-----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, Pi5WgGuW3YDz6c1q7EVWd3AS6nupX+D9SsrGt5tNkRTTbd65MBPTP/OgSnvTNidU DRxB+90Od7hJzZFYuEZArg== 0000910647-97-000271.txt : 19971216 0000910647-97-000271.hdr.sgml : 19971216 ACCESSION NUMBER: 0000910647-97-000271 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971101 FILED AS OF DATE: 19971212 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: 97736910 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 November 1, 1997 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 Identification Number) incorporation or organization) 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 2, 1997: 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 - November 1, 1997 and February 1, 1997 Statements of operations - 13 weeks ended November 1, 1997 and November 2, 1996; 39 weeks ended November 1, 1997 and November 2, 1996 Statements of cash flows - 39 weeks ended November 1, 1997 and November 2, 1996 Notes to financial statements - November 1, 1997. 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 (Unaudited) (Amounts in thousands, except share data)
November 1, February 1, 1997 1997 ------------------------ Assets Current assets: Accounts receivable, net of reserve for doubtful accounts of $1,584 in November and $1,589 in February $ 21,989 $ 21,815 Inventory 69,609 65,550 Prepaid expenses 4,246 4,959 --------------------- Total current assets 95,844 92,324 Property and equipment at cost: Land 20,894 31,015 Building 52,173 66,603 Equipment & fixtures 104,938 88,623 Leasehold improvements 56,433 44,024 --------------------- Total property & equipment 234,438 230,265 Less accumulated depreciation and amortization 48,152 35,569 --------------------- Net property and equipment 186,286 194,696 Other assets, net 32,011 33,058 Goodwill, net 131,453 133,192 --------------------- Total Assets $445,594 $453,270 ===================== Liabilities and Shareholder's Equity Current liabilities: Accounts payable $ 42,528 $ 46,798 Accrued payroll & benefits 11,812 12,842 Current portion self-insurance 9,587 8,121 Accrued interest 9,587 6,003 Other current liabilities 12,736 13,637 --------------------- Total current liabilities 86,250 87,401 Other liabilities 23,701 22,732 Long-term debt 272,229 271,827 Redeemable preferred stock, redemption value $11,000 10,302 10,230 Shareholder's equity: Common stock, $.01 par value, 10,000 shares authorized and 5,000 shares outstanding 0 0 Additional paid-in-capital 84,255 84,907 Retained earnings (deficit) (31,143) (23,827) --------------------- Total shareholder's equity 53,112 61,080 --------------------- Total Liabilities and Shareholder's Equity $445,594 $453,270 =====================
See accompanying notes. STAR MARKETS COMPANY, INC. STATEMENTS OF OPERATIONS (Unaudited) (Amounts in thousands)
13 Weeks 13 Weeks 39 Weeks 39 Weeks Ended Ended Ended Ended November 1, November 2, November 1, November 2, 1997 1996 1997 1996 ----------------------------------------------------- Total revenues $261,673 $252,736 $766,137 $700,815 Cost of goods sold 192,767 189,600 565,365 525,655 -------------------------------------------------- Gross profit 68,906 63,136 200,772 175,160 Operating and administrative expenses 56,617 51,746 167,703 144,910 Depreciation and amortization 6,048 5,770 17,612 16,278 -------------------------------------------------- Operating profit 6,241 5,620 15,457 13,972 Interest expense 7,616 7,303 22,367 21,504 Other (expenses) income, net 37 24 (149) (40) -------------------------------------------------- Loss before income taxes (1,338) (1,659) (7,059) (7,572) Income taxes 95 117 259 248 -------------------------------------------------- Net loss $ (1,433) $ (1,776) $ (7,318) $ (7,820) ==================================================
See accompanying notes. STAR MARKETS COMPANY, INC. STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands)
39 Weeks 39 Weeks Ended Ended November 1, November 2, 1997 1996 ------------------------- Operating activities Net loss $ (7,318) $ (7,820) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization of deferred financing costs 1,226 1,157 Depreciation and amortization 17,612 16,278 Loss on sale or disposal of property and equipment 165 42 Changes in operating assets and liabilities: Accounts receivable (174) (951) Inventories (4,059) (6,730) Prepaid expenses 713 (1,703) Accounts payable (4,270) 12,123 Accrued payroll and benefits (1,030) (643) Self-insurance reserves 1,466 686 Accrued interest 3,584 (2,773) Other current liabilities 45 (4,386) Other 260 294 ---------------------- Net cash provided by operating activities 8,220 5,574 Investing activities Purchases of property and equipment (26,626) (24,982) Proceeds from sale of property and equipment 20,167 4,326 Decrease in restricted cash 6,028 Acquisition of leasehold interests (19,860) ---------------------- Net cash used in investing activities (6,459) (34,488) Financing Activities Net (repayment) proceeds from revolving credit facility 300 10,600 Proceeds from note payable 4,087 Repayment of note payable (536) (168) Repayment of long-term debt (375) Deferred financing costs (799) Preferred dividends paid (1,226) (1,230) Equity contribution 12,000 Deposits refunded (made) 500 4,000 ---------------------- Net cash (used in) provided by financing activities (1,761) 28,914 Net increase 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 $ 17,556 $ 23,013 Cash paid for income taxes 342 340
See accompanying notes. STAR MARKETS COMPANY, INC. Notes to Financial Statements November 1, 1997 (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 51 stores as of November 1, 1997. The Company operates three store formats consisting of 22 superstores, 26 conventional supermarkets, and three Wild Harvest stores (which emphasize natural, healthy foods). 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 November 1, 1997 are not necessarily indicative of the results to be expected for the entire year ending January 31, 1998. 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 1, 1997. 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 November 1, 1997 are referred to herein as "Quarter 1997" and "Interim 1997," respectively, and the 13 weeks and 39 weeks ended November 2, 1996 are referred to as "Quarter 1996" and "Interim 1996," respectively. During Quarter 1997, the Company acquired one new conventional supermarket which was closed and replaced by a new superstore subsequent to Quarter 1997. During Quarter 1997, the company also opened one new Wild Harvest store, remodeled three superstores and remodeled one conventional store. Subsequent to Quarter 1997, the Company opened one new Wild Harvest store. The Company currently operates 23 superstores, 25 conventional supermarkets, and four Wild Harvest stores (which emphasize natural, healthy foods). The Company also operates a wholesale food business. Quarter 1997 - ------------ Revenues - -------- Total revenues increased 3.5% in Quarter 1997 to $261.7 million from $252.7 million in Quarter 1996. Sales from retail operations in Quarter 1997 increased 4.8% to $244.7 million from $233.4 million in Quarter 1996. The increase in retail sales was attributable to an increase in the number of retail stores operated. Comparable store sales decreased by 0.6% in Quarter 1997. Revenues from wholesale operations in Quarter 1997 declined 12.0% to $17.0 million from $19.3 million in Quarter 1996. Gross Profit - ------------ Gross profit increased 9.2% in Quarter 1997 to $68.9 million from $63.1 million in Quarter 1996. Gross profit as a percentage of total revenues increased to 26.3% in Quarter 1997 from 25.0% in Quarter 1996. Gross profit from retail operations increased 9.3% in Quarter 1997 to $67.7 million from $61.9 million in Quarter 1996 due to both an increase in retail revenues and an increase in gross profit as a percentage of sales. Gross profit as a percentage of sales for the retail operations increased to 27.7% in Quarter 1997 from 26.5% in Quarter 1996. The increase in gross profit as a percentage of sales was due primarily to improvements in merchandising margin. Gross profit from wholesale operations in Quarter 1997 decreased 0.4% to $1.17 million from $1.18 million in Quarter 1996. Gross profit as a percentage of wholesale revenues in Quarter 1997 increased to 6.9% from 6.1% in Quarter 1996, primarily due to improvement in product margin, as well as leveraged distribution costs. Operating and Administrative Expenses - ------------------------------------- Operating and administrative expenses increased by 9.4% to $56.6 million in Quarter 1997 from $51.7 million in Quarter 1996. Operating and administrative expenses as a percentage of total revenues increased to 21.6% in Quarter 1997 from 20.5% in Quarter 1996. 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; and an increase in rent, including both rent for new locations and rent associated with the February 1997 sale- leaseback of one operating location. Interest Expense - ---------------- Net interest expense, primarily related to interest expense on debt incurred to finance the acquisition of the Company, was $7.6 million in Quarter 1997. Net interest expense was $7.3 million in Quarter 1996. Interim 1997 - ------------ Revenues - -------- Total revenues increased 9.3% in Interim 1997 to $766.1 million from $700.8 million in Interim 1996. Sales from retail operations in Interim 1997 increased 11.1% to $713.7 million from $642.6 million in Interim 1996. The growth in retail sales was attributable both to an increase in the number of retail stores operated and a 0.4% increase in comparable store sales. Revenues from wholesale operations in Interim 1997 declined 9.9% to $52.4 million from $58.2 million in Interim 1996. Gross Profit - ------------ Gross profit increased 14.6% in Interim 1997 to $200.8 million from $175.2 million in Interim 1996. Gross profit as a percentage of total revenues increased to 26.2% in Interim 1997 from 25.0% in Interim 1996. Gross profit from retail operations increased 14.8% in Interim 1997 to $197.0 million from $171.6 million in Interim 1996 primarily due to the increase in retail revenues. Gross profit as a percentage of sales for the retail operations increased to 27.6% in Interim 1997 from 26.7% in Interim 1996. The increase in gross profit as a percentage of sales was due primarily to improvements in perishable margins and leveraged distribution costs. Gross profit from wholesale operations in Interim 1997 increased 6.2% to $3.8 million from $3.6 million in Interim 1996. Gross profit as a percentage of wholesale revenues in Interim 1997 increased to 7.2% from 6.2% in Interim 1996, primarily due to an increase in non-perishable gross margin rates, as well as leveraged distribution costs. Operating and Administrative Expenses - ------------------------------------- Operating and administrative expenses increased by 15.7% to $167.7 million in Interim 1997 from $144.9 million in Interim 1996. Operating and administrative expenses as a percentage of total revenues increased to 21.9% in Interim 1997 from 20.7% in Interim 1996. 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; and an increase in rent, including both rent for new locations and rent associated with the February 1997 sale- leaseback of one operating location. Interest Expense - ---------------- Net interest expense, primarily related to interest expense on debt incurred to finance the acquisition of the Company, was $22.4 million in Interim 1997. Net interest expense was $21.5 million in Interim 1996. 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 November 1, 1997 was $273.3 million, which includes $110.0 million of Subordinated Notes due November 1, 2004, $160.1 million due under the Senior Credit Facility and a $3.2 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 2, 1997, the Company had $55.7 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 $12.1 million of unused revolving credit availability under the Senior Credit Facility. The Company currently plans to make total capital expenditures of approximately $43.4 million in fiscal 1997. Capital expenditures for Quarter 1997 were $6.1 million compared with $6.2 million in Quarter 1996. For Interim 1997, capital expenditures were $26.6 million compared with $44.8 million in Interim 1996. Capital expenditures for fiscal 1997 include opening two new superstores, opening a new superstore to replace an existing conventional store, remodeling five existing stores and opening two new natural food stores. Planned capital expenditures for fiscal 1997 include approximately $9.1 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 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 during 39 weeks ended November 1, 1997. 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 12, 1997 By: Robert R. Spellman ------------------ Robert R. Spellman Executive Vice President, Chief Financial and Accounting Officer EX-27 2 EXHIBIT 27-FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ACCOMPANYING BALANCE SHEETS AS OF NOVEMBER 1, 1997 AND FEBRUARY 1, 1997; THE ACCOMPANYING STATEMENTS OF OPERATIONS FOR THE 13 WEEK AND 39 WEEK PERIODS ENDED NOVEMBER 1, 1997 AND NOVEMBER 2, 1996; AND THE ACCOMPANYING STATEMENTS OF CASH FLOWS FOR THE 39 WEEK PERIODS ENDED NOVEMBER 1, 1997 AND NOVEMBER 2, 1996 FOR STAR MARKETS COMPANY, INC., AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS JAN-31-1998 NOV-1-1997 0 0 21,989 0 69,609 95,844 234,438 48,152 445,594 86,250 272,229 10,302 0 0 84,255 445,594 261,673 261,673 192,767 62,665 (37) 0 7,616 (1,338) 95 (1,433) 0 0 0 (1,433) (286.60) (286.60)
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