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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 1, 1995
------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM N/A
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COMMISSION FILE NUMBER 1-6068
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RINI-REGO SUPERMARKETS, INC.
----------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 34-0222970
- ------------------------------- ---------------------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
5300 RICHMOND ROAD, BEDFORD HEIGHTS, OHIO 44146
- ----------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (216) 292-7000
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_______________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
9.75% SUBORDINATED DEBENTURES DUE DECEMBER 30, 2001 CINCINNATI STOCK EXCHANGE
- --------------------------------------------------- -------------------------
(TITLE OF EACH CLASS) (NAME OF EACH EXCHANGE
ON WHICH REGISTERED)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
6.5% CONVERTIBLE SUBORDINATED DEBENTURES DUE JUNE 1, 1994
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(TITLE OF CLASS)
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
--- ---
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [X]
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THE TOTAL MARKET VALUE OF REGISTRANT'S COMMON STOCK, WITHOUT PAR
VALUE, HELD BY PERSONS WHO ARE NOT AFFILIATES OF REGISTRANT WAS $457.88.*
THE REGISTRANT HAD 3,536,577 SHARES OF CLASS A COMMON STOCK, WITHOUT
PAR VALUE, ISSUED AND OUTSTANDING ON SEPTEMBER 8, 1995.
________________________________
* This value assumes that the Common Stock, without par value, has the
same market value as the Class A Common Stock, $.01 par value, of
Riser Foods, Inc. of $12-3/8 per share on September 8, 1995.
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<PAGE> 3
PART I
ITEM 1. BUSINESS
Rini-Rego Supermarkets, Inc. ("RRS" or the "Company") was incorporated
under the laws of the State of Ohio on May 25, 1908. The Company and its
subsidiaries are engaged in the distribution of groceries and related items.
All references to RRS or the Company include RRS and its consolidated
subsidiaries.
Retail Supermarket Operations
- -----------------------------
As of July 1, 1995, the Company operated 38 retail supermarkets in the
greater Cleveland area, 33 of which operate under the conventional "Rini-Rego
Stop-N-Shop" format, and five of which operate under the updated and expanded
"Rini-Rego Stop-N-Shop Marketplace" format.
The Company's merchandising strategy is to offer a broad selection of
quality products at competitive prices with an emphasis on superior customer
service, quality and convenience. The Company sells most nationally known
brands of merchandise, regional brands and a variety of private label products.
The private label products are generally sold at prices lower than those of
nationally known products.
The Company's retail stores offer a large selection of food items,
including dry groceries, meat, dairy, produce, frozen foods, deli products and
baked goods, as well as a number of non-food items such as greeting cards and
health and beauty care items. Certain of the Company's stores also contain
specialty departments such as "fresh to go" prepared foods, service meat,
service seafood, floral and general merchandise departments. Services, which
include pharmacies, banking and debit and credit card payment options, are also
available in certain locations.
During the fiscal year ended July 2, 1994 (the "1994 Fiscal Year"),
the Company introduced its "Marketplace" format with the opening of three new
or expanded supermarket locations. The Company's Marketplace stores are larger
than the Company's conventional stores, ranging in size from approximately
60,000 to 70,000 square feet, and feature updated decor packages and fixturing
with broader selections of traditional merchandise and additional emphasis on
fresh, high quality perishables, prepared food items and a variety of service
departments such as one- hour photo processing and full service in-store
banking. During the fiscal year ended July 1, 1995 (the "1995 Fiscal Year"),
the Company converted two of its conventional stores to the Marketplace format
and expanded and remodelled two of its conventional stores.
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Advertising and promotion are important factors in the Company's
merchandising strategy. All of the Company's stores are affiliated with the
Association of Stop-N-Shop Supermarkets, an association of independent grocery
retailers established as a cooperative advertising and purchasing organization
(the "Association"). The Association advertises in newspapers, circulars, and
television and radio advertising comparable to the other supermarket companies
which operate in the northeast Ohio market area. This advertising generally
features high demand products at competitive prices. During the 1995 Fiscal
Year, the Association introduced the Preferred Shoppers Club program, which is
a free membership club that offers special values to member-customers and, in
the future, will allow the Company to focus on specific customer segments and
better understand household buying behavior.
Wholesale Operations
- --------------------
The Company operates one of the largest wholesale grocery distribution
operations in the Midwest doing business as "Seaway". The Company supplies
national brand, regional brand and private label products to Company-operated
retail stores, other independently-operated retail grocery chains and
independent grocers, primarily in northeastern Ohio, and to a lesser extent, in
central Ohio, western Pennsylvania and southeastern Michigan. During the 1995
Fiscal Year, in connection with the Company's expansion of its wholesale
operations into the greater Detroit metropolitan area, the Company opened a
sales office in a suburb of Detroit.
The Company is continually in the process of expanding its wholesale
customer base by upgrading its available product lines to include a wider
assortment of grocery, frozen foods, dairy, meat, produce and bakery items.
The Company offers its wholesale customers a wide variety of operational
support services which include advertising, promotion, marketing and
merchandising services, retail operations counseling, and technical and
information systems support. In addition, the Company assists wholesale
customers in the upgrading and/or enlarging of their stores by providing
inventory and equipment financing, store layout, equipment planning and design,
and engineering and construction services.
The Company utilizes an on-line computerized buying and inventory
control system for the purchase and sale of its inventory. The Company
purchases the majority of its products from large, national manufacturers of
consumer foods and grocery-related products and the remainder of its products
from several other suppliers. The Company is also a member of various
purchasing cooperatives which provide the Company with enhanced purchasing
opportunities and assistance with the development of its private label program.
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The Company operates its own health and beauty care/general
merchandise ("HBC/GM") distribution facility which supplies Company- operated
retail stores, other independently-operated retail grocery chains, independent
grocers, a deep discount drug chain and a mass merchandising chain. The
Company also operates the Eagle Ice Cream Company, which manufactures branded
ice cream and distributes purchased ice cream and novelty products to
Company-operated retail stores, other independently-operated retail grocery
chains, independent stores and a national food service distribution company.
Consistent with the industry practices of other food distribution
retailers and wholesalers, the Company maintains inventory levels at its
distribution centers and retail locations at levels which minimize out of stock
products for its customers. The Company permits the return of damaged or
defective products from customers.
Competition
- -----------
The supermarket industry is highly competitive and may be affected by
general economic conditions. During the past several years, competition in the
northeast Ohio market area has been extremely intense due in part to a stagnant
or declining consumer population and the entry of a number of significant new
competitors. The Company estimates that it is one of the largest retailers, in
terms of grocery sales, in the northeast Ohio market area.
Company-operated retail stores primarily compete with regional
supermarket chains and voluntary supermarket associations. The Company also
competes with general merchandise stores that also sell grocery products,
warehouse/wholesale clubs, convenience stores and deep discount drug stores.
The principal areas of competition pertain to price, selection and quality of
perishables and other food products, customer service, store condition and
store location. These companies compete with the Company's stores at the
retail level and the Company's wholesale customers at the wholesale level.
Since demographic trends reflect a shift in consumer population from
those heavy-industry based regions of the U.S., like northeast Ohio, to service
oriented and sun-belt regions, the Company must continually emphasize customer
service and value to maintain its market share and compensate for the lack of
population growth in the Company's market area.
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The wholesale food distribution industry is also highly competitive in
the market area served by the Company. Management believes that the principal
competitive factors include price, breadth of product line and the availability
of support services to its wholesale customers. The Company competes directly
with regional and national wholesalers.
Seasonality and Regulation
- --------------------------
The Company's business is generally not seasonal in nature. The
Company anticipates that its compliance with federal, state and local laws
relating to the protection of the environment has not had and is not expected
to have a significant effect on the Company's capital expenditures, earnings or
competitive position.
Customers and Suppliers
- -----------------------
No single customer or group of customers under common control
accounted for 10% or more of the Company's consolidated revenues for the 1995
Fiscal Year. Groceries, general merchandise and raw materials are generally
available from many sources.
Corporate Background
- --------------------
On June 2, 1988, the Company's common and preferred shareholders
approved a Plan and Agreement of Merger dated as of April 7, 1988 providing for
the merger of Cleveland Food Sub, Inc., a wholly owned subsidiary of Riser
Foods, Inc. ("Riser"), with and into the Company (then known as Fisher Foods,
Inc. ("Fisher")), wherein the Company became the surviving corporation and a
subsidiary of Riser (the "Merger"). Simultaneously with the Merger, Riser also
became the parent company of Rini Holding Company ("Rini"), Rego Supermarkets,
Inc. ("Rego"), and American Seaway Foods, Inc. and two of its affiliated
partnerships (collectively, "Seaway"), through the exchange of Riser stock for
the stock of Fisher, Rini, Rego and Seaway (the "Combination") which was
effective June 8, 1988 (the "Effective Date").
On the Effective Date, the Company's Common Stock, without par value
("Common Stock") ceased trading on the New York Stock Exchange. Each share of
Fisher Common Stock issued and outstanding at the Effective Date was exchanged
for one share of Riser Class A Common Stock, $.01 par value, and each share of
Fisher Preferred Stock, without par value, was exchanged for one share of Riser
Series A Cumulative Convertible Preferred Stock, $100 par value. Following
the Effective Date, Riser consolidated the wholesale operations of Seaway and
Fisher into one operating unit and consolidated its retail operations through
the merger of Rini and Rego into Fisher and changed Fisher's name to Rini-Rego
Supermarkets, Inc.
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Employees
- ---------
As of July 1, 1995, Riser employed approximately 5,300 persons, on
both a full and part-time basis. The majority of the Company's work force is
unionized and are members of either the United Food and Commercial Workers
Union, Local No. 880 (retail) ("Local 880") or the International Brotherhood of
Teamsters, Local No. 507 (wholesale) ("Local 507"). The Company's contract
with Local 880, which is negotiated through the Cleveland Food Industry
Committee whose members include other members of the Stop-N-Shop Association
and the Company's primary competitors, First National Supermarkets, Inc. and
Heinen's, is in effect until September 8, 1996. The Company's contract with
Local 507 is in effect until April 1, 1998.
ITEM 2. PROPERTIES
The Company owns a warehouse and office facility in Bedford Heights,
Ohio containing approximately 850,000 square feet which serves as the Company's
corporate headquarters and principal distribution center. The Company also
owns the following properties: a warehouse, office facility and garage in
Maple Heights, Ohio containing approximately 356,000 square feet, approximately
349,000 square feet of which is used in its HBC/GM operations and approximately
7,000 square feet is subleased to an unaffiliated company; a warehouse facility
in Bedford Heights, Ohio containing approximately 305,000 square feet, all of
which is subleased to three unaffiliated parties; a warehouse and office
facility in Cuyahoga Heights, Ohio containing approximately 187,000 square feet
of which approximately 140,000 square feet is leased to others and the
remainder is used in its wholesale operations; a warehouse facility in
Cleveland, Ohio containing approximately 29,100 square feet which is used in
its wholesale operations; and an ice cream plant in Bedford, Ohio containing
approximately 39,000 square feet.
Five retail store properties are owned by the Company, three of which
are used in its retail operations and two of which are subleased to
unaffiliated parties. Most of the Company's leased properties are under
long-term leases of varying terms, the majority of which obligate the Company
to pay certain increases in property taxes and insurance and to pay additional
rent based on a percentage of sales at that particular location. As of July 1,
1995, the aggregate minimum annual rentals of all operating and capital leases
with initial noncancellable terms of more than one year were approximately
$15,723,000.
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In July 1995, pursuant to put options contained in leases with Seaway
Development Company ("Seaway Development"), the Company was required to
purchase two buildings which it had been leasing at a purchase price of
$6,000,000. Seaway Development is an Ohio general partnership whose partners
were shareholders of Seaway prior to the Combination. During the 1995 Fiscal
Year, an unaffiliated Company which had been leasing a warehouse facility from
the Company exercised its option to purchase this building for $1,580,000.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company is a party
which are material to its business, financial condition or results of
operations or which would otherwise be required to be disclosed under this
item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Market Information
- ------------------
The Company's Common Stock ceased trading on the New York Stock
Exchange on June 8, 1988. As such, there is no established public trading
market for the Company's Common Stock and stock price information is
not available.
Shareholders
- ------------
As of September 8, 1995 there were 2 shareholders of record of the
Company's Common Stock.
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Dividends
- ---------
It is the Company's current policy to retain earnings of the Company
in order to fund capital expenditures, which have primarily been used to expand
or remodel its existing retail store locations. The Company has not paid any
dividends on its Common Stock in the last two fiscal years. The payment of
dividends is also subject to restrictions contained in the Company's credit
facility.
On September 8, 1995, the Board of Directors of Riser declared an
initial regular quarterly dividend of $.05 per share on each outstanding share
of Riser Class A Common Stock and Class B Common Stock payable on October 10,
1995 to Riser shareholders of record at the close of business on September 29,
1995. The declaration and payment of dividends is subject to the discretion of
Riser's Board of Directors, and there can be no assurance that dividends will
be paid in the future. In determining whether to pay dividends (as well as the
amount and timing thereof), the Riser Board of Directors considers a number of
factors, including Riser's results of operations, financial condition and
capital and surplus requirements. The payment of dividends on the Riser common
stock is limited by its credit facility to $2,424,000, $2,828,000 and
$3,232,000 during the fiscal years ending in 1996, 1997 and 1998, respectively.
The payment of dividends is prohibited if Riser does not meet certain financial
and other covenants contained in its credit facility.
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<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
(in millions, except per share data, locations & ratios)
<CAPTION>
7-1-95 7-2-94 7-2-93 6-27-92 6-29-91
(52 Weeks) (52 Weeks) (53 Weeks) (52 Weeks) (52 Weeks)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operations
- ----------
Net sales $ 1,185.0 $ 1,121.6 $ 1,108.2 $ 979.3 $ 1,022.0
Net income before
extraordinary
item and cumulative
effect of change in
accounting principle 11.6 1.5 6.2 8.1 9.7
Extraordinary item:
Utilization of net
operating loss
carryforwards - - .3 - -
Net income before
cumulative effect of
change in accounting
principle 11.6 1.5 6.5 8.1 9.7
Cumulative effect of
change in accounting
principle:
Accounting
for income taxes - 6.9 - - -
Net income 11.6 8.4 6.5 8.1 9.7
Per share data:
Net income from
continuing operations 1.42 .18 .75 .99 1.20
Extraordinary item - - .03 - -
Cumulative effect of
change in accounting
principle - .85 - - -
---------- ---------- ---------- ---------- ----------
Net income $ 1.42 $ 1.03 $ .78 $ .99 $ 1.20
========== ========== ========== ========== ==========
Dividends per common
share - - - - -
Retail locations -
weighted average 40 44 48 51 51
Financial Position
- ------------------
Working capital $ 23.9 $ 43.0 $ 24.3 $ 24.2 $ 30.1
Property, equipment &
capital leases, net 118.1 108.5 101.1 91.0 79.6
Total assets 268.5 257.5 233.4 204.8 200.6
Long-term obligations
Debt 55.7 75.5 56.3 51.9 53.1
Capital leases 6.8 8.2 10.6 10.7 10.9
Liabilities-to-equity
ratio 2.6 3.0 3.1 3.1 3.8
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth items from the Company's Consolidated
Statements of Income as a percentage of net sales:
<TABLE>
<CAPTION>
1995 1994 1993
(52 Weeks) (52 Weeks) (53 Weeks)
---------- ---------- ----------
<S> <C> <C> <C>
Net sales 100.00 100.00 100.00
Cost of goods sold 80.21 80.73 80.47
---------- ---------- ----------
Gross profit 19.79 19.27 19.53
SG&A expenses 17.60 17.35 17.60
Restructuring Charge - 1.07 .45
---------- ---------- ----------
Operating income 2.19 .85 1.48
Interest expense, net .55 .63 .57
---------- ---------- ----------
Income before taxes 1.64 .22 .91
Provision for income taxes .66 .08 .35
---------- ---------- ----------
Net income before extraordinary
item and accounting change .98 .14 .56
========== ========== ==========
</TABLE>
The results of operations for the fiscal year ended July 1, 1995 reflect
the successful implementation of strategic initiatives which were designed to
improve operating performance and counter competitive and economic pressures.
The food distribution industry has encountered little or no inflation over the
past three years while operating costs, particularly labor and occupancy, have
contractually risen. The industry has also experienced increased competition
from non-traditional sources, such as convenience stores and national mass
merchandising chains, that has unfavorably impacted overall industry sales and
operating margins.
Net Sales
- ---------
Net sales increased 5.7% to $1.185 billion in 1995, 1.2% to $1.122
billion in 1994 and 13.2% to $1.108 billion in 1993. This trend of sales
increases over that of the prior year is the result of strategic initiatives to
remodel and reposition Company-operated retail stores, aggressive merchandising
in Company-operated stores, expansion of the product lines offered to its
independently-operated wholesale customers and an improved economic climate in
the Company's primary market area. Additionally, 1995 sales were favorably
impacted by a full fifty-two weeks of operations of the
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Company's Health and Beauty Care/General Merchandise (HBC/GM) distribution
facility which was acquired in 1994. Sales in 1993 included an extra week of
sales, including two Fourth of July sell weeks.
The Company's strategic initiatives to remodel and reposition
Company-operated retail stores have resulted in the consolidation of
Company-operated retail stores. The following table details the number and
format of the Company-operated retail stores between years:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Beginning of year 42 45 51
Opened - 2 1
Closed (4) (5) (7)
------ ------ ------
End of year 38 42 45
------ ------ ------
Store Formats:
Rini-Rego Stop-N-Shop 33 37 42
Rini-Rego Marketplace 5 3 -
Other - 2 3
</TABLE>
During 1995, sales in Company-operated retail stores increased 8.0% over
the prior year as same store sales increases of 9.1% more than offset sales
reductions resulting from fewer Company-operated retail stores. Adjusted for
the 53rd week of sales in 1993, total sales in Company-operated retail stores
declined 5.4% in 1994 and 5.3% in 1993. Declines in 1994 and 1993 were
attributed to a reduction in the number of Company-operated retail stores
between years coupled with declining same store sales of .4% in 1994 and 2.6%
in 1993. The reversal of same store sales declines in 1995 was attributed to
the Company's retail remodeling and repositioning programs, aggressive
merchandising, which included the introduction of the Company's Preferred
Shoppers Club, and an improved economic climate. Additionally, the loss of
sales associated with the closing of nine Company-operated stores between 1995
and 1994 was offset by the addition of two newer, larger Company- operated
retail stores in May 1994.
The Company's retail remodeling and repositioning initiatives, where
certain non-core stores were closed and certain core stores were remodeled,
expanded or consolidated into larger retail facilities, has proven successful,
yielding continued sales growth and improved operating leverage. Since the
first quarter of 1994, the Company has constructed or converted five former
Rini-Rego Stop-N-Shop stores to its Marketplace format. The Marketplace stores
are larger, containing approximately 65,000 square feet, and meet the
consumer's basic grocery needs while offering an expanded product line, with
emphasis on high quality perishable departments and a variety of full service,
consumer-oriented departments.
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During 1995, the Association of Stop-N-Shop Supermarkets, a northeast
Ohio advertising cooperative which includes all Company-operated retail stores,
introduced a new target marketing campaign, the Preferred Shoppers Club.
Participating shoppers receive a Preferred Shoppers Club card which entitles
them to extra markdowns below weekly sales prices. This program was the first
of its kind in northeast Ohio and allows the Company to offer its customers
greater value and will ultimately enhance the Company's ability to track
customer purchasing habits and preferences. The success of this program has
increased sales in Company-operated retail stores and proven a valuable
merchandising tool to combat competitive pressures from both traditional and
non-traditional grocery retailers.
After adjusting for the 53rd week of sales in 1993, sales to
independently-operated retail stores continued the trend of increased sales
over that of the prior year with increases of 3.4% in 1995, 13.9% in 1994 and
40.3% in 1993. The large sales increase in 1993 was primarily attributed to
new customers gained as a result of a major competitor closing its northeast
Ohio distribution center in the Spring of 1992. The acquisition of an HBC/GM
distribution facility from the Company's former HBC/GM supplier increased sales
in 1994. Fiscal 1995 sales continued to benefit from these acquisitions as
well as the improving economic climate which, in turn, increased sales to
independently-operated retail stores.
The Company has continued to increase its wholesale sales penetration to
existing customers, primarily in the perishable and HBC/GM product lines.
The Company continues to evaluate other markets outside its primary market area
for potential distribution opportunities. As part of the acquisition of its
HBC/GM distribution facility, the Company began servicing approximately 150
Hills Department Stores throughout the eastern third of the United States
during 1994. The Company also opened a sales office in the Detroit area in
1995 focusing on meat distribution and has recently began servicing a regional
discount drug chain in Ohio and Pennsylvania.
Total Company sales also benefited from an improved economy in the
Company's primary market area. The economy in northeast Ohio, which was
stagnant in 1993 and 1994, began to expand early in 1995 and continued to
improve throughout the fiscal year. The improved economic climate combined
with the Company's merchandising programs in Company-operated retail stores
resulted in consumers increasing their average purchase and trading-up in many
commodity lines.
Gross Profit
- ------------
Gross profits, as a percentage of sales, increased from 19.53% in 1993
and 19.27% in 1994 to 19.79% in 1995. The fluctuation in the gross profit
percentage is principally a function of the
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<PAGE> 14
shifting sales mix between years. Sales to independently-operated retail
stores carry a lower gross profit percentage than sales in Company-operated
retail stores. As such, a shift in the mix of these sales impacts gross profit
percentages. Sales generated in Company-operated retail stores as percentage
of total Company sales decreased from 55.3% in 1993 to 50.6% in 1994 and then
increased to 51.7% in 1995. This mirrors the shift in the gross profit
percentage.
Selling, General And Administrative (SG&A) Expenses
- ---------------------------------------------------
SG&A expenses, as a percentage of sales, were 17.60% in 1995, 17.35% in
1994 and 17.60% in 1993. These shifts also reflect the change in the sales mix
between years. Sales shifted in 1995 to more sales from Company-operated
retail stores, which require higher SG&A costs than sales to
independently-operated retail stores. Accordingly, the SG&A percentage
increased with the sales mix. The Company minimized the 1995 increase in the
SG&A percentage through improved productivity resulting from the implementation
of Total Quality Management initiatives. The decline of the SG&A percentage
from 1993 to 1994 was also impacted by the closing of seven underperforming
Company-operated retail stores which operated at relatively higher SG&A
percentages. Their disposition, and the change in sales mix, helped offset
contractual increases in labor and occupancy costs in remaining
Company-operated retail stores.
Restructuring Charge
- --------------------
The Company recorded restructuring charges in 1994 and 1993 reflecting
costs associated with the Company's long range strategic initiatives to
reposition its Company-operated retail store operations. These initiatives
include the disposition of non-core stores and the consolidation of certain
Company-operated retail store locations into larger retail facilities. The
Company utilized $1.2 million of cash for its restructuring charges in 1995.
In 1994, the Company recorded a $12 million restructuring charge which
included a $4 million non-cash charge to write down fixed assets to their net
realizable value and an $8 million charge for future cash expenditures,
principally occupancy costs net of expected sublease income, related to the
closing of thirteen Company-operated retail stores. The Company closed five of
these stores in fiscal 1994, four of these stores in 1995 and plans to close
four additional Company-operated retail stores over the next three to four
years. The Company plans to operate approximately 35 to 38 expanded or newly
remodeled Company-operated retail stores by the end of 1998, which is expected
to result in a limited reduction of overall employee levels.
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The $5 million restructuring charge recorded in 1993 reflected the
Company's plan to dispose of five non-core stores in the Akron/Canton market
and two other non-core stores. The 1993 charge included a $1.8 million
non-cash charge to write down fixed assets to their net realizable value and a
$3.8 million charge for future cash expenditures, principally occupancy costs
net of expected sublease income and pension withdrawal liabilities. Overall,
employee levels were reduced as a result of the Company's decision to exit the
Akron/Canton market.
Taken as a whole, the Company's restructuring charges reflect the
Company's overall plan to reposition its Company-operated retail stores,
focusing on its core-store format: Rini-Rego Stop-N-Shop. The Company does not
currently anticipate any future restructuring charges.
Interest Expense, Net
- ---------------------
Interest expense, net of interest income, decreased $465,000 in 1995 to
$6.5 million, after increasing $646,000 to $7.0 million in 1994 and $82,000 to
$6.4 million in 1993. The 1995 decrease is a function of lower borrowing
levels under the Company's bank credit facilities resulting from programs to
reduce the investment in distribution inventories and increase inventory turns.
Lower debt levels were partially offset by an increase in the Company's average
interest rate charged under its bank credit facilities from 6.57% in 1993 to
6.74% in 1994 to 8.68% in 1995. These increases are a function of increases in
the Bank's Prime Lending Rate. Increases in interest expense in 1994 and 1993
were a function of increased borrowings required to fund planned capital
expenditures associated with the Company's remodeling programs. The Company
earned .25% interest rate reductions in each of 1993 and 1994. The Company
currently borrows funds under its bank credit facilities at either .25% over
the Bank's Prime Lending Rate or 2.5% over LIBOR.
Income Taxes
- ------------
The Company provided income taxes at an effective tax rate of 40.3% in
1995, 37.0% in 1994 and 38.3% in 1993. The increase in the Company's effective
tax rate in 1995 represents a higher provision for federal income taxes as a
result of the Company being taxed at a higher federal tax rate and a higher
state income tax provision because of higher book income. The decrease in 1994
was the result of a lower provision for state income taxes due to lower book
income. The Company accounts for the franchise tax portion of its state income
tax provision as an operating expense.
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109) in 1994. The
Company elected not to restate prior year's financial statements and recorded
the cumulative effect of the accounting change. As a result, the Company
recorded a one-time
14
<PAGE> 16
income item of $6.9 million to reflect the cumulative effect of the change in
accounting for income taxes in 1994. The one-time income item was principally
the result of benefiting the expected utilization of net operating loss
carryforwards (NOL) and the adjustment of deferred tax balances to reflect
changes in statutory rates. The Company recorded an extraordinary income item
of $253,000 in 1993 benefiting a portion of its pre-acquisition NOL. See Note
4 of the Notes to Consolidated Financial Statements for further discussion.
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary source of capital has historically come from
internally generated funds. However, the Company's intensified capital
expenditure requirements and higher working capital needs associated with the
acquisition of its HBC/GM distribution facility increased the Company's
reliance on its bank credit facilities in 1994. During 1995, debt levels
decreased due to the increase in cash generated by operating activities, an
increase in the distribution inventory turns and reduced working capital
requirements.
Operating activities generated $46.8 million of cash in 1995 compared to
$13.6 million in 1994 and $16.5 million in 1993. The success of Company
programs to lower distribution inventories and increase inventory turns,
resulted in a greater percentage of 1995 distribution inventories being
financed through trade accounts payable, without extending vendor terms, rather
than through the Company's revolving credit facilities. Net income in 1995 of
$11.6 million contained non-cash charges for depreciation and amortization of
$17.4 million. Significant balance sheet changes include the aforementioned
increase in accounts payable of $6.6 million, increases in self insurance
reserves of $1.3 million and accrued expenses and other liabilities of $11.7
million. The increase in accrued expenses and other liabilities is related to
the Company's improved operating results which caused increases in accrued
payroll and related expenses, accrued income taxes, and accrued customer
rebates.
Lower levels of cash provided by operations in 1994 and 1993 were a
function of lower earnings coupled with the increased working capital
requirements of expanded sales to independently-operated retailers. Net income
in 1994 was impacted by a $6.9 million non-cash credit for the adoption and
SFAS No. 109. Restructuring charges of $12 million and $5 million in 1994 and
1993, respectively, contributed to the increase in accrued expenses and other
liabilities.
The food distribution industry requires a significant investment in
receivables and inventories to meet customer needs. Increased levels of
inventory were required to support the new HBC/GM distribution facility and
forward buy opportunities.
15
<PAGE> 17
Additional wholesale customer financing was also made available to support the
acquisition by two independently-operated wholesale customers of four former
Company-operated retail stores in the Akron/Canton area.
Working capital, exclusive of deferred income taxes, decreased to $13.9
million in 1995 from $36.4 million in 1994 and $24.3 million in 1993. The
Company's ratio of current assets to current liabilities, exclusive of deferred
income taxes also decreased to 1.13:1 at the end of 1995 from 1.43:1 and 1.26:1
at the end of 1994 and 1993, respectively. These shifts reflect the changes in
working capital components that are discussed above.
As a result of the decrease in the Company's debt levels and improved
operating results in 1995, the Company's ratio of liabilities to equity
decreased from 3.14:1 at the end of 1993 and 2.98:1 at the end of 1994 to
2.61:1 at the end of 1995. The decrease in the ratio of liabilities to equity
in 1993 was due to the favorable impact of the Company's adoption of SFAS No.
109 during 1994.
The Company utilized $28.1 million of 1995 cash flow for capital
expenditures. This amount is slightly higher than 1994 and 1993 levels and
reflects the continuance of Company programs to enhance its retail core-stores
($23.2 million), upgrade its data processing systems and corporate facilities
($2.5 million) and improve distribution facilities and equipment ($2.4
million).
Retail capital expenditures were made to modernize and expand retail
locations. At the end of 1995, the Company operated 38 retail locations
compared to 42 retail locations at the same time last year. The stores which
were closed continue the Company's strategic initiatives to focus on its
core-store format.
The Company anticipates it will maintain its current level of capital
expenditures ($25-35 million) over the next four fiscal years until it has
completed the remodeling or expansion of its core stores. The Company is also
required, pursuant to the terms of its lease with Seaway Development, to
purchase its Aurora Road warehouse facility and Cash-N-Carry branch in July
1995 for $6 million. The Company believes that cash flow from operations and
the unused portion of the bank credit facilities ($29.2 million at the end of
fiscal 1995) will adequately fund planned capital expenditures, normal ongoing
business activities and scheduled debt principal repayments.
IMPACT OF INFLATION
Inflation increases the Company's major costs, inventory and labor.
Because of the high velocity of inventory turnover in the food distribution
industry and the Company's use of the Last-in, First-out (LIFO) valuation
method for a majority of its inventory,
16
<PAGE> 18
the impact of inflation is normally reflected very quickly in the results of
operations. The food distribution industry has experienced little or no food
inflation over the last three years. Accordingly, the Company's provisions for
LIFO inventories for the past three years were as follows: expense of $69,000
in 1995, income of $486,000 in 1994, and expense of $211,000 in 1993.
Experience indicates that highly competitive market conditions may prevent the
Company from fully recovering inflation-driven costs through retail pricing
alone.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company are set forth in Item
14 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a description of the directors and executive officers
of the Company, whose terms as such will continue until their successors are
duly elected and qualified:
CHARLES A. RINI, SR., 57, has served as President of the Company since
February 4, 1994 and as a Director of the Company since July 16, 1988. From
July 16, 1988 until February 4, 1994, Mr. Rini served as Secretary of the
Company. Mr. Rini is also the President, Chief Operating Officer and a
Director of Riser.
ANTHONY C. REGO, 54, has served as Vice President and Secretary of the
Company since February 4, 1994 and as a Director of the Company since July 16,
1988. From July 16, 1988 until February 4, 1994, Mr. Rego served as President
of the Company. Mr. Rego is also Chairman of the Board of Directors and Chief
Executive Officer of Riser.
RONALD W. OCASEK, 49, has served as Chief Financial Officer and
Treasurer of the Company since June, 1989. From September, 1988 through May,
1989 he served as Vice President-Financial Operations of Riser. Mr. Ocasek is
also a Senior Vice President, Chief Financial Officer, Treasurer and a Director
of Riser.
17
<PAGE> 19
ITEM 11. EXECUTIVE COMPENSATION
For the fiscal year ended July 1, 1995, none of the Company's executive
officers or directors were compensated by RRS. As a result, pursuant to Rule
402(a)(6) promulgated under the Securities Exchange Act of 1934, the summary
compensation table, option/SAR grants and exercises tables, long term incentive
plans table and defined benefit or actuarial plan disclosure are not included
in this report. The Company's executive officers and directors are paid by
Riser in their capacities as Riser executives.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth the number of shares and percentage of
shares of RRS Common Stock owned by persons beneficially owning more than five
percent and the shares owned by the directors and officers as a group, as of
September 8, 1995.
<TABLE>
<CAPTION>
Percentage of
Name and Address Number of Shares Shares
---------------- ---------------- ------
<S> <C> <C>
Riser Foods, Inc. 3,536,540 99.99%
5300 Richmond Road
Bedford Heights, OH 44146
Directors and Officers
as a group (3 persons) -0- -0-
</TABLE>
18
<PAGE> 20
The following table sets forth certain information, as of September 8,
1995, regarding beneficial ownership of Riser's Class A Common Stock and Class
B Common Stock owned by each director and officer of RRS. Unless otherwise
indicated, each of the owners listed has sole voting and investment power with
respect to the shares set forth opposite their names:
<TABLE>
<CAPTION>
Number of Percentage Number of Percentage
Class A of Class A Class B of Class B
Name of Beneficial Owner Shares Shares Shares Shares
- ------------------------ --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Anthony C. Rego(1) 187,212 2.2 % 36,583 3.8 %
Charles A. Rini, Sr.(2) 212,157 2.4 % 264,495 27.7 %
Ronald W. Ocasek(3) 11,350 .1 % 0 0 %
Directors and Officers
as a group (3 persons) 410,719 4.7 % 301,078 31.5 %
<FN>
____________________
(1)Includes (i) 100 shares of Class A Common Stock owned by
Mr. Rego's wife, (ii) 64,497 shares of Class A Common Stock and
300 shares of Class B Common Stock owned by his children as to
which Mr. Rego disclaims beneficial ownership, and (iii) assumes
the exercise of options to purchase 9,000 shares of Class A
Common Stock at $7.31 per share beginning July 28, 1994.
(2)Includes (i) 16,000 shares of Class A Common Stock held
in trust by Mr. Rini as trustee for his benefit, (ii) 173,558
shares of Class A Common Stock held in trust by Mr. Rini as
trustee in 11 trusts for the benefit of his children, (iii) 6,099
shares of Class A Common Stock owned by Mr. Rini's wife, (iv)
7,500 shares of Class A Common Stock owned by Mr. Rini's
children, and (v) assumes the exercise of options to purchase
9,000 shares of Class A Common Stock at $7.31 per share
beginning July 28, 1994. Business address is Riser Foods,
Inc., 5300 Richmond Road, Bedford Heights, Ohio 44146.
(3)Assumes the exercise of options to purchase (i) 5,000
shares of Class A Common Stock at $10.31 per share beginning
October 4, 1993 and (ii) 6,000 shares of Class A Common Stock at
$7.31 per share beginning July 28, 1994.
</TABLE>
19
<PAGE> 21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since the Effective Date, the Company has leased five retail
supermarket locations from Rini Realty Company ("Rini Realty"), an Ohio
corporation which is owned by affiliates of RRS and Riser, which include
Charles A. Rini, Sr., a Director and President of RRS and a Director, President
and Chief Operating Officer of Riser, Anthony Rini, a Director of Riser,
Charles A. Rini, a Director of Riser and Charles A. Rini, Jr., a Director of
Riser. Since the Effective Date, the Company has also leased two retail
supermarket locations from Rego Realty Company ("Rego Realty"), an Ohio limited
partnership, which is owned by affiliates of RRS and Riser, including Anthony
C. Rego, the Vice President, Secretary and a Director of RRS and the Chairman
and Chief Executive Officer of Riser, Thomas A. Rego, Senior Vice President,
Secretary and a Director of Riser and Charles A. Rego, Senior Vice President
and a Director of Riser. The Company's management believes that the terms and
provisions of such leases reflect terms and conditions which are customary in
the retail grocery industry and are at least as favorable to RRS as could be
obtained from persons unrelated to RRS. Each of the leases provides for a base
rent plus additional percentage rent based on the lessee's gross sales from
such location and allows for an adjustment in the base rent every five years.
Each lease provides that the tenant will pay real estate taxes, assessments,
common area maintenance charges, insurance charges and utility expenses.
During the 1995 Fiscal Year, the Company paid Rini Realty and Rego Realty
annual fixed rent of $1,165,000 and $234,000, respectively.
From the Effective Date until July 14, 1995, the Company leased from
Seaway Development a warehouse complex in Bedford Heights, Ohio and its
Cash-n-Carry facility in Cleveland, Ohio. Seaway Development is an Ohio
general partnership whose partners were shareholders of Seaway prior to the
Combination. Monthly base rental was $58,478 and $6,609 for the Bedford
Heights and Cleveland properties, respectively. Payments under such leases, on
an annual basis, totaled $781,040. The Company believes the terms and
conditions of the leases from Seaway Development reflected then current market
rental rates and were at least as favorable to the Company as could be obtained
from persons not related to the Company. In July 1995, pursuant to put options
contained in these leases, the Company was required to purchase these two
buildings at an aggregate purchase price of $6,000,000.
As of September 22, 1995 the Company had accounts and notes receivable of
approximately $5,578,000 due from other members of the Stop-N- Shop
Association. The Company has a 69% ownership and 38% voting interest in the
Stop-N-Shop Association. The accounts and notes receivable are primarily
related to arms length purchases of grocery related products and gift
certificates by other members of the Stop-N-Shop Association.
20
<PAGE> 22
During the 1995 Fiscal Year, the Company engaged Kohrman Jackson &
Krantz as legal counsel. S. Lee Kohrman, a former director of the Company and
a director of Riser, is a partner in such law firm. In addition, Kohrman
Jackson & Krantz serves as legal counsel to Riser.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(A) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT:
1. Financial Statements
--------------------
Report of Independent Public Accountants Consolidated Balance
Sheets as of July 1, 1995 and July 2, 1994
Consolidated Statements of Income for the three fiscal years
ended July 1, 1995
Consolidated Statements of Stockholders' Equity for the three
fiscal years ended July 1, 1995
Consolidated Statements of Cash Flows for the three fiscal years
ended July 1, 1995
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
-----------------------------
None
3. Exhibits
--------
3.1 Articles of Incorporation (previously filed
as Exhibit 3.1 to the Company's Annual Report
on Form 10-K filed with Securities and
Exchange Commission (the "Commission") on
October 17, 1988 and incorporated herein by
reference)
3.2 Code of Regulations (previously filed as
Exhibit 3.2 to the Company's Annual Report on
Form 10-K filed with the Commission on
October 17, 1988 and incorporated herein by
reference)
21
<PAGE> 23
4.1 9-3/4% Subordinated Debentures due December
30, 2001 of Fisher Foods, Inc. n/k/a
Rini-Rego Supermarkets, Inc. ("Rini-Rego")
(previously filed as Exhibit 4.3 to the
Annual Report on Form 10-K of Riser Foods,
Inc. (Commission File No. 1-9914) ("Riser
Form 10-K") filed with the Commission on
September 25, 1992 and incorporated herein by
reference)
4.2 Trust Indenture between American Seaway
Foods, Inc. ("American") and Ameritrust
Company National Association as Trustee dated
as of December 1, 1991 (previously filed as
Exhibit 4.4 to the Riser Form 10-K filed with
the Commission on September 25, 1992 and
incorporated herein by reference)
10.1 Amended and Restated Credit Agreement by and
among Rini-Rego, Society National Bank as
agent ("Society") for Society, The Bank of
New York Commercial Corporation, PNC Bank,
National Association and Star Bank, N.A.
(collectively, the "Banks") dated as of May
27, 1993 (previously filed as Exhibit 10.42
to the Riser Form 10- K filed with the
Commission on October 1, 1993 and
incorporated herein by reference)
10.2 Amended and Restated Credit Agreement by and
among American, Society and the Banks dated
as of May 27, 1993 (previously filed as
Exhibit 10.43 to the Riser Form 10-K filed
with the Commission on October 1, 1993 and
incorporated herein by reference)
10.3 Amended and Restated Security Agreement by
and among Rini-Rego, Society and the Banks
dated as of May 27, 1993 (previously filed as
Exhibit 10.44 to the Riser Form 10-K filed
with the Commission on October 1, 1993 and
incorporated herein by reference)
10.4 Amended and Restated Security Agreement by
and among American, Society and the Banks
dated as of May 27, 1993 (previously filed as
Exhibit 10.45 to the Riser Form 10-K filed
with the Commission on October 1, 1993 and
incorporated herein by reference)
22
<PAGE> 24
10.5 Amended and Restated Security Agreement by
and among Seaway Food Service, Inc., Society
and the Banks dated as of May 27, 1993
(previously filed as Exhibit 10.46 to the
Riser Form 10-K filed with the Commission on
October 1, 1993 and incorporated herein by
reference)
10.6 Amended and Restated Security Agreement by
and among Fisher Properties, Inc., Society
and the Banks dated as of May 27, 1993
(previously filed as Exhibit 10.47 to the
Riser Form 10-K filed with the Commission on
October 1, 1993 and incorporated herein by
reference)
10.7 Amended and Restated Guaranty Agreement by
Riser dated as of May 27, 1993 (previously
filed as Exhibit 10.48 to the Riser Form 10-K
filed with the Commission on October 1, 1993
and incorporated herein by reference)
10.8 Amended and Restated Guaranty Agreement by
Rini-Rego dated as of May 27, 1993
(previously filed as Exhibit 10.49 to the
Riser Form 10-K filed with the Commission on
October 1, 1993 and incorporated herein by
reference)
10.9 Amended and Restated Guaranty Agreement by
American dated as of May 27, 1993 (previously
filed as Exhibit 10.50 to the Riser Form 10-K
filed with the Commission on October 1, 1993
and incorporated herein by reference)
10.10 Amended and Restated Guaranty Agreement by
Seaway dated as of May 27, 1993 (previously
filed as Exhibit 10.51 to the Riser Form 10-K
filed with the Commission on October 1, 1993
and incorporated herein by reference)
10.11 Amended and Restated Guaranty Agreement by
Fisher dated as of May 27, 1993 (previously
filed as Exhibit 10.52 to the Riser Form 10-K
filed with the Commission on October 1, 1993
and incorporated herein by reference)
10.12 Form of Amendment No. 1 to Amended and
Restated Guaranty Agreement by Riser
(executed as of May 16, 1994) (previously
filed as Exhibit 10.53 to the Riser Form 10-K
filed with the Commission on September 29,
1994 and incorporated herein by reference)
23
<PAGE> 25
10.13 Form of Amendment No. 1 to Amended and
Restated Credit Agreement by and among
Rini-Rego, Society and the Banks (executed as
of May 16, 1994) (previously filed as Exhibit
10.54 to the Riser Form 10-K filed with the
Commission on September 29, 1994 and
incorporated herein by reference)
10.14 Form of Amendment No. 1 to Amended and
Restated Credit Agreement by and among
American, Society and the Banks (executed as
of October 6, 1994) (previously filed as
Exhibit 10.57 to the Quarterly Report on Form
10-Q of Riser Foods, Inc. (Commission File
No. 1-9914) ("Riser Form 10-Q") filed with
the Commission on May 17, 1995 and
incorporated herein by reference)
10.15 Form of Amendment No. 2 to Amended and
Restated Guaranty Agreement by Riser
(executed as of October 6, 1994) (previously
filed as Exhibit 10.55 to the Riser Form 10-Q
filed with the Commission on May 17, 1995 and
incorporated herein by reference)
10.16 Form of Amendment No. 2 to Amended and
Restated Credit Agreement by and among
Rini-Rego, Society and the Banks (executed as
of October 6, 1994) (previously filed as
Exhibit 10.56 to the Riser Form 10-Q filed
with the Commission on May 17, 1995 and
incorporated herein by reference)
10.17 Form of Amendment No. 2 to Amended and
Restated Credit Agreement by and among
American, Society and the Banks (executed as
of April 28, 1995) (previously filed as
Exhibit 10.60 to the Riser Form 10-Q filed
with the Commission on May 17, 1995 and
incorporated herein by reference)
10.18 Form of Amendment No. 3 to Amended and
Restated Guaranty Agreement by Riser
(executed as of April 28, 1995) (previously
filed as Exhibit 10.58 to the Riser Form 10-Q
filed with the Commission on May 17, 1995 and
incorporated herein by reference)
24
<PAGE> 26
10.19 Form of Amendment No. 3 to Amended and
Restated Credit Agreement by and among
Rini-Rego, Society and the Banks (executed as
of April 28, 1995) (previously filed as
Exhibit 10.59 to the Riser Form 10-Q filed
with the Commission on May 17, 1995 and
incorporated herein by reference)
21 Subsidiaries of the Registrant
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K:
None
25
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
RINI-REGO SUPERMARKETS, INC.
By: /s/ Charles A. Rini, Sr.
-------------------------
Charles A. Rini, Sr.
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Charles A. Rini, Sr. President September 28, 1995
- ------------------------ and Director
Charles A. Rini, Sr.
/s/ Anthony C. Rego Vice President, September 28, 1995
- ------------------------ Secretary and
Anthony C. Rego Director
/s/ Ronald W. Ocasek Chief Financial September 28, 1995
- ------------------------ Officer and
Ronald W. Ocasek Treasurer (Principal
Accounting Officer)
</TABLE>
26
<PAGE> 28
Report of Independent Public Accountants
To Rini-Rego Supermarkets, Inc.:
We have audited the accompanying consolidated balance sheets of
RINI-REGO SUPERMARKETS, INC. (an Ohio corporation) AND SUBSIDIARIES as of July
1, 1995 and July 2, 1994, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three fiscal years in the
period ended July 1, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these 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 financial statements referred to above present
fairly, in all material respects, the financial position of Rini-Rego
Supermarkets, Inc. and Subsidiaries as of July 1, 1995 and July 2, 1994, and
the results of their operations and their cash flows for each of the three
fiscal years in the period ended July 1, 1995, in conformity with generally
accepted accounting principles.
As explained in Note 4 to the Financial Statements, effective July 4,
1993, the Company changed its method of accounting for income taxes as required
by Statement of Financial Accounting Standards No. 109.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
September 7, 1995.
27
<PAGE> 29
<TABLE>
RINI-REGO SUPERMARKETS, INC.
----------------------------
AND SUBSIDIARIES
----------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(dollars in thousands)
ASSETS
------
<CAPTION>
July 1, July 2,
1995 1994
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,075 $ 4,376
Trade accounts receivable, net 38,272 38,460
Inventories 74,042 74,279
Deferred income taxes 10,022 6,583
Prepaid expenses 4,895 4,838
--------- ---------
Total current assets 131,306 128,536
PROPERTY, EQUIPMENT AND CAPITAL LEASES:
Land 4,230 4,255
Buildings and improvements 39,111 42,658
Equipment 76,700 71,723
Leasehold improvements 65,785 55,205
--------- ---------
185,826 173,841
Less - Allowances for depreciation,
amortization and loss on disposal
of fixed assets 67,729 65,308
--------- ---------
118,097 108,533
OTHER ASSETS:
Notes receivable 10,868 10,851
Deferred income taxes 6,119 7,062
Other 2,071 2,535
--------- ---------
19,058 20,448
--------- ---------
TOTAL ASSETS $268,461 $257,517
========= =========
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these consolidated balance sheets.
</TABLE>
28
<PAGE> 30
<TABLE>
RINI-REGO SUPERMARKETS, INC.
----------------------------
AND SUBSIDIARIES
----------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(dollars in thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<CAPTION>
July 1, July 2,
1995 1994
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 52,209 $ 45,614
Accrued expenses 45,210 29,911
Current portion of-
Debt 4,861 4,891
Capital lease obligations 1,392 1,394
Self insurance reserves 3,750 3,750
--------- ---------
Total current liabilities 107,422 85,560
LONG-TERM PORTION OF:
Debt 55,749 75,460
Capital lease obligations 6,840 8,218
Self insurance reserves 11,845 10,531
--------- ---------
74,434 94,209
OTHER LIABILITIES 12,231 13,067
STOCKHOLDERS' EQUITY:
Series A Preferred Stock - $100 par value;
$8.00 cumulative convertible, nonvoting;
30,000 shares authorized; 18,044
shares outstanding - 1,804
Common Stock - $.01 par value:
Class A - 20,000,000 shares authorized;
7,125,287 shares outstanding 71 71
Class B - 5,000,000 shares authorized;
955,613 shares outstanding 10 10
Paid-in capital 35,546 35,546
Retained earnings 38,747 27,250
--------- ---------
74,374 64,681
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $268,461 $257,517
========= =========
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these consolidated balance sheets.
</TABLE>
29
<PAGE> 31
<TABLE>
RINI-REGO SUPERMARKETS, INC.
----------------------------
AND SUBSIDIARIES
----------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(in thousands, except share and per share data)
<CAPTION>
Fiscal Year Ended
----------------------------------------------------
July 1, July 2, July 3,
1995 1994 1993
(52 Weeks) (52 Weeks) (53 Weeks)
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES $1,184,993 $1,121,604 $1,108,178
COST OF GOODS SOLD 950,433 905,456 891,666
----------- ----------- -----------
Gross profit 234,560 216,148 216,512
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 208,518 194,626 195,079
RESTRUCTURING CHARGE - 12,000 5,000
----------- ----------- -----------
Operating income 26,042 9,522 16,433
OTHER INCOME (EXPENSE):
Interest expense (7,757) (7,802) (6,879)
Interest income 1,208 788 511
----------- ----------- -----------
INCOME BEFORE INCOME TAXES,
EXTRAORDINARY ITEM AND
CHANGE IN ACCOUNTING PRINCIPLE 19,493 2,508 10,065
PROVISION FOR INCOME TAXES:
State and local 1,367 46 520
Federal 6,485 882 3,335
----------- ----------- -----------
7,852 928 3,855
NET INCOME BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE $ 11,641 $ 1,580 $ 6,210
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------------
July 1, July 2, July 3,
1995 1994 1993
(52 Weeks) (52 Weeks) (53 Weeks)
----------- ----------- -----------
<S> <C> <C> <C>
NET INCOME BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 11,641 1,580 6,210
EXTRAORDINARY ITEM:
Utilization of net operating loss
carryforwards - - 253
----------- ----------- -----------
NET INCOME BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE 11,641 1,580 6,463
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE:
Accounting for income taxes - 6,866 -
----------- ----------- -----------
NET INCOME 11,641 8,446 6,463
LESS PREFERRED STOCK DIVIDENDS 144 144 144
----------- ----------- -----------
NET INCOME FOR COMMON STOCKHOLDERS $ 11,497 $ 8,302 $ 6,319
=========== =========== ===========
NET INCOME PER COMMON SHARE:
Net income before extraordinary
item and cumulative effect
of change in accounting
principle $ 1.42 $ .18 $ .75
Extraordinary item:
Utilization of net operating
loss carryforwards - - .03
Cumulative effect of change in
accounting principle:
Accounting for income taxes - .85 -
----------- ----------- -----------
NET INCOME PER COMMON SHARE $ 1.42 $ 1.03 $ .78
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 8,080,900 8,080,901 8,080,901
=========== =========== ===========
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</TABLE>
31
<PAGE> 33
<TABLE>
RINI-REGO SUPERMARKETS, INC.
----------------------------
AND SUBSIDIARIES
----------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
(in thousands)
<CAPTION>
Preferred Class A Class B Paid-In Retained
Stock Common Common Capital Earnings
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT JUNE 27, 1992 $ 1,804 $ 71 $ 10 $ 35,546 $ 12,629
Net income - - - - 6,463
Preferred stock
dividends of
$8 per share - - - - (144)
--------- --------- --------- --------- ---------
BALANCE AT JULY 3, 1993 1,804 71 10 35,546 18,948
Net Income - - - - 8,446
Preferred stock
dividends of
$8 per share - - - - (144)
--------- --------- --------- --------- ---------
BALANCE AT JULY 2, 1994 1,804 71 10 35,546 27,250
Net Income - - - - 11,641
Preferred stock
dividends of
$8 per share - - - - (144)
Redemption of
Preferred Stock (1,804) - - - -
--------- --------- --------- --------- ---------
BALANCE AT JULY 1, 1995 $ - $ 71 $ 10 $ 35,546 $ 38,747
========= ========= ========= ========= =========
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</TABLE>
32
<PAGE> 34
<TABLE>
RINI-REGO SUPERMARKETS, INC.
----------------------------
AND SUBSIDIARIES
----------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(in thousands)
<CAPTION>
Fiscal Year Ended
-----------------------------------------------
July 1, July 2, July 3,
1995 1994 1993
(52 Weeks) (52 Weeks) (53 Weeks)
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,641 $ 8,446 $ 6,463
Adjustments to reconcile net income
to net cash provided by
operating activities:
Cumulative effect of change in
accounting principle - (6,866) -
Depreciation and amortization 17,448 14,804 13,585
Loss on sale of assets 828 639 82
Deferred income taxes (2,496) (3,269) (1,029)
Changes in assets and liabilities:
Decrease (increase) in accounts
and notes receivable 171 (6,743) (10,278)
Decrease (increase) in
inventories 237 (1,797) (5,985)
Increase in prepaid expenses (57) (231) (602)
Increase in other assets (343) (779) (730)
Increase (decrease) in accounts
payable 6,595 (1,574) 6,298
Increase in self insurance reserves 1,314 474 731
Increase in accrued expenses
and other liabilities 11,671 10,395 7,786
Change in other (240) 95 136
---------- ---------- ----------
Net cash provided by
operating activities $ 46,769 $ 13,594 $ 16,457
---------- ---------- ----------
</TABLE>
33
<PAGE> 35
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------
July 1, July 2, July 3,
1995 1994 1993
(52 Weeks) (52 Weeks) (53 Weeks)
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets $ (28,050) $ (27,132) $ (25,807)
Proceeds from sale of fixed assets 2,420 876 1,003
---------- ---------- ----------
Net cash used for investing activities (25,630) (26,256) (24,804)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving lines of credit 651,479 917,069 633,021
Repayments of revolving lines of credit (666,655) (900,290) (630,821)
Borrowings through term loan - - 12,000
Additional borrowings 1,425 6,914 1,008
Debt repayments (6,165) (9,435) (5,034)
Additions to capital lease obligations - - 490
Repayment of capital lease obligations (1,380) (1,470) (1,234)
Preferred stock dividends (144) (144) (144)
---------- ---------- ----------
Net cash (used for) provided by
financing activities (21,440) 12,644 9,286
---------- ---------- ----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (301) (18) 939
CASH AND CASH EQUIVALENTS, AT BEGINNING
OF YEAR 4,376 4,394 3,455
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, AT END
OF YEAR $ 4,075 $ 4,376 $ 4,394
========== ========== ==========
SUPPLEMENTAL DATA:
Interest paid $ 7,769 $ 7,627 $ 7,585
========== ========== ==========
Income taxes paid $ 6,807 $ 6,417 $ 4,334
========== ========== ==========
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</TABLE>
34
<PAGE> 36
RINI-REGO SUPERMARKETS, INC.
----------------------------
AND SUBSIDIARIES
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(1) Summary of Significant Accounting Policies:
-------------------------------------------
PRESENTATION -- Rini-Rego Supermarkets, Inc. (RRS or the Company),
formerly known as Fisher Foods, Inc. (Fisher), is a subsidiary of Riser Foods,
Inc. (Riser). The accompanying financial statements of the Company are
presented on the "push down accounting" basis, for financial reporting purposes
only, with the equity section of the accompanying balance sheet reflecting the
equity of Riser.
The separate financial statements of the Company would reflect the
following shareholder equity amounts (in thousands):
<TABLE>
<CAPTION>
July 1, July 2,
1995 1994
-------- --------
<S> <C> <C>
Preferred stock $ 1,811 $ 1,811
Common Stock 1,403 1,403
Paid-in capital 22,714 22,714
Retained earnings 48,776 37,279
-------- --------
$74,704 $63,207
======== ========
</TABLE>
SEGMENT INFORMATION -- The Company is engaged in one business segment,
the food distribution industry. The Company distributes national brand and
private label products through Company-operated and other
independently-operated retail stores throughout northeast and central Ohio,
southeastern Michigan and western Pennsylvania. The Company operates 38 retail
locations in northeast Ohio. The following is a detail of the number of
Company-operated stores by year:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Beginning of year 42 45 51
Opened - 2 1
Closed (4) (5) (7)
---- ---- ----
End of year 38 42 45
==== ==== ====
</TABLE>
35
<PAGE> 37
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of RRS and its subsidiaries. All material intercompany
accounts and transactions have been eliminated.
FISCAL YEAR -- The Company's fiscal year ends on the Saturday closest
to June 30. Fiscal 1995 and 1994 consist of the 52 weeks ended July 1, 1995
and July 2, 1994, respectively. Fiscal 1993 consists of the 53 weeks ended
July 3, 1993.
CASH EQUIVALENTS -- The Company considers all highly liquid
investments with an initial maturity of three months or less to be cash
equivalents.
INVENTORIES -- Inventories are stated at the lower of cost or market.
Cost is determined through the use of the last-in, first-out (LIFO) method for
a majority of consolidated inventories: 77% at July 1, 1995 and 72% at July 2,
1994. The first-in, first-out (FIFO) method is used to determine cost for the
remaining inventories which consist principally of perishable products and
warehouse health and beauty care and general merchandise products.
If the FIFO method had been used to determine cost for all Company
inventories, total inventories would have been higher than reported by
approximately $6,452,000 at July 1, 1995 and $6,383,000 at July 2, 1994.
PROPERTY, EQUIPMENT AND CAPITAL LEASES -- Property and equipment are
recorded at cost and depreciated using the straight-line method at annual rates
sufficient to amortize the cost of the assets during their estimated useful
lives. Accelerated depreciation methods are used for income tax purposes.
Amortization of property under capital leases is computed using the
straight-line method over the shorter of the estimated life of the asset or the
term of the lease. The following ranges of depreciable lives are used:
<TABLE>
<S> <C>
Buildings and Improvements 19 to 40 years
Leasehold Improvements 5 to 20 years
Equipment 3 to 15 years
</TABLE>
SELF INSURANCE RESERVES -- The Company is primarily self insured for
property loss, general liability costs and workers' compensation. Estimated
costs of these self insurance programs are accrued at current cost based on
projected settlements for claims and include estimates for claims incurred but
not reported. Any adjustments made to previously recorded reserves are
reflected in current operating results. Amounts charged to expense for self
insured liabilities were $4,726,000, $3,940,000, $4,170,000 in 1995, 1994, and
1993, respectively.
36
<PAGE> 38
REVENUE RECOGNITION -- Revenues from product sales are recognized upon
shipment of the product from warehouse distribution to independently-operated
retail stores and at the point of sale for Company-operated retail stores.
STORE PRE-OPENING COSTS -- Store pre-opening costs, primarily employee
training, inventory stocking and advertising, are charged to expense concurrent
with store openings.
RECLASSIFICATIONS -- Certain reclassifications have been made to prior
year financial statements to conform with current year presentation. These
reclassifications did not affect results of operations previously reported.
NET INCOME PER SHARE -- Net income per share is computed by dividing
net income less preferred stock dividends by the weighted average number of
common shares outstanding. Outstanding stock options do not have a significant
dilutive effect on net income per share.
(2) Trade Accounts and Notes Receivable:
------------------------------------
The Company's trade accounts and notes receivable are primarily with
various wholesale customers which are engaged in retail food distribution in
northeast and central Ohio, western Pennsylvania and southeastern Michigan.
The Company's notes receivable principally arise from the financing
of store leaseholds, inventory and fixed assets related to the Company's
independently-operated wholesale customers. Loans to independent retailers, as
well as trade accounts receivable, are primarily collateralized by the
retailers' inventory, equipment and fixtures. The notes range in length from 1
to 7 years and primarily bear interest at prime plus 1.0% or 1.5%. Management
believes the estimated fair market value of the notes approximates net carrying
value at July 1, 1995 and July 2, 1994.
Trade accounts receivable include $5,386,000 and $4,664,000 of the
current portion of notes receivable at July 1, 1995 and July 2, 1994,
respectively. Trade accounts receivable are net of an allowance for doubtful
accounts of $2,953,000 at July 1, 1995 and $3,295,000 at July 2, 1994.
37
<PAGE> 39
(3) Accrued Expenses:
-----------------
Accrued expenses include the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Accrued payroll and related
expenses $ 12,536 $ 8,742
State and local taxes 5,752 5,496
Accrued income taxes 5,643 1,498
Closed facilities reserve,
current portion 3,458 2,125
Redeemed preferred stock 1,895 -
(See Note 9)
Other accrued expenses 15,926 12,050
--------- ---------
$ 45,210 $ 29,911
========= =========
</TABLE>
(4) Income Taxes:
-------------
At the beginning of 1994, the Company adopted the provisions
of SFAS No. 109 "Accounting for Income Taxes". This statement
requires that the liability method of accounting for income taxes be
used rather than the deferred method previously used. The Company
elected not to restate prior years' financial statements and the
cumulative effect of this accounting change was to increase 1994 net
income by $6,866,000 or $.85 per share. The cumulative effect is
principally the result of benefiting the expected utilization of tax
net operating loss carryforwards (NOL) and the adjustment of deferred
tax balances to reflect changes in statutory rates.
The income tax provision in the accompanying consolidated
statements of income differs from the provision at statutory rates as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Income before income taxes,
extraordinary item and
change in accounting principle $ 19,493 $ 2,508 $ 10,065
========= ========= =========
Tax provision at federal
statutory rates $ 6,822 $ 853 $ 3,472
State and local income taxes, net of
federal income tax benefit 889 30 341
Difference in financial reporting and
tax bases of net assets acquired - - 219
Officers' life insurance 100 28 (21)
Stock option exercised - - (165)
Other 41 17 9
--------- --------- ---------
Provision for income taxes $ 7,852 $ 928 $ 3,855
========= ========= =========
</TABLE>
38
<PAGE> 40
The Company's income tax provision consists of the following components
(in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal $ 8,281 $ 3,351 $ 4,364
State and local 2,067 846 520
--------- --------- ---------
10,348 4,197 4,884
Deferred:
Federal (1,796) (2,469) (1,029)
State and local (700) (800) -
--------- --------- ---------
(2,496) (3,269) (1,029)
--------- --------- ---------
Provision for income taxes $ 7,852 $ 928 $ 3,855
========= ========= =========
</TABLE>
Significant components of the Company's net deferred tax asset at July
1, 1995 and July 2, 1994, are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Property, equipment and capital
leases $ (6,342) $ (5,619)
State and local taxes other
than income (601) (459)
--------- ---------
(6,943) (6,078)
DEFERRED TAX ASSETS:
Reserve for uncollectible accounts 1,598 1,280
Closed facilities reserve 5,419 6,123
Self insurance reserves 5,957 4,858
Employees' retirement benefits 1,721 1,058
Accruals not currently deductible 4,597 2,296
Net operating loss carryforwards 7,156 7,782
Other 1,284 974
--------- ---------
27,732 24,371
VALUATION ALLOWANCE (4,648) (4,648)
--------- ---------
NET DEFERRED TAX ASSET $ 16,141 $ 13,645
========= =========
</TABLE>
The Company has gross NOL totaling $21,046,000 which expire as follows
(in thousands):
<TABLE>
<CAPTION>
Year NOL
---- --------
<S> <C>
2001 $15,658
2002 5,388
--------
$21,046
--------
</TABLE>
39
<PAGE> 41
SFAS No. 109 requires that the tax benefit of such NOL be recognized as an
asset to the extent the Company assesses the utilization of such NOL to be
"more likely than not". Based upon the Company's history of prior earnings in
a competitive industry, expectations for future earnings and tax regulations
which limit the annual amount of NOL available for deduction and carryforward
period, the Company does not currently believe it is more likely than not that
the entire amount of NOL will be utilized before they expire. As such, the
valuation allowance of $4,648,000 established upon the adoption of SFAS No. 109
is maintained. To the extent it is determined that such valuation allowance is
no longer appropriate, income tax expense of future periods will be favorably
impacted.
Prior to the Company's adoption of SFAS No. 109, realization of these
NOL was recognized as a reduction of purchase accounting for non-current
assets until such time as the carrying values were written off. The Company
utilized $2,166,000 of these NOL in 1993. On an after tax basis, $253,000 of
the 1993 utilization was recognized as an extraordinary item after $483,000 was
utilized to write-off the remaining balance of non-current purchase price
assets.
(5) Long-Term Debt:
---------------
Long-term debt is comprised of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Borrowings under bank credit facility:
Revolving lines of credit $22,627 $37,802
Term loan 8,571 9,857
Taxable Variable Rate Demand Notes 9,000 11,000
9.75% Subordinated Debentures, less
unamortized issuance discount of
$1,225,000 and $1,362,000 at 1995
and 1994, respectively, $655,000
due annually beginning December 30,
1997, with remainder due in 2001 11,867 11,730
Financing Leases 5,498 4,771
Real estate mortgages at rates
ranging from 7% to 10% 2,534 4,588
Other Notes Payable 513 603
-------- --------
60,610 80,351
Less - Current maturities 4,861 4,891
-------- --------
Long-term Debt $55,749 $75,460
======== ========
</TABLE>
40
<PAGE> 42
The Company's bank credit facilities (Facilities) provide for
revolving lines of credit, letters of credit and a term loan up to an aggregate
of $77.6 million. During the fourth quarter of fiscal 1995, the Facilities
were amended and the due date for borrowings under the revolving lines of
credit was extended to July 6, 1998. The term loan is payable in quarterly
installments of $428,571 over five years with a balloon payment due in April
1998. The amendment also provided the Company with an option to borrow funds
under its revolving lines and term loan at either .25% over the Bank's Prime
Interest Rate or 2.50% over LIBOR. Commitment fees representing .25% per annum
of the unused facilities plus agency fees of $2,500 per month are also paid
monthly. Available unused borrowing capacity under these Facilities at July 1,
1995 was approximately $29.2 million.
The Facilities consist of separate credit agreements for each of the
Company's significant operating entities (collectively the Consolidated Credit
Agreement). Borrowings under each entity's individual facility cannot exceed
85% of the respective entity's qualified receivables, plus from 55% to 65% of
eligible inventory and 100% of eligible cash and cash equivalents, less certain
reserves and obligations, all as defined in the Consolidated Credit Agreement.
The Facilities are secured by substantially all the assets of Riser and each
individual credit facility is cross-guaranteed by all other subsidiaries and
guaranteed by Riser.
Among other covenants, the Consolidated Credit Agreement requires that
the Company maintain, on a consolidated basis, minimum levels of tangible net
worth and cash flows and minimum ratios of liabilities to tangible net worth
and capital expenditures to cash flows, which vary each fiscal year. The
agreement further provides for limitations on dividends and capital
expenditures. The Company is in compliance with all covenants at July 1, 1995.
The Company's Taxable Variable Rate Demand Notes (Notes) bear interest
at a variable rate based on the higher of the average 30-day or 90-day
commercial paper rate, plus a market increment which at July 1, 1995 was .125%,
payable monthly. Principal under the Notes is payable in annual installments
of $2,000,000 through December 1, 1997 and $3,000,000 on December 1, 1998. The
Notes are secured by a bank letter of credit. The bank letter of credit
expires in June 1996, has an annual fee of 1% on the outstanding note balance,
and is secured by the Facilities.
Concurrent with the issuance of the Notes, the Company entered into an
exchange transaction which fixed the higher of the 30-day or 90- day commercial
paper rate at 6.50% through December 1, 1994 at dollar amounts which correspond
to the Notes outstanding. Until the expiration of the exchange contract, the
Company recorded interest expense on the Notes as if the interest rate was
fixed at 6.5%.
The 9.75% Subordinated Debentures are recorded net of an original
issue discount, based on an imputed interest rate of 12%, which is being
amortized over the term of the indebtedness using
41
<PAGE> 43
the effective interest method. These debentures require semiannual
interest payments and may be redeemed at the Company's option at 100% of the
principal amount.
The Company finances certain store fixtures and equipment associated
with programs to remodel and remerchandise its Company-operated retail stores
under financing agreements with seven year terms and bearing interest at rates
ranging from 6.9% to 9.2%.
Certain property with an aggregate net value for financial reporting
purposes of $23,179,000, was pledged to secure real estate first mortgages on
July 1, 1995.
Future maturities of long-term debt as of July 1, 1995, are
summarized as follows (in thousands):
<TABLE>
<S> <C>
1996 $ 4,861
1997 4,911
1998 9,072
1999 26,655
2000 3,135
2001 and thereafter 11,976
--------
$60,610
========
</TABLE>
No quoted market prices are available for any of the Company's long-term
debt as it is not actively traded. Management however, believes the carrying
values of the Company's borrowings under its bank credit facility, the notes
and real estate mortgages approximate their fair values as all bear interest at
current market rates. It is not practical to estimate the fair value of the
Company's 9.75% subordinated debentures because of the inability to estimate
fair value without incurring excessive costs.
(6) Leases:
-------
The Company leases many of its retail store locations, warehouse
facilities and certain operating equipment under capital and operating leases.
Most of the retail store leases contain contingent rent clauses based on sales
levels. In most instances, the Company has the option to extend the term of
the lease. Some of the retail store locations and the warehouse facilities are
leased from parties that are related through common ownership and control.
42
<PAGE> 44
Leased property under capital leases, which is included in property,
equipment and capital leases, consisted of the following amounts (in
thousands):
<TABLE>
<S> <C>
Buildings $11,916
Equipment 1,509
--------
13,425
Less - Allowance for amortization (8,862)
--------
$ 4,563
========
</TABLE>
The following is a schedule of future minimum lease payments under
noncancelable operating and capital leases as of July 1, 1995 (in thousands):
<TABLE>
<CAPTION>
Operating Leases Capital Leases
Related Unrelated Related Unrelated
-------- --------- -------- ---------
<S> <C> <C>
1996 $ 1,743 $ 11,531 $ 166 $ 2,283
1997 1,744 11,275 166 2,014
1998 1,770 10,067 180 1,465
1999 1,793 9,305 193 1,154
2000 1,770 8,246 193 1,112
Thereafter 5,840 54,528 1,454 3,314
-------- --------- -------- ---------
$14,660 $104,952 2,352 11,342
======== =========
Less -
Amounts representing
executory costs - 507
Imputed interest 1,517 3,438
-------- ---------
Present value of net minimum
lease payments 835 7,397
Less - Current portion - 1,392
-------- ---------
$ 835 $ 6,005
======== =========
</TABLE>
The Company also subleases certain of its leased retail store
locations and a portion of its warehouses. Future minimum rental
income under subleases of operating and capital leases at July 1, 1995
amounted to $15,892,000.
43
<PAGE> 45
<TABLE>
Total rental expense for unrelated operating leases was as follows (in
thousands):
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C>
Minimum rental $ 10,223 $ 8,656 $ 8,184
Contingent rental 336 141 322
Sublease rental income (1,655) (1,976) (1,538)
--------- --------- ---------
$ 8,904 $ 6,821 $ 6,968
========= ========= =========
Total rental expense for related operating leases was as follows (in
thousands):
1995 1994 1993
--------- --------- ---------
Minimum rental $ 2,101 $ 2,211 $ 2,557
Contingent rental 35 35 72
Sublease rental income (730) (591) (464)
--------- --------- ---------
$ 1,406 $ 1,655 $ 2,165
========= ========= =========
</TABLE>
(7) Disposition of Facilities:
--------------------------
The Company provides for the estimated costs of closing facilities
concurrent with making the decision to close. The types of costs provided
primarily include future lease payments net of estimated sublease income and
expected losses on disposal of assets.
An analysis of the activity in the closed facilities reserve is as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Beginning balance $ 14,887 $ 5,923 $ 3,566
Restructuring charges - 12,000 5,000
Payments and other
deductions (1,223) (3,036) (2,643)
--------- --------- ---------
Ending balance $ 13,664 $ 14,887 $ 5,923
========= ========= =========
</TABLE>
The 1994 restructuring charge represented estimated costs
associated with the Company's retail store consolidation plan to close
smaller, outdated Company-operated retail stores representing approximately
456,000 square feet. Certain of these stores will be replaced by newer,
larger stores representing approximately 431,000 square feet. Some of these
newer stores will be operated by
44
<PAGE> 46
wholesale customers and the remaining stores will be new or expanded Company-
operated retail stores. At July 1, 1995, the Company has closed nine stores
included in the 1994 restructuring charge with an additional four stores to be
closed over the next three to four years.
The 1993 restructuring charge represented the estimated costs
associated with the closing of seven retail stores including six Carl's or
former Carl's stores. These closings were the result of the Company's
decision to focus efforts on its core store format, Rini- Rego Stop-N-Shop.
At July 1, 1995 the net book value of fixed assets and property
pertaining to closed facilities was $4,722,000. An allowance to reduce
these assets to their estimated net realizable value is included in the
allowance for depreciation, amortization and loss on disposal, while the
long-term portion of the reserve for closing facilities is classified in
other liabilities on the accompanying balance sheets.
(8) Employee Benefit Plans:
-----------------------
The Company sponsors an employee savings plan (401(k)) for all
non-union employees. Contributions to the plan are in the form of employee
salary deferrals and Company matching funds. Amounts contributed and
expensed for Company matching funds were $342,000 in 1995, $227,000 in 1994
and $65,000 in 1993.
The Company also participates in various multi-employer pension
plans. The plans provide for defined benefits to substantially all of the
Company's union employees. Amounts charged to pension cost and contributed
to the plans were approximately $5,012,000, $4,789,000 and $4,860,000, for
1995, 1994 and 1993, respectively. At the dates of the latest actuarial
valuations, the aggregate withdrawal liability for the multi-employer
pension plans totaled approximately $1,680,000.
The Company maintains retirement benefit arrangements for certain
former key executives of the Company. The plans primarily provide for
payments to these executives for life with a three-year extension for
surviving spouses. The Company recorded expense of $300,000 in 1995, no
expense in 1994 and $472,000 in 1993. The amount accrued for these plans
was $2,923,000 at July 1, 1995 and $2,711,000 at July 2, 1994.
During fiscal 1995, the Company established a Supplemental
Executive Retirement Plan (SERP) which will provide retirement benefits to
participating executives supplementing amounts currently limited under the
Company's 401(k) Plan by Internal Revenue Service regulations. These
benefits will be made upon the retirement, death or disability of the
executive. Payments are made for the life of the executive with a minimum
of 15 years benefit to either the executive or their beneficiary. The SERP
also provides for reduced benefits in the event of early retirement, death
or disability. The Company discounts the net present value of benefits
under the SERP utilizing a 7.50% discount
45
<PAGE> 47
factor. Vested benefits are not required to be funded however, the Company
has elected to insure the lives of these executives to assist in the funding
of the SERP liability. The Company recorded $1,284,000 of expense related
to the SERP in fiscal 1995, of which $943,000 represented the vesting of
prior service costs.
(9) Capital Stock:
--------------
Each share of Series A Preferred stock is convertible, at the option
of the holder, into 9.79 shares of Class A Common Stock and is redeemable,
at the option of Riser, at $105 per share.
Riser's Board of Directors unanimously approved the redemption of the
Series A Preferred Stock on June 9, 1995 at $105 per share and accordingly, the
Series A Preferred Stock's redemption price has been classified in accrued
expenses at July 1, 1995.
The holders of Class A Common Stock are entitled to one vote per
share and holders of Class B Common Stock are entitled to 10 votes per
share, except with respect to the election of directors, at which time
holders of Class A Common Stock will vote as a separate class and be
entitled to elect 25% of the total number of directors and the Class B
Common Stockholders will elect the remaining directors. Amounts shown on
the balance sheets are net of 1,553,630 shares of Class A Common stock
outstanding that are held by a Riser subsidiary.
Riser has a Stock Incentive Plan which provides for both qualified and
non-qualified stock options, as well as stock appreciation rights and
restricted stock grants for employees, officers and directors of Riser. Under
the terms of the plan, up to 500,000 Class A Common Shares may be the subject
of options, stock appreciation rights or restricted stock grants. Stock
options must be issued at not less than fair value of the Class A Common Stock
at the date of grant and are exercisable for up to ten years from the date of
grant. Options outstanding under this plan are as follows:
46
<PAGE> 48
<TABLE>
<CAPTION>
Class A
Common Option Price
Stock Per Share
-------- ------------
<S> <C> <C>
Balance - June 27, 1992 79,900 $10.31
Granted 184,700 $ 7.31
Forfeited (8,800) $7.31-$10.31
Exercised - -
--------
Balance - July 3, 1993 255,800 $7.31-$10.31
Granted - -
Forfeited (20,400) $7.31-$10.31
Exercised - -
--------
Balance - July 2, 1994 235,400 $7.31-$10.31
Granted 226,500 $ 7.25
Forfeited (13,000) $7.31-$10.31
Exercised -
--------
Balance - July 1, 1995 448,900 $7.31-$10.31
========
Available for future grants 51,100
========
</TABLE>
The options granted in 1995 and 1993 are non-qualified options for
federal income tax purposes and are not exercisable until two years after
grant.
At the date of Riser's business combination, options to purchase shares
of the Company's common stock, issued pursuant to the Company's Stock Option
Plan, were converted into options to acquire Class A Common Stock. These
outstanding options, totaling 7,000 at July 1, 1995, are at option prices
ranging from $9.25 to $15.13.
(10) Investment in Stop-N-Shop Supermarkets:
---------------------------------------
The Company has a 69% ownership and 38% voting interest in the
Association of Stop-N-Shop Supermarkets (Association), an association of
Cleveland grocery retailers that provides combined advertising and other
services to members. The Company accounts for this investment using the equity
method of accounting.
Amounts paid to the Association for services provided to the Company
totaled approximately $7,519,000, $7,265,000 and $6,604,000 for 1995, 1994 and
1993, respectively. The trade accounts payable balance in the accompanying
balance sheets include amounts due the Association of approximately $1,229,000
at July 1, 1995 and $895,000 at July 2, 1994. The trade accounts receivable
balance in the accompanying balance sheets include amounts due from the
Association of approximately $774,000 at July 1, 1995 and $744,000 at July 2,
1994.
47
<PAGE> 49
(11) Contingent Liabilities:
-----------------------
The Company is the guarantor of certain lease obligations and
mortgages of Dominick's Finer Foods, Inc., a former subsidiary. The lease
obligations covered total approximately $12,686,000 over the noncancelable term
of the obligations, some of which extend to the year 2006. The Company has no
collateral or security interests in the lease obligations or mortgages.
Management believes that the contingent liability, if any, resulting from the
guarantee of the obligations will not have a material adverse effect on the
Company's consolidated financial position or results of its operations.
Effective September 1988, the Company entered into an agreement with
Electronic Data Systems Corporation (EDS) for the management and operation of
the Company's data center. This agreement provides for minimum payments
summarized as follows (in thousands):
<TABLE>
<S> <C>
1996 $3,423
1997 3,584
1998 3,750
1999 1,948
--------
$12,705
========
</TABLE>
The agreement expires in December, 1998 and may be terminated by
either party upon six months notice and upon the payment of certain fees for
termination.
The Company is also involved in a number of other legal proceedings
incidental to its business. Management believes that the liability, if any,
resulting from all pending legal proceedings will not have a material adverse
effect on the Company's consolidated financial position or the results of its
operations.
(12) Quarterly Financial Data (unaudited):
-------------------------------------
(in thousands, except per share data)
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------
October January April 8, July 1,
22, 1994 14, 1995 1995 1995
(16 Weeks) (12 Weeks) (12 Weeks) (12 Weeks)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 346,701 $ 282,118 $ 275,405 $ 280,769
Gross profit 67,340 55,970 54,841 56,409
Income before
income taxes 3,620 4,591 4,823 6,459
Net income 2,190 2,781 2,903 3,767
Net income per common
share .27 .34 .35 .46
========= ========= ========= =========
</TABLE>
48
<PAGE> 50
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------
October January April 9, July 2,
23, 1993 15, 1994 1994 1994
(16 Weeks) (12 Weeks) (12 Weeks) (12 Weeks)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 327,973 $ 270,765 $ 259,490 $ 263,376
Gross profit 63,061 51,330 49,214 52,543
Income (loss) before
taxes & accounting change 3,436 3,944 (9,564) 4,692
Net income (loss)
before accounting change 2,086 2,394 (5,874) 2,974
Accounting change 6,866 - - -
Net income (loss) 8,952 2,394 (5,874) 2,974
Net income (loss) per
common share:
Before accounting change .25 .29 (.73) .37
Accounting change .85 - - -
----------- ------------ ---------- -----------
Net income (loss) per
common share $ 1.10 $ .29 $ (.73) $ .37
=========== =========== ========== ===========
</TABLE>
49
<PAGE> 51
Exhibit Index
-------------
Exhibit No.
21 Subsidiaries of the Registrant
27 Financial Data Schedule
<PAGE> 1
Exhibit 21
----------
SUBSIDIARIES OF RINI-REGO SUPERMARKETS, INC.
--------------------------------------------
American Seaway Foods, Inc. (fka Heritage Wholesalers, Inc.), an Ohio
corporation; names under which business conducted: Seaway, Seaway Foods,
Seaway Cash-n-Carry.
Seaway Food Service, Inc. (fka American Seaway Foods, Inc.), an Ohio
corporation; names under which business conducted: Seaway, Seaway Foods,
Seaway Cash-n-Carry.
Fisher Properties, Inc. (fka Fisher Auto Leasing, Inc.), an Ohio corporation.
5300 Richmond Road Corp., a Delaware corporation.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Rini-Rego Supermarkets, Inc., Consolidated Balance Sheet, Consolidated Statement
of Income, and Notes to the Consolidated Financial Statements for the fiscal
year ended July 1, 1995 and is qualified in its entirety by fiscal year ended
July 1, 1995.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-01-1995
<PERIOD-END> JUL-01-1995
<CASH> 4,075
<SECURITIES> 0
<RECEIVABLES> 43,658
<ALLOWANCES> 5,386
<INVENTORY> 74,042
<CURRENT-ASSETS> 131,306
<PP&E> 185,826
<DEPRECIATION> 67,729
<TOTAL-ASSETS> 268,791
<CURRENT-LIABILITIES> 107,422
<BONDS> 0
<COMMON> 1,403
0
1,811
<OTHER-SE> 71,490
<TOTAL-LIABILITY-AND-EQUITY> 268,791
<SALES> 1,184,993
<TOTAL-REVENUES> 1,184,993
<CGS> 950,433
<TOTAL-COSTS> 950,433
<OTHER-EXPENSES> 208,518
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,757
<INCOME-PRETAX> 19,493
<INCOME-TAX> 7,852
<INCOME-CONTINUING> 11,641
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,641
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.42
</TABLE>
