dart Acquisition Acquisition Acquisition Acquisition Acquisition ------------- -------------- ------------ ----------- ------------ January 27, January 29, August 30, January 30, May 18, 2001 2000 1999 1999 1998 ------------- -------------- ------------ ----------- ------------ (52 weeks) (22 weeks) (30 weeks) (37 weeks) (15 weeks) Cash flows from operating activities: Net earnings $ 8,771 $ 2,483 $ 4,428 $ 5,889 $ 1,192 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 17,039 6,601 8,706 10,130 3,354 Amortization of deferred financing costs - - - - 173 Amortization of bond premium (3,378) (1,571) (1,905) (2,554) - Deferred income taxes (5,443) 242 407 (2,237) (217) Other - - - 1,588 294 Changes in assets and liabilities: Accounts receivable (9,845) (3,786) 6,774 (4,368) (1,445) Merchandise inventories (6,741) (1,558) 1,711 1,970 1,666 Other current assets 840 925 (2,074) (207) 348 Other assets (97) (30) 519 270 109 Accounts payable 2,616 (7,368) 1,330 (30,924) 3,101 Accrued expenses (318) 11,484 (8,716) (8,020) 6,615 Other liabilities (125) (389) (5,636) 560 (127) Accrued income taxes 6,807 3,258 5,256 (91) 524 ------------- ------------- ------------ ----------- ------------ Net cash provided by (used in) operating activities 10,126 10,291 10,800 (27,994) 15,587 Cash flows from investing activities: Capital expenditures (21,627) (2,765) (14,908) (3,435) (2,960) Reimbursement from landlord 4,371 - - - - Purchase of short-term investments - - (1,449) (2,155) Sales / maturities of short-term investments - - - 4,121 - ------------- ------------- ------------ ----------- ------------ Net cash used in investing activities: (17,256) (2,765) (14,908) (763) (5,115) Cash flows from financing activities: Cash provided by affiliated companies 11,685 2,702 21,554 19,838 (1,825) Purchase of bonds and bond premium - (26,657) - - - Payments for acquisition and deferred financing costs - - - (116) (178) Notes receivable from Dart (4,406) (1,443) (2,188) 2,480 1,006 Principal payments under capital lease obligations (573) (209) (379) (310) (35) ------------- ------------- ------------ ----------- ------------ Net cash provided by (used in) financing activities 6,706 (25,607) 18,977 21,892 (1,032) Net increase (decrease) in cash and cash equivalents (424) (18,081) 14,869 (6,865) 9,440 Cash and cash equivalents, beginning of period 3,390 21,471 6,602 13,467 4,027 ------------- ------------- ------------ ----------- ------------ Cash and cash equivalents, end of period $ 2,966 $ 3,390 $ 21,471 $ 6,602 $ 13,467 ============= ============= ============ =========== ============ Supplemental Cash Flow Data: Cash paid during the year for: Income taxes, net $ 2,682 $ 4,210 $ 100 $ 20 $ 1,242 Interest 18,791 8,231 9,749 19,593 47
The accompanying notes are an integral part of these consolidated financial statements. 16 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General - ------- The accompanying consolidated financial statements include the accounts of Shoppers Food Warehouse Corp. (a Delaware corporation) and its subsidiaries, (collectively "Shoppers" or the "Company") for the 52 weeks ended January 27, 2001 ("fiscal 2001"), the 30 weeks ended August 30, 1999 ("30 weeks of fiscal 2000"), the 22 weeks ended January 29, 2000 ("22 weeks of fiscal 2000"), the 37 weeks ended January 30, 1999 ("37 weeks of fiscal 1999") and the 15 weeks ended May 18, 1998 ("15 weeks of fiscal 1999"). All significant intercompany accounts and transactions have been eliminated. Shoppers operates in one business segment. Fiscal Year - ----------- The Company's fiscal year ends on the Saturday closest to January 31. Cash and Cash Equivalents - ------------------------- The Company considers all highly liquid temporary cash investments with initial maturities of three months or less to be cash equivalents. At January 27, 2001 and January 29, 2000, there were no material cash equivalents. Use of Estimates in Financial Statements - ---------------------------------------- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Inventories - ----------- The Company's inventories are priced at the lower of cost or market. For substantially all inventories, cost is determined using the last-in, first-out ("LIFO") method. At both January 27, 2001 and January 29, 2000, the LIFO value of inventories approximated their replacement cost. Net income would have been higher by approximately $534,000, $197,000 and $200,000 for fiscal 2001, the 30 weeks ended August 30, 1999 and the 15 weeks ended May 18, 1998, respectively, if inventory had been priced on a FIFO basis. Property and Equipment - ---------------------- Property and equipment are stated at cost. Estimated useful lives are generally 10 to 40 years for buildings and major improvements, ten years for equipment and the shorter of the term of the lease or expected life for leasehold improvements. Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of their respective assets. Goodwill - -------- Amounts paid in excess of the fair value of acquired net assets are amortized on a straight-line basis. The recoverability of goodwill is assessed by determining whether the goodwill balance can be recovered through projected cash flows and operating results over its remaining life. Impairment of the asset would be recognized when it is probable that such future undiscounted cash flows will be less than the carrying value of the asset. Goodwill is being amortized over 40 years. Leasehold Rights - ---------------- Favorable lease rights are amortized over the term of the lease using the straight-line method. 17 Other Assets - ------------ Other assets consist of long-term deposits and a non-compete agreement. The cost of the non-compete agreement is amortized straight line over the term of the non-compete agreement, which is 20 years. Fair Value of Financial Instruments - ----------------------------------- At January 27, 2001 and January 29, 2000, the carrying amount of financial instruments included in current assets and current liabilities approximates fair value due to the short maturity of those instruments. The fair value of the due to affiliates balance is not practical to estimate due to the nature of this obligation. The fair value for the Company's fixed rate Senior Notes (see Note 4) is based on quoted market prices. The fair value of the Company's outstanding Senior Notes on January 27, 2001 was approximately $178.4 million compared to $181.7 million at January 29, 2000. The fair value of Notes Receivable from Dart (see Note 8) approximates the carrying value. Reclassifications - ----------------- Certain reclassifications have been made to prior years' financial statements to conform to the 2001 presentation. These reclassifications did not affect results of operations as previously reported. NOTE 2 - ACQUISITIONS SUPERVALU Acquisition - --------------------- On August 31, 1999, Richfood Holdings, Inc. ("Richfood") was acquired by a wholly owned subsidiary of SUPERVALU INC., a Delaware corporation ("SUPERVALU"), and the Company became an indirect, wholly-owned subsidiary of SUPERVALU at that time. SUPERVALU has accounted for the acquisition using the purchase method of accounting and, accordingly, a new accounting basis was established as of August 30, 1999 and was used for the remaining twenty-two weeks of fiscal 2000. The assets and liabilities of Shoppers were restated to reflect their estimated fair market values as of that date. The excess of the purchase price paid for the Company over its net assets acquired (goodwill) of $308,215 has been pushed down to the Company. The goodwill is being amortized on a straight-line basis over 40 years. Certain financial statement and related footnote amounts for periods prior to the SUPERVALU acquisition may not be comparable to corresponding amounts subsequent to the acquisition. Pro forma amounts have not been disclosed for the year ended January 29, 2000 in this report due to the immaterial difference between such amounts and the amounts in the consolidated financial statements presented. NOTE 3 - PROPERTY AND EQUIPMENT At January 27, 2001, and January 29, 2000, property and equipment consisted of the following: 2001 2000 ----------- ----------- Land $ 800 $ 800 Buildings and leasehold improvements 33,652 12,302 Equipment and fixtures 62,851 49,544 Construction in progress 1,977 4,164 Less: Accumulated depreciation (10,880) (2,793) ----------- ----------- Net property and equipment $ 88,400 $ 64,017 =========== =========== Property and equipment includes $22.8 million of assets under a capital lease, less the related accumulated amortization of $2.7 million at January 27, 2001. Depreciation and amortization expense related to property and equipment, including assets under capital lease, was approximately $8.1 million, $3.5 million, $4.1 million, $3.7 million, $2.1 18 million and $5.0 million during fiscal 2001, the 22 weeks of fiscal 2000, the 30 weeks of fiscal 2000, the 37 weeks of fiscal 1999 and the 15 weeks of fiscal 1999, respectively. NOTE 4 - LONG-TERM DEBT Senior Notes - ------------ In June 1997, the Company issued $200.0 million aggregate principal amount of 9 3/4% Senior Notes due 2004 (the "Senior Notes"). The net proceeds from the Senior Notes were $193.5 million (after fees and expenses of approximately $6.5 million).. Interest on the Senior Notes is accrued from the date of issuance and is payable semi-annually in arrears on each June 15 and December 15. The Senior Notes are effectively subordinated in right of payment to all secured indebtedness of the Company and contain certain restrictive covenants including, (i) limitation on restricted payments, (ii) limitation on indebtedness, (iii) limitation on investments, loans and advances, (iv) limitation on liens, (v) limitation on transactions with affiliates, (vi) restriction on mergers, consolidations and transfers of assets, (vii) limitation on lines of business, (viii) limitations on asset sales and (ix) limitation on issuance and sale of capital stock of subsidiaries. On May 18, 1998, in connection with the Dart Acquisition, the Senior Notes were adjusted on the Company's Balance Sheet to their fair value of $221.5 million. The $21.5 million of fair value in excess of face value of the Senior Notes is being amortized on a straight-line basis over the stated maturity period. In June 1998, Richfood purchased $6.5 million in face amount of the outstanding Senior Notes in an open market transaction for a total cash payment of approximately $7.2 million, including accrued interest. In October 1999, SUPERVALU repurchased $24.6 million in face amount of the outstanding Senior Notes in open market transactions with total cash payments of approximately $26.7 million, including accrued interest. There was no gain or loss on this repurchase because the purchase price approximated the carrying value. The Senior Notes are fully and unconditionally guaranteed by SFW Holding Corp. ("Holdings"), the immediate parent of the Company. Holdings holds 100% of the common stock of Shoppers and is a wholly-owned subsidiary of SUPERVALU. The guarantee is secured by a first priority security interest in the capital stock of the Company owned by Holdings. NOTE 5 - INCOME TAXES The provision for income taxes is comprised of the following (in thousands):
Post- Post- Pre- SUPERVALU SUPERVALU SUPERVALU Post-Dart Pre-Dart Acquisition Acquisition Acquisition Acquisition Acquisition --------------- ---------------- --------------- ------------ ------------ January 27, January 29, August 30, January 30, May 18, 2001 2000 1999 1999 1998 --------------- ---------------- --------------- ------------ ------------ (52 weeks) (22 weeks) (30 weeks) (37 weeks) (15 weeks) Current income tax provision: Federal $ 13,389 $ 2,888 $ 4,549 $ 8,562 $ 1,070 State 2,205 310 554 1,180 37 Deferred income tax provision (benefit): Federal (4,532) 202 339 (1,895) (222) State (911) 40 68 (342) 5 --------------- ---------------- --------------- ------------ ------------ Total $ 10,151 $ 3,440 $ 5,510 $ 7,505 $ 890 =============== ================ =============== ============ ============
19 This effective income tax rate is reconciled to the Federal statutory rate as follows:
Post- Post- Pre- SUPERVALU SUPERVALU SUPERVALU Post-Dart Pre-Dart Acquisition Acquisition Acquisition Acquisition Acquisition ---------------- ----------------- ----------------- -------------- -------------- January 27, January 29, August 30, January 30, May 18, 2001 2000 1999 1999 1998 ---------------- ----------------- ----------------- -------------- -------------- (52 weeks) (22 weeks) (30 weeks) (37 weeks) (15 weeks) Federal statutory rate 35.0% 35.0% 35.0% 35.0% 35.0% Increase in taxes resulting from: State income taxes, net of federal income tax benefit 4.4 4.0 4.0 4.1 1.3 Amortization of goodwill 14.3 19.0 16.0 16.9 6.4 ------------- -------------- -------------- ------------ ------------- Effective tax rate 53.7% 58.0% 55.0% 56.0% 42.7% ============= ============== ============== ============ =============
As a result of the Dart Acquisition and the SUPERVALU acquisition, certain differences have arisen between the book and tax basis of various assets and liabilities of the Company and are reflected in the table that follows. Temporary differences that give rise to the deferred tax assets and liabilities on a consolidated basis are as follows (in thousands):
Post- Post- SUPERVALU SUPERVALU Acquisition Acquisition ----------------- ----------------- January 27, 2001 January 29, 2000 ----------------- ----------------- (52 weeks) (52 weeks) Deferred tax assets: Accrued expenses $ - $ 182 Deferred rent - 566 Reserves for store closings and other 41 Capital lease 13,639 4,845 Employee benefits 2,913 3,078 Deferred income 259 307 Other 2,530 1,422 ------------- ------------- $ 19,382 $ 10,400 Deferred tax liabilities: Depreciation $ 2,912 $ 1,959 Lease rights 10,883 5,262 Inventory 722 1,003 Purchase accounting asset basis adjustments 9,328 9,328 Other 127 2,881 ------------- ------------- $ 23,972 $ 20,433 ------------- ------------- Net deferred tax liability $ (4,590) $ (10,033) ============= =============
20 NOTE 6 - LEASE COMMITMENTS The Company leases retail store space under noncancelable lease agreements ranging from 1 to 20 years. Renewal options are available on the majority of the leases for one or more periods of five years each. Most leases require the payment of taxes and maintenance costs, and some leases provide for additional rentals based on sales in excess of specified minimums. All store leases have stated periodic rental increases. The increases are amortized over the lives of the leases. Rent expense includes approximately $805,000, $334,000, $502,000, $712,000 and $294,000 of amortized rental increases for fiscal 2001, the 22 weeks of fiscal 2000, the 30 weeks of fiscal 2000, the 37 weeks of fiscal 1999 and the 15 weeks of fiscal 1999, respectively. The following is a schedule of annual future minimum payments under capital leases and noncancelable operating leases, which have initial or remaining terms in excess of one year at January 27, 2001 (in thousands):
Capital Operating Fiscal Year Lease Lease ---------------------------------------------------------------- ----------- ------------- 2002 $ 4,161 $ 16,868 2003 4,205 16,703 2004 4,251 16,672 2005 4,298 16,415 2006 & after 57,340 137,249 ---------- ------------ Total $ 74,255 $ 203,907 ============ Imputed interest 46,978 ---------- Present value of net minimum lease payments 27,277 Current maturities 658 ---------- Long-term capital lease obligation $ 26,619 ==========
Minimum capital lease and operating lease obligations have not been reduced by future minimum sublease rentals of approximately $2.2 million under noncancelable sublease agreements. Rent expense for operating leases charged to operations is as follows (in thousands):
Post- Pre- SUPERVALU SUPERVALU Post-Dart Pre-Dart Acquisition Acquisition Acquisition Acquisition January 27, January 29, August 30, January 30, May 18, 2001 2000 1999 1999 1998 --------------- ---------------- ------------- ------------ ------------- (52 weeks) (22 weeks) (30 weeks) (37 weeks) (15 weeks) Minimum rentals $ 16,881 $ 7,018 $ 9,570 $ 11,605 $ 4,513 Contingent rentals 5,034 2,209 2,653 3,860 1,390 --------------- ---------------- ------------ ------------ ------------- Total $ 22,013 $ 9,227 $ 12,223 $ 15,465 $ 5,903 =============== ================ ============ ============ =============
Subleasing Agreements - --------------------- The Company received rental income of approximately $811,000, $68,000, $93,000, $207,000 and $40,000 during fiscal 2001, the 22 weeks ended January 29, 2000, the 30 weeks ended August 30, 1999, the 37 weeks of fiscal 1999 and the 15 weeks of fiscal 1999, respectively, which is included in selling and administrative expenses. 21 NOTE 7 - EMPLOYEE BENEFIT PLANS 401(k) Plan - ----------- The Company has a defined contribution 401(k) plan (the "401K Plan"), which is available to substantially all employees over the age of 21 who have completed one year of continuous service. Discretionary contributions are made by the Company, in trust, for the exclusive benefit of employees who participate in the 401K Plan. The Board of Directors authorized contributions of $405,423, $284,615, $115,384 and $400,000 to the 401K Plan during fiscal 2000, 37 weeks of fiscal 1999, 15 weeks of fiscal 1999 and fiscal 1998, respectively. The Company has accrued $600,000 as of January 27, 2001 for fiscal 2001 contributions to be made to the 401K Plan. Amounts accrued for the contributions to be made to the 401K Plan are included in accrued salaries and benefits in the accompanying financial statements. Multi-employer Plans - -------------------- The Company made contributions to multi-employer plans for its union employees for pension, health and other benefits of $11.6 million, $5.5 million, $7.5 million, $8.5 million, $3.5 million and $12.1 million during fiscal 2001, the 22 weeks of fiscal 2000, the 30 weeks of fiscal 2000, the 37 weeks of fiscal 1999 and the 15 weeks of fiscal 1999, respectively. NOTE 8 - TRANSACTIONS WITH AFFILIATES Transactions with Richfood / SUPERVALU - -------------------------------------- The consolidated balance sheet includes $63.7 million and $52.0 million due to affiliates at January 27, 2001 and January 29, 2000, respectively. The amounts outstanding consist primarily of amounts due to SUPERVALU for the purchase of bonds, amounts due for incomes taxes, inventory purchases and general and administrative expenses. Inventory purchases from Richfood/SUPERVALU during fiscal 2001 totaled $447.3 million, and during the 22 weeks ended January 29, 2000 and the 30 weeks ended August 30, 1999, purchases from Richfood/SUPERVALU totaled $248.4 million and $301.0 million, respectively. Transactions with Dart - ---------------------- In fiscal 1999, Dart charged the Company, on a monthly basis, for actual expenses which related directly to the Company's operations (primarily insurance and legal expenses). Substantially all such charges were supported by invoices from unrelated parties designating the Company as recipient of the related goods or services. Such charges were approximately $0.1 million and $0.4 million during the 37 weeks of fiscal 1999 and the 15 weeks of fiscal 1999, respectively. Dart Notes Receivable - --------------------- In connection with the 1992 sale of the assets of Total Beverage Corp. by the Company to Dart, the Company received a note receivable from Dart of approximately $1.5 million. In May 1998, the Company realized $1.2 million representing full settlement of this note. As a result, the Company received approximately $0.7 million in excess of the recorded estimated realizable value of the note, which was recognized in the Company's consolidated statement of operations during the 15-week period ended May 18, 1998. On September 26, 1997, Shoppers loaned Dart $10.0 million from the Restricted Proceeds that Dart used to fund a portion of a settlement with certain members of the Haft family who were stockholders of Dart. The loan is in the form of a promissory note that bears interest at 9 3/4% per annum, compounded annually. Interest and principal are payable on June 15, 2004, however, Dart may make interest payments prior to that time. On January 28, 1998, Shoppers loaned Dart an additional $25.0 million that Dart used to fund a portion of a settlement with Herbert H. Haft, who was a stockholder of Dart. The loan is in the form of a promissory note that bears interest at 9 3/4% per annum, compounded 22 annually. Interest and principal are payable on June 15, 2004, however, Dart may make interest payments prior to that time. NOTE 9 - COMMITMENTS AND CONTINGENCIES The Company is party to various legal proceedings arising from the normal course of business activities, none of which, in management's opinion, is expected to have a material adverse impact on the Company's consolidated results of operations or consolidated financial position. As of January 29, 2001, approximately 4,500 employees of the Company are covered by a collective bargaining agreement with United Food and Commercial Workers, Local 400 that will expire on July 5, 2004. Another 300 employees are covered by a similar agreement, Local 27, which expires on September 30, 2001. The Company anticipates that both agreements will be renewed prior to their expiration dates. 23 Item 9. Changes in and Disagreements with Accountants on Accounting and - ------- --------------------------------------------------------------- Financial Disclosure -------------------- Not required to be included in this Form 10-K in accordance with the instructions to Item 304 of Regulation S-K. PART III Item 10. Directors, Executive Officers, Promoters and Control Persons of the - -------- ------------------------------------------------------------------- Registrant. ----------- Information omitted in accordance with General Instruction I(2)(c). Item 11. Executive Compensation. - ------- ---------------------- Information omitted in accordance with General Instruction I(2)(c). Item 12. Security Ownership of Certain Beneficial Owners and Management. - ------- -------------------------------------------------------------- Information omitted in accordance with General Instruction I(2)(c). Item 13. Certain Relationships and Related Transactions. - ------- ---------------------------------------------- Information omitted in accordance with General Instruction I(2)(c). Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K - -------- ---------------------------------------------------------------- (a)(1) Financial Statements See Item 8. (a)(2) Schedules All schedules are omitted because the required information is not applicable or it is presented in the consolidated financial statements or related notes or the required information is not material. (a)(3) Exhibits 4.1 Indenture, dated June 26, 1997, by and among Shoppers Food Warehouse Corp., SFW Holding Corp. and Norwest Bank Minnesota, National Association (incorporated by reference to Exhibit 4.1 to Shoppers Food Warehouse Corp. Form S-4, Registration No. 333- 32825, filed with the SEC August 5, 1997). 4.2 Form of Shoppers Food Warehouse Corp. Global Security, dated June 26, 1997 (incorporated by reference to Exhibit 4.1 to Shoppers Food Warehouse Corp. Form S-4, Registration No. 333- 32825, filed with the SEC on August 5, 1997). 10.1* Employment Agreement, dated August 18, 1997, between William White and Shoppers Food Warehouse Corp. (incorporated by reference 24 to Exhibit 10.2 to the Dart Group Corporation (No. 0-1946) Quarterly Report on Form 10-Q filed with the SEC on September 15, 1997). 10.2 Promissory Notes, dated September 26, 1997 and January 28, 1998, from Dart Group Corporation to Shoppers Food Warehouse Corp. (incorporated by reference to Exhibit 10.3 to Shoppers Food Warehouse Corp. Annual Report on Form 10-K filed with the SEC on May 1, 1998). *Exhibit 10.1 is a management contract required to be filed as an exhibit hereto. (b) Reports on Form 8-K 1. Report dated February 21, 2000 reporting under Item 4 - Changes in Registrant's Certifying Accountant. 2. Report dated December 15, 2000 reporting under Item 8 - Change in Fiscal Year. 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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: April [_], 2001 By: /s/ ------------------------ --------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: April [_], 2001 /s/ ------------------------ ----------------------------- Director and Chief Executive Officer Date: April [_], 2001 /s/ Pamela K. Knous ------------------------ --------------------------------- Pamela K. Knous Vice President and Chief Financial Officer (Principal Accounting Officer) Date: April [_], 2001 /s/ David L. Boehnen ------------------------ -------------------------------- David L. Boehnen Director Date: April [_], 2001 /s/ Jeffrey Noddle ------------------------ ------------------------------- Jeffrey Noddle Director 26 -----END PRIVACY-ENHANCED MESSAGE-----