-----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, O/cStuuUii6VS/CdIJIc2JqpBhetenvzayyTFUrkjaNNoumiZPlpP7eCvAEGKbEP SGf353sR8337QS+nqiXmRQ== 0000910647-98-000312.txt : 19981216 0000910647-98-000312.hdr.sgml : 19981216 ACCESSION NUMBER: 0000910647-98-000312 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19981215 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: 98769390 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 FORM 10-Q FOR THE 3RD 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 October 31, 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 December 1, 1998: 5,000 shares. 1 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 - October 31, 1998 and January 31, 1998 Statements of operations - 13 weeks ended October 31, 1998 and November 1, 1997; 39 weeks ended October 31, 1998 and November 1, 1997 Statements of cash flows - 39 weeks ended October 31, 1998 and November 1, 1997 Notes to financial statements - October 31, 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 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. STAR MARKETS COMPANY, INC. BALANCE SHEETS (Amounts in thousands, except share data)
October 31, January 31, 1998 1998 ----------- ----------- (Unaudited) Assets Current assets: Cash $ 861 $ 0 Accounts receivable, net of reserve for doubtful accounts of $1,547 in October and $1,391 in January 17,155 21,001 Inventory 70,333 71,524 Prepaid expenses 5,231 4,465 ------------------------ Total current assets 93,580 96,990 Property and equipment at cost: Land 16,156 21,287 Building 33,288 51,452 Equipment & fixtures 121,741 112,010 Leasehold improvements 67,037 61,644 ------------------------ Total property & equipment 238,222 246,393 Less accumulated depreciation and amortization 66,177 52,692 ------------------------ Net property and equipment 172,045 193,701 Other assets, net 29,256 31,287 Goodwill, net 127,895 130,564 ------------------------ Total Assets $422,776 $452,542 ======================== Liabilities and Shareholder's Equity Current liabilities: Accounts payable $ 39,262 $ 46,091 Accrued payroll & benefits 12,965 13,195 Current portion self-insurance 5,460 8,266 Accrued interest 9,474 6,092 Other current liabilities 15,018 16,503 ------------------------ Total current liabilities 82,179 90,147 Other liabilities 25,379 24,210 Long-term debt 260,255 276,327 Redeemable preferred stock, redemption value $11,000 10,397 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 82,936 83,924 Retained earnings (deficit) (38,370) (32,392) ------------------------ Total shareholder's equity 44,566 51,532 ------------------------ Total Liabilities and Shareholder's Equity $422,776 $452,542 ========================
See accompanying notes. 3 STAR MARKETS COMPANY, INC. STATEMENTS OF OPERATIONS (Unaudited) (Amounts in thousands)
13 Weeks 13 Weeks 39 Weeks 39 Weeks Ended Ended Ended Ended October 31, November 1, October 31, November 1, 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Total revenues $266,756 $261,673 $794,641 $766,137 Cost of goods sold 196,551 192,767 580,851 565,365 ----------------------------------------------------- Gross profit 70,206 68,906 213,790 200,772 Operating and administrative expenses 57,817 56,617 178,699 167,703 Depreciation and amortization 6,290 6,048 18,522 17,612 ----------------------------------------------------- Operating profit 6,098 6,241 16,569 15,457 Interest expense 7,361 7,616 22,298 22,367 Other (expenses) income, net 15 37 32 (149) ----------------------------------------------------- Loss before income taxes (1,248) (1,338) (5,697) (7,059) Income taxes 104 95 281 259 ----------------------------------------------------- Net loss $ (1,352) $ (1,433) $ (5,978) $ (7,318) =====================================================
See accompanying notes. 4 STAR MARKETS COMPANY, INC. STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands)
39 Weeks 39 Weeks Ended Ended October 31, November 1, 1998 1997 ----------- ----------- Operating activities Net loss $ (5,978) $ (7,318) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization of deferred financing costs 1,266 1,226 Depreciation and amortization 18,520 17,612 (Gain) loss on sale or disposal of property and equipment (32) 165 Changes in operating assets and liabilities: Accounts receivable 3,846 (174) Inventories 1,193 (4,059) Prepaid expenses (764) 713 Accounts payable (7,025) (4,270) Accrued payroll and benefits (229) (1,030) Self-insurance reserves (2,807) 1,466 Accrued interest 3,381 3,584 Other current liabilities (1,173) 45 Other 1,193 260 ------------------------- Net cash provided by operating activities 11,389 8,220 Investing activities Purchases of property and equipment (15,073) (26,626) Proceeds from sale of property and equipment 21,614 20,167 ------------------------- Net cash provided by (used in) investing activities 6,541 (6,459) Financing Activities Net proceeds from revolving credit facility 3,300 300 Repayment of long-term debt (19,147) (536) Deferred financing costs 0 (799) Preferred dividends paid (1,222) (1,226) Deposits refunded 0 500 ------------------------- Net cash used in financing activities (17,069) (1,761) Net increase in cash and cash equivalents 861 0 Cash and cash equivalents beginning of period 0 0 ------------------------- Cash and cash equivalents end of period $ 861 $ 0 ========================= Supplemental disclosure of cash flow information: Cash paid for interest $ 17,651 $ 17,556 Cash paid for income taxes 327 342
See accompanying notes. 5 STAR MARKETS COMPANY, INC. Notes to Financial Statements October 31, 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 53 stores as of October 31, 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. 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 39 week periods ended October 31, 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. 6 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 39 weeks ended October 31, 1998 are referred to herein as "Quarter 1998" and "Interim 1998," respectively, and the 13 weeks and 39 weeks ended November 1, 1997 are referred to as "Quarter 1997" and "Interim 1997," respectively. The Company currently operates 24 superstores, 25 conventional supermarkets, and four Wild Harvest stores (which emphasize natural, healthy foods), and a wholesale food business. Pursuant to a Stock Purchase Agreement (the "Agreement") by and among Star Markets Company, Inc., Star Markets Holdings, Inc. ("Holdings"), and J Sainsbury plc ("Sainsbury") dated as of November 25, 1998, Sainsbury has agreed to acquire all of the issued and outstanding voting securities of Holdings (Class D shares) from its shareholders. Pursuant to the Agreement, all other shares of capital stock of Holdings will also be either purchased or redeemed. The value of the transaction is approximately $490.0 million (including assumed debt), subject to adjustment. The transaction has been approved by the boards of directors of both parties. Consummation of the transaction is subject to customary conditions including regulatory approvals. Quarter 1998 Revenues Total revenues increased 1.9% in Quarter 1998 to $266.8 million from $261.7 million in Quarter 1997. Revenues from retail operations in Quarter 1998 increased 2.6% to $251.1 million from $244.7 million in Quarter 1997. The increase in revenues from retail operations was attributable to an increase in the number of retail stores operated. Comparable store sales decreased by 1.1% in Quarter 1998. Revenues from wholesale operations in Quarter 1998 declined 7.8% to $15.7 million from $17.0 million in Quarter 1997. Gross Profit Gross profit increased 1.9% in Quarter 1998 to $70.2 million from $68.9 million in Quarter 1997. Gross profit as a percentage of total revenues was 26.3% in Quarter 1998, substantially the same as Quarter 1997. Gross profit from retail operations increased 1.8% in Quarter 1998 to $69.0 million from $67.7 million in Quarter 1997 due to the increase in retail revenues. Gross profit as a percentage of revenues for the retail operations decreased to 27.5% in Quarter 1998 from 27.7% in Quarter 1997. The decrease in gross profit as a percentage of revenues was due primarily to a decrease in non- perishable margins offset in part by an increase in perishable margins and reduced distribution costs. 8 STAR MARKETS COMPANY, INC. Gross Profit (continued) Gross profit from wholesale operations in Quarter 1998 increased 5.0% to $1.23 million from $1.17 million in Quarter 1997. Gross profit as a percentage of wholesale revenues in Quarter 1998 increased to 7.9% from 6.9% in Quarter 1997, primarily due to improvement in product margins, as well as reduced distribution costs. Operating and Administrative Expenses Operating and administrative expenses increased by 2.1% to $57.8 million in Quarter 1998 from $56.6 million in Quarter 1997. Operating and administrative expenses as a percentage of total revenues increased to 21.7% in Quarter 1998 from 21.6% in Quarter 1997. The increase in operating and administrative expenses as a percentage of total revenues was primarily 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 expenses than wholesale operations, and an increase in rent associated with new locations and the sale-leaseback of three properties in March 1998. The increases were substantially offset by reduced self insurance expenses for Worker's Compensation and General Liability resulting from improvements in claims management practices. Interest Expense Net interest expense, primarily related to interest expense on debt incurred to finance the acquisition of the Company, was $7.4 million in Quarter 1998. Net interest expense was $7.6 million in Quarter 1997. Interim 1998 Revenues Total revenues increased 3.7% in Interim 1998 to $794.6 million from $766.1 million in Interim 1997. Revenues from retail operations in Interim 1998 increased 4.9% to $748.9 million from $713.7 million in Interim 1997. The increase in revenues from retail operations was attributable to an increase in the number of retail stores operated. Comparable store sales decreased by 0.3% in Interim 1998. Revenues from wholesale operations in Interim 1998 declined 12.8% to $45.7 million from $52.4 million in Interim 1997. Gross Profit Gross profit increased 6.5% in Interim 1998 to $213.8 million from $200.8 million in Interim 1997. Gross profit as a percentage of total revenues increased to 26.9% in Interim 1998 from 26.2% in Interim 1997. Gross profit from retail operations increased 6.8% in Interim 1998 to $210.3 million from $197.0 million in Interim 1997 primarily due to the increase in retail revenues. Gross profit as a percentage of revenues for the retail operations increased to 28.1% in Interim 1998 from 27.6% in Interim 1997. The increase in gross profit as a percentage of revenues was due primarily to improvements in perishable margins and reduced distribution costs. Gross profit from wholesale operations in Interim 1998 decreased 8.2% to $3.5 million from $3.8 million in Interim 1997. 8 STAR MARKETS COMPANY, INC. Gross Profit (continued) Gross profit as a percentage of wholesale revenues in Interim 1998 increased to 7.6% from 7.2% in Interim 1997, due to improvement in product margins and reduced distribution costs. Operating and Administrative Expenses Operating and administrative expenses increased by 6.6% to $178.7 million in Interim 1998 from $167.7 million in Interim 1997. Operating and administrative expenses as a percentage of total revenues increased to 22.5% in Interim 1998 from 21.9% in Interim 1997. The increase in operating and administrative expenses as a percentage of total revenues was primarily 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 expenses than wholesale operations, and an increase in rent associated with new locations and the sale-leaseback of three properties in March 1998. The increases were offset in part by reduced self insurance expenses for Worker's Compensation and General Liability resulting from improvements in claims management practices. Interest Expense Net interest expense, primarily related to interest expense on debt incurred to finance the acquisition of the Company, was $22.3 million in Interim 1998. Net interest expense was $22.4 million in Interim 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 October 31, 1998 was $261.3 million, which includes $110.0 million of Subordinated Notes due November 1, 2004, $148.9 million due under the Senior Credit Facility and a $2.4 million note payable. The Senior Credit Facility provides for a $108.0 million term loan facility and a $75.0 million revolving credit facility. As of December 1, 1998, the Company had $60.5 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 $7.3 million of unused revolving credit availability under the Senior Credit Facility. Capital expenditures for Quarter 1998 were $3.4 million compared with $6.1 million in Quarter 1997. For Interim 1998, capital expenditures were $15.1 million compared with $26.6 million in Interim 1997. The Company currently plans to make total capital expenditures of approximately $23.4 million in fiscal 1998 including approximately $8.9 million for maintenance, systems, and distribution. 9 STAR MARKETS COMPANY, INC. Liquidity and Capital Resources (Continued) The Company believes that funds generated from operations 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 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. Year 2000 During 1997, the Company began an ongoing review process to address the Year 2000 issue that encompasses operating and administrative areas of the Company. Information technology professionals are working to identify and resolve all significant Year 2000 issues in a timely and effective manner. The Company's executive management monitors the status of the Year 2000 remediation plans, including an assessment of issues and development of remediation plans as they relate to internally used software, computer hardware and use of computer applications. The Company will also be implementing notification of Year 2000 compliance requirements to key vendors. While management has not specifically determined the costs of its Year 2000 efforts, the total cost to obtain Year 2000 compliance is not expected to exceed $1,500,000. While the Company believes it is taking all appropriate steps to assure Year 2000 compliance, it is dependent on key vendor compliance to some extent. If, due to unforeseen circumstances, the implementation is not completed on a timely basis, or key vendors fail to resolve all significant Year 2000 issues in a timely and effective manner, the Year 2000 issue could have an adverse impact on the Company. The Company is in the process of establishing contingency plans that would minimize the impact to the Company in the event that the Company or its major vendors fail to implement a Year 2000 solution on a timely basis. The cost of implementing the contingency plans, while not specifically determined, is not expected to be material. 10 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 during the 39 weeks ended October 31, 1998. 11 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: December 15, 1998 By: Stephen R. Winslow Stephen R. Winslow Senior Vice President, Finance and chief accounting officer 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ACCOMPANYING BALANCE SHEETS AS OF OCTOBER 31, 1998 AND FEBRUARY 1, 1997; THE ACCOMPANYING STATEMENTS OF OPERATIONS FOR THE 13 WEEK AND 39 WEEK PERIODS ENDED OCTOBER 31, 1998 AND NOVEMBER 1, 1997; AND THE ACCOMPANYING STATEMENTS OF CASH FLOWS FOR THE 39 WEEK PERIODS ENDED OCTOBER 31, 1998 AND NOVEMBER 1, 1997 FOR STAR MARKETS COMPANY, INC., AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS JAN-30-1999 OCT-31-1998 861 0 18,702 1,547 70,333 93,580 238,222 66,177 422,776 82,179 0 10,397 0 0 44,566 422,776 266,756 266,756 196,551 64,107 (15) 0 7,361 (1,248) 104 (1,352) 0 0 0 (1,352) (270.46) (270.46)
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