UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period (13 weeks) ended July 28, 2001.
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission file number 333-32825
SHOPPERS FOOD WAREHOUSE CORP.
(Exact name of registrant as specified in its charter)
Delaware 53-0231809
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11840 Valley View Road, Eden Prairie, Minnesota 55344
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(Address of principal executive office) (Zip Code)
(952) 828-4000
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(Registrant's telephone number, including area code)
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___
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At September 4, 2001 the registrant had 23,333 shares of Class A Common Stock,
non-voting, $5.00 par value per share, outstanding and 10,000 shares of Class B
Common Stock, voting, $5.00 par value per share, outstanding. The common stock
of Shoppers Food Warehouse Corp. is not publicly traded.
The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this form with the reduced disclosure
format.
PART I
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Item 1. Financial Statements
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The consolidated financial statements included herein have been prepared by
Shoppers Food Warehouse Corp. ("Shoppers" or the "Company") without audit
(except for the consolidated balance sheet as of January 27, 2001, which has
been derived from the audited consolidated balance sheet as of that date)
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted because they are
not applicable or not required.
It is suggested that these consolidated financial statements are read in
conjunction with the consolidated financial statements and notes thereto
included in Shoppers' Annual Report on Form 10-K for the fiscal year ended
January 27, 2001.
SHOPPERS FOOD WAREHOUSE CORP.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
July 28, January 27,
2001 2001
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Assets
Current assets:
Cash and cash equivalents $ 2,036 $ 2,966
Accounts receivable, net 10,441 20,120
Merchandise inventories 36,378 38,065
Other current assets 4,122 5,286
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Total current assets 52,977 66,437
Property and equipment, net 86,081 88,400
Goodwill, net 295,696 297,725
Lease rights, net 26,133 26,706
Note receivable, related party 49,010 46,897
Other assets 647 825
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Total assets $ 510,544 $ 526,990
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Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable $ 9,326 $ 8,861
Accrued expenses 21,809 23,388
Due to affiliates 41,003 63,677
Accrued income taxes 19,286 16,122
Current maturities of capital lease obligations 766 658
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Total current liabilities 92,190 112,706
Senior notes due 2004 176,413 178,370
Capital lease obligations 26,181 26,619
Other liabilities 8,702 8,633
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Total liabilities 303,486 326,328
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Stockholder's equity:
Class A common stock, nonvoting, par value $5 per share, 25,000
shares authorized; 23,333 1/3 shares issued and outstanding 117 117
Class B common stock, voting, par value $5 per share, 25,000
shares authorized, 10,000 shares issued and outstanding 50 50
Additional paid-in capital 189,241 189,241
Retained earnings 17,650 11,254
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Total stockholder's equity 207,058 200,662
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Total liabilities and stockholder's equity $ 510,544 $ 526,990
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The accompanying notes are an integral part of these consolidated
financial statements.
SHOPPERS FOOD WAREHOUSE CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands)
Second quarter (13 weeks) ended Year-to-date (26 weeks) ended
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July 28, July 29, July 28, July 29,
2001 2000 2001 2000
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Sales $ 242,961 $ 224,955 $ 478,861 $ 439,591
Cost of sales 179,400 168,701 356,874 329,924
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Gross profit 63,561 56,254 121,987 109,667
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Selling and administrative expenses 53,071 47,279 104,098 94,930
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Operating income 10,490 8,975 17,889 14,737
Interest income 1,130 1,190 2,639 2,211
Interest expense 3,824 3,707 7,707 7,261
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Net interest expense 2,694 2,517 5,068 5,050
Earnings before income taxes 7,796 6,458 12,821 9,687
Provision for income taxes 3,778 3,194 6,425 5,016
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Net earnings $ 4,018 $ 3,264 $ 6,396 $ 4,671
================ ================ ================ ================
The accompanying notes are an integral part of these consolidated financial
statements.
SHOPPERS FOOD WAREHOUSE CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year-to-date (26 weeks) ended
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July 28, 2001 July 29, 2000
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Net cash provided by operating activities: 24,698 9,324
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Cash flows from investing activities:
Capital expenditures (2,624) (3,343)
Reimbursement of renovation costs from landlord - 4,371
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Net cash (used in) provided by investing activities (2,624) 1,028
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Cash flows from financing activities:
Cash provided to affiliated companies (22,674) (9,096)
Principal payments under capital lease obligations (330) (2,967)
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Net cash used in financing activities (23,004) (12,063)
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Net decrease in cash and cash equivalents (930) (1,711)
Cash and cash equivalents, beginning of period 2,966 3,390
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Cash and cash equivalents, end of period $ 2,036 $ 1,679
=============== ==============
Supplemental Cash Flow Data:
Cash paid during the period for:
Income taxes, net $ 3,261 $ 2,642
Interest 7,776 7,305
Disclosure of noncash investing activity:
Assets acquired under capital lease $ - $ 13,311
The accompanying notes are an integral part of these consolidated financial
statements.
NOTE 1 - GENERAL
General
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The accompanying consolidated financial statements include the accounts of
Shoppers Food Warehouse Corp. (a Delaware corporation) and its subsidiaries,
(collectively "Shoppers" or the "Company") for the 13 weeks ended July 28, 2001
("second quarter 2002"), the 26 weeks ended July 28, 2001 ("year to date 2002"),
the 13 weeks ended July 29, 2000 ("second quarter 2001"), and the 26 weeks ended
July 29, 2000 ("year to date 2001"). All significant intercompany accounts and
transactions have been eliminated. Shoppers operates in one business segment.
The Company is an indirect wholly-owned subsidiary of SUPERVALU INC.
("SUPERVALU").
The accompanying consolidated financial statements of the Company as of July 28,
2001, and for the 13 weeks and 26 weeks ended July 28, 2001, and July 29, 2000,
have not been audited. Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted from the accompanying consolidated financial statements.
In the opinion of the Company, the accompanying consolidated financial
statements reflect all adjustments (which include normal recurring adjustments)
necessary to present fairly the financial position of the Company as of July 28,
2001, and the results of its operations for the 13-week and 26-week periods
ended July 28, 2001, and July 29, 2000, respectively.
Use of Estimates in Financial Statements
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The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
NOTE 2 - TRANSACTIONS WITH AFFILIATES
Transactions with SUPERVALU
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The consolidated balance sheet includes $41.0 million and $63.7 million due to
affiliates at July 28, 2001 and January 27, 2001, respectively. The amounts
outstanding consist primarily of amounts due to SUPERVALU for the purchase of
bonds, capital spending, income taxes, inventory purchases and general and
administrative expenses.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS
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Forward Looking Statements
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Statements in this report that are not historical in nature, including
references to beliefs, anticipations or expectations, are "forward-looking"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
are subject to a wide variety of risks and uncertainties that could cause actual
results to differ materially from those projected including, without limitation,
the ability of the Company (as defined above) to open new stores, the effect of
regional economic conditions, the effect of increased competition in the markets
in which the Company operates and other risks described from time to time in the
Company's filings with the Securities and Exchange Commission. The Company
undertakes no obligation and does not intend to update, revise or otherwise
publicly release any revisions to these forward-looking statements, which
revisions may be made to reflect any future events or circumstances, other than
through its regular quarterly and annual reports filed with the Securities and
Exchange Commission (the "SEC").
Results of Operations
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RESULTS FOR THE QUARTER:
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Sales were $243.0 million for second quarter 2002, compared to $225.0 million
for second quarter 2001, an increase of 8.0%. The sales increase was primarily
due to the opening of two new stores since first quarter 2001, as well as an
increase of 0.8% in comparable store sales.
Gross profit, as a percentage of sales, increased to 26.2% in second quarter
2002, compared to 25.0% in second quarter 2001. The increase is primarily due to
improved merchandising activities.
Selling and administrative expenses, as a percentage of sales, increased to
21.8% for second quarter 2002, compared to 21.0% for second quarter 2001. The
increase is primarily due to higher union health insurance expense in addition
to the impact of opening two new stores with less expense leverage.
Operating income was $10.5 million for second quarter 2002, compared to $9.0
million for second quarter 2001. The increase was primarily due to the increase
in sales and gross profit.
Interest expense increased approximately $0.1 million from $3.7 million during
second quarter 2001, to $3.8 million during second quarter 2002.
The effective income tax rate for second quarter 2002 was 48.5%, compared to
49.5% for second quarter 2001. The decrease is primarily attributable to
increased taxable earnings in relation to the fixed amount of non-deductible
goodwill associated with the SUPERVALU acquisition.
Net income was $4.0 million during second quarter 2002, compared to $3.3 million
during second quarter 2001, an increase of 23.1%.
YEAR TO DATE RESULTS:
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Sales were $478.9 million year to date 2002, compared to $439.6 million year to
date 2001, an increase of 8.9%. The sales increase was primarily due to the
opening of two new stores from the prior year, as well as an increase of 0.9% in
comparable store sales.
Gross profit, as a percentage of sales, increased to 25.5% year to date 2002,
compared to 24.9% year to date 2001. The increase is primarily due to improved
merchandising activities.
Selling and administrative expenses, as a percentage of sales, remained
essentially flat year to date 2002 at 21.7% compared to 21.6% year to date 2001.
Operating income was $17.9 million year to date 2002, compared to $14.7 million
year to date 2001. The increase was primarily due to the increase in sales and
gross profit.
Interest income increased by approximately $0.4 million year to date 2002 from
$2.2 million year to date 2001 to $2.6 million year to date 2002 due to an
increase in the outstanding balance of the note receivable.
Interest expense increased approximately $0.4 million from $7.3 million year to
date 2001, to $7.7 million year to date 2002, due to higher average borrowings.
The effective income tax rate for year to date 2002 was 50.1%, compared to 51.8%
for year to date 2001. The decrease is primarily attributable to increased
taxable earnings in relation to the fixed amount of non-deductible goodwill
associated with the SUPERVALU acquisition.
Net income was $6.4 million year to date 2002, compared to $4.7 million year to
date 2001, an increase of 36.9%.
Liquidity and Capital Resources
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During second quarter 2002, operating activities generated net cash of $24.7
million, compared to generating $9.3 million during second quarter 2001. The
increase was primarily due to an increase in working capital of $11.5 million
for second quarter 2002, compared to second quarter 2001.
Investing activities used $2.6 million during second quarter 2002, compared to
generating $1.0 million during second quarter 2001. The change reflects lower
capital expenditures of $0.7 million. The cash generated in second quarter 2001
includes the receipt of reimbursement of renovation costs from a landlord of
$4.4 million.
Financing activities primarily reflect the payment to affiliated companies of
$22.7 million during second quarter 2002, compared to $9.1 million during second
quarter 2001.
The Company believes that cash flows from its operations as well as cash
provided by affiliated companies will be adequate to meet its anticipated
requirements for working capital, debt service and capital expenditures.
New accounting standards
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In June 2001 the Financial Accounting Standards Board approved Statement of
Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets."
SFAS No. 142 requires companies to cease amortizing goodwill that existed at
June 30, 2001. For the Company, this amortization of existing goodwill will
cease on January 26, 2002. Any goodwill resulting from an acquisition completed
after June 30, 2001 will not be amortized. SFAS No 142 also establishes a new
method of testing goodwill for impairment on an annual basis or on an interim
basis if an event occurs or circumstances change that would reduce the fair
value of a reporting unit below its carrying value. The adoption of SFAS No. 142
will result in the discontinuation of amortization of goodwill and goodwill will
be tested for impairment under the new standard beginning in the first quarter
of fiscal 2003.
In June 2001, the Financial Accounting Standards Board issued Statement No. 143,
"Accounting for Asset Retirement Obligations," which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. The
standard applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and (or) normal use of the asset. Statement No. 143 requires that the fair value
of a liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
Company is required and plans to adopt the provisions of Statement No. 143 for
the first quarter of fiscal 2004.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The registrant's market risk exposure is not material. Interest on both the
Company's notes receivable and Senior Notes are at fixed rates. The market value
of the fixed rate notes is subject to change due to fluctuations in market
interest rates. The Company does not have any other financial instruments that
result in material exposure to interest rate risk.
PART II - Other Information
Item 1. Legal Proceedings
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None
Item 2. Changes in Securities and Use of Proceeds
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Not Applicable
Item 3. Defaults Upon Senior Securities
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Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
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Not Applicable
Item 5. Other Information
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None
Item 6. Exhibits and Reports on Form 8-K
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(A) Exhibits
None
(B) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SHOPPERS FOOD WAREHOUSE CORP.
Date: September 10, 2001
By: /s/ Pamela K. Knous
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Pamela K. Knous
Executive Vice President,
Chief Financial Officer
(authorized officer of
the registrant and
principal financial
officer)