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 October 18, 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
4860 Cox Road
Suite 300
Glen Allen, Virginia 23060
(804)915-6000
Former address:
8258 Richfood Road
Mechanicsville, Virginia 23116
(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 November
25, 1997, was as follows:
Common Stock, without par value: 47,542,786 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)
Second Quarter Ended
--------------------------------------------------------
October 18, October 12,
1997 1996
(12 weeks) % (12 weeks) %
- --------------------------------------------------------------------------------------------------------
Sales $ 719,474 100.00 $ 739,640 100.00
Costs and expenses:
Cost of goods sold 640,977 89.09 662,020 89.51
Operating and adminis-
trative expenses 53,978 7.50 55,898 7.55
Interest expense 927 0.13 1,585 0.21
Interest income (915) (0.13) (838) (0.11)
---------- ------ -------- ------
Earnings before income taxes 24,507 3.41 20,975 2.84
Income taxes 9,497 1.32 8,403 1.14
----------- ---- ------------ ----
Net earnings $ 15,010 2.09 $ 12,572 1.70
=========== ==== =========== ====
Net earnings per
common share $ .32 $ .27
=========== ===========
Cash dividends declared
per common share $ .04 $ .03
=========== ===========
Average common shares
outstanding 47,505,909 47,283,785
========== ==========
See accompanying Notes to the Consolidated Financial Statements.
2
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollar amounts in thousands, except per share data)
- --------------------------------------------------------------------------------------------------------
(Unaudited)
Year-to-Date
--------------------------------------------------------
October 18, October 12,
1997 1996
(24 weeks) % (24 weeks) %
- --------------------------------------------------------------------------------------------------------
Sales $ 1,458,599 100.00 $ 1,493,023 100.00
Costs and expenses:
Cost of goods sold 1,300,710 89.18 1,337,504 89.58
Operating and adminis-
trative expenses 109,695 7.52 112,060 7.51
Interest expense 1,781 0.12 3,259 0.22
Interest income (1,856) (0.13) (1,596) (0.11)
------------ ------ ---------- ------
Earnings before income taxes 48,269 3.31 41,796 2.80
Income taxes 18,753 1.29 16,779 1.12
------------- ---- ------------- ----
Net earnings $ 29,516 2.02 $ 25,017 1.68
============= ==== ============= ====
Net earnings per
common share $ .62 $ .53
============= =============
Cash dividends declared
per common share $ .08 $ .06
============= =============
Average common shares
outstanding 47,470,114 47,223,435
========== ==========
See accompanying Notes to the Consolidated Financial Statements.
3
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
- --------------------------------------------------------------------------------------------------------
October 18, May 3,
1997 1997
(Unaudited)
- --------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 13,274 $ 10,416
Receivables, less allowance for doubtful
accounts of $3,538 and $3,445 116,992 104,739
Inventories 172,484 163,510
Other current assets 14,053 14,426
------------ ------------
Total current assets 316,803 293,091
------------ ------------
Notes receivable, less allowance for
doubtful accounts of $1,786 and $1,886 33,181 34,639
Property and equipment, net 122,368 121,594
Goodwill, net 85,903 87,520
Other assets 46,206 44,636
------------ ------------
Total assets $ 604,461 $ 581,480
============ ============
Liabilities and Shareholders' Equity Current liabilities:
Current installments of long-term debt $ 10,451 $ 10,656
Accounts payable 215,358 209,207
Accrued expenses and other current liabilities 50,159 51,360
------------ ------------
Total current liabilities 275,968 271,223
------------ ------------
Long-term debt 21,997 32,069
Deferred credits and other 18,583 19,538
Shareholders' equity:
Preferred stock, without par value:
Authorized shares - 5,000,000;
none issued or outstanding - -
Common stock, without par value:
Authorized shares - 90,000,000;
issued and outstanding shares
47,521,736 and 47,401,770 73,905 72,258
Retained earnings 214,008 186,392
------------ ------------
Total shareholders' equity 287,913 258,650
------------ ------------
Total liabilities and shareholders' equity $ 604,461 $ 581,480
============ ============
See accompanying Notes to the Consolidated Financial Statements.
4
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
- --------------------------------------------------------------------------------------------------------
(Unaudited)
October 18, October 12,
1997 1996
(24 weeks) (24 weeks)
- --------------------------------------------------------------------------------------------------------
Operating activities:
Net earnings $ 29,516 $ 25,017
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 14,807 12,920
Provision for doubtful accounts 1,814 1,517
Other, net (54) (477)
Changes in operating assets and liabilities,
net of effects of acquisitions:
Receivables (10,665) (14,357)
Inventories (8,974) (9,801)
Other current assets 1,102 433
Accounts payable, accrued expenses
and other liabilities 5,816 49,486
----------- ----------
Net cash provided by operating activities 33,362 64,738
----------- ----------
Investing activities:
Acquisition, net of cash acquired -- (26,098)
Purchases of property and equipment (10,176) (10,038)
Issuance of notes receivable (4,636) (13,972)
Collections on notes receivable 2,692 5,760
Other, net (5,707) (6,113)
----------- ----------
Net cash used for investing activities (17,827) (50,461)
----------- ----------
Financing activities:
Net repayments on long-term debt (10,277) (9,316)
Proceeds from issuance of common stock
under employee stock incentive plans 922 810
Cash dividends paid on common stock (3,322) (2,361)
----------- ----------
Net cash used for financing activities (12,677) (10,867)
----------- ----------
Net increase in cash and cash equivalents 2,858 3,410
Cash and cash equivalents at beginning of period 10,416 17,415
----------- ----------
Cash and cash equivalents at end of period $ 13,274 $ 20,825
=========== ==========
See accompanying Notes to the Consolidated Financial Statements.
5
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 May 3, 1997, 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 May 3, 1997
("fiscal 1997"). 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 Richfood Holdings, Inc. and
subsidiaries included in its Annual Report on Form 10-K for fiscal
1997. The results of operations for the twelve and twenty-four week
periods ended October 18, 1997, may not be indicative of the results
that may be expected for the fiscal year ending May 2, 1998 ("fiscal
1998").
Note 2. As of November 26, 1997, the Company entered into a definitive
agreement to acquire substantially all of the assets of Farm Fresh,
Inc. ("Farm Fresh"), a privately-held supermarket chain based in
Norfolk, Virginia. The transaction is expected to be effected through
a prepackaged voluntary reorganization of Farm Fresh under Chapter 11
of the U.S. Bankruptcy Code or other consensual proceeding, and is
subject to approval by the Bankruptcy Court and the holders of Farm
Fresh's 12.25% Senior Notes, due October 1, 2000, and Farm Fresh's
12.25% Senior Notes, Series A, due October 1, 2000 (collectively, the
"Senior Notes"), as well as required regulatory approvals and other
customary closing conditions. Holders of a majority of the Senior
Notes have indicated that they support and intend to vote in favor of
the transaction. Under the terms of the agreement, the Company will
not assume the Senior Notes or other indebtedness for money borrowed,
or Farm Fresh's lease obligations for previously-closed stores or
four currently-operated stores that will be closed in connection with
the proposed sale. The anticipated purchase price is expected to
consist of approximately $220 million cash, plus the value of certain
assumed capital leases, plus 1.5 million warrants for the purchase of
shares of the Company's common stock at an exercise price of $25 per
share with a term of five years following issuance. The exact amount
of the cash purchase price will vary depending on changes in Farm
Fresh's working capital and the capital lease obligations assumed by
the Company. Upon completion of the acquisition, which is expected to
occur in early 1998, Farm Fresh will operate as a separate,
wholly-owned subsidiary of the Company.
The above discussion is qualified in its entirety by reference to the
Asset Purchase Agreement, dated as of November 26, 1997, which is
attached as Exhibit 2.1, hereto, and incorporated herein by
reference.
6
Note 3. On September 30, 1996, a wholly-owned subsidiary of 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 items headquartered in
Norristown, Pennsylvania. 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.
Note 4. 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.
7
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Sales of $719.5 million for the twelve week period ended October 18,
1997, consisted of $689.6 million of wholesale grocery sales and $71.4 million
of retail grocery sales. Wholesale grocery sales included $41.5 million of sales
to the Company's retail grocery division. Wholesale grocery sales for the second
quarter of fiscal 1998 decreased $21.5 million, or 3.0%, as compared to sales of
$711.1 million for the same period last fiscal year. This decrease was primarily
attributable to the expiration of the Acme Markets, Inc. ("Acme") frozen food
supply agreement (the "Acme Supply Agreement") in June 1997. Excluding sales to
Acme in fiscal 1997 under the Acme Supply Agreement, wholesale sales for the
second quarter of fiscal 1998 would have increased $17.2 million, or 2.6%. This
increase was primarily attributable to sales from the Norristown produce
business, which was acquired by the Company on September 30, 1996.
Sales of $1,458.6 million for the twenty-four week period ended October
18, 1997, consisted of $1,397.4 million of wholesale grocery sales and $145.3
million of retail grocery sales. Wholesale grocery sales included $84.1 million
of sales to the Company's retail grocery division. Wholesale grocery sales for
the first twenty-four weeks of fiscal 1998 decreased $35.8 million, or 2.5%, as
compared to sales of $1,433.2 million for the same period last fiscal year. This
decrease was primarily attributable to the expiration of the Acme Supply
Agreement in June 1997, offset in part by sales from the Norristown produce
business, which was acquired by the Company on September 30, 1996.
Retail grocery sales of $71.4 million and $145.3 million for the twelve
and twenty-four week periods ended October 18, 1997, respectively, decreased
$4.5 million, or 6.0%, and $7.7 million, or 5.0%, respectively, compared to the
same periods last fiscal year. In accordance with the Company's strategy of
focusing on the METRO format, during the fourth quarter of fiscal 1997, the
number of BASICS stores was reduced from five to two as a result of closing one,
selling another and temporarily closing a third store while it was being
converted to the METRO format. The decrease in sales in the fiscal 1998 periods,
compared to the same periods last fiscal year, resulting from the reduced number
of BASICS stores, was offset in part by sales from one new METRO store, which
opened in September 1996. Comparable store sales increased 1.0% for the second
quarter of fiscal 1998, compared to the second quarter of fiscal 1997, and
decreased 0.3% for the twenty-four week period ended October 18, 1997, compared
to the same period during fiscal 1997.
Gross margin was 10.91% and 10.82% of sales for the twelve and
twenty-four week periods ended October 18, 1997, compared to 10.49% and 10.42%,
respectively, of sales for the same periods last fiscal year. The increase in
gross margin was primarily attributable to the inclusion of the higher gross
margin Norristown produce business in the fiscal 1998 periods and the effects of
the Company taking advantage of certain buying opportunities during the same
periods.
Operating and administrative expenses were $54.0 million, or 7.50% of
sales, for the twelve week period ended October 18, 1997, compared to $55.9
million, or 7.55% of sales, for the same period last fiscal year. The decrease
in operating and administrative expenses as a percent of sales was primarily
attributable to the Company's continued focus on controlling costs and the
effects of certain productivity and efficiency initiatives in the Company's
retail operations, offset in part by the inclusion of Norristown's higher
operating expense ratio produce business in the fiscal 1998 results. Operating
8
and administrative expenses were $109.7 million, or 7.52% of sales, for the
twenty-four week period ended October 18, 1997, compared to $112.1 million, or
7.51% of sales, for the same period last fiscal year.
Interest expense for the twelve and twenty-four week periods ended
October 18, 1997, was $0.9 million and $1.8 million, respectively, compared to
$1.6 million and $3.3 million for the same periods last fiscal year. The
decrease was primarily due to lower average debt levels for the fiscal 1998
periods, compared to the same periods of last fiscal year. On April 1, 1997, the
Company redeemed the remaining $47.5 million outstanding principal amount of its
10 5/8% Senior Subordinated Notes and in July 1997 repaid $9.0 million on the
Company's 6.15% Senior Notes.
The Company's effective income tax rate was 38.8% and 38.9% for the
twelve and twenty-four week periods ended October 18, 1997, respectively, as
compared to 40.1% for the same periods last fiscal year.
Net earnings for the twelve week period ended October 18, 1997, were
$15.0 million, or $0.32 per share, a 19.4% increase over net earnings of $12.6
million, or $0.27 per share, for the same period last fiscal year. Net earnings
for the twenty-four week period ended October 18, 1997, were $29.5 million, or
$0.62 per share, an 18.0% increase over net earnings of $25.0 million, or $0.53
per share, for the same period last fiscal year.
Liquidity and Capital Resources
As of November 26, 1997, the Company entered into a definitive
agreement to acquire substantially all of the assets of Farm Fresh, Inc., ("Farm
Fresh"). See note 2 to the Consolidated Financial statements for further
information regarding this transaction. In connection with the acquisition, the
Company intends to replace its current credit facilities with a new, five-year
revolving credit facility. Proposals have been received from a number of
financial institutions in this regard, and the Company, based on their
assurances, anticipates that it will be able to successfully establish such a
facility.
Cash and cash equivalents were $13.3 million at October 18, 1997,
compared to $10.4 million at May 3, 1997. Working capital was $40.8 million at
October 18, 1997, and $21.9 million at May 3, 1997.
Net cash provided by operating activities for the twenty-four week
period ended October 18, 1997, was $33.4 million. This amount primarily
consisted of net earnings of $29.5 million and depreciation and amortization of
$14.8 million, offset in part by changes in certain working capital accounts.
Net cash used for investing activities of $17.8 million for the
twenty-four week period ended October 18, 1997 primarily consisted of $10.2
million of capital expenditures. The Company continued to invest in its
wholesale distribution centers and equipment to maintain the efficiency of its
operations and also employed capital in connection with the conversion of an
existing BASICS store to the METRO format during the twenty-four week period
ended October 18, 1997. Net cash used for investing activities of $50.5 million
for the twenty-four week period ended October 12, 1996 included $26.1 million
for the acquisition of the Norristown produce business, which was acquired by
the Company on September 30, 1996.
Net cash used for financing activities of $12.7 million and $10.9
million for the twenty-four week periods ended October 18, 1997 and October 12,
1996, respectively, consisted primarily of the $9.0 million of annual principal
payments on the Company's 6.15% Senior Notes.
9
The Company's total debt was $32.4 million at October 18, 1997,
compared to $42.7 million at May 3, 1997. Shareholders' equity increased to
$287.9 million at October 18, 1997, from $258.7 million at May 3, 1997. The
ratio of total debt to equity was 0.11 to 1 at October 18, 1997, and 0.17 to 1
at May 3, 1997.
The Company believes that it has the ability to continue to generate
adequate funds from its operations and through borrowings under long-term debt
facilities to maintain its competitive position and expand its business.
10
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters of a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on August 28, 1997.
The following proposals were submitted to the shareholders.
(1) to elect 12 directors of the Company to serve until the next annual
meeting of shareholders; (2) to approve the amendment of the Richfood
Holdings, Inc. Omnibus Stock Incentive Plan; and (3) to ratify the
appointment by the Board of Directors of Ernst & Young LLP to serve as
independent public accountants for the current fiscal year.
Shareholders elected all nominees for director, approved the amendment
of the Richfood Holdings, Inc. Omnibus Stock Incentive Plan and
ratified the appointment of Ernst & Young LLP. The number of votes cast
with respect to each of the above matters was as follows:
Withheld
For Against Authority Abstain
-------------------------------------------------------
Election of Directors
Donald D. Bennett 38,449,959 -- 22,765 --
Roger L. Gregory 38,451,262 -- 21,462 --
Grace E. Harris 38,450,892 -- 21,832 --
John C. Jamison 38,461,662 -- 11,062 --
G. Gilmer Minor, III 38,462,762 -- 9,962 --
Claude B. Owen, Jr. 38,462,012 -- 10,712 --
John F. Rotelle 38,359,210 -- 113,514 --
Albert F. Sloan 38,458,612 -- 14,112 --
John E. Stokely 38,367,309 -- 105,415 --
George H. Thomazin 38,462,612 -- 10,112 --
James E. Ukrop 38,460,809 -- 11,915 --
Edward Villanueva 38,364,247 -- 108,477 --
Non-
For Against Votes Abstain
-------------------------------------------------------
Amendment of Richfood
Holdings, Inc. Omnibus
Stock Incentive Plan 36,094,359 2,340,980 -- 37,385
--------------------
Non-
For Against Votes Abstain
-------------------------------------------------------
Appointment of Ernst &
Young LLP 38,457,858 2,934 -- 11,932
---------
No other business came before the meeting.
11
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 2.1-Asset Purchase Agreement, dated as of November 26, 1997,
by and among Farm Fresh, Inc., Richfood Holdings, Inc.
and FF Acquisition, L.L.C.
Exhibit 11.1-Earnings Per Share Calculation
Exhibit 27.1-Financial Data Schedule
12
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: December 2, 1997 By /s/ John C. Belknap
--------------------
Executive Vice President
and Chief Financial Officer