-----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, F+cKFpHvvtVQVz9hi17KYi9qjA6RLfpmNAJLRQYJA1SSemUUR2Wi5fvHndc10But 4C4zmwyXoNFR9vcitE5CMg== 0000910647-99-000163.txt : 19990615 0000910647-99-000163.hdr.sgml : 19990615 ACCESSION NUMBER: 0000910647-99-000163 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990501 FILED AS OF DATE: 19990611 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: 99644566 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 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 1, 1999 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 (I.R.S. Employer of 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 1, 1999: 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 1, 1999 and January 30, 1999 Statements of operations - 13 weeks ended May 1, 1999 and May 2, 1998 Statements of cash flows - 13 weeks ended May 1, 1999 and May 2, 1998 Notes to financial statements - May 1, 1999 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 1, January 30, 1999 1999 ----------- ----------- (Unaudited) Assets Current assets: Accounts receivable, net of reserve for doubtful accounts of $1,392 at May 1, 1999 and $1,331 at January 30, 1999 $ 18,452 $ 18,277 Inventory 63,726 64,914 Prepaid expenses 5,335 4,483 ------------------------ Total current assets 87,513 87,674 Property and equipment at cost: Land 13,567 15,256 Building 27,925 31,712 Equipment & fixtures 123,090 123,757 Leasehold improvements 71,494 69,675 ------------------------ Total property & equipment 236,075 240,400 Less accumulated depreciation and amortization 74,289 70,645 ------------------------ Net property and equipment 161,787 169,755 Other assets, net 27,874 28,537 Goodwill, net 126,116 127,005 ------------------------ Total Assets $403,289 $412,971 ======================== Liabilities and Shareholder's Equity Current liabilities: Accounts payable $ 35,569 $ 38,246 Accrued payroll & benefits 11,255 14,399 Current portion self-insurance 5,527 6,286 Accrued interest 9,148 5,762 Other current liabilities 11,746 14,585 ------------------------ Total current liabilities 73,245 79,278 Other liabilities 19,692 19,697 Long-term debt 257,252 259,037 Redeemable preferred stock, redemption value $11,000 10,445 10,421 Shareholder's equity: Common stock, $.01 par value, 10,000 shares authorized and 5,000 shares outstanding 0 0 Additional paid-in-capital 82,276 82,606 Retained earnings (deficit) (39,621) (38,069) ------------------------ Total shareholder's equity 42,655 44,537 ------------------------ Total Liabilities and Shareholder's Equity $403,289 $412,971 ========================
See accompanying notes. STAR MARKETS COMPANY, INC. STATEMENTS OF OPERATIONS (Unaudited) (Amounts in thousands)
13 Weeks 13 Weeks Ended Ended May 1, May 2, 1999 1998 -------- -------- Total revenues $262,676 $259,203 Cost of goods sold 190,393 188,528 --------------------- Gross profit 72,283 70,675 Operating and administrative expenses 60,591 59,312 Depreciation and amortization 6,238 6,047 --------------------- Operating profit 5,454 5,316 Interest expense 6,944 7,536 Other (expenses) income, net 29 0 --------------------- Loss before income taxes (1,462) (2,220) Income taxes 91 81 --------------------- Net loss $ (1,553) $ (2,301) =====================
See accompanying notes. STAR MARKETS COMPANY, INC. STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands)
13 Weeks 13 Weeks Ended Ended May 1, May 2, 1999 1998 -------- -------- Operating activities Net loss $(1,553) $ (2,301) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of deferred financing costs 422 423 Depreciation and amortization 6,238 6,044 Loss on sale or disposal of property and equipment (14) 0 Changes in operating assets and liabilities: Accounts receivable (144) 4,266 Inventories 1,188 6,942 Prepaid expenses (906) (1,031) Accounts payable (2,710) (9,492) Accrued payroll and benefits (3,143) (2,151) Self-insurance reserves (704) 542 Accrued interest 3,387 (3,794) Other current liabilities (2,551) (970) Other (13) 382 --------------------- Net cash used in operating activities (503) (1,140) Investing activities Purchases of property and equipment (2,270) (5,771) Proceeds from sale of property and equipment 5,152 21,168 --------------------- Net cash provided by investing activities 2,882 15,397 Financing Activities Net proceeds from revolving credit facility (1,300) 5,300 Repayment of long-term debt (467) (18,950) Preferred dividends paid (612) (607) --------------------- Net cash used in financing activities (2,379) (14,257) 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 $ 3,226 $ 10,908 Cash paid for income taxes 114 162
See accompanying notes. STAR MARKETS COMPANY, INC. Notes to Financial Statements May 1, 1999 (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 May 1, 1999. 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. Pursuant to a Stock Purchase Agreement (the "Stock Purchase Agreement") by and among the Company, 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. Pursuant to the Stock Purchase 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 the Company, Holdings and Sainsbury. Consummation of the transaction is subject to customary conditions including regulatory approvals. 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 1, 1999 are not necessarily indicative of the results to be expected for the entire year ending January 29, 2000. For further information, refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended January 30, 1999. 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 adopted the provisions of Statement 131 during 1998. The adoption of Statement 131 had no 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 1, 1999 are referred to herein as "Quarter 1999" and the 13 weeks ended May 2, 1998 are referred to as "Quarter 1998". The Company currently operates 24 superstores, 25 conventional stores, and four natural food stores. The Company also operates a wholesale food business. The Company completed the sale of one of its superstores during the quarter, and plans to close the location in June 1999. Revenues - -------- Total revenues increased 1.3% in Quarter 1999 to $262.7 million from $259.2 million in Quarter 1998. Revenues from retail operations in Quarter 1999 increased 1.8% to $248.7 million from $244.4 million in Quarter 1998. The increase in revenues from retail operations was attributable to an increase in the number of retail stores operated. For stores open more than one year ("same store sales"), revenues decreased by 0.2% from the prior period. Revenues from wholesale operations in Quarter 1999 declined 5.8% to $14.0 million from $14.8 million in Quarter 1998. Gross Profit - ------------ Gross profit increased 2.3% in Quarter 1999 to $72.3 million from $70.7 million in Quarter 1998. Gross profit as a percentage of total revenues increased to 27.5% in Quarter 1999 from 27.3% in Quarter 1998. Gross profit from retail operations increased 2.4% in Quarter 1999 to $71.3 million from $69.6 million in Quarter 1998 primarily due to the increase in revenues. Gross profit as a percentage of revenues for the retail operations increased to 28.7% in Quarter 1999 from 28.5% in Quarter 1998. The increase in gross profit as a percentage of revenues was primarily attributable to reduced distribution costs. Gross profit from the wholesale operations in Quarter 1999 decreased 7.9% to $1.0 million from $1.1 million in Quarter 1998. Gross profit as a percentage of wholesale revenues in Quarter 1999 decreased to 7.2% from 7.4% in Quarter 1998 due to a decrease in product margins. Operating and Administrative Expense - ------------------------------------ Operating and administrative expenses increased by 2.2% to $60.6 million in Quarter 1999 from $59.3 million in Quarter 1998. Operating and administrative expenses as a percentage of total revenues increased to 23.1% in Quarter 1999 from 22.9% in Quarter 1998. The increase in operating and administrative expenses as a percentage of total revenues was due to an increase in rent associated with a new location and the sale-leaseback of two store locations in March 1998. Interest Expense - ---------------- Net interest expense, primarily related to interest expense on debt incurred to finance the acquisition of the Company, was $6.9 million in Quarter 1999. Net interest expense was $7.5 million in Quarter 1998. 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 1, 1999 was $258.4 million, which includes $110.0 million in Senior Subordinated Notes due 2004, $146.4 million due under the Senior Credit Facility and a $2.0 million note payable. At June 1, 1999, the Company had $55.3 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 $12.5 million of unused revolving credit available under the Senior Credit Facility. During Quarter 1999, the Company completed the sale of one operating location for a gross selling price of $5.4 million. In fiscal year 1998, in connection with the plan of disposal, the Company determined that the carrying value of the assets exceeded their fair values. Accordingly, a loss of $2.7 million, which represented the excess of the carrying value of $7.8 million over the fair value of $5.1 million, was charged to operations in 1998. The net proceeds of the sale were applied to the revolving credit facility. The Company currently anticipates making total capital expenditures of approximately $15.6 million in fiscal 1999. Capital expenditures for Quarter 1999 were $2.3 million compared with $5.7 million in Quarter 1998. Capital expenditures will include converting two conventional stores to superstores and remodeling two existing stores. Planned capital expenditures for fiscal 1999 include approximately $5.4 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 1999 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. Year 2000 - --------- During 1997, the Company began a review process to address the Year 2000 issue that encompasses the Company's operating and administrative areas. Information technology professionals are working to identify and resolve Year 2000 issues in a timely and effective manner. The Company's executive management monitors the status of the Year 2000 remediation plans as they relate to internally used software, computer hardware and use of computer applications. The Company expects to complete remediation of all its operating and administrative systems by September 1999. The Company has also notified key vendors of Year 2000 compliance requirements. 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 $1.5 million. While the Company believes it is taking steps to assure Year 2000 compliance, it is also dependent on key vendor compliance. If 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 a material 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. 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 1, 1999. 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 11, 1999 By: /s/ Stephen R. Winslow ------------- ---------------------- Stephen R. Winslow Senior Vice President, Finance and chief accounting officer EX-27 2 ARTICLE 5 FDS FOR 1ST QUARTER 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ACCOMPANYING BALANCE SHEETS AS OF MAY 1, 1999 AND THE ACCOMPANYING STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE 13 WEEK PERIOD ENDED MAY 1, 1999 FOR STAR MARKETS COMPANY, INC., AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS JAN-29-2000 MAY-1-1999 0 0 18,452 1,392 63,726 87,513 236,075 74,289 403,289 73,245 257,252 10,445 0 0 82,276 403,289 262,676 262,676 190,393 66,829 (29) 0 6,944 (1,462) 91 (1,553) 0 0 0 (1,553) (310.60) (310.60)
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