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
For the quarterly period ended January 15, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
Commission File No. 1-9914
RISER FOODS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 34-1570363
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5300 Richmond Road, Bedford Heights, Ohio 44146
(Address of principal executive offices)
Registrant's telephone number, including area code: (216) 292-7000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Outstanding at
February 18, 1994
Class A Common Stock, $.01 Par Value 8,678,918
Class B Common Stock, $.01 Par Value 955,613
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RISER FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands of dollars)
January 15, July 3,
1994 1993
ASSETS ---------- ----------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 3,422 $ 4,394
Trade accounts receivable, net 34,884 36,039
Inventories 79,926 72,482
Deferred income taxes 6,778 -
Prepaid expenses 5,780 4,607
---------- ----------
130,790 117,522
PROPERTY, EQUIPMENT AND CAPITAL LEASES 169,649 157,043
Less-Allowances for depreciation, amorti-
zation and loss on disposal of fixed assets 62,086 55,965
---------- ----------
107,563 101,078
OTHER ASSETS 16,996 14,829
---------- ----------
TOTAL ASSETS $ 255,349 $ 233,429
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 45,352 $ 47,188
Accrued liabilities 32,284 31,172
Current portion of long-term liabilities 15,853 15,427
---------- ----------
93,489 93,787
LONG-TERM LIABILITIES:
Debt 67,074 56,318
Capital lease obligations 11,084 10,591
Self insurance reserves 10,088 9,053
OTHER LIABILITIES 5,961 6,349
DEFERRED INCOME TAXES - 952
SHAREHOLDERS' EQUITY:
Preferred Stock--18,044 shares 1,804 1,804
Class A Common Stock--7,125,288 shares 71 71
Class B Common Stock--955,613 shares 10 10
Paid-in capital 35,546 35,546
Retained earnings 30,222 18,948
---------- ----------
67,653 56,379
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 255,349 $ 233,429
========== ==========
The accompanying Notes to Consolidated Condensed Financial
Statements are an integral part of these consolidated balance sheets.
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RISER FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands of dollars, except share and per share data)
(unaudited)
28 Weeks Ended 12 Weeks Ended
Jan. 15, Jan. 9, Jan. 15, Jan. 9,
1994 1993 1994 1993
---------- ---------- ---------- ----------
NET SALES $ 598,738 $ 594,406 $ 270,765 $ 263,626
COST OF GOODS SOLD 484,347 478,386 219,435 212,648
---------- ---------- ---------- ----------
Gross profit 114,391 116,020 51,330 50,978
SELLING, GENERAL &
ADMINISTRATIVE EXPENSE 103,400 106,001 45,755 46,253
RESTRUCTURING CHARGE - 5,000 - 5,000
---------- ---------- ---------- ----------
Operating profit (loss) 10,991 5,019 5,575 (275)
INTEREST EXPENSE, NET 3,611 3,292 1,631 1,432
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING
PRINCIPLE AND INCOME
TAXES 7,380 1,727 3,944 (1,707)
PROVISION (CREDIT) FOR
INCOME TAXES 2,900 700 1,550 (700)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING
PRINCIPLE 4,480 1,027 2,394 (1,007)
CUMULATIVE EFFECT TO
JULY 4, 1993 OF CHANGE IN
INCOME TAX ACCOUNTING 6,866 - - -
---------- ---------- ---------- ----------
NET INCOME (LOSS) 11,346 1,027 2,394 (1,007)
LESS PREFERRED STOCK
DIVIDENDS 72 72 36 36
---------- ---------- ---------- ----------
NET INCOME (LOSS) APPLICABLE
TO COMMON SHARES $ 11,274 $ 955 $ 2,358 $ (1,043)
========== ========== ========== ==========
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28 Weeks Ended 12 Weeks Ended
Jan. 15, Jan. 9, Jan. 15, Jan. 9,
1994 1993 1994 1993
---------- ---------- ---------- ----------
PER SHARE DATA:
NET INCOME (LOSS) PER
COMMON SHARE BEFORE
CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING
PRINCIPLE $ .54 $ .12 $ .29 $ (.13)
CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING
PRINCIPLE .85 - - -
---------- ---------- ---------- ----------
NET INCOME (LOSS) PER
COMMON SHARE $ 1.39 $ .12 $ .29 $ (.13)
========== ========== ========== ==========
DIVIDENDS PER COMMON SHARE - - - -
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 8,080,901 8,080,901 8,080,901 8,080,901
========== ========== ========== ==========
The accompanying Notes to Consolidated Condensed Financial
Statements are an integral part of these consolidated statements.
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RISER FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(unaudited)
28 Weeks Ended 12 Weeks Ended
Jan. 15, Jan. 9, Jan. 15, Jan. 9,
1994 1993 1994 1993
--------- --------- --------- ---------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 11,346 $ 1,027 $ 2,394 $ (1,007)
Adjustments to reconcile
net income (loss) to net
cash provided by
operating activities:
Depreciation & Amort. 7,753 7,041 3,257 3,347
Cumulative effect of
change in accounting
principle (6,866) - - -
Changes in assets
and liabilities (10,142) 2,158 (1,006) 14,747
--------- --------- --------- ---------
Cash provided by operating
activities 2,091 10,226 4,645 17,087
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of fixed assets (15,054) (13,566) (4,745) (6,008)
Proceeds from sale of
fixed assets 455 411 29 -
--------- --------- --------- ---------
Cash used for investing
activities (14,599) (13,155) (4,716) (6,008)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings under revolving
credit facility 422,040 320,629 233,029 126,750
Repayments of revolving
credit facility (410,230) (312,708) (231,388) (134,771)
Reduction of long-term
debt, net (981) (3,764) (2,638) (2,197)
Additions to (reduction of)
capital lease obligations 779 (665) 1,283 (284)
Preferred stock dividends (72) (72) (36) (36)
--------- --------- --------- ---------
Cash provided by (used for)
financing activities 11,536 3,420 250 (10,538)
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (972) 491 179 541
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 4,394 3,377 3,243 3,327
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 3,422 $ 3,868 $ 3,422 $ 3,868
========= ========= ========= =========
SUPPLEMENTAL DATA:
Interest Paid $ 3,911 $ 4,223 $ 2,347 $ 2,090
========= ========= ========= =========
Taxes Paid $ 2,692 $ 2,267 $ 751 $ 1,200
========= ========= ========= =========
The accompanying Notes to Consolidated Condensed Financial
Statements are an integral part of these consolidated statements.
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RISER FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JANUARY 15, 1994
(1) Basis of Presentation:
The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with the instructions to Form 10-Q and
therefore do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. The results of
operations for the twelve and twenty-eight weeks ended January 15, 1994 are
not necessarily indicative of the results to be expected for the fiscal year
ending July 2, 1994. In the opinion of management, the accompanying
unaudited consolidated condensed financial statements contain all adjustments
necessary for a fair statement of the financial position at the dates
indicated and of the results of operations for the interim periods presented.
(2) Debt:
In fiscal 1993, the Company renegotiated its bank credit facilities (the
Facilities). The Facilities provide for revolving lines of credit, letters
of credit and a term loan up to an aggregate of $75 million. Borrowings
under the revolving lines of credit are due in June 1996 but may be extended
to June 1998 upon consent of the banks. Borrowings under the lines of credit
and term loan accrue interest at .5% over the Bank's Prime Interest Rate and
is paid monthly. Available unused borrowing capacity under these Facilities
at January 15, 1994 was approximately $15.1 million.
(3) Employee Stock Option Plan:
On July 28, 1992 the Company granted options to several key employees to
purchase 184,700 shares of Class A Common Stock (the 1992 Options) under the
Company's Stock Incentive Plan for Key Employees. The exercise price of the
1992 Options is $7.31 per share of Class A Common Stock which approximated
the fair market value at the date of grant. The 1992 Options will not become
exercisable until July 28, 1994 (except in certain limited circumstances) and
will expire on July 28, 2002 if not exercised. The 1992 Options are non-
qualified options for Federal Income Tax purposes.
(4) Restructuring Charge:
In January 1993, the Company announced plans to close its five remaining
Carl's stores in the Akron-Canton area along with a former Carl's location in
Bedford, Ohio. The Company also declined to renew its lease on a Food Centre
location in Brunswick, Ohio. These closings were the result of the Company's
decision to focus efforts on its core store format, Rini-Rego Stop-N-Shop.
The Company provided a $5 million restructuring charge during the second
quarter of fiscal 1993 as a result of these closings. This charge was
comprised of estimated costs associated with the closing of these stores
which included anticipated losses on disposal of assets, employee severance
payments and other benefits for terminated employees, estimated withdrawal
liabilities for multi-employer pension plans, and future lease payments net
of estimated sublease income.
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(5) Change in Accounting Principles - Accounting for Income Taxes:
During the first quarter of fiscal 1994, the Company adopted Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS No. 109). This Statement requires that the liability method of
accounting for income taxes be used rather than the deferred method
previously used. The Company elected not to restate prior years' financial
statements. The cumulative effect of this accounting change was to increase
first quarter earnings by $6,866,000 or $.85 per share. The cumulative
effect is principally the result of benefiting the expected utilization of
net operating loss carryforwards and the adjustment of deferred tax balances
to reflect changes in statutory rates.
Significant components of the Company's net deferred tax asset as of
July 3, 1993, after giving effect to SFAS No. 109, are as follows (in
thousands):
DEFERRED TAX LIABILITIES:
Property $ (5,459)
State and local taxes other
than income (402)
Other (9)
---------
(5,870)
DEFERRED TAX ASSETS:
Reserve for uncollectible
accounts 1,440
Closed facilities reserves 2,303
Self insurance reserves 4,688
Employees' retirement benefits 1,123
Accruals not currently deductible 2,085
Net operating loss carryforwards 8,409
Other 814
---------
20,862
VALUATION ALLOWANCE (4,648)
---------
NET DEFERRED TAX ASSET $ 10,344
=========
The Company has tax net operating loss carryforwards (NOL) totaling
$24,733,000 which expire as follows (in thousands):
Year NOL
2000 $ 2,486
2001 16,859
2002 5,388
--------
$24,733
========
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SFAS No. 109 requires that the tax benefit of such NOL be recorded as an
asset to the extent the Company assesses the utilization of such NOL to be
"more likely than not". Based upon the Company's history of prior earnings,
expectation for future earnings and tax regulations which limit the annual
amount of NOL available for deduction, the Company does not believe the
entire amount of NOL will be utilized before they expire. As such, a
valuation reserve of $4,648,000 has been established for that portion of the
NOL which the Company does not believe it will benefit prior to their
expiration.
The Company's Statements of Operations for the twelve and twenty-eight
weeks ended January 15, 1994 and January 9, 1993 reflect net income tax
provisions at the various statutory income tax rates to which the Company is
subject. There were no significant differences in financial reporting and
tax income.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The Company's net sales for the second quarter of fiscal 1994 increased
2.71% between years. Net sales for the twenty-eight weeks ended January 15,
1994 increased .73%. These sales increases reflect the Company's continuing
change in mix of its sales. This change in mix is the result of increased
wholesale sales and declining retail sales. Wholesale sales growth has been
favorably impacted by new customers and the acquisition of a new Health and
Beauty Care/General Merchandise (HBC/GM) distribution facility. Retail sales
declines are the result of fewer retail units, increased competition,
deflation in some food products and the general economic environment.
Wholesale sales for the second quarter of fiscal 1994 increased 17.84%
over the same period last year. For the twenty-eight weeks ended January 15,
1994, wholesale sales have risen 14.28%. Sales to existing wholesale
customers also have been impacted by the same economic pressures facing the
Company's retail stores. The Company has been able to more than offset sales
declines in certain of its wholesale customers through the acquisition of new
customers and expanded distribution opportunities. During the first quarter
of fiscal 1994, the Company completed the full cycling of new customers
acquired as a result of a competitor's bankruptcy.
The Company is continuing to seek new customers, many of whom are
outside existing distribution channels, in an effort to expand its
distribution territory. The Company's wholesale customers are primarily
located in northeast Ohio and western Pennsylvania. Additionally, the
Company seeks to increase sales penetration to existing customers by
increasing perishable and HBC/GM penetration.
The Company acquired the warehouse facility and certain inventory and
equipment of its previous HBC/GM supplier during the first quarter of fiscal
1994. This supplier had earlier sought protection from creditors with a
Chapter 11 bankruptcy filing. The Company used these assets to begin
operations of its own HBC/GM distribution facility. This new facility
services existing wholesale customers as well as a new mass merchandising
chain.
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Sales in Company-operated retail stores declined 8.95% between years
during the second quarter of fiscal 1994. Year-to-date retail sales have
fallen 9.55% over the same period last year. Sales in retail stores
operating the same weeks in both years declined .80% during the second
quarter and 1.29% year-to-date. This decline in sales is primarily
attributed to the closing of 8 company-operated retail stores between years.
Although somewhat less than previous quarters, this continues a trend of
declining sales from previous quarters. Sales declines in Company-operated
retail stores are attributed to increased competition, particularly non-union
and non-traditional grocery retailers. Also negatively impacting the retail
sales trend is deflation in certain food products and the overall economic
climate of the Company's retail market, northeast Ohio.
The Company is continuing a process of retail restructuring which began
in fiscal 1993 with the closing of seven non Rini-Rego locations. Rini-Rego
is the Company's core-store format which it will continue to focus on in
coming years. The Company opened one new store during the first quarter of
fiscal 1994 which replaced an older location and completed the remodelling of
another. The Company has two major remodelling projects in progress which
will be completed during the third quarter of fiscal 1994.
Company programs to remodel and remerchandise existing retail locations
to combat retail sales declines are continuing. The Company has realized
sales gains in past remodelling projects which have been more than offset by
sales declines attributed to the overall economic climate and increased
competition. The Company will continue to evaluate each retail location and
seek to have each Company-operated location meet the specific needs of its
community. To meet these needs, the Company may consolidate retail locations
in future periods, for example replacing two smaller 30,000 square foot
stores with a larger 60,000 square foot store.
Gross margin as a percentage of sales declined between years during both
the second quarter (from 19.3% to 19.0%) and year-to-date (from 19.5% to
19.1%). These decreases in gross margin percentage reflect the shift in
sales to wholesale customers which carry a lower gross margin percentage than
sales in Company-operated retail stores. In the prior year, Company-operated
retail stores accounted for 56.5% of Company sales in the second quarter and
56.9% year-to-date. During the second quarter and year-to-date in fiscal
1994, these percentages fell to 50.1% and 51.1%, respectively.
The Company has been able to maintain both retail and wholesale gross
margin percentages between years despite the current economic environment
through remerchandising Company-operated retail locations and improved buying
opportunities resulting from its increased wholesale customer base. The
Company also lowered its provision for Last-In, First-Out (LIFO) inventories
from $745,000 during the second quarter last year to $462,000 this year.
Year-to-date, the Company's provision for LIFO was reduced from $1.7 million
last year to $1.1 million in the current fiscal year. This lower provision
reflects the current lack of inflationary pressures and the lowering of
certain LIFO inventory levels.
Selling, general and administrative (S,G & A) expenses, as a percentage
of sales, also declined between years during both the second quarter (from
17.5% to 16.9%) and year-to-date (from 17.8% to 17.3%). These decreases
Sequential Page 10 of 12
again reflect the shift in sales to wholesale customers. Although having
lower margins, these sales require lower S,G & A expenses. Additionally,
Company-operated retail locations which were closed between years operated at
high S,G & A percentages and their disposition benefited the Company's
overall S,G & A percentage.
The restructuring charge during the second quarter of fiscal 1993
related to the Company's decision to close its five remaining Carl's stores
in the Akron-Canton area along with a former Carl's location in Bedford,
Ohio. The Company also declined to renew its lease on a Food Centre location
in Brunswick, Ohio. The Company provided $5 million for expenses associated
with this restructuring. See Note (4) of the Notes to Consolidated Condensed
Financial Statements for a further discussion.
Interest expense increased $199,000 between years during the second
quarter and has increased $319,000 year-to-date. This increase is due to
increased borrowings under the Company's bank credit facility needed to fund
the Company's increased working capital and capital expenditure requirements.
Additionally, the Company acquired the HBC/GM facility subject to a mortgage
which also increased the Company debt level. These increases more than
offset declines in the Company's average interest rate under its bank credit
facility which fell from 6.64% in the prior year to 6.50% this year. This
rate decrease reflects an earned interest rate reduction from the prior year.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
No. 109). This statement requires that the liability method of accounting
for income taxes be used rather than the deferred method previously used.
The Company adopted the provisions of SFAS No. 109 during the first quarter
of fiscal 1994. The Company elected not to restate prior years' financial
statements and recorded the cumulative effect of the accounting change. As
a result, the Company has recorded a one-time income item of $6.9 million to
reflect the cumulative effect of the change in accounting for income taxes.
See Note (5) of the Notes to Consolidated Condensed Financial Statements for
a further discussion.
The Company provided income taxes at an effective rate of 39% in fiscal
1994 compared to 40.5% in fiscal 1993. Taxes were provided at the various
statutory income tax rates to which the Company is subject.
Liquidity and Sources of Capital:
The Company's primary source of capital has historically come from
internally generated funds. Greater working capital requirements associated
with the HBC/GM acquisition and higher levels of capital expenditures have
increased the Company's utilization of its bank credit facility during the
first half of 1994.
Operating activities provided $2.1 million of cash compared to $10.2
million in the prior year. The decrease between years is primarily
attributed to the above mentioned HBC/GM acquisition, increased customer
financing and the timing of the payment of seasonal merchandise.
Cash provided by operating activities included net income of $11.3
million which contained a non-cash credit of $6.9 million related to the
adoption of SFAS No. 109 and non-cash charges for depreciation and
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amortization of $7.8 million and LIFO of $1.1 million. Significant balance
sheet changes included decreases in accounts payable of $1.8 million combined
with increases in wholesale customer financing (notes receivable) of $4.1
million and FIFO inventories of $8.5 million partially offset by decreases in
trade accounts receivable of $1.1 million and increases in accruals and other
liabilities of $3.2 million.
The food distribution industry normally requires a significant
investment in receivables and inventories to meet customer needs. Offsetting
traditional seasonal declines in FIFO inventories at this time were increased
levels of inventory required to support the HBC/GM acquisition. Additional
wholesale customer financing was made available to support the acquisition by
two wholesale customers of stores in the Akron-Canton area formerly operated
by the Company. Increased retail store size associated with Company programs
to remodel and expand existing retail locations also increased inventory
requirements.
Working capital, exclusive of deferred income taxes, increased $13.6
million from $23.7 million at the end of fiscal 1993 to $37.3 million at the
end of the second quarter of fiscal 1994. The Company's ratio of current
assets to current liabilities, exclusive of deferred income taxes, increased
from 1.25 at the end of fiscal 1993 to 1.33 at the end of the second quarter
of fiscal 1994. These increases reflect the increased working capital
demands of the HBC/GM facility.
The Company's ratio of liabilities to equity decreased from 3.14 at the
end of fiscal 1993 to 2.77 at the end of the second quarter of fiscal 1994.
This ratio was favorably impacted by the Company's adoption of SFAS No. 109.
The Company utilized $15.1 million of cash flow for capital
expenditures, principally to continue programs of enhancing its retail core-
store format ($11.8 million) and to acquire the new HBC/GM facility and
upgrade warehouse/distribution equipment ($3.0 million). This amount
exceeded capital expenditures over the same period last year by $1.5 million.
At the end of the second quarter, the Company had two major remodeling
projects under construction. One was completed in late January 1994 and the
other is scheduled to be completed in March 1994.
The level of capital expenditures for fiscal 1994 is expected to be
slightly higher than the fiscal 1993 level. The Company believes that cash
flow from operations and the unused portion of the bank credit facility will
supply adequate funds for planned capital expenditures, normal ongoing
business activities and debt principal repayments. Available unused
borrowing capacity under the Company's bank credit facility was approximately
$15.1 million at the end of the second quarter of fiscal 1994.
PAGE
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
RISER FOODS, INC.
(Registrant)
/s/ Anthony C. Rego
February 25, 1994 By: Anthony C. Rego
Chairman of the Board and
Chief Executive Officer
/s/ Ronald W. Ocasek
February 25, 1994 By: Ronald W. Ocasek
Senior Vice President,
Chief Financial Officer and
Treasurer