-----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, EUm6J27+f2U7DvXXtNyyhgGmyIHESBS3PhhnfBmhF9N/Sz5AQGSDj5JvePLpEQ32 Ry/77NxywAoJ3ylt+D75qw== 0000910647-96-000153.txt : 19960917 0000910647-96-000153.hdr.sgml : 19960917 ACCESSION NUMBER: 0000910647-96-000153 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960803 FILED AS OF DATE: 19960916 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STAR MARKETS CO INC CENTRAL INDEX KEY: 0000933160 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 043243710 STATE OF INCORPORATION: MA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25262 FILM NUMBER: 96630891 BUSINESS ADDRESS: STREET 1: 625 MT ALBURN ST CITY: CAMBRIDGE STATE: MA ZIP: 02138 BUSINESS PHONE: 6176612200 MAIL ADDRESS: STREET 1: 625 MOUNT AUBURN STREET CITY: CAMBRIDGE STATE: MA ZIP: 02138 10-Q 1 BODY OF FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended August 3, 1996 Commission File Number: 33-86690 STAR MARKETS COMPANY, INC. (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-3243710 ( State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 625 MT. AUBURN STREET, CAMBRIDGE, MA 02138 (Address of principal executive offices) (Zip Code) (617) 528-2550 (Registrant's telephone number, including area code) NONE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Number of shares of the issuer's common stock, outstanding as of September 5, 1996: 5,000 shares. STAR MARKETS COMPANY, INC. INDEX PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited). The following statements of Star Markets Company, Inc. are included herein: Balance sheets - August 3, 1996 and February 3, 1996 Statements of operations - 13 weeks ended August 3, 1996 and July 29, 1995; 26 weeks ended August 3, 1996 and July 29, 1995 Statements of cash flows - 26 weeks ended August 3, 1996 and July 29, 1995 Notes to financial statements - August 3, 1996 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. Signatures PART I - FINANCIAL INFORMATION Item 1. Financial Statements. STAR MARKETS COMPANY, INC. BALANCE SHEETS (Unaudited) (Amounts in thousands, except share data)
August 3, February 3, 1996 1996 - ---------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 751 $ 0 Accounts receivable, net of reserve for doubtful accounts of $2,058 in August and $1,779 in February 13,884 13,544 Inventory 62,215 62,915 Prepaid expenses 5,993 5,044 Deferred taxes 14,442 9,946 ---------------------- Total current assets 97,285 91,449 Property and equipment at cost: Land 31,015 32,402 Building 66,595 68,876 Equipment & fixtures 81,296 71,148 Leasehold improvements 36,047 28,670 ---------------------- Total property & equipment 214,953 201,096 Less accumulated depreciation and amortization 26,956 19,423 ---------------------- Net property and equipment 187,997 181,673 Other assets, net 34,012 25,885 Goodwill, net 134,957 136,442 ---------------------- Total Assets $454,251 $435,449 ====================== Liabilities and Shareholder's Equity Current liabilities: Accounts payable $ 45,168 $ 39,770 Accrued payroll & benefits 10,793 12,509 Current portion self-insurance 9,216 7,967 Accrued interest 4,233 5,133 Other current liabilities 8,469 10,170 ---------------------- Total current liabilities 77,879 75,549 Deferred taxes 14,442 9,946 Self-insurance and other liabilities 26,549 23,219 Long-term debt 260,425 257,400 Redeemable preferred stock, redemption value $11,000 10,182 10,134 Shareholder's equity: Common stock, $.01 par value, 10,000 shares authorized and 5,000 shares outstanding 0 0 Additional paid-in-capital 85,309 73,692 Retained earnings (deficit) (20,535) (14,491) ---------------------- Total shareholder's equity 64,774 59,201 ---------------------- Total Liabilities and Shareholder's Equity $454,251 $435,449 ======================
See accompanying notes. STAR MARKETS COMPANY, INC. STATEMENTS OF OPERATIONS (Unaudited) (Amounts in thousands)
13 Weeks 13 Weeks 26 Weeks 26 Weeks Ended Ended Ended Ended August 3, July 29, August 3, July 29, 1996 1995 1996 1995 - ------------------------------------------------------------------------------------ Total revenues $231,024 $204,015 $448,079 $402,205 Cost of goods sold 173,723 157,599 336,055 312,685 ----------------------------------------------------- Gross profit 57,301 46,416 112,024 89,520 Operating and administrative expenses 47,932 37,581 93,164 73,434 Depreciation and amortization 5,402 4,538 10,508 9,236 ----------------------------------------------------- Operating profit 3,967 4,297 8,352 6,850 Interest expense 7,267 6,883 14,201 13,579 Other (expenses) income, net (10) (12) (64) 0 ----------------------------------------------------- Loss before income taxes (3,310) (2,598) (5,913) (6,729) Income taxes 63 62 131 124 ----------------------------------------------------- Net loss $ (3,373) $ (2,660) $ (6,044) $ (6,853) =====================================================
See accompanying notes. STAR MARKETS COMPANY, INC. STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands)
26 Weeks Ended 26 Weeks Ended August 3, July 29, 1996 1995 - -------------------------------------------------------------------------------- Operating activities Net loss $ (6,044) $ (6,853) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization of deferred financing costs 772 764 Depreciation and amortization 10,508 9,236 Loss on sale or disposal of property and equipment 64 5 Changes in operating assets and liabilities: Accounts receivable (340) 476 Inventories 700 5,232 Prepaid expenses (949) 526 Accounts payable 5,398 1,587 Accrued payroll and benefits (1,716) (2,608) Self-insurance reserves 1,249 (963) Accrued interest (900) 952 Other current liabilities (2,392) 2,692 Other 203 (1,386) ------------------------- Net cash provided by operating activities 6,553 9,660 Investing activities Purchases of property and equipment (19,011) (27,084) Proceeds from sale of property and equipment 4,302 3,931 Decrease in restricted cash 6,028 Purchase of Cape Ann Market, Inc. (5,140) Acquisition of leasehold interests (19,621) -------------------------- Net cash used in investing activities (28,302) (28,293) Financing Activities Net proceeds from revolving credit facility 3,400 19,700 Proceeds from note payable 4,087 Repayment of long-term debt (375) Preferred dividends paid (612) (608) Deposits refunded 4,000 Equity contribution 12,000 Deferred financing costs (181) -------------------------- Net cash provided by financing activities 22,500 18,911 Net increase in cash and cash equivalents 751 278 Cash and cash equivalents beginning of period 0 0 -------------------------- Cash and cash equivalents end of period $ 751 $ 278 ========================== Supplemental disclosure of cash flow information: Cash paid for interest $ 14,580 $ 11,729 Cash paid for income taxes 226 271
See accompanying notes. STAR MARKETS COMPANY, INC. Notes to Financial Statements August 3, 1996 (Unaudited) Note 1 - Background Star Markets Company, Inc., a Massachusetts corporation ("Star" or the "Company"), is a leading food retailer in the metropolitan Boston area, operating 46 stores as of August 3, 1996. Additionally, the Company operates a wholesale business which provides warehousing, distribution and certain administrative services to independent store locations throughout the New England area. The Company is a wholly-owned subsidiary of Star Markets Holdings, Inc., a Massachusetts corporation ("Holdings"). Both Holdings and the Company were formed for purposes of acquiring the business and assets of the Star Market operating division of Jewel Food Stores, Inc. in September 1994. Companies affiliated with INVESTCORP S.A. ("Investcorp") own all of the currently outstanding voting stock of Holdings. Note 2 - Basis of Presentation The unaudited financial information furnished herein reflects all adjustments, which in the opinion of management are of a normal recurring nature, to fairly state the Company's financial position and results of operations for the periods presented. The results of operations for the 13 week and 26 week periods ended August 3, 1996 are not necessarily indicative of the results to be expected for the entire year ending February 1, 1997. For further information, refer to the financial statements and footnotes thereto included in the Registrant Company's annual report on Form 10-K for the year ended February 3, 1996. Note 3 - Accounting Policy Effective February 4, 1996, the Company adopted the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. There was no effect on the financial statements due to the adoption of the provisions of this statement. STAR MARKETS COMPANY, INC. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition. Results of Operations Results of operations for the 13 weeks and 26 weeks ended August 3, 1996 are referred to herein as "Quarter 1996" and "Interim 1996", respectively and the 13 weeks and 26 weeks ended July 29, 1995 are referred to as "Quarter 1995" and "Interim 1995", respectively. Quarter 1996 Revenues Total revenues increased 13.2% in Quarter 1996 to $231.0 million from $204.0 million in Quarter 1995. Sales from retail operations for Quarter 1996 increased 16.7% to $210.8 million from $180.6 million for Quarter 1995. The growth in retail sales was attributable both to an increase in the number of stores operated and a 5.2% increase in comparable store sales in Quarter 1996. Revenues from wholesale operations for Quarter 1996 declined 13.4% to $20.3 million from $23.4 million for Quarter 1995. The decrease in wholesale sales was primarily due to the loss of three wholesale accounts which ceased operations due to increased competition in their respective trading areas. Gross Profit Gross profit increased 23.5% in Quarter 1996 to $57.3 million from $46.4 million in Quarter 1995. Gross profit as a percentage of total revenues increased to 24.8% in Quarter 1996 from 22.8% in Quarter 1995. Gross profit from retail operations increased 25.4% in Quarter 1996 to $56.1 million from $44.8 million in Quarter 1995 due to the increase in retail sales and to an increase in margin rate. Gross profit as a percentage of sales for retail operations increased to 26.6% in Quarter 1996 from 24.8% in Quarter 1995. The increase in gross profit as a percentage of sales was primarily due to improvements in merchandising margin, particularly in perishable categories. Gross profit from wholesale operations for Quarter 1996 decreased 28.6% to $1.2 million from $1.7 million in Quarter 1995. Gross profit as a percentage of wholesale revenues for Quarter 1996 decreased to 5.9% from 7.1% in Quarter 1995, primarily due to a decrease in margins in non-perishable categories. Operating and Administrative Expenses Operating and administrative expenses increased by 27.5% to $47.9 million in Quarter 1996 from $37.6 million in Quarter 1995. Operating and administrative expenses as a percentage of total revenues increased to 20.7% in Quarter 1996 from 18.4% in Quarter 1995. Operating and administrative expenses as a percentage of total revenues continue to exceed prior year rates due to a number of factors, including an increase in retail operations which incur a higher rate of operating and administrative expenses than wholesale operations, an increase in rent expense during Quarter 1996 as a result of sale-leaseback transactions, and additional administrative costs as the Company continues to grow. Interest Expense Net interest expense, primarily related to interest expense on debt incurred to finance the acquisition of the Company, was $7.3 million in Quarter 1996 and $6.9 million in Quarter 1995. Interim 1996 Revenues Total revenues in Interim 1996 increased 11.4% to $448.1 million from $402.2 million in Interim 1995. Sales from retail operations for Interim 1996 increased 14.8% to $409.2 million from $356.4 million for Interim 1995. The growth in retail sales was attributable both to an increase in the number of stores operated and a 3.0% increase in comparable store sales. Revenues from wholesale operations for Interim 1996 declined 15.2% to $38.8 million from $45.8 million for Interim 1995. The decrease in wholesale sales was primarily due to the loss of three wholesale accounts which ceased operations due to increased competition in their respective trading areas. Gross Profit Gross profit increased 25.1% in Interim 1996 to $112.0 million from $89.5 million in Interim 1995. Gross profit as a percentage of total revenues increased to 25.0% in Interim 1996 from 22.3% in Interim 1995. Gross profit from retail operations increased 26.7% in Interim 1996 to $109.6 million from $86.5 million in Interim 1995. Gross profit as a percentage of sales for retail operations increased to 26.8% in Interim 1996 from 24.3% in Interim 1995. The increase in gross profit as a percentage of sales was primarily due to improvements in merchandising margin, particularly in perishable categories. Gross profit from wholesale operations for Interim 1996 decreased by 20.9% to $2.4 million from $3.0 million in Interim 1995. Gross profit as a percentage of wholesale revenues decreased to 6.2% in Interim 1996 from 6.6% in Interim 1995. Operating and Administrative Expenses Operating and administrative expenses increased by 26.9% to $93.2 million in Interim 1996 from $73.4 million in Interim 1995. Operating and administrative expenses as a percentage of total revenues increased to 20.8% in Interim 1996 from 18.3% in Interim 1995. Operating and administrative expenses as a percentage of total revenues continue to exceed prior year rates due to a number of factors, including an increase in retail operations which incur a higher rate of operating and administrative expenses than wholesale operations, an increase in rent expense during Interim 1996 as a result of sale-leaseback transactions, and additional administrative costs as the Company continues to grow. Interest Expense Net interest expense, primarily related to interest expense on debt incurred to finance the acquisition of the Company, was $14.2 million in Interim 1996 and $13.6 million in Interim 1995. Liquidity and Capital Resources The Company's liquidity needs arise primarily from debt service on the indebtedness incurred in connection with the acquisition of the Company, and funding of the Company's capital expenditure and working capital requirements. As of September 5, 1996 the Company's debt included (i) $108.6 million in borrowings under the term loan portion of the Senior Credit Facility, (ii) $39.8 million in borrowings under the revolving credit portion of the Senior Credit Facility, and (iii) $110.0 million in Senior Subordinated Notes due 2004. At September 5, 1996 the Company had $10.0 million drawn under the letter of credit facilities of the Senior Credit Facility and $39.8 million drawn under the revolving credit portion of the Senior Credit Facility, leaving an aggregate of $25.2 million of unused revolving credit available under the Senior Credit Facility. In July 1996, the Company completed the purchase of 10 locations from the Shop & Stop Companies, Inc. ("Stop & Shop"), for an aggregate purchase price of $28.0 million excluding related fees and inventory. The acquisitions were partially funded by an equity contribution of $12.0 million from certain of the Company's existing shareholders. Nine of the locations opened late in Quarter 1996. Four of the locations are operated as superstores and five as conventional stores. One of the new superstores is a replacement store for a conventional store which closed in Quarter 1996. The Company will convert the remaining acquired location, and the conventional store which closed during Quarter 1996 to a new format which emphasizes natural/healthy foods. The two stores are expected to open later in fiscal 1996. In addition to the acquisition cost of the 10 locations, the Company currently plans to make total capital expenditures of approximately $23.2 million in fiscal 1996. Capital expenditures for Quarter 1996 including the acquisition, were $33.3 million compared with $25.3 million in Quarter 1995. For Interim 1996, capital expenditures were $38.6 million compared with $31.5 million in Interim 1995. Capital expenditures include expanding and remodeling one conventional store, remodeling two superstores, the acquisition of the 10 Stop & Shop locations and costs to convert the 10 acquired locations to the Star format. The Company's fiscal 1996 capital expenditure plan also includes spending for maintenance, information systems, and distribution. In addition to the equity contribution from certain of its existing shareholders, the Company believes that funds generated from operations, proceeds from sale-leaseback transactions of currently owned properties, and borrowings under the Senior Credit Facility will provide sufficient resources through fiscal 1996 to permit it to meet its working capital requirements, to make all interest and principal payments due and payable on the Subordinated Notes and its existing indebtedness and planned capital expenditures. However, if the Company's cash flow and capital resources are insufficient to fund its debt service obligations, the Company may be required to reduce or delay planned capital expenditures, sell assets, obtain additional equity capital or restructure debt. STAR MARKETS COMPANY, INC. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. The following exhibits are included herein: (27) Financial Data Schedule The Company did not file any reports on Form 8-K for the 13 weeks ended August 3, 1996. STAR MARKETS COMPANY, INC. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Star Markets Company, Inc. (Registrant) Date: September 16, 1996 By: Robert R. Spellman Robert R. Spellman Executive Vice President, Chief Financial and Accounting Officer EX-27 2 FDS FOR THE 2ND QUARTER
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ACCOMPANYING BALANCE SHEETS AS OF AUGUST 3, 1996 AND FEBRUARY 3, 1996; THE ACCOMPANYING STATEMENTS OF OPERATIONS FOR THE 13 WEEK AND 26 WEEK PERIODS ENDED AUGUST 3, 1996 AND JULY 29, 1995; AND THE ACCOMPANYING STATEMENTS OF CASH FLOWS FOR THE 26 WEEK PERIODS ENDED AUGUST 3, 1996 AND JULY 29, 1995 FOR STAR MARKETS COMPANY, INC., AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS FEB-01-1997 AUG-03-1996 751 0 13,884 2,058 62,215 97,285 214,953 26,956 454,251 77,879 260,425 10,182 0 0 85,309 454,251 231,024 231,024 173,723 53,334 10 0 7,267 (3,310) 63 (3,373) 0 0 0 (3,373) (674.60) (674.60)
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