-----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, KgoyFQkMDI4AVLVWbjt2sDbUaJ3llMlf6BuRjeKnHJmFMQuWFVVrKgMalA/L6RfP 6siYxgc6W0DEkVAnLX4IxA== 0000910647-98-000178.txt : 19980615 0000910647-98-000178.hdr.sgml : 19980615 ACCESSION NUMBER: 0000910647-98-000178 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980502 FILED AS OF DATE: 19980612 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: SEC FILE NUMBER: 000-25262 FILM NUMBER: 98646919 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 10-Q FOR 1ST QUARTER 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 May 2, 1998 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 June 2, 1998: 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 - May 2, 1998 and January 31, 1998 Statements of operations - 13 weeks ended May 2, 1998 and May 3, 1997 Statements of cash flows - 13 weeks ended May 2, 1998 and May 3, 1997 Notes to financial statements - May 2, 1998. 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. Signature PART I - FINANCIAL INFORMATION Item 1. Financial Statements. STAR MARKETS COMPANY, INC. BALANCE SHEETS (Amounts in thousands, except share data)
May 2, January 31, 1998 1998 -------------------------- Assets (Unaudited) Current assets: Accounts receivable, net of reserve for doubtful accounts of $1,519 at May 2, 1998 and $1,391 at January 31, 1998 $ 16,735 $ 21,001 Inventory 64,582 71,524 Prepaid expenses 5,496 4,465 ------------------------ Total current assets 86,814 96,990 Property and equipment at cost: Land 16,565 21,287 Building 32,567 51,452 Equipment & fixtures 115,759 112,010 Leasehold improvements 64,455 61,644 ------------------------ Total property & equipment 229,347 246,393 Less accumulated depreciation and amortization 55,990 52,692 ------------------------ Net property and equipment 173,357 193,701 Other assets, net 30,600 31,287 Goodwill, net 129,674 130,564 ------------------------ Total Assets $420,445 $452,542 ======================== Liabilities and Shareholder's Equity Current liabilities: Accounts payable $ 36,599 $ 46,091 Accrued payroll & benefits 11,044 13,195 Current portion self-insurance 8,808 8,266 Accrued interest 2,298 6,092 Other current liabilities 15,192 16,503 ------------------------ Total current liabilities 73,941 90,147 Self-insurance reserves, less current portion 18,523 18,523 Other liabilities 6,054 5,687 Long-term debt 262,677 276,327 Redeemable preferred stock, redemption value $11,000 10,349 10,326 Shareholder's equity: Common stock, $.01 par value, 10,000 shares authorized and 5,000 shares outstanding 0 0 Additional paid-in-capital 83,595 83,924 Retained earnings (deficit) (34,694) (32,392) ------------------------ Total shareholder's equity 48,901 51,532 ------------------------ Total Liabilities and Shareholder's Equity $420,445 $452,542 ========================
See accompanying notes. STAR MARKETS COMPANY, INC. STATEMENTS OF OPERATIONS (Unaudited) (Amounts in thousands)
13 Weeks 13 Weeks Ended Ended May 2, May 3, 1998 1997 -------------------- Total revenues $259,203 $244,521 Cost of goods sold 188,528 180,419 -------------------- Gross profit 70,675 64,102 Operating and administrative expenses 59,312 54,434 Depreciation and amortization 6,047 5,766 -------------------- Operating profit 5,316 3,902 Interest expense 7,536 7,188 Other (expenses) income, net 0 (213) -------------------- Loss before income taxes (2,220) (3,499) Income taxes 81 81 -------------------- Net loss $ (2,301) $ (3,580) ====================
See accompanying notes. STAR MARKETS COMPANY, INC. STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands)
13 Weeks 13 Weeks Ended Ended May 2, May 3, 1998 1997 -------------------- Operating activities Net loss $ (2,301) $ (3,580) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of deferred financing costs 423 395 Depreciation and amortization 6,044 5,766 Loss on sale or disposal of property and equipment 0 213 Changes in operating assets and liabilities: Accounts receivable 4,266 (832) Inventories 6,942 (923) Prepaid expenses (1,031) (189) Accounts payable (9,492) (5,311) Accrued payroll and benefits (2,151) (1,859) Self-insurance reserves 542 322 Accrued interest (3,794) (4,238) Other current liabilities (970) (3,033) Other 382 360 -------------------- Net cash used in operating activities (1,140) (12,909) Investing activities Purchases of property and equipment (5,771) (6,468) Proceeds from sale of property and equipment 21,168 20,097 -------------------- Net cash provided by (used in) investing activities 15,397 13,629 Financing Activities Net proceeds from revolving credit facility 5,300 300 Repayment of long-term debt (18,950) (175) Preferred dividends paid (607) (608) Deferred financing costs 0 (737) Deposits refunded 0 500 -------------------- Net cash provided by (used in) financing activities (14,257) (720) Net increase (decrease) in cash and cash equivalents 0 0 Cash and cash equivalents beginning of period 0 0 -------------------- Cash and cash equivalents end of period $ 0 $ 0 ==================== Supplemental disclosure of cash flow information: Cash paid for interest $ 10,908 $ 11,031 Cash paid for income taxes 162 142
See accompanying notes. STAR MARKETS COMPANY, INC. Notes to Financial Statements May 2, 1998 (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 52 stores as of May 2, 1998. 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 period ended May 2, 1998 are not necessarily indicative of the results to be expected for the entire year ending January 30, 1999. 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 January 31, 1998. Note 3 - Recently Issued Accounting Pronouncements - -------------------------------------------------- As of February 1, 1998, the Company adopted Statement 130, "Reporting Comprehensive Income". Statement 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Company's financial statements. In June 1997, the Financial Accounting Standards Board issued Statement No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("Statement 131"). The Company will be required to adopt the provisions of Statement 131 in the fourth quarter of Fiscal 1998. The Company does not expect the adoption of Statement 131 to have a material impact on the Company's financial statement disclosures. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition. Results of Operations - --------------------- Results of operations for the 13 weeks ended May 2, 1998 are referred to herein as "Quarter 1998" and the 13 weeks ended May 3, 1997 are referred to as "Quarter 1997". The Company currently operates 23 superstores, 25 conventional stores, and four natural food stores. The Company also operates a wholesale food business. Revenues - -------- Total revenues increased 6.0% in Quarter 1998 to $259.2 million from $244.5 million in Quarter 1997. Revenues from retail operations in Quarter 1998 increased 7.2% to $244.4 million from $227.9 million in Quarter 1997. The increase in revenues from retail operations was attributable to an increase in the number of retail stores operated and a 0.8% increase in comparable store sales. Revenues from wholesale operations in Quarter 1998 declined 10.7% to $14.8 million from $16.6 million in Quarter 1996. Gross Profit - ------------ Gross profit increased 10.3% in Quarter 1998 to $70.7 million from $64.1 million in Quarter 1997. Gross profit as a percentage of total revenues increased to 27.3% in Quarter 1998 from 26.2% in Quarter 1997. Gross profit from retail operations increased 10.8% in Quarter 1998 to $69.6 million from $62.8 million in Quarter 1997 primarily due to the increase in revenues. Gross profit as a percentage of revenues for the retail operations increased to 28.5% in Quarter 1998 from 27.6% in Quarter 1997. The increase in gross profit as a percentage of revenues was primarily attributable to improvements in perishable margins and to decreased distribution costs as a percentage of revenues. Gross profit from the wholesale operations in Quarter 1998 decreased 14.7% to $1.1 million from $1.3 million in Quarter 1997. Gross profit as a percentage of wholesale revenues in Quarter 1998 decreased to 7.4% from 7.7% in Quarter 1997 due to an decrease in non- perishable margins. Operating and Administrative Expenses - ------------------------------------- Operating and administrative expenses increased by 9.0% to $59.3 million in Quarter 1998 from $54.4 million in Quarter 1997. Operating and administrative expenses as a percentage of total revenues increased to 22.9% in Quarter 1998 from 22.3% in Quarter 1997. The increase in operating and administrative expenses as a percentage of total revenues was due to an increase in store labor attributable to new store formats with additional service intensive departments, an increase in retail operations which incur a higher rate of operating and administrative expense than wholesale operations, and an increase in rent associated with new locations and the March 1998 sale-leaseback of three properties. Interest Expense - ---------------- Net interest expense, primarily related to interest expense on debt incurred to finance the acquisition of the Company, was $7.5 million in Quarter 1998. Net interest expense was $7.2 million in Quarter 1997. 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. The Company's total indebtedness as of May 2, 1998 was $263.7 million, which includes $110.0 million in Senior Subordinated Notes due 2004, $150.9 million due under the Senior Credit Facility and a $2.8 million note payable. At June 2, 1998, the Company had $56.9 million drawn under the revolving credit portion of the Senior Credit Facility and $7.2 million drawn under the letter of credit portion of the Senior Credit Facility, leaving an aggregate of $10.9 million of unused revolving credit available under the Senior Credit Facility. During Quarter 1998, the Company completed a sale-leaseback transaction involving three properties for a gross selling price of $21.6 million. Of the proceeds, $18.4 million was used to pay down principal on term loans and $3.2 million was applied to revolver paydown and transaction expenses. The Company currently anticipates making total capital expenditures of approximately $26.1 million in fiscal 1998. Capital expenditures for Quarter 1998 were $5.7 million compared with $6.4 million in Quarter 1997. Capital expenditures will include opening one new superstore, remodeling one existing store, converting one conventional store to a superstore and opening up to two new Wild Harvest stores. Planned capital expenditures for fiscal 1998 include approximately $10.6 million for maintenance, systems, and distribution. 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 1998 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 to fund 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. (a) The following exhibit is included herein: Exhibit (27) - Financial Data Schedule (b) The Company did not file any reports on Form 8-K for the 13 weeks ended May 2, 1998. STAR MARKETS COMPANY, INC. Signature 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: June 12, 1998 By: /s/Robert R. Spellman ------------- --------------------- Robert R. Spellman Executive Vice President, Chief Financial and Accounting Officer Page 8 EX-27 2 EXHIBIT 27-FDS FOR 1ST QUARTER ENDED 4/04/98
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ACCOMPANYING BALANCE SHEETS AS OF MAY 2, 1998 AND THE ACCOMPANYING STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE 13 WEEK PERIOD ENDED MAY 2, 1998 FOR STAR MARKETS COMPANY, INC., AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS JAN-30-1999 MAY-02-1998 0 0 16,735 1,519 64,582 86,814 229,347 55,990 420,445 73,941 262,677 10,349 0 0 83,595 420,445 259,203 259,203 188,528 65,359 0 0 7,536 (2,220) 81 (2,301) 0 0 0 (2,301) (460.20) (460.20)
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