SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For Fiscal Quarter Ended June 15, 1996 Commission File Numbers 33-50458 and 33-75398
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FARM FRESH, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 54-0973309
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7530 TIDEWATER DRIVE, P. O. BOX 1289, NORFOLK, VIRGINIA 23501
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (804)480-6700
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 No X
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
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Class Outstanding shares at July 30, 1996
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Common Stock, par value $.01 per share 10
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FARM FRESH, INC. AND SUBSIDIARIES
Index to Condensed Consolidated Unaudited Financial Statements
Page
Part I. Financial Information:
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets -
December 30, 1995 and June 15, 1996 1
Condensed Consolidated Statements of Loss -
12 weeks ended June 17, 1995 and June 15, 1996
24 weeks ended June 17, 1995 and June 15, 1996 3
Condensed Consolidated Statement of Stockholder's Deficit -
24 weeks ended June 15, 1996 4
Condensed Consolidated Statements of Cash Flows -
24 weeks ended June 17, 1995 and June 15, 1996 5
Note to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information - none
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FARM FRESH, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
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December 30, June 15,
Assets 1995 1996
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Current assets:
Cash $ 2,316,425 $ 1,940,490
Accounts receivable, net of
allowance for doubtful accounts
of $491,330 at December 30, 1995 and
$556,372 at June 15, 1996 16,789,683 16,079,695
Merchandise inventories:
Assuming the first-in, first-out method 56,700,404 54,693,046
Less adjustment to the last-in, first-out method 3,036,896 3,221,096
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53,663,508 51,471,950
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Prepaid expenses and other current assets 2,083,743 3,488,775
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Total current assets 74,853,359 72,980,910
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Assets held for sale 6,220,362 6,226,004
Property and equipment:
Land 10,627,356 10,627,356
Buildings 64,835,421 65,353,262
Leasehold improvements 32,016,115 33,612,546
Fixtures and equipment 82,743,500 86,598,197
Transportation equipment 628,072 587,492
Construction in progress 348,932 1,474,915
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191,199,396 198,253,768
Less accumulated depreciation and amortization 85,264,691 89,830,641
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Net property and equipment 105,934,705 108,423,127
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Favorable lease rights, net of accumulated
amortization of $6,398,657 at December 30, 1995
and $6,805,652 at June 15, 1996 4,519,402 4,112,404
Goodwill, net of accumulated amortization of
$994,136 at December 30, 1995 and $1,619,431 at
June 15, 1996 8,567,662 7,957,103
Deferred financing costs, net of accumulated
amortization of $4,390,824 at December 30, 1995
and $5,271,096 at June 15, 1996 6,663,734 6,448,313
Other, net 1,144,005 668,984
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$207,903,229 $206,816,845
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(continued)
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FARM FRESH, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (continued)
(Unaudited)
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Liabilities and Stockholder's Deficit December 30, June 15,
1995 1996
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Current liabilities:
Current installments of notes payable $ 1,183,073 $ 1,156,657
Current installments of obligations
under capital leases 1,858,914 1,975,761
Trade accounts payable 32,900,110 36,754,702
Accrued expenses:
Licenses and other taxes 6,110,228 3,530,808
Interest 6,986,589 6,159,724
Insurance claims 3,669,027 3,978,408
Other 7,674,987 7,548,254
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Total accrued expenses 24,440,831 21,217,194
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Accrued costs relating to closed stores,
current portion 1,965,073 1,824,421
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Total current liabilities 62,348,001 62,928,735
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Long-term debt, excluding current installments:
Revolving credit facility 12,169,258 19,007,431
Notes payable 1,751,721 1,192,738
Obligations under capital leases 31,617,554 30,635,804
12.25% senior notes 165,000,000 165,000,000
12.25% senior notes, series A 37,337,873 37,219,901
Convertible subordinated debentures 9,322,398 8,569,513
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Total long-term debt 257,198,804 261,625,387
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Accrued costs relating to closed stores,
excluding current portion 7,969,459 7,348,747
Deferred credits and other liabilities 4,356,659 3,950,839
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Total liabilities 331,872,923 335,853,708
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Stockholder's deficit:
Common stock of $.01 par value;
authorized 200 shares; issued 10 shares - -
Additional paid-in capital 29,457,988 29,436,964
Accumulated deficit (152,113,645) (157,159,790)
FF Holdings stockholder loans (1,314,037) (1,314,037)
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Total stockholder's deficit (123,969,694) (129,036,863)
Commitments and contingencies
$207,903,229 $206,816,845
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See accompanying note to condensed consolidated financial statements.
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FARM FRESH, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Loss
12 Weeks Ended June 17, 1995 and June 15, 1996 and
24 Weeks Ended June 17, 1995 and June 15, 1996
(Unaudited)
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12 weeks ended 24 weeks ended
June 17, June 15, June 17, June 15,
1995 1996 1995 1996
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Sales $ 214,680,432 $ 180,032,213 $422,915,101 $358,986,649
Cost of sales 163,524,685 137,675,308 322,489,010 274,965,335
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Gross profit 51,155,747 42,356,905 100,426,091 84,021,314
Selling, general and
administrative expenses (44,494,235) (36,254,757) (89,191,186) (73,366,710)
Interest expense (7,976,701) (8,028,687) (16,263,955) (15,663,863)
Gain (loss) on disposition of
property and equipment - 116,129 - (97,329)
Other, net 1,754 11,551 3,307 60,443
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Net loss $ (1,313,435) $ (1,798,859) $ (5,025,743) $ (5,046,145)
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See accompanying note to condensed consolidated financial statements.
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FARM FRESH INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholder's Deficit
24 Weeks Ended June 15, 1996
(Unaudited)
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Additional FF Holdings Total
Common Stock paid-in Accumulated stockholder stockholder's
Shares Amount capital deficit loans deficit
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Balance at
December 30, 1995 10 $ - $29,457,988 $(152,113,645) $(1,314,037) $(123,969,694)
Dividend to FF Holdings - - (21,024) - - (21,024)
Net loss - - - (5,046,145) - (5,046,145)
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Balance at
June 15, 1996 10 $ - $29,436,964 $(157,159,790) $(1,314,037) $(129,036,863)
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See accompanying note to condensed consolidated financial statements.
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FARM FRESH, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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24 weeks ended
June 17, June 15,
1995 1996
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Cash flows from operating activities:
Net loss $ (5,025,743) $ (5,046,145)
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Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 10,464,864 8,918,666
Loss on sale of property and equipment - 97,329
Gain on conversion of convertible subordinated debentures - (58,354)
Amortization of premium on 12.25% senior notes, series A (105,585) (117,972)
LIFO charge to earnings 360,000 184,200
Noncash recognition of deferred revenue (257,618) (228,389)
Changes in assets and liabilities that increase (decrease) cash:
Accounts receivable, net 2,982,471 709,988
Merchandise inventories 3,451,511 1,100,724
Prepaid expenses and other current assets (1,556,890) (1,405,032)
Trade accounts payable (755,564) 3,854,592
Accrued expenses (962,375) (3,223,637)
Accrued costs relating to closed stores (448,979) (761,364)
Other deferred credits 1,174,796 (177,431)
Other, net (63,994) 292,647
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Total adjustments 14,282,637 9,185,967
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Net cash provided by operating activities 9,256,894 4,139,822
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Cash flows from investing activities:
Acquisitions of property and equipment (3,253,694) (11,783,214)
Proceeds from sale of property and equipment - 3,199,604
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Net cash used in investing activities (3,253,694) (8,583,610)
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Cash flows from financing activities:
Borrowings under revolving credit facility 64,106,725 61,365,530
Repayments under revolving credit facility (73,482,290) (54,527,357)
Repayments of long-term debt (1,099,359) (520,723)
Principal repayments of obligations under capital leases (937,468) (851,809)
Payment upon conversion of convertible subordinated debentures - (759,207)
Dividend to FF Holdings (43,675) (21,024)
Payment of refinancing costs - (617,557)
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Net cash provided by (used in) financing activities (11,456,067) 4,067,853
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Net decrease in cash (5,452,867) (375,935)
Cash at beginning of period 6,793,520 2,316,425
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Cash at end of period $ 1,340,653 $ 1,940,490
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(continued)
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FARM FRESH, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Supplemental disclosures of cash flow information:
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24 weeks ended
June 17, June 15,
1995 1996
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Cash paid during the period for:
Interest $ 17,467,508 $ 16,490,728
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Income taxes $ - $ -
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See accompanying note to condensed consolidated financial statements.
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FARM FRESH, INC. AND SUBSIDIARIES
Note to Condensed Consolidated Financial Statements
June 15, 1996
(Unaudited)
(1) Opinion of Management
The unaudited statements furnished in this report reflect all adjustments
which are, in the opinion of management, necessary to a fair statement of
the results for the interim periods presented. All such adjustments are of
a normal recurring nature. Results of interim periods are not necessarily
indicative of those which would be achieved in a full fiscal year.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Form 10-Q contains forward looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward looking statements as a result of certain factors.
The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements and related note thereto.
Comparison of 12 Weeks and 24 Weeks ended June 15, 1996 with 12 Weeks and 24
Weeks ended June 17, 1995.
Sales. Sales for the 12 week period ended June 15, 1996 decreased 16.2% to
$180.0 million from $214.7 million for the comparable period in 1995. For the 24
week period ended June 15, 1996, sales were $359.0 million as compared to $422.9
million for the corresponding period in 1995, a decrease of 15.1%. Same store
sales for the second quarter 1996 decreased 0.2% and year to date 1996 increased
by 1.6%. This increase in the same store sales was fully offset by the closure
of six combination stores primarily in fourth quarter of 1995 and sale of 10
combination stores to Hannaford Bros. in September 1995. The Company also sold
two combination stores in second quarter of 1996.
Cost of Sales. Cost of sales for the 12 week period ended June 15, 1996 totalled
$137.7 million, a decrease of $25.8 million or 15.8% from the comparable period
in 1995. For the 24 week period ended June 15, 1996, cost of sales totalled
$275.0 million, a decrease of $47.5 million or 14.7% from the comparable period
in 1995. Cost of sales was 76.5% and 76.6% of sales in the 12 and 24 week
periods in 1996, respectively, as compared to 76.2% and 76.3%, respectively, in
the corresponding periods in 1995. This increase as a percentage of sales is due
to increased volume in the Company's super warehouse stores, which operate at
lower margins compared to the Company's combination stores. Super warehouse
stores contributed 28.7% and 28.5% of total sales in the second quarter and year
to date 1996, respectively, as compared to 20.5% and 18.9% respectively, in
1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the second quarter of 1996 and 1995 were $36.3
million and $44.5 million, respectively. These expenses decreased as a
percentage of sales to 20.1% in 1996 from 20.7% in 1995. Selling, general and
administrative expenses for the 24 week period ended June 15, 1996 were $73.4
million, a decrease of $15.8 million from the comparable period in 1995. These
expenses decreased as a percentage of sales to 20.4% in 1996 from 21.1% in 1995.
The decrease in selling, general and administrative expenses as a percent of
sales is primarily attributable to a reduction in advertising expense (0.1%) due
to reduced advertising in the Richmond market, a decrease in occupancy costs
(0.3%) and utilities (0.1%) due to the closure of six stores in the fourth
quarter of 1995 and a decrease in salaries (0.1%) and supplies (0.1%) due to a
change in store mix from combination to super warehouse format. Super warehouse
stores are less labor and supplies intensive than the service oriented
combination store format.
Interest Expense. Interest expense totalled $8.0 million for the 12 week periods
ended June 15, 1996 and June 17, 1995. In the 24 weeks ended June 15, 1996,
interest expense totalled $15.7 million, a decrease of $0.6 million over the
same period in 1995. The decrease is attributable to a lower average outstanding
balance on the Company's revolving credit facility and the conversion of $11.9
million face value of convertible subordinated debentures into $6.4 million in
cash during the fourth quarter of 1995 and the first and second quarter of 1996.
Net Loss. The Company's net loss increased to $1.8 million for the 12 weeks
ended June 15, 1996 as compared to $1.3 million for the 12 weeks ended June 17,
1995 primarily due to the changes described above. The Company's net loss was
$5.0 million for the 24 weeks ended June 17, 1995 and June 15, 1996.
Liquidity and Capital Resources
Cash flow from the operations as well as amounts available under its revolver
represent the Company's primary sources of short-term liquidity. At June 15,
1996, the Company had approximately $21.0 million available under
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the revolving credit facility subject to certain borrowing base limitations,
less $7.9 million reserved for the redemption of the convertible subordinated
debentures and $1.0 million related to outstanding letters of credit. The
Company believes that the revolver, together with cash flow from operations,
will provide sufficient financial resources to fund the Company's operations.
Cash flows from the Company's operating, investing and financing activities for
the 24 weeks periods ended June 15, 1996 and June 17, 1995 are disclosed in the
accompanying condensed consolidated statements of cash flows. In the 24 weeks
ended June 15, 1996, the Company's operating activities generated $4.1 million
in cash as compared to the $9.3 million in the corresponding period in 1995.
This decrease is primarily attributable to an increase in the Company's noncash
working capital in 1996 as compared to 1995 and decreased depreciation and
amortization due to the decreased number of stores. In addition, the Company
received $1.3 million in the first quarter 1995 related to a vendor supply
contract.
The Company used $8.6 million in cash in its investing activities year to date
of 1996 as compared to the $3.3 million in cash the Company used in the
corresponding periods in 1995. This increase is attributable to four major store
remodeling projects undertaken during the first two quarters of 1996. This
increase was partially offset by sale of property and equipment of two stores.
In the 24 weeks ended June 15, 1996, the Company's financing activities provided
$4.1 million in cash as compared to $11.5 million used in the corresponding
period in 1995. This fluctuation is due to the additional borrowings made under
the Company's revolver in 1996 as compared to net repayments made in 1995,
offset by a payment of $0.6 million for financing costs associated with the
renewal of the Company's revolver.
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SIGNATURE
Pursuant to the requirements of the Security Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Farm Fresh, Inc.
Date /s/ ORVILLE R. CROOK
Orville R. Crook
Vice President Finance
(Principal Accounting Officer)
