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 4, 1997.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition
period_______________________ to ___________________.
Commission file number: 0-16900
RICHFOOD HOLDINGS, INC.
Incorporated under the laws I.R.S. Employer Identification
of Virginia No. 54-1438602
8258 Richfood Road
Mechanicsville, Virginia 23116
Telephone Number (804) 746-6000
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 .
The number of shares outstanding of the Registrant's common stock as of February
12, 1997, was as follows:
Common Stock, without par value: 47,337,489 shares.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollar amounts in thousands, except per share data)
- -------------------------------------------------------------------------------------------------------------
(Unaudited)
Third Quarter Ended
------------------------------------------------------------
January 4, January 6,
1997 % 1996 %
- -------------------------------------------------------------------------------------------------------------
Sales $ 807,272 100.00 $ 766,802 100.00
Costs and expenses, net:
Cost of goods sold 721,779 89.41 691,071 90.12
Operating and adminis-
trative expenses 59,432 7.36 53,831 7.02
Merger and integration costs -- -- 11,993 1.57
Interest expense 1,913 0.24 3,020 0.39
Interest income (776) (0.10) (782) (0.10)
----------- ------ ---------- ------
Earnings before income taxes
and extraordinary loss 24,924 3.09 7,669 1.00
Income taxes 9,924 1.23 3,895 0.51
----------- ---- ---------- ------
Earnings before
extraordinary loss 15,000 1.86 3,774 0.49
Extraordinary loss,
net of tax -- -- (1,002) (0.13)
----------- ---- ---------- ------
Net earnings $ 15,000 1.86 $ 2,772 0.36
=========== ==== ========== ======
Earnings per common share:
Earnings before
extraordinary loss $ .32 $ .08
Extraordinary loss, net of tax -- (.02)
----------- ----------
Net earnings $ .32 $ .06
=========== ==========
Cash dividends declared
per common share $ .03 $ .02
=========== ==========
Average common shares
outstanding 47,325,705 46,857,027
=========== ==========
See accompanying Notes to the Consolidated Financial Statements.
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollar amounts in thousands, except per share data)
- ----------------------------------------------------------------------------------------------------------------
(Unaudited)
Year-to-Date
----------------------------------------------------------------
January 4, January 6,
1997 % 1996 %
- ---------------------------------------------------------------------------------------------------------------
Sales $ 2,300,295 100.00 $ 2,251,312 100.00
Costs and expenses, net:
Cost of goods sold 2,059,283 89.52 2,029,874 90.16
Operating and adminis-
trative expenses 171,492 7.46 160,425 7.13
Merger and integration costs -- -- 11,993 0.53
Interest expense 5,172 0.22 9,887 0.44
Interest income (2,372) (0.10) (2,281) (0.10)
------------ ------ ------------ ------
Earnings before income taxes
and extraordinary loss 66,720 2.90 41,414 1.84
Income taxes 26,703 1.16 17,625 0.78
------------ ------ ------------ ------
Earnings before
extraordinary loss 40,017 1.74 23,789 1.06
Extraordinary loss,
net of tax -- -- (1,002) (0.05)
------------ ------ ------------ ------
Net earnings $ 40,017 1.74 $ 22,787 1.01
============ ====== ============ ======
Earnings per common share:
Earnings before
extraordinary loss $ .85 $ .51
Extraordinary loss, net of tax -- (.02)
------------ ------------
Net earnings $ .85 $ .49
============ ============
Cash dividends declared
per common share $ .09 $ .06
============ ============
Average common shares
outstanding 47,257,605 46,827,293
============ ============
See accompanying Notes to the Consolidated Financial Statements.
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
- ------------------------------------------------------------------------------------
January 4, April 27,
1997 1996
(Unaudited)
- ------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 12,302 $ 17,415
Receivables, less allowance for doubtful
accounts of $3,852 and $3,994 106,120 100,385
Inventories 178,960 162,461
Other current assets 20,294 19,987
----------- ------------
Total current assets 317,676 300,248
----------- ------------
Notes receivable, less allowance for
doubtful accounts of $1,616 and $1,579 34,559 27,179
Property and equipment, net 123,085 122,659
Goodwill, net 85,154 74,455
Other assets 50,872 39,720
----------- ------------
Total assets $ 611,346 $ 564,261
=========== ============
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt
and capital lease obligations $ 10,098 $ 10,712
Accounts payable 200,535 187,010
Accrued expenses and other current liabilities 64,359 61,698
----------- ------------
Total current liabilities 274,992 259,420
----------- ------------
Long-term debt and capital lease obligations 78,456 87,031
Deferred credits and other 19,135 18,248
Shareholders' equity:
Preferred stock, without par value; authorized
5,000,000 shares; none issued or outstanding - -
Common stock, without par value; authorized
90,000,000 shares; issued and outstanding
47,335,250 and 46,987,602 68,981 66,964
Retained earnings 169,782 132,598
----------- ------------
Total shareholders' equity 238,763 199,562
----------- ------------
Total liabilities and shareholders' equity $ 611,346 $ 564,261
=========== ============
See accompanying Notes to the Consolidated Financial Statements.
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
- -------------------------------------------------------------------------------------------
(Unaudited)
Year-to-Date
------------
January 4, January 6,
1997 1996
- -------------------------------------------------------------------------------------------
Operating activities:
Net earnings $ 40,017 $ 22,787
Adjustments to conform fiscal year of
pooled company: net earnings -- 2,548
non-cash components -- 1,959
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 20,384 20,363
Provision for doubtful accounts 2,846 3,276
Extraordinary loss-loss on debt extinguishment,
non-cash component -- 673
Other, net (421) (2,805)
Changes in operating assets and liabilities, net of
effects of acquisitions:
Receivables (1,117) 5,617
Inventories (15,803) (22,867)
Other current assets (230) 729
Accounts payable, accrued expenses
and other liabilities 18,939 19,427
--------- ---------
Net cash provided by operating activities 64,615 51,707
--------- ---------
Investing activities:
Acquisitions, net of cash acquired (26,098) --
Purchases of property and equipment (12,687) (9,504)
Issuance of notes receivable (18,097) (9,038)
Collections on notes receivable 7,222 9,031
Other, net (6,940) (3,823)
--------- ---------
Net cash used for investing activities (56,600) (13,334)
--------- ---------
Financing activities:
Net repayments on long-term debt and capital
lease obligations (10,189) (62,027)
Proceeds from issuance of common stock
under employee stock incentive plans 834 431
Cash dividends paid on common stock (3,773) (2,009)
--------- ---------
Net cash used for financing activities (13,128) (63,605)
--------- ---------
Net decrease in cash and cash equivalents (5,113) (25,232)
Cash and cash equivalents at beginning of period 17,415 29,381
--------- ---------
Cash and cash equivalents at end of period $ 12,302 $ 4,149
========= =========
See accompanying Notes to the Consolidated Financial Statements.
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
Note 1. The consolidated financial statements of Richfood Holdings, Inc.
and subsidiaries (the "Company") presented herein are unaudited
(except for the consolidated balance sheet as of April 27, 1996,
which has been derived from the audited consolidated balance
sheet as of that date) and have been prepared by the Company
pursuant to the rules and regulations of the Securities and
Exchange Commission. The accounting policies and principles used
to prepare these interim consolidated financial statements are
consistent in all material respects with those reflected in the
consolidated financial statements included in the Annual Report
on Form 10-K for the fiscal year ended April 27, 1996 ("fiscal
1996"). In the opinion of management, such consolidated financial
statements include all adjustments, consisting of normal
recurring adjustments and the use of estimates, necessary to
summarize fairly the Company's financial position and results of
operations. Certain information and note disclosures normally
included in consolidated financial statements prepared in
accordance with generally accepted accounting principles have
been omitted pursuant to such rules and regulations. These
consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto of
the Company included in its Annual Report on Form 10-K for fiscal
1996. The results of operations for the twelve and thirty-six
week periods ended January 4, 1997, may not be indicative of the
results that may be expected for the fiscal year ending May 3,
1997 ("fiscal 1997").
Note 2. On September 30, 1996, the Company acquired substantially all of
the assets and assumed certain liabilities of Norristown
Wholesale, Inc. ("Norristown"), a wholesale distributor of
produce and other perishable food items. Assets acquired
primarily consisted of inventory, accounts receivable, warehouse
and transportation equipment and a customer list. The Company
also assumed the lease for Norristown's transportation fleet. The
Company accounted for the acquisition under the purchase method
of accounting and, accordingly, the results of operations of the
acquired business have been included in the Company's
Consolidated Statements of Earnings since the date of
acquisition. Norristown, with revenues of approximately $120,000
for its fiscal year ended December 30, 1995, is headquartered
near Philadelphia, Pennsylvania.
Note 3. Effective October 15, 1995, Super Rite Corporation ("Super
Rite"), a full service wholesale and retail grocery distributor
headquartered in Harrisburg, Pennsylvania, became a wholly-owned
subsidiary of Richfood Holdings, Inc. (the "Super Rite
Acquisition"). The Super Rite Acquisition was accounted for as a
pooling-of-interests, which requires that the historical
consolidated financial statements of the Company and Super Rite
as of and for the periods ended prior to the effective time of
the Super Rite Acquisition be combined as if the transaction had
occurred as of the beginning of the earliest period presented.
The Company conformed certain of Super Rite's accounting
practices and methods to its own in conjunction with the
restatement of the prior historical consolidated financial
statements in accordance with the pooling-of-interests method.
Super Rite previously used the fiscal year ending on the Saturday
closest to February 29th or March 1st for its financial reporting
purposes. In order to conform to the Company's fiscal year, Super
Rite's net earnings of $2,548, on sales of $228,113, for the
eight week period from March 5, 1995, to April 29, 1995, were
reflected as a direct adjustment to retained earnings for the
fiscal year ended April 27, 1996.
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(AMOUNTS IN THOUSANDS)
Sales and net earnings of the separate companies, and their
respective subsidiaries, for the twenty-four week period
preceding the October 15, 1995 merger were as follows:
(Unaudited)
October 14,
(in thousands) 1995
(24 Weeks)
---------------------------------------------------------------------
Sales:
Richfood Holdings, Inc. $ 782,932
Super Rite Corporation 703,244
Adjustments to conform certain of Super Rite's
accounting practices and methods (1,666)
--------------
Combined $ 1,484,510
==============
Net earnings:
Richfood Holdings, Inc. $ 12,903
Super Rite Corporation 6,054
Adjustments to conform certain of Super Rite's
accounting practices and methods 1,058
--------------
Combined $ 20,015
==============
Note 4. The extraordinary loss, net of tax, of $1.0 million for the
twelve and thirty-six week periods ended January 6, 1996,
primarily related to the repurchase, at market prices above par,
of approximately $9.7 million principal amount of the 10-5/8%
Super Rite Senior Subordinated Notes, due April 1, 2002 ("Senior
Subordinated Notes") and was comprised of the amount paid in
excess of their par value and the write-off of related deferred
financing costs.
Note 5. On August 29, 1996, the Company's Board of Directors declared a
three-for-two common stock split payable September 30, 1996, to
shareholders of record on September 16, 1996. All references to
common share and per common share data for previously reported
periods have been adjusted to reflect the stock split.
Note 6. The Company is party to various legal actions that are
incidental to its business. While the outcome of such legal
actions cannot be predicted with certainty, the Company believes
that the outcome of any of these proceedings, or all of them
combined, will not have a material adverse effect on its
consolidated financial position or operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Sales of $807.3 million for the twelve week period ended January 4,
1997, consisted of $778.3 million of wholesale grocery sales and $77.3 million
of retail grocery sales. Wholesale grocery sales included $48.3 million of
intersegment sales to the Company's retail grocery division. Wholesale grocery
sales of $778.3 million increased $48.7 million, or 6.7%, as compared to
wholesale grocery sales of $729.6 million for the same period last fiscal year.
This increase was primarily attributable to Norristown sales of $25.1 million in
the third quarter of fiscal 1997, sales to customers who expanded their retail
operations, increased sales to existing customers and the addition of new
customers. Retail grocery sales of $77.3 million increased $1.1 million, or
1.5%, compared to sales of $76.2 million for the same period last fiscal year.
Sales for the METRO/BASICS Retail Division decreased 5.2% on a comparable store
basis for the third quarter of fiscal 1997, compared to the third quarter of
fiscal 1996. This decrease is primarily attributable to the effects of severe
weather conditions in the prior year period which resulted in increased consumer
demand for grocery products and the effects of competitive store openings during
the twelve week period ended January 4, 1997.
Sales of $2.30 billion for the thirty-six week period ended January
4, 1997, consisted of $2.21 billion of wholesale grocery sales and $230.2
million of retail grocery sales. Wholesale grocery sales included $141.4 million
of intersegment sales to the Company's retail grocery division. Wholesale
grocery sales of $2.21 billion increased $70.8 million, or 3.31%, as compared to
wholesale grocery sales of $2.14 billion for the same period last fiscal year.
The increase in wholesale grocery sales is primarily attributable to Norristown
sales of $29.0 million, sales to customers who expanded their retail operations,
increased sales to existing customers and the addition of new customers. Retail
grocery sales of $230.2 million increased $9.4 million, or 4.3%, compared to
retail grocery sales of $220.8 million for the same period last fiscal year.
This increase was primarily attributable to retail grocery sales from three
stores purchased in February 1996, two of which are currently operating as
BASICS stores and one of which is currently operating as a METRO store, and the
opening of one new METRO store in September 1996. Sales for the METRO/BASICS
Retail Division decreased 2.7% on a comparable store basis for the thirty-six
week period ended January 4, 1997, compared to the same period last fiscal year.
Gross margin was 10.59% and 10.48% of sales for the twelve and
thirty-six week periods ended January 4, 1997, respectively, compared to 9.88%
and 9.84% of sales for the twelve and thirty-six week periods ended January 6,
1996, respectively. The increase in gross margin was primarily attributable to
Norristown's higher gross margin produce operations, increased gross margins in
the Company's retail operations resulting from an emphasis on sales of goods in
categories with higher margins such as meat, perishables and private label
items, and procurement synergies realized at the Company's wholesale operations.
Operating and administrative expenses were 7.36% and 7.46% of sales
for the twelve and thirty-six week periods ended January 4, 1997, respectively,
compared to 7.02% and 7.13% of sales for the twelve and thirty-six week periods
ended January 6, 1996, respectively. The increases in operating and
administrative expenses, as a percent of sales, over the prior year periods were
consistent with management's expectations and were primarily attributable to
Norristown's higher operating and administrative expense ratio, increased
operating and administrative expenses in the Company's retail operations and
certain costs related to the consolidation of the Company's Pennsylvania
wholesale operations. Operating and administrative expenses decreased as a
percent of sales from the second quarter of fiscal 1997. The Company expects to
realize future operating efficiencies from the consolidation of its Pennsylvania
wholesale operations.
The Company's operating results for the twelve and thirty-six week
periods ended January 6, 1996 included a one-time charge for merger and
integration costs of $12.0 million in connection with the Super Rite
Acquisition. This charge primarily related to transaction costs associated with
the Super Rite Acquisition, severance costs and costs related to the conversion
of certain BASICS locations to the METRO store format, including write-offs of
property and equipment.
Interest expense for the twelve and thirty-six week periods ended
January 4, 1997, was $1.9 million and $5.2 million, respectively, compared to
$3.0 million and $9.9 million for the same periods last fiscal year. The
decrease was primarily due to lower debt levels attributable to the Company's
ability to generate cash flow from operations, a portion of which was used to
reduce average borrowings under revolving credit facilities, and for the early
extinguishment of $27.5 million of the Senior Subordinated Notes during the
third and fourth quarters of fiscal 1996, the repayment of borrowings under a
$25.0 million Super Rite term loan facility in the third quarter of fiscal 1996,
and the initial principal repayment, in July 1996, of $9.0 million of the
Company's $45.0 million 6.15% Senior Notes.
The Company's effective income tax rate was 39.8% and 40.0% for the
twelve and thirty-six week periods ended January 4, 1997, compared to 50.8% and
42.6% for the twelve and thirty-six week periods ended January 6, 1996,
respectively. The higher effective tax rate for the twelve and thirty-six week
periods ended January 6, 1996, was primarily attributable to certain
nondeductible merger and integration costs associated with the Super Rite
Acquisition.
The extraordinary loss, net of tax, of $1.0 million for the twelve
and thirty-six week periods ended January 6, 1996, related to the repurchase, at
market prices above par, of $9.7 million principal amount of Senior Subordinated
Notes and was comprised of the amount paid in excess of their par value and the
write-off of related deferred financing costs. See "Liquidity and Capital
Resources" for a discussion regarding the Company's announcement that it plans
to call for early redemption the remaining $47.5 million of Senior Subordinated
Notes.
Net earnings for the twelve week period ended January 4, 1997, were
$15.0 million, or $0.32 per share, compared to net earnings of $2.8 million, or
$0.06 per share, for the same period last fiscal year. Net earnings for the
thirty-six week period ended January 4, 1997, were $40.0 million, or $0.85 per
share, compared to net earnings of $22.8 million, or $0.49 per share, for the
same period last fiscal year. Excluding the effects of the one-time charge for
merger and integration costs related to the Super Rite Acquisition and the
extraordinary loss related to the early extinguishment of debt, net earnings for
the twelve and thirty-six week periods ended January 6, 1996, were $11.6
million, or $0.25 per share, and $31.6 million, or $0.67 per share,
respectively. Net earnings for the twelve and thirty-six week periods ended
January 4, 1997, represent a 29.7% and 26.7% increase, respectively, over net
earnings of $11.6 million and $31.6 million, excluding the effects of the
one-time charge and the extraordinary loss, for the same periods last fiscal
year.
The Company's Pennsylvania Division is a party to a supply agreement
with Acme Markets, Inc. which expires in July 1997 and which accounted for
approximately $165.0 million of wholesale grocery sales volume last fiscal year.
While the Company has been engaged in negotiations with Acme concerning the
possible renewal of the supply agreement, there can be no assurance that the
supply agreement will be renewed. The Company believes that the gain and loss of
customers is a normal aspect of its business; for example, the Company recently
announced that it has entered into new long-term supply agreements with
customers trading as Genuardi's Family Markets, Magruder's and Boyer's Food
Markets, which together are expected to represent annual sales approximating the
Acme business. Accordingly, the Company does not expect that any reduction in
the Acme business due to nonrenewal of the supply agreement would have a
material adverse effect on its financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $12.3 million at January 4, 1997,
compared to $17.4 million at April 27, 1996.
Net cash provided by operating activities for the thirty-six week
period ended January 4, 1997, was $64.6 million. This amount primarily consisted
of net earnings of $40.0 million and depreciation and amortization of $20.4
million. Working capital increased from $40.8 million at April 27, 1996, to
$42.7 million at January 4, 1997. The ratio of current assets to current
liabilities was 1.16 at both January 4, 1997, and April 27, 1996.
Net cash used for investing activities was $56.6 million for the
thirty-six week period ended January 4, 1997. On September 30, 1996, the Company
acquired substantially all of the assets and assumed certain liabilities of
Norristown, a wholesale distributor of produce and other perishable food items
headquartered near Philadelphia, Pennsylvania. The purchase price of
approximately $26.1 million was funded with internally generated funds.
Capital expenditures of $12.7 million for the thirty-six week period
ended January 4, 1997, included capital employed for the construction of a new
METRO store, the conversion of an existing BASICS store to the METRO format, a
METRO store remodel, improvements to the fluid dairy and wholesale distribution
centers and the purchase of warehouse material handling equipment.
The Company remains committed to providing secured financing to
support the growth of its retail customers. Loans issued to retailers were $18.1
million for the thirty-six week period ended January 4, 1997, and were offset in
part by $7.2 million of repayments by retailers.
Net cash used for financing activities of $13.1 million for the
thirty-six week period ended January 4, 1997, primarily consisted of $10.2
million of net repayments on long-term debt and capital lease obligations. The
$10.2 million of net repayments primarily related to the initial principal
repayment of $9.0 million in July 1996, of the Company's 6.15% Senior Notes. Net
repayments on long-term debt of $62.0 million for the thirty-six week period
ended January 6, 1996, primarily related to the repayment of outstanding
borrowings under a $25.0 million revolving credit facility and a $25.0 million
term loan facility, as well as the early extinguishment of $9.7 million of
Senior Subordinated Notes.
On January 17, 1997, the Company announced its plans to call for
early redemption the remaining $47.5 million outstanding principal amount of the
Senior Subordinated Notes. The Senior Subordinated Notes will be redeemed
effective April 1, 1997, the first permitted optional redemption date, at a
redemption price of 105.31% of their principal amount, plus accrued interest.
The Company expects that it will use cash on hand and borrowings under existing
credit facilities to redeem the Senior Subordinated Notes. The Company expects
to recognize an extraordinary loss, net of tax, of approximately $1.8 million
during the fourth quarter of fiscal 1997 related to the redemption premium for
the Senior Subordinated Notes and the write-off of remaining deferred financing
costs related to their issuance. The Company expects to realize significant
interest expense savings from the early retirement of the Senior Subordinated
Notes due to the lower borrowing rates currently available to the Company.
The Company's long-term debt, including capital leases and current
maturities, was $88.6 million at January 4, 1997, compared to $97.7 million at
April 27, 1996. The ratio of long-term debt, including capital leases and
current maturities, to equity was 0.37 to 1 at January 4, 1997, and 0.49 to 1 at
April 27, 1996.
The Company believes that it has the ability to continue to generate
adequate funds from its operations and through borrowings under its long-term
debt facilities to maintain its competitive position and expand its business.
PART II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3.1-Amended and Restated Bylaws of Richfood Holdings,
Inc. as of January 28, 1997
Exhibit 11.1-Earnings Per Share Calculation
Exhibit 27.1-Financial Data Schedule
(b) Reports on Form 8-K
None
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.
RICHFOOD HOLDINGS, INC.
Date: February 17, 1997 By /s/ J. Stuart Newton
--------------------
J. Stuart Newton
Senior Vice President
and Chief Financial Officer