-----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, CEkWE2ArPY4duMRvuFR8FwggB+0BuG63A31f+Ft+ehVa8xjaMQrJjPn/YgjBWpOf tEy1s3HLoh40cRYR/NQbiA== 0000910647-99-000253.txt : 19991227 0000910647-99-000253.hdr.sgml : 19991227 ACCESSION NUMBER: 0000910647-99-000253 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990814 FILED AS OF DATE: 19990928 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: 0227 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25262 FILM NUMBER: 99718506 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 August 14, 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 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 18, 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 - August 14, 1999, January 30, 1999 and February 27, 1999 Statements of operations - 13 and 26 weeks ended August 14, 1999 and August 1, 1998; 4 weeks ended February 27, 1999 and February 28, 1998 Statements of cash flows - 26 weeks ended August 14, 1999 and August 1, 1998; 4 weeks ended February 27, 1999 and February 28, 1998 Notes to financial statements 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)
August 14, February 27, January 30, 1999 1999 1999 ---------- ------------ ----------- (Unaudited) (Unaudited) Assets Current assets: Cash and cash equivalents $ 14,217 Accounts receivable, net of reserve for doubtful accounts of $954 in August, $1,378 in February and $1,331 in January 13,985 $ 16,083 $ 18,277 Inventory 58,853 63,154 64,914 Prepaid expenses 4,410 4,920 4,483 -------- -------- -------- Total current assets 91,465 84,157 87,674 Property and equipment at cost: Land 13,567 13,567 15,256 Building 28,018 28,006 31,712 Equipment & fixtures 110,599 124,074 123,757 Leasehold improvements 72,573 69,778 69,675 -------- -------- -------- Total property & equipment 224,757 235,425 240,400 Less accumulated depreciation and amortization 67,658 71,326 70,645 -------- -------- -------- Net property and equipment 157,099 164,099 169,755 Other assets, net 27,296 28,311 28,537 Goodwill, net 125,243 126,732 127,005 -------- -------- -------- Total Assets $401,103 $403,299 $412,971 ======== ======== ======== Liabilities and Shareholder's Equity Current liabilities: Accounts payable $ 33,290 $ 6,657 $ 39,247 Accrued payroll & benefits 8,331 15,129 14,399 Current portion self-insurance 4,844 6,907 6,286 Accrued interest 4,162 5,686 5,762 Other current liabilities 13,390 14,108 14,585 -------- -------- -------- Total current liabilities 64,017 78,487 79,279 Other liabilities 20,320 19,363 19,697 Long-term debt 110,000 251,174 259,037 Redeemable preferred stock, redemption value $11,000 10,460 10,429 10,421 Shareholder's equity: Common stock, $.01 par value, 10,000 shares authorized and 5,000 shares outstanding 0 0 0 Additional paid-in-capital 263,429 82,505 82,606 Retained earnings (deficit) (67,123) (38,659) (38,069) -------- -------- -------- Total shareholder's equity 196,306 43,846 44,537 -------- -------- -------- Total Liabilities and Shareholder's Equity $401,103 $403,299 $412,971 ======== ======== ========
See accompanying notes. STAR MARKETS COMPANY, INC. STATEMENTS OF OPERATIONS (Unaudited) (Amounts in thousands)
13 Weeks 13 Weeks 26 Weeks 26 Weeks 4 Weeks 4 Weeks Ended Ended Ended Ended Ended Ended August 14, August 1, August 14, August 1, February 27, February 28, 1999 1998 1999 1998 1999 1998 ---------- --------- ---------- --------- ------------ ------------ Total revenues $268,921 $268,682 $531,597 $527,885 $ 81,324 $ 78,178 Cost of goods sold 197,752 195,771 388,145 384,300 59,095 56,739 -------- -------- -------- -------- -------- -------- Gross profit 71,169 72,911 143,452 143,585 22,229 21,439 Operating and administrative expenses 62,167 61,570 122,758 120,882 18,652 17,474 Transaction expenses (Note 3) 23,585 0 23,585 0 0 0 Depreciation and amortization 6,616 6,185 12,854 12,232 1,917 1,864 -------- -------- -------- -------- -------- -------- Operating profit (21,199) 5,156 (15,745) 10,471 1,660 2,101 Interest expense 5,455 7,401 12,399 14,937 2,192 2,395 Other expenses (income), net 771 (17) 742 (18) 30 1 -------- -------- -------- -------- -------- -------- Loss before income taxes (27,425) (2,228) (28,886) (4,448) (562) (293) Income taxes 91 96 183 177 28 27 -------- -------- -------- -------- -------- -------- Net loss $(27,516) $ (2,324) $(29,069) $ (4,625) $ (590) $ (320) ======== ======== ======== ======== ======== ========
See accompanying notes. STAR MARKETS COMPANY, INC. STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands)
26 Weeks 26 Weeks 4 Weeks 4 Weeks Ended Ended Ended Ended August 14, August 1, February 27, February 28, 1999 1998 1999 1998 ---------- --------- ------------ ------------ Operating activities Net loss $ (29,069) $ (4,625) $ (590) $ (320) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Amortization of deferred financing costs 715 844 130 130 Depreciation and amortization 12,855 12,229 1,917 1,864 Loss (gain) on sale or disposal of property and equipment 601 (17) 30 Changes in operating assets and liabilities: Accounts receivable 4,294 3,265 2,196 4,463 Inventories 6,063 4,301 1,760 3,919 Prepaid expenses 73 (724) (438) (900) Accounts payable (3,917) (8,815) (1,589) (10,009) Accrued payroll and benefits (6,066) (1,201) 730 871 Self-insurance reserves (1,442) 352 621 97 Accrued interest 1,855 (131) (76) (235) Other current liabilities (1,435) (1,606) (571) (1,445) Other 351 849 (311) 152 --------- -------- ------- -------- Net cash (used in) provided by operating activities (15,122) 4,721 3,809 (1,413) Investing activities Purchases of property and equipment (4,448) (11,641) (1,054) (769) Proceeds from sale of property and equipment 5,162 21,577 5,109 0 --------- -------- ------- -------- Net cash provided by investing activities 714 9,936 4,055 (769) Financing Activities Net (repayment) proceeds from revolving credit facility (7,041) 4,900 (7,600) 2,500 Equity contribution 181,623 0 0 0 Repayment of long-term debt (145,345) (18,950) (264) (318) Preferred dividends paid (612) (607) 0 --------- -------- ------- -------- Net cash provided by (used in) financing activities 28,625 (14,657) (7,864) 2,182 Net increase in cash and cash equivalents 14,217 0 0 0 Cash and cash equivalents beginning of period 0 0 0 0 --------- -------- ------- -------- Cash and cash equivalents end of period $ 14,217 $ 0 $ 0 $ 0 ========= ======== ======= ========
See accompanying notes. STAR MARKETS COMPANY, INC. Notes to Financial Statements August 14, 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 52 stores as of August 14, 1999. On June 29, 1999, the previously reported Stock Purchase Agreement by and among Star Markets Company (the "Company"), Star Market Holdings, Inc. ("Holdings") and J Sainsbury plc ("Sainsbury") was completed. Sainsbury acquired all of the issued and outstanding voting securities of Holdings for $476.0 million. Note 2 - Change in Fiscal Year - ------------------------------ On June 29, 1999 the Company changed to a fiscal year ending the Saturday closest to the end of February from a fiscal year ending the Saturday closest to the end of January. As a result of the change in the fiscal year from January 30, 1999 to February 27, 1999, the Company has reported the 4 week transition period for the period from January 31, 1999 to February 27, 1999 for the 13 and 26 week period ended August 14, 1999; and a transition period of 2 weeks from May 2, 1999 to May 15, 1999. Financial statements for the corresponding periods of the prior year are included as previously reported; there are no seasonal or other factors that affect the comparability of the statements. The financial statements for the 13 and 26 weeks ended August 14, 1999 are adjusted for the 2 week transition period ended May 15, 1999. The results of operations for the transition period of the 2 weeks ended May 2, 1999 to May 15, 1999 are as follows:
2 Weeks 2 Weeks Ended Ended May 15, May 16, 1999 1998 -------- ------- Total revenues $40,908 $40,898 Net loss (228) (420)
Note 2 - Change in Fiscal Year - continued - ------------------------------------------ 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 and 26 weeks ended August 14, 1999 are not necessarily indicative of the results for the entire year ending February 26, 2000. The financial statements should be read in connection with the audited financial statements and footnotes included in the Registrant Company's annual report on Form 10-K for the year ended January 30, 1999. Note 3 - Equity Contribution - ---------------------------- On June 29, 1999, the Company received an equity contribution of $181.6 million from J Sainsbury plc in connection with their purchase of the Company. Of the proceeds of the equity contribution, $145.3 million was used to repay the outstanding debt under the Senior Credit Facility of the Company and to pay $23.6 million of transaction expenses related to the closing of the purchase of the Company. Of the $23.6 million, $17.7 million represented compensation expense attributable to the settlement of employee stock options and $5.9 million were costs related directly to the closing of the transaction. Note 4 - Subsequent Event - ------------------------- On August 31, 1999, the Company completed the sale of its wholesale business to C+S Grocers, Inc. of Brattleboro, VT. for $3.4 million. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition. Results of Operations - --------------------- Results of operations for the 13 and 26 weeks ended August 14, 1999 are referred to herein as "Quarter 1999" and "Interim 1999," respectively, and the 13 and 26 weeks ended August 1, 1998 are referred to as "Quarter 1998" and "Interim 1998," respectively. The Company currently operates 24 superstores, 24 conventional supermarkets and four Wild Harvest stores, which emphasize natural, healthy foods. Quarter 1999 Revenues - -------- Total revenues increased 0.1% in Quarter 1999 to $268.9 million from $268.7 million in Quarter 1998. Revenues from retail operations in Quarter 1999 increased 0.8% to $255.4 million from $253.5 million in Quarter 1998. The increase in revenues from retail operations was attributable to an increase in the number of retail stores operated and an increase in comparable store sales of 3.1%. Revenues from wholesale operations in Quarter 1999 declined 11.4% to $13.5 million from $15.2 million in Quarter 1998. Gross Profit - ------------ Gross profit decreased 2.4% in Quarter 1999 to $71.2 million from $72.9 million in Quarter 1998. Gross profit as a percentage of total revenues decreased to 26.5% in Quarter 1999 from 27.1% in Quarter 1998. Gross profit from retail operations decreased 2.0% in Quarter 1999 to $70.3 million from $71.8 million in Quarter 1998. Gross profit as a percentage of revenues for the retail operations decreased to 27.5% in Quarter 1999 from 28.3% in Quarter 1998. The decrease in gross profit as a percentage of revenues was due primarily to a decrease in product margins. Gross profit from wholesale operations in Quarter 1999 decreased 23.5% to $0.9 million from $1.1 million in Quarter 1998 due to the decrease in wholesale revenues. Gross profit as a percentage of wholesale revenues in Quarter 1999 decreased to 6.4% from 7.5% in Quarter 1998. Operating and Administrative Expenses - ------------------------------------- Operating and administrative expenses increased by 1.0% to $62.2 million in Quarter 1999 from $61.6 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 primarily due to an increase in rent as a percentage of revenues. Transaction Expenses - -------------------- Expenses related to the acquisition of the Company were $23.6 million in Quarter 1999, of which $17.7 million represented settlement of employee stock options. Interest Expense - ---------------- Net interest expense, primarily related to interest expense on debt incurred to finance the 1994 acquisition of the Company, was $5.4 million in Quarter 1999. Net interest expense was $7.4 million in Quarter 1998. The decrease in interest expense is attributable to the repayment of outstanding debt under the Senior Credit Facility on June 29, 1999, in connection with the purchase of the Company by Sainsbury. Interim 1999 - ------------ Revenues - -------- Total revenues increased 0.7% in Interim 1999 to $531.6 million from $527.9 million in Interim 1998. Revenues from retail operations in Interim 1999 increased 1.3% to $504.1 million from $497.9 million in Interim 1998. The increase in revenues from retail operations was attributable both to an increase in the number of retail stores operated and a 1.5% increase in comparable store sales. Revenues from wholesale operations in Interim 1999 declined 8.5% to $27.5 million from $30.0 million in Interim 1998. Gross Profit - ------------ Gross profit decreased 0.1% in Interim 1999 to $143.5 million from $143.6 million in Interim 1998. Gross profit as a percentage of total revenues decreased to 27.0% in Interim 1999 from 27.2% in Interim 1998. Gross profit from retail operations in Interim 1999 of $141.6 million remained consistent with $141.6 million in Interim 1998. Gross profit as a percentage of revenues for the retail operations decreased to 28.1% in Interim 1999 from 28.4% in Interim 1998. The decrease in gross profit as a percentage of revenues was due primarily to a decrease in product margins. Gross profit from wholesale operations in Interim 1999 decreased 16.4% to $1.9 million from $2.2 million in Interim 1998. Gross profit as a percentage of wholesale revenues in Interim 1999 decreased to 6.8% from 7.5% in Interim 1998. Operating and Administrative Expenses - ------------------------------------- Operating and administrative expenses increased by 1.6% to $122.8 million in Interim 1999 from $120.9 million in Interim 1998. Operating and administrative expenses as a percentage of total revenues increased to 23.1% in Interim 1999 from 22.9% in Interim 1998. The increase in operating and administrative expenses as a percentage of total revenues was due to an increase in rent. Transaction Expenses - -------------------- Expenses related to the acquisition of the Company were $23.6 million, of which $17.7 million represented settlement of employee stock options. Interest Expense - ---------------- Net interest expense, primarily related to interest expense on debt incurred to finance the 1994 acquisition of the Company, was $12.4 million in Interim 1999. Net interest expense was $14.9 million in Interim 1998. The decrease in interest expense is attributable to the repayment of outstanding debt under the Senior Credit Facility on June 29, 1999, in connection with the purchase of the Company by Sainsbury. Liquidity and Capital Resources - ------------------------------- The Company's total indebtedness as of August 14, 1999 was $110.0 million of Subordinated Notes ("the Notes") due November 1, 2004. Beginning on November 1, 1999, the Company intends to redeem the Notes for a price equal to 106.5% of the principal amount of the Notes. On June 29, 1999, the Company received an equity contribution of $181.6 million from J Sainsbury plc in connection with their purchase of the Company. Of the proceeds of the equity contribution, $145.3 million was used to repay term loans, $17.7 million for the settlement of employee stock options and $5.9 million for expenses related to the closing of the purchase of the Company. During the quarter, the Company divested one operating location, as stipulated by the Federal Trade Commission for approval of the purchase of the Company by J Sainsbury plc. The Company is required to divest four additional operating locations as a condition for approval of the purchase of the Company. The Company believes that the current cash balances and funds generated from operations 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 to fund planned capital expenditures. However, if the Company's cash flow and capital resources are insufficient to fund its debt service obligations and working capital requirements, the Company will receive funding from the parent company, J Sainsbury plc. 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 October 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. 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 filed two reports on Form 8-K during the 26 weeks ended August 14, 1999: (1) Form 8-K dated July 14, 1999 reported: Item 1. Change in Control of Registrant. On June 29, 1999, J Sainsbury plc acquired all of the issued and outstanding voting securities of Star Market Holdings, Inc. Item 8. Change in Fiscal Year. On June 29, 1999 the Company has changed to a fiscal year ending the Saturday closest to the end of February from a fiscal year ending the Saturday closest to the end of January. (2) Form 8-K dated July 30, 1999 reported: Item 4. Change in Registrant's Certifying Accountant. On August 16, 1999, the Registrant notified Ernst & Young, LLP that they were dismissed as the Registrants' independent auditors as a result of the previously reported Change in Control Item 5. Other Events - Issuance of Notice in Change of Control Relating to Star Markets Company, Inc. to Holders of 13% Senior Subordinated Notes Due November 1, 2004. 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: September 28, 1999 By: /s/ ------------------ ----------------- John Flaherty Treasurer, chief accounting officer EX-27 2 FDS FOR 2ND QUARTER
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ACCOMPANYING BALANCE SHEETS AS OF AUGUST 14, 1999 AND JANUARY 30, 1999; THE ACCOMPANYING STATEMENTS OF OPERATIONS FOR THE 13 WEEK AND 26 WEEK PERIODS ENDED AUGUST 14, 1999 AND AUGUST 1, 1998; AND THE ACCOMPANYING STATEMENTS OF CASH FLOWS FOR THE 26 WEEK PERIODS AUGUST 14, 1999 AND AUGUST 1,1998 FOR STAR MARKETS COMPANY, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS FEB-26-2000 AUG-14-1999 14,217 0 13,985 954 58,853 89,715 224,757 67,658 422,193 77,957 0 10,460 0 0 196,306 422,193 268,921 268,921 197,752 92,368 771 0 5,455 (27,425) 91 (27,516) 0 0 0 (27,516) (5,503.40) (5,503.40)
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