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 July 25, 1998.
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, VA 23060
Telephone Number (804) 915-6000
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
September 1, 1998, was as follows:
Common Stock, without par value: 47,672,680 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)
First Quarter Ended
--------------------------------------------------------
July 25, July 26,
1998 1997
- -------------------------------------------------------------------------------------------------------------------
(12 weeks) % (12 weeks) %
Sales $ 901,303 100.00 $ 739,125 100.00
Costs and expenses:
Cost of goods sold 745,664 82.73 659,733 89.26
Operating and administrative
expenses 124,275 13.79 55,717 7.54
Interest expense 10,117 1.12 854 0.12
Interest income (805) (0.08) (941) (0.13)
----------- ------ ---------- ------
Earnings before income taxes 22,052 2.44 23,762 3.21
Income taxes 8,766 0.97 9,256 1.25
----------- ------ ---------- ------
Net earnings $ 13,286 1.47 $ 14,506 1.96
=========== ====== ========== ======
Net earnings per
common share $ .28 $ .31
=========== ==========
Net earnings per
common share-
assuming dilution $ .28 $ .30
=========== ==========
Cash dividends declared
per common share $ .05 $ .04
=========== ==========
See accompanying Notes to the Consolidated Financial Statements.
2
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
- -------------------------------------------------------------------------------------------------------------------
July 25, May 2,
1998 1998
(Unaudited)
- -------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 1,009 $ 39,968
Receivables, less allowance for doubtful
accounts of $3,319 (fiscal 1998 - $3,393) 103,837 101,454
Inventories 248,644 194,875
Assets held for sale 25,300 -
Other current assets 25,691 20,675
------------- ------------
Total current assets 404,481 356,972
------------- ------------
Notes receivable, less allowance for
doubtful accounts of $1,618 (fiscal 1998 - $1,654) 31,961 22,767
Assets held for sale 32,101 26,342
Property and equipment, net 242,704 187,288
Goodwill, net 646,108 263,369
Other assets 77,857 52,113
------------- ------------
Total assets $ 1,435,212 $ 908,851
============= ============
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt
and capital lease obligations $ 35,483 $ 16,684
Accounts payable 195,917 209,009
Accrued expenses and other current liabilities 119,403 76,942
------------- ------------
Total current liabilities 350,803 302,635
------------- ------------
Long-term debt and capital lease obligations 692,484 253,087
Deferred credits and other 54,473 28,915
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
47,669,868 and 47,658,964 90,681 90,729
Retained earnings 246,771 233,485
------------- ------------
Total shareholders' equity 337,452 324,214
------------- ------------
Total liabilities and shareholders' equity $ 1,435,212 $ 908,851
============= ============
See accompanying Notes to the Consolidated Financial Statements.
3
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
July 25, July 26,
1998 1997
(12 weeks) (12 weeks)
- -------------------------------------------------------------------------------------------------------------------
Operating activities:
Net earnings $ 13,286 $ 14,506
Adjustments to reconcile net earnings to net cash
(used for) provided by operating activities:
Depreciation and amortization 12,086 7,254
Provision for doubtful accounts 693 896
Other, net (542) (56)
Changes in operating assets and liabilities,
net of effects of acquisitions:
Receivables (5,618) 2,811
Inventories (21,513) (5,631)
Other current assets 64 1,311
Accounts payable, accrued expenses
and other liabilities (47,766) (15,308)
----------- -----------
Net cash (used for) provided by operating activities (49,310) 5,783
----------- -----------
Investing activities:
Acquisitions, net of cash acquired (182,701) -
Proceeds from sale of assets held for sale 8,179 -
Purchases of property and equipment (16,807) (5,503)
Issuance of notes receivable (4,299) (1,577)
Collections on notes receivable 788 1,888
Other, net - (7)
----------- -----------
Net cash used for investing activities (194,840) (5,199)
----------- -----------
Financing activities:
Net proceeds from revolving credit facilities 31,800 20,600
Proceeds from issuance of long-term debt 200,000 -
Principal repayments on long-term debt
and capital lease obligations (24,782) (9,504)
Proceeds from issuance of common stock
under employee stock incentive plans 79 708
Cash dividends paid on common stock (1,906) (1,422)
----------- -----------
Net cash provided by financing activities 205,191 10,382
----------- -----------
Net (decrease) increase in cash and cash equivalents (38,959) 10,966
Cash and cash equivalents at beginning of period 39,968 10,416
----------- -----------
Cash and cash equivalents at end of period $ 1,009 $ 21,382
=========== ===========
See accompanying Notes to the Consolidated Financial Statements.
4
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 2, 1998, 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 2, 1998
("fiscal 1998"). 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 1998. The results of operations
for the twelve week period ended July 25, 1998, may not be indicative
of the results that may be expected for the fiscal year ending May 1,
1999 ("fiscal 1999").
Note 2. On May 18, 1998, a wholly-owned subsidiary of the Company acquired
all of the outstanding shares of Dart Group Corporation ("Dart") for
$160 per share, net to the seller in cash, or approximately $201.0
million (the "Dart Acquisition"). The purchase price has been
allocated to the assets acquired and liabilities assumed based on
their estimated fair values according to preliminary valuations.
Dart, headquartered in Landover, Maryland, was comprised, at the time
of acquisition, of: Shoppers Food Warehouse Corporation ("Shoppers"),
a 100% owned chain of 37 price impact supermarkets operating in the
greater Washington, DC metropolitan area; Trak Auto Corporation
("Trak"), a publicly-owned retailer of auto parts (67.1% owned by
Dart); Crown Books Corporation ("Crown"), a publicly-owned retailer
of popular books (52.3% owned by Dart); and Total Beverage
Corporation ("Total Beverage"), a discount beverage retailer (100%
owned by Dart). In connection with the Dart Acquisition, the Company
also assumed $200 million in principal amount of Shoppers 9 3/4%
Senior Notes due 2004. The Company accounted for the acquisition
under the purchase method of accounting and, accordingly, the results
of operations of Dart and Shoppers have been included in the
Company's Consolidated Statements of Earnings since the date of
acquisition. The results of operations of Trak, Crown and Total
Beverage are excluded from the Consolidated Statement of Earnings for
the period ended July 25, 1998, in accordance with Emerging Issues
Task Force Issue No. 87-11: "Allocation of Purchase Price to Assets
to be Sold."
5
Total Beverage was sold by Dart to an unaffiliated third party on May
22, 1998 for approximately $8.2 million. As it is the Company's
intention to dispose of Trak within one year from the date of
acquisition, Trak is classified as a current asset held for sale in
the Company's Consolidated Balance Sheet at its estimated net
realizable value. Crown filed a voluntary petition for protection
under Chapter 11 of the United States Bankruptcy Code on July 14,
1998.
On March 4, 1998, a wholly-owned subsidiary of the Company acquired
substantially all of the assets and assumed certain liabilities of
Farm Fresh, Inc., a privately held supermarket chain headquartered in
Norfolk, Virginia ("Farm Fresh"). The Company did not assume Farm
Fresh's indebtedness for borrowed money or lease obligations for
previously closed stores or stores that were closed in connection
with the transaction. 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 Statement of Earnings since the date of
acquisition.
The following unaudited pro forma financial information presents a
summary of consolidated results of operations of the Company, Dart
(excluding the operations of Trak, Crown and Total Beverage) and Farm
Fresh as if the acquisitions had occurred at the beginning of fiscal
1998, with pro forma adjustments to give effect to amortization of
goodwill, interest expense on acquisition debt and certain other
adjustments, together with related tax effects. This pro forma
information is presented for informational purposes only and is not
necessarily indicative of the combined results of operations which
would have occurred had the transactions been consummated on that
date or which may be obtained in the future. The purchase price has
been allocated to the assets acquired and liabilities assumed based
on their estimated fair values according to preliminary valuations.
Such estimated values may change as the valuations are finalized and
more facts become known.
(in thousands, except per share data)
Twelve weeks ended
July 25, 1998 July 26, 1997
------------- -------------
Sales $ 921,705 $ 955,001
Net earnings $ 13,074 $ 15,875
Net earnings per common share $ 0.27 $ 0.33
Net earnings per common
share - assuming dilution $ 0.27 $ 0.33
6
Note 3. The following table sets forth the computation of basic and
diluted earnings per share for the twelve-week periods ended July 25,
1998, and July 26, 1997, respectively:
(dollar amounts in thousands,
except per share data) Twelve weeks ended
--------------------------------------
July 25, July 26,
1998 1997
----------------- -----------------
NUMERATOR:
Net earnings $ 13,286 $ 14,506
================= =================
DENOMINATOR:
Denominator for basic earnings per share-
weighted average common shares 47,666,834 47,434,319
Effect of dilutive securities:
Stock options 159,771 230,150
----------------- -----------------
Denominator for diluted earnings per share-
adjusted weighted average common shares 47,826,605 47,664,469
================= =================
Net earnings per common share-basic $ 0.28 $ 0.31
================= =================
Net earnings per common share-diluted $ 0.28 $ 0.30
================= =================
Note 4. Effective May 3, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information". The Company
has significant operations principally in two industry segments: the
wholesale grocery division and the retail grocery division.
The Company's wholesale grocery division is the largest wholesale
food distributor in the Mid-Atlantic operating region. This segment
distributes a full range of grocery, dairy, frozen food, produce,
meat, and non-food items to the Company's retail grocery division and
to chain and independent retailers throughout the region from its two
principal distribution centers located in Richmond, Virginia and
Harrisburg, Pennsylvania. This segment also includes the Company's
fluid dairy operations located in Richmond, Virginia.
The Company's retail grocery division consists primarily of three
grocery store chains: 45 Farm Fresh supermarkets located primarily in
Virginia's Hampton Roads region; 38 Shoppers Food Warehouse price
impact warehouse-style supermarkets in the Washington, D.C.
metropolitan area; and 17 Metro grocery stores in the Baltimore
metropolitan area.
The accounting policies of the segments are the same as those
described in Note 1. The Company evaluates performance based on a
measurement of operating profit (defined as sales less cost of goods
sold and operating and administrative expenses). The Company
generally accounts for intersegment sales and transfers at current
market prices as if the sales or transfers were to unaffiliated third
parties. General corporate expenses are not allocated between the
wholesale grocery and retail grocery segments.
7
The following table summarizes key segment information and reconciles
segment results to consolidated financial results:
(dollars amounts in thousands) Twelve weeks ended
July 25, 1998 July 26, 1997
------------- -------------
Sales:
Wholesale grocery $ 714,283 $ 708,275
Intersegment sales (204,023) (43,030)
------------ ------------
Wholesale grocery sales to external customers 510,260 665,245
Retail grocery 391,043 73,880
------------ ------------
Total sales $ 901,303 $ 739,125
============ ============
Operating Profit:
Wholesale grocery $ 26,924 $ 23,719
Retail grocery 7,154 1,511
General corporate expense (2,714) (1,555)
------------ ------------
Total operating profit 31,364 23,675
Interest expense 10,117 854
Interest income (805) (941)
------------ ------------
Earnings before income taxes $ 22,052 $ 23,762
============= ============
Capital expenditures:
Wholesale grocery $ 2,606 $ 4,220
Retail grocery 14,201 1,283
------------ ------------
Total capital expenditures $ 16,807 $ 5,503
============ ============
July 25, 1998 May 2, 1998
------------- ------------
Total identifiable assets:
Wholesale grocery $ 446,131 $ 491,928
Retail grocery 989,081 416,923
------------ ------------
Total assets $ 1,435,212 $ 908,851
============ ============
Note 5. 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 $901.3 million for the twelve week period ended July 25, 1998,
consisted of $714.3 million of wholesale grocery sales and $391.0 million of
retail grocery sales. Wholesale grocery sales included $204.0 million of sales
to the Company's retail grocery division. Wholesale grocery sales to external
customers for the first quarter of fiscal 1999 decreased $154.9 million from the
comparable period in fiscal 1998 due primarily to the exclusion in the current
period of sales to the Company's Farm Fresh and Shoppers stores since their
March 4, 1998 and May 18, 1998 acquisition dates, respectively. Wholesale
grocery sales in total increased $6.0 million, or 0.8%, over sales of $708.3
million in the first quarter of fiscal 1998. This increase was primarily
attributable to incremental wholesale sales to the Company's Shoppers and Farm
Fresh retail chains which were acquired on May 18, 1998 and March 4, 1998,
respectively, offset in part by the expiration of the Acme Markets, Inc. supply
agreement in June 1997 and the effect of competitive openings on the Company's
retail grocery customers.
8
Retail grocery sales increased to $391.0 million for the twelve week
period ended July 25, 1998, compared to sales of $73.9 million for the first
quarter of fiscal 1998, primarily due to sales generated by the Company's newly
acquired Shoppers and Farm Fresh retail chains. Metro sales for the first
quarter of fiscal 1999 increased $4.9 million over last fiscal year's first
quarter due to the opening of a new store and a 2.0% increase in comparable
store sales.
Gross margin was 17.27% of sales for the twelve week period ended July
25, 1998, compared to 10.74% of sales for the first quarter of fiscal 1998. The
increase in gross margin was primarily attributable to the inclusion of higher
retail gross margins as a result of the Shoppers and Farm Fresh acquisitions.
Operating and administrative expenses for the twelve week period ended
July 25, 1998, were $124.3 million, or 13.79% of sales, compared to $55.7
million, or 7.54% of sales, for the first quarter of fiscal 1998. The increase
in operating and administrative expenses as a percent of sales was primarily
attributable to the inclusion of Shoppers' and Farm Fresh's higher retail
operating and administrative expense ratios.
Interest expense for the twelve week period ended July 25, 1998, was
$10.1 million, compared to interest expense of $0.9 million for the first
quarter of fiscal 1998. This increase was primarily due to incremental interest
expense related to increased indebtedness incurred to finance the Company's Dart
and Farm Fresh acquisitions. The Farm Fresh acquisition was financed with
proceeds from a $250 million, five-year, senior unsecured revolving credit
facility (the "$250 million facility"). On May 12, 1998, the Company entered
into an agreement with a syndicate of commercial banks that provided $450
million of senior unsecured credit facilities (the "Facilities"), consisting of
a $250 million, five-year revolving credit facility (the "Revolver") and a $200
million, 18-month term loan (the "Term Loan"). Proceeds from the Facilities were
used to finance the Dart Acquisition and to repay the outstanding balance of
$192 million under the $250 million facility. In connection with the Dart
Acquisition the Company also assumed $200 million in principal amount of
Shoppers 9 3/4% Senior Notes due 2004.
The Company's effective income tax rate increased to 39.75% for the
twelve weeks ended July 25, 1998, from 38.95% for the first quarter of fiscal
1998, primarily due to the non-deductibility of goodwill arising from the Dart
Acquisition.
Net earnings for the twelve week period ended July 25, 1998, were $13.3
million, or $0.28 per share, assuming dilution, an 8.3% decrease from net
earnings of $14.5 million, or $0.30 per share, assuming dilution for the first
quarter of fiscal 1998. This decrease is primarily due to the initial dilutive
effect of the recent Dart and Farm Fresh acquisitions.
Liquidity and Capital Resources
- -------------------------------
Net cash used for operating activities for the twelve week period ended
July 25, 1998, was $49.3 million. This amount primarily consisted of net
earnings of $13.3 million and depreciation and amortization of $12.1 million,
offset by a decrease in working capital, net of effects of acquisitions, of
$74.8 million. The net decrease in working capital, net of effects of
acquisitions, was primarily attributable to an increase in inventories and a
reduction in accounts payable resulting from the Company taking advantage of
inventory buying opportunities during the quarter.
Net cash used for investing activities of $194.8 million for the twelve
week period ended July 25, 1998, primarily consisted of approximately $183
million, net of cash acquired, used for the Dart Acquisition. Capital
expenditures were $16.8 million for the twelve week period ended July 25, 1998,
and included $14.2 million and $2.6 million for the retail and wholesale grocery
divisions, respectively. Capital expenditures for the retail grocery division
9
primarily consisted of approximately $11 million for conversion of Farm Fresh
warehouse format stores to its conventional store format and other Farm Fresh
store remodels. In addition, retail capital expenditures included capital
employed for one new Metro store (which will open later this fiscal year) and
one new Shoppers store (which opened in July 1998). Capital expenditures for the
wholesale grocery division primarily consisted of $1.7 million for the
installation of ultra-high temperature manufacturing technologies at the
Company's fluid dairy plant. Proceeds from the sale of assets held for sale
consisted of $8.2 million from the sale of Total Beverage on May 22, 1998.
Net cash provided by financing activities of $205.2 million for the
twelve week period ended July 25, 1998, consisted primarily of proceeds from
issuance of long-term debt of $200.0 million under the Term Loan and net
proceeds from borrowings under revolving credit facilities of $31.8 million,
which were offset in part by principal payments on long-term debt and capital
lease obligations of $24.8 million. The $24.8 million of principal payments on
long term debt and capital lease obligations consisted primarily of a $9.0
million principal payment on the Company's 6.15% Senior Notes, a $7.2 million
partial redemption of the $200 million Shoppers 9 3/4% Senior Notes and a $7.0
million principal repayment on the Term Loan.
The Company's total debt was $727.9 million at July 25, 1998, compared
to $269.8 million at May 2, 1998. The increase in total debt was primarily
attributable to indebtedness incurred to finance the Dart and Farm Fresh
acquisitions. Shareholders' equity increased to $337.5 million at July 25, 1998,
from $324.2 million at May 2, 1998. The ratio of total debt to total
capitalization (defined as total debt plus shareholders' equity) was 0.68 to 1
at July 25, 1998, and 0.45 to 1 at May 2, 1998.
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.
Year 2000 Compliance
- --------------------
During 1997, the Company developed, and began implementing, a
strategic, long-term information technology plan to upgrade its core application
systems. Concurrently, it has developed, and is implementing, a plan to ensure
that its information systems are year 2000 compliant. The Company believes that
with the currently planned system conversions and upgrades, as well as certain
additional modifications to existing software, the Company will achieve year
2000 compliance without any significant operational problems related to the
Company's information systems. Amounts expended, or to be expended, exclusively
to ensure year 2000 compliance are not expected to be material to the Company's
consolidated results of operations or financial position. The Company is also
communicating with significant suppliers, customers, financial institutions and
others with which it does business to validate year 2000 compliance.
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 20, 1998.
The following proposals were submitted to the shareholders:
(1) to elect 11 directors of the Company to serve until the next annual
meeting of shareholders;
(2) 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 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 34,080,575 -- 369,711 --
Roger L. Gregory 34,340,698 -- 109,588 --
Grace E. Harris 34,344,948 -- 105,338 --
John C. Jamison 34,278,588 -- 171,698 --
G. Gilmer Minor, III 34,343,536 -- 106,750 --
Claude B. Owen, Jr. 34,346,776 -- 103,510 --
Albert F. Sloan 34,342,804 -- 107,482 --
John E. Stokely 34,334,677 -- 115,609 --
George H. Thomazin 34,343,840 -- 106,446 --
James E. Ukrop 34,344,205 -- 106,081 --
Edward Villanueva 34,278,206 -- 172,080 --
Non-
For Against Votes Abstain
-------------------------------------------------------
Appointment of Ernst &
-----------------------
Young LLP 34,286,240 79,910 -- 84,136
---------
No other business came before the meeting.
ITEM 6. Reports on Form 8-K
Current Report on Form 8-K, dated May 28, 1998, reporting (under Item 2 thereof)
the acquisition of Dart.
11
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: September 8, 1998 By /s/ John C. Belknap
---------------------
John C. Belknap
Executive Vice President
and Chief Financial Officer
12
EXHIBIT INDEX
Exhibit 27.1 Financial Data Schedule
13