UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10–Q
(Mark One)
| (X) | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period (13 weeks) ended April 27, 2002.
| ( ) | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 333-32825
SHOPPERS FOOD WAREHOUSE CORP.
(Exact name of registrant as specified in its charter)
Delaware
| | 53-0231809
|
| (State or other jurisdiction of | | (I.R.S. Employer |
| incorporation or organization) | | Identification No.) |
11840 Valley View Road, Eden Prairie, Minnesota 55344
(Address of principal executive office) (Zip Code)
(952) 828-4000
(Registrant’s telephone number, including area code)
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 (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No
At June 3, 2002 the registrant had 23,333 shares of Class A Common Stock, non-voting, $5.00 par value per share, outstanding and 10,000 shares of Class B Common Stock, voting, $5.00 par value per share, outstanding. The common stock of Shoppers Food Warehouse Corp. is not publicly traded.
The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format.
PART I
ITEM 1. Financial Statements
The consolidated financial statements included herein have been prepared by Shoppers Food Warehouse Corp. (“Shoppers” or the “Company”) without audit (except for the consolidated balance sheet as of January 26, 2002, which has been derived from the audited consolidated balance sheet as of that date) pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted because they are not applicable or not required.
It is suggested that these consolidated financial statements are read in conjunction with the consolidated financial statements and notes thereto included in Shoppers’ Annual Report on Form 10-K for the fiscal year ended January 26, 2002.
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SHOPPERS FOOD WAREHOUSE CORP.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
| | | April 27, 2002
| | January 26, 2002
|
Assets | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | $ | 1,256 | | $ | 4,498 |
| Accounts receivable, net | | | 9,990 | | | 10,005 |
| Merchandise inventories | | | 36,786 | | | 36,929 |
| Other current assets | | | 5,901 | | | 5,655 |
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| Total current assets | | | 53,933 | | | 57,087 |
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| Property and equipment, net | | | 102,032 | | | 93,936 |
| Goodwill | | | 291,811 | | | 291,811 |
| Lease rights, net | | | 25,121 | | | 25,466 |
| Note receivable, related party | | | 52,680 | | | 51,520 |
| Other assets | | | 321 | | | 310 |
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| Total assets | | $ | 525,898 | | $ | 520,130 |
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Liabilities and Stockholder’s Equity | | | | | | |
| Current liabilities: | | | | | | |
| Accounts payable | | $ | 12,974 | | $ | 12,126 |
| Accrued expenses | | | 29,952 | | | 25,332 |
| Due to affiliates | | | 13,850 | | | 21,854 |
| Accrued income taxes | | | 29,281 | | | 30,517 |
| Current maturities of capital lease obligations | | | 1,234 | | | 875 |
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| Total current liabilities | | | 87,291 | | | 90,704 |
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| Senior notes due 2004 | | | 173,403 | | | 174,406 |
| Capital lease obligations | | | 36,799 | | | 32,566 |
| Other liabilities | | | 11,995 | | | 11,882 |
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| Total liabilities | | | 309,488 | | | 309,558 |
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| Stockholder’s Equity: | | | | | | |
Class A common stock, nonvoting, par value $5 per share, 25,000 shares authorized; 23,333 1/3 shares issued and outstanding | | | 117 | | | 117 |
Class B common stock, voting, par value $5 per share, 25,000 shares authorized, 10,000 shares issued and outstanding | | | 50 | | | 50 |
| Additional paid-in capital | | | 189,241 | | | 189,241 |
| Retained earnings | | | 27,002 | | | 21,164 |
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| Total stockholder’s equity | | | 216,410 | | | 210,572 |
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| Total liabilities and stockholder’s equity | | $ | 525,898 | | $ | 520,130 |
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The accompanying notes are an integral part of these consolidated financial statements.
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SHOPPERS FOOD WAREHOUSE CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands)
| | | April 27, 2002
| | April 28, 2001
|
| | | (13 weeks) | | (13 weeks) |
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| Sales | | $ | 246,800 | | $ | 235,900 |
| Cost of sales | | | 180,868 | | | 177,474 |
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| Gross profit | | | 65,932 | | | 58,426 |
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| Selling and administrative expenses | | | 54,049 | | | 51,370 |
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| Operating income | | | 11,883 | | | 7,056 |
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| Interest income | | | 1,160 | | | 1,056 |
| Interest expense | | | 3,438 | | | 3,430 |
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| Net interest expense | | | 2,278 | | | 2,374 |
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| Earnings before income taxes | | | 9,605 | | | 4,682 |
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| Provision for income taxes | | | 3,767 | | | 2,672 |
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| Net earnings | | $ | 5,838 | | $ | 2,010 |
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The accompanying notes are an integral part of these consolidated financial statements.
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SHOPPERS FOOD WAREHOUSE CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | | April 27, 2002
| | | April 28, 2001
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| | | (13 weeks) | | | (13 weeks) | |
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| Net cash provided by operating activities: | | $ | 11,050 | | | $ | 20,461 | |
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| Cash flows used in investing activity: | | | | | | | | |
| Capital expenditures | | | (6,091 | ) | | | (2,192 | ) |
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| Cash flows used in financing activities: | | | | | | | | |
| Cash provided to affiliated companies | | | (8,004 | ) | | | (16,949 | ) |
| Principal payments under capital lease obligations | | | (197 | ) | | | (162 | ) |
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| Net cash used in financing activities | | | (8,201 | ) | | | (17,111 | ) |
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| Net (decrease) increase in cash and cash equivalents | | | (3,242 | ) | | | 1,158 | |
| Cash and cash equivalents, beginning of period | | | 4,498 | | | | 2,966 | |
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| Cash and cash equivalents, end of period | | $ | 1,256 | | | $ | 4,124 | |
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| Supplemental Cash Flow Data: | | | | | | | | |
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| Cash paid during the period for: | | | | | | | | |
| Income taxes, net | | $ | — | | | $ | — | |
| Interest | | | — | | | | — | |
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| Disclosure of noncash investing activity: | | | | | | | | |
| Leased asset additions and related obligations | | $ | 4,789 | | | $ | — | |
The accompanying notes are an integral part of these consolidated financial statements.
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NOTE 1—GENERAL
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Shoppers Food Warehouse Corp. (a Delaware corporation) and its subsidiaries, (collectively “Shoppers” or the “Company”) for the 13 weeks ended April 27, 2002 (“first quarter 2003”), and the 13 weeks ended April 28, 2001 (“first quarter 2002”). All significant intercompany accounts and transactions have been eliminated. Shoppers operates in one business segment. The Company is an indirect wholly owned subsidiary of SUPERVALU INC. (“SUPERVALU”).
The accompanying consolidated financial statements of the Company as of April 27, 2002, and for the first quarter 2003 and the first quarter 2002, have not been audited. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from the accompanying consolidated financial statements.
In the opinion of the Company, the accompanying consolidated financial statements reflect all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position of the Company as of April 27, 2002, and the results of its operations for the first quarter 2003 and the first quarter 2002.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to prior year’s financial statements to conform to the 2003 presentation. These reclassifications did not affect results of operations as previously reported.
Goodwill and Other Intangible Assets
In June 2001, the Financial Accounting Standards Board (FASB) approved Statement of Financial Accounting Standard (SFAS) No. 142, “Goodwill and Other Intangible Assets.” SFAS 142 requires companies to cease amortizing goodwill and test at least annually for impairment. For Shoppers, amortization of goodwill ceased on January 27, 2002, at which time it was tested for impairment. Shoppers has one reporting unit that was tested for impairment by comparing the fair value of the reporting unit with its carrying value of goodwill and other intangible assets as of January 27, 2002. Fair value was determined based on a valuation study performed by the Company which primarily considered the discounted cash flow method. As a result of this impairment test, Shoppers recorded no impairment loss.
The following schedule reconciles net earnings to adjusted net earnings, which excludes amortization expense, for the first quarter ended April 28, 2001, prior to the adoption of SFAS No. 142:
| | | April 27, 2002
| | April 28, 2001
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| | | (13 weeks) | | (13 weeks) |
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| Reported net earnings | | $ | 5,838 | | $ | 2,010 |
| Goodwill amortization | | | — | | | 1,926 |
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| Adjusted net earnings | | $ | 5,838 | | $ | 3,936 |
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In August 2001, the FASB issued SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets.” Shoppers adopted the provisions of SFAS No. 144 effective January 27, 2002. Shoppers tested for impairment by comparing the fair value of its assets with the carrying value. Fair value was determined based on a valuation study performed by the Company which primarily considered the undiscounted cash flow method. As a result of this impairment test, Shoppers recorded no impairment loss.
NOTE 2—SUBSEQUENT EVENT
Senior Notes Due 2004
On May 16, 2002, the Company provided notice to the holders of the Senior Notes that on June 17, 2002 the Company would redeem the outstanding Senior Notes at the redemption price of 102.4375% of the principal amount of the Senior Notes, plus any accrued interest and unpaid interest. The Company will redeem these Senior Notes with cash provided by SUPERVALU.
ITEM | | 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
RESULTS OF OPERATIONS
Net sales were $246.8 million for the first quarter 2003, compared to $235.9 million for the first quarter 2002, an increase of 4.6 percent. The sales increase was primarily due to positive comparable store sales for the first quarter 2003.
Gross profit, as a percentage of net sales, increased to 26.7 percent for the first quarter 2003, compared to 24.8 percent for the first quarter 2002. The increase is primarily due to a change in product mix.
Selling and administrative expenses, as a percentage of net sales, increased to 21.9 percent for the first quarter 2003, compared to 21.8 percent for the first quarter 2002. Excluding goodwill amortization, selling and administrative expenses, as a percentage of sales, were 21.0 percent for the first quarter 2002. The increase is due to higher wages and benefits costs associated with negotiated union rates and higher maintenance and occupancy costs.
Operating income, as a percentage of net sales, increased to 4.8 percent for the first quarter 2003, compared to 3.0 percent for the first quarter 2002. The increase was primarily due to an increase in gross profit on the increased sales activity and the adoption of SFAS No. 142.
Interest income and interest expense remained relatively flat during the first quarter 2003 as compared to the first quarter 2002, as expected.
The effective income tax rate for the first quarter 2003 was 39.2 percent, compared to 57.1 percent for the first quarter 2002. The decrease is primarily attributable to the adoption of SFAS No. 142 in the first quarter 2003.
Net income was $5.8 million during the first quarter 2003, compared to $2.0 million during the first quarter 2002.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter 2003, operating activities generated net cash of $11.1 million, compared to generating $20.5 million during the first quarter 2002. The decrease was primarily due to the change in working capital year to date 2003, compared to year to date 2002.
Cash used in investing activities was $6.1 million during the first quarter 2003 compared to $2.2 million during the first quarter 2002. The increase in cash used in investing activities is attributable to capital expenditures related to a store remodel and a store opening subsequent to the first quarter 2003.
Cash used in financing activities was $8.2 million during the first quarter 2003 compared to $17.1 million during the first quarter 2002. This activity reflects transfers made to affiliated companies of $8.0 million during the first quarter 2003,
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compared to $16.9 million during the first quarter 2002. The decrease in cash transferred to affiliates was primarily driven by a decrease in cash provided by operating activities that is utilized to make transfers to affiliates.
On May 16, 2002, the Company provided notice to the holders of the Senior Notes that on June 17, 2002 the Company would redeem the outstanding Senior Notes at the redemption price of 102.4375% of the principal amount of the Senior Notes, plus any accrued interest and unpaid interest. The Company will redeem these Senior Notes with cash provided by SUPERVALU.
Management expects that the Company will continue to replenish operating assets with internally generated funds, as well as with cash provided by affiliated companies. The Company’s financing abilities are believed to be adequate as a supplement to internally generated cash flows to meet its anticipated requirements for working capital, debt service and capital expenditures.
Cautionary Statements for Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995
Any statements in this report regarding Shoppers’ outlook for its business and their respective markets, such as projections of future performance, statements of management’s plans and objectives, forecasts of market trends and other matters, are forward-looking statements based on management’s assumptions and beliefs. Such statements may be identified by such words or phrases as “will likely result,” “are expected to,” “will continue,” “outlook,” “is anticipated,” “estimate,” “project,” “management believes” or similar expressions. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those discussed in such forward-looking statements and no assurance can be given that the results in any forward-looking statement will be achieved. For these statements, Shoppers claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
The following is a summary of certain factors, the results of which could cause Shoppers’ future results to differ materially from those expressed or implied in any forward-looking statements contained in this report:
| | · | | competitive practices in the retail food and food distribution industries, |
| | · | | the nature and extent of the consolidation of the retail food industry, |
| | · | | general and economic or political conditions that affect consumer buying habits generally or acts of terror directed at the food industry that affect consumer behavior, |
| | · | | potential work disruptions from labor disputes or national emergencies, |
| | · | | the availability of favorable credit and trade terms, and |
| | · | | other risk factors inherent in the retail food industry. |
Any forward-looking statement speaks only as of the date on which such statement is made, and Shoppers undertakes no obligation to update such statement to reflect events or circumstances arising after such date.
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk
Shoppers is not exposed to material market risk. Interest on both the Company’s notes receivable and Senior Notes are at fixed rates. The market value of the fixed rate notes is subject to change due to fluctuations in market interest rates. Shoppers does not have any other financial instruments that result in material exposure to interest rate risk.
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PART II
ITEM | | 1. Legal Proceedings |
None
ITEM | | 2. Changes in Securities and Use of Proceeds |
Not Applicable
ITEM | | 3. Defaults Upon Senior Securities |
Not Applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
Not Applicable
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
None
None
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SIGNATURES
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.
| | | | | SHOPPERS FOOD WAREHOUSE CORP. |
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| Date: June 11, 2002 | | | | By: | | /s/ Pamela K. Knous
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| | | | | | | | | Pamela K. Knous Executive Vice President, Chief Financial Officer (principal financial and accounting officer) |
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