-----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, R0piqjXDBMbr7K81FraTPJsjcTI4y38YtWMTrFQX6WD6NoWSOgmYUecJMqIiktMm vHIdkcbKB9KZnqYst2vRhA== 0000898430-99-003386.txt : 19990823 0000898430-99-003386.hdr.sgml : 19990823 ACCESSION NUMBER: 0000898430-99-003386 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990806 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990820 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STATER BROS HOLDINGS INC CENTRAL INDEX KEY: 0000882829 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 330350671 STATE OF INCORPORATION: DE FISCAL YEAR END: 0926 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-13222 FILM NUMBER: 99697122 BUSINESS ADDRESS: STREET 1: 21700 BARTON RD CITY: COLTON STATE: CA ZIP: 92324 BUSINESS PHONE: 9097835000 MAIL ADDRESS: STREET 1: 21700 BARTON ROAD CITY: COLTON STATE: CA ZIP: 92324 8-K 1 FORM 8-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report: August 6, 1999 Commission file number: 001-13222 STATER BROS. HOLDINGS INC. -------------------------- (Exact name of registrant as specified in its charter) Delaware 33-0350671 -------- ---------- (State of Incorporation) (Employer Identification Number) 21700 Barton Road, P. O. Box 150, Colton, California, 92324 ----------------------------------------------------------- (Address of principal executive offices) (Zip Code) (909) 783-5000 ---------------- Telephone number ================================================================================ 1 STATER BROS. HOLDINGS INC CURRENT REPORT ON FORM 8-K AUGUST 6, 1999 Item 2. Acquisition of Assets On August 6, 1999, Stater Bros. Holdings Inc. purchased from Albertson's, Inc., 43 supermarkets and one future supermarket site and related supermarket inventories. The 43 supermarkets and one future supermarket site (collectively, the "Acquired Supermarkets") are all located in the Southern California counties of Orange (14 supermarkets), Los Angeles (14 supermarkets), Riverside (5 supermarkets), and San Diego (10 supermarkets and one future store site). Stater Bros. Holdings Inc. will operate the Acquired Supermarkets as supermarkets under the Stater Bros. Markets name. The purchase price for the Acquired Supermarkets was approximately $147.0 million and consisted of net book value of property, plant and equipment ($94.9 million), plus the estimated cost of the inventories ($38.7 million) as adjusted to reflect physical inventory counts and valuations as of the date of each supermarket closing, plus the assumption of capital lease obligations ($13.4 million). Stater Bros. Holdings Inc. financed the acquisition of the Acquired Supermarkets through an offering of $450.0 million of 10.75% Senior Notes due 2006. In addition to financing the Acquired Supermarkets, net proceeds from the offering were also used to redeem substantially all of Stater Bros. Holdings Inc.'s outstanding 11% Senior Notes due 2001 ($165.0 million issued) and to redeem all of its outstanding 9% Senior Subordinated Notes due 2004 ($100.0 million issued) together with early redemption premiums, to pre-fund capital expenditures related to the Acquired Supermarkets and to pay fees and expenses associated with these transaction. Item 7. Financial Statements and Exhibits a) Financial Statements prepared pursuant to Rule 3-05 of Regulation S-X 1) Statements of Net Assets and Store Level Earnings and Independent Auditors' Report provided to Stater Bros. Holdings Inc. by Albertson's, Inc.: Independent Auditors' Report Statements of Net Assets Statements of Store Level Earnings Notes to Statements of Net Assets and Statements of Store Level Earnings for the Years Ended January 28, 1999, January 29, 1998 and January 30, 1997. 2) Statements of Net Assets and Statements of Store Level Earnings provided to Stater Bros. Holdings Inc. by American Stores Company: Report of Independent Auditors Statements of Net Assets Statements of Store Level Earnings Notes to Financial Statements 2 Item 7. Financial Statements and Exhibits (continued) b) Pro Forma financial information required pursuant to Article 11 of Regulation S-X (Unaudited): Introduction to Unaudited Pro Forma Condensed Consolidated Financial Statements Unaudited Pro Forma Condensed Consolidated Balance Sheet Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet Unaudited Pro Forma Condensed Consolidated Statements of Income Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income c) Exhibits in accordance with the provisions of Item 601 of Regulation S-K: 2.1 Asset Purchase Agreement, dated as of May 7, 1999, by and among Stater Bros. Holdings Inc. and Stater Bros. Markets, and Albertson's, Inc. ("Asset Purchase Agreement") is incorporated by reference to Form S-4, which was filed with the Commission on or about August 20, 1999. 3 INDEPENDENT AUDITORS' REPORT Board of Directors Albertson's, Inc. We have audited the accompanying statements of net assets of Albertson's Stores as of January 28, 1999 and January 29, 1998 and the related statements of store level earnings attributable to such net assets of Albertson's Stores for the fiscal years ended January 28, 1999, January 29, 1998 and January 30, 1997, pursuant to the Asset Purchase Agreement between Albertson's, Inc., Stater Bros. Markets and Stater Bros. Holdings Inc. (''Stater Bros.'') dated May 7, 1999 as described in Note 1 to the statements. These statements are the responsibility of Albertson's, Inc. management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statements of net assets and store level earnings are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statements of net assets and store level earnings. We believe that our audits provide a reasonable basis for our opinion. The accompanying statements were prepared to present the net assets relating to certain stores to be acquired of Albertson's Stores by Stater Bros. pursuant to the Asset Purchase Agreement described in Note 1, and the related statements of store level earnings related to such net assets, and are not intended to be a complete presentation of Albertson's, Inc.'s financial position and results of operations. In our opinion, the statements referred to above present fairly, in all material respects, the net assets of Albertson's Stores as of January 28, 1999 and January 29, 1998 and the store level earnings of Albertson's Stores for the fiscal years ended January 28, 1999, January 29, 1998 and January 30, 1997, pursuant to the Asset Purchase Agreement referred to in Note 1 to the statements, in conformity with generally accepted accounting principles. Deloitte & Touche LLP Boise, Idaho May 7, 1999 4 ALBERTSON'S STORES STATEMENTS OF NET ASSETS (in thousands)
Unaudited ---------------------- January 28, January 29, April 29, April 30, 1999 1998 1999 1998 ------------ ------------ ---------- ---------- A S S E T S ----------- Prepaid expenses......................................... $ 595 $ 621 $ 747 $ 723 Inventories.............................................. 36,793 34,670 36,236 34,666 Other assets............................................. 1,214 1,214 1,214 1,214 Land, buildings and equipment: Land................................................... 23,186 21,053 23,186 21,053 Buildings.............................................. 56,137 54,687 56,156 54,767 Equipment, fixtures and leasehold improvements......... 53,869 51,650 53,706 52,425 -------- -------- -------- -------- 133,192 127,390 133,048 128,245 Less accumulated depreciation and amortization......... (57,515) (50,046) (59,229) (52,012) -------- -------- -------- -------- 75,677 77,344 73,819 76,233 Property under capital leases, net of accumulated amortization of $4,362 and $3,886 in 1998 and 1997, respectively, and $4,481 and $4,005 at April 29, 1999 and April 30, 1998, respectively....................... 5,735 6,212 5,617 6,093 -------- -------- -------- -------- 81,412 83,556 79,436 82,326 L I A B I L I T I E S --------------------- Obligations under capital leases....................... 7,824 8,208 7,721 8,162 Accrued real estate liabilities........................ 5,345 5,412 5,239 5,182 -------- -------- -------- -------- 13,169 13,620 12,960 13,344 -------- -------- -------- -------- Net Assets............................................... $106,845 $106,441 $104,673 $105,585 ======== ======== ======== ========
See accompanying notes 5 ALBERTSON'S STORES STATEMENTS OF STORE LEVEL EARNINGS (in thousands)
Unaudited 52 Weeks Ended 13 Weeks Ended ------------------------------------- -------------------- January 28, January 29, January 30, April 29, April 30, 1999 1998 1997 1999 1998 ----------- ----------- ----------- --------- --------- Sales..................... $519,684 $507,088 $474,928 $130,612 $129,845 Cost of Sales............. 381,448 375,988 354,723 94,093 96,326 -------- -------- -------- -------- -------- Gross Profit.............. 138,236 131,100 120,205 36,519 33,519 Store operating expenses.. 122,972 115,832 105,685 30,292 29,902 -------- -------- -------- -------- -------- Store level earnings...... $ 15,264 $ 15,268 $ 14,520 $ 6,227 $ 3,617 ======== ======== ======== ======== ========
See accompanying notes 6 ALBERTSON'S STORES NOTES TO STATEMENTS OF NET ASSETS AND STATEMENTS OF STORE LEVEL EARNINGS YEARS ENDED JANUARY 28, 1999, JANUARY 29, 1998 AND JANUARY 30, 1997 1. BASIS OF PRESENTATION On May 7, 1999, Albertson's, Inc. entered into an agreement (''Asset Purchase Agreement'') with Stater Bros. Markets and Stater Bros. Holdings Inc. (''Stater Bros.'') to sell 33 Albertson's combination food and drug stores (''Albertson's Stores'' or the ''Company'') and one land site located in California. These financial statements relate solely to the 33 Albertson's Stores to be acquired by Stater Bros. and are not intended to represent the complete financial position and results of operations of Albertson's, Inc. There are no complete financial statements issued or prepared for issuance by store. The statements of store level earnings attributable to the net assets presented herein differ from a complete statement of earnings in that certain allocations of indirect charges, including, but not limited to, income tax expense, interest expense, legal expense and overhead costs incurred at the corporate and division levels have been excluded. Accordingly, the statements of store level earnings do not include any expenses, including depreciation, related to the corporate and division offices. The statements of store level earnings contain the results of those stores that are to be acquired pursuant to the Asset Purchase Agreement. Certain amounts, including, cost of sales and store operating expenses include allocated charges. The allocations of these costs are based on usage, wages and/or sales. The allocated costs included in the accompanying statements are not representative of the actual results that would have resulted had the stores to be acquired been operated as a stand alone entity. The statement of net assets differs from a complete balance sheet in that it contains only those assets and liabilities related to the Albertson's Stores to be acquired pursuant to the Asset Purchase Agreement. Certain net accrued real estate liabilities included in the statements of net assets will be prorated at the date of closing and will not be assumed by Stater Bros. The information contained in the statements has been prepared in accordance with generally accepted accounting principles. In the opinion of management, the accompanying unaudited financial statements include all adjustments necessary to present fairly, in all material respects, the net assets to be acquired of the Company and the related store level earnings attributable to such net assets for the periods presented. Such adjustments consisted only of normal recurring items. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Inventories -- The Company values inventories at the lower of cost or market. Cost of substantially all inventories is determined on a first-in, first-out (FIFO) basis. Capitalization, Depreciation and Amortization -- Land, buildings and equipment are recorded at cost. Depreciation is provided on the straight-line method over the estimated useful life of the asset. Estimated useful lives are generally as follows: Buildings and improvements........................ 10 to 25 years Fixtures and equipment............................ 3 to 8 years Leasehold improvements............................ 10 to 15 years Capitalized leases................................ 25 to 30 years Depreciation and amortization for the fiscal years ended January 28, 1999, January 29, 1998, January 30, 1997 was approximately $9,150,000, $8,572,000, and $7,519,000, respectively. 7 ALBERTSON'S STORES NOTES TO STATEMENTS OF NET ASSETS AND STATEMENTS OF STORE LEVEL EARNINGS--(continued) Capitalization, Depreciation and Amortization (continued) -- The costs of major remodeling and improvements on leased stores are capitalized as leasehold improvements. Leasehold improvements are amortized on the straight-line method over the shorter of the life of the applicable lease or the useful life of the asset. Capital leases are recorded at the lower of the fair market value of the asset or the present value of future minimum lease payments. These leases are amortized on the straight-line method over their primary term. Use of Estimates -- The preparation of the Company's financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. 3. LEASES The Company leases a portion of its real estate. The typical lease period is 25 to 30 years and most leases contain renewal options. Exercise of such options is dependent on the level of business conducted at the location. In addition, the Company leases certain equipment. Some leases contain contingent rental provisions based on sales volume at retail stores. Capitalized leases are calculated using interest rates appropriate at the inception of each lease. Contingent rents (net of rental offsets) associated with capitalized leases were $22,000 in 1998, $3,000 in 1997 and $6,000 in 1996. Future minimum lease payments for non-cancelable operating leases, related subleases and capital leases at January 28, 1999, were as follows (in thousands):
Operating Capital Leases Subleases Leases ------------ ------------ ------------ 1999................................................. $ 3,374 $ (143) $ 1,274 2000................................................. 3,503 (143) 1,274 2001................................................. 3,425 (125) 1,239 2002................................................. 3,324 (25) 1,061 2003................................................. 3,309 1,004 Remainder............................................ 32,770 8,902 ------- ------ ------- Total minimum obligations (receivables).............. $49,705 $ (436) $14,754 ======= ====== Interest............................................. (6,930) ------- Present value of net minimum obligations............. $ 7,824 =======
Rent expense under operating leases was as follows:
January 28, January 29, January 30, 1999 1998 1997 ----------- ---------- ----------- Minimum rent......................................... $ 3,082 $2,966 $ 2,556 Contingent rent...................................... 31 48 58 Sublease rent........................................ (143) (118) (18) ------- ------ ------- $ 2,970 $2,896 $ 2,596 ======= ====== =======
Interest expense under capital leases for the fiscal years ended January 28, 199 9, January 29, 1998 and January 30, 1997, was approximately $886,000, $929,000 and $966,000, respectively. 8 ALBERTSON'S STORES NOTES TO STATEMENTS OF NET ASSETS AND STATEMENTS OF STORE LEVEL EARNINGS - (continued) 4. ADVERTISING EXPENSES The Company expenses advertising costs when the advertisement occurs. Net advertising expense was approximately $5,288,000, $4,639,000, and $3,089,000 in 1998, 1997 and 1996, respectively, and has been reported in cost of sales in the accompanying statements of store level earnings. 5. DEPRECIATION, INTEREST AND ADVERTISING EXPENSE (Unaudited) Depreciation and amortization for the 13 weeks ending April 29, 1999 and April 30, 1998 was approximately $2,219,000 and $2,249,000, respectively. Interest expense related to capital leases for the 13 weeks ending April 29, 1999, and April 30, 1998, was approximately $214,000 and $226,000, respectively. Net advertising expense for the 13 weeks ending April 29, 1999 and April 30, 1998 was approximately $1,029,000 and $1,449,000, respectively. ****** 9 REPORT OF INDEPENDENT AUDITORS Board of Directors American Stores Company We have audited the accompanying statements of net assets of the Lucky Stores as of January 30, 1999 and January 31, 1998 and the statements of store level earnings for the fiscal years ended January 30, 1999, January 31, 1998 and February 1, 1997. These statements are the responsibility of the management of Lucky Stores. Our responsibility is to express an opinion on these statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statements of net assets and store level earnings are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statements of net assets and store level earnings. An audit also includes assessing the basis of accounting used and significant estimates made by management, as well as evaluating the overall presentation of the statements of net assets and store level earnings. We believe that our audits provide a reasonable basis for our opinion. As described in the notes to financial statements, the accompanying statements of net assets and store level earnings were prepared pursuant to the Asset Purchase Agreement between Albertson's, Inc., Stater Bros. Markets and Stater Bros. Holdings Inc. dated as of May 7, 1999, and are not intended to be complete presentations of the earnings or the assets and liabilities of the Lucky Stores to be acquired. In our opinion, the statements referred to above present fairly, in all material respects, the net assets of the Lucky Stores at January 30, 1999 and January 31, 1998 and the store level earnings for the fiscal years ended January 30, 1999, January 31, 1998 and February 1, 1997, pursuant to the Asset Purchase Agreement as described in the Notes to Financial Statements, in conformity with generally accepted accounting principles. Ernst & Young LLP Salt Lake City, Utah May 17, 1999 10 LUCKY STORES STATEMENTS OF NET ASSETS (in thousands)
Unaudited ---------------- January 30, January 31, May 1, May 2, 1999 1998 1999 1998 ----------- ----------- ------- ------- A S S E T S ----------- Prepaid expenses............................................ $ 226 $ 220 $ 239 $ 230 Inventories................................................. 7,737 6,910 7,900 7,184 Other assets................................................ 892 920 884 294 Property, Plant and Equipment: Land...................................................... 2,598 2,598 2,598 2,598 Buildings................................................. 7,088 7,285 7,235 7,029 Equipment, fixtures and leasehold improvements............ 27,651 22,787 27,771 23,218 ------- ------- ------- ------- 37,337 32,670 37,604 32,845 Less accumulated depreciation and amortization............ 18,046 15,755 18,663 16,317 ------- ------- ------- ------- Property under capital leases, net of accumulated amortization of $4,324 and $4,884 in 1998 and 1997, respectively, and $4,415 and $4,987 in 1/st/ Qtr. 1999 and 1/st/ Qtr. 1998, respectively............................ 5,024 5,419 4,933 5,315 ------- ------- ------- ------- 33,170 30,384 32,897 29,551 L I A B I L I T I E S --------------------- Obligations under capital leases.......................... 5,775 6,030 5,708 5,968 Accrued real estate liabilities........................... 304 266 331 278 ------- ------- ------- ------- Net Assets.................................................. $27,091 $24,088 $26,858 $23,305 ======= ======= ======= =======
See accompanying notes 11 LUCKY STORES STATEMENTS OF STORE LEVEL EARNINGS (in thousands)
Unaudited 52 Weeks Ended 13 Weeks Ended --------------------------------------- ---------------- January 30, January 31, February 1, May 1, May 2, 1999 1998 1997 1999 1998 ---------- ------------ ----------- -------- -------- Sales..................... $149,562 $144,510 $150,714 $36,579 $37,904 Cost of merchandise sold.. 110,340 108,073 111,313 26,964 28,668 -------- -------- -------- ------- ------- Gross Profit.............. 39,222 36,437 39,401 9,615 9,236 Store operating expense... 33,003 31,413 30,347 8,037 7,791 -------- -------- -------- ------- ------- Store level earnings...... $ 6,219 $ 5,024 $ 9,054 $ 1,578 $ 1,445 ======== ======== ======== ======= =======
See accompanying notes 12 LUCKY STORES NOTES TO FINANCIAL STATEMENTS Basis of Presentation On May 7, 1999, Lucky Stores, Inc., American Stores Properties, Inc. and American Food and Drug entered into an agreement (''Asset Purchase Agreement'') with Stater Bros. Holdings Inc. to sell ten stores located in California (these stores are hereinafter referred to as the Lucky Stores). Lucky Stores, Inc., American Stores Properties, Inc. and American Food and Drug are indirect wholly- owned subsidiaries of American Stores Company. The ten stores do not represent a separate legal entity, but represent the assets and operations to be acquired as defined by the Asset Purchase Agreement. Some of the Lucky Stores leased certain buildings and land from certain related entities under operating lease agreements. For purposes of these statements, cost, accumulated depreciation and depreciation expense related to these properties, as recorded by the related entities, have been recorded as if the property was owned by the store. The accompanying financial statements relate solely to the 10 Lucky Stores to be acquired by Stater Bros. Holdings Inc. and are not intended to represent the complete financial position and results of operations of the Lucky Stores. There are no complete financial statements issued or prepared for issuance by store. Amounts in cost of merchandise sold and store operating expense include some allocated charges. However, certain allocations of indirect charges, including, but not limited to, income tax expense, interest expense and overhead costs incurred at the corporate, region and district levels have been excluded. Also, the statements of store level earnings do not include any expenses, including depreciation, related to the region and district offices. The statements of store level earnings contains the results of those stores that are to be acquired. The allocations of these costs are based on usage, wages and/or sales. The allocated costs included in the accompanying statements are not necessarily representative of the actual results that would have resulted had the stores to be acquired been operated as a stand alone entity. The statements of net assets differs from a complete balance sheet in that it contains only those assets and liabilities related to the Lucky Stores to be acquired pursuant to the Asset Purchase Agreement. Certain net accrued real estate liabilities included in the statements of net assets will be prorated at the date of closing and will not be assumed by Stater Bros. The information contained in the statements has been prepared in accordance with generally accepted accounting principles. Summary of Significant Accounting Policies Inventories Inventories are stated at the lower of cost or market. The FIFO (first-in- first-out) or average cost methods are used to determine the cost of the inventories. Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation and amortization charged to earnings for financial statement purposes, including amortization of property under capital leases, are computed using the straight- line method applied to individual property items. The depreciable lives are primarily 20 to 25 years for buildings, 3 to 10 years for equipment and fixtures and generally 20 to 25 years for leasehold improvements and property under capital lease, depending on the lease terms. Depreciation and amortization for the fiscal years ended January 30, 1999, January 31, 1998 and February 1, 1997 was $2,733,560, $2,384,051 and $2,505,867, respectively. Depreciation and amortization for the thirteen-week unaudited periods ended May 1, 1999 and May 2, 1998 was $683,558 and $638,043, respectively. 13 LUCKY STORES NOTES TO FINANCIAL STATEMENTS--(continued) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Advertising Expense The Company expenses advertising costs when the advertisement occurs. Total advertising expense amounted to $2,327,911, $2,450,346 and $2,215,329 in 1998, 1997 and 1996, respectively. Advertising expense for the thirteen-week unaudited periods ended May 1, 1999 and May 2, 1998 was $685,383 and $733,135, respectively. Leases Certain of the retail stores are leased from unrelated third parties. Remaining initial lease terms range from 2 to 23 years plus renewal options that may provide for additional rentals based on sales volume in excess of specified levels. The summary below shows the aggregate future minimum lease commitments as of January 30, 1999.
Operating Capital Leases Leases ----------- ----------- 1999................................... $ 1,475,260 $ 790,212 2000................................... 1,496,984 768,488 2001................................... 1,508,765 725,040 2002................................... 1,445,432 725,040 2003................................... 1,390,688 725,040 Remainder.............................. 16,298,940 6,343,420 ----------- ----------- Total minimum obligations (receivables)......................... $23,616,069 $10,077,240 =========== Amount representing interest........... (4,113,994) Amount representing executory costs.... (188,185) ----------- Present value of net minimum obligations........................... $ 5,775,061 ===========
Rental expense was $1,467,165 for fiscal 1998, $1,000,376 for fiscal 1997 and $681,133 for fiscal 1996, which includes contingent rents of $103,057 for fiscal 1998, $135,780 for fiscal 1997 and $153,951 for fiscal 1996. Rental expense for the thirteen-week unaudited periods ended May 1, 1999 and May 2, 1998 was $387,547 and $324,845, respectively, which includes contingent rents of $26,139 for the period ended May 1, 1999 and $30,568 for the period ended May 2, 1998. Interest expense under capital leases amounted to $522,994, $544,899 and $563,317 in 1998, 1997 and 1996, respectively. Interest expense under capital leases for the thirteen-week unaudited periods ended May 1, 1999 and May 2, 1998 amounted to $127,087 and $132,880, respectively. Corporate, Region and District Overhead Allocations (Unaudited) Various administrative and operational services are provided to the Lucky Stores which includes, but is not limited to, operational supervision, data processing, legal assistance, employee benefit administration, human resources, treasury, accounting, audit, tax and real estate functions. The costs are allocated based on usage, wages and/or sales. The costs are not necessarily indicative of costs that would be incurred on a stand alone basis. The allocations to the Lucky Stores for fiscal 1998, 1997 and 1996 were $2,440,102, $1,594,376 and $1,904,070, respectively. The allocations for the unaudited thirteen-week periods ended May 1, 1999 and May 2, 1998 were $542,826 and $584,227, respectively. As discussed in the Basis of Presentation footnote above, none of these costs are included in the accompanying statements of store level earnings. 14 STATER BROS. HOLDINGS INC. CURRENT REPORT ON FORM 8-K INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AUGUST 6, 1999 The following Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 27, 1999 and Unaudited Pro Forma Condensed Consolidated Statements of Income for the 52 weeks ended September 27, 1998 and for the 39 weeks ended June 27, 1999, give effect to the acquisition by Stater Bros. Holdings Inc. of 43 supermarkets and one future store site (the "Acquired Supermarkets") from Albertson's, Inc. Pro Forma adjustments related to the Unaudited Pro Forma Condensed Consolidated Balance Sheet have been computed assuming the transaction was completed on June 27, 1999, while the pro forma adjustments to the Unaudited Pro Forma Condensed Consolidated Statements of Income for the 52 weeks ended September 27, 1998 and for the 39 weeks ended June 27, 1999 assumes the transaction was consummated at the beginning of each period presented. The actual acquisition of the supermarkets are expected to occur over the four week period beginning with August 8, 1999 as follows; week beginning August 8, 1999 - 8 supermarkets, week beginning August 15, 1999 - 15 supermarkets, week beginning August 22, 1999 - 15 supermarkets, week beginning August 29, 1999 - 5 supermarkets. The pro forma information is based on the historical consolidated financial statements of Stater Bros. Holdings Inc. and the historical financial information of 33 Albertson's Stores which have previously been included in the consolidated financial statements of Albertson's, Inc. and the historical financial information of 10 Lucky Stores which have previously been included in the consolidated financial statement of American Stores Company. The transaction has been accounted for using the purchase method of accounting. The pro forma condensed financial statements have been prepared on the basis of estimates of the final purchase price as determined in accordance with the Asset Purchase Agreement. The actual assigned values for the acquired assets may be adjusted in the future. The pro forma information does not purport to be indicative of the results of operations or the financial position which would have actually been obtained if the transaction had been consummated on the dates indicated. In addition, the pro forma financial information does not purport to be indicative of results of operations or financial position which may be attained in the future. The pro forma financial information should be read in conjunction with the historical financial statements of Stater Bros. Holdings Inc. contained in its Annual Report on Form 10-K for the fiscal year ended September 27, 1998, which was filed with the Securities and Exchange Commission. 15 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET As of June 27, 1999 (In thousands)
Historical ---------------------------------------------------- Stater Bros. Albertson's(a) Lucky(a) Combined ------------ -------------- --------- -------- A S S E T S : Current assets Cash and cash equivalents..................... $ 55,427 $ - $ $ 55,427 Receivables................................... 21,636 - - 21,636 Inventories................................... 113,048 36,236 7,900 157,184 Prepaid expenses.............................. 6,588 747 239 7,574 Deferred income taxes......................... 4,589 - - 4,589 Properties held for sale...................... 1,251 - - 1,251 Other current assets.......................... - 1,214 884 2,098 --------- -------- -------- --------- Total current assets...................... 202,539 38,197 9,023 249,759 Investment in unconsolidated affiliate......... 9,396 - - 9,396 Property and equipment Land.......................................... 17,287 23,186 2,598 43,071 Buildings and improvements.................... 99,378 56,156 7,235 162,769 Store fixtures and equipment.................. 126,723 53,706 27,771 208,200 Property subject to capital leases, net....... 14,368 5,617 4,933 24,918 --------- -------- -------- --------- 257,756 138,665 42,537 438,958 Less accumulated depreciation and amortization.............................. (116,901) (59,229) (18,663) (194,793) --------- -------- -------- --------- Net property and equipment..................... 140,855 79,436 23,874 244,165 Deferred income taxes.......................... 2,449 - - 2,449 Deferred debt issuance costs, net.............. 10,185 - - 10,185 Lease guarantee escrow......................... 10,957 - - 10,957 Other assets................................... 5,871 - - 5,871 --------- -------- -------- --------- Total assets................................... $ 382,252 $117,633 $ 32,897 $ 532,782 ========= ======== ======== ========= L I A B I L I T I E S A N D S T O C K H O L D E R S' ( D E F I C I T ) : - ----------------------------------------------- Current liabilities Accounts payable.............................. $ 65,728 $ - $ - $ 65,728 Accrued payroll and related expenses.......... 27,804 - - 27,804 Other accrued liabilities..................... 31,989 5,239 331 37,559 --------- -------- -------- --------- Total current liabilities................. 125,521 5,239 331 131,091 Net purchase obligation........................ - 104,673 26,858 131,531 Long-term debt, including current portion...... 265,000 - - 265,000 Capital lease obligations, including current portion........................................ 4,688 7,721 5,708 18,117 Long-term portion of self-insurance and other reserves................................ 8,284 - - 8,284 Other long-term liabilities.................... 3,580 - - 3,580 Stockholders' (deficit) Class A Common Stock.......................... 1 - - 1 Additional paid-in capital.................... 12,715 - - 12,715 Retained earnings (deficit)................... (37,537) - - (37,537) --------- -------- -------- --------- Total stockholders' (deficit)................. (24,821) - - (24,821) --------- -------- -------- --------- Total liabilities and stockholders' (deficit).. $ 382,252 $117,633 $ 32,897 $ 532,782 ========= ======== ======== ========= Pro Forma Stater Bros. Adjustments Pro Forma ----------- --------- A S S E T S : Current assets Cash and cash equivalents..................... $ (4,479)(b) $ 50,948 Receivables................................... 11,874 (c) 33,510 Inventories................................... 8,306 (d) 165,490 Prepaid expenses.............................. (986)(e) 6,588 Deferred income taxes......................... - 4,589 Properties held for sale...................... - 1,251 Other current assets.......................... (2,098)(e) - ----------- --------- Total current assets...................... 12,617 262,376 Investment in unconsolidated affiliate......... - 9,396 Property and equipment Land.......................................... 2,643 (f) 45,714 Buildings and improvements.................... 5,546 (f) 168,315 Store fixtures and equipment.................. (53,004)(f) 155,196 Property subject to capital leases, net....... 1,966 (f) 26,884 ----------- --------- (42,849) 396,109 Less accumulated depreciation and amortization.............................. 77,892 (g) (116,901) ----------- --------- Net property and equipment..................... 35,043 279,208 Deferred income taxes.......................... - 2,449 Deferred debt issuance costs, net.............. 6,215 (h) 16,400 Lease guarantee escrow......................... - 10,957 Other assets................................... 1,069 (i) 6,940 ----------- --------- Total assets................................... $ 54,944 $ 587,726 =========== ========= L I A B I L I T I E S A N D S T O C K H O L D E R S' ( D E F I C I T ) : - ----------------------------------------------- Current liabilities Accounts payable.............................. 18,984 (j) $ 84,712 Accrued payroll and related expenses.......... - 27,804 Other accrued liabilities..................... (5,570)(e) 31,989 ----------- --------- Total current liabilities................. 13,414 144,505 Net purchase obligation........................ (131,531)(k) - Long-term debt, including current portion...... 190,148 (l) 455,148 Capital lease obligations, including current portion....................................... - 18,117 Long-term portion of self-insurance and other reserves................................ - 8,284 Other long-term liabilities.................... - 3,580 Stockholders' (deficit) Class A Common Stock.......................... - 1 Additional paid-in capital.................... - 12,715 Retained earnings (deficit)................... (17,087)(m) (54,624) ----------- --------- Total stockholders' (deficit)................. (17,087) (41,908) ----------- --------- Total liabilities and stockholders' (deficit).. $ 54,944 $ 587,726 =========== =========
footnotes on following page 16 STATER BROS. HOLDINGS INC. NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET _____________ a) Reflects the financial position of Albertson's Stores and Lucky Stores as of April 29, 1999 and May 1, 1999, respectively. b) The net adjustments to cash and cash equivalents are anticipated to be as follows: Increases: (In thousands) Notes......................................... $ 450,000 --------- Total increases.......................... $ 450,000 Decreases: Repurchase of 11% Senior Notes and 9% Senior Subordinated Notes............................ (259,852) Acquisition consideration(1).................. (133,613) Capital expenditures(2)....................... (24,198) Tender premiums(3)............................ (18,777) Estimated fees and expenses................... (16,400) Other, net(4)................................. (1,639) --------- Total decreases.......................... (454,479) --------- Net adjustment to cash and cash equivalents... $ (4,479) ========= _____________ (1) Reflects the purchase of property, plant and equipment ($94.9 million) and the estimated value of inventories at closing ($38.7 million). (2) Reflects capital expenditures related to the Acquisition which are expected to be incurred after June 27, 1999. (3) As of July 30, 1999, Stater Bros. had received the consents and tenders from holders of approximately $159.9 million and holders of $100.0 million of the outstanding principal amount of the 11% Senior Notes and the 9% Senior Subordinated Notes, respectively. The 11% Senior Notes and the 9% Senior Subordinate Notes mature on March 1, 2001 and July 1, 2004, respectively. Stater Bros. may choose to defease any outstanding 11% Senior Notes that are not purchased pursuant to the tender offer, in accordance with the applicable indenture. (4) Reflects estimated post-closing adjustments related to the Acquisition. c) Reflects the income tax receivable associated with the write-off of deferred financing fees and the tender premiums related to the tender offer. d) Reflects an estimated increase associated with certain warehouse inventories ($17.8 million) offset in part by the anticipated write-down of Albertson's and Lucky's private label and other inventories ($9.5 million). e) Reflects the elimination of certain net accrued real estate liabilities which are obligations of the previous owner of the acquired stores. f) Reflects purchase accounting adjustments associated with the Acquisition. g) Reflects the elimination of the accumulated depreciation and amortization associated with the fixed assets of the acquired stores. h) Reflects the write-down of deferred financing fees ($10.2 million) associated with the redeemed notes and the addition of issuance costs associated with the new notes ($16.4 million). i) Reflects the assumed value of liquor licenses acquired in the Acquisition. j) Reflects the increase in trade payables associated with the acquisition of inventories. k) Reflects the elimination of the net book value of the assets acquired. l) Reflects the retirement of a substantial portion of the 11% Senior Notes and the retirement of the 9% Senior Subordinated Notes ($259.9 million) and the addition of the new notes ($450.0 million). m) Reflects the write-off (net of taxes) of deferred financing fees ($6.0 million) and the tender premiums related to the tender offer ($11.1 million). 17 STATER BROS. HOLDINGS INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME 52 WEEKS ENDED SEPTEMBER 27, 1998 (In thousands, except per share and share amounts)
Historical Pro Forma Stater Bros. ------------------------------------------------------- Stater Bros. Albertson's(a) Lucky(a) Combined Adjustments Pro Forma ------------- -------------- ----------- ----------- ------------ ---------- Sales.................................. $1,726,107 $519,684 $149,562 $2,395,353 $ $2,395,353 Cost of sales.......................... 1,323,522 381,448 110,340 1,815,310 2,729 (b) 1,818,039 ---------- -------- -------- ---------- ------------ ---------- Gross profit........................... 402,585 138,236 39,222 580,043 (2,729) 577,314 Operating expenses: Selling, general and administrative expenses........................... 353,075 112,936 29,746 495,757 4,401 (c) 500,158 Depreciation and amortization.......... 15,434 9,150 2,734 27,318 1,073 (d) 28,391 ---------- -------- -------- ---------- ------------ ---------- Operating profit....................... 34,076 16,150 6,742 56,968 (8,203) 48,765 Interest income........................ 3,059 3,059 (647) (e) 2,412 Interest expense....................... (30,206) (886) (523) (31,615) (21,326) (f) (52,941) Equity in earnings (loss) from unconsolidated affiliate........... (2,941) - - (2,941) - (2,941) Other, net............................. 2 - - 2 - 2 ---------- -------- -------- ---------- ------------ ---------- Earnings (loss) before income taxes.... 3,990 $ 15,264 $ 6,219 25,473 (30,176) (4,703) ======== ======== Income taxes (benefit)................. 1,459 1,459 (3,387) (g) (1,928) ---------- ---------- ------------ ---------- Net earnings........................... $ 2,531 $ 24,014 (26,789) (h) $ (2,775) ========== ========== ============ ========== Earnings (loss) per common share....... $ 50.62 $ (55.50) ========== ========== Average number of shares outstanding... 50,000 50,000 ========== ==========
footnotes on following page 18 STATER BROS. HOLDINGS INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME 39 WEEKS ENDED JUNE 27, 1999 (In thousands, except per share and share amounts)
Historical Pro Forma Stater Bros. ------------------------------------------------------- Stater Bros. Albertson's(a) Lucky(a) Combined Adjustments Pro Forma ------------- -------------- ----------- ----------- ------------- ----------- Sales.................................. $1,324,358 $389,189 $110,445 $1,823,992 $ $1,823,992 Cost of sales.......................... 1,011,542 281,424 80,593 1,373,559 2,047 (b) 1,375,606 ---------- -------- -------- ---------- ----------- ---------- Gross profit........................... 312,816 107,765 29,852 450,433 (2,047) 448,386 Operating expenses: Selling, general and administrative expenses........................... 265,907 83,423 22,217 371,547 3,301 (c) 374,848 Depreciation and amortization.......... 11,813 6,821 2,087 20,721 805 (d) 21,526 ---------- -------- -------- ---------- ----------- ---------- Operating profit....................... 35,096 17,521 5,548 58,165 (6,153) 52,012 Interest income........................ 2,388 2,388 (485)(e) 1,903 Interest expense....................... (22,699) (651) (386) (23,736) (15,995)(f) (39,731) Equity in earnings (loss) from unconsolidated affiliate........... 924 - - 924 - 924 Other, net............................. (319) - - (319) - (319) ---------- -------- -------- ---------- ----------- ---------- Earnings (loss) before income taxes.... 15,390 $ 16,870 $ 5,162 37,422 (22,633) 14,789 ======== ======== Income taxes (benefit)................. 6,156 6,156 (93)(g) 6,063 ---------- ---------- ----------- ---------- Net earnings........................... $ 9,234 $ 31,266 $(22,540)(h) $ 8,726 ========== ========== =========== ========== Earnings (loss) per common share....... $184.68 $174.52 ========== ========== Average number of shares outstanding... 50,000 50,000 ========== ==========
footnotes on following page 19 STATER BROS. HOLDINGS INC. NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME _________________ a) Reflects, for the 52 weeks ended September 27, 1998 for Stater Bros. Holdings Inc., 52 weeks ended January 28, 1999 for the Albertson's Stores and 52 weeks ended January 30, 1999 for the Lucky Stores. Reflects, for the 39 weeks ended June 27, 1999 for Stater Bros. Holdings Inc., 39 weeks ended April 29, 1999 for the Albertson's Stores and 39 weeks ended May 1, 1999 for the Lucky Stores. b) Reflects the estimated additional warehousing and distribution costs associated with processing the product requirements of the acquired stores through Stater Bros.' warehouses and distribution facilities. c) Reflects estimated additional selling, general and administrative expenses required to support the acquired stores. d) Reflects an increase in depreciation and amortization. e) Reflects a reduction in interest income resulting from the use of cash and cash equivalents in connection with the transaction. f) Reflects additional interest expense and amortization of debt issue costs from debt incurred to finance the transaction. g) Reflects the adjustment necessary to state the pro forma income taxes at an assumed rate of 41%. h) Excludes extraordinary loss from early extinquishment of debt of $17.1 million, net of income tax benefit of $11.9 million. 20 STATER BROS. HOLDINGS INC. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 16, 1999 /s/ Dennis N. Beal --------------- ______________________________ Dennis N. Beal Senior Vice President, Finance and Chief Financial Officer 21 -----END PRIVACY-ENHANCED MESSAGE-----