INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF FARM FRESH, INC.
Page
----
Independent Auditors' Report F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 30, 1995
and December 28, 1996 F-3
Consolidated Statements of Loss for each of the years in the three
year period ended December 28, 1996 F-5
Consolidated Statements of Stockholder's Deficit for each
of the years in the three year period ended December 28, 1996 F-6
Consolidated Statements of Cash Flows for each of the years in the
three year period ended December 28, 1996 F-7
Notes to Consolidated Financial Statements F-10
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Farm Fresh, Inc.:
We have audited the consolidated balance sheets of Farm Fresh, Inc. and
subsidiaries as of December 30, 1995 and December 28, 1996 and the related
consolidated statements of loss, stockholder's deficit and cash flows for each
of the years in the three year period ended December 28, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Farm Fresh, Inc. and
subsidiaries as of December 30, 1995 and December 28, 1996 and the results of
their operations and their cash flows for each of the years in the three year
period ended December 28, 1996 in conformity with generally accepted accounting
principles.
As discussed in note 1 to the consolidated financial statements, in 1995 the
Company adopted Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of.
KPMG PEAT MARWICK LLP
Norfolk, Virginia
February 11, 1997, except as to note 10,
which is as of February 21, 1997
FARM FRESH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 30, December 28,
1995 1996
ASSETS
Current assets (note 10):
Cash (note 3) $ 2,079,874 847,665
Accounts receivable, net of allowance for doubtful
accounts of $491,330 at December 30, 1995 and
$1,003,038 at December 28, 1996 (note 16) 17,026,234 14,792,965
Merchandise inventories, net
Assuming the first-in, first-out method 56,700,404 54,164,510
Less adjustment to the last-in, first-out method 3,036,896 3,355,394
------------- -------------
53,663,508 50,809,116
------------- -------------
Prepaid expenses and other current assets 2,083,743 1,355,115
------------- -------------
Total current assets 74,853,359 67,804,861
------------- -------------
Assets held for sale (note 10) 6,220,362 9,998,102
Property, plant and equipment (notes 8, 9, 10 and 16):
Land 10,627,356 8,727,365
Buildings 64,835,421 62,675,865
Leasehold improvements 32,016,115 35,955,672
Fixtures and equipment 82,743,500 87,093,915
Transportation equipment 628,072 608,037
Construction in progress 348,932 894,515
------------- -------------
191,199,396 195,955,369
Less accumulated depreciation and amortization 85,264,691 91,778,403
------------- -------------
Net property, plant and equipment 105,934,705 104,176,966
------------- -------------
Favorable lease rights, net of accumulated amortization
of $6,398,657 at December 30, 1995 and $7,283,859 at
December 28, 1996 4,519,402 3,540,441
Goodwill, net of accumulated amortization of $994,136
at December 30, 1995 and $2,348,851 at December 28, 1996 8,567,662 7,227,683
Deferred financing costs, net of accumulated amortization
of $4,390,824 at December 30, 1995 and $6,301,559 at
December 28, 1996 6,663,734 5,785,031
Other, net (note 16) 1,144,005 175,677
------------- -------------
$207,903,229 198,708,761
============= =============
(continued)
FARM FRESH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
December 30, December 28,
1995 1996
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Current installments of notes payable (note 9) $ 1,183,073 801,467
Current installments of obligations under capital
leases (notes 8 and 16) 1,858,914 3,040,132
Trade accounts payable 32,900,110 36,149,820
Accrued expenses (note 7) 24,440,831 24,424,898
Accrued costs relating to closed stores,
current portion (notes 3 and 5) 1,965,073 1,901,305
------------- -------------
Total current liabilities 62,348,001 66,317,622
------------- -------------
Long-term debt, excluding current installments:
Revolving credit facility (note 10) 12,169,258 24,289,957
Notes payable (note 9) 1,751,721 919,698
Obligations under capital leases (notes 8 and 16) 31,617,554 33,958,653
12.25% senior notes (note 11) 165,000,000 165,000,000
12.25% senior notes, Series A (note 11) 37,337,873 37,074,410
Convertible subordinated debentures (notes 10 and 12) 9,322,398 4,380,243
------------- -------------
Total long-term debt, excluding current installments 257,198,804 265,622,961
------------- -------------
Accrued costs relating to closed stores (notes 3 and 5) 7,969,459 7,470,884
Deferred credits and other liabilities (note 3) 4,356,659 3,424,988
------------- -------------
Total liabilities 331,872,923 342,836,455
------------- -------------
Stockholder's deficit (note 13):
Common stock of $.01 par value; authorized 200 shares,
issued 10 shares - -
Additional paid-in capital 29,457,988 29,423,528
Accumulated deficit (152,113,645) (172,442,282)
FF Holdings stockholder loans (note 16) (1,314,037) (1,108,940)
-------------- --------------
Total stockholder's deficit (123,969,694) (144,127,694)
Commitments, contingencies and subsequent events
(notes 2, 8, 10, 13, 15 and 16) - -
------------- ------------
$ 207,903,229 198,708,761
============= =============
See accompanying notes to consolidated financial statements.
FARM FRESH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
Years Ended
-----------------------------------------------------
December 31, December 30, December 28,
1994 1995 1996
---- ---- ----
Sales $ 885,883,350 $ 885,087,448 $ 761,493,845
Cost of sales 677,542,329 674,776,002 583,521,074
------------ ------------ ------------
Gross profit 208,341,021 210,311,446 177,972,771
Depreciation and amortization (24,955,107) (21,749,616) (20,677,935)
Other selling, general and administrative expenses (167,527,043) (164,340,248) (138,607,053)
Store closure and other charges (note 5) - (2,635,666) (1,497,284)
Interest expense (35,150,039) (35,231,411) (34,547,000)
Loss on disposition of assets (note 3) (396,434) (4,376,073) (537,956)
Write down of long-lived assets to be disposed (note 1) - (7,230,982) (2,756,207)
Other, net (notes 6 and 12) 99,448 (701,308) 322,027
------------ ------------- ------------
Net loss $ (19,588,154) $ (25,953,858) $ (20,328,637)
============ ================ =============
See accompanying notes to consolidated financial statements.
FARM FRESH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
Years Ended December 31, 1994, December 30, 1995 and December 28, 1996
Common Stock Additional Due from
------------ Paid-in FF Holdings
Shares Amount Capital Corporation
------- -----------
Balance at January 1, 1994 10 $ - 29,534,872 (2,266,052)
Contribution from FF Holdings
(note 13) - - - 2,266,052
Dividend to FF Holdings - - (19,673) -
Loans to stockholders - - - -
Repayment of stockholder loans - - - -
Net loss - - - -
------ ------- ------------ -------------
Balance at December 31, 1994 10 - 29,515,199 -
Repayment of stockholder loans - - - -
Dividend to FF Holdings - - (57,211) -
Net loss - - - -
------ ------- ------------ -------------
Balance at December 30, 1995 10 $ - 29,457,988 -
Writedown of stockholder
loans (note 16) - - - -
Dividend to FF Holdings - - (34,460) -
Net loss - - - -
------ ------- ------------ -------------
Balance at December 28, 1996 10 $ - 29,423,528 -
====== ====== ============= =============
FF Holdings Total
Accumulated Stockholder Stockholder's
Deficit Loans Deficit
------- ----- -------
Balance at January 1, 1994 (106,571,633) (1,382,609) (80,685,422)
Contribution from FF Holdings
(note 13) - - 2,266,052
Dividend to FF Holdings - - (19,673)
Loans to stockholders - (76,007) (76,007)
Repayment of stockholder loans - 110,000 110,000
Net loss (19,588,154) - (19,588,154)
------------------ --------------- ----------------
Balance at December 31, 1994 (126,159,787) (1,348,616) (97,993,204)
Repayment of stockholder loans - 34,579 34,579
Dividend to FF Holdings - - (57,211)
Net loss (25,953,858) - (25,953,858)
------------------ --------------- ----------------
Balance at December 30, 1995 (152,113,645) (1,314,037) (123,969,694)
Writedown of stockholder
loans (note 16) - 205,097 205,097
Dividend to FF Holdings - - (34,460)
Net loss (20,328,637) - (20,328,637)
------------------ --------------- ----------------
Balance at December 28, 1996 (172,442,282) (1,108,940) (144,127,694)
================== ================ ================
See accompanying notes to consolidated financial statements.
FARM FRESH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended
----------------------------------------------------
December 31, December 30, December 28,
1994 1995 1996
Cash flows from operating activities:
Net loss $ (19,588,154) $ (25,953,858) $ (20,328,637)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 24,955,107 21,749,616 20,677,935
Store closure and other charges - 2,635,666 1,497,284
Loss on disposition of property and equipment 396,434 1,915,615 537,956
Loss on sale of 10 stores to Hannaford Bros. Inc. - 2,460,458 -
Write down of long-lived assets to be disposed - 7,230,982 2,756,207
Loss on disposition of preferred stock - 1,084,604 -
Write down of FF Holding's stockholder loans - - 205,097
Gain on conversion of convertible subordinated
debentures, net - (293,546) (298,536)
LIFO charge to earnings 271,000 35,553 318,498
Noncash recognition of deferred revenue (417,147) (701,763) (1,124,194)
Amortization of premium on debt issuance (211,042) (235,800) (263,463)
Changes in assets and liabilities that increase
(decrease) net cash provided by operating activities:
Accounts receivable (1,861,757) 2,130,031 2,233,269
Merchandise inventories (3,418,568) (283,722) 781,332
Prepaid expenses and other current assets (184,182) 120,241 728,628
Trade accounts payable 5,069,662 (8,540,684) 3,249,710
Accrued expenses 2,251,105 1,573,802 (15,933)
Accrued costs relating to closed stores (3,783,251) (2,266,813) (2,059,627)
Deferred credits and other liabilities (8,322) 936,388 192,523
Other, net (349,970) 93,405 175,098
-------------- -------------- -------------
Total adjustments 22,709,069 29,644,033 29,591,784
------------- -------------- -------------
Net cash provided by operating
activities 3,120,915 3,690,175 9,263,147
------------- -------------- -------------
Cash flows from investing activities:
Acquisitions of property and equipment (7,668,431) (17,081,346) (18,329,078)
Proceeds from sale of property and equipment 1,939,894 654,394 4,880,711
Proceeds from sale of 10 stores to Hannaford Bros. Inc. - 28,368,789 -
Acquisition of Bold Horizons common stock, net of
cash acquired (394,539) - -
Acquisition of assets from Drug Emporium franchisee - (4,246,988) -
------------- -------------- ------------
Net cash provided by (used in)
investing activities (6,123,076) 7,694,849 (13,448,367)
-------------- -------------- --------------
FARM FRESH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years Ended
----------------------------------------------------
December 31, December 30, December 28,
1994 1995 1996
Cash flows from financing activities:
Borrowings under revolving credit facility $ 144,604,126 $ 150,438,533 $ 151,656,252
Repayments under revolving credit facility (135,533,535) (156,950,483) (139,535,553)
Repayments of long-term debt (2,115,466) (2,014,286) (1,104,515)
Repayments of obligations under capital leases (1,744,016) (1,922,040) (2,188,222)
Payments upon conversion of convertible
subordinated debentures - (5,627,762) (4,667,521)
Stockholder loan repayments 110,000 34,579 -
Payment of refinancing costs (225,080) - (1,172,970)
Dividend to FF Holdings (19,673) (57,211) (34,460)
Contribution from FF Holdings 2,266,052 - -
------------- -------------- -------------
Net cash provided by (used in)
financing activities 7,342,408 (16,089,670) 2,953,011
------------- --------------- -------------
Net increase (decrease) in cash 4,340,247 (4,713,646) (1,232,209)
Cash at beginning of period 2,453,273 6,793,520 2,079,874
------------- -------------- -------------
Cash at end of period $ 6,793,520 $ 2,079,874 $ 847,665
============= ============== =============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 33,588,257 $ 36,080,529 $ 34,352,498
============= ============== =============
Income taxes $ - $ - $ -
============= ============== =============
Supplemental information on noncash investing and financing activities:
During the year ended December 30, 1995, the Company sold selected assets
to Hannaford Bros. Inc. (note 3) for net proceeds of $28,368,789,
including $820,000 received for noncompete and license agreements.
The net assets sold are as follows:
Assets sold $ 33,848,965
Liabilities assumed by Hannaford Bros. Inc. 3,839,718
------------
Net assets sold 30,009,247
Net proceeds, excluding proceeds related to
noncompete and license agreements 27,548,789
------------
Loss on sale of assets $ 2,460,458
============
FARM FRESH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Supplemental information on noncash investing and financing activities
(continued):
During the year ended December 31, 1994, the Company purchased the common stock
of Bold Horizons, Inc. for $416,534 (note 4). In conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets purchased $ 2,887,278
Cash paid to seller, net of cash acquired 394,539
------------
Liabilities assumed, principally long-term debt $ 2,492,739
============
During the year ended December 31, 1994, the Company finalized the purchase
price allocation for the 1993 acquisition of 12 stores from Safeway Inc.
as follows:
Overvaluation of assets $ 1,060,712
Overaccrual of closed store liability (1,549,112)
Payment of additional direct costs of acquisition 82,605
------------
Net change in goodwill $ (405,795)
=============
During the year ended December 31, 1994, FF Holdings stockholder loans
increased by $76,007 for the accrual of interest.
During the years ended December 31, 1994, December 30, 1995, and December
28, 1996, the Company entered into capital lease obligations of
$3,258,104, $3,688,500 and $5,765,295 respectively.
See accompanying notes to consolidated financial statements.
FARM FRESH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, December 30, 1995, and December 28, 1996
(1) Summary of Significant Accounting Policies
(a) Nature of Business and Basis of Presentation
Farm Fresh Inc. (Farm Fresh or the Company), a wholly owned subsidiary
of FF Holdings Corporation (FF Holdings), is engaged in the retail
grocery business under the names "Farm Fresh," "Rack & Sack" and
"Gene Walters' Marketplace." These operations include combination
stores and super warehouse stores located in the Hampton Roads,
Richmond and Shenandoah Valley areas of Virginia.
The consolidated financial statements include the accounts of Farm
Fresh, Inc. and subsidiaries. All significant intercompany balances
and transactions of consolidated subsidiaries have been eliminated.
The consolidated financial statements do not include the accounts of
certain joint venture partnerships in which the Company has acquired
interests ranging from 20% to 33%. These joint ventures were formed
to acquire, renovate, construct and operate various rental
properties. The joint venture partnerships are carried on the equity
method.
(b) Definition of Fiscal Year
The fiscal year of the Company ends on the Saturday nearest to December
31. Fiscal year 1994 ended December 31, 1994, fiscal year 1995 ended
December 30, 1995 and fiscal year 1996 ended December 28, 1996.
(c) Merchandise Inventories
Inventories are stated at the lower of cost or market. For
substantially all of the inventories, cost has been determined on a
last-in, first-out (LIFO) basis. With respect to the remaining
inventories, cost has been determined on a first-in, first-out (FIFO)
basis. Approximately 93% of total merchandise inventories in 1994,
1995, and 1996 were costed using the LIFO method. Movies held for
rent are included in merchandise inventories and amortized to their
net realizable value over 90 days.
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Buildings and
equipment under capital leases are stated at the lower of the present
value of minimum lease payments at the beginning of the lease term or
fair value of the property at the inception of the lease. Owned
buildings, fixtures and equipment are depreciated over the estimated
useful lives of the respective assets using the straight-line method.
Buildings under capital leases, fixtures and equipment under capital
leases and leasehold improvements are amortized using the
straight-line method over the lesser of the lease term or the
estimated useful life of the related asset. The Company uses the
following estimated useful lives for depreciating and amortizing
property, plant and equipment:
Buildings 10-40 years
Leasehold improvements 10 years
Fixtures and equipment 3-8 years
Transportation equipment 3-5 years
(e) Favorable Lease Rights
Favorable lease rights are amortized over the term of the lease using
the straight-line method.
(f) Goodwill
Goodwill represents the excess purchase price over the estimated fair
value at the date of acquisition of the tangible and identifiable
intangible net assets acquired and is amortized over its estimated
recovery period using the straight-line method. The maximum recovery
period is 25 years.
(g) Deferred Financing Costs
Deferred financing costs are amortized over the term of the related
financing primarily using the effective interest method.
(h) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
The Company and its wholly owned subsidiaries are included in the
Federal income tax return of the consolidated group comprised of FF
Holdings and the Company. The income tax information reflected in the
accompanying financial statements has been calculated as if Farm
Fresh were filing a separate tax return.
(i) Assets Held for Sale
Assets held for sale are carried at estimated net realizable value less
estimated costs to sell. Included in assets held for sale at December
28, 1996 are three buildings, one of which is currently leased to a
third party through 2000, and three parcels of land. Management
expects to sell these properties over the next three years.
(j) Preopening Costs
The Company capitalizes costs associated with the opening of new or
remodeled stores and amortizes these costs over the first six
accounting periods during which the store is open.
(k) Advertising Costs
Advertising costs, which are included in selling, general and
administrative expenses in the accompanying consolidated statements
of loss, are expensed as incurred. Advertising expenses, net of
cooperative advertising allowances, amounted to $5,379,335,
$5,283,195 and $3,296,464, respectively, for the years ended December
31, 1994, December 30, 1995 and December 28, 1996.
(l) Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of (Statement 121). Statement 121 requires that long-lived
assets and certain identifiable intangible assets to be held and used
by an entity be reviewed for impairment when events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset would be compared
to the asset's carrying amount to determine if a write-down to market
or discounted cash flow value is required. Statement 121 also
requires that long-lived assets and certain identifiable intangibles
to be disposed of be reported at the lower of carrying amount or fair
value less costs to sell. The Company adopted Statement 121 in 1995.
The application of Statement 121 to assets held for disposal resulted
in a charge of $7.2 million and $2.8 million in 1995 and 1996,
respectively. Statement 121 has not had an impact on assets to be
held and used.
(m) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and
expenses during the reporting period to prepare these financial
statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(n) Reclassifications
Certain reclassifications have been made to the consolidated financial
statements for the years ended December 31, 1994 and December 30,
1995 in order to conform with the financial statement presentation
for the year ended December 28, 1996.
(2) Liquidity
Although the Company has historically generated cash flow from
operations, the interest incurred on its substantial debt obligations
has resulted in recurring losses. In addition, FF Holdings will be
required to make cash interest payments on its 14.25% senior notes
commencing April 1, 1998. As a holding company with no operations
independent from the Company, FF Holdings is dependent on dividends
from the Company to make its cash interest payments. The Company's
limited cash flow as well as the covenants in its debt agreements
will likely preclude the Company from paying dividends to FF Holdings
to enable FF Holdings to make its April 1, 1998 cash interest
payment. As note 13 more fully describes, FF Holdings' failure to
make its cash interest payment could result in holders of FF Holdings
14.25% senior notes acquiring a controlled interest in Farm Fresh,
which would in turn, trigger a "Change in Control" as defined in the
Indentures, requiring Farm Fresh to offer to repurchase the Senior
Notes, requiring an effective acceleration of the maturity of the
notes.
Although management believes the Company's cash flow from operations and
amounts available under its revolving credit facility will provide
sufficient financial resources to meet its obligations through fiscal
1997, substantial additional capital would be required to finance a
redemption of the Senior Notes under the Change in Control provision.
Management of the Company has engaged an investment banking firm and
is in the process of exploring strategic alternatives, which may
include the sale of some or all of the Company's assets or the
Company remaining independent and either raising additional capital
or negotiating modifications in terms to its or FF Holdings
indebtedness. There can be no assurance that the Company will be able
to secure sufficient capital to enable it to satisfy all outstanding
obligations in the event of an acceleration of the senior notes. In
that event, the Company may be required to enter into some form of
reorganization.
In addition, the Company's existing revolving credit facility expires on
January 13, 1998. Therefore, the Company will be required to renew
its existing facility or secure an alternative source of short-term
financing prior to the expiration. Although there can be no
assurances that the Company will succeed in renewing its existing
facility or securing a new facility which will provide sufficient
financial resources to conduct its operations, the Company believes
that it will be able to obtain some form of short-term interim
facility.
(3) Sale of 10 Stores to Hannaford Bros. Inc.
On September 25, 1995, the Company sold the assets of 10 combination
stores, three of which had been previously closed by the Company,
to Hannaford Bros. Inc. (Hannaford). The stores were primarily
located in Richmond, Virginia.
The net proceeds were as follows:
Gross proceeds:
Inventory and other assets sold $ 28,318,993
Noncompete and license agreements 820,000
-------------
29,138,993
Divestiture expenses:
Sales tax on sale of assets 261,000
Other divestiture expenses 509,204
-------------
Net proceeds $ 28,368,789
=============
The gross proceeds reflected above include $750,000 received pursuant to
a three year noncompetition agreement. This agreement restricts the
Company's activities in Richmond and the surrounding areas except
with respect to its remaining stores in the Richmond market. The
gross proceeds also include $70,000 received pursuant to a one year
license agreement under which Hannaford was permitted to trade under
the name "The Grocery Store" in the Richmond market for a period of
one year. The Company deferred the proceeds received under these
agreements and is recognizing revenue over the term of the respective
contract.
The net assets sold and related loss can be summarized as follows:
Assets sold:
Merchandise inventories $ 4,339,497
Property and equipment 13,404,723
Favorable lease rights 5,257,126
Goodwill 10,847,619
-------------
Total assets sold 33,848,965
-------------
Liabilities assumed by Hannaford:
Obligations under capital leases 3,334,235
Closed store liability 505,483
-------------
Total liabilities assumed 3,839,718
-------------
Net assets sold 30,009,247
Net proceeds, excluding proceeds related to
noncompete and license agreements 27,548,789
-------------
Loss on sale of assets $ 2,460,458
=============
Under the terms of the agreement, $1,261,000 of the net proceeds were
placed in escrow after closing for any potential claims against the
Company with respect to the stores sold and sales tax attributable to
the sale. As of December 30, 1995, $250,000 of the escrowed amount
had been released to the Company. The remaining amounts held in
escrow, including interest accrued thereon, were released to the
Company in 1996. The amounts held in escrow are included in cash on
the accompanying consolidated balance sheet as of December 30, 1995.
The Company used $200,534 of the net proceeds to repay an industrial
revenue development bond which was collateralized by one of the
stores sold.
In order to comply with the terms of the indentures of the Company's
12.25% senior notes and 12.25% senior note series A (note 11), the
Company reinvested the proceeds from the sale of the assets in
remodeling existing stores.
(4) Acquisitions
(a)Drug Emporium
In November 1995, the Company purchased selected assets from a Drug
Emporium franchisee in Richmond for $4.2 million. In conjunction
with the acquisition, the Company acquired $1.8 million in
inventory and $0.2 million in fixtures, which were placed in
existing Company stores. The acquisition was accounted for as a
purchase, with the excess of the purchase price over the fair
value of the assets acquired allocated to goodwill. The Company
is amortizing the goodwill over 2 years. Farm Fresh also entered
into a two-year license agreement with Drug Emporium which
allows the Company to use Drug Emporium's trademarks in certain
Company stores located in Richmond. A stockholder and member of
the Company's Board of Directors currently serves on Drug
Emporium's Board of Directors.
(b)Bold Horizons, Inc.
In August 1994, the Company acquired the outstanding common stock
of Bold Horizons, Inc., for $416,534 in cash, including the
direct costs of the acquisition, and notes payable totaling
$700,000 (note 9). The acquisition was accounted for as a
purchase. As a result, the cost of the acquisition was allocated
on the basis of the fair market value of the assets acquired and
the liabilities assumed, with the excess purchase price of $1.7
million allocated to goodwill. Bold Horizons, Inc. operates one
super warehouse store.
(5) Accrued Costs Relating to Closed Stores
During 1995 and 1996, the Company closed six and two stores,
respectively. In conjunction with the closures, the Company accrued
future costs of $2.6 million in 1995 and $1.5 million in 1996. The
costs, recorded based on discounted cash flows, are directly
attributable to the closed stores. The costs accrued include rent,
taxes, utilities, common area maintenance and other costs associated
with the store locations.
During the years ended December 31, 1994, December 30, 1995 and
December 28, 1996, $2.5 million, $2.3 million and $2.1 million,
respectively, net of related interest expense, related to closed
facilities were charged against the liability noted as accrued costs
relating to closed stores in the accompanying consolidated balance
sheets. These costs represent rent, taxes, utilities, common area
maintenance and other costs associated with the specific closed store
locations.
(6) Write-off of Virginia Supermarkets, Inc. Preferred Stock
During 1992, Farm Fresh sold 11 of its Nick's stores to Virginia
Supermarkets, Inc., (Supermarkets), an entity related to Farm Fresh
by common ownership. Farm Fresh received cash of $4,955,675 and 10%
cumulative preferred stock with $3,000,000 face value. Because the
preferred stock represented an investment in a thinly capitalized
entity, the gain on the sale of $1,915,396 was deferred until
realization could be reasonably assured. Supermarkets was dissolved
in 1995 and Farm Fresh wrote off its $1,084,604 investment in the
preferred stock. This write-off has been included in other, net in
the accompanying consolidated statement of loss for the year ended
December 30, 1995.
(7) Accrued Expenses
Accrued expenses consisted of the following:
December 30, December 28,
1995 1996
Accrued licenses and other taxes $ 6,110,228 $ 5,407,620
Accrued interest 6,986,589 7,181,091
Accrued insurance claims 3,669,027 4,125,522
Accrued other 7,674,987 7,710,665
----------- -----------
$ 24,440,831 $ 24,424,898
=========== ===========
(8) Leases
Included in property, plant and equipment are the following amounts
applicable to capital leases:
December 30, December 28,
1995 1996
Buildings $ 34,884,277 $ 36,396,380
Fixtures and equipment 1,395,560 4,897,322
----------- ------------
36,279,837 41,293,702
Less accumulated amortization 12,526,405 14,308,039
----------- ------------
$ 23,753,432 $ 26,985,663
=========== ============
Amortization expense of assets under capital leases was $2,580,176,
$2,627,032 and $2,709,123 for the years ended December 31, 1994,
December 30, 1995 and December 28, 1996, respectively.
Future minimum lease payments under noncancelable operating leases and
the present value of future minimum capital lease payments as of
December 28, 1996 are as follows:
Fiscal Year Capital Leases Operating Leases
------------ -------------- ----------------
1997 $ 7,547,981 $ 7,531,515
1998 7,483,889 7,193,193
1999 6,878,229 6,581,622
2000 6,318,343 6,187,426
2001 5,499,795 6,084,442
Later years 48,997,548 43,129,778
------------- ------------
Total minimum lease payments 82,725,785 $ 76,707,976
============
Less amount representing interest 45,727,000
-------------
Present value of net minimum
capital lease payments 36,998,785
Less current installments of obligations
under capital leases 3,040,132
-------------
Long-term obligations
under capital leases $ 33,958,653
=============
Minimum payments under capital leases have not been reduced by minimum
sublease rentals of $830,590 due in the future under noncancelable
subleases.
Rental expense for operating leases and contingent rentals for both
operating and capital leases are as follows:
Years Ended
December 31, December 30, December 28,
1994 1995 1996
---- ---- ----
Minimum rentals - operating
leases $ 10,271,529$ 10,191,480$ 7,276,377
Contingent rentals - operating
leases 464,779 287,643 200,638
Contingent rentals - capital
leases 248,155 224,450 180,803
---------- ---------- -----------
$ 10,984,463 $ 10,703,573 $ 7,657,818
========== ========== ===========
Contingent rentals are determined as a percentage of sales in excess of
stipulated amounts for certain stores. Most of the Company's leases
provide for payment of taxes, maintenance, insurance and certain
other operating expenses applicable to leased property.
Minimum payments under capital leases and operating leases do not
include minimum rentals for certain leases assumed by Nash Finch and
the operators of the Tinee Giant stores. The Company is secondarily
liable for these leases in the event of default by the present
lessee. Future minimum lease payments on these leases as of December
28, 1996 are approximately $2,024,000.
The Company sold its North Carolina stores in early 1991 and its Nick's
conventional stores in 1992 to independent operators financed by
Richfood. Under the agreements, Richfood agreed to guarantee the
lease payments for these stores. Therefore, the Company would be
liable under these leases only to the extent that the current lessee
and Richfood default. Future minimum lease payments under these
leases amount to approximately $9,363,000 as of December 28, 1996.
(9) Notes Payable
Notes payable consist of the following:
December 30, December 28,
1995 1996
---- ----
Industrial Development Revenue Bonds; 65% of
prime, which averaged 5.7% for 1995 and
5.4% for 1996, quarterly installments
of $90,000 plus interest, due January 2000 $ 1,498,463 1,138,463
Obligations under noncompete agreements;
10% to 12% interest; monthly payments
ranging from $2,950 to $3,462; due
May 1997 to November 2003 474,403 228,379
Notes payable:
Prime + 2% notes, which averaged 11% for 1995
and 10% for 1996; weekly installments of $7,752,
including interest; collateralized by
substantially all assets of Bold Horizons,Inc.;
due September 1998 566,095 198,767
December 30, December 28,
1995 1996
Prime + 2% notes, which averaged 11% for 1995
and 10% for 1996; monthly installments of
$19,444 plus interest; collateralized by
the common stock of Bold Horizons, Inc.;
due September 1998 395,833 155,556
----------- -----------
Total notes payable 2,934,794 1,721,165
Less current installments of notes payable 1,183,073 801,467
----------- -----------
Notes payable, excluding current
installments $ 1,751,721 919,698
=========== ===========
At December 28, 1996, collateral for the industrial development revenue
bond consisted of certain property, plant and equipment against which
the note was issued. The net book value of the related collateral is
approximately $2,790,000 at December 28, 1996.
Aggregate annual maturities of notes payable for fiscal years after
December 28, 1996 are as follows: 1997--$801,467; 1998--$378,459;
1999--$380,800, 2000--$81,901; 2001 and thereafter--$78,538.
(10) Revolving Credit Facility
In 1996, the Company renewed its existing revolving credit facility. The
revolving credit facility allows the Company to borrow up to $40.0
million, less $4.0 million reserved for the redemption of convertible
debentures, subject to certain borrowing base limitations through
January 13, 1998. The availability of the revolving credit facility
is also reduced by outstanding letters of credit amounting to
$1,072,501 at December 28, 1996.
The revolving credit facility bears interest at prime plus 1 3/4%,
payable quarterly. The actual interest rate on the revolving credit
facility averaged 10 3/4% for 1995 and 10% for 1996. The facility is
collateralized by accounts receivable, inventory and substantially
all other assets of the Company. In addition, FF Holdings has pledged
all of the outstanding capital stock of Farm Fresh for the repayment
of the facility.
The agreement governing the revolving credit facility contains covenants
which, among other things, limit the incurrence of additional
indebtedness, capital expenditures, payment of dividends,
transactions with affiliates, mergers and consolidations, prepayment
of other indebtedness and liens and encumbrances. The Company is also
required to maintain a minimum level of cashflow.
For the year ended December 28, 1996, the Company exceeded the maximum
capital expenditures covenant and as a result the lender had the
right to demand repayment of the borrowings under the facility.
On February 21, 1997, the lender agreed to waive the noncompliance.
(11) Senior Notes
On October 9, 1992 the Company issued $165,000,000 of senior notes
through a public offering. The notes, which bear interest at 12.25%
payable semiannually each April 1 and October 1, represent general
unsecured obligations of the Company and mature October 1, 2000.
On December 13, 1993, Farm Fresh issued an additional $36,000,000 face
value of 12.25% senior notes, for gross proceeds of $37,800,000, to
finance the acquisition of 12 stores from Safeway Inc. The related
premium is being amortized over the life of the notes using the
effective interest method. The effective rate on the notes is 11.1%.
These notes, labeled Series A in the accompanying balance sheets,
have terms that mirror the previously issued senior notes.
The senior notes are redeemable, at the option of the Company, in whole
or in part, at any time on or after October 1, 1997 at specified
redemption prices, together with interest to the date fixed for
redemption. A sinking fund payment of $100,500,000 is due on October
1, 1999. This sinking fund payment is calculated to retire 50% of the
senior notes originally issued prior to maturity. In the event of a
change of control of the Company, the Company is obligated to make an
offer to purchase all outstanding senior notes at a redemption price
of 101% of the principal amount plus accrued interest to the date of
repurchase. As described in note 13, a foreclosure by the FF Holdings
noteholders on the common stock of Farm Fresh would constitute a
change of control.
The indentures governing the senior notes (the Indentures) contain
certain covenants that, among other things, limit the ability of the
Company to incur additional indebtedness, transfer or sell assets,
pay dividends or make certain other restricted payments, create
liens, enter into certain transactions with affiliates or merge or
consolidate.
(12) Convertible Subordinated Debentures
In March 1985, $40,000,000 of 7.5% convertible subordinated debentures
(convertible debentures) due in 2010 were issued. Interest is payable
March 1 and September 1. On October 2, 1988, as a result of the
acquisition of Farm Fresh by FF Holdings, the convertible debentures
were written down from their original face value by $18,613,867 to
$21,386,133 to reflect their fair value at the date of acquisition.
Therefore, convertible debentures that would formerly have converted,
at the option of the holder, at $25.25 per share into common stock
converted into $10.50 cash and $3.00 in merger debentures of FF
Holdings per equivalent common share. Subsequent to the
recapitalization in 1992 and the corresponding repayment of the FF
Holdings merger debentures, the convertible debentures now convert
into $13.50 in cash per equivalent common share. For the years ended
December 31, 1994, December 30, 1995 and December 28, 1996,
convertible debentures with face value of $12,000, $10,526,000, and
$8,730,000, respectively, were converted, resulting in cash payments
by the Company of $6,415, $5,627,762 and $4,667,521, respectively.
Due to the significant amount converted in 1995 and 1996, the Company
also wrote off a proportionate amount of deferred financing costs
associated with issuance of the convertible debentures. These
amounts, $109,042 and $85,212 for the years ended December 30, 1995
and December 28, 1996, respectively, have been netted against gains
of $402,588 and $383,748 on conversion and included in other
expenses, net in the accompanying consolidated statements of loss for
the years ended December 30, 1995 and December 28, 1996,
respectively.
The face value of debentures outstanding was $26,764,000 at December 31,
1994, $16,238,000 at December 30, 1995 and $7,508,000 at December 28,
1996. The difference between the face value of the convertible
debentures and the carrying value is being amortized over the term of
the bonds using the effective interest method. The effective interest
rate is 14.7%.
Commencing March 1, 1996, the Company is required to make annual sinking
fund payments of $2,000,000. Under the terms of the indenture, this
requirement can be met through either cash payments or contribution
of retired convertible debentures. As a result, the Company will not
be required to make a sinking fund payment in cash until March 1,
2009, at the earliest.
Although the convertible debentures are convertible on demand, a portion
of the revolving credit facility described in note 10 has been
reserved to finance the conversion of all outstanding debentures as
they occur. As a result, the convertible debentures are classified as
a long-term liability in the accompanying balance sheets.
(13) Common Stock and Additional Paid-In Capital
In October 1988, FF Holdings purchased all of the outstanding common
stock of Farm Fresh. At the time of the acquisition, FF Holdings made
a capital contribution of $55,600,000 to Farm Fresh. Although the
Company is not legally liable for the obligations of FF Holdings, the
ability of FF Holdings to meet its obligations is dependent on the
Company's ability to pay dividends to FF Holdings in an amount
sufficient to service these obligations and to make dividend payments
on the preferred stock. The following paragraphs summarize the terms
of FF Holdings outstanding securities.
In conjunction with the issuance of the Company's senior notes (note
11), FF Holdings issued senior notes (FF Holdings notes) with a face
value of $50,000,000 and common stock representing 20% of the
fully-diluted ownership of FF Holdings for gross proceeds of
$49,000,000. The notes bear interest at 14.25% payable semi-annually
in arrears on each April 1 and October 1. FF Holdings has the option
to pay interest with additional securities through the October 1,
1997 interest payment date. No principal repayments are required
until maturity on October 1, 2002. The proceeds from the issuance of
these securities along with the dividend from Farm Fresh were used to
redeem in full the FF Holdings 16.5% merger debentures, which were
issued in conjunction with the acquisition of the Company by FF
Holdings.
FF Holdings is a holding company with no operations independent from the
Company. As a result, the ability of FF Holdings to pay interest on
the FF Holdings notes is dependent upon the Company's ability to pay
dividends to FF Holdings in an amount sufficient to satisfy such
obligations. Assuming FF Holdings elects to pay interest through the
October 1, 1997 interest payment date by distributing additional FF
Holdings notes in a principal amount equal to the interest then due,
FF Holdings will be required to make level, semi-annual cash interest
payments of $7.1 million each or $14.1 million annually, to
noteholders beginning on April 1, 1998, through the maturity date of
the FF Holdings notes. Even if the Company were able to increase its
cash flow sufficient to pay the required dividends to FF Holdings,
covenants in the Indentures and other instruments evidencing the
Company's debt obligations restrict the Company's ability to make
cash dividend payments to FF Holdings. The Company has not generated
sufficient cash to satisfy the restrictive covenant governing
dividends to Holding in the past and is unlikely to satisfy the
covenant by April 1, 1998, the date upon which the first cash
interest payment on the FF Holding Notes is due. If Farm Fresh were
unable to make cash dividends to FF Holdings, FF Holdings would be
unable to pay cash interest on the FF Holdings notes. At this time,
management is not able to predict the impact on the Company if FF
Holdings were unable to pay cash interest on the FF Holdings notes,
although it is likely that such an event could lead to the FF
Holdings noteholders acquiring a controlling interest in the Company,
which could in turn trigger a "Change of Control" as defined in the
Indentures. A change of control would require the Company to offer to
repurchase the senior notes, resulting in an effective acceleration
of the maturity of notes.
Also in conjunction with the recapitalization, FF Holdings exchanged
14.25% cumulative preferred stock for all of its existing 16.75%
junior debentures and 16.75% cumulative preferred stock. The
preferred stock is required by its terms to be redeemed in its
entirety on or before October 1, 2004. At December 28, 1996, there
was $34,427,346 of cumulative preferred stock outstanding at the
liquidation value of $100 per share plus accrued and unpaid
dividends.
Concurrent with the closing of the Safeway acquisition in 1993, FF
Holdings began a private placement of 2,375,000 shares of Class B
common stock to its existing shareholders. At the time of closing, FF
Holdings had an unconditional guarantee of $5,000,000 in proceeds for
the stock; therefore, the entire amount of the offering was reflected
as a capital contribution to the Company in 1993. The private
placement was completed on January 14, 1994, and the remaining
proceeds were received by Farm Fresh.
(14) Income Taxes
The Company's operating results are included in the consolidated Federal
income tax return of its parent, FF Holdings Corporation. At December
28, 1996, the consolidated group had net operating loss carryforwards
of $111.7 million expiring at various dates through 2011. The
Company, on a separate tax return basis, had net operating loss
carryforwards for regular Federal income tax purposes which expire as
follows:
Farm Fresh
Year and subsidiaries
---- ----------------
2003 $ -
2004 -
2005 9,100,000
2006 500,000
2007 6,500,000
2008 12,400,000
2009 21,500,000
2010 7,700,000
2011 11,700,000
-------------
$ 69,400,000
=============
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities of the Company on
a separate tax return basis at December 30, 1995 and December 28,
1996 are presented below:
December 30, December 28,
1995 1996
------------ ------------
Deferred tax assets:
Net operating loss carryforwards $ 22,382,000 26,334,000
Accrued closed store reserves, deductible
as paid for tax purposes 3,775,000 3,558,000
Capital leases, deductible as paid for tax purposes 3,694,000 3,897,000
General business credit carryforwards 1,798,000 1,798,000
Vacation and bonus accruals, deductible as paid
for tax purposes 962,000 731,000
Allowance for doubtful accounts, deductible as
receivables are written off for tax purposes 187,000 560,000
Non-compete agreements, due to differences
between book and tax amortization periods 373,000 411,000
Other 32,000 91,000
------------- -------------
Total deferred tax assets 33,203,000 37,380,000
Less valuation allowance (20,805,000) (26,779,000)
------------- --------------
Net deferred tax assets 12,398,000 10,601,000
---------- -------------
December 30, December 28,
1995 1996
------------ ------------
Deferred tax liabilities:
Property, plant and equipment, due to differences between book
and tax depreciation methods and adjustments made in
purchase accounting
not recognized for tax purposes (5,048,000) (4,979,000)
Convertible debentures, due to write downs
in purchase accounting not recognized
for tax purposes (2,628,000) (1,187,000)
Goodwill, due to differences between book and tax
amortization periods (744,000) (432,000)
LIFO, due to adjustments made in purchase
accounting not recognized for tax purposes (2,578,000) (2,569,000)
Leasehold rights, due to differences between book
and tax depreciation periods and adjustments
made in purchase accounting (1,009,000) (1,146,000)
Other (391,000) (288,000)
----------- --------------
Total deferred tax liabilities (12,398,000) (10,601,000)
------------- --------------
Net deferred tax assets and liabilities $ - -
========== ===============
A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax asset will not be realized. Due to
losses incurred historically and the uncertainty of future income,
the Company has recorded a valuation allowance to defer recognition
of its deferred tax assets until it is more likely than not the
benefit will be realized. The valuation allowance for deferred tax
assets as of December 31, 1994 was $12,794,000, therefore, an
increase of $8,011,000 was reflected in the year ended December 30,
1995. An increase of $5,974,000 in the valuation allowance was
reflected in the year ended December 28, 1996.
During 1994 and 1995 the Company paid $1,460,394 and $403,168, in
interest related to the settlement of an Internal Revenue Service
audit of the Company's 1986 through 1989 tax returns.
(15) Supply Agreement
Farm Fresh entered into an agreement with Richfood to purchase store
merchandise and products of at least $350 million annually, subject
to adjustment based on the number of stores in operation. Under the
agreement, which expires in December 2001, Richfood's prices for
products sold to Farm Fresh will not exceed Richfood's prevailing
lowest offering price to its customers, and Richfood will continue to
offer to Farm Fresh billing and payment terms at least as favorable
as those offered to Richfood's ten largest customers.
(16) Related Party Transactions
Two stores are leased from real estate partnerships in which Farm Fresh
is a general partner. One store was treated as a capital lease with
net assets of $1,125,397 and $1,060,972 and long-term obligations of
$1,688,205 and $1,691,341 in 1995 and 1996, respectively. Both leases
expire within the next 19 years. Aggregate annual payments under
these related party leases were $653,613 in 1994, 1995 and 1996.
Included in other assets are investments in real estate partnerships in
which Farm Fresh is a general partner. Under the terms of the
partnership agreements, Farm Fresh guarantees a portion of the
partnership debt. In January 1997, Farm Fresh assigned its ownership
interest in one real estate partnership to the other partners. Farm
Fresh guaranteed $4,364,570 of notes payable at December 28, 1996
relating to the two remaining partnerships, representing the two
partnerships' total outstanding debt.
Included in stockholder's deficit are loans to certain members of
management and stockholders of $1,314,037 and $1,108,940 at December
30, 1995 and December 28, 1996, respectively, which were made to
enable them to purchase securities of FF Holdings. Accrued and unpaid
interest and cash loans have been charged against net loss in the
accompanying 1996 consolidated statement of loss.
The Company has employment contracts with certain members of management.
Two of the contracts provide a base salary plus an incentive bonus of
up to one half of the individual's salary. The contracts also provide
for a bonus to be paid upon the occurrence of certain transactions,
which include among other things, the sale of all or a portion of the
Company's assets. The contracts have an initial term of two years and
automatically renew on an annual basis thereafter. The contracts may
be terminated upon death or disability of the employee or by cause,
as defined in the contract. Upon termination for reasons other than
cause, the employee is eligible to receive severance equal to one
year's base salary.
The remaining employment contracts provide for severance payments
ranging from six months to one year's salary upon termination without
cause or the occurrence of a change in control of the Company, as
defined in the agreements. If these employees had been terminated as
of December 28, 1996, the Company would be obligated to pay $950,000
relating to these agreements.
During the years presented, the Company sold merchandise to Fair
Markets, Inc., a company related by common ownership. Included in
accounts receivable at December 30, 1995 was $522,944. Fair
Markets, Inc. sold its stores during 1996 and the entire receivable
was repaid.
(17) Retirement Savings Plan
Farm Fresh, Inc. Retirement Savings Plan (Plan) is a defined
contribution plan sponsored by the Company. The Plan is designed to
provide employees an opportunity to accumulate capital for their
future economic security. The Plan provides for employee salary
deferral and matching employer contributions.
Employees of Farm Fresh become eligible to participate in the Plan when
they attain age twenty-one and have completed a twelve-month period
of not less than 1,000 hours of service. Participation by employees
commences at the beginning of the quarter subsequent to the quarter
in which the above conditions have been met. Participants become
fully vested in the Plan upon normal retirement (age 60 or older),
permanent disability, death or completion of one year of credited
service.
Contributions to the Plan accrued by the Company were $1,397,904,
$1,424,426 and $1,399,938 for 1994, 1995 and 1996, respectively.
(18) Disclosures About Fair Value of Financial Instruments
The following summarizes disclosure regarding the estimated fair value
of the Company's financial instruments at December 30, 1995 and
December 28, 1996:
(a) Cash, accounts receivable, accounts payable and accrued expenses
The carrying amount approximates fair value because of the short
maturity of these instruments.
(b) Revolving credit facility
The carrying amount approximates fair value since the rate was
recently renegotiated in conjunction with the renewal described
in note 10.
(c) Notes payable
The fair value of the Company's notes payable is estimated based on
the present value of future cash flows discounted using the
Company's revolving credit facility interest rate of prime plus
1 3/4%.
(d) Accrued costs relating to closed stores
The carrying amount of these obligations is determined based upon
discounted future cash flows and therefore approximates fair
value.
(e) Senior notes
The fair value of the Company's senior notes is based upon recent
trading of these securities in public markets.
(f) Convertible debentures
The fair value of the convertible debentures has been based upon
their conversion value.
(g) Letters of credit
The Company has letters of credit outstanding which guarantee various
trade activities. The contract amounts of the letters of credit
approximate their fair value.
(h) Financial guarantees
A reasonable estimate of the fair value of the Company's
guarantees of long-term debt and lease obligations of others,
more fully described in notes 8 and 16, could not be made
without incurring excessive costs.
The estimated fair values of the Company's financial instruments are
summarized as follows:
At December 30, 1995
--------------------------------
Carrying Estimated
Amount Fair Value
---------- -----------
Cash $ 2,079,874 $ 2,079,874
Accounts receivable 17,026,234 17,026,234
Revolving credit facility 12,169,258 12,169,258
Notes payable 2,934,794 2,836,462
Accounts payable 32,900,110 32,900,110
Accrued expenses 24,440,831 24,440,831
Accrued costs relating to closed stores 9,934,532 9,934,532
Senior notes 165,000,000 135,300,000
Senior notes, Series A 37,337,873 29,520,000
Convertible subordinated debentures 9,322,398 8,681,703
Letters of credit, for which it is not
practicable to estimate fair value - 1,135,055
Financial guarantees, for which
it is not practicable to estimate
fair value - -
At December 28, 1996
---------------------------------
Carrying Estimated
Amount Fair Value
------ ----------
Cash $ 847,665 $ 847,665
Accounts receivable 14,792,965 14,792,965
Revolving credit facility 24,289,957 24,289,957
Notes payable 1,721,165 1,761,714
Accounts payable 36,149,820 36,149,820
Accrued expenses 24,424,898 24,424,898
Accrued costs relating to closed stores 9,372,189 9,372,189
Senior notes 165,000,000 125,400,00
Senior notes, Series A 37,074,410 27,360,000
Convertible subordinated debentures 4,380,243 4,014,178
Letters of credit - 1,072,501
Financial guarantees, for which
it is not practicable to estimate
fair value - -
(19) Selected Quarterly Financial Data (Unaudited)
The following table and related footnotes present selected quarterly
financial data for the Company:
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
(dollars in thousands)
Year Ended December 30, 1995:
Sales $208,235 $214,680 $215,895 $246,278 $885,087
Gross profit 49,270 51,156 50,477 59,408 210,311
Net loss (3,712) (1,313) (3,398) (17,531)(a) (25,954)
Year Ended December 28, 1996:
Sales $178,954 $180,032 $180,581 $221,926 $761,494
Gross profit 41,664 42,357 41,175 52,777 177,973
Net loss (3,247) (1,799) (3,739) (11,544) (b) (20,329)
----------------
(a) Includes charges to earnings for reserves established for closed
stores of $2.6 million (note 5), write down of long-lived assets
to be disposed of $7.2 million and the loss on the sale of 10
stores to Hannaford of $2.5 million (note 3).
(b) Includes charges to earnings for reserves established for closed
stores of $1.5 million (note 5), and write down of long-lived
assets to be disposed of $2.8 million.