THIS REPORT HAS BEEN FILED WITH THE SECRURITIES
AND EXCHANGE COMMISSION VIA EDGAR
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Fiscal Quarter Ended September 7, 1996 Commission File Numbers 33-50458 and 33-75398
------------------ -----------------------
FARM FRESH, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 54-0973309
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7530 TIDEWATER DRIVE, P. O. BOX 1289, NORFOLK, VIRGINIA 23501
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (804)480-6700
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 No X
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding shares at October 21, 1996
- ------------------------------------------------ --------------------------------------
Common Stock, par value $.01 per share 10
FARM FRESH, INC. AND SUBSIDIARIES
Index to Quarterly Report on Form 10-Q
Page
Part I. Financial Information:
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets -
December 30, 1995 and September 7, 1996 1
Condensed Consolidated Statements of Loss
- 12 weeks ended September 9, 1995 and September 7, 1996
36 weeks ended September 9, 1995 and September 7, 1996 3
Condensed Consolidated Statement of Stockholder's Deficit -
36 weeks ended September 7, 1996 4
Condensed Consolidated Statements of Cash Flows -
36 weeks ended September 9, 1995 and September 7, 1996 5
Note to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information
Item 6. Exhibit and Reports on Form 8-K
(a) The Exhibits listed on the accompanying Index to Exhibits are
filed or incorporated by reference as part of this Form 10-Q
and such Index to Exhibits is incorporated herein by reference. 10
(b) Reports on Form 8-K: None
FARM FRESH, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
December 30, September 7,
Assets 1995 1996
------ ------------- -------------
Current assets:
Cash $ 2,316,425 $ 1,243,774
Accounts receivable, net of
allowance for doubtful accounts
of $491,330 at December 30, 1995 and
$587,492 at September 7, 1996 16,789,683 15,649,390
Merchandise inventories:
Assuming the first-in, first-out method 56,700,404 50,467,902
Less adjustment to the last-in, first-out method 3,036,896 3,313,196
------------ ------------
53,663,508 47,154,706
------------ ------------
Prepaid expenses and other current assets 2,083,743 3,091,675
------------ ------------
Total current assets 74,853,359 67,139,545
------------ ------------
Assets held for sale 6,220,362 5,705,029
Property and equipment:
Land 10,627,356 10,627,365
Buildings 64,835,421 67,672,761
Leasehold improvements 32,016,115 35,758,671
Fixtures and equipment 82,743,500 90,442,731
Transportation equipment 628,072 587,492
Construction in progress 348,932 131,615
------------- ------------
191,199,396 205,220,635
Less accumulated depreciation and amortization 85,264,691 92,326,401
------------ ------------
Net property and equipment 105,934,705 112,894,234
----------- -----------
Favorable lease rights, net of accumulated
amortization of $6,398,657 at December 30, 1995
and $7,010,613 at September 7, 1996 4,519,402 3,907,443
Goodwill, net of accumulated amortization of
$994,136 at December 30, 1995 and $1,932,040 at
September 7, 1996 8,567,662 7,644,494
Deferred financing costs, net of accumulated
amortization of $4,390,824 at December 30, 1995
and $5,709,836 at September 7, 1996 6,663,734 5,962,279
Other, net 1,144,005 501,277
------------ ------------
$207,903,229 $203,754,301
=========== ===========
(continued)
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FARM FRESH, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (continued)
(Unaudited)
Liabilities and Stockholder's Deficit December 30, September 7,
1995 1996
------------ -------------
Current liabilities:
Current installments of notes payable $ 1,183,073 $ 1,043,461
Current installments of obligations
under capital leases 1,858,914 2,556,027
Trade accounts payable 32,900,110 33,110,154
Accrued expenses:
Licenses and other taxes 6,110,228 5,779,661
Interest 6,986,589 11,530,774
Insurance claims 3,669,027 3,903,776
Other 7,674,987 6,617,892
------------ ------------
Total accrued expenses 24,440,831 27,832,103
----------- ------------
Accrued costs relating to closed stores,
current portion 1,965,073 1,713,268
------------ -------------
Total current liabilities 62,348,001 66,255,013
----------- ------------
Long-term debt, excluding current installments:
Revolving credit facility 12,169,258 17,041,097
Notes payable 1,751,721 1,022,200
Obligations under capital leases 31,617,554 33,821,538
12.25% senior notes 165,000,000 165,000,000
12.25% senior notes, series A 37,337,873 37,158,610
Convertible subordinated debentures 9,322,398 5,796,950
----------- ------------
Total long-term debt 257,198,804 259,840,395
----------- -----------
Accrued costs relating to closed stores,
excluding current portion 7,969,459 6,779,872
Deferred credits and other liabilities 4,356,659 3,661,690
------------ ------------
Total liabilities 331,872,923 336,536,970
----------- -----------
Stockholder's deficit:
Common stock of $.01 par value;
authorized 200 shares; issued 10 shares - -
Additional paid-in capital 29,457,988 29,430,246
Accumulated deficit (152,113,645) (160,898,878)
FF Holdings stockholder loans (1,314,037) (1,314,037)
------------ ------------
Total stockholder's deficit (123,969,694) (132,782,669)
Commitments and contingencies
$207,903,229 $203,754,301
=========== ===========
See accompanying note to condensed consolidated financial statements.
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FARM FRESH, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Loss
12 Weeks Ended September 9, 1995 and September 7, 1996 and
36 Weeks Ended September 9, 1995 and September 7, 1996
(Unaudited)
12 weeks ended 36 weeks ended
September 9, September 7, September 9, September 7,
1995 1996 1995 1996
----------------- ----------------- ---------------- ----------------
Sales $ 215,894,626 $ 180,581,478 $ 638,809,727 $ 539,568,127
Cost of sales 165,417,676 139,406,428 487,906,686 414,371,763
----------- ----------- ----------- -----------
Gross profit 50,476,950 41,175,050 150,903,041 125,196,364
Selling, general and
administrative expenses (45,428,229) (36,930,483) (134,619,415) (110,297,193)
Interest expense (8,463,687) (8,058,273) (24,727,642) (23,722,136)
Gain (loss) on disposition of
property and equipment 14,192 (153,910) 14,192 (251,239)
Other, net 3,229 228,528 6,536 288,971
----------- ----------- ----------- -----------
Net loss $ (3,397,545) $ (3,739,088) $ (8,423,288) $ (8,785,233)
=========== =========== =========== ============
See accompanying note to condensed consolidated financial statements.
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FARM FRESH INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholder's Deficit
36 Weeks Ended September 7, 1996
(Unaudited)
Additional FF Holdings Total
Common Stock paid-in Accumulated stockholder stockholder's
Shares Amount capital deficit loans deficit
Balance at
December 30, 1995 10 $ - $29,457,988 $(152,113,645) $(1,314,037) $(123,969,694)
Dividend to FF Holdings - - (27,742) - - (27,742)
Net loss - - - (8,785,233) - (8,785,233)
------- ----- -------------- ------------- --------------- -------------
Balance at
September 7, 1996 10 $ - $29,430,246 $(160,898,878) $(1,314,037) $(132,782,669)
====== ===== ========== ============ ========== ============
See accompanying note to condensed consolidated financial statements.
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FARM FRESH, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
36 weeks ended
September 9, September 7,
1995 1996
--------------- --------------
Cash flows from operating activities:
Net loss $ (8,423,288) $ (8,785,233)
------------- -------------
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 15,736,957 13,930,515
Gain (loss) on sale of property and equipment (14,192) 251,239
Gain on conversion of convertible subordinated debentures - (269,439)
Amortization of premium on 12.25% senior notes, series A (160,440) (179,263)
LIFO charge to earnings 540,000 276,300
Noncash recognition of deferred revenue (447,966) (792,581)
Changes in assets and liabilities that increase (decrease) cash:
Accounts receivable, net 3,900,440 1,140,293
Merchandise inventories 3,532,901 4,902,566
Prepaid expenses and other current assets (1,294,890) (1,007,932)
Trade accounts payable (6,863,947) 210,044
Accrued expenses 6,953,672 3,391,272
Accrued costs relating to closed stores (1,437,484) (1,441,392)
Other deferred credits 1,152,528 97,612
Other, net (262,756) 246,199
-------------- --------------
Total adjustments 21,334,823 20,755,433
------------ -------------
Net cash provided by operating activities 12,911,535 11,970,200
------------- -------------
Cash flows from investing activities:
Acquisitions of property and equipment (6,588,523) (16,316,415)
Proceeds from sale of property and equipment 30,969 4,535,822
-------------- -------------
Net cash used in investing activities (6,557,554) (11,780,593)
------------- -------------
Cash flows from financing activities:
Borrowings under revolving credit facility 103,844,491 98,225,233
Repayments under revolving credit facility (112,878,306) (93,353,394)
Repayments of long-term debt (1,525,146) (780,351)
Principal repayments of obligations under capital leases (1,386,492) (1,363,656)
Payment upon conversion of convertible subordinated debentures - (3,344,791)
Dividend to FF Holdings (43,717) (27,742)
Payment of refinancing costs - (617,557)
------------------ ------------
Net cash used in financing activities (11,989,170) (1,262,258)
------------ ------------
Net decrease in cash (5,635,189) (1,072,651)
Cash at beginning of period 6,793,520 2,316,425
------------- -------------
Cash at end of period $ 1,158,331 $ 1,243,774
============= =============
(continued)
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FARM FRESH, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Supplemental disclosures of cash flow information:
36 weeks ended
September 9, September 7,
1995 1996
--------------- ---------
Cash paid during the period for:
Interest $ 20,692,661 $ 19,177,951
=========== ===========
Income taxes $ - $ -
=========== ===========
Supplemental information on noncash investing activities:
During the 36 week periods ended September 9, 1995 and September 7, 1996, the
Company entered into capital lease obligations of $1,722,500 and $4,277,847,
respectively.
See accompanying note to condensed consolidated financial statements.
-6-
FARM FRESH, INC. AND SUBSIDIARIES
Note to Condensed Consolidated Financial Statements
September 7, 1996
(Unaudited)
(1) Opinion of Management
The unaudited statements furnished in this report reflect all adjustments
which are, in the opinion of management, necessary to a fair statement of
the results for the interim periods presented. All such adjustments are of
a normal recurring nature. Results of interim periods are not necessarily
indicative of those which would be achieved in a full fiscal year.
-7-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Form 10-Q contains forward looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward looking statements as a result of certain factors.
The following discussion should be read in conjunction with Item 1, unaudited
Condensed Consolidated Financial Statements.
Comparison of 12 Weeks and 36 Weeks ended September 7, 1996 with 12 Weeks and 36
Weeks ended September 9, 1995.
Sales. Sales for the 12 week period ended September 7, 1996 decreased 16.4% to
$180.6 million from $215.9 million for the comparable period in 1995. For the 36
week period ended September 7, 1996, sales were $539.6 million as compared to
$638.9 million for the corresponding period in 1995, a decrease of 15.5%. Same
store sales decreased 4.3% for the third quarter 1996 and 0.4% year to date in
1996. This decrease in sales was primarily attributable to the closure of six
combination stores primarily in fourth quarter of 1995 and sale of 10
combination stores to Hannaford Bros. in September 1995. The Company's super
warehouse stores contributed 32.2% and 29.8% of total sales in the third quarter
and year to date 1996, respectively, as compared to 20.4% and 19.4%
respectively, in 1995. The Company also sold two combination stores in the
second quarter of 1996. The decrease in same store sales was attributable to
increased competition in the Company's principal market resulting from the
opening of eight new stores.
Cost of Sales. Cost of sales for the 12 week period ended September 7, 1996
totalled $139.4 million, a decrease of $26.0 million or 15.7% from the
comparable period in 1995. For the 36 week period ended September 7, 1996, cost
of sales totalled $414.4 million, a decrease of $73.5 million or 15.1% from the
comparable period in 1995. Cost of sales was 77.2% and 76.8% of sales in the 12
and 36 week periods in 1996, respectively, as compared to 76.6% and 76.4%,
respectively, in the corresponding periods in 1995. This increase in cost of
sales as a percentage of sales is due to increased volume in the Company's super
warehouse stores, as discussed above, which operate at lower margins as compared
to the Company's combination stores and promotional markdowns taken in response
to the increased competition in the Company's principal market as described
above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the third quarter of 1996 and 1995 were $36.9
million and $45.4 million, respectively, a decrease of $8.5 million. These
expenses decreased as a percentage of sales to 20.4% in 1996 from 21.0% in 1995.
Selling, general and administrative expenses for the 36 week periods ended
September 7, 1996 and September 9, 1995 were $110.2 million and $134.6 million,
respectively, a decrease of $24.8 million from the comparable period in 1995.
These expenses decreased as a percentage of sales to 20.4% in 1996 from 21.1% in
1995. The decrease in selling, general and administrative expenses as a percent
of sales is primarily attributable to a reduction in advertising expense (0.3%)
due to reduced advertising in the Richmond market and increased vendor-supported
advertising and a decrease in occupancy costs (0.3%) and utilities (0.1%) due to
the closure of six stores in the fourth quarter of 1995.
Interest Expense. Interest expense totalled $8.1 million for the 12 week periods
ended September 7, 1996 , a decrease of $.4 million from the comparable period
in 1995. In the 36 weeks ended September 7, 1996, interest expense totalled
$23.7 million, a decrease of $1.0 million over the same period in 1995. The
decrease is attributable to a lower average outstanding balance on the Company's
revolving credit facility and the conversion of $16.8 million face value of
convertible subordinated debentures into $9.0 million in cash during the fourth
quarter of 1995 and year to date 1996.
Liquidity and Capital Resources
Cash flow from operations as well as amounts available under its revolver
represent the Company's primary sources of short-term liquidity. At September 7,
1996, the Company had approximately $23.0 million available under the revolving
credit facility subject to certain borrowing base limitations, less $5.3 million
reserved for the redemption of the convertible subordinated debentures and $1.1
million reserved as a result of outstanding letters of credit. The
-8-
Company believes that the revolver, together with cash flow from operations,
will provide sufficient financial resources to fund the Company's operations.
Cash flows from the Company's operating, investing and financing activities for
the 36 week periods ended September 7, 1996 and September 9, 1995 are disclosed
in the accompanying condensed consolidated statements of cash flows. In the 36
weeks ended September 7, 1996, the Company's operating activities generated
$12.0 million in cash as compared to the $12.9 million generated in the
corresponding period in 1995. This decrease is primarily attributable to a
decreased depreciation and amortization due to the decreased number of stores.
In addition, the Company received $1.3 million in the first quarter 1995 related
to a vendor supply contract. These decreases were partially offset by an
increase in the Company's noncash working capital.
The Company used $11.8 million in cash in its investing activities year to date
in 1996 as compared to the $6.6 million in cash the Company used in the
corresponding period in 1995. This increase is attributable to four major store
remodeling projects and the opening of a new store in 1996. This increase was
partially offset by the sale of three stores.
In the 36 weeks ended September 7, 1996, the Company's financing activities used
$1.3 million in cash as compared to $12.0 million used in the corresponding
period in 1995. This fluctuation is due to the additional borrowings made under
the Company's revolver in 1996 as compared to net repayments made in 1995. The
additional borrowings were made to finance capital expenditures as described
above and to redeem $6.3 million at face value of the Company's convertible
subordinated debentures for $3.3 million in cash.
-9-
FARM FRESH, INC.
Index to Exhibits
Exhibit No. Description
10.1 Seventh Amendatory Agreement, dated May 15, 1996, by
and between Farm Fresh, Inc., FF Holdings
Corporation, certain guarantors and lenders and
NatWest USA Credit Corp.
10.2 Eighth Amendatory Agreement, dated March 31, 1996, by and between
Farm Fresh, Inc., FF Holdings Corporation, certain guarantors and
lenders and NatWest USA Credit Corp.
10.3 Ninth Amendatory Agreement, dated September 30, 1996,
by and between Farm Fresh, Inc., FF Holdings
Corporation, certain guarantors and lenders and
NatWest USA Credit Corp.
27.1 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only and not filed.
-10-
SIGNATURE
Pursuant to the requirements of the Security Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Farm Fresh, Inc.
Date October 21, 1996 /s/ Orville R. Crook
--------------------- ------------------------
Orville R. Crook
Vice President Finance
(Principal Accounting Officer)
SIGNATURE
Pursuant to the requirements of the Security Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Farm Fresh, Inc.
Date October 21, 1996 /s/ Orville R. Crook
Vice President Finance
(Principal Accounting Officer)