SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: May 3, 1997.
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period __________ to __________.
Commission file number 0-16900
RICHFOOD HOLDINGS, INC.
Incorporated under the laws I.R.S.Employer Identification
of Virginia No. 54-1438602
P.O. Box 26967
Richmond, Virginia 23261
Telephone Number (804) 746-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on Which Registered
------------------- ------------------------------------
Common Stock, without par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
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 the 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. _____
At June 27, 1997, the aggregate market value of all shares of voting stock held
by non-affiliates was $1.13 billion (based upon the last reported sale price of
the Common Stock on that date on the New York Stock Exchange composite tape). In
determining this figure, the Registrant has assumed that all directors and
executive officers are affiliates. Such assumption shall not be deemed
conclusive for any other purpose. The number of shares outstanding of each class
of the Registrant's common stock, as of June 27, 1997, was as follows: Common
Stock, without par value: 47,470,292 shares.
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended May 3, 1997, are incorporated by reference into Parts I, II and IV of this
Form 10-K. Portions of the Registrant's Proxy Statement prepared for use in
connection with the 1997 annual meeting of shareholders are incorporated by
reference into Part III of this Form 10-K.
<PAGE>
PART I
ITEM 1. BUSINESS
General
Richfood Holdings, Inc. ("Richfood" or the "Company"), a Virginia corporation
formed in July 1987, is headquartered at 8258 Richfood Road, Mechanicsville,
Virginia 23116.
The Company is the leading wholesale food distributor in its Mid-Atlantic
operating region and the fourth largest wholesale food distributor in the United
States. Richfood supplies a comprehensive selection of national brand and
private label grocery products, dairy products, frozen foods, fresh produce
items, meats, delicatessen and bakery products and non-food items from its three
modern, highly efficient principal distribution centers. The Company's
distribution centers are strategically located within its operating region and
have capacity to accommodate additional growth. The Company services more than
1,400 retail grocery stores, including leading regional chains and smaller
independent retailers throughout the Mid-Atlantic region, offering its customers
a dependable supply and prompt delivery of over 37,000 grocery and non-grocery
items at competitive prices.
The Company has four principal operating divisions:
o Richfood/Virginia, based in Richmond, Virginia, which operates a
1.3 million square foot distribution center that is one of the
largest and most efficient in the industry;
o Richfood/Pennsylvania, which operates: two distribution facilities
totaling approximately 1.0 million square feet in Harrisburg,
Pennsylvania, including a 635,000 square foot highly efficient,
automated distribution center; a 6.3 million cubic foot automated
frozen food distribution center based in West Point, Pennsylvania;
and a 150,000 square foot produce distribution center in
Norristown, Pennsylvania;
o the METRO/BASICS Retail Division, headquartered in the
metropolitan Baltimore, Maryland area, which operates thirteen
45,000 to 60,000 square foot "superstores" under the METRO
tradename, and three smaller traditional supermarkets under the
BASICS tradename; and
o the Richfood Dairy, located in Richmond, which is the largest
fluid dairy in Virginia and consists of a 65,000 square foot
facility capable of processing and packaging over 550,000 gallons
per week of milk and other dairy products, fruit juices, bottled
water and related items.
Management has implemented the regional division structure to serve properly the
unique needs of Richfood's customers in each of its geographic markets. Each
division is headed by a division president, together with a procurement officer
and a distribution and logistics officer, to oversee regional sales, marketing,
procurement, advertising, and distribution and logistics initiatives. Through
its corporate headquarters, the Company provides technology and support to the
divisions on an efficient, centralized basis, to avoid duplication of functions.
Centralized functions include corporate finance, legal, risk management, certain
distribution and logistics initiatives, management information systems, human
resources planning, development of safety and sanitation programs and support of
the Company's retail customers through store planning and development.
Richfood/Virginia includes the operations of Richfood, Inc., which was formed in
1935 and historically was the Company's principal operating subsidiary.
Richfood/Pennsylvania encompasses the operations of three of the Company's
recently acquired subsidiaries: Rotelle, Inc. ("Rotelle"), a wholesale frozen
food distribution company acquired by Richfood in August 1994; Super Rite
Corporation ("Super Rite"), a full service wholesale food distribution company
acquired by Richfood in a stock-for-stock merger effective October 15, 1995 (the
"Super Rite Acquisition"); and Penn Perishables, Inc. ("Norristown"), which
acquired substantially all of the assets of Norristown Wholesale, Inc. in
September 1996, and which supplies a full line of fresh produce and other
perishable food items. See "Business Strategy -- Pursuing Strategic
Acquisitions." The Company believes
-1-
<PAGE>
that combining the administrative functions of Super Rite, Rotelle and
Norristown affords opportunities for substantial cost savings through
centralizing and eliminating certain duplicative corporate and administrative
functions and by enhancing opportunities to sell products of each business to
customers of the other.
Business Strategy
Since 1990, Richfood's management team has implemented a business strategy
focused on reducing and controlling costs, increasing efficiency and pursuing
profitable growth. The success of this strategy has been reflected in the growth
of the Company's sales from $2.36 billion for the fiscal year ended May 1, 1993
("fiscal 1993") to $3.41 billion for the fiscal year ended May 3, 1997 ("fiscal
1997"), and in the Company's operating profit, which has grown from $45.9
million to $105.4 million over the same period. The key elements of the
Company's strategy include:
Reducing and Controlling Costs; Increasing Efficiency in Logistics
and Distribution
Management believes that, as a result of its strategic focus on cost control,
logistics and distribution, the Company is now one of the most efficient
wholesale food distributors in the United States. Over the past five fiscal
years, the Company has reduced and controlled costs by (i) capitalizing on its
size to improve its purchasing power, (ii) rationalizing product purchasing and
pricing systems, (iii) implementing a pricing system that encourages efficient
use of the Company's services and (iv) instituting productivity-based incentives
for distribution center associates. Over the same period, the Company has
significantly improved the efficiency of its logistics and distribution
functions by, among other things, implementing state-of-the-art computer systems
related to purchasing, inventory management and fleet loading and routing. These
improvements have permitted the Company to drive substantially increased volume
through its distribution system and to increase capacity utilization
significantly, thereby benefitting from its operating leverage. As a result of
the cost savings and efficiencies realized by the Company under its current
leadership, from fiscal 1993 to fiscal 1997 the Company's operating profit as a
percent of sales has increased from 1.9% to 3.1%, annual inventory turnover has
improved from 15.4x to 18.7x and working capital funding requirements have been
reduced substantially.
Increasing Sales
The Company's purchasing power, low cost structure and efficient service levels
permit Richfood to offer lower prices and better service to support the
competitive position of its retail customers, while increasing customer
penetration, attracting new customers within its operating region and supporting
customers in their efforts to open new retail sites served by Richfood. The
Company believes that since 1990, customer penetration, the percentage of
customers' sales supplied by Richfood, has increased from approximately 50% to
over 60% for customers supplied by Richfood/Virginia's Mechanicsville, Virginia
distribution center. Although there can be no assurance as to future results,
management believes that opportunities exist to increase significantly
Richfood/Pennsylvania's customer penetration rate, which management believes is
now approximately 50%, as Super Rite previously offered its customers a limited
selection of private label goods and of certain higher- margin perishable
products. See " -- Pursuing Strategic Acquisitions." The Company has also
successfully attracted new customers and has benefitted from growth by the
leading regional chains and smaller independent retail grocers that it serves.
The Company believes that its success depends upon the success of its retail
customers. Accordingly, Richfood supports its existing customers, and pursues
its goal of increasing customer penetration and attracting new customers, by (i)
using the Company's purchasing power, low cost structure and efficient
distribution system to provide products to its customers at the lowest available
prices, (ii) assisting its retail customers in adapting to changes in consumer
preferences and to competition in the marketplace and (iii) offering its retail
customers a wide variety of retail support services typical of those offered by
large retail chains to their individual stores. As a result of these
initiatives, Richfood is able to provide its retail customers with the
competitive advantages associated with large purchasing power and extensive
retail services similar to those of large supermarket chains, while each
customer retains its regional focus and flexibility to respond to local
demographics and market conditions.
-2-
<PAGE>
Pursuing Strategic Acquisitions
Consolidation trends in the food distribution industry present opportunities for
strategic acquisitions by the Company. The Company pursues strategic targets
that are well run, established wholesale operations, with modern facilities and
capacity to accommodate anticipated growth, and that complement the Company's
existing operations and geographic service area. Since 1990, the Company has
completed six acquisitions, which have more than doubled its sales, added large,
modern distribution centers in Harrisburg and West Point, Pennsylvania, and
enhanced its presence in various regional markets.
The Company began a series of strategic acquisitions in fiscal 1991 with the
purchase of the Waynesboro, Virginia division of Fleming Foods of Virginia,
Inc., which increased the Company's presence in the western portion of its
operating region. On January 22, 1993, the Company acquired certain assets and
assumed certain contracts of the Civilian Division of B. Green & Company, Inc.,
a wholesale and retail grocery distributor headquartered in Baltimore, Maryland.
The acquisition of the Civilian Division increased significantly the Company's
presence in the Baltimore/Washington, D.C. market, while permitting the Company
to achieve greater efficiency and productivity from its existing warehousing and
delivery operations. On August 23, 1994, the Company acquired all of the
outstanding common shares of Rotelle, one of the largest wholesale frozen food
distributors in the United States. Rotelle, through its state-of-the-art
distribution center, distributes frozen food, ice cream and frozen bakery
products to its customers. On April 3, 1995, the Company acquired certain assets
and assumed certain contracts of the wholesale division of Camellia Food Stores,
Inc. ("Camellia"), a retail and wholesale food distributor located in Norfolk,
Virginia. As a result of that acquisition, the Company serves as wholesale
supplier to Camellia's 46 retail stores, and most of the 120 independent retail
stores previously served by Camellia's wholesale division. The Camellia
acquisition also has permitted the Company to achieve additional efficiencies
and economies of scale in its business.
Effective October 15, 1995, the Company completed the Super Rite Acquisition.
Super Rite, with sales of $1.47 billion for its last full fiscal year before the
acquisition, is a full service wholesale food distributor supplying more than
240 retail supermarkets in Pennsylvania, New Jersey, Maryland, Delaware,
Virginia and West Virginia. Super Rite also operated the Company's METRO/BASICS
Retail Division, which currently consists of thirteen 45,000 to 60,000 square
foot "superstores" in the Baltimore, Maryland and Dover, Delaware markets
operating under the METRO tradename, and three smaller traditional supermarkets
in metropolitan Baltimore, Maryland, operating under the BASICS tradename. Super
Rite is a separate, wholly-owned subsidiary of the Company and operates as part
of the Richfood/Pennsylvania division. The Company issued 9,770,188 shares of
Common Stock in the Super Rite Acquisition (14,655,282 shares after adjustment
for the Company's 3-for-2 stock split in September 1996), resulting in former
Super Rite shareholders holding approximately 31% of the then-outstanding shares
of Common Stock. The Super Rite Acquisition was accounted for as a pooling of
interests.
As part of the Richfood/Pennsylvania division, Super Rite operates approximately
1.0 million square feet of warehouse space, including a 635,000 square foot
highly efficient, automated distribution center in Harrisburg, Pennsylvania.
Super Rite's distribution system complements Richfood/Virginia's existing
operations, and its service area is geographically contiguous with the northern
portion of the area served by Richfood/Virginia's Mechanicsville, Virginia
distribution center. As a result of the Super Rite Acquisition, the Company has
achieved significant cost savings, operating efficiencies and growth
opportunities resulting from: (i) combining the purchasing volume of both
companies, thereby increasing purchasing power; (ii) centralizing and
eliminating certain duplicative corporate and administrative functions; (iii)
selling private label goods and certain higher- margin product lines to Super
Rite customers that are offered by Richfood/Virginia and Norristown but that
were previously offered on a limited basis by Super Rite, such as frozen foods,
fresh produce, meats and delicatessen and dairy products; (iv) consolidating
distribution networks to achieve logistical efficiencies and higher capacity
utilization; and (v) realizing interest expense savings by refinancing certain
Super Rite indebtedness at the lower rates available to the combined Company. On
April 1, 1997, the first permitted optional redemption date, the Company
redeemed the remaining $47.5 million principal amount of Super Rite's 10 5/8%
Senior Subordinated Notes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" referred to in Item 7 of this
Form 10-K.
-3-
<PAGE>
On September 30, 1996, the Company acquired substantially all of the assets and
certain liabilities of Norristown Wholesale, Inc. Norristown, headquartered near
Philadelphia, Pennsylvania, supplies a full line of fresh produce, fruits,
vegetables and other perishable food items to approximately 400 retail
supermarkets in Pennsylvania, Delaware, Maryland, New Jersey and Virginia, most
of which represent new accounts for the Company. The Norristown acquisition
permitted Richfood/Pennsylvania to add a complete range of fresh produce and
perishable items, not previously offered by the division, to its previous
assortment of dry grocery, frozen food, cheese and dairy products. With the
acquisition of Norristown, Richfood is now one of the largest procurers of fresh
produce on the East Coast.
The Company's substantial growth since 1990 is largely attributable to
acquisitions, particularly the acquisition of Super Rite in fiscal 1996. While
the Company believes that additional acquisition opportunities consistent with
its strategic criteria may arise from time to time, no assurance can be given
that the Company will consummate additional strategic acquisitions.
Wholesale Operations
Customer Base; Principal Markets
The Company services more than 1,400 retail grocery stores, including leading
regional chains and smaller independent retailers, in Virginia, Maryland,
Pennsylvania, New Jersey, Delaware, North Carolina, West Virginia, Washington,
D.C. and New York. The Company's regional chain customers are high quality,
growth- oriented operations, and include: Giant Food Stores, Inc. based in
Carlisle, Pennsylvania ("Giant of Carlisle"); Shoppers Food Warehouse Corp.
("Shoppers"); Farm Fresh, Inc. based in Norfolk, Virginia ("Farm Fresh of
Virginia"); Genuardi's Super Markets, Inc. ("Genuardi's"); Ukrop's Super
Markets, Inc. ("Ukrop's"); Redner's Markets, Inc.; Camellia; and the Company's
own METRO/BASICS stores. Customer store sizes range from 4,500 square feet to
60,000 square feet.
The Company believes that it is the principal source of wholesale supply for
most of its customers. The Company believes that since 1990, customer
penetration has increased from approximately 50% to over 60% for customers of
Richfood/Virginia's Mechanicsville, Virginia distribution center. Although there
can be no assurance as to future results, management believes that opportunities
exist to increase significantly Richfood/Pennsylvania's customer penetration
rate, which management believes is now approximately 50%. Super Rite previously
offered its customers a limited selection of private label products and certain
higher- margins perishable products, such as frozen foods, fresh produce, meats
and delicatessen and dairy products, that are offered by Richfood/Virginia,
Rotelle and Norristown.
The Company's five largest customers in fiscal 1997 were Giant of Carlisle,
Shoppers, Farm Fresh of Virginia, Genuardi's and Ukrop's, with Giant of
Carlisle, Shoppers and Farm Fresh of Virginia accounting for 17%, 9% and 9%,
respectively, of fiscal 1997 sales. The Company has enjoyed long-term supply
relationships with most of its principal customers: Ukrop's, Genuardi's, Farm
Fresh of Virginia, Giant of Carlisle and Shoppers have been customers of one or
more of the Company's divisions for 49, 30, 25, 17 and six years, respectively.
Farm Fresh of Virginia has announced that it is currently exploring strategic
alternatives.
Richfood is a party to multi-year supply agreements with most of its larger
customers that secure the Company's position as principal supplier to all stores
owned by such customers. Such supply agreements generally include minimum
purchase requirements by dollar amount and category of goods and may be subject
to adjustment as the customer acquires or disposes of stores. The Company's
supply agreements with Giant of Carlisle, Shoppers
-4-
<PAGE>
and Farm Fresh of Virginia expire in December 1999, December 1997 and December
2001, respectively. Overall, sales to customers covered by supply agreements
accounted for approximately 77% of fiscal 1997 wholesale division sales,
including intersegment sales.
Management believes that the loss of one of the Company's larger customers could
have a material adverse effect on its business. However, management believes
that the Company's purchasing power, low cost structure and efficient service
levels, coupled with its commitment to the success of its retail customers,
should enable the Company to operate profitably in the event of the loss of a
larger customer and to attract new customers.
For example, Richfood/Pennsylvania's supply agreement with Acme Markets, Inc.
("Acme") expired in July 1997. While the Company desired to extend its supply
relationship with Acme, which accounted for approximately $180 million of
wholesale grocery sales in fiscal 1997, it was unable to do so on terms
that were beneficial to the Company. Instead, the Company focused its
efforts on extending the terms of its supply agreements with other existing
customers and on attracting new customers, and in the last half of fiscal 1997
the Company announced that it had entered into new long-term supply
agreements with Genuardi's, Magruders, Inc. and Boyer's Food Markets, and
that it had extended through June 2002 its existing supply relationship with
Camellia. Accordingly, the Company does not expect that the loss of the Acme
business will have a material adverse effect on its results of operations or
financial position.
Products and Purchasing
The Company supplies a comprehensive selection of national brand and private
label grocery products, dairy products, frozen foods, fresh produce items,
meats, delicatessen and bakery products and non-food items from its three
modern, highly-efficient principal distribution centers. The Company offers its
customers a dependable supply and prompt delivery of over 37,000 grocery and
non-grocery items at competitive prices. The Company's business strategy
includes assisting its retail customers in adapting to changes in consumer
preferences and in the marketplace so they remain competitive. Accordingly, the
Company continually changes and enhances its product offerings to meet changing
consumer demands.
The Company supplies more than 35,000 national brand products, which accounted
for approximately 90% of the Company's total wholesale grocery sales in fiscal
1997. The Company also offers private label products to its customers. Private
label products allow retail customers to carry single labels on a store-wide
basis similar to chain stores, while providing consumers a lower-priced
alternative to national brands. The Company currently offers approximately 1,600
private label products to its customers, including approximately 1,300 products
under the "RICHFOOD" label and approximately 150 products under the
budget-priced "ECON" label. The Company also coordinates private labels for
certain regional supermarket chains in the Mid-Atlantic region. In fiscal 1997,
private label products, including private label products packaged for certain
customers, accounted for approximately 10% of the Company's total wholesale
grocery sales. The Company has introduced its private label products to
customers of Super Rite, which historically did not have an extensive private
label program.
The Company purchases products for resale from over 1,800 vendors in the United
States and overseas, and is not substantially dependent on any single source of
supply. The Company believes that its size enables it to purchase products at
the lowest available manufacturers' prices. The Company monitors manufacturers'
prices and uses its purchasing power to secure products at the best terms
available. In addition, because the Company maintains purchasing departments
associated with its Richfood/Virginia and Richfood/Pennsylvania operations,
Richfood is able to take advantage of regional buying opportunities. The Company
purchases long-term quantities of inventory items when manufacturers' prices are
advantageous ("forward-buys"). In particular, the Company purchases sufficient
quantities of certain staple items when offered at a discount and if justified
after giving effect to carrying costs.
Product Pricing
The Company sells products to its customers at landed vendor invoice cost. The
customer is also charged a service fee and a delivery fee based upon the
characteristics of the order. The fee structure includes incentives to encourage
customers to increase their purchases from the Company and to order and accept
merchandise for
-5-
<PAGE>
delivery more efficiently, thereby increasing the Company's efficiency. Such
incentives include minimum delivery fees that encourage economic order
quantities and lower fees for off-peak deliveries. Over the past several years,
the Company's pricing system, together with increased efficiencies in purchasing
operations, have resulted in more competitively-priced merchandise and have
placed the Company and its retail customers in a stronger market position.
Logistics and Distribution
The Company is highly focused on reducing and controlling costs and on improving
efficiency in the logistics and distribution areas of its business. Over the
past five fiscal years, the Company's management team has implemented
improvements in the logistics and distribution areas of its business that have
permitted Richfood to drive substantially increased volume through its
distribution system and to increase capacity utilization, thereby benefitting
from its operating leverage. These improvements have included: (i) implementing
state-of-the-art computer systems related to purchasing, inventory management
and fleet loading and routing; (ii) instituting a pricing system that encourages
customers to utilize the Company's services efficiently; and (iii) introducing
warehouse management practices that reward workers for enhanced productivity.
Management believes that, as a result of its strategic focus on cost control,
logistics and distribution, the Company is now one of the most efficient
wholesale food distributors in the United States.
The Company distributes its products out of its three main distribution centers:
Richfood/Virginia's 1.3 million square foot Mechanicsville, Virginia
distribution center; Richfood/Pennsylvania's 635,000 square foot automated
distribution facility in Harrisburg, Pennsylvania; and Richfood/Pennsylvania's
6.3 million cubic foot frozen food distribution facility in West Point,
Pennsylvania. The Company's customers are generally located within 200 miles of
one of the Company's distribution centers.
Products are delivered to the Company's distribution centers by manufacturers,
common carriers and the Company's own fleet of trucks on return to its
distribution centers from deliveries to customers ("backhauls"). The Company
employs a management information system that enables it to lower its inbound
transportation costs by making optimum use of its own fleet for backhaul
opportunities. In addition, "drop shipments" are sent directly to retailers by
suppliers under programs established by the Company.
The Company produces and distributes catalogs with weekly updates indicating
manufacturers' prices and wholesale prices to customers for each of its more
than 37,000 products. In addition, the Company's sales personnel use
telemarketing to advise customers of periodic special prices and product
offerings. Customers place orders through direct computer links to the Company.
Customers' orders are then assembled in the appropriate distribution center,
shrink-wrapped to ensure order completeness and staged according to the required
delivery sequence. In fiscal 1997, the Company maintained an in-stock service
level of approximately 97%.
Products are delivered from the Company's distribution centers to retail
customers by the Company's drivers and contract carriers via trucks leased or
owned by the Company. In dispatching trucks for both pick-ups and deliveries,
the Company employs a computerized routing system designed to optimize delivery
efficiency and minimize drive time, wait time and excess mileage. The Company
currently leases 189 tractors, 198 refrigerated trailers and 331 dry trailers,
and owns 131 tractors, 172 refrigerated trailers and 111 dry trailers. All of
the Company's fleet utilizes on-board computer systems that monitor vehicle
speeds, fuel efficiency, idle time and other statistical information. During
fiscal 1997, the Company achieved an on-time delivery record of approximately
97%.
Customers are billed for goods sold on a weekly basis with payment generally due
the following week. The Company reviews credit histories on an individual basis
and requires customers to provide collateral to secure outstanding accounts when
appropriate.
-6-
<PAGE>
Retail Support
The Company's largest customers generally find it cost efficient to perform
their own retail support services and have selected the Company as a supplier
because of its competitive prices. The Company's smaller customers, however,
generally do not have the resources to perform the retail services that large
national chains provide to their individual stores. The Company offers a wide
variety of retail support services to assist its smaller customers. Customers
decide individually which services to use and are charged a fee for such
services.
Services offered by the Company include retail development, retail sales
consulting, marketing and merchandising assistance, data processing and
customized software, and financial planning and analysis. The Company's retail
development services are focused on store planning and development, and include
advising retailers on site planning through construction, lease negotiation,
product display and promotion. This assistance also includes demographic
studies, engineering support, contracting assistance and layout strategy. Retail
sales counselors assist customers with detailed analyses of their stores'
operations, pricing, advertising, delivery schedules, inventory control and
merchandising plans, to help each customer enhance its competitive position.
Marketing services include developing marketing strategies, designing and
producing signs and flyers and coordinating print and media campaigns. The
Company provides data processing services and customized software to many of its
customers, which allows them to manage accounting functions, time-and-attendance
data and inventories. The Company also assists customers in strategic planning
and capital budgeting as well as in cash management and overall financial
planning.
The Company provides secured financing to retailers, primarily to finance store
acquisitions, construction and remodeling, generally at a variable interest rate
equal to the prime lending rate plus 2%. The Company has developed credit
criteria intended to ensure that such loans are made only with appropriate
collateral and in situations that are expected to contribute to the Company's
growth. The Company believes that its cash flow from operations and current
financing arrangements provide it with the necessary flexibility to offer
financing to its customers as a tool to expand its business. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
referred to in Item 7 of this Form 10-K.
At May 3, 1997, the Company had an aggregate $43.4 million of secured loans
outstanding to its retail customers. The Company expects to continue to provide
secured financing to creditworthy retail customers as part of its strategy to
retain existing business and attract new business. The amount of customer
financing that may be provided by the Company in future years is not presently
determinable since such amount will depend upon, among other things, the number
of store sites that are offered for sale or available for development in the
Company's service area and the availability of alternative sources of financing.
Retail Operations
The Company's METRO/BASICS Retail Division was acquired in connection with the
Super Rite Acquisition, and accounted for 9.9% of the Company's sales for fiscal
1997. The Company's Retail Grocery Division operates thirteen 45,000 to 60,000
square foot "superstores" under the METRO tradename, and three smaller
traditional supermarkets under the BASICS tradename, in the metropolitan
Baltimore, Maryland and Dover, Delaware markets.
The Company believes that the METRO format offers significant opportunities for
growth. The METRO stores feature an expanded selection of higher-margin
perishables and prepared foods together with value-oriented dry groceries and
in-store banking facilities. In 1997, METRO/BASICS was the second largest
grocery retailer in the Baltimore market. During fiscal 1998, the Company
expects to continue its strategy of opening new METRO stores in the Baltimore
market and converting certain BASICS stores to the METRO format.
Competition
The food distribution industry is highly competitive. The Company faces
competition from national, regional and local food distributors on the basis of
price, quality and assortment, frequency and reliability of deliveries and the
range and quality of services provided. In addition, the Company's customers and
its own
-7-
<PAGE>
METRO/BASICS Retail Division compete with retail supermarket chains that provide
their own distribution function, purchasing directly from producers and
distributing products to their supermarkets for sale to consumers.
The principal competitors of the Company's wholesale operations include Fleming
Companies, Inc., SuperValu Inc., Nash Finch Company, DiGiorgio Company,
Nassau-Suffolk Frozen Food Co., Inc. and Burris Foods, Inc. The primary retail
grocery competitors of the Company's wholesale customers and of the METRO/BASICS
Retail Division include Giant Food, Inc. based in Landover, Maryland, The Great
Atlantic & Pacific Tea Co., Weis Supermarkets, Inc., Safeway Inc., Food Lion,
Inc., Winn Dixie Stores, Inc., The Kroger Co., Harris Teeter, Inc. and Hannaford
Bros. Co.
The Company believes that it can compete successfully on the wholesale level
while supporting the competitive efforts of its customers by pursuing its
business strategy focused on reducing and controlling costs, increasing
efficiency and pursuing profitable growth. In particular, the Company enhances
its competitive position by using its purchasing power, low cost structure and
efficient distribution system to provide products to its customers at the lowest
available prices, while offering its customers a wide variety of services to
support their competitive position. In addition, the Company expects to continue
to pursue opportunities for customers to acquire additional stores that become
available within and adjacent to the Company's principal service area.
Employee Relations
Management believes that relations with the Company's associates are excellent.
At May 3, 1997, the Company employed approximately 606 salaried and 4,545
non-salaried associates, compared to 571 salaried and 4,354 non-salaried
associates employed at April 27, 1996.
The Company is party to a four-year collective bargaining agreement that expires
in April 2000 covering its transportation unit employees at the Mechanicsville,
Virginia distribution center. The Company is also party to a four-year
collective bargaining agreement that expires in July 1998 covering warehouse
employees at the West Point, Pennsylvania distribution center and a five-year
collective bargaining agreement that expires in June 2002 covering employees of
the METRO/BASICS Retail Division. The Company is not a party to any other
collective bargaining agreements, nor is it aware of any pending union petitions
related to its employees.
Regulation
The Company is subject to federal, state and local laws and regulations
governing the processing, purchase, handling, sale and transportation of its
products. Management believes that the Company is in material compliance with
all federal, state and local laws and regulations governing its business.
Trademarks and Licenses
The Company owns or licenses various registered trademarks. Federal
registrations for the "RICHFOOD" and "ECON" trademarks have been obtained by the
Company for use on a variety of products distributed by the Company.
The Company licenses the "IGA" trademark from IGA, Inc., a Delaware non-stock
corporation. The IGA license authorizes the Company to supply "IGA" brand
products and to sublicense the "IGA" trademark to retailers that desire to
operate their retail stores under the "IGA" banner. IGA, Inc. may terminate the
license in the event the Company violates the terms of IGA, Inc.'s bylaws and
fails to cure the violation within the applicable cure period.
-8-
<PAGE>
Certain Financial Information
Information with respect to the Company's sales, operating profit and financial
condition for each of its past five fiscal years appears in the "Selected
Consolidated Financial Data" referred to in Item 6 of this Form 10-K.
Information with respect to the Company's industry segments is included in Note
13 of the Notes to Consolidated Financial Statements referred to in Item 8 of
this Form 10-K. Information with respect to the Company's working capital
practices appears above under the captions "Business Strategy -- Reducing and
Controlling Costs; Increasing Efficiency in Logistics and Distribution" and
"Wholesale Operations -- Products and Purchasing," and in the "Financial Review"
referred to in Item 7 of this Form 10-K.
ITEM 2. PROPERTIES
The Company's three principal facilities are: Richfood/Virginia's 1.3 million
square foot distribution center located in Mechanicsville, Virginia (the
"Mechanicsville Facility"); Richfood/Pennsylvania's leased 635,000 square foot
automated distribution facility located in Harrisburg, Pennsylvania (the
"Harrisburg Facility"); and Richfood/Pennsylvania's 6.3 million cubic foot
highly automated frozen food distribution facility located in West Point,
Pennsylvania (the "West Point Facility").
The Mechanicsville Facility, one of the largest grocery distribution centers in
the country, is situated on a 400 acre site, of which only 100 acres are
currently utilized. Richfood also has a long-term lease for a 650,000 square
foot warehouse in Chester, Virginia. Richfood utilizes a portion of the Chester
warehouse primarily to accommodate opportunistic bulk purchases and for
additional seasonal storage capacity. The Chester warehouse, which formerly
served as a regional grocery distribution center, is available to supplement the
Mechanicsville Facility to accommodate additional growth.
The Harrisburg Facility is a 635,000 square foot state-of-the-art distribution
center that utilizes fully automated inventory handling equipment. The lease for
the Harrisburg Facility expires in 2025. The Company also operates 160,480
square feet of refrigerated warehouse space in neighboring Shiremanstown,
Pennsylvania, under a lease that expires in 2015, and 147,000 square feet of dry
grocery warehouse space in Harrisburg, Pennsylvania, under a lease that expires
in 2002.
The West Point Facility is a highly automated, frozen food distribution facility
with 6.3 million cubic feet of refrigerated space. In addition, there are
approximately 185,000 square feet of office space and truck maintenance
facilities associated with this facility.
Norristown operates a 150,000 square foot refrigerated produce distribution
center under a lease that expires in 1998. Such lease term may be extended, at
Norristown's option, for an additional year.
The Richfood Dairy, located in Richmond, Virginia, is a 65,000 square foot
facility capable of processing and packaging over 550,000 gallons per week of
milk and other dairy products, fruit juices, bottled water and related items.
This facility is owned by Richfood.
The METRO/BASICS Retail Division operates sixteen retail stores in the
Baltimore, Maryland and Dover, Delaware markets. These retail locations are all
leased on a long-term basis with lease terms, including options, exceeding four
years.
Each of the foregoing facilities is well-maintained and in good operating
condition. The Company believes that each of its facilities has adequate
capacity to meet the demands of anticipated growth.
ITEM 3. LEGAL PROCEEDINGS
The Company is party to various legal actions that are incidental to its
business. While the outcome of legal actions cannot be predicted with certainty,
the Company believes that the outcome of any of these proceedings, or all of
them combined, will not have a material adverse effect on its consolidated
financial position or business.
-9-
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS
The following persons are executive officers of the Company. Officers serve at
the discretion of the Company's Board of Directors and are elected at each
annual meeting of the Board of Directors.
Donald D. Bennett, age 61, has served as Chairman of the Board of the Company
since January 1, 1997. Mr. Bennett formerly served as Chairman of the Board and
Chief Executive Officer of the Company from June 1995 to December 1996, and as
President and Chief Executive Officer of the Company from May 1990 to June 1995.
John E. Stokely, age 44, was elected President and Chief Executive Officer of
the Company effective January 1, 1997, after serving as President and Chief
Operating Officer of the Company from June 1995 to December 1996. Mr. Stokely
was formerly Executive Vice President-Finance and Administration of the Company
from August 1993 to June 1995, Senior Vice President-Finance and Chief Financial
Officer of the Company from April 1991 to August 1993 and Vice President-Finance
and Chief Financial Officer of the Company from August 1990 to April 1991.
John C. Belknap, age 50, was elected Executive Vice President and Chief
Financial Officer of the Company in July 1997. Mr. Belknap formerly served as
Executive Vice President and Chief Financial Officer of OfficeMax, Inc., an
office products superstore chain, from December 1995 to June 1997, and as
Executive Vice President and Chief Financial Officer of Zale Corporation, a
retail jewelry store chain, from February 1994 to February 1995. From January
1990 to January 1994 and from February 1995 to December 1995, Mr. Belknap was an
independent financial consultant. From January 1989 to May 1993, Mr. Belknap
also was a director of, and consultant to, Finlay Enterprises, Inc., an operator
of leased fine jewelry departments in major department stores nationwide.
Alec C. Covington, age 40, was elected Executive Vice President and Chief
Operating Officer - Wholesale Operations of the Company in January 1997. Mr.
Covington formerly served as President and Chief Operating Officer of Richfood,
Inc. from May 1996 to December 1996 and Executive Vice President and Chief
Operating Officer of Richfood, Inc. from October 1995 to May 1996. Prior to his
employment by the Company, Mr. Covington served as President and Chief Operating
Officer of Houchens Industries, Inc. from June 1993 to October 1995, and as
President of the Quincy, Florida division of SuperValu Inc. and President of the
Greenville, Kentucky division of Wetterau, Inc. from 1990 to 1993.
Christopher A. Brown, age 34, was elected Executive Vice President -
Procurement, of the Company in April 1997. Mr. Brown formerly served as Senior
Executive Vice President of Super Rite Foods, Inc. from March 1996 to March
1997, President and Chief Operating Officer of Rotelle from October 1995 through
February 1996 and Executive Vice President and Chief Operating Officer of
Rotelle from August 1994 to October 1995. Mr. Brown was formerly Richfood,
Inc.'s Executive Vice President-Procurement and Marketing from September 1993 to
August 1994, Senior Vice President-Procurement from September 1992 to September
1993 and Vice President-Procurement from February 1991 to August 1992.
Gary W. Bittner, age 49, was elected President and Chief Operating Officer of
the Company's Richfood/Virginia division in March 1997. Mr. Bittner formerly
served as Regional Vice President of McLane Company, a distributor to
convenience stores, since 1992.
Joseph Della Noce, Jr., age 40, was elected President and Chief Operating
Officer of the Company's Richfood/Pennsylvania division in January 1997. Mr.
Della Noce formerly served as Executive Vice President of Rotelle, Inc. from May
1995 until December 1996, Senior Vice President - Retail Sales and Support
-10-
<PAGE>
Services of Richfood, Inc. from October 1994 to April 1995 and Vice President -
Retail Sales of Richfood, Inc. from April 1991 to September 1994.
Donald G. Eipp, age 64, was elected Executive Vice President - Dairy Operations
of the Company in October 1995. Mr. Eipp formerly served as Midwest Regional
Operations Manager of Borden Inc., a national dairy operation, from January 1992
through September 1995.
Wilbur E. Hatcher, age 41, was elected Vice President and Chief Information
Officer of the Company in July 1996. Mr. Hatcher formerly served as Vice
President Information Systems of Books-A-Million, Inc., a retail bookstore
chain, from July 1994 to June 1996, and as Manager of Information Systems
Development of Publix Supermarkets, Inc., a regional supermarket chain, from
February 1992 to June 1994.
David W. Hoover, age 34, was elected Vice President - Finance of the Company in
August 1993. Mr. Hoover formerly served as Director - Planning and Analysis of
the Company from December 1990 to August 1993.
John F. Rotelle, age 61, was elected Chairman of Rotelle in October 1995. Mr.
Rotelle formerly was President of Rotelle, having served in such capacity since
1959.
John D. Ryder, age 49, was elected President and Chief Operating Officer of the
Company's METRO/Basics Retail division in October 1995, after serving as
President and Chief Operating Officer of the retail division of Super Rite
Foods, Inc. since 1990.
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Although the Company
believes that its expectations are based on reasonable assumptions, it can give
no assurance that its goals or strategies will be achieved. Important factors
that could cause actual results to differ materially from those reflected in the
forward looking statements made herein are detailed in Exhibit 99.1 hereto, and
other risks and uncertainties may be detailed from time to time in the Company's
future filings with the Securities and Exchange Commission.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock of the Company is listed on the New York Stock Exchange and
trades under the symbol "RFH". As of June 27, 1997, there were 1,458 holders of
record of the Company's Common Stock. The information set forth under the
headings "Market Price Range" and "Cash Dividends Declared Per Common Share,"
and in the final paragraph, of Note 14 of the Notes to Consolidated Financial
Statements, which appears in the Company's Annual Report to Shareholders for
Fiscal 1997 (the "1997 Annual Report"), is hereby incorporated by reference.
The Company has paid cash dividends on its Common Stock since September 1991.
The Company expects to continue paying cash dividends on its Common Stock when
justified by the Company's financial condition. The amount of future dividends,
if any, will depend on general business conditions encountered by the Company,
its earnings, financial condition and capital requirements and such other
factors as the Board of Directors of the Company may deem relevant.
-11-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The information appearing under the caption "Selected Consolidated Financial
Data," which appears in the 1997 Annual Report, is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information appearing under the caption "Financial Review," which appears in
the 1997 Annual Report, is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and related notes of Richfood Holdings,
Inc. and its subsidiaries, together with the report of Ernst & Young LLP
thereon, which appear in the 1997 Annual Report, are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not required to be included in this Form 10-K in accordance with instruction 1
to Item 304 of Regulation S-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained in the Company's Proxy Statement prepared for use in
connection with the 1997 annual meeting of shareholders (the "1997 Proxy
Statement") under the captions "Nominees for Election to the Board of
Directors," "Board of Directors and Committees" and "Section 16(a) Beneficial
Ownership Reporting Compliance" is incorporated herein by reference. See also
"Executive Officers" at the end of Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in the 1997 Proxy Statement under the caption
"Executive Compensation" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the 1997 Proxy Statement under the caption
"Security Ownership of Certain Beneficial Owners and Management" is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the 1997 Proxy Statement under the captions
"Certain Relationships and Related Transactions" and "Compensation Committee
Interlocks and Insider Participation" is incorporated herein by reference.
-12-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial statements, financial statement schedules and exhibits
included in this Form 10-K:
1. Financial Statements:
The following consolidated financial statements and independent
auditors' report, which appear on pages 19 through 33 of the 1997
Annual Report, are incorporated herein by reference:
Report of Ernst & Young LLP.
Richfood Holdings, Inc. Consolidated Balance Sheets at May 3,
1997, and April 27, 1996.
Richfood Holdings, Inc. Consolidated Statements of Earnings for
the fiscal years ended May 3, 1997, April 27, 1996, and April 29,
1995.
Richfood Holdings, Inc. Consolidated Statements of Shareholders'
Equity for the fiscal years ended May 3, 1997, April 27, 1996, and
April 29, 1995.
Richfood Holdings, Inc. Consolidated Statements of Cash Flows for
the fiscal years ended May 3, 1997, April 27, 1996, and April 29,
1995.
Notes to Consolidated Financial Statements.
In addition, (i) the report of KPMG Peat Marwick LLP, which is
referred to in the report of Ernst & Young LLP, and (ii) the report of
Coopers & Lybrand L.L.P., which is referred to in the report of KPMG
Peat Marwick LLP, are filed herewith as Financial Statement Schedules.
2. Financial Statement Schedules:
Report of KPMG Peat Marwick LLP
Report of Coopers & Lybrand L.L.P.
Schedule II Valuation and Qualifying Accounts.
The report of Ernst & Young LLP on Schedule II is included in the
consent filed as Exhibit 23.1 hereto.
Schedules other than those listed above have been omitted because such
schedules are not required or are not applicable.
3. Exhibits:
The exhibits that are required to be filed or incorporated by
reference herein are listed in the Exhibit Index. Exhibits 10.1 to
10.10 hereto constitute management contracts or compensatory plans or
arrangements required to be filed as exhibits hereto.
(b) Reports on Form 8-K:
None.
-13-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Richfood Holdings, Inc.:
We have audited the consolidated balance sheet of Richfood Holdings, Inc. and
subsidiaries as of April 27, 1996 and the related consolidated statements of
earnings, shareholders' equity and cash flows for the fiscal years ended April
27, 1996 and April 29, 1995. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement schedule as
listed in the accompanying index for the fiscal years ended April 27, 1996 and
April 29, 1995. The consolidated financial statements and financial statement
schedule give effect to the merger on October 15, 1995 of a wholly-owned
subsidiary of Richfood Holdings, Inc. with and into Super Rite Corporation,
which has been accounted for using the pooling of interests method as described
in note 2 to the consolidated financial statements. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits. We did not audit the fiscal 1995 consolidated financial statements and
financial statement schedule of Super Rite Corporation, which consolidated
financial statements reflect net sales constituting approximately 49% of the
related consolidated financial statement totals for fiscal 1995. The fiscal 1995
consolidated financial statements and financial statement schedule of Super Rite
Corporation were audited by other auditors, whose report thereon has been
furnished to us, and our opinion expressed herein, insofar as it relates to the
amounts included for Super Rite Corporation, is based solely on the report of
the other auditors.
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 and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Richfood Holdings, Inc. and
subsidiaries as of April 27, 1996, and the results of their operations and their
cash flows for the fiscal years ended April 27, 1996 and April 29, 1995, in
conformity with generally accepted accounting principles. Also in our opinion
based on our audit and the report of the other auditors, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ KPMG PEAT MARWICK LLP
Richmond, Virginia
June 10, 1996
-14-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Super Rite Corporation
Harrisburg, Pennsylvania
We have audited the consolidated statements of income, cash flows and
stockholders' equity for the fifty-three week period ended March 4, 1995 of
Super Rite Corporation and subsidiaries (not presented herein). We have also
audited the financial statement schedule of Super Rite Corporation as of March
4, 1995 and for the fifty-three week period then ended (not presented herein).
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial schedule 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 consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of Super Rite Corporation for the fifty-three week period ended March
4, 1995 in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/s/ COOPERS & LYBRAND L.L.P.
Harrisburg, Pennsylvania
April 21, 1995, except for
the sixth paragraph of Note
6 which is dated as
of May 5, 1995
-15-
<PAGE>
SCHEDULE II
<TABLE>
RICHFOOD HOLDINGS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(Dollar amounts in thousands)
<CAPTION>
Balance at Charged to Balance at
Beginning of Costs and Deductions End of
Description Fiscal Year Expenses and other Fiscal Year
----------- ----------- -------- --------- -----------
<S> <C>
For Fiscal Year Ended
May 3, 1997
Deducted from asset accounts:
Allowance for doubtful accounts $5,573 $4,241 $4,483 $5,331
For Fiscal Year Ended
April 27, 1996
Deducted from asset accounts:
Allowance for doubtful accounts 4,744 6,197 5,368 5,573
For Fiscal Year Ended
April 29, 1995
Deducted from asset accounts:
Allowance for doubtful accounts 3,518 4,490 3,264 4,744
</TABLE>
-16-
<PAGE>
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.
RICHFOOD HOLDINGS, INC.
(Registrant)
By /s/ John E. Stokely
-------------------------------------
August 1, 1997 John E. Stokely
President and Chief Executive Officer
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 indicated.
By /s/ Donald D. Bennett By /s/ Albert F. Sloan
- -------------------------------- --------------------------------
Donald D. Bennett Albert F. Sloan
Chairman of the Board Director
of Directors
By /s/ John E. Stokely
By /s/ Roger L. Gregory --------------------------------
- -------------------------------- John E. Stokely
Roger L. Gregory Director, President and
Director Chief Executive Officer
By /s/ Grace E. Harris By /s/ George H. Thomazin
- -------------------------------- --------------------------------
Grace E. Harris George H. Thomazin
Director Director
By /s/ John C. Jamison By /s/ James E. Ukrop
- -------------------------------- --------------------------------
John C. Jamison James E. Ukrop
Director Director
By /s/ G. Gilmer Minor, III By /s/ Edward Villanueva
- -------------------------------- --------------------------------
G. Gilmer Minor, III Edward Villanueva
Director Director
By /s/ Claude B. Owen, Jr. By /s/ John C. Belknap
- -------------------------------- --------------------------------
Claude B. Owen, Jr. John C. Belknap
Director Executive Vice President &
Chief Financial Officer
By /s/ John F. Rotelle
- -------------------------------- By /s/ David W. Hoover
John F. Rotelle --------------------------------
Director David W. Hoover
Vice President - Finance
(Principal Accounting Officer)
Each of the above signatures is affixed as of August 1, 1997.
-17-
<PAGE>
EXHIBIT INDEX
2.1 Agreement and Plan of Reorganization, dated June 26, 1995, by
and between the Company and Super Rite Corporation. (1)
2.2 Amendment No. 1, dated October 13, 1995, to the Agreement and
Plan of Reorganization by and between the Company and Super Rite
Corporation. (2)
2.3 Amendment No. 2, dated February 6, 1996, and effective as of
October 15, 1995, to the Agreement and Plan of Reorganization by
and between the Company and Super Rite Corporation. (3)
The Registrant agrees to furnish supplementally to the
Securities and Exchange Commission, upon request, copies of any
schedules and exhibits to the foregoing exhibits that are not
filed herewith in accordance with Item 601(b)(2) of Regulation
S-K.
3.1 Amended and Restated Articles of Incorporation of the Company.
(4)
3.2 Bylaws of the Company, amended and restated as of January 28,
1997. (5)
10.1 Employment and Severance Benefits Agreement, dated as of April
28, 1996, between the Company and Donald D. Bennett. (6)
10.2 Employment and Severance Benefits Agreement, dated as of April
28, 1996, between the Company and John E. Stokely. (6)
10.3 Employment and Severance Benefits Agreement, dated August 23,
1994, between Rotelle, Inc. and John F. Rotelle. (7)
10.4 Employment Agreement, dated October 13, 1995, between Super Rite
Corporation and John D. Ryder. (6)
10.5 Amended and Restated Long-Term Incentive Plan. (8)
10.6 Amended and Restated Omnibus Stock Incentive Plan. (8)
10.7 Non-Employee Directors' Stock Option Plan. (7)
10.8 Supplemental Executive Retirement Plan and related Trust
Agreement. (9)
10.9 Executive Officer Performance Plan. (10)
10.10 Super Rite Corporation 1991 Omnibus Stock Incentive Plan. (11)
10.11 Bylaws of IGA, Inc., restated as of March 1, 1988. (12)
10.12 Revised and Restated Lease Agreement, dated October 13, 1995,
between G. F. Lucknow Associates, as Landlord, and Super Rite
Foods, Inc. (6)
10.13 Lease, dated November 1, 1977, originally made between
Safe-Chester Associates, as lessor, and Safeway Stores,
Incorporated, as lessee, as assigned to Richfood. (13)
11.1 Statement re computation of net earnings per common share.
12.1 Statement re computation of certain ratios.
13.1 Portions of Richfood Holdings, Inc.'s 1997 Annual Report to
Shareholders.
21.1 Subsidiaries of the Company.
<PAGE>
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule.
99.1 Cautionary Statements for Purposes of the Safe Harbor Provisions
of the Securities Litigation Reform Act of 1995.
The Registrant agrees to furnish to the Securities and Exchange
Commission, upon request, copies of those agreements defining the rights
of holders of long-term debt of the Registrant and its subsidiaries that
are not filed herewith pursuant to Item 601(b)(4)(iii) of Regulation
S-K.
----------------------------
(1) Incorporated by reference to the Company's Current Report on
Form 8-K dated June 26, 1995 (Commission File No. 0-16900).
(2) Incorporated by reference to the Company's Current Report on
Form 8-K dated October 15, 1995 (Commission File No. 0-16900).
(3) Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended January 6, 1996
(Commission File No. 0-16900).
(4) Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the twelve week period ended July 24, 1993
(Commission File No. 0-16900).
(5) Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the twelve week period ended January 4, 1997
(Commission File No. 0-16900).
(6) Incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended April 27, 1996 (Commission File
No. 0-16900).
(7) Incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended April 29, 1995 (Commission File
No. 0-16900).
(8) Incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended April 30, 1994 (Commission File
No. 0-16900).
(9) Incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended May 2, 1992 (Commission File No.
0-16900).
(10) Incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended April 28, 1990 (Commission File
No. 0-16900).
(11) Incorporated by reference to the Company's Registration
Statement on Form S-8 (Commission File No. 33-63447).
(12) Incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended May 1, 1993 (Commission File No.
0-16900).
(13) Incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended April 30, 1988 (Commission File
No. 0-16900).
<TABLE>
EXHIBIT 11.1
RICHFOOD HOLDINGS, INC.
COMPUTATION OF NET EARNINGS PER COMMON SHARE
(dollar amounts in thousands, except per share data)
<CAPTION>
Fiscal Year Ended
May 3, April 27, April 29,
1997 1996 1995
----------- ------------ ------------
<S> <C>
Net Earnings:
Earnings before extraordinary loss $ 61,351 $ 39,215 $ 39,218
Extraordinary loss, net of tax (1,882) (2,164) -
----------- ------------ ------------
Net earnings $ 59,469 $ 37,051 $ 39,218
=========== ============ ============
Primary Earnings Per Common Share:
Weighted average number of
common shares outstanding 47,290,092 46,825,107 46,711,389
Net additional common shares
issuable upon exercise of dilutive
options, determined by
treasury stock method 439,621 597,651 498,126
----------- ------------ ------------
Common shares and equivalents 47,729,713 47,422,758 47,209,515
=========== ========== ==========
Earnings before extraordinary loss $ 1.29 $ 0.83 $ 0.83
Extraordinary loss, net of tax (0.04) (0.05) -
----------- ------------ ------------
Net earnings per common share (a) $ 1.25 $ 0.78 $ 0.83
=========== ============ ============
Fully Diluted Earnings Per Common Share:
Common shares and equivalents 47,729,713 47,422,758 47,209,515
Net additional common shares
issuable upon exercise of dilutive
options, determined by treasury stock
method using year-end market price,
if higher than average price - 179,645 151,406
----------- ------------ ------------
Common shares and equivalents (b) 47,729,713 47,602,403 47,360,921
=========== ========== ==========
Earnings before extraordinary loss $ 1.29 $ 0.82 $ 0.83
Extraordinary loss, net of tax (0.04) (0.04) -
----------- ------------ ------------
Net earnings per common share (a) $ 1.25 $ 0.78 $ 0.83
=========== ============ ============
</TABLE>
NOTE: (a) Dilution is less than 3%.
(b) The Company does not have any other potentially dilutive securities.
EXHIBIT 12.1
RICHFOOD HOLDINGS, INC.
COMPUTATION OF CERTAIN RATIOS
The following relates to the ratio computations in the portions of the Company's
fiscal 1997 Annual Report to Shareholders incorporated by reference herein.
Net earnings as a percent of sales = Net earnings divided by sales.
Book value per share = Total shareholders' equity divided by the shares of
common stock outstanding at fiscal year end.
Working capital = Current assets minus current liabilities.
Current ratio = Current assets divided by current liabilities.
Inventory turnover = Cost of goods sold divided by average inventories. Average
inventories was computed by adding the inventories at the beginning of
the fiscal year to the inventories at the end of the fiscal year and
dividing this sum by two.
Return on average assets = Net earnings divided by average total assets.
Average total assets was computed by adding the total assets at the
beginning of the fiscal year to the total assets at the end of the
fiscal year and dividing this sum by two.
Debt to equity ratio = Total debt, including capital lease obligations and
current maturities, divided by total shareholders' equity.
Return on average shareholders' equity = Net earnings divided by average
shareholders' equity. Average shareholders' equity was computed by
adding the shareholders' equity at the beginning of the fiscal year to
the shareholders' equity at the end of the fiscal year and dividing
this sum by two.
Total debt to total capitalization = Total debt, including current
maturities, divided by total debt plus shareholders' equity.
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
FINANCIAL REVIEW
The following discussion of the Company's consolidated results of operations and
financial position should be read in conjunction with the Consolidated Financial
Statements and notes thereto included in this annual report. References in the
following discussion are to the fiscal years ended May 3, 1997 ("fiscal 1997"),
April 27, 1996 ("fiscal 1996") and April 29, 1995 ("fiscal 1995").
On August 29, 1996, the Company's Board of Directors declared a
three-for-two common stock split payable September 30, 1996, to shareholders of
record on September 16, 1996. All references to per common share data in the
Financial Review for all previously reported periods have been adjusted to
reflect the common stock split.
Results of Operations
Comparison of Fiscal 1997 with Fiscal 1996
Sales of $3,411.6 million for fiscal 1997 consisted of $3,280.2 million of
wholesale grocery sales and $338.5 million of retail grocery sales. Wholesale
grocery sales included $207.1 million of sales to the Company's retail grocery
division. Wholesale grocery sales increased $183.2 million, or 5.9%, over sales
of $3,097.0 million for fiscal 1996. The Company's results of operations for
fiscal 1997 included fifty-three weeks of operations, compared to fifty-two
weeks in fiscal 1996. Excluding the effect of the additional week in fiscal
1997, wholesale grocery sales would have increased $121.8 million, or 3.9%. This
increase was primarily attributable to sales of $65.2 million recorded by
Norristown Wholesale, Inc. ("Norristown") after its acquisition by the Company
on September 30, 1996, and incremental sales to new and current customers.
Retail grocery sales of $338.5 million for fiscal 1997 increased $15.7
million, or 4.9%, over sales of $322.8 million for fiscal 1996. Excluding the
effect of the additional week in fiscal 1997, retail grocery sales would have
increased $9.9 million, or 3.1%. This increase was primarily attributable to the
opening of one new METRO store in September 1996, the inclusion of a full year
of sales from two additional stores opened in the fourth quarter of fiscal 1996
and incremental sales resulting from the Company's conversion of former BASICS
stores to the METRO format. Sales for the retail grocery division decreased 1.0%
on a comparable store basis in fiscal 1997, compared to fiscal 1996, primarily
due to the impact of competitive store openings.
Gross margin increased to 10.50% of sales for fiscal 1997 from 10.04% of
sales for fiscal 1996. Operating and administrative expenses were 7.41% of sales
in fiscal 1997, compared to 7.28% of sales in fiscal 1996. The increases in
gross margin and operating and administrative expenses as a percent of sales
were primarily attributable to the inclusion of the higher gross margin and
operating expense ratio of the Norristown produce business in fiscal 1997
results.
The Company's operating results for fiscal 1996 included a one-time charge
for merger and integration costs of $12.0 million in connection with the
Company's acquisition of Super Rite Corporation ("Super Rite"), a full service
wholesale and retail food distributor headquartered in Harrisburg, Pennsylvania,
effective October 15, 1995 (the "Super Rite Acquisition"). This charge primarily
related to transaction costs associated with the Super Rite Acquisition,
severance costs and costs related to the conversion of certain BASICS locations
to the METRO store format, including write-offs of property and equipment. See
note 2 to the Consolidated Financial Statements for further discussion.
<PAGE>
Interest expense decreased to $7.2 million in fiscal 1997 from $12.4
million in fiscal 1996. The decrease was primarily due to lower average debt
levels in fiscal 1997, compared to fiscal 1996. On April 1, 1997, the Company
redeemed the remaining $47.5 million outstanding principal amount of its 10 5/8%
Senior Subordinated Notes due April 2002 ("Senior Subordinated Notes").
The Company's effective income tax rate was 39.8% in fiscal 1997, compared
to 42.8% in fiscal 1996. The higher effective income tax rate for fiscal 1996
was primarily attributable to certain nondeductible merger and integration costs
associated with the Super Rite Acquisition.
The extraordinary loss, net of tax, of $1.9 million for fiscal 1997
related to the early redemption of the remaining $47.5 million principal amount
of Senior Subordinated Notes. The extraordinary loss, net of tax, of $2.2
million for fiscal 1996 primarily related to the repurchase, at market prices
above par, of $27.5 million principal amount of Senior Subordinated Notes. The
extraordinary losses for fiscal 1997 and fiscal 1996 were primarily comprised of
the amount paid in excess of par value and the write-off of related deferred
financing costs for the Senior Subordinated Notes.
Excluding the effects of the extraordinary losses in fiscal 1997 and
fiscal 1996, and the effects of the one-time charge for merger and integration
costs in fiscal 1996, net earnings for fiscal 1997 were $61.4 million, or $1.30
per share, a 30.5% increase over net earnings of $47.0 million, or $1.00 per
share, for fiscal 1996. Net earnings, including the effects of the extraordinary
losses and the one-time charge for merger and integration costs, were $59.5
million, or $1.26 per share, for fiscal 1997, compared to $37.1 million, or
$0.79 per share, for fiscal 1996.
Comparison of Fiscal 1996 with Fiscal 1995
Sales of $3,250.9 million for fiscal 1996 consisted of $3,097.0 million of
wholesale grocery sales and $322.8 million of retail grocery sales. Wholesale
grocery sales included $168.9 million of sales to the Company's retail grocery
division. Wholesale grocery sales increased $239.6 million, or 8.4%, over sales
of $2,857.4 million for fiscal 1995. The Company's results of operations for
fiscal 1996 included fifty-two weeks of operations for Super Rite, compared to
fifty-three weeks in fiscal 1995. Excluding the effect of the additional week in
fiscal 1995 for Super Rite, wholesale grocery sales would have increased $264.9
million, or 9.4%. This increase was primarily attributable to: a full year of
sales to former customers of the wholesale division of Camellia Food Stores,
Inc., which was acquired by the Company on April 3, 1995; a full year of sales
for Rotelle, Inc. ("Rotelle"), which was acquired by the Company on August 23,
1994; and sales to customers who expanded their retail operations.
Retail grocery sales of $322.8 million for fiscal 1996 increased $18.1
million, or 5.9%, over sales of $304.7 million for fiscal 1995. Excluding the
effect of the additional week in fiscal 1995 for Super Rite, retail grocery
sales would have increased $23.8 million, or 7.9%. This increase was primarily
attributable to the Company's conversion of three former BASICS stores to the
METRO format and the opening of two new METRO stores between May 1994 and April
1996. Sales for the retail grocery division increased 6.7% on a comparable store
basis in fiscal 1996, compared to fiscal 1995.
Gross margin increased to 10.04% of sales for fiscal 1996 from 9.95% of
sales for fiscal 1995. This increase was primarily attributable to the Company's
retail grocery division emphasizing sales of categories with higher margins such
as meat, perishables and private label items.
<PAGE>
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
FINANCIAL REVIEW (CONTINUED)
Operating and administrative expenses were 7.28% of sales in fiscal 1996,
compared to 7.22% of sales in fiscal 1995. The increase was primarily
attributable to the Company increasing its provision for doubtful accounts in
fiscal 1996 and the effect of incremental depreciation and amortization expense
resulting primarily from the inclusion of a full year of Rotelle's operating
results in fiscal 1996.
Interest expense decreased to $12.4 million in fiscal 1996 from $18.3
million in fiscal 1995. This decrease was primarily due to lower average debt
levels in fiscal 1996, compared to fiscal 1995. Lower average debt levels
primarily resulted from the early extinguishment of $27.5 million of Senior
Subordinated Notes and the repayment in full of borrowings under a $25.0 million
term loan facility and a $25.0 million revolving credit facility in fiscal 1996.
The Company's effective income tax rate was 42.8% in fiscal 1996, compared
to 41.2% in fiscal 1995. The higher effective income tax rate for fiscal 1996
was primarily attributable to certain nondeductible merger and integration costs
associated with the Super Rite Acquisition.
Excluding the effects of the one-time charge for merger and integration
costs related to the Super Rite Acquisition and the extraordinary loss related
to early extinguishment of certain debt, net earnings for fiscal 1996 were $47.0
million, or $1.00 per share, a 19.9% increase over net earnings of $39.2
million, or $0.84 per share, for fiscal 1995. Net earnings for fiscal 1996,
including the effects of the one-time charge and the extraordinary loss, were
$37.1 million, or $0.79 per share.
Liquidity and Capital Resources
Cash and cash equivalents were $10.4 million at May 3, 1997, compared to $17.4
million at April 27, 1996. Working capital was $21.9 million at May 3, 1997, and
$40.8 million at April 27, 1996. The decrease in working capital was primarily
attributable to a reduction in cash and cash equivalents, which were utilized to
reduce long-term debt, and an increase in accounts payable resulting from the
Company's continued focus on effective accounts payable management. The
Company's working capital needs are financed primarily through cash provided by
operations. The Company also utilizes, on a short-term basis, unsecured
committed revolving lines of credit. Amounts drawn under these lines of credit
are typically repaid within a few business days. There were no borrowings
outstanding under these facilities at May 3, 1997.
Net Cash Provided by Operating Activities
The Company's operations continue to generate significant cash to support the
Company's growth. Net cash provided by operating activities for fiscal 1997 was
$116.1 million. This amount included net earnings of $59.5 million and
depreciation and amortization of $29.2 million. Net cash provided by operating
activities was $89.6 million and $100.4 million for fiscal 1996 and 1995,
respectively. These amounts primarily consisted of net earnings of $37.1 million
in fiscal 1996 and $39.2 million in fiscal 1995, and depreciation and
amortization of $27.1 million in fiscal 1996 and $23.9 million in fiscal 1995.
Net Cash Used for Investing Activities
Net cash used for investing activities was $61.4 million for fiscal 1997, $20.3
million for fiscal 1996 and $77.7 million for fiscal 1995. Net cash used for
investing activities included acquisitions made by the Company, and consisted of
$26.1 million for the Company's purchase of Norristown in fiscal 1997 and $50.7
million for the Company's purchase of Rotelle in fiscal 1995.
<PAGE>
Capital expenditures were $15.4 million for fiscal 1997, $14.8 million for
fiscal 1996 and $20.0 million for fiscal 1995. Capital expenditures for all
years included capital employed for new METRO stores and the conversion of
existing BASICS stores to the METRO format. In addition, capital expenditures
for all years included the purchase of material handling equipment, improvements
to the distribution centers and dairy plant and, in fiscal 1996 and fiscal 1995,
warehouse racking at the Company's distribution centers. The Company anticipates
that fiscal 1998 capital expenditures will be approximately $25.0 million. The
increase in budgeted capital expenditures for fiscal 1998 is primarily
attributable to anticipated expenditures for the retail grocery division, which
include the addition of new METRO stores in the Baltimore, Maryland market and
the conversion of certain BASICS stores to the METRO format. Budgeted capital
expenditures for the wholesale grocery division include material handling
equipment, improvements at the distribution centers and further investments in
technology.
The Company remains committed to providing secured financing to support
the growth of its retail customers. Loans issued to retailers were $22.3 million
in fiscal 1997, $16.8 million in fiscal 1996 and $15.9 million in fiscal 1995.
Collections on loans were $10.5 million in fiscal 1997, $14.0 million in fiscal
1996 and $12.4 million in fiscal 1995. As a result of fiscal 1997 customer
financing activities, the Company's notes receivable increased from $34.6
million at April 27, 1996, to $43.4 million at May 3, 1997.
Net Cash Used for Financing Activities
Net cash used for financing activities was $61.7 million for fiscal 1997, $81.2
million for fiscal 1996 and $14.4 million for fiscal 1995. During fiscal 1997,
the Company made $58.6 million of principal payments on long-term debt,
including the early redemption of the remaining $47.5 million principal amount
of Senior Subordinated Notes on April 1, 1997, and the first $9.0 million
principal payment on the Company's 6.15% Senior Notes due July 1, 2000. During
fiscal 1996, the Company reduced its total debt by $80.8 million. This reduction
primarily related to the repayment of outstanding borrowings under a $25.0
million revolving credit facility and a $25.0 million term loan facility, as
well as the early extinguishment of $27.5 million of Senior Subordinated Notes.
The Company's total debt was $42.7 million at May 3, 1997, compared to
$97.7 million at April 27, 1996. Shareholders' equity increased to $258.7
million at May 3, 1997, from $199.6 million at April 27, 1996. The ratio of
total debt to equity was 0.17 to 1 at May 3, 1997, and 0.49 to 1 at April 27,
1996. The ratio of total debt to total capitalization (defined as total debt
plus shareholders' equity) decreased to 0.14 to 1 at May 3, 1997, from 0.33 to 1
at April 27, 1996.
The Company increased the cash dividend on its common stock to $0.12 per
share in fiscal 1997 from $0.08 per share in fiscal 1996 and $0.07 per share in
fiscal 1995. Cash dividends paid were $5.2 million in fiscal 1997, $2.9 million
in fiscal 1996 and $2.0 million in fiscal 1995.
The Company believes that it has the ability to continue to generate
adequate funds from its operations and through borrowings under its long-term
debt facilities to maintain its competitive position and expand its business.
<PAGE>
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
===========================================================================================================================
Fiscal Year Ended
-------------------------------------------------------------------------
(Dollar amounts in thousands, May 3, April 27, April 29, April 30, May 1,
except per share data) 1997(a) 1996 1995(b) 1994 1993(c)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Operations:
Sales $3,411,625 $3,250,868 $2,992,735 $2,545,676 $2,357,706
Gross margin 358,326 326,307 297,715 250,441 236,944
Operating and administrative expenses 252,885 236,661 216,099 186,912 191,058
Merger and integration costs -- 11,993(d) -- -- --
Loss on disposal of assets -- -- -- 13,148(f) 9,188(f)
Interest expense 7,166 12,354 18,312 17,534 17,619
Earnings before income taxes and
extraordinary loss 101,947 68,529 66,643 36,025 22,765
Earnings before extraordinary loss 61,351 39,215 39,218 21,371 14,311
Extraordinary loss, net of tax (1,882)(e) (2,164)(e) -- -- (5,042)(g)
Net earnings 59,469 37,051 39,218 21,371 9,269
Preferred stock dividends -- -- -- -- 8,838
Net earnings applicable to common stock 59,469 37,051 39,218 21,371 431
Net earnings as a percent of sales 1.74% 1.14% 1.31% 0.84% 0.39%
- ---------------------------------------------------------------------------------------------------------------------------
Per Common Share Data:
Earnings before extraordinary loss $ 1.30 $ 0.84 $ 0.84 $ 0.47 $ 0.12
Net earnings 1.26 0.79 0.84 0.47 0.01
Cash dividends declared 0.12 0.08 0.07 0.05 0.05
Book value 5.46 4.25 3.43 2.61 2.09
Market price range-- High 28 1/8 22 13 1/3 12 1/6 9 2/3
-- Low 18 5/8 13 9 8 1/2 5 1/4
Weighted average common
shares outstanding 47,290,092 46,825,107 46,711,389 45,771,755 45,288,332
- ---------------------------------------------------------------------------------------------------------------------------
Financial Position:
Working capital $ 21,868 $ 40,828 $ 72,780 $ 84,926 $ 68,401
Total assets 581,480 564,261 580,770 487,904 487,266
Total debt 42,725 97,743 178,531 181,576 208,875
Shareholders' equity 258,650 199,562 160,330 121,868 95,395
- ---------------------------------------------------------------------------------------------------------------------------
Financial Ratios and Other Data:
Current ratio 1.08 to 1 1.16 to 1 1.31 to 1 1.47 to 1 1.36 to 1
Inventory turnover 18.73 18.90 18.80 16.18 15.40
Return on average assets 10.38% 6.47% 7.34% 4.38% 2.05%
Debt to equity ratio 0.17 to 1 0.49 to 1 1.11 to 1 1.49 to 1 2.19 to 1
Return on average shareholders' equity 25.96% 20.59% 27.79% 19.67% 0.46%
Number of employees at fiscal year-end 5,151 4,925 4,600 4,639 4,397
===========================================================================================================================
</TABLE>
All historical financial data presented has been restated to reflect Richfood
Holdings, Inc.'s October 15, 1995, acquisition of Super Rite Corporation which
was accounted for as a pooling of interests (see note 2 to the Consolidated
Financial Statements).
All references to common share and per common share data for previously reported
periods have been adjusted to reflect the 3-for-2 common stock split in fiscal
1997 and the 2-for-1 common stock split in fiscal 1994.
(a) Fiscal 1997 was a 53 week year. Results for fiscal 1997 reflect the
acquisition of Norristown Wholesale, Inc., on September 30, 1996 (see note
2 to the Consolidated Financial Statements).
(b) Results for fiscal 1995 reflect the acquisitions of Rotelle, Inc. on August
23, 1994, and the Wholesale Division of Camellia Food Stores, Inc. on April
3, 1995 (see note 2 to the Consolidated Financial Statements).
(c) Results for fiscal 1993 reflect the acquisition of the Civilian Wholesale
Division of B. Green & Company, Inc. on January 22, 1993.
(d) See note 2 to the Consolidated Financial Statements and Financial Review for
further discussion.
(e) See note 7 to the Consolidated Financial Statements and Financial Review for
further discussion.
(f) The fiscal 1994 and fiscal 1993 loss on disposal of assets related to the
write-down of assets of closed retail grocery stores.
(g) The $5.0 million extraordinary loss, net of tax, in fiscal 1993 primarily
related to the early redemption of then-outstanding Super Rite Foods, Inc.
Senior Subordinated 13 1/4% Notes.
<PAGE>
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Richfood Holdings, Inc.:
We have audited the accompanying consolidated balance sheet of Richfood
Holdings, Inc. and subsidiaries as of May 3, 1997, and the related consolidated
statements of earnings, shareholders' equity and cash flows for the fiscal year
then ended. 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 audit. The consolidated balance sheet of Richfood
Holdings, Inc. and subsidiaries as of April 27, 1996, and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the fiscal years in the two-year period ended April 27, 1996 were
audited by other auditors whose report, dated June 10, 1996, expressed an
unqualified opinion on those statements based on their audits and the report of
other auditors related to the fiscal 1995 consolidated financial statements of
Super Rite Corporation (note 2).
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Richfood Holdings, Inc. and subsidiaries as of May 3, 1997, and the consolidated
results of their operations and their cash flows for the fiscal year then ended,
in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Richmond, Virginia
June 14, 1997
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The Board of Directors and Shareholders
Richfood Holdings, Inc.:
The integrity and objectivity of the consolidated financial statements and
related financial information in this report are the responsibility of
management of the Company. The consolidated financial statements have been
prepared in conformity with generally accepted accounting principles and
include, when necessary, the best estimates and judgments of management.
Management is responsible for maintaining an internal control structure,
at appropriate cost, designed to provide reasonable assurance that assets are
safeguarded, transactions are executed in accordance with management's
authorization and financial records provide a reliable basis for the preparation
of the consolidated financial statements. The Company's year-end consolidated
financial statements are audited by our independent auditors. The annual audit
includes consideration of the Company's internal control structure to the extent
required by generally accepted auditing standards to enable our independent
auditors to determine the nature, timing and extent of their audit procedures.
Management also maintains a staff of internal auditors who evaluate the adequacy
of, and investigate the adherence to, internal controls and related policies and
procedures.
The Audit Committee of the Board of Directors, consisting of outside
directors, meets periodically with the independent auditors, internal auditors
and management to review matters relating to the Company's financial reporting,
the adequacy of the internal control structure and the scope and results of
audit work. Our independent auditors and the internal auditors have unrestricted
access to the Audit Committee.
/s/ John E. Stokely /s/ David W. Hoover
John E. Stokely David W. Hoover
President and Vice President-Finance
Chief Executive Officer
<PAGE>
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
=======================================================================================================================
Fiscal Year Ended
------------------------------------------------------------------------------
(Dollar amounts in thousands, May 3, Percent April 27, Percent April 29, Percent
except per share data) 1997 of Sales 1996 of Sales 1995 of Sales
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Sales $3,411,625 100.00% $3,250,868 100.00% $2,992,735 100.00%
Costs and expenses:
Cost of goods sold 3,053,299 89.50 2,924,561 89.96 2,695,020 90.05
Operating and administrative
expenses 252,885 7.41 236,661 7.28 216,099 7.22
Merger and integration costs -- -- 11,993 0.37 -- --
Interest expense 7,166 0.21 12,354 0.38 18,312 0.61
Interest income (3,672) (0.11) (3,230) (0.10) (3,339) (0.11)
- -----------------------------------------------------------------------------------------------------------------------
Earnings before income taxes
and extraordinary loss 101,947 2.99 68,529 2.11 66,643 2.23
Income taxes 40,596 1.19 29,314 0.90 27,425 0.92
- -----------------------------------------------------------------------------------------------------------------------
Earnings before extraordinary
loss 61,351 1.80 39,215 1.21 39,218 1.31
Extraordinary loss, net of tax (1,882) (0.06) (2,164) (0.07) -- --
- -----------------------------------------------------------------------------------------------------------------------
Net earnings $ 59,469 1.74% $ 37,051 1.14% $ 39,218 1.31%
=======================================================================================================================
Earnings per common share:
Earnings before
extraordinary loss $ 1.30 $ 0.84 $ 0.84
Extraordinary loss, net of tax (0.04) (0.05) --
- -----------------------------------------------------------------------------------------------------------------------
Net earnings $ 1.26 $ 0.79 $ 0.84
=======================================================================================================================
Cash dividends declared
per common share $ 0.12 $ 0.08 $ 0.07
=======================================================================================================================
Weighted average common
shares outstanding 47,290,092 46,825,107 46,711,389
=======================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
=======================================================================================
May 3, April 27,
(Dollar amounts in thousands) 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 10,416 $ 17,415
Receivables, less allowance for doubtful
accounts of $3,445 (fiscal 1996 - $3,994) 104,739 100,385
Inventories 163,510 162,461
Other current assets 14,426 19,987
- ---------------------------------------------------------------------------------------
Total current assets 293,091 300,248
- ---------------------------------------------------------------------------------------
Notes receivable, less allowance for doubtful
accounts of $1,886 (fiscal 1996 - $1,579) 34,639 27,179
Property and equipment, net 121,594 122,659
Goodwill, net 87,520 74,455
Other assets 44,636 39,720
- ---------------------------------------------------------------------------------------
Total assets $581,480 $564,261
=======================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt $ 10,656 $ 10,712
Accounts payable 209,207 187,010
Accrued expenses and other current liabilities 51,360 61,698
- ---------------------------------------------------------------------------------------
Total current liabilities 271,223 259,420
- ---------------------------------------------------------------------------------------
Long-term debt 32,069 87,031
Deferred credits and other 19,538 18,248
Shareholders' equity:
Preferred stock, no par value:
Authorized shares - 5,000,000;
none issued or outstanding -- --
Common stock, no par value:
Authorized shares - 90,000,000;
issued and outstanding shares 47,401,770
(fiscal 1996 - 46,987,602) 72,258 66,964
Retained earnings 186,392 132,598
- ----------------------------------------------------------------------------------------
Total shareholders' equity 258,650 199,562
Commitments and contingent liabilities (notes 5, 6 and 12)
- ----------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $581,480 $564,261
========================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
===========================================================================================================================
Common Stock
-------------------------- Retained
(Dollar amounts in thousands) Shares Dollars Earnings Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Balance at April 30, 1994 46,600,551 $62,593 $59,275 $121,868
Net earnings -- -- 39,218 39,218
Issuance of common stock under employee
stock incentive plans 226,002 1,683 -- 1,683
Shares canceled/surrendered (27,058) (298) -- (298)
Cash dividends declared on common stock -- -- (2,141) (2,141)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at April 29, 1995 46,799,495 63,978 96,352 160,330
Net earnings -- -- 37,051 37,051
Effect of change in fiscal year end of pooled company -- -- 2,548 2,548
Issuance of common stock under employee
stock incentive plans 233,086 1,675 -- 1,675
Proceeds from short-swing profits -- 1,628 -- 1,628
Shares canceled/surrendered (44,979) (317) -- (317)
Cash dividends declared on common stock -- -- (3,353) (3,353)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at April 27, 1996 46,987,602 66,964 132,598 199,562
Net earnings -- -- 59,469 59,469
Issuance of common stock under employee
stock incentive plans 534,361 7,230 -- 7,230
Shares canceled/surrendered (120,193) (1,936) -- (1,936)
Cash dividends declared on common stock -- -- (5,675) (5,675)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at May 3, 1997 47,401,770 $72,258 $186,392 $258,650
===========================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
===========================================================================================================================
Fiscal Year Ended
-------------------------------------------
May 3, April 27, April 29,
(Dollar amounts in thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Operating activities:
Net earnings $ 59,469 $ 37,051 $ 39,218
Adjustments to conform fiscal year of pooled company:
Net earnings -- 2,548 --
Non-cash components -- 1,959 --
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 29,234 27,089 23,903
Provision for doubtful accounts 4,241 6,197 4,490
Deferred income taxes 7,702 (2,051) 1,821
Extraordinary loss -- loss on debt extinguishment,
non-cash component 663 1,116 --
Other, net 289 (63) 382
Changes in operating assets and liabilities, net of effects
of acquisitions:
Receivables (622) 564 (4,838)
Inventories (353) (19,405) 13,337
Other current assets (987) 643 1,516
Accounts payable, accrued expenses and other liabilities 16,424 33,903 20,578
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 116,060 89,551 100,407
- ---------------------------------------------------------------------------------------------------------------------------
Investing activities:
Acquisitions, net of cash acquired (26,098) -- (56,977)
Purchases of property and equipment (15,415) (14,781) (19,976)
Proceeds from sale of property and equipment 706 208 4,230
Issuance of notes receivable (22,266) (16,805) (15,902)
Collections on notes receivable 10,511 13,988 12,425
Other, net (8,797) (2,935) (1,493)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (61,359) (20,325) (77,693)
- ---------------------------------------------------------------------------------------------------------------------------
Financing activities:
Net repayment of revolving credit facilities -- (25,000) --
Principal payments on long-term debt (58,633) (55,788) (12,481)
Proceeds from issuance of common stock under employee
stock incentive plans and other 2,130 2,545 93
Cash dividends paid on common stock (5,197) (2,949) (2,033)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (61,700) (81,192) (14,421)
- ---------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (6,999) (11,966) 8,293
Cash and cash equivalents at beginning of fiscal year 17,415 29,381 21,088
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of fiscal year $ 10,416 $ 17,415 $ 29,381
===========================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation and Presentation
The Consolidated Financial Statements of Richfood Holdings, Inc. and
subsidiaries (the "Company") as of and for the fiscal years ended May 3, 1997
("fiscal 1997"), April 27, 1996 ("fiscal 1996") and April 29, 1995 ("fiscal
1995") include the accounts of Richfood Holdings, Inc. and all subsidiaries
after the elimination of significant intercompany transactions and balances. See
note 2 for information on the fiscal 1996 business combination that was
accounted for as a pooling of interests.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from these estimates.
(b) Fiscal Year
The Company reports on a 52-53 week fiscal year ending the Saturday nearest
April 30. Fiscal 1997 consists of 53 weeks.
(c) Cash and Cash Equivalents
Cash equivalents of $10,321 and $16,613 at May 3, 1997 and April 27, 1996,
respectively, consist of money market funds and commercial paper. For purposes
of the Consolidated Statements of Cash Flows, the Company considers all highly
liquid investments with initial maturities of three months or less to be cash
equivalents.
(d) Inventories
The Company values inventories at the lower of cost or market with the cost of
the majority of inventories determined using the last-in, first-out ("LIFO")
method. Cost for the remaining inventories is determined using the first-in,
first-out ("FIFO") method.
(e) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the respective assets. In general, the estimated useful lives
for computing depreciation are 20 to 45 years for buildings, 10 to 15 years for
leasehold improvements, and 3 to 15 years for vehicles, fixtures and equipment.
(f) Goodwill and Other Assets
The excess of cost over the fair value of net assets of businesses acquired
(goodwill) is being amortized on a straight-line basis over 15 to 40 years. The
Company's policy is to record an impairment loss against the unamortized
goodwill in the period when it is determined that the carrying amount of the
asset may not be recoverable. An evaluation is made periodically and is based on
such factors as the occurrence of a significant event, a significant change in
the environment in which the business operates or if the expected future
undiscounted net cash flows would become less than the carrying amount of the
asset. Goodwill is shown net of accumulated amortization of $17,164 and $14,064
at May 3, 1997 and April 27, 1996, respectively. The increase in goodwill from
April 27, 1996 to May 3, 1997 is primarily due to the Company's acquisition of
Norristown Wholesale, Inc. (note 2).
Other assets primarily consist of supply agreements, the prepaid pension
asset (note 10) and lease acquisition costs. The supply agreements generally
provide that the Company will be the principal supplier for the customers and
generally include minimum purchase requirements by product category. Supply
agreements are recorded at their acquisition cost and are being amortized on a
straight-line basis over the terms of the respective supply agreements. Supply
agreements included in other assets were $18,638 (net of $20,391 accumulated
amortization) and $17,281 (net of $13,845 accumulated amortization) at May 3,
1997 and April 27, 1996, respectively. An evaluation of the recorded value for
supply agreements is made periodically and is based on such factors as the
relationship with the applicable customer and expectations as to future revenues
under the applicable contract. Lease acquisition costs incurred, principally for
the purchase of existing store locations, are being amortized on a straight-line
basis over the terms of the respective leases.
(g) Store Pre-opening Costs
Costs associated with the Company opening new retail stores are charged to
expense as incurred.
(h) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between the financial statement and
tax bases of existing assets and liabilities. Deferred tax assets and
liabilities
<PAGE>
are measured using income tax rates expected to apply to taxable income in the
years in which the temporary differences are expected to be recovered or
settled.
(i) Stock-Based Compensation
In fiscal 1997, the Company adopted the disclosure-only requirements of
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation." As permitted by the provisions of SFAS No. 123, the
Company continues to account for stock-based compensation using the intrinsic
value method prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations.
(j) Fair Value of Financial Instruments
Financial instruments include cash and cash equivalents, accounts and notes
receivable, accounts payable and long-term debt reported in the Consolidated
Balance Sheets. The carrying amounts for cash and cash equivalents, accounts
receivable, accounts payable and certain notes receivable approximate fair value
at May 3, 1997 and April 27, 1996 because of the short-term nature of these
financial instruments. The carrying amount of certain notes receivable, which
are subject to variable interest rates, approximate fair value at May 3, 1997
and April 27, 1996 due to the variable interest rates related to these financial
instruments. The fair value of long-term debt with fixed interest rates
approximates the carrying value at May 3, 1997 and April 27, 1996.
(k) Earnings per Common Share
Earnings per common share amounts are computed based on earnings divided by the
weighted average number of common shares outstanding during the respective
fiscal years presented. Stock options are not considered as common stock
equivalents in the earnings per share calculations because they have no material
dilutive effect.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which the Company will be required to adopt for the
fiscal quarter ending January 10, 1998. At that time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements for calculating basic
earnings per share, the dilutive effect of common stock equivalents will be
excluded. The adoption of this accounting standard is not expected to have a
material impact on the Company's consolidated financial statements.
(l) Common Stock Split
On August 29, 1996, the Company's Board of Directors declared a three-for-two
common stock split payable September 30, 1996, to shareholders of record on
September 16, 1996 ("common stock split"). All references to common share and
per common share data in the Consolidated Financial Statements and in the Notes
to the Consolidated Financial Statements for all previously reported periods
have been adjusted to reflect the common stock split.
(2) Merger and Acquisitions
On September 30, 1996, a wholly-owned subsidiary of the Company acquired
substantially all of the assets and assumed certain liabilities of Norristown
Wholesale, Inc. ("Norristown"), a wholesale distributor of produce and other
perishable food items headquartered in Norristown, Pennsylvania. Assets acquired
primarily consisted of inventory, accounts receivable, warehouse and
transportation equipment and a customer list. The Company also assumed the lease
for Norristown's transportation fleet. The Company accounted for the acquisition
under the purchase method of accounting and, accordingly, the results of
operations of the acquired business have been included in the Company's
Consolidated Statements of Earnings since the date of acquisition. The purchase
price of the acquisition was approximately $26,000.
On October 15, 1995, Super Rite Corporation ("Super Rite"), a full service
wholesale and retail grocery distributor headquartered in Harrisburg,
Pennsylvania, became a wholly-owned subsidiary of Richfood Holdings, Inc.
("Richfood") and each outstanding share of common stock of Super Rite was
converted into the right to acquire 1.0205 shares of common stock of Richfood
(1.53 shares adjusted for the common stock split). Under the terms of the
merger, Richfood issued 9,770,188 shares of common stock (14,655,282 shares
adjusted for the common stock split) to the shareholders of Super Rite and
outstanding options to acquire shares of Super Rite common stock were converted
into options to acquire approximately 230,000 shares of Richfood common stock
(345,000 shares adjusted for the common stock split).
The merger was accounted for using the pooling of interests method and,
accordingly, the Consolidated Financial Statements for periods prior to October
15, 1995 have been restated to include the accounts of Super Rite. Super Rite
previously used the fiscal year ending on the Saturday closest to February 29th
or March 1st for its financial reporting purposes. Super Rite's consolidated
financial statements for its 53 week fiscal year ended March 4, 1995 have been
combined with those of Richfood for its 52 week fiscal year ended April 29,
1995.
<PAGE>
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollar amounts in thousands, except per share data)
In order to conform to Richfood's fiscal year, Super Rite's net earnings
of $2,548, on sales of $228,113, for the eight-week period from March 5, 1995 to
April 29, 1995, have been reflected as a direct adjustment to retained earnings.
Richfood also conformed certain of Super Rite's accounting practices and methods
to the Company's in accordance with the pooling of interests method.
In addition, as a result of the merger, the Company recorded a one-time
charge for merger and integration costs of $11,993 in the third quarter of
fiscal 1996. This charge included $4,881 of costs, including write-offs of
property and equipment, associated with the conversion of certain of the
Company's retail grocery stores operating under the BASICS format to the METRO
store format, $3,709 of direct transaction costs and professional fees, $1,403
of severance and related costs associated with the elimination of duplicate
employee functions, $1,100 of costs associated with terminating certain
transportation equipment leases and duplicate product lines and $900 of other
acquisition related costs. During fiscal 1996, $5,473 of the merger and
integration accrual was utilized. The remaining accrual of $6,520 at April 27,
1996 was substantially utilized during fiscal 1997.
Sales and net earnings information of the separate companies, and
respective subsidiaries, for the twenty-four week period preceding the October
15, 1995 merger and for fiscal 1995 are as follows:
Twenty-four Fiscal year
weeks ended ended
October 14, April 29,
1995 1995
- -----------------------------------------------------------
Sales:
Richfood Holdings, Inc. $ 782,932 $1,520,450
Super Rite Corporation 703,244 1,473,822
Adjustments to conform
certain of Super Rite
Corporation's accounting
practices and methods (1,666) (1,537)
- -----------------------------------------------------------
Combined $1,484,510 $2,992,735
===========================================================
Net earnings:
Richfood Holdings, Inc. $ 12,903 $ 25,401
Super Rite Corporation 6,054 12,951
Adjustments to conform
certain of Super Rite
Corporation's accounting
practices and methods 1,058 866
- -----------------------------------------------------------
Combined $ 20,015 $ 39,218
===========================================================
On April 3, 1995, the Company acquired certain assets and assumed certain
contracts of Camellia Food Stores, Inc. ("Camellia"), a wholesale and retail
grocery distributor headquartered in Norfolk, Virginia. In connection with the
transaction, the Company acquired Camellia's wholesale inventory, customer notes
and fluid dairy operation and assumed the lease for Camellia's truck fleet.
Additionally, in connection with this acquisition, the Company entered into
five-year supply agreements with Camellia and certain other independent retail
customers. The purchase price of the acquisition was approximately $7,000.
On August 23, 1994, the Company acquired all of the outstanding common
stock of Rotelle, Inc. ("Rotelle"), a wholesale frozen food distributor
headquartered in West Point, Pennsylvania. The Company accounted for the Rotelle
acquisition under the purchase method and, accordingly, the results of
operations of the acquired business have been included in the Company's
Consolidated Statements of Earnings since the date of acquisition. The purchase
price of the acquisition was approximately $51,000.
(3) Inventories
At May 3, 1997 and April 27, 1996, approximately 84% and 87%, respectively, of
total inventories were valued using the LIFO method. Costs for the remaining
inventories were determined using the FIFO method. If all inventories were
valued at the lower of FIFO cost or market, inventories would have been higher
by approximately $8,062 at May 3, 1997 and $8,081 at April 27, 1996, and net
earnings would have been higher (lower) by approximately $(12) for fiscal 1997,
$821 for fiscal 1996 and $935 for fiscal 1995. FIFO value of inventories
approximates their replacement cost.
(4) Notes Receivable
The Company's notes receivable are due principally from customers and relate
primarily to financing for store acquisitions and improvements. The majority of
such notes bear interest at the prime rate plus 2% (10 1/2 % at May 3, 1997) and
have remaining terms ranging from 1 to 10 years. Collateral securing such notes
varies, but may include inventory, equipment, fixtures, accounts receivable,
contract rights, personal assets and pledges of Richfood common stock.
Receivables shown in current assets include $6,883 and $5,878 at May 3, 1997 and
April 27, 1996, respectively, related to current maturities of these notes
receivable.
<PAGE>
(5) Property and Equipment and Leases
Property and equipment are summarized as follows:
May 3, April 27,
1997 1996
- -----------------------------------------------------------
Land $ 5,452 $ 5,471
Buildings 64,116 64,477
Fixtures and equipment 114,734 108,576
Leasehold improvements 28,920 27,195
Trucks and autos 17,691 17,030
- -----------------------------------------------------------
Total property and equipment 230,913 222,749
Less accumulated depreciation 109,319 100,090
- -----------------------------------------------------------
Property and equipment, net $121,594 $122,659
===========================================================
Depreciation expense relating to property and equipment was approximately
$16,700, $15,200 and $15,000 for fiscal 1997, fiscal 1996 and fiscal 1995,
respectively.
The Company leases certain warehouse, office and storage facilities,
equipment and retail stores under noncancelable operating leases that expire
within 28 years from May 3, 1997 and have renewal options from 5 to 35 years.
The majority of the leases provide for the payment of taxes, insurance and
maintenance (and contingent rentals based on sales volume, in the case of retail
store leases) by the Company. The Company subleases certain warehouse space and
certain retail stores to third parties.
The Company's Harrisburg, Pennsylvania distribution center, refrigerated
warehouse space and certain retail locations are leased at fair market rates
from various partnerships, the partners of which were related parties in fiscal
1996 and fiscal 1995. The annual rent expense was $5,996 and $5,475 in fiscal
1996 and fiscal 1995, respectively.
As of May 3, 1997, minimum rentals to be paid and minimum sublease rentals
to be received on noncancelable operating leases with remaining terms greater
than one year are as follows:
Minimum Minimum
Lease Sublease
Rentals To Rentals To Net
Fiscal Year Be Paid Be Received Rentals
- --------------------------------------------------------------------
1998 $ 26,479 $ 6,982 $ 19,497
1999 25,144 6,823 18,321
2000 22,491 6,078 16,413
2001 20,229 5,176 15,053
2002 19,327 4,575 14,752
Thereafter 198,327 29,129 169,198
- --------------------------------------------------------------------
Total $311,997 $58,763 $253,234
====================================================================
Total annual rental expense is as follows:
Fiscal Year Ended
- ------------------------------------------------------------
May 3, April 27, April 29,
1997 1996 1995
- ------------------------------------------------------------
Minimum rentals $27,886 $27,977 $26,993
Less sublease income (6,962) (8,174) (8,280)
- ------------------------------------------------------------
Rental expense $20,924 $19,803 $18,713
============================================================
In connection with various guarantees of certain customer store leases,
the Company is contingently liable, in the event of customer nonperformance, for
future lease payments with a present value of approximately $35,000 at May 3,
1997. The related leases expire at varying dates over the next 24 years.
(6) Long-term Debt
Long-term debt consists of the following:
May 3, April 27,
1997 1996
- -----------------------------------------------------------
Senior Subordinated Notes,
unsecured, interest rate of 10 5/8%,
repaid April 1997 $ -- $47,525
Senior Notes, unsecured, interest rate
of 6.15%, due July 1997 to July 2000 36,000 45,000
Other long-term debt 6,725 5,218
- -----------------------------------------------------------
Total long-term debt 42,725 97,743
Less current installments 10,656 10,712
- -----------------------------------------------------------
Long-term debt,
net of current installments $32,069 $87,031
===========================================================
In April 1992, the Company issued $75,000 aggregate principal amount of 10
5/8% Senior Subordinated Notes, due 2002. The Senior Subordinated Notes required
semiannual interest payments. During fiscal 1996, the Company repurchased, at
market prices above par, $27,475 of the Senior Subordinated Notes, and on April
1, 1997, the first permitted optional redemption date, the Company redeemed the
remaining $47,525 at a redemption price of 105.31% of par (note 7).
In July 1993, the Company issued $45,000 aggregate principal amount of
6.15% Senior Notes, due over a term of seven years. The Senior Notes require
semiannual interest payments and annual sinking fund payments consisting of
principal of $9,000 plus accrued interest from July 1, 1996 through July 2000.
The Senior Notes also include an optional redemption provision whereby the
Company may elect to redeem all, or any portion, of the debt prior to maturity
subject to certain make-whole provisions.
<PAGE>
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollar amounts in thousands, except per share data)
The Company maintains a $40,000 revolving credit facility with a
commercial bank to provide for the general working capital needs of the Company.
The unsecured revolving credit facility expires in July 1998. Borrowings under
the facility bear interest at a rate, selected by the Company, equal to (i) a
floating rate equal to the commercial bank's overnight cost of funds plus 0.225%
or (ii) a fixed rate equal to LIBOR plus 0.225%, and include a 0.10% fee on the
average daily unused portion of the facility. There were no borrowings
outstanding under this revolving credit facility at May 3, 1997.
The Company maintains a $20,000 revolving credit facility with a
commercial bank to provide for the general working capital needs of the Company.
The unsecured revolving credit facility expires in December 1997. Borrowings
under the facility bear interest at a fixed rate equal to (i) the commercial
bank's Overnight Commercial Loan Rate or (ii) a Eurodollar Rate fixed for an
interest period determined by the Company plus 0.225%. The facility includes a
0.12% fee on the average daily unused portion of the facility. There were no
borrowings outstanding under this revolving credit facility at May 3, 1997.
Future principal repayments on long-term debt for the five fiscal years
subsequent to fiscal 1997 are approximately as follows: fiscal 1998--$10,700;
fiscal 1999--$13,100; fiscal 2000--$9,800; fiscal 2001--$9,100; and fiscal
2002--$0.
The Company's long-term debt facilities contain covenants for certain
subsidiaries that, among other things, limit the incurrence of additional
indebtedness; prohibit certain liens on assets; require maintenance of minimum
net worth; limit the ability to transfer funds to Richfood in the form of loans,
advances or cash dividends; and require certain financial ratios to be met as of
each quarter end.
As of May 3, 1997, the Company issued $9,064 in standby letters of credit,
primarily for self-insurance purposes. These letters of credit are subject to
annual renewal and will be replaced with similar letters of credit in the normal
course of business.
Interest payments made under long-term debt were $7,973 for fiscal 1997,
$11,671 for fiscal 1996 and $17,706 for fiscal 1995.
(7) Extraordinary Loss
The extraordinary loss of $1,882, net of tax benefit of $1,308, for fiscal 1997,
relates to the redemption, at 105.31% of par, of the remaining $47,525 principal
amount of Senior Subordinated Notes on April 1, 1997, the first permitted
optional redemption date, and is comprised of (i) the amount paid in excess of
their par value, and (ii) the write-off of related deferred financing costs. The
Company primarily used cash on hand, supplemented by borrowings under existing
revolving credit facilities, to pay the redemption price for the Senior
Subordinated Notes.
The extraordinary loss of $2,164, net of tax benefit of $1,733, for fiscal
1996 primarily related to the repurchase, at market prices above par, of $27,475
principal amount of Senior Subordinated Notes, and is comprised of (i) the
amount paid in excess of their par value, and (ii) the write-off of related
deferred financing costs.
(8) Income Taxes
The components of income tax expense (benefit) related to earnings before income
taxes and extraordinary loss are as follows:
Fiscal Year Ended
- ------------------------------------------------------------
May 3, April 27, April 29,
1997 1996 1995
- ------------------------------------------------------------
Current:
Federal $27,800 $26,767 $21,502
State 5,094 4,598 4,102
- ------------------------------------------------------------
32,894 31,365 25,604
- ------------------------------------------------------------
Deferred:
Federal 6,941 (1,370) 876
State 761 (681) 945
- ------------------------------------------------------------
7,702 (2,051) 1,821
- ------------------------------------------------------------
Income taxes $40,596 $29,314 $27,425
- ------------------------------------------------------------
Income tax payments $40,074 $26,517 $21,160
============================================================
<PAGE>
Income tax expense differs from the amounts resulting from applying the
statutory federal income tax rate to earnings before income taxes and
extraordinary loss as follows:
Fiscal Year Ended
- ----------------------------------------------------------------
May 3, April 27, April 29,
1997 1996 1995
- ----------------------------------------------------------------
Taxes computed using
federal statutory rate 35.00% 35.00% 35.00%
State income taxes, net of
federal income tax benefit 3.73 4.98 4.28
Nondeductibility of goodwill
amortization expense 0.74 2.58 1.11
Change in valuation
allowance -- (1.35) 1.08
Other, net 0.35 1.57 (0.32)
- ---------------------------------------------------------------
Effective tax rate 39.82% 42.78% 41.15%
===============================================================
Deferred income taxes for fiscal 1997 and fiscal 1996 reflect the income
tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. Significant components of deferred tax assets and liabilities at May
3, 1997 and April 27, 1996 are as follows:
May 3, April 27,
1997 1996
- ----------------------------------------------------------------
Deferred tax assets:
Allowance for doubtful accounts $ 1,907 $ 2,010
Inventories 446 2,277
Deferred revenue 2,301 1,987
Accrued expenses 11,678 14,831
Other 4,329 2,060
- ----------------------------------------------------------------
Total deferred tax assets 20,661 23,165
- ----------------------------------------------------------------
Deferred tax liabilities:
Property and equipment-depreciation (16,303) (12,170)
Retirement plans (2,522) (2,804)
Other (3,466) (2,691)
- ----------------------------------------------------------------
Total deferred tax liabilities (22,291) (17,665)
- ----------------------------------------------------------------
Net deferred tax assets (liabilities) $ (1,630) $ 5,500
================================================================
Net current deferred tax assets $ 10,671 $ 17,295
Net noncurrent deferred tax liabilities (12,301) (11,795)
- ----------------------------------------------------------------
Net deferred tax assets (liabilities) $ (1,630) $ 5,500
================================================================
(9) Stock Option Plans and Other
The Company's Amended and Restated Omnibus Stock Incentive Plan, dated June 1996
(the "Omnibus Plan"), authorizes the granting of a maximum of 2,250,000 shares
of Richfood common stock (subject to adjustment to reflect certain dilutive
events), in the form of shares of restricted common stock, incentive stock
options and nonqualified stock options with or without stock appreciation
rights, stock awards and performance shares, to certain employees. Options to
purchase Richfood common stock are granted at a price no less than the fair
market value of the stock on the date of grant (if the option is an incentive
stock option) or 50% of the fair market value of the stock on the date of grant
(if the option is a nonqualified stock option). Options may be exercised at such
times and subject to such conditions as may be prescribed by the Company at the
time of grant. The maximum period in which an option may be exercised is
determined by the Company at the time of grant and cannot exceed ten years.
Options outstanding under the Omnibus Plan vest in equal installments over a
four year period and have a term of ten years from date of grant. Options to
purchase approximately 247,000 shares of common stock remain outstanding under
the Omnibus Plan at May 3, 1997. At May 3, 1997, approximately 2,000,000 shares
of common stock remained available for grant. At April 27, 1996, approximately
123,000 shares of common stock remained available for grant (the amendment and
restatement of the Omnibus Plan resulted in an additional 2,250,000 shares
available for grant).
The Company's Non-Employee Directors' Stock Option Plan (the "Directors'
Stock Plan") authorizes the granting of a maximum of 112,500 shares of Richfood
common stock (subject to adjustment to reflect certain dilutive events) in the
form of nonqualified stock options. The Directors' Stock Plan provides for each
eligible director to receive, on September 1 of each year, an option to purchase
1,500 shares of common stock. Options to purchase Richfood common stock are
granted at the fair market value of the stock on the date of grant, vest in
equal installments over a four year period and have a term of ten years. Options
to purchase approximately 42,000 shares of common stock remain outstanding under
the Directors' Stock Plan at May 3, 1997. Approximately 68,000 and 83,000 shares
of common stock remained available for grant at May 3, 1997 and April 27, 1996,
respectively.
<PAGE>
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollar amounts in thousands, except per share data)
At May 3, 1997, there were options to purchase approximately 895,000
shares of Richfood common stock outstanding that were granted under other
employee incentive stock plans. The Company does not anticipate any future
grants under these plans.
Pro forma information regarding net earnings and earnings per share is
required by SFAS No. 123, and has been determined based on the fair value at the
grant date for options awarded in fiscal 1997 and fiscal 1996, consistent with
the provisions of SFAS No. 123. The fair value of each option grant is estimated
using the Black-Scholes option-pricing model with the following weighted-
average assumptions used for grants during both fiscal 1997 and 1996: dividend
yield of 0.05%, expected volatility of 0.18 and expected lives of 5 years; and a
risk-free interest rate of 6.29% and 5.90% for fiscal 1997 and fiscal 1996,
respectively. The Black-Scholes option valuation model requires the input of
highly subjective assumptions including expectations of future dividends and
stock price volatility. The assumptions are only used for making the required
fair value estimate and should not be considered as indicators of future
dividend policy or stock price appreciation. For purposes of the pro forma
disclosures, the estimated fair value of the options is amortized to pro forma
expense over the options' vesting period. The pro forma effect on net earnings
for fiscal 1997 and fiscal 1996 does not take into consideration pro forma
compensation expense related to grants made prior to fiscal 1996 and,
accordingly, may not be indicative of the pro forma effect on net earnings in
future years. If the Company had elected to recognize compensation expense
related to its stock options granted in fiscal 1997 and fiscal 1996 in
accordance with the provisions of SFAS No. 123, the decrease in net earnings and
net earnings per common share would have been immaterial.
A summary of the number of shares (in thousands) subject to outstanding
stock options and related information is as follows:
Fiscal Year Ended
- -------------------------------------------------------------
May 3, April 27, April 29,
1997 1996 1995
- -------------------------------------------------------------
Weighted
Average
Exercised
Shares Price Shares Shares
- -------------------------------------------------------------
Outstanding beginning
of year 1,404 $ 9.82 1,350 1,248
Granted 356 23.19 401 303
Exercised (492) 6.39 (233) (171)
Canceled (84) 18.17 (114) (30)
- -------------------------------------------------------------
Outstanding at end
of year 1,184 $14.68 1,404 1,350
- -------------------------------------------------------------
Price range at end
of year $ 2.55- $ 2.55- $ 2.55-
$25.33 $18.33 $10.59
=============================================================
The weighted average fair value of each option granted during fiscal 1997
was $8.28. The number and weighted average fair value of shares of nonvested
stock granted during fiscal 1997 was 37,500 and $21.92 per share, respectively.
Information regarding the shares (in thousands) subject to outstanding
stock options at May 3, 1997 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------------------------
Weighted Average Weighted Weighted
Range of Remaining Avergage Average
exercise prices Shares Contractual Life Exercise Price Shares Exercise Price
- ---------------------------------------------------------------------------------------
<S> <C>
$ 2.55 - $ 6.04 270 5 years $ 5.17 270 $ 5.17
$10.33 - $10.59 255 7 years $10.35 133 $10.34
$14.33 - $18.33 322 8 years $17.18 104 $17.20
$21.38 - $25.33 337 9 years $23.17 -- --
- ---------------------------------------------------------------------------------------
$ 2.55 - $25.33 1,184 8 years $14.68 507 $ 9.00
=======================================================================================
</TABLE>
During fiscal 1996 certain officers of Super Rite who participated in the
Company's April 1996 secondary public offering, which was completed within six
months after the date of the Super Rite acquisition, remitted proceeds from
short swing profits of $1,628 to the Company.
<PAGE>
(10) Retirement Plans
Substantially all of the Company's employees are covered by defined benefit
plans. The funded status of the plans is as follows:
<TABLE>
<CAPTION>
May 3, 1997 April 27, 1996
- --------------------------------------------------------------------------------------------------------------------------------
Assets Exceed Accumulated Benefits Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets Accumulated Benefits Exceed Assets
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Actuarial present value of vested
benefit obligation $27,513 $ 4,695 $25,280 $3,972
================================================================================================================================
Accumulated benefit obligation $29,220 $ 4,927 $26,705 $4,070
================================================================================================================================
Fair value of plan assets $57,721 $ 3,771 $54,247 $3,304
Projected benefit obligation 41,893 4,927 39,531 4,109
- --------------------------------------------------------------------------------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligation 15,828 (1,156) 14,716 (805)
Unrecognized net transition asset (4,192) 596 (5,099) --
Unrecognized prior service cost 152 -- 177 --
Unrecognized net (gain) loss (2,283) -- (761) 120
Minimum liability -- (546) -- (80)
- --------------------------------------------------------------------------------------------------------------------------------
Net pension asset (liability) $ 9,505 $(1,106) $ 9,033 $ (765)
================================================================================================================================
</TABLE>
The Company's retirement plans cover employees who meet certain age and
service requirements. Retirement benefits vest under the various plans after 5
years of service, and are based on years of service and either average final
compensation, or a fixed dollar payment per month. The Company's funding policy
has been to contribute annually an amount actuarially determined to provide the
plans with sufficient assets to meet future benefit payment requirements. Plan
assets under the various plans at May 3, 1997 consist of equity securities, U.S.
government and agency obligations, mortgage-backed securities, corporate
obligations, mutual funds and guaranteed insurance contracts.
The following are the components of net retirement expense (benefit)
related to the defined benefit plans:
Fiscal Year Ended
- ------------------------------------------------------------
May 3, April 27, April 29,
1997 1996 1995
- ------------------------------------------------------------
Service cost -- present value
of benefits earned during
the year $ 2,710 $ 2,440 $ 2,109
Interest cost on projected
benefit obligation 3,315 3,087 2,781
Expected return on plan assets,
net of amount deferred (4,787) (6,325) (4,034)
Net amortization and deferral (1,193) 811 (1,128)
- ------------------------------------------------------------
Net retirement expense
(benefit) $ 45 $ 13 $ (272)
============================================================
The weighted average discount rate assumed by the Company ranged from
7.75% to 8% for all years presented. The Company assumed an expected long-term
rate of return of 9% and a projected increase in compensation of 6% for all
years presented.
The Company maintains a nonqualified, unfunded supplemental retirement
plan for selected management personnel. Supplemental retirement plan benefits
vest after specified years of service requirements are met and are based on
years of service and average final compensation. The Company established a trust
that maintains life insurance policies to act as a financing source for the
plan. The cash surrender value of the life insurance policies was $1,198 at May
3, 1997 and $1,066 at April 27, 1996. The projected benefit obligation for the
plan was $2,350 at May 3, 1997 and $1,327 at April 27, 1996.
The Company maintains defined contribution employee savings and stock
ownership plans under section 401(k) of the Internal Revenue Code. These plans
are offered to substantially all employees who meet certain age and service
requirements and allow for participant pretax contributions and employer
matching contributions. The Company contributed $664, $655 and $783 to the plans
for fiscal 1997, fiscal 1996 and fiscal 1995, respectively.
Certain employees are covered under a union-sponsored, collectively
bargained, multi-employer pension plan. The Company's contribution to this plan
was $371, $346 and $348 in fiscal 1997, fiscal 1996 and fiscal 1995,
respectively.
<PAGE>
RICHFOOD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollar amounts in thousands, except per share data)
(11) Significant Customers
Sales to three wholesale customers accounted for 17%, 9% and 9% of the Company's
sales in fiscal 1997, 16%, 9% and 11% of sales in fiscal 1996 and 15%, 10% and
13% of sales in fiscal 1995. The Company maintains supply agreements with these
customers which expire in December 1999, December 1997 and December 2001,
respectively. The Company's third largest customer has announced that it is
currently exploring strategic alternatives.
(12) Litigation And Related Matters
The Company is party to various legal actions that are incidental to its
business. While the outcome of legal actions cannot be predicted with certainty,
the Company believes that the outcome of any of these proceedings, or all of
them combined, will not have a material adverse effect on its consolidated
financial position or business.
(13) Industry Segments
At May 3, 1997, the Company operated a wholesale grocery division and a retail
grocery division consisting of seventeen retail grocery stores in the
Mid-Atlantic region. The Company's wholesale grocery division provides a full
range of grocery, dairy, frozen food, produce and meat products to chains and
independent retailers throughout the region. Sales by industry segment include
sales to unaffiliated customers, as reported in the Consolidated Statements of
Earnings, and sales between industry segments, which are accounted for on terms
comparable to unaffiliated customers.
Operating profit represents sales, less cost of goods sold and operating
and administrative expenses. Identifiable assets by segment, except for
goodwill, are those assets used directly in the operations of that unit.
The following is industry segment information:
Fiscal Year
- -----------------------------------------------------------
May 3, April 27, April 29,
1997 1996 1995
- -----------------------------------------------------------
Sales:
Wholesale grocery $3,280,229 $3,096,997 $2,857,374
Retail grocery 338,471 322,787 304,718
Intersegment sales (207,075) (168,916) (169,357)
- -----------------------------------------------------------
Total sales $3,411,625 $3,250,868 $2,992,735
===========================================================
Operating profit:
Wholesale grocery $ 108,413 $ 90,882 $ 83,318
Retail grocery 5,027 5,551 2,911
General corporate
expenses (7,999) (6,787) (4,613)
- -----------------------------------------------------------
Total operating profit 105,441 89,646 81,616
- -----------------------------------------------------------
Merger and integration
costs -- 11,993 --
Interest expense 7,166 12,354 18,312
Interest income (3,672) (3,230) (3,339)
- -----------------------------------------------------------
Earnings before income
taxes and extra-
ordinary loss $ 101,947 $ 68,529 $ 66,643
===========================================================
Identifiable assets:
Wholesale grocery $ 512,227 $ 494,266 $ 505,810
Retail grocery 69,253 69,995 74,960
- -----------------------------------------------------------
Total identifiable
assets $ 581,480 $ 564,261 $ 580,770
===========================================================
Depreciation and
amortization:
Wholesale grocery $ 23,355 $ 21,092 $ 19,119
Retail grocery 5,879 5,997 4,784
- -----------------------------------------------------------
Total depreciation
and amortization $ 29,234 $ 27,089 $ 23,903
===========================================================
Capital expenditures:
Wholesale grocery $ 9,368 $ 9,518 $ 6,276
Retail grocery 6,047 5,263 13,700
- -----------------------------------------------------------
Total capital
expenditures $ 15,415 $ 14,781 $ 19,976
===========================================================
<PAGE>
(14) Selected Quarterly Data (Unaudited)
Summarized quarterly financial information for the quarters indicated and market
price and dividend information for Richfood's common stock are as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended May 3, 1997
- --------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
(12 Weeks) (12 Weeks) (12 Weeks) (17 Weeks)
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Sales $753,383 $739,640 $807,272 $1,111,330
Gross margin 77,899 77,620 85,493 117,314
Earnings before extraordinary loss 12,445 12,572 15,000 21,334
Extraordinary loss, net of tax -- -- -- (1,882)
- --------------------------------------------------------------------------------------------------------------------
Net earnings $ 12,445 $ 12,572 $ 15,000 $ 19,452
====================================================================================================================
Earnings per common share:
Earnings before extraordinary loss $ 0.26 $ 0.27 $ 0.32 $ 0.45
Extraordinary loss -- -- -- (0.04)
- --------------------------------------------------------------------------------------------------------------------
Net earnings $ 0.26 $ 0.27 $ 0.32 $ 0.41
====================================================================================================================
Cash dividends declared per common share $ 0.03 $ 0.03 $ 0.03 $ 0.03
====================================================================================================================
Market price range:
Low $ 21 1/3 $ 21 11/12 $ 21 5/8 $ 18 5/8
High $ 24 1/4 $ 25 5/12 $ 28 1/8 $ 25 1/4
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended April 27, 1996(a)
- ------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
(12 Weeks) (12 Weeks) (12 Weeks) (16 Weeks)
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Sales $766,967 $717,543 $766,802 $999,556
Gross margin 76,999 68,708 75,731 104,869
Merger and integration costs -- -- 11,993 --
Earnings before extraordinary loss 10,165 9,850 3,774 15,426
Extraordinary loss, net of tax -- -- (1,002) (1,162)
- ------------------------------------------------------------------------------------------------------------------
Net earnings $ 10,165 $ 9,850 $ 2,772 $ 14,264
==================================================================================================================
Earnings per common share:
Earnings before extraordinary loss $ 0.22 $ 0.21 $ 0.08 $ 0.33
Extraordinary loss -- -- (0.02) (0.02)
- ------------------------------------------------------------------------------------------------------------------
Net earnings $ 0.22 $ 0.21 $ 0.06 $ 0.31
==================================================================================================================
Cash dividends declared per common share $ 0.02 $ 0.02 $ 0.02 $ 0.02
==================================================================================================================
Market price range:
Low $ 13 $ 15 1/6 $ 16 1/2 $ 15 3/4
High 16 1/6 17 5/6 19 1/3 22
</TABLE>
(a) Fiscal 1996 first, second, third and fourth quarters include thirteen,
eleven, twelve and sixteen weeks, respectively, of Super Rite operating
results.
Richfood's common stock was listed on the New York Stock Exchange (NYSE)
on December 6, 1996. Market price information for the periods after listing on
the NYSE reflect the sales prices of the common stock on the NYSE composite
tape. Prior to listing on the NYSE, Richfood's common stock was traded in the
over-the-counter market and was quoted through The Nasdaq National Market.
Market price information for periods prior to listing on the NYSE reflects
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not necessarily represent actual transactions.
EXHIBIT 21.1
RICHFOOD CONSOLIDATED GROUP
(As of May 3, 1997)
Subsidiaries of Richfood Holdings, Inc. [Virginia]
Richfood, Inc. [Virginia]
Rotelle, Inc. [Pennsylvania]
Market Funding, Inc. [Delaware]
Market Insurance Company, Ltd. [Bermuda]
Market Transportation Services, Inc. [Delaware]
Super Rite Corporation [Delaware]
Penn Perishables, Inc. [Virginia]
Subsidiaries of Richfood, Inc. [Virginia]
- ------------------------------
Market Improvement Corporation [Virginia]
Market Insurance Agency, Inc. [Virginia]
G.W.M. Holdings, Inc. [Virginia]
Rich-Temps, Inc. [Virginia]
Maryland Retail Services, Inc. [Virginia]
Retail Funding Corporation [Virginia]
Market Leasing Company [Virginia]
MFFL, Inc. [Virginia]
Market Brands, Inc. [Delaware]
Subsidiaries of Rotelle, Inc. [Pennsylvania]
- -----------------------------
Rotelle Management, Inc. [Pennsylvania]
Spring House Leasing, Inc. [Pennsylvania]
Penn Brands, Inc. [Delaware]
<PAGE>
Subsidiaries of Super Rite Corporation [Delaware]
Super Rite Foods, Inc. [Delaware]
Subsidiaries of Super Rite Foods, Inc. [Delaware]
Foodarama Incorporated [Delaware]
SRF Subsidiary Corporation [Delaware]
Subsidiaries of Foodarama Incorporated [Delaware]
Foodarama, Inc. [Maryland]
Foodarama Group, Inc. [Maryland]
Midway Markets of Delaware, Inc. [Delaware]
Food-A-Rama-G.U., Inc. [Maryland]
EXHIBIT 23.1
Consent of Independent Auditors
The Board of Directors
Richfood Holdings, Inc.:
We consent to the incorporation by reference in this Annual Report on Form 10-K
of Richfood Holdings, Inc. of our report dated June 14, 1997, included in the
May 3, 1997 Annual Report to Shareholders of Richfood Holdings, Inc.
Our audit also included the financial statement schedule of Richfood Holdings,
Inc. for the fiscal year ended May 3, 1997 listed in Item 14(a). This schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audit. In our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We also consent to the incorporation by reference in (a) the Registration
Statement (Form S-8 No. 33-41210) pertaining to the Richfood Holdings, Inc.
Long-Term Incentive Plan; (b) the Registration Statement (Form S-8 No. 33-41570)
pertaining to the Richfood Holdings, Inc. Savings and Stock Ownership Plan; (c)
the Registration Statement (Form S-8 No. 33-43652) pertaining to the Richfood
Holdings, Inc. Omnibus Stock Incentive Plan; (d) the Registration Statement
(Form S-8 No. 33-55299) pertaining to the Richfood Holdings, Inc. Non-Employee
Directors' Stock Option Plan; (e) the Registration Statement (Form S-8 No.
33-63447) pertaining to the Super Rite Corporation 1991 Omnibus Stock Incentive
Plan; (f) the Registration Statement (Form S-8 No. 333-1251) pertaining to the
Super Rite Foods, Inc. Employee Investment Opportunity Plan; (g) the
Registration Statement (Form S-8 No. 333-1253) pertaining to the Super Rite
Foods, Inc. Employee Investment Opportunity Plan for Retail Union Employees; and
(h) the Registration Statement (Form S-8 No. 333-16411) pertaining to the
Richfood Holdings, Inc. Amended and Restated Omnibus Stock Incentive Plan of our
report dated June 14, 1997, with respect to the consolidated financial
statements of Richfood Holdings, Inc., incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedule of Richfood Holdings, Inc., included in this annual report on
Form 10-K of Richfood Holdings, Inc. for the fiscal year ended May 3, 1997.
/s/ ERNST & YOUNG LLP
Richmond, Virginia
July 30, 1997
EXHIBIT 23.2
Consent Of Independent Auditors
The Board of Directors
Richfood Holdings, Inc.:
We consent to incorporation by reference in the registration statements (Nos.
33-41210, 33-41570, 33-43652, 33- 55299, 33-63447, 333-1251, 333-1253 and
333-16411) on Form S-8 of Richfood Holdings, Inc. of our report dated June 10,
1996, relating to the consolidated balance sheet of Richfood Holdings, Inc. and
subsidiaries as of April 27, 1996, and the related consolidated statements of
earnings, shareholders' equity, cash flows and financial statement schedule for
the fiscal years ended April 27, 1996 and April 29, 1995, which report is
included in the May 3, 1997 annual report on Form 10-K of Richfood Holdings,
Inc. The consolidated financial statements give effect to the merger on October
15, 1995 of a wholly-owned subsidiary of Richfood Holdings, Inc. with and into
Super Rite Corporation, which has been accounted for using the pooling of
interests method as described in note 2 to the consolidated financial
statements. We did not audit the fiscal 1995 consolidated financial statements
and financial statement schedule of Super Rite Corporation, which consolidated
financial statements reflect sales constituting approximately 49% of the related
consolidated financial statement totals for fiscal 1995. The fiscal 1995
consolidated financial statements and financial statement schedule of Super Rite
Corporation were audited by other auditors, whose reports thereon have been
furnished to us, and our opinion, insofar as it relates to the amounts included
for Super Rite Corporation, is based solely on the report of the other auditors.
/s/ KPMG PEAT MARWICK LLP
Richmond, Virginia
July 30, 1997
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference of our report dated April 21, 1995,
except for the sixth paragraph of Note 6 which is dated as of May 5, 1995, on
our audits of the consolidated financial statements and financial statement
schedule of Super Rite Corporation and subsidiaries for the fifty-three week
period ended March 4, 1995 into: (1) the Registration Statement on Form S-8
(333-01251) of Richfood Holdings, Inc.; (2) the Registration Statement on Form
S-8 (333-01253) of Richfood Holdings, Inc.; (3) the Registration Statement on
Form S-8 (33-63447) of Richfood Holdings, Inc.; (4) the Registration Statement
on Form S-8 (33-55299) of Richfood Holdings, Inc.; (5) the Registration
Statement on Form S-8 (33-43652) of Richfood Holdings, Inc.; (6) the
Registration Statement on Form S-8 (33-41570) of Richfood Holdings, Inc.; (7)
the Registration Statement on Form S-8 (33-41210) of Richfood Holdings, Inc.;
and (8) the Registration Statement on Form S-8 (333- 16411) of Richfood
Holdings, Inc. which report is included in this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
Harrisburg, Pennsylvania
July 30, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED May 3, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-3-1997
<PERIOD-END> MAY-3-1997
<CASH> 10,416
<SECURITIES> 0
<RECEIVABLES> 108,184
<ALLOWANCES> 3,445
<INVENTORY> 163,510
<CURRENT-ASSETS> 293,091
<PP&E> 230,913
<DEPRECIATION> 109,319
<TOTAL-ASSETS> 581,480
<CURRENT-LIABILITIES> 271,223
<BONDS> 0
0
0
<COMMON> 72,258
<OTHER-SE> 186,392
<TOTAL-LIABILITY-AND-EQUITY> 581,480
<SALES> 3,411,625
<TOTAL-REVENUES> 3,411,625
<CGS> 3,053,299
<TOTAL-COSTS> 3,053,299
<OTHER-EXPENSES> 252,885
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,166
<INCOME-PRETAX> 101,947
<INCOME-TAX> 40,596
<INCOME-CONTINUING> 61,351
<DISCONTINUED> 0
<EXTRAORDINARY> (1,882)
<CHANGES> 0
<NET-INCOME> 59,469
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 1.26
</TABLE>
EXHIBIT 99.1
Cautionary Statements for Purposes of the Safe Harbor Provisions of the
Securities Litigation Reform Act of 1995
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 (the "Act"), Richfood Holdings, Inc. (the
"Company") is filing cautionary statements identifying important factors that
could cause the Company's actual results to differ materially from those
projected in forward looking statements made by, or on behalf of, the Company.
When used in this Annual Report on Form 10-K for the fiscal year ended May 3,
1997, and in future filings by the Company with the Securities and Exchange
Commission, in the Company's press releases, other communications, and in oral
statements made by or with the approval of an authorized executive officer, the
words or phrases "will likely result", "are expected to ", "will continue", "is
anticipated", "estimated", "project", "believe", or similar expressions are
intended to identify forward-looking statements within the meaning of the Act.
The following cautionary statements are for use as a readily available written
reference document in connection with forward looking statements as defined in
the Act. These factors are in addition to any other cautionary statements,
written or oral, which may be made or referred to in connection with any such
forward looking statement.
Wholesale Business Risks
The Company's sales and earnings at wholesale are dependent on the Company's
ability to retain existing customers and attract new customers as well as its
ability to control costs. While the Company believes that its purchasing power,
low cost structure and efficient service levels, coupled with its commitment to
the success of its retail customers, should enable it to attain its goals,
certain factors could adversely impact the Company's results, including: a
decline of its independent retailer customer base due to competition and other
factors; a loss of corporate retail sales due to increased competition and other
risks detailed more fully below; consolidations of retailers or competitors; any
increased self- distribution by chain retailers; increases in operating costs;
the possibility that the Company will incur additional costs and expenses due to
integration and rationalization of acquired businesses; and entry of new or
non-traditional distribution systems into the industry.
Risks of Strategic Acquisitions and Expansions
The Company intends to continue to grow its wholesale and retail segments
through strategic acquisitions and expansions. Strategic acquisitions involve a
number of special risks, including: making acquisitions at acceptable rates of
return; the diversion of management's attention to assimilation of the
operations and personnel of the acquired business; potential adverse short-term
effects on the Company's operating results; and amortization of acquired
intangible assets. In addition, while the Company believes that additional
acquisition opportunities consistent with its strategic criteria may arise from
time to time, no assurance can be given that the Company will consummate
additional strategic acquisitions. Expansion is also subject to a number of
risks, including the adequacy of the Company's capital resources; the location
of suitable store or distribution center sites and the negotiation of acceptable
lease terms; the ability to hire, train and integrate employees; and possible
costs and other risks of integrating or adapting operational systems.
Retail Business Risks
The Company's retail segment faces risks which may prevent the Company from
maintaining or increasing retail sales and earnings, including competition from
other retail chains, supercenters, non-traditional competitors, and emerging
alternative formats in markets where the Company has a retail concentration.
<PAGE>
Liquidity
Management expects that the Company will continue to generate adequate funds
from its operations and through borrowings under existing long-term credit
facilities to maintain its competitive position and to expand its business.
However, if significant additional funds are necessary in connection with
acquisitions, or if capital spending significantly exceeds anticipated capital
needs, additional funding could be required from other sources, which could
adversely impact the Company's borrowing costs and future financial flexibility.
Litigation
While the Company believes that it is currently not subject to any litigation
that will have a material adverse effect on its financial position or results of
operations, the costs and other effects of legal and administrative cases and
proceedings and settlements are impossible to predict with certainty. The
current environment for litigation involving food wholesalers may increase the
risk of litigation being commenced against the Company. The Company would incur
the costs of defending any such litigation whether or not any claim had merit.
The foregoing should not be construed as exhaustive and the Company disclaims
any obligation subsequently to revise any forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.
