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 3, 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
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 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 - May 3, 1997 and February 1, 1997
Statements of operations - 13 weeks ended May 3, 1997 and
May 4, 1996
Statements of cash flows - 13 weeks ended May 3, 1997 and
May 4, 1996
Notes to financial statements - May 3, 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)
May 3, February 1,
1997 1997
---------------------------
Assets
Current assets:
Accounts receivable, net of reserve for
doubtful accounts of $1,679 in May and
$1,589 in February $ 22,647 $ 21,815
Inventory 66,473 65,550
Prepaid expenses 5,148 4,959
------------------------
Total current assets 94,268 92,324
Property and equipment at cost:
Land 20,894 31,015
Building 51,517 66,603
Equipment & fixtures 93,296 88,623
Leasehold improvements 49,574 44,024
------------------------
Total property & equipment 215,281 230,265
Less accumulated depreciation and
amortization 38,899 35,569
------------------------
Net property and equipment 176,382 194,696
Other assets, net 32,643 33,058
Goodwill, net 132,311 133,192
------------------------
Total Assets $435,604 $453,270
========================
Liabilities and Shareholder's Equity
Current liabilities:
Accounts payable $ 41,487 $ 46,798
Accrued payroll & benefits 10,983 12,842
Current portion self-insurance 8,443 8,121
Accrued interest 1,765 6,003
Other current liabilities 9,634 13,637
------------------------
Total current liabilities 72,312 87,401
Other liabilities 23,111 22,732
Long-term debt 272,619 271,827
Redeemable preferred stock, redemption
value $11,000 10,254 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 84,715 84,907
Retained earnings (deficit) (27,407) (23,827)
------------------------
Total shareholder's equity 57,308 61,080
------------------------
Total Liabilities and Shareholder's Equity $435,604 $453,270
========================
See accompanying notes.
STAR MARKETS COMPANY, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands)
13 Weeks 13 Weeks
Ended Ended
May 3, May 4,
1997 1996
------------------------
Total revenues $244,521 $217,055
Cost of goods sold 180,419 162,332
------------------------
Gross profit 64,102 54,723
Operating and administrative expenses 54,434 45,232
Depreciation and amortization 5,766 5,106
------------------------
Operating profit 3,902 4,385
Interest expense 7,188 6,934
Other (expenses) income, net (213) (54)
------------------------
Loss before income taxes (3,499) (2,603)
Income taxes 81 68
------------------------
Net loss $ (3,580) $ (2,671)
========================
See accompanying notes.
STAR MARKETS COMPANY, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
13 Weeks 13 Weeks
Ended Ended
May 3, May 4,
1997 1996
-------------------------
Operating activities
Net loss $ (3,580) $ (2,671)
Adjustments to reconcile net loss to
net cash used in operating activities:
Amortization of deferred financing costs 395 386
Depreciation and amortization 5,766 5,106
Loss on sale or disposal of property
and equipment 213 54
Changes in operating assets and
liabilities:
Accounts receivable (832) 2,551
Inventories (923) 7,204
Prepaid expenses (189) (598)
Accounts payable (5,311) (4,849)
Accrued payroll and benefits (1,859) (3,128)
Self-insurance reserves 322 (104)
Accrued interest (4,238) (4,383)
Other current liabilities (3,033) (2,522)
Other 360 602
-------------------------
Net cash used in operating activities (12,909) (2,352)
Investing activities
Purchases of property and equipment (6,468) (5,321)
Proceeds from sale of property and
equipment 20,097 4,260
Increase in restricted cash (4,175)
-------------------------
Net cash provided by (used in) investing
activities 13,629 (5,236)
Financing Activities
Net proceeds from revolving credit facility 300 4,200
Repayment of long-term debt (175)
Preferred dividends paid (608) (612)
Deferred financing costs (737)
Deposits refunded 500 4,000
-------------------------
Net cash provided by (used in) financing
activities (720) 7,588
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 $ 11,031 $ 10,895
Cash paid for income taxes 142 0
See accompanying notes.
STAR MARKETS COMPANY, INC.
Notes to Financial Statements
May 3, 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 48 stores as of May 3, 1997. The Company operates three store
formats consisting of 21 Superstores, 25 Conventional supermarkets, and two
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 period ended May 3, 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 ended May 3, 1997 are referred to
herein as "Quarter 1997" and the 13 weeks ended May 4, 1996 are referred to
as "Quarter 1996".
During Quarter 1997, the Company remodeled and expanded one conventional
store and opened a superstore which replaced a conventional store. As of May
3, 1997, the Company operated 21 superstores, 25 conventional stores, and
two natural food stores. The Company also operates a wholesale food
business.
Revenues
Total revenues increased 12.7% in Quarter 1997 to $244.5 million from $217.1
million in Quarter 1996. Sales from retail operations in Quarter 1997
increased 14.8% to $227.9 million from $198.5 million in Quarter 1996. The
growth in retail sales was attributable both to an increase in the number of
retail stores operated and a 1.8% increase in comparable store sales.
Revenues from wholesale operations in Quarter 1997 declined 10.6% to $16.6
million from $18.6 million in Quarter 1996.
Gross Profit
Gross profit increased 17.1% in Quarter 1997 to $64.1 million from $54.7
million in Quarter 1996. Gross profit as a percentage of total revenues
increased to 26.2% in Quarter 1997 from 25.2% in Quarter 1996. Gross profit
from retail operations increased 17.4% in Quarter 1997 to $62.8 million from
$53.5 million in Quarter 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 Quarter 1997 from 27.0% in Quarter 1996. Gross profit
from wholesale operations in Quarter 1997 increased 6.2% to $1.3 million
from $1.2 million in Quarter 1996. Gross profit as a percentage of wholesale
revenues in Quarter 1997 increased to 7.7% from 6.5% in Quarter 1996,
primarily due to an increase in promotional income.
Operating and Administrative Expenses
Operating and administrative expenses increased by 20.3% to $54.4 million in
Quarter 1997 from $45.2 million in Quarter 1996. Operating and
administrative expenses as a percentage of total revenues increased to 22.3%
in Quarter 1997 from 20.8% in Quarter 1996. The increase in operating and
administrative expenses as a percentage of total revenues was primarily due
to an increase in retail operations which incur a higher rate of operating
and administrative expenses than wholesale operations, and an increase in
rent expense, including rent associated with the sale leaseback of one
operating location in Quarter 1997.
Interest Expense
Net interest expense, primarily related to interest expense on debt incurred
to finance the acquisition of the Company, was $7.2 million in Quarter 1997.
Net interest expense was $6.9 million in Quarter 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 June 2, 1997 was $267.1 million,
which includes $110.0 million of Subordinated Notes due November 1, 2004,
$153.5 million due under the Senior Credit Facility and a $3.6 million note
payable. The Senior Credit Facility provides for a $108.0 million term loan
facility and a $75.0 million revolving credit facility. On April 21, 1997,
the Company completed an amendment to its Senior Credit Facility in order to
accommodate continued investment in new store growth. The amendment extends
the revolving credit facility by two years to December 31, 2001, amends
certain covenants, and replaces a term loan that was due in 1999 with a new
term loan due in 2003. As of June 2, 1997, the Company had $45.5 million
drawn under the revolving credit portion of the Senior Credit Facility and
$8.9 million drawn under the letter of credit portion of the Senior Credit
Facility leaving an aggregate of $20.6 million of unused revolving credit
availability under the Senior Credit Facility.
The Company currently plans to make total capital expenditures of
approximately $43.2 million in fiscal 1997. Capital expenditures for Quarter
1997 were $6.4 million compared with $5.3 million in Quarter 1996. Capital
expenditures include opening two new superstores, opening a new superstore
to replace an existing conventional store, remodeling six existing stores,
converting one conventional store to a superstore, and opening two new
natural food stores. Planned capital expenditures for fiscal 1997 include
approximately $7.0 million for maintenance, systems, and distribution.
During Quarter 1997, the Company realized net proceeds of $20.1 million from
the sale leaseback of one of its stores.
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 1997 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 for the 13 weeks ended
May 3, 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:June 13, 1997 By: /s/ Robert R. Spellman
Robert R. Spellman
Executive Vice President,
Chief Financial and Accounting Officer