<PAGE>
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 October 28, 2000.
( ) 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
SFW HOLDING CORP.
(Exact name of registrant as specified in its charter)
Delaware 52-2014682
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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 December 12, 2000 the registrant had 1,000 shares of Common Stock. The
common stock SFW Holding 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.
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Part I - Financial Information
Item 1. Financial Statements
The consolidated financial statements of SFW Holding Corp. (the "Company") and
its wholly-owned subsidiary, Shoppers Food Warehouse Corp. included herein have
been prepared by the Company without audit (except for the consolidated balance
sheet as of January 29, 2000, 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 generally accepted accounting principles 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 29, 2000.
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SFW HOLDING CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
October 28, January 29,
2000 2000
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(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,483 $ 3,390
Accounts receivable, net 14,308 10,275
Merchandise inventories 37,781 31,324
Deferred income taxes 4,185 4,185
Other current assets 1,831 2,761
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Total current assets 61,588 51,935
Property and equipment, net 78,652 64,017
Goodwill, net of accumulated amortization 299,521 305,431
Leasehold rights, net of accumulated amortization 26,991 27,945
Note receivable 45,908 42,491
Other assets 1,032 751
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Total assets $ 513,692 $ 492,570
========== ===========
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable $ 13,107 $ 6,245
Accrued interest 6,083 2,058
Accrued insurance 7,185 7,740
Accrued expenses 9,327 13,908
Due to affiliates 51,441 51,992
Accrued income taxes 14,773 9,315
Other current liabilities 638 618
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Total current liabilities 102,554 91,876
Senior notes 179,214 181,748
Capital lease obligations 17,419 12,034
Deferred income taxes 14,218 14,218
Other liabilities 678 803
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Total liabilities 314,083 300,679
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Stockholder's equity:
Class A common stock, voting, par value $.01 per share, 1,000
shares authorized, issued and outstanding - -
Additional paid-in capital 189,408 189,408
Retained earnings 10,201 2,483
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Total stockholder's equity 199,609 191,891
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Total liabilities and stockholder's equity $ 513,692 $ 492,570
========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
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SFW HOLDING CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Third quarter (13 weeks) ended Year-to-date (39 weeks) ended
------------------------------------------- --------------------------------------------
October 28, October 30, August 30, October 28, October 30, August 30,
2000 1999 1999 2000 1999 1999
------------- ------------- ------------- ------------ ------------ ------------
(Post- (Post- (Pre- (Post- (Post- (Pre-
SUPERVALU SUPERVALU SUPERVALU SUPERVALU SUPERVALU SUPERVALU
acquisition) acquisition) acquisition) acquisition) acquisition) acquisition)
(13 weeks) (9 weeks) (4 weeks) (39 weeks) (9 weeks) (30 weeks)
<S> <C> <C> <C> <C> <C> <C>
Sales $219,063 $150,270 $65,545 $658,654 $150,270 $505,398
Cost of sales 162,376 113,791 48,228 492,300 113,791 377,496
-------- -------- ------- -------- -------- --------
Gross profit 56,687 36,479 17,317 166,354 36,479 127,902
-------- -------- ------- -------- -------- --------
Selling and
administrative
expenses 48,207 31,171 16,051 143,137 31,171 111,674
-------- -------- ------- -------- -------- --------
Operating income 8,480 5,308 1,266 23,217 5,308 16,228
Interest income 1,196 260 925 3,407 260 2,652
Interest expense 3,544 3,660 284 10,805 3,660 8,942
-------- -------- ------- -------- -------- --------
Net interest expense 2,348 3,400 (641) 7,398 3,400 6,290
Earnings before income
taxes 6,132 1,908 1,907 15,819 1,908 9,938
Provision for income
taxes 3,085 1,120 1,095 8,101 1,120 5,510
-------- -------- ------- -------- -------- --------
Net earnings $ 3,047 $ 788 $ 812 $ 7,718 $ 788 $ 4,428
======== ======== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
SFW HOLDING CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
October 28, October 30, August 30,
2000 1999 1999
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(Post- (Post- (Pre-
SUPERVALU SUPERVALU SUPERVALU
acquisition) acquisition) acquisition)
(39 weeks) (9 weeks) (30 weeks)
<S> <C> <C> <C>
Net cash provided by operating activities $ 18,336 $ 9,568 $ 10,800
----------- ---------- ----------
Cash flows from investing activities:
Cash inflows (outflows) related to capital expenditures (13,153) 2,689 (14,908)
Reimbursement of renovation costs from landlord 4,371 - -
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Net cash used in investing activities (8,782) 2,689 (14,908)
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Cash flows from financing activities:
Cash provided to affiliated companies (551) (2,149) 21,544
Purchase of bonds and bond premium - (26,657) -
Note receivable from Dart (3,417) (656) (2,188)
Principal payments under capital lease obligations (5,493) (82) (379)
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Net cash provided by (used in) financing activities (9,461) (29,544) 18,977
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Net increase (decrease) in cash and cash equivalents 93 (17,287) 14,869
Cash and cash equivalents at beginning of period 3,390 21,471 6,602
----------- ---------- ----------
Cash and cash equivalents at end of period $ 3,483 $ 4,184 $ 21,471
=========== ========== ==========
Supplemental Cash Flow Information:
Disclosure of noncash investing activity
Assets acquired under capital lease $ 10,898 $ - $ -
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
SFW HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - GENERAL
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Accordingly, actual results could differ from those
estimates.
The accompanying consolidated financial statements of the Company as of October
28, 2000, and for the 13 weeks and 39 weeks ended October 28, 2000, and October
30, 1999, have not been audited. Certain information and footnote disclosures
normally included in the financial statements prepared in accordance with
generally accepted accounting principles 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 October
28, 2000, and the results of its operations for the 13-week and 39-week periods
ended October 28, 2000, and October 30, 1999.
NOTE 2 - ACQUISITION
On August 31, 1999, Richfood Holdings, Inc. ("Richfood") was acquired in a
merger by a wholly-owned subsidiary of SUPERVALU INC., a Delaware corporation
("SUPERVALU"), and the Company became an indirect, wholly-owned subsidiary of
SUPERVALU at that time ("the SUPERVALU acquisition"). Prior to August 31, 1999,
the Company was an indirect, wholly-owned subsidiary of Richfood. SUPERVALU has
accounted for the acquisition of Richfood using the purchase method of
accounting and, accordingly, a new accounting basis was established as of August
31, 1999 and was used for the remaining twenty-two weeks of fiscal 2000. The
assets and liabilities of the Company were restated to reflect their estimated
fair market values as of that date. The excess of the purchase price paid for
the Company over its net assets acquired (goodwill) of $310.1 million has been
pushed down to the Company. The goodwill is being amortized on a straight-line
basis over 40 years. Certain financial statements and related footnote amounts
for periods prior to the SUPERVALU acquisition may not be comparable to
corresponding amounts subsequent to the acquisition.
NOTE 3 - TRANSACTIONS WITH AFFILIATES
The October 28, 2000 consolidated balance sheet includes $51.4 million due to
affiliates compared to $52.0 million at January 29, 2000. The $51.4 million
consists primarily of amounts due to SUPERVALU for the purchase of bonds and
amounts due for inventory purchases and general and administrative expenses.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Cautionary statements for Purposes of the Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995
The information in this Quarterly Report includes forward-looking statements.
Important risks and uncertainties that could cause actual results to differ
materially from those discussed in such forward looking statements, such as the
impact of changing economic or business conditions, the impact of competition,
the nature and extent of the consolidation of the retail food and food
distribution industries, the ability to attract and retain customers for the
company's businesses, the ability to control food distribution costs, the
ability of the Company to grow through acquisition and assimilate acquired
entities, the availability of favorable credit and trade terms, food price
changes, other risk factors inherent in the food wholesaling and retail
businesses and other factors, are detailed in Exhibit 99(i) to this report. Any
forward-looking statement speaks only as of the date on which such statement is
made, and
<PAGE>
the Company undertakes no obligation to update such statement to reflect events
or circumstances arising after such date. Other risks or uncertainties may be
detailed from time to time in the Company's future Securities and Exchange
Commission filings.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes in market risk for the Company in the period
covered by this report.
Basis of Presentation
---------------------
Management's Discussion and Analysis, for analysis purposes, is comparing post-
acquisition information for the current quarter and year to date with both pre
and post-acquisition information for the same periods of last year. There are
two different bases of accounting being used in the prior year, but management
feels the comparison is still useful.
Results of Operations
---------------------
RESULTS FOR THE QUARTER:
Sales increased by $3.2 million to $219.1 million during the 13 weeks ended
October 28, 2000, compared to $215.8 million during the 13 weeks ended October
30, 1999, an increase of 1.5%. This increase was due primarily to two new stores
and two store remodels which have occurred since last year third quarter, offset
by a decrease of 2.0% in comparable store sales and the closing of one store
last year. The decrease in comparable store sales was due primarily to
competitive market conditions and cannibalization, partially offet by the two
remodels completed since the end of the prior year.
Gross profit, as a percentage of sales, was 25.9% during the 13 weeks ended
October 28, 2000, compared to 24.9% during the 13 weeks ended October 30, 1999.
The increase was primarily due to higher allowance income received from vendors
and better buying.
Selling and administrative expenses, as a percentage of sales, were 22.0% for
the 13 weeks ended October 28, 2000, compared to 21.9% for the 13 weeks ended
October 30, 1999. The increase was due primarily to increased payroll and
benefits costs associated with negotiated union rates.
Operating income was $8.5 million for the 13 weeks ended October 28, 2000,
compared to $6.6 million for the 13 weeks ended October 30, 1999. The increase
was primarily due to the increase in gross profit as a percentage of sales
during the current year.
Interest income remained essentially flat at approximately $1.2 million for the
13 weeks ended October 28, 2000 and the 13 weeks ended October 30, 1999.
Interest expense decreased $.4 million, to $3.5 million for the 13 weeks ended
October 28, 2000, compared to $3.9 million for the 13 weeks ended October 30,
1999, a 10.1% decrease. The reduction in interest expense was due to the
retirement of $24.6 million of the Senior Notes in October 1999.
The effective income tax rate for the 13 weeks ended October 28, 2000, was 50.3%
compared to 58.0% for the 13 weeks ended October 30, 1999. The decrease is
primarily attributable to increased taxable earnings in relation to the fixed
amount of acquisition non-deductible goodwill associated with the SUPERVALU
acquisition.
Net income was $3.0 million for the 13 weeks ended October 28, 2000 compared to
$1.6 million for the 13 weeks ended October 30, 1999.
YEAR TO DATE RESULTS:
Sales increased to $658.7 million for the 39 weeks ended October 28, 2000
compared to $655.7 million for the 39 weeks ended October 30, 1999, an increase
of .5%. This increase was due primarily to two new stores and two store remodels
which have occurred since last year third quarter, offset by a decrease of 1.7%
in comparable store sales
<PAGE>
for the 39 weeks ended October 28, 2000, and the closing of one store last year.
The decrease in comparable store sales was due primarily to competitive market
conditions and cannibalization, offset, in part, by the two new remodels
completed since the end of the prior year.
Gross profit, as a percentage of sales, was 25.3% for the 39 weeks ended October
28, 2000 compared to 25.1% for the 39 weeks ended October 30, 1999, an increase
of .2%. The increase was primarily due to higher allowance income received from
vendors and better buying.
Selling and administrative expenses, as a percentage of sales, were 21.7% and
21.8%, respectively, for the 39 weeks ended October 28, 2000 and October 30,
1999. The decrease was due primarily to lower administrative and advertising
costs, partially offset by increased payroll and benefits costs associated with
negotiated union rates.
Operating income was $23.2 million for the 39 weeks ended October 28, 2000,
compared to $21.5 million for the 39 weeks ended October 30, 1999, an increase
of 7.8%.
Interest income increased to approximately $3.4 million for the 39 weeks ended
October 28, 2000, compared to $2.9 million for the 39 weeks ended October 30,
1999, due to an increase in the outstanding balance of the note receivable.
Interest expense decreased approximately $1.8 million, to $10.8 million for the
39 weeks ended October 28, 2000, compared to $12.6 million for the 39 weeks
ended October 30, 1999, a 14.3% decrease. The reduction in interest expense was
due to the retirement of $24.6 million of the Senior Notes in October 1999.
The effective income tax rate for the 39 weeks ended October 28, 2000, was 51.2%
compared to 56.0% for the 39 weeks ended October 30, 1999. The decrease is
primarily attributable to increased taxable earnings in relation to the fixed
amount of acquisition non-deductible goodwill associated with the SUPERVALU
acquisition.
Net income was $7.7 million for the 39 weeks ended October 28, 2000 compared to
$5.2 million for the 39 weeks ended October 30, 1999, an increase of 48.0%.
Liquidity and Capital Resources
-------------------------------
During the 39 weeks ended October 28, 2000, operating activities generated net
cash of $18.3 million, compared to $20.4 million provided during the 39 weeks
ended October 30, 1999. The decrease was due primarily to an increase in net
working capital.
Investing activities used net cash of $8.8 million during the 39 weeks ended
October 28, 2000 compared to $12.2 million for the 39 weeks ended October 30,
1999. The decrease in cash usage was due primarily to a $4.4 million
reimbursement from a landlord for renovation costs during the current year. The
Company estimates that it will make total capital expenditures of approximately
$44.0 million during the 52 weeks ending February 3, 2001, of which $23.0
million relates to capital leases for new stores. Management expects that these
capital expenditures will be financed primarily through cash flows from
operations, cash provided by affiliated companies and capital leases.
Financing activities used $9.5 million during the 39 weeks ended October 28,
2000, compared to $10.6 million during the 39 weeks ended October 30, 1999. The
decrease was due to the $26.7 million bond repurchase, which was financed by an
increase in their balance due to affiliates of $21.5 million.
The Company believes that cash flows from Shoppers 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.
<PAGE>
PART II - Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
27.1 Financial Data Schedule
(B) Reports on Form 8-K
None
<PAGE>
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.
SFW HOLDING CORP.
Date: December 12, 2000 By: /s/ Pamela K. Knous
-----------------------------------
Pamela K. Knous
Executive Vice President, Chief
Financial Officer (authorized
officer of the registrant and
principal financial officer)
