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 1, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934
For the transition period __________ to __________
Commission file number 0-16900
RICHFOOD HOLDINGS, INC.
Incorporated under the laws of I.R.S. Employer Identification No.
Virginia 54-1438602
4860 Cox Road, Suite 300
Glen Allen, Virginia 23060
Telephone Number (804) 915-6000
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: Common Stock
Purchase Warrants
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 30, 1999, the aggregate market value of all shares of voting stock held
by non-affiliates was $815 million (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 30, 1999, was as follows: Common
Stock, without par value, 47,727,490 shares.
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PART I
ITEM 1. BUSINESS
General
Richfood Holdings, Inc. ("Richfood" or the "Company") is a major food
wholesaler and retailer operating primarily in the Mid-Atlantic region of the
United States. Richfood's Wholesale Division is the leading wholesale food
distributor in the Mid-Atlantic region and the fourth largest publicly owned
food wholesaler in the United States. Richfood's Retail Division is one of the
largest food retailers in its Mid-Atlantic operating region.
Richfood's Wholesale Division 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 two principal distribution centers. Richfood's distribution centers are
strategically located within its operating region and have capacity to
accommodate additional growth. The Company's Wholesale Division serves
approximately 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. Richfood's Retail Division operates the
39 store Farm Fresh chain located primarily in the Hampton Roads region of
Virginia, 37 Shoppers Food Warehouse stores in the greater Washington, D.C.,
metropolitan area and the Metro chain of 16 retail grocery stores in the
metropolitan Baltimore, Maryland, area.
Richfood was organized in July 1987 as the successor to a wholesale
grocery company established in 1935. Richfood's principal executive offices are
located at 4860 Cox Road, Suite 300, Glen Allen, Virginia 23060.
Recent Developments
On June 9, 1999, Richfood entered into an Agreement and Plan of Merger
(the "Merger Agreement"), dated as of June 9, 1999, among SUPERVALU INC., a
Delaware corporation ("SUPERVALU"), Winter Acquisition, Inc., a Delaware
corporation and wholly owned subsidiary of SUPERVALU ("Acquisition"), and
Richfood. The following summary of the transaction is qualified in its entirety
by reference to the Merger Agreement, a copy of which was filed as Exhibit 2.1
to the Company's Current Report on Form 8-K, dated June 11, 1999, and is
incorporated by reference herein. Under the terms of the Merger Agreement,
Richfood will be merged with and into Acquisition (the "Merger") with
Acquisition being the surviving corporation in the Merger. Pursuant to the
Merger, each share of Richfood Common Stock will be converted into, and become
exchangeable for, at the election of the holder, either (i) $18.50 in cash (the
"Cash Consideration") or (ii) the number of shares of common stock, par value
$1.00 per share, of SUPERVALU ("SUPERVALU Common Stock") equal to the ratio
determined by dividing $18.50 by the average of the per share last sales price
(the "Average SUPERVALU Price") of SUPERVALU Common Stock as reported on the New
York Stock Exchange composite transactions reporting system for the twenty (20)
consecutive trading days ending on (and including) the seventh trading day prior
to the closing date for the Merger (the "Stock Consideration," and together with
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the Cash Consideration, the "Merger Consideration"); provided, however, that
shareholder elections shall be subject to allocation and proration such that the
number of shares of Richfood Common Stock to be converted into the right to
receive Cash Consideration in the Merger and the number of shares of Richfood
Common Stock to be converted into the right to receive Stock Consideration in
the Merger shall in each case be equal to fifty percent (50%) of the number of
shares of Richfood Common Stock issued and outstanding immediately prior to the
closing of the Merger.
The transaction has been approved by the Boards of Directors of
Richfood and SUPERVALU, but remains subject to regulatory approvals (including
expiration or early termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976), approval by Richfood's
shareholders and other customary closing conditions. In addition, the Merger
Agreement provides that if the Average SUPERVALU Price is less than $18.50, each
of SUPERVALU and Richfood will have the right to terminate the Agreement;
provided, however, that if the Average SUPERVALU Price is between $15.00 and
$18.50, Richfood will not have such termination right if SUPERVALU increases the
portion of the Merger Consideration payable in cash (to the fullest extent
consistent with treating the Merger as a reorganization under Section 368(a) of
the Internal Revenue Code of 1986), and thereafter with additional SUPERVALU
Common Stock. The transaction is expected to be completed before the end of
calendar 1999.
Either party may terminate the Merger Agreement under certain
circumstances, including if the Merger has not been consummated on or before
January 15, 2000. In addition, Richfood may terminate the Merger Agreement if
(i) it receives a bona fide, written, unsolicited offer with respect to any
merger, consolidation or business combination involving Richfood or any of its
subsidiaries, or the acquisition of all or any significant part of the assets of
Richfood or any of its subsidiaries, that the Board of Directors of Richfood
determines is more favorable, from a financial point of view, to Richfood's
shareholders than the Merger (a "Superior Proposal"), (ii) SUPERVALU does not
match that Superior Proposal and (iii) Richfood is prepared to enter into a
binding written agreement concerning the transaction that constitutes the
Superior Proposal. In the event that Richfood terminates the Merger Agreement to
enter into an agreement with respect to a Superior Proposal, or if Richfood or
SUPERVALU terminate the Merger Agreement in certain other limited circumstances,
Richfood would be required to pay SUPERVALU a termination fee of $27.0 million,
plus SUPERVALU's reasonable out-of-pocket expenses (not to exceed $3.0 million
in the aggregate).
Richfood has postponed indefinitely its 1999 annual meeting of
shareholders, which previously had been scheduled for August 26, 1999, and
instead will hold a special meeting of shareholders to consider the Merger. The
date of the special meeting, which is expected to be held in August 1999, will
be announced as soon as practicable.
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, including the creation of the Company's Retail
Division. 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
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efficient wholesale food distributors in the United States. The Company has
reduced and controlled costs by (i) capitalizing on its size to improve its
purchasing capabilities, (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 benefiting from its operating leverage. In addition, the
Company's retail acquisitions have added significant incremental wholesale
volume, permitting the Company to better utilize its existing warehouse
capacity.
Increasing Sales
The Company's purchasing power, low cost structure and efficient
service levels permit the Wholesale Division 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 the success of its Wholesale Division depends
in large part upon the success of its retail customers, including the Company's
Retail Division. Accordingly, the Wholesale Division 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 customers in adapting to
changes in consumer preferences and to competition in the marketplace and (iii)
offering its 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, the Wholesale Division is able to provide its 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.
Pursuing Strategic Acquisitions
Consolidation trends in the food distribution industry have in the past
presented opportunities for strategic acquisitions by the Company. The Company
has historically pursued strategic targets that are well run, established
wholesale and retail 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
eight acquisitions, which have more than tripled its sales, improved its
operating leverage, expanded its customer base, enhanced its presence in various
regional markets and resulted in the creation of the Retail Division. The
Company's more recent acquisitions include:
o Super Rite. Effective October 15, 1995, the Company completed the
acquisition of Super Rite Foods, Inc. ("Super Rite"), a full service
wholesale food distributor supplying more than 240 retail supermarkets
in Pennsylvania, New Jersey, Maryland, Delaware, Virginia and West
Virginia (the "Super Rite Acquisition"). The Super Rite Acquisition
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approximately doubled the Company's sales and, with the acquisition
of Super Rite's Metro retail grocery chain in the Baltimore,
Maryland, marketplace,marked the creation of Richfood's Retail
Division.
As part of the Richfood/Pennsylvania unit of the Company's Wholesale
Division, Super Rite operates approximately 1.0 million square feet of
warehouse space, including a 731,000 square foot highly efficient,
automated distribution center in Harrisburg, Pennsylvania. Super
Rite's distribution system complements the existing operations of the
Richfood/Virginia unit of the Company's Wholesale Division, 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 the Company's Norristown,
Pennsylvania, fresh produce business 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.
o Norristown. On September 30, 1996, a subsidiary of the Company
("Norristown") 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 represented 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 became one of
the largest procurers of fresh produce on the East Coast.
o Farm Fresh. On March 4, 1998, a subsidiary of the Company ("Farm
Fresh") completed the acquisition of substantially all of the assets
and the assumption of certain liabilities of Farm Fresh, Inc. ("Old
Farm Fresh"), a privately held supermarket chain headquartered in
Norfolk, Virginia (the "Farm Fresh Acquisition"). The transaction was
effected through a "prepackaged" Chapter 11 bankruptcy proceeding,
which was commenced by Old Farm Fresh in the United States Bankruptcy
Court for the District of Delaware on January 7, 1998. Farm Fresh
operates 39 supermarkets in the Hampton Roads and Shenandoah Valley
areas of Virginia, primarily under two distinct tradenames and
formats: (i) Farm Fresh, 34 traditional supermarkets averaging
approximately 47,000 square feet, offering a full line of grocery
items and selected specialty departments; and (ii) Rack &
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Sack, 5 super warehouse stores averaging approximately 71,000 square
feet, featuring price sensitive grocery items at discounted prices.
Farm Fresh is the second largest supermarket chain in the Hampton
Roads region of Virginia (consisting of the cities of Norfolk,
Hampton, Chesapeake and Virginia Beach), its principal operating area,
commanding an approximately 32% market share. Management believes that
Farm Fresh enjoys excellent locations, strong name recognition and a
loyal customer base in the Hampton Roads region, one of the top twenty
U.S. grocery markets.
o Shoppers Food Warehouse. Effective May 18, 1998, a subsidiary of the
Company acquired all of the outstanding capital stock of Dart Group
Corporation ("Dart"), parent company of Shoppers Food Warehouse
Corporation ("Shoppers"), for a purchase price of approximately $201
million (the "Shoppers Acquisition"). Shoppers operates 37 price
impact warehouse-style supermarkets in the metropolitan Washington,
D.C. market area and, with a 13% market share, is the third largest
supermarket chain in that marketplace. Management believes that the
Company can increase Shoppers' market share in the $6 billion
Washington, D.C. retail grocery market through, among other things,
providing additional customer services not generally offered in a
warehouse-style format, as well as by aggressively seeking to increase
the number of Shoppers Food Warehouse locations.
As of the effective date of the Shoppers Acquisition, Dart,
headquartered in Landover, Maryland, was comprised of (i) Shoppers,
100% owned by Dart; (ii) Trak Auto Corporation ("Trak"), a publicly
owned retailer of auto parts, 67.1% owned by Dart; (iii) Crown Books
Corporation ("Crown"), a publicly owned retailer of popular books,
52.3% owned by Dart; and (iv) Total Beverage Corporation ("Total
Beverage"), a discount beverage retailer, 100% owned by Dart. On May
22, 1998, Dart completed the sale of the common stock of Total
Beverage to an unaffiliated third party for approximately $8.2
million. On July 14, 1998, Crown filed for protection under Chapter 11
of the United States Bankruptcy Code. The Company had not assigned any
value to Dart's ownership interest in Crown at the time of the
Shoppers Acquisition. On May 27, 1999, subsequent to fiscal 1999, Dart
sold its interest in Trak to an unaffiliated third party for
approximately $35.4 million.
Recent trends affecting the Company and its industry had an impact on
Richfood's ability to implement its business strategy in fiscal 1999, and were
among the reasons considered by Richfood's board of directors in determining to
approve the Merger. These trends include (i) continued rapid industry
consolidation and the effects of such consolidation on the Company's wholesale
and retail operations, including increased relative size required to maximize
purchasing power, increased competition affecting the Company's wholesale
customers and the potential acquisition of those customers by third parties,
(ii) the escalating cost of technology necessary to compete effectively, (iii)
increased retail competition from self-distributing national chains,
supercenters and alternative channels of distribution and (iv) low national
population growth, low inflation, higher interest costs and a tightening labor
market. Public market valuations of food wholesalers compared to relatively
higher public market valuations of food retailers have also reduced the
attractiveness of the Company's Common Stock as a currency for potential retail
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acquisitions. In addition, the Company's relative debt level following recent
acquisitions has made it more difficult for the Company to finance additional
wholesale or retail acquisitions on favorable financing terms. As a result, in
the event that the Merger is not consummated, there can be no assurance that the
Company would be able to continue to implement its existing business strategy
with the same success it has experienced in the past.
Wholesale Operations
The Company's Wholesale Division consists of the following operating divisions:
o Richfood/Virginia, based in Mechanicsville, 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 primary distribution
facilities totaling approximately 1.0 million square feet in
Harrisburg, Pennsylvania, including a 731,000 square foot highly
efficient, automated distribution center, and a 150,000 square
foot produce distribution center in Norristown, Pennsylvania; and
o the Richfood Dairy, located in Richmond, Virginia, which is the
largest fluid dairy in Virginia and consists of a 65,000 square
foot facility capable of processing and packaging over 800,000
gallons per week of milk and other dairy products, fruit juices,
bottled water and related items.
Management has implemented the regional division structure for the
Company's Wholesale Division to serve properly the unique needs of Richfood's
customers in each of its geographic markets. The Wholesale Division is headed by
a division president, with each operating division employing 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, accounting, legal,
risk management, certain distribution/logistics and procurement activities,
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 acquired subsidiaries - Super Rite, Norristown and Rotelle, Inc.
("Rotelle"), a frozen food distribution business acquired by the Company in
1994. The Company has combined the administrative functions of Richfood/Virginia
and Richfood/Pennsylvania creating opportunities for cost savings through
centralizing and eliminating certain duplicative corporate and administrative
functions as well as enhancing opportunities to sell products of each business
to customers of the other. In addition, following the loss of a frozen food
customer in fiscal 1997, the Company decided in fiscal 1998 to close and market
for sale Rotelle's distribution center located in West Point, Pennsylvania. The
Company moved Richfood/Pennsylvania's remaining frozen food business to its
Harrisburg distribution center, allowing the Company to recognize substantial
cost savings through better utilization of physical facilities and better
operating leverage throughout fiscal 1999. The Company is currently marketing
for sale the Rotelle distribution center.
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Customer Base; Principal Markets
The Wholesale Division serves approximately 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"); Genuardi's Super
Markets, Inc.("Genuardi's"); Ukrop's Super Markets, Inc.("Ukrop's"); Redner's
Markets, Inc.; Camellia Food Stores, Inc.; and the Company's own Metro, Farm
Fresh and Shoppers Food Warehouse stores. Customer store sizes generally range
from 4,500 square feet to 60,000 square feet. The Company believes that it is
the primary source of supply for most of its wholesale customers.
The Company's five largest wholesale customers in fiscal 1999 were
Giant of Carlisle, Shoppers, Genuardi's, Farm Fresh and Ukrop's, with Giant of
Carlisle, Shoppers and Genuardi's (including the period of time prior to the
Shoppers Acquisition) accounting for approximately 19%, 16% and 9%,
respectively, of fiscal 1999 Wholesale Division sales. The Company has enjoyed
long-term supply relationships with most of its principal customers: Ukrop's,
Genuardi's, Farm Fresh, Giant of Carlisle and Shoppers have been customers of
the Wholesale Division for 51, 32, 27, 19 and eight years, respectively. On
April 22, 1999, Giant of Carlisle, the Company's largest wholesale customer,
informed the Company that it would not renew its existing supply agreement,
which will expire in December 1999. Giant of Carlisle accounted for 15%, 19% and
17% of the Company's consolidated sales in fiscal 1999, 1998 and 1997,
respectively.
Richfood is a party to multi-year supply agreements with most of its
larger wholesale 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.
Overall, sales to customers covered by supply agreements and to the Company's
Retail Division accounted for approximately 87% of fiscal 1999 Wholesale
Division sales.
Management believes that the loss of one of the Company's larger
customers could have a significant effect on its business. See Note 8 to the
Consolidated Financial Statements for a discussion of the Company's loss of a
significant customer. 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.
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 two
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
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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 1999. 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 2,000 private label products to its customers, including
approximately 1,600 products under the "RICHFOOD" label and approximately 100
products under the budget-priced "VALU CHOICE" label. The Company also
coordinates private labels for certain regional supermarket chains in the
Mid-Atlantic region. In fiscal 1999, 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 purchases products for resale from over 2,000 vendors in
the United States and overseas, and is not substantially dependent on any single
source of supply. The Company believes that it purchases products at the lowest
available manufacturers' prices in its volume bracket. 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 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.
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 benefiting from its operating leverage. These
improvements have included: (i) implementing state-of-the-art computer systems
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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 two principal
distribution centers: Richfood/Virginia's 1.3 million square foot
Mechanicsville, Virginia, distribution center and Richfood/Pennsylvania's
731,000 square foot automated distribution facility in Harrisburg, 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.
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 230 tractors, 325 refrigerated trailers
and 391 dry trailers, and owns 35 tractors, 69 refrigerated trailers and 77 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.
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.
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.
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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 on occasion 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 1% to 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. At May 1, 1999, the Company had an aggregate
$47.8 million of secured loans outstanding to its retail customers.
Retail Operations
The Company's Retail Division consists of the following operating divisions:
o Metro, headquartered in the metropolitan Baltimore, Maryland area,
operates sixteen 45,000 to 60,000 square foot "superstores" under
the Metro tradename, and two smaller traditional supermarkets
under the Basics tradename;
o Farm Fresh, headquartered in Norfolk, Virginia, operates 34
traditional supermarkets, averaging approximately 47,000 square
feet, under the Farm Fresh tradename and 5 super warehouse stores,
averaging approximately 71,000 square feet, under the Rack & Sack
name. Farm Fresh's stores are located primarily in the Hampton
Roads and Shenandoah Valley regions of Virginia; and
o Shoppers Food Warehouse, headquartered in the metropolitan
Washington, D.C. area, operates 37 price impact warehouse-style
supermarkets. The stores average over 50,000 square feet in size,
with newer units in the 60,000 square foot range.
Metro was acquired in 1995 in connection with the Super Rite
Acquisition. Farm Fresh was acquired on March 4, 1998, and Shoppers was acquired
on May 18, 1998. See "Business Strategy - Pursuing Strategic Acquisitions."
The Company's three retail grocery chains operate distinct formats that
are targeted to specific marketing niches in their respective marketplaces.
While each chain retains its distinct format and marketing plan, management
believes that the Retail Division's geographic concentration has permitted the
Company to consolidate administrative functions and take advantage of economies
of scale. Since completion of the Farm Fresh Acquisition and the Shoppers
11
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Acquisition, the Company has consolidated certain administrative functions of
its three retail grocery chains, which the Company believes affords
opportunities for substantial cost savings through eliminating duplicative
corporate and administrative functions. The Company's Wholesale Division has
also benefited from increased incremental volume as a result of the Farm Fresh
Acquisition and the Shoppers Acquisition.
Metro
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 1998, Metro was the second largest grocery retailer in
the Baltimore market. During fiscal 1999, the Retail Division improved and
expanded the Metro chain by opening one new store and purchasing a second store,
while continuing the expansion of its pharmacy business with the opening of
seven "Metro Rx" in-store pharmacies.
Farm Fresh
Farm Fresh stores offer a full line of traditional grocery items,
carry selected higher margin non-food items and generally feature specialty
departments such as salad bars, delicatessens, floral shops, hot food shops,
catering services, bakeries, fresh seafood departments and, in most cases,
pharmacies and full service branch banks. The stores' specialty departments are
designed to provide a high level of personal service. Rack & Sack stores operate
with higher volumes but with less customer service and lower margins compared to
Farm Fresh stores. To offer the lowest prices to customers, Rack & Sack stores
carry products purchased at large discounts, causing store offerings to vary
depending on product availability. During fiscal 1999, Farm Fresh opened one new
store and expanded and remodeled eleven stores. The Company intends to continue
its remodeling program and evaluate potential new sites in fiscal 2000. In
keeping with Farm Fresh's strategy of focusing on its conventional Farm Fresh
store format, on May 25, 1999, subsequent to fiscal 1999, the Company sold three
Rack & Sack stores to an unaffiliated third party.
The Company believes that Farm Fresh has developed a loyal customer
base in the Hampton Roads market over its 40 years of operation, with a
reputation as a market-leader in product variety, fresh meat, fresh produce and
poultry. Old Farm Fresh was subject to substantial capital constraints related
to a leveraged buy-out and, as a result, was unable to capitalize on the chain's
strengths or adequately maintain or expand its store base. Since the acquisition
of Farm Fresh by the Company, management has increased customer services,
enhanced advertising and promotion and implemented an aggressive store
remodeling program in an effort to revitalize the chain's strengths. Management
believes that customer reaction to these new programs has been positive.
Shoppers Food Warehouse
Shoppers Food Warehouse stores are warehouse-style, price impact
supermarkets that are positioned to offer the lowest overall prices in their
respective market areas by passing on to the consumer the savings achieved
through operating efficiencies and lower overhead associated with the warehouse
format, while providing the product selection and quality associated with a
conventional format. By combining higher-end specialty departments with
self-service and discount price features, Shoppers believes that it has
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established a unique niche among supermarket operators in the greater
Washington, D.C. metropolitan area. The Company intends to pursue growth and
enhanced profitability for Shoppers by providing additional customer services
and aggressively pursuing additional store sites.
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 Metro, Farm Fresh and Shoppers Food Warehouse stores 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 Division include
Fleming Companies, Inc., SUPERVALU INC., Nash Finch Company and Burris Foods,
Inc. The primary retail grocery competitors of the Company's wholesale customers
and of its 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.,
Wal-Mart Stores, Inc. and Hannaford Bros. Co.
Employee Relations
Management believes that relations with the Company's associates are
excellent. At May 1, 1999, the Company employed approximately 993 salaried and
14,148 non-salaried associates, compared to 778 salaried and 8,701 non-salaried
associates employed at May 2, 1998.
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 and a five-year collective
bargaining agreement that expires in June 2002 covering employees of its Metro
retail chain. The Company is also party to two four-year collective bargaining
agreements, which expire in July 2000 and September 2001, respectively, covering
retail employees of its Shoppers Food Warehouse chain. 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 used in its
wholesale and retail businesses. Federal registrations for the "RICHFOOD" and
"VALU CHOICE" trademarks have been obtained and/or applied for by the Company
for use on a variety of private label products distributed by the Company. In
addition, the Company holds federal registrations for the "Metro," "Farm Fresh"
and "Shoppers Food Warehouse" tradenames and trademarks used by its Retail
Division.
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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 Item 6 -
Selected Consolidated Financial Data of this Annual Report on Form 10-K.
Information with respect to the Company's industry segments is included in Note
14 of the Notes to Consolidated Financial Statements presented in Item 8 -
Financial Statements and Supplementary Data of this Annual Report on 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 Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations of this Annual Report on Form
10-K.
ITEM 2. PROPERTIES
The Company's two principal operating facilities are
Richfood/Virginia's 1.3 million square foot distribution center located in
Mechanicsville, Virginia (the "Mechanicsville Facility"), and
Richfood/Pennsylvania's leased 731,000 square foot automated distribution
facility located in Harrisburg, Pennsylvania (the "Harrisburg 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 731,000 square foot state-of-the-art
distribution center that utilizes fully automated inventory handling equipment.
The Company recently completed a 96,000 square foot frozen food expansion to
this facility. During fiscal 1998, the Company entered into a synthetic lease
transaction with respect to the Harrisburg Facility. In that transaction, the
Harrisburg Facility was sold by the Company's former landlord to an unaffiliated
entity, and the Company's former lease (which expired in 2025) was terminated.
The Company's lease for the Harrisburg Facility expires in 2003 and includes
options to purchase the facility or to refinance and extend the lease at the end
of the initial term. The Company also operates 160,000 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.
Norristown operates a 150,000 square foot refrigerated produce
distribution center under a lease that expires in 2000. Such lease term may be
extended for an additional five one-year option periods.
The Richfood Dairy, located in Richmond, Virginia, is a 65,000 square
foot facility capable of processing and packaging over 800,000 gallons per week
of milk and other dairy products, fruit juices, bottled water and related items.
This facility is owned by Richfood.
14
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The Company's Retail Division operates approximately 95 retail grocery
store sites in its Mid-Atlantic operating region. The majority of the stores are
leased on a long-term basis with lease terms, including options, typically
averaging 10 to 30 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.
During fiscal 1998, the Company decided to sell, and is currently
marketing for sale, Rotelle's 6.3 million cubic foot automated frozen food
distribution center located in West Point, Pennsylvania. See "Business -
Wholesale Operations."
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, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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 30, 1999, there were
1,502 holders of record of the Company's Common Stock. Information with respect
to the market price of and dividends on the Company's Common Stock is set forth
under the headings "Market Price Range" and "Cash Dividends Declared Per Common
Share" and in the final paragraph of Note 15 of the Notes to Consolidated
Financial Statements presented in Item 8 - Financial Statements and
Supplementary Data of this Annual Report on Form 10-K.
The Company has paid cash dividends on its Common Stock since September
1991. The Merger Agreement provides that, prior to its termination or the
15
<PAGE>
consummation of the Merger, Richfood may not set aside for payment or pay any
dividend or other distribution in respect of the Common Stock, except for
regular quarterly dividends not in excess of $0.05 per share. Subject to the
restrictions set forth in the Merger Agreement, 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.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial
information and other data of the Company. The selected consolidated financial
information set forth below was selected or derived from the Consolidated
Financial Statements and notes thereto of the Company. The information set forth
below is qualified in its entirety by and should be read in conjunction with the
detailed information and Consolidated Financial Statements presented in Item 8 -
Financial Statements and Supplementary Data of this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------------------------------
(52 Weeks) (52 Weeks) (53 Weeks) (52 Weeks) (52 Weeks)
------------ -------------- -------------- ------------- -------------
May 1, May 2, May 3, April 27, April 29,
1999(1) 1998(2) 1997 1996 1995
------------ -------------- -------------- ------------- -------------
(Dollar amounts in thousands, except per share data)
<S> <C>
Statement of Earnings Data
Net sales........................... $ 3,968,239 $ 3,203,731 $ 3,411,625 $ 3,250,868 $ 2,992,735
Costs and expenses:
Cost of goods sold............... 3,247,017 2,832,505 3,053,299 2,924,561 2,695,020
Operating and administrative
expenses....................... 558,560 256,660 252,885 236,661 216,099
Restructuring costs(3)........... -- 24,179 -- -- --
Merger and integration costs(4).. -- -- -- 11,993 --
Interest, net ................... 43,087 2,202 3,494 9,124 14,973
Total costs and expenses....... 3,848,664 3,115,546 3,309,678 3,182,339 2,926,092
Earnings before income taxes and
extraordinary loss............... 119,575 88,185 101,947 68,529 66,643
Income taxes........................ 46,532 33,479 40,596 29,314 27,425
Earnings before extraordinary loss.. 73,043 54,706 61,351 39,215 39,218
Extraordinary loss, net of tax(5)... -- -- (1,882) (2,164) --
Net earnings........................ $ 73,043 $ 54,706 $ 59,469 $ 37,051 $ 39,218
Balance Sheet Data
Inventories...................... 227,539 194,875 163,510 162,461 147,005
Working capital (deficit)........ (138,911) 54,337 21,868 40,828 72,780
Property, plant and equipment, net 248,716 187,288 121,594 122,659 130,261
Total assets..................... 1,421,105 908,851 581,480 564,261 580,770
Long-term debt and capital lease
obligations excluding current
portion..................... 455,981 253,087 32,069 87,031 166,913
Total debt....................... 673,888 269,771 42,725 97,743 178,531
Total shareholders' equity....... 388,676 324,214 258,650 199,562 160,330
Per Share Data
Earnings before extraordinary loss $1.53 $1.15 $1.30 $0.84 $0.84
Net earnings..................... 1.53 1.15 1.26 0.79 0.84
Earnings before extraordinary loss--
assuming dilution.............. 1.53 1.15 1.29 0.83 0.83
Net earnings--assuming dilution.. 1.53 1.15 1.25 0.78 0.83
Cash dividends declared per common
share.......................... 0.20 0.16 0.12 0.08 0.07
Book value (at period end)....... 8.15 6.80 5.46 4.25 3.43
Market price range--High......... $27 $32 $28 1/8 $22 $13 1/3
--Low.......... $11 7/8 $19 7/8 $18 5/8 $13 $9
Financial Ratios and Other Data
Current ratio.................. 0.75 to 1 1.18 to 1 1.08 to 1 1.16 to 1 1.31 to 1
Inventory turnover............. 15.37 15.81 18.73 18.90 18.80
Return on average assets....... 6.3% 7.3% 10.4% 6.5% 7.3%
Debt to equity ratio........... 1.73 to 1 0.83 to 1 0.17 to 1 0.49 to 1 1.11 to 1
</TABLE>
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<TABLE>
<S> <C>
Return on average shareholders'
equity...................... 20.5% 18.8% 26.0% 20.6% 27.8%
Weighted average common shares
outstanding................. 47,689,003 47,528,161 47,290,092 46,825,107 46,711,389
Weighted average common shares
outstanding--assuming dilution.. 47,824,725 47,742,554 47,558,480 47,190,273 47,005,601
Number of employees at fiscal year
end......................... 15,141 9,479 5,151 4,925 4,600
Ratio of earnings to fixed
charges(6).................. 2.92 5.68 6.79 4.03 3.37
</TABLE>
- --------------
All historical financial data presented have been restated to reflect the
Company's October 15, 1995, acquisition of Super Rite Corporation, which was
accounted for as a pooling of interests. All references to common share data for
previously reported periods have been adjusted to reflect the 3-for-2 common
stock split in fiscal 1997.
(1) Results for fiscal 1999 reflect the acquisition of Dart Group Corporation
on May 18, 1998 (See Note 2 to the Consolidated Financial Statements).
(2) Results for fiscal 1998 reflect the acquisition of certain assets and
the assumption of certain liabilities of Farm Fresh, Inc. on March 4, 1998
(See Note 2 to the Consolidated Financial Statements).
(3) See Note 7 to the Consolidated Financial Statements for further discussion.
(4) In the third quarter of fiscal 1996, the Company recorded a one-time charge
for merger and integration costs of $11,993 in connection with the Super
Rite Acquisition.
(5) During fiscal 1996, Richfood repurchased, at market prices above par,
$27.475 million of 10 5/8% Senior Subordinated Notes. In April 1997, on the
first permitted redemption date, Richfood redeemed the remaining $47.525
million of such notes at a redemption price above par. The fiscal 1997
redemption and the fiscal 1996 repurchase resulted in extraordinary losses,
net of tax, of $1.882 million and $2.164 million, respectively.
(6) Earnings used to calculate the ratio of earnings to fixed charges consist
of earnings from operations before income taxes, adjusted for the portion
of fixed charges deducted from such earnings. Fixed charges consist of
interest on all indebtedness (including capital lease obligations),
amortization of debt expense and the portion of interest expense on
operating leases deemed representative of the interest factor. Ratios are
presented on a consolidated basis.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 presented in Item 8
Financial Statements and Supplementary Data of this Form 10-K. References in the
following discussion are to the fiscal years ended May 1, 1999 ("fiscal 1999"),
May 2, 1998 ("fiscal 1998") and May 3, 1997 ("fiscal 1997").
On June 9, 1999, the Company announced that it had entered into the
Merger Agreement. See "Business Recent Developments" and Note 16 to the
Consolidated Financial Statements for a further discussion of the Merger and the
Merger Agreement.
On May 18, 1998, a wholly-owned subsidiary of the Company acquired all
of the outstanding shares of Dart for $160 per share, net to the seller in cash,
or approximately $201.0 million. Dart, headquartered in Landover, Maryland, was
comprised at the time of the acquisition of: Shoppers, a 100% owned chain of 37
price impact supermarkets operating in the greater Washington, D.C. metropolitan
area; Trak, a publicly-owned retailer of auto parts (67.1% owned by Dart);
Crown, a publicly-owned retailer of popular books (52.3% owned by Dart); and
Total Beverage, a discount beverage retailer (100% owned by Dart). The
acquisition was effected for the purpose of acquiring Shoppers. 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 Statement of Earnings from the date of
acquisition. On May 22, 1998, the stock of Total Beverage was sold by Dart to a
third party for approximately $8.2 million. Crown filed a voluntary petition for
protection under Chapter 11 of the United States Bankruptcy Code on July 14,
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1998. The Company had not assigned any value to Dart's ownership interest in
Crown at the time of the Shoppers Acquisition. Subsequent to fiscal 1999, on May
27, 1999, Dart sold its interest in Trak to an unaffiliated third party for
approximately $35.4 million, which approximates its carrying value at May 1,
1999. See Note 2 to the Consolidated Financial Statements for a further
discussion of the Shoppers Acquisition.
Results of Operations
Comparison of Fiscal 1999 with Fiscal 1998
Sales of $3,968.2 million for fiscal 1999 consisted of $3,229.4 million
of wholesale grocery sales and $1,761.6 million of retail grocery sales.
Wholesale grocery sales included $1,022.8 million of sales to the Company's
Retail Grocery Division, which have been eliminated in accordance with the
Company's consolidation policy. Wholesale grocery sales to external customers of
$2,206.6 million for fiscal 1999 decreased $571.6 million from fiscal 1998, due
primarily to the exclusion, in the current fiscal year, of sales to the
Company's Farm Fresh and Shoppers stores since their March 4, 1998, and May 18,
1998, acquisition dates, respectively. Excluding sales to Farm Fresh and
Shoppers in both fiscal 1999 and fiscal 1998, wholesale grocery sales to
external customers in fiscal 1999 increased 0.2% over fiscal 1998. Total
wholesale grocery sales for fiscal 1999 increased $208.3 million, or 6.9%, over
sales of $3,021.1 million in fiscal 1998. This increase was primarily
attributable to incremental wholesale sales to the Company's Shoppers and Farm
Fresh retail chains following their acquisition by the Company.
Retail grocery sales for fiscal 1999, which consisted of sales by the
Company's Metro/Basics, Farm Fresh and Shoppers stores, of $1,761.6 million
increased $1,336.1 million over sales of $425.5 million for fiscal 1998,
primarily due to sales generated by the Shoppers and Farm Fresh retail chains
following their acquisition by the Company. Metro/Basics sales for fiscal 1999
increased $17.1 million over sales of $312.6 million in fiscal 1998, primarily
due to the opening of two new stores and a 1.8% increase in comparable store
sales.
Gross margin increased to 18.17% of sales for fiscal 1999, from 11.59%
of sales for fiscal 1998. The increase in gross margin was primarily
attributable to the inclusion of higher retail gross margins as a result of the
Shoppers and Farm Fresh Acquisitions.
Operating and administrative expenses were 14.07% of sales in fiscal
1999, compared to 8.01% of sales in fiscal 1998. The increase in operating and
administrative expenses as a percent of sales for fiscal 1999 was primarily
attributable to the inclusion of Shoppers' and Farm Fresh's higher retail
operating and administrative expense ratios.
Interest expense increased to $46.7 million in fiscal 1999, from $6.0
million in fiscal 1998. This increase was primarily due to incremental interest
expense related to increased indebtedness incurred to finance the Farm Fresh and
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Shoppers Acquisitions. The Farm Fresh Acquisition was financed with proceeds
from a $250 million, five-year, senior unsecured revolving credit facility (the
"$250 million facility"). On May 12, 1998, the Company entered into an agreement
with a syndicate of commercial banks that provided $450 million of senior
unsecured credit facilities (the "Facilities"), consisting of a $250 million,
five-year revolving credit facility (the "Revolver") and a $200 million,
18-month term loan (the "Term Loan"). Proceeds from the Facilities were used to
finance the Shoppers Acquisition and to repay the outstanding balance of $192
million under the $250 million facility. At the time of the Shoppers
Acquisition, Shoppers had outstanding $200 million in principal amount of 9 3/4%
Senior Notes due 2004.
The Company's effective income tax rate was 38.9% in fiscal 1999,
compared to 38.0% in fiscal 1998. The increase was primarily due to additional
non-deductible, acquisition-related goodwill.
Net earnings for fiscal 1999 of $73.0 million, or $1.53 per share,
assuming dilution, increased 5.5% over net earnings of $69.2 million, or $1.45
per share, assuming dilution, in fiscal 1998 (excluding the effects of the
one-time charge for restructuring costs related to the closure of the Company's
West Point Facility in fiscal 1998). Net earnings, including the effects of the
one-time charge for restructuring costs were, $54.7 million, or $1.15 per share,
assuming dilution, in fiscal 1998.
On April 22, 1999, Giant of Carlisle, the Company's largest wholesale
customer, notified the Company that it would not renew its existing supply
agreement, which will expire December 31, 1999. The Company estimates that the
non-renewal of the supply agreement will negatively impact fiscal 2000 earnings
per share by approximately $0.15 to $0.20 and will negatively impact earnings
per share for future years by approximately $0.28 to $0.33.
Comparison of Fiscal 1998 with Fiscal 1997
Sales of $3,203.7 million for fiscal 1998 consisted of $3,021.1 million
of wholesale grocery sales and $425.5 million of retail grocery sales. Wholesale
grocery sales included $242.9 million of sales to the Company's Retail Grocery
Division, which have been eliminated in accordance with the Company's
consolidation policy. Wholesale grocery sales decreased $259.1 million, or 7.9%,
from sales of $3,280.2 million for fiscal 1997. The Company's results of
operations for fiscal 1998 included fifty-two weeks of operations, compared to
fifty-three weeks in fiscal 1997. Excluding the effect of the additional week in
fiscal 1997, wholesale grocery sales would have decreased approximately $197.2
million, or 6.1%. This decrease was primarily attributable to the expiration in
June 1997 of the Company's frozen food supply agreement with Acme Markets, Inc.
("Acme"). Acme represented approximately $182 million of sales in fiscal 1997,
as compared to approximately $13 million in fiscal 1998.
Retail grocery sales for fiscal 1998, which consisted of sales by the
Company's Metro/Basics stores for the entire fiscal year and Farm Fresh stores
for the nine-week period in fiscal 1998 following the date of the Farm Fresh
Acquisition, of $425.5 million, increased $87 million, or 25.7%, over sales of
$338.5 million for fiscal 1997. Excluding the effect of the additional week in
fiscal 1997, retail grocery sales would have increased $92.8 million, or 27.9%.
This increase was primarily attributable to sales generated by Farm Fresh, which
was acquired on March 4, 1998, of $100.1 million. Sales for the METRO retail
grocery stores increased 0.7% on a comparable store basis in fiscal 1998,
compared to fiscal 1997. As a result of the Company's strategy of focusing on
the METRO format in the Baltimore, Maryland, market, which resulted in the
Company selling one BASICS store (August 1996), closing a second BASICS store
(March 1997) and temporarily closing a third (July 1997 to November 1997) until
its conversion to the METRO format was complete, METRO's total sales decreased
2.1% in fiscal 1998, compared to fiscal 1997 sales adjusted for the additional
week in that fiscal year.
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Gross margin increased to 11.59% of sales for fiscal 1998 from 10.50%
of sales for fiscal 1997. The increase in gross margin as a percent of sales was
primarily attributable to the Company's Wholesale Division taking advantage of
certain buying opportunities during fiscal 1998 and the inclusion of Farm
Fresh's higher retail gross margins following the March 4, 1998 acquisition
date.
Operating and administrative expenses were 8.01% of sales in fiscal
1998, compared to 7.41% of sales in fiscal 1997. The increase in operating and
administrative expenses as a percent of sales was primarily attributable to the
inclusion of Farm Fresh's higher retail operating and administrative expense
ratio following the March 4, 1998 acquisition date.
The Company's operating results for fiscal 1998 included a one-time
charge of $24.2 million for restructuring costs associated with the Company's
plan to restructure its Pennsylvania frozen food operations. The plan included
closing the Company's West Point, Pennsylvania, frozen distribution facility and
transferring the related operations to the Company's Harrisburg, Pennsylvania,
distribution facility to eliminate excess capacity in its frozen food
operations. The restructuring charge included $17.8 million related to the
write-down of the West Point facility to its estimated fair value less selling
costs and the write-off of related goodwill. The remainder of the charge
primarily related to employee separation costs and certain non-cancelable
leases. See Note 7 to the Consolidated Financial Statements for a further
discussion of the restructuring charge.
Interest expense decreased to $6.0 million in fiscal 1998, from $7.2
million in fiscal 1997. The decrease was primarily due to the Company's ability
to generate strong cash flow from operations, which resulted in lower average
debt levels during the first three quarters of fiscal 1998, compared to the same
periods in fiscal 1997. Lower average debt levels during the first three
quarters of fiscal 1998 primarily resulted from the early redemption of the
remaining $47.5 million outstanding principal amount of its 10 5/8% Senior
Subordinated Notes due April 2002 ("Senior Subordinated Notes"). The decrease in
interest expense was offset in part by increased interest expense in the fourth
quarter of fiscal 1998 compared to the same period in fiscal 1997. During the
fourth quarter of fiscal 1998, the Company incurred incremental interest expense
of approximately $1.8 million as a result of the Farm Fresh Acquisition.
The Company's effective income tax rate was 38.0% in fiscal 1998,
compared to 39.8% in fiscal 1997. Excluding the effect of the restructuring
charge, the effective tax rate for fiscal 1998 would have been 38.4%.
The fiscal 1997 extraordinary loss, net of tax, of $1.9 million related
to the early redemption of the remaining $47.5 million outstanding principal
amount of the Senior Subordinated Notes and was primarily comprised of the
amount paid in excess of par value and the write-off of related deferred
financing costs.
Excluding the effects of the one-time charge for restructuring costs
related to the closure of the Company's West Point facility in fiscal 1998 and
the effect of the extraordinary loss related to early extinguishment of certain
debt in fiscal 1997, net earnings for fiscal 1998 were $69.2 million, or $1.45
per share, assuming dilution, a 12.8% increase over net earnings of $61.4
million, or $1.29 per share, assuming dilution, for fiscal 1997. Net earnings,
including the effects of the one-time charge for restructuring costs and the
20
<PAGE>
extraordinary loss, were $54.7 million, or $1.15 per share, assuming dilution,
for fiscal 1998, compared to $59.5 million, or $1.25 per share, assuming
dilution, for fiscal 1997.
Liquidity and Capital Resources
Cash and cash equivalents were $4.9 million at May 1, 1999, compared to
$40.0 million at May 2, 1998. Working capital was ($138.9) million at May 1,
1999, and $54.3 million at May 2, 1998. During fiscal 1999 and fiscal 1998, the
Company's working capital needs were financed primarily through cash provided by
operations.
The decrease in working capital from fiscal 1998 to fiscal 1999 was
primarily due to the classification of $193 million outstanding under the $200
million Term Loan, due November 1999, as a current liability at May 1, 1999. It
is anticipated that, assuming the consummation of the Merger prior to November
1999, the Term Loan will be refinanced by SUPERVALU. In the event that the
Merger is not consummated, management believes that the Company would be able to
refinance all amounts outstanding under the Term Loan prior to its maturity. In
addition, the Company has filed a Shelf Registration Statement, which became
effective in October 1998, that would allow the Company to issue from time to
time in one or more series, securities with offering prices of up to $500
million.
Operating Activities
Net cash provided by operating activities for fiscal 1999 was $58.7
million. This amount primarily consisted of net earnings of $73.0 million and
depreciation and amortization of $56.8 million, offset, in part, by uses of cash
in providing for working capital needs.
Net cash provided by operating activities was $112.4 million and $116.1
million for fiscal 1998 and 1997, respectively. These amounts primarily
consisted of net earnings of $54.7 million in fiscal 1998 and $59.5 million in
fiscal 1997, depreciation and amortization of $32.1 million in fiscal 1998 and
$29.2 million in fiscal 1997, and the $23.3 million non-cash component of the
Company's restructuring charge in fiscal 1998.
Investing Activities
Net cash used for investing activities was $222.9 million for fiscal
1999, $258.0 million for fiscal 1998, and $61.4 million for fiscal 1997. Net
cash used for investing activities included cash used for acquisitions made by
the Company and consisted of $182.7 million primarily for the Shoppers
Acquisition in fiscal 1999, $222.1 million for the Farm Fresh Acquisition in
fiscal 1998 and $26.1 million for the Company's purchase of the Norristown
produce business in fiscal 1997.
Capital expenditures were $70.8 million for fiscal 1999, $22.2 million
for fiscal 1998 and $15.4 million for fiscal 1997. Capital expenditures for the
Wholesale Grocery Division were $20.6 million for fiscal 1999, $11.7 million for
fiscal 1998 and $9.4 million for fiscal 1997. Fiscal 1999 wholesale expenditures
included the installation of ultra-high temperature (UHT) processing equipment
at the fluid dairy plant and the expansion of the freezer at the Harrisburg
distribution center. Capital expenditures for the Retail Grocery Division were
21
<PAGE>
$50.2 million for fiscal 1999, and included: (i) $31.7 million for Farm Fresh
stores, consisting primarily of store remodels, (ii) $11.3 for METRO stores,
consisting primarily of the addition of two new stores and, (iii) $3.9 million
for Shoppers stores, consisting primarily of the addition of one new store.
Capital expenditures for the Retail Grocery Division of $10.5 million for fiscal
1998 and $6.0 million for fiscal 1997 consisted primarily of capital employed
for the conversion of existing BASICS stores to the METRO format and one new
METRO store in both fiscal 1998 (opened April 1998) and fiscal 1997 (opened
September 1996).
In the event that the Merger is not consummated, the Company
anticipates that fiscal 2000 capital expenditures will be approximately $97
million and will include approximately $80 million and $17 million for the
Company's Retail and Wholesale Divisions, respectively. The fiscal 2000 retail
capital expenditures budget consists of eleven new stores and thirty-one
remodeled or expansion stores across the Farm Fresh, METRO and Shoppers formats.
The fiscal 2000 wholesale capital expenditures budget includes $4.8 million to
expand the dairy plant facility. Budgeted capital expenditures for the Wholesale
Grocery Division also include material handling equipment and additional
investments in logistics and distribution technology.
In December 1998, the Company sold certain of its Farm Fresh properties
for $35 million and immediately leased back the properties from the purchaser
for a term of 15 years.
Financing Activities
Net cash provided by financing activities was $129.1 million for fiscal
1999, consisting primarily of $200 million in borrowings used to finance the
Shoppers Acquisition in May 1998, offset, in part, by payments of $32.9 million
made under other long-term debt and capital lease obligations, $11.5 million in
net repayments on revolving credit facilities, $18.2 million in payments on a
note payable to Trak and $9.0 million in dividends paid to shareholders. Net
cash provided by financing activities was $175.2 million for fiscal 1998. During
fiscal 1998, the Company financed the Farm Fresh Acquisition through borrowings
under a revolving credit facility, of which $192.0 million of borrowings
remained outstanding at May 2, 1998. Net cash used for financing activities was
$61.7 million for fiscal 1997, and consisted primarily of $58.6 million of
principal payments on long-term debt and capital lease obligations including the
redemption of the remaining $47.5 million principal amount of Senior
Subordinated Notes.
The Company's total debt increased to $673.9 million at May 1, 1999,
from $269.8 million at May 2, 1998. This increase was primarily attributable to
$200 million in proceeds from the issuance of long-term debt and the assumption
of $200 million in Shoppers' 9 3/4% Senior Notes due 2004 to finance the
Shoppers Acquisition. Shareholders' equity increased to $388.7 million at May 1,
1999, from $324.2 million at May 2, 1998. The ratio of total debt to equity was
1.73 to 1 at May 1, 1999, and 0.83 to 1 at May 2, 1998. The ratio of total debt
to total capitalization (defined as total debt plus shareholders' equity)
increased to 0.63 to 1 at May 1, 1999, from 0.45 to 1 at May 2, 1998.
The Company increased the annual cash dividend on its common stock to
$0.20 per share in fiscal 1999, from $0.16 per share in fiscal 1998 and $0.12
per share in fiscal 1997.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
22
<PAGE>
Instruments and Hedging Activities," which sets standards for the recognition
and measurement of derivatives and hedging activities. This Statement, as
amended, is effective for the Company's fiscal year ending April 2002.
Management has not completed its assessment of the impact of this Statement on
earnings or financial position.
Year 2000 Compliance
The "Year 2000" issue is the result of computer systems and software
programs using only two digits rather than four to define a year. As a result,
computer systems that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. Unless remedied, the Year 2000
issue could result in system failures, miscalculations, and the inability to
process necessary transactions or engage in similar normal business activities.
In addition to computer systems and software, any equipment using embedded
chips, such as switchgear, controllers and telephone exchanges, could also be at
risk.
During 1997, the Company developed, and began implementing, a
strategic long-term information technology plan (the "Strategic Plan") to
upgrade its core application systems. Concurrently, it has developed and is
implementing a plan (the "Y2K Plan") to ensure that its information systems are
Year 2000 compliant. The Y2K Plan focuses on the following three major areas:
Information technology systems ("IT");
Embedded technology and other systems ("Non-IT"); and
Key third party relationships.
Based on the Strategic Plan and assessments conducted as part of the
Y2K Plan, the Company determined that it would be necessary to modify or replace
portions of its software and certain hardware systems so that such systems will
properly recognize dates beyond December 31, 1999. The Company presently
believes that with the modification or replacement of existing software and
certain hardware systems, the Year 2000 issue can be significantly mitigated.
However, if such modifications and replacements are not made, or are not
completed in a timely manner, the Year 2000 issue could have a material adverse
impact on the results of operations of the Company.
The Y2K Plan consists of two distinct components: the Wholesale Grocery
Division Plan, which addresses Year 2000 issues relating to the Company's
wholesale grocery division; and the Retail Grocery Division Plan, which
addresses Year 2000 issues relating to the Company's retail grocery division.
The Wholesale Grocery Division Plan
The Wholesale Grocery Division Plan consists of the following four
phases:
Assessment - locating, listing and prioritizing the specific technology
that is potentially subject to Year 2000 issues, assessing the actual exposure
of such technology to the Year 2000 issue, and planning/scheduling the
allocation of internal and third party resources for the remediation effort;
23
<PAGE>
Remediation of non-compliant systems - selecting and executing the
method necessary to resolve the Year 2000 issues that were identified, including
replacement, upgrade, repair or abandonment;
Testing - testing the remediated or converted technology to determine
the efficacy of the resolutions; and
Implementation - placing remediated technology into operation.
The assessment phase has been completed with respect to IT and Non-IT
systems that the Company believes could be significantly affected by the Year
2000 issue. The assessment indicated that most of the Wholesale Grocery
Division's significant IT systems could be affected, particularly accounting,
billing, procurement, warehouse management and distribution systems, human
resources and payroll and that software, hardware and equipment using embedded
chips in production and manufacturing systems are also at risk.
With respect to IT systems, the Wholesale Grocery Division Plan
utilizes both internal and external resources to remediate, test and implement
the modification and/or replacement of its software and hardware. The
remediation phase is approximately 90% complete and is expected to be completed
by September 1999. The testing and implementation phases are approximately 80%
complete and are expected to be completed by September 1999.
With respect to Non-IT systems, the remediation phase of the Wholesale
Grocery Division Plan is approximately 90% complete. Once testing is complete,
compliant equipment will be ready for immediate use. Remediation, testing and
implementation is expected to be completed by September 1999.
Because of the interdependence of information systems today, Year 2000
compliant companies may be affected by the Year 2000 readiness of their material
suppliers, customers and other third parties. As part of the Wholesale Grocery
Division's evaluation of the Year 2000 readiness of its suppliers, customers and
other third parties, the division expects to query its significant service
vendors and subcontractors in order to validate Year 2000 compliance by
September 1999. Product vendors are being asked to answer a standard
questionnaire regarding their Year 2000 plan and status. Supply alternatives are
being reviewed for critical vendors. In addition, the Company's Wholesale
Grocery Division has been working with significant third parties that interface
directly with the division to validate Year 2000 compliance. The remediation,
testing and implementation phases of this portion of the project are now
complete. Although management has not yet determined the risk associated with
the failure of any such party to become Year 2000 compliant, such failure could
have a material adverse effect on the Company's results of operations or
financial position.
Total costs associated with the Wholesale Grocery Division Plan are
expected to be approximately $7.9 million. Pursuant to the existing Strategic
Plan, approximately $4.3 million has, or is expected to be, capitalized in
accordance with generally accepted accounting principles ("GAAP"), with
approximately $3.2 million capitalized during fiscal 1999. This includes the
acceleration of approximately $3.0 million of planned capital expenditures
relating to computer systems and software, primarily procurement, warehousing
management and distribution systems, human resources and payroll software. To
24
<PAGE>
date, the division has spent approximately $6.9 million of the total cost and
expects to spend the majority of the remaining costs over the next 3 months. All
expenditures related to the Wholesale Grocery Division Plan will be funded by
cash flow from operations and are not expected to impact other operating or
investment plans. Management does not believe that any of the Wholesale Grocery
Division's material information technology projects have been deferred due to
the Y2K Plan.
The Retail Grocery Division Plan
The Retail Grocery Division Plan involves the following three phases:
Assessment - locating, listing and prioritizing the specific technology
that is potentially subject to Year 2000 issues, assessing the actual exposure
of such technology to the Year 2000 issue, and planning/scheduling the
allocation of internal and third party resources for the remediation effort;
Remediation/Testing of non-compliant systems - selecting and executing
the method necessary to resolve the Year 2000 issues that were identified,
including replacement, upgrade, repair or abandonment and testing the remediated
or converted technology to determine the efficacy of the resolutions; and
Implementation - placing remediated technology into operation.
The assessment phase has been completed with respect to IT and Non-IT
systems that the Company believes could be adversely affected by the Year 2000
issue. The assessment indicated that many of the division's significant
information systems could be adversely affected, particularly the general
ledger, human resources, payroll, point of sale and pharmacy systems. Non-IT
systems, including telephones, loss-prevention and food production systems, are
also being validated but do not present a significant risk to the retail
business.
With respect to IT systems, the remediation/testing phase is
approximately 90% complete, with an expected completion date of September 1999,
and the implementation phase is expected to continue until October 1999. Certain
point of sale software systems and all time and attendance systems will be
upgraded or replaced during 1999. Additionally, human resources, payroll and
general ledger system software upgrades are expected to be completed by
September 1999.
The majority of the retail grocery division's Non-IT systems are
currently Year 2000 compliant; however, certain systems, which include
telephones, will need to be upgraded or replaced. The Non-IT systems
remediation/testing phase is approximately 90% complete and full implementation
is expected by September 1999.
As part of the Retail Grocery Division's evaluation of the Year 2000
readiness of its material suppliers, customers and other third parties, the
division has not identified any class of third party providers that could
materially impact the division's results of operations in the event of their
failure to become Year 2000 compliant, other than the Company's wholesale
grocery division which is discussed above. However, there can be no assurance
that the failure of any unrelated third parties to become Year 2000 compliant in
a timely manner would not result in a material adverse effect on the Company's
results of operations or financial position.
25
<PAGE>
Total costs associated with the Retail Grocery Division Plan are
expected to be approximately $5.8 million. Pursuant to the existing Strategic
Plan, approximately $3.9 million has, or is expected to be, capitalized in
accordance with GAAP, with approximately $1.9 million capitalized during fiscal
1999. This includes the acceleration of approximately $2.5 million of planned
capital expenditures relating to computer systems, primarily point of sale
equipment. To date, the division has spent approximately $3.1 million of the
total cost and expects to spend the majority of the remaining costs over the
next 3 months. All expenditures related to the Retail Grocery Division Plan will
be funded by cash flow from operations and are not expected to impact other
operating or investment plans. Management does not believe that any of the
Retail Grocery Division's material information technology projects have been
deferred due to the Y2K Plan.
The aforementioned costs of the Y2K Plan and the completion dates for
both the wholesale and retail grocery divisions are based on management's best
estimates, which were derived from assumptions of future events, including the
availability of resources, key third party modification plans and other factors.
There can be no assurance that these estimates will prove to be accurate and
actual results could vary due to uncertainties.
Although the Y2K Plan is expected to be adequate to address the
Company's Year 2000 concerns, the Company could experience a material adverse
effect on its results of operations or financial position if its Year 2000
compliance schedule is not met, if the costs to remediate the Company's Year
2000 issues significantly exceed current estimates or if material suppliers,
customers and other businesses encounter serious problems in their Year 2000
remediation efforts. Therefore, the Company is in the process of developing
plans to address such contingencies, with a focus on mission critical systems.
The Company expects to complete its contingency plans in September 1999 and
expects that such plans may include provisions relating to, among other things,
manual workarounds, stockpiling inventories and adjusting staffing strategies,
and will describe the communications, operations and IT activities that will be
utilized if the Company's contingency plans must be executed.
The Company's Year 2000 efforts are ongoing and the Y2K Plan will
continue to evolve as new information becomes available. The failure to correct
a material Year 2000 issue could result in an interruption in certain normal
business activities and operations. Due to the general uncertainty inherent in
the Year 2000 issue, resulting in part from the uncertainty of the Year 2000
readiness of third parties upon whom the Company relies, the Company is unable
to determine at this time whether the consequences of Year 2000 failures will
have a material adverse impact on the Company's results of operations. However,
the Company believes that, with the implementation of the Y2K Plan as scheduled,
the possibility of significant interruptions to normal operations should be
reduced.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company uses financial instruments, including fixed and variable
rate debt, to finance operations. The Company does not have any foreign currency
contract exposure nor does it use financial instruments or derivatives for any
26
<PAGE>
trading or other speculative purposes. Richfood carries notes receivable
because, in the normal course of business, the Company makes long-term loans to
certain retail customers. The notes generally bear variable interest rates.
The Company's interest expense is affected by changes in short-term
interest rates on its variable rate debt. If short-term interest rates were to
vary by 100 basis points from their current levels and the Company's debt levels
were consistent with fiscal 1999, the Company's interest expense and income
before taxes would change by approximately $3.735 million.
The Company is party to an interest rate lock agreement, which expires
August 17, 1999, whereby the Company hedged the interest rate on $150 million of
ten year debt securities to be issued at a hedged base treasury yield of
approximately 6.3%. As a result of the Merger Agreement, it is no longer
probable that the debt securities will be issued. Accordingly, the Company
expects to recognize a one-time charge associated with the settlement of the
interest rate lock agreement. As of May 1, 1999, the settlement amount that the
Company would have to pay approximated $11 million. As of July 12, 1999, the
settlement amount that the Company would have to pay approximated $6.5 million.
If the ten year treasury rate increased by 100 basis points from the ten year
treasury rate at May 1, 1999, the Company would receive approximately $0.434
million. If the ten year treasury rate decreased by 100 basis points from the
ten year treasury rate at May 1, 1999, the Company would be required to pay
approximately $25 million.
The Company's interest income from notes receivable is affected by
changes in short term interest rates on its variable rate notes. If short-term
interest rates were to vary by 100 basis points from their current levels and
the Company's notes receivable balances were consistent with fiscal 1999, the
Company's interest income and income before taxes would change by approximately
$0.344 million.
27
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Management Responsibility for Financial Reporting
The integrity and objectivity of the consolidated financial statements
and related financial information in this report are the responsibility of the
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 internal controls, 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 controls 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 controls 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/ John C. Belknap
Chairman of the Board, Executive Vice President &
President & Chief Executive Officer Chief Financial Officer
28
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Richfood Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Richfood
Holdings, Inc. and subsidiaries as of May 1, 1999 and May 2, 1998, and the
related consolidated statements of earnings, shareholders' equity and cash flows
for each of the three fiscal years in the period ended May 1, 1999. Our audits
also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and 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 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 financial position of
Richfood Holdings, Inc. and subsidiaries at May 1, 1999, and May 2, 1998, and
the consolidated results of their operations and their cash flows for each of
the three fiscal years in the period ended May 1, 1999, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Richmond, Virginia
June 15, 1999
29
<PAGE>
Richfood Holdings, Inc. and Subsidiaries
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------------------------------------------
May 1, Percent of May 2, Percent of May 3, Percent of
1999 Sales 1998 Sales 1997 Sales
------------- ------------ --------------- ----------- -------------- ------------
(Dollar amounts in thousands, except per share data)
<S> <C>
Sales $3,968,239 100.00% $3,203,731 100.00% $3,411,625 100.00%
Cost of goods sold 3,247,017 81.83 2,832,505 88.41 3,053,299 89.50
------------- ------------ --------------- ----------- -------------- ------------
Gross margin 721,222 18.17 371,226 11.59 358,326 10.50
Operating and administrative
expenses 558,560 14.07 256,660 8.01 252,885 7.41
Restructuring costs - - 24,179 0.76 - -
------------- ------------ --------------- ----------- -------------- ------------
Operating profit 162,662 4.10 90,387 2.82 105,441 3.09
Interest expense 46,707 1.18 6,013 0.19 7,166 0.21
Interest income (3,620) (0.09) (3,811) (0.12) (3,672) (0.11)
------------- ------------ --------------- ----------- -------------- ------------
Earnings before income taxes
and extraordinary loss 119,575 3.01 88,185 2.75 101,947 2.99
Income taxes 46,532 1.17 33,479 1.04 40,596 1.19
------------- ------------ --------------- ----------- -------------- ------------
Earnings before extraordinary loss 73,043 1.84 54,706 1.71 61,351 1.80
Extraordinary loss, net of tax - - - - (1,882) (0.06)
------------- ------------ --------------- ----------- -------------- ------------
Net earnings $ 73,043 1.84% $ 54,706 1.71% $ 59,469 1.74%
============= ============ =============== =========== ============== ============
Earnings per common share:
Earnings before extraordinary loss $1.53 $1.15 $1.30
Extraordinary loss, net of tax - - (0.04)
------------- ------------ --------------- ----------- -------------- ------------
Net earnings $1.53 $1.15 $1.26
============= ============ =============== =========== ============== ============
Earnings per common share -
assuming dilution:
Earnings before extraordinary
loss $1.53 $1.15 $1.29
Extraordinary loss, net of tax - - (0.04)
------------- ------------ --------------- ------------ ------------- ------------
Net earnings $1.53 $1.15 $1.25
============= ============ =============== =========== ============== ============
Cash dividends declared per common
share $0.20 $0.16 $0.12
============= ============ =============== =========== ============== ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
30
<PAGE>
Richfood Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
May 1, 1999 May 2, 1998
----------------- ------------------
(Dollar amounts in thousands)
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 4,911 $ 39,968
Receivables, less allowance for doubtful accounts of
$3,219 (fiscal 1998- $3,393) 117,757 101,454
Inventories 227,539 194,875
Assets held for sale 35,400 -
Other current assets 25,446 20,675
----------------- ------------------
Total current assets 411,053 356,972
----------------- ------------------
Notes receivable, less allowance for doubtful accounts of
$1,580 (fiscal 1998 - $1,654) 34,291 22,767
Assets held for sale 35,429 26,342
Property and equipment, net 248,716 187,288
Goodwill, net 587,479 263,369
Other assets 104,137 52,113
----------------- ------------------
Total assets $1,421,105 $908,851
================= ==================
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt and capital lease
obligations $217,907 $16,684
Accounts payable 206,173 209,009
Accrued expenses and other current liabilities 125,884 76,942
----------------- ------------------
Total current liabilities 549,964 302,635
----------------- ------------------
Long-term debt and capital lease obligations 455,981 253,087
Deferred credits and other 26,484 28,915
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 47,727,490
(fiscal 1998 - 47,658,964) 91,691 90,729
Retained earnings 296,985 233,485
----------------- ------------------
Total shareholders' equity 388,676 324,214
Commitments and contingent liabilities (Notes 5, 6 and 13)
----------------- ------------------
Total liabilities and shareholders' equity $1,421,105 $908,851
================= ==================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
31
<PAGE>
Richfood Holdings, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock
-------------------------------- Retained
Shares Dollars Earnings Total
--------------- ---------------- --------------- ---------------
(Dollar amounts in thousands)
<S> <C>
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
Net earnings - - 54,706 54,706
Warrants issued - 14,415 - 14,415
Issuance of common stock under
employee stock incentive plans 257,194 4,056 - 4,056
Cash dividends declared on common
stock - - (7,613) (7,613)
--------------- ---------------- --------------- ---------------
Balance at May 2, 1998 47,658,964 90,729 233,485 324,214
Net earnings - - 73,043 73,043
Issuance of common stock under
employee stock incentive plans 68,526 962 - 962
Cash dividends declared on
common stock - - (9,543) (9,543)
--------------- ---------------- --------------- ---------------
Balance at May 1, 1999 47,727,490 $91,691 $296,985 $388,676
=============== ================ =============== ===============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
32
<PAGE>
Richfood Holdings, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------
May 1, May 2, May 3,
1999 1998 1997
------------- --------------- ---------------
(Dollar amounts in thousands)
<S> <C>
Operating activities:
Net earnings $ 73,043 $ 54,706 $ 59,469
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Restructuring charge, non-cash component - 23,314 -
Depreciation and amortization 56,762 32,072 29,234
Provision for doubtful accounts 3,093 4,148 4,241
Deferred income taxes 2,268 (2,741) 7,702
Extraordinary loss--loss on debt extinguishment,
non-cash component - - 663
Accretion of fair value adjustment to Shoppers notes (3,300) - -
Other, net (360) 28 289
Changes in operating assets and liabilities, net of effects of
acquisitions:
Receivables (18,300) 6,300 (622)
Inventories (558) 12,552 (353)
Other current assets (1,220) 3,041 (987)
Accounts payable, accrued expenses and other liabilities (52,711) (21,035) 16,424
------------- --------------- ---------------
Net cash provided by operating activities 58,717 112,385 116,060
Investing activities:
Acquisitions, net of cash acquired (182,701) (222,067) (26,098)
Proceeds from sale of assets held for sale 8,179 - -
Purchases of property and equipment (70,808) (22,194) (15,415)
Proceeds from sale of property and equipment 36,259 - -
Issuance of notes receivable (16,923) (11,227) (22,266)
Collections on notes receivable 4,806 7,246 10,511
Other, net (1,728) (9,801) (8,091)
------------- --------------- ---------------
Net cash used for investing activities (222,916) (258,043) (61,359)
Financing activities:
Net (repayments of) proceeds from revolving credit facilities (11,500) 192,000 -
Proceeds from issuance of long term debt 200,000 - -
Principal payments on long-term debt and capital lease
obligations (32,904) (12,136) (58,633)
Payment of note payable due Trak (18,169) - -
Proceeds from issuance of common stock under
employee stock incentive plans and other 777 2,474 2,130
Cash dividends paid on common stock (9,062) (7,128) (5,197)
------------- --------------- ---------------
Net cash provided by (used for) financing activities 129,142 175,210 (61,700)
------------- --------------- ---------------
Net (decrease) increase in cash and cash equivalents (35,057) 29,552 (6,999)
Cash and cash equivalents at beginning of fiscal year 39,968 10,416 17,415
------------- --------------- ---------------
Cash and cash equivalents at end of fiscal year $ 4,911 $ 39,968 $ 10,416
============= =============== ===============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
33
<PAGE>
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
1. Summary of Significant Accounting Policies
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 1, 1999
("fiscal 1999") and May 2, 1998 ("fiscal 1998") and for the fiscal year ended
May 3, 1997 ("fiscal 1997") include the accounts of Richfood Holdings, Inc. and
all subsidiaries after the elimination of significant intercompany transactions
and balances.
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.
Fiscal Year
The Company reports on a 52-53 week fiscal year ending the Saturday nearest
April 30. Fiscal 1999 and fiscal 1998 each consist of 52 weeks. Fiscal 1997
consists of 53 weeks.
Cash and Cash Equivalents
Cash equivalents of $4,832 and $38,552 at May 1, 1999 and May 2, 1998,
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.
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.
Assets Held for Sale
Assets held for sale are carried at the lower of carrying amount or estimated
fair value less costs to sell. Assets held for sale at May 1, 1999 primarily
consist of the Company's investment in Trak Auto Corporation ("Trak") (Note 2),
the Company's West Point, Pennsylvania frozen food distribution facility (the
"West Point Facility") (Note 7) and certain other real estate acquired in
connection with the acquisition of Dart Group Corporation ("Dart") (Note 2).
Assets held for sale at May 2, 1998 primarily consisted of the West Point
Facility. On May 27, 1999, subsequent to fiscal 1999, the Company sold its
interest in Trak to an unaffiliated third party for approximately $35.4 million.
The Company is currently marketing the remaining facilities.
34
<PAGE>
1. Summary of Significant Accounting Policies (continued)
Impairment of Long-Lived Assets
The Company evaluates the recoverability of long-lived assets to be held and
used and goodwill for impairment when events or changes in circumstances
indicate that the carrying amount of an asset may not be fully 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. The Company reports
long-lived assets and certain identifiable intangibles to be disposed of at the
lower of carrying amount or estimated fair value less costs to sell.
In the fourth quarter of fiscal 1998, the Company implemented a restructuring
plan that included the closure of the West Point Facility. In conjunction with
this restructuring plan, the Company recorded an impairment loss.
(Note 7).
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.
Leased property meeting certain criteria is capitalized and the present value of
the related lease payment is recorded as a liability. Amortization of
capitalized leased assets is computed using the straight-line method over the
term of the lease.
Goodwill and Other Assets
The excess of cost over the fair value of net assets of businesses acquired
(goodwill) is amortized on a straight-line basis over 40 years. Goodwill is
shown net of accumulated amortization of $36,811 and $20,572 at May 1, 1999 and
May 2, 1998, respectively. The increase in goodwill from May 2, 1998 to May 1,
1999 is primarily due to the Dart acquisition. (Note 2).
Other assets primarily consist of lease rights, supply agreements, the prepaid
pension asset (Note 11), and deferred taxes (Note 8). Lease rights represent the
present value of the difference between the fair market rental and the
contractual lease payments of an acquired enterprise at the date of acquisition,
and are amortized on a straight line basis over the remaining terms of the lease
agreements. 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 amortized on a straight-line basis over the terms of
the respective supply agreements. Supply agreements included in other assets
were $17,003 (net of $13,900 accumulated amortization) and $19,758 (net of
$10,326 accumulated amortization) at May 1, 1999 and May 2, 1998, 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.
35
<PAGE>
1. Summary of Significant Accounting Policies (continued)
Store Pre-opening Costs
Costs associated with the Company opening new retail stores are charged to
expense as incurred.
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 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.
Stock-Based Compensation
As permitted by the provisions of Statement of Financial Accounting Standards
No. 123 "Accounting for Stock-Based Compensation," the Company follows the
disclosure only requirements and 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.
Fair Value of Financial Instruments
Financial instruments include cash and cash equivalents, accounts and notes
receivable, accounts payable and long-term debt and capital lease obligations
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 1, 1999, and May 2, 1998, because of
the short-term nature of these financial instruments. The carrying amount of
certain notes receivable, which are subject to variable interest rates,
approximates fair value at May 1, 1999, and May 2, 1998, due to the variable
interest rates related to these financial instruments. The fair value of the
9.75% Senior Notes (Notes 2 and 6) is based on quoted market prices. The fair
value of the outstanding 9.75% Senior Notes on May 1, 1999 was approximately
$208,458. The fair values of long-term debt with fixed interest rates and
capital lease obligations approximate their carrying values at May 1, 1999, and
May 2, 1998. The fair value of long-term debt outstanding under the Company's
$450,000 senior unsecured credit facilities (Note 6) approximates the carrying
value due to variable interest rates associated with these facilities. The
Company is party to an interest rate lock, which expires August 17, 1999,
whereby the Company hedged the interest rate on $150,000 of ten year debt
securities to be issued at a hedged base treasury yield of approximately 6.3%.
As of May 1, 1999, the settlement amount approximated $11,000 and as of June 9,
1999, the approximate settlement amount was $4,800.
36
<PAGE>
1. Summary of Significant Accounting Policies (continued)
Earnings per Common Share
Basic earnings per common share amounts are computed based on earnings divided
by the weighted average number of common shares outstanding during the
respective periods presented. Diluted earnings per common share amounts are
computed based on earnings divided by the weighted average number of common
shares and stock options and warrants that represent potential common shares
outstanding during the respective periods presented.
A reconciliation of the numerators and denominators used in the basic and
diluted per-share computations is presented in Note 9.
Retirement Plans
In fiscal 1999, the Company adopted Statement of Financial Accounting Standards
No. 132, "Employers' Disclosure about Pensions and Other Postretirement
Benefits" ("SFAS No. 132"). SFAS No. 132 revises the disclosure requirements
for pensions and other postretirement benefit plans.
Derivatives and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which sets standards for the recognition and
measurement of derivatives and hedging activities. This Statement, as amended,
is effective for the Company's fiscal year ending April 2002. Management has not
completed its assessment of the impact of this Statement on earnings or
financial position.
2. Merger and Acquisitions
On May 18, 1998, a wholly-owned subsidiary of the Company acquired all of the
outstanding shares of Dart for $160 per share, net to the seller in cash, or
approximately $201,000 (the "Dart Acquisition"). The purchase price has been
allocated to the assets acquired and liabilities assumed based on their
estimated fair values according to preliminary valuations. The excess of
purchase price over the fair value of net assets acquired of approximately
$320,000 is being amortized on a straight-line basis over 40 years. Dart,
headquartered in Landover, Maryland, was comprised, at the time of acquisition,
of: Shoppers Food Warehouse Corp. ("Shoppers"), a 100% owned chain of 37 price
impact supermarkets operating in the greater Washington, DC metropolitan area;
37
<PAGE>
2. Merger and Acquisitions (continued)
Trak Auto Corporation ("Trak"), a publicly-owned retailer of auto parts (67.1%
owned by Dart); Crown Books Corporation ("Crown"), a publicly-owned retailer of
popular books (52.3% owned by Dart); and Total Beverage Corporation ("Total
Beverage"), a discount beverage retailer (100% owned by Dart). The Company
accounted for the acquisition under the purchase method of accounting and,
accordingly, the results of operations of Dart and Shoppers have been included
in the Company's Consolidated Statements of Earnings since the date of
acquisition.
At the time of the Dart Acquisition, the Company announced its intention to
divest its ownership in Dart's non-core assets, including Trak, Crown and Total
Beverage. Total Beverage was sold by Dart to an unaffiliated third party on May
22, 1998, for approximately $8,200. Crown filed a voluntary petition for
protection under Chapter 11 of the United States Bankruptcy Code on July 14,
1998. On May 27, 1999, Dart tendered all of its outstanding shares of Trak
common stock pursuant to a tender offer by an unaffiliated third party at $9 per
share, or approximately $35,400, which approximates its carrying value at May 1,
1999. The Company's proportionate share of the combined results of operations of
Trak, Crown and Total Beverage represented a net after-tax loss of approximately
$28,300 for the period May 18, 1998, through May 1, 1999 (including allocated
interest expense of approximately $2,500 and the Company's proportionate share
of reorganization expense pursuant to Crown's bankruptcy in the amount of
$19,377) and are excluded from the Consolidated Statements of Earnings, in
accordance with Emerging Issues Task Force Issue No. 87-11: "Allocation of
Purchase Price to Assets to be Sold."
The Dart Acquisition was financed with proceeds from $450,000 senior unsecured
credit facilities (the "Facilities"), consisting of a $250,000, five-year
revolving credit facility (the "Revolver") and a $200,000, 18-month term loan
(the "Term Loan"). Proceeds from the Facilities also were used to repay the
outstanding balance of $192,000 under an existing revolving facility. At the
time of the Dart Acquisition, Shoppers had outstanding $200,000 in principal
amount of 9 3/4% Senior Notes due 2004. (Note 6)
On March 4, 1998, a wholly-owned subsidiary of the Company acquired
substantially all of the assets and assumed certain liabilities of Farm Fresh,
Inc., a privately-held supermarket chain headquartered in Norfolk, Virginia
("Farm Fresh"). The Company did not assume Farm Fresh's indebtedness for
borrowed money or lease obligations for previously closed stores or stores that
were closed in connection with the transaction. The purchase price consisted of
approximately $226,000 cash, plus capital leases assumed with a fair value of
approximately $47,000, plus 1.5 million warrants for the purchase of the
Company's common stock at an exercise price equal to $25 per share with a term
of five years following issuance. 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 Statement of Earnings since the date of acquisition. The purchase
price has been allocated to the assets acquired and the liabilities assumed
based upon their respective fair values at the date of acquisition. The excess
of purchase price over the fair value of net assets acquired of approximately
$196,000 is being amortized on a straight-line basis over 40 years. During
fiscal 1999, the Company finalized its plan to exit certain retail store
38
<PAGE>
2. Merger and Acquisitions (continued)
locations and adjusted its purchase price allocations accordingly. These
adjustments primarily relate to obligations under lease agreements and the write
down to fair value of retail store equipment.
The following unaudited pro forma financial information presents a summary of
consolidated results of operations of the Company, Dart (excluding the
operations of Trak, Crown and Total Beverage) and Farm Fresh as if the
acquisitions had occurred at the beginning of fiscal 1998, with pro forma
adjustments to give effect to amortization of goodwill, interest expense on
acquisition debt and certain other adjustments, together with related tax
effects. This pro forma information is presented for informational purposes only
and is not necessarily indicative of the combined results of operations which
would actually have occurred had the transactions been consummated on that date
or which may be obtained in the future.
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------
May 1, 1999 May 2, 1998
- -------------------------------------------------------------------------------------- --------------------
(unaudited)
<S> <C>
Sales $3,988,641 $4,041,082
Earnings before extraordinary loss and cumulative effect of
accounting change 72,831 40,327
Extraordinary loss, net of tax - (3,126)
Cumulative effect of accounting change, net of tax - 1,729
----------------- --------------------
Net earnings $ 72,831 $ 38,930
================= ====================
Per common share data:
Earnings before extraordinary loss and cumulative effect of
accounting change $ 1.53 $ 0.85
Extraordinary loss, net of tax - (0.07)
Cumulative effect of accounting change, net of tax - 0.04
----------------- --------------------
Net earnings $ 1.53 $ 0.82
================= ====================
Earnings before extraordinary loss and cumulative effect of
accounting change-assuming dilution $ 1.52 $ 0.85
Extraordinary loss, net of tax-assuming dilution - (0.07)
Cumulative effect of accounting change, net of tax-assuming
dilution - 0.04
----------------- --------------------
Net earnings-assuming dilution $ 1.52 $ 0.82
================= ====================
</TABLE>
39
<PAGE>
2. Merger and Acquisitions (continued)
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.
3. Inventories
At May 1, 1999, and May 2, 1998, approximately 75% and 76%, 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 $6,956 at May 1, 1999 and $7,653 at May 2, 1998, and net
earnings would have been lower by approximately $426 for fiscal 1999, $253 for
fiscal 1998, and $12 for fiscal 1997. 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 (7.75% at May 1, 1999) plus 1% to 2%
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 $11,953 and $7,754 at May 1,
1999, and May 2, 1998, respectively, related to current maturities of these
notes receivable.
40
<PAGE>
5. Property and Equipment and Leases
Property and equipment are summarized as follows:
May 1, 1999 May 2, 1998
-------------- ----------------
Land $ 2,519 $ 12,276
Buildings 47,871 62,272
Fixtures and equipment 218,499 126,644
Leasehold improvements 59,266 41,892
Trucks and autos 11,263 12,711
Assets under capital leases:
Truck fleet 231 1,375
Buildings 48,541 41,140
Other 3,991 4,060
-------------- ----------------
392,181 302,370
Less accumulated depreciation
and amortization 143,465 115,082
-------------- ----------------
Property and equipment, net $ 248,716 $ 187,288
============== ================
Depreciation and amortization expense relating to property and equipment and
assets under capital leases was approximately $32,398, $18,820, and $16,700 for
fiscal 1999, fiscal 1998 and fiscal 1997, respectively. Capital lease
obligations have imputed interest rates that range primarily from 6.50% to 6.66%
and are due in varying amounts through fiscal 2022.
Future minimum lease payments under capital leases at May 1, 1999 are as
follows:
Fiscal Year
2000 $ 8,852
2001 7,138
2002 6,281
2003 6,247
2004 6,184
Thereafter 50,506
-------------------------
Total future minimum lease payments 85,208
Less amount representing interest 29,049
-------------------------
Present value of minimum capital
lease payments 56,159
Less current installments of obligations
under capital leases 5,145
-------------------------
Long-term obligations under capital leases $51,014
=========================
41
<PAGE>
5. Property and Equipment and Leases (continued)
The Company leases certain warehouse, office and storage facilities, equipment
and retail stores under noncancelable operating leases that expire within 32
years from May 1, 1999 and have renewal options from 5 to 58 years. The majority
of the leases provide for the payment of taxes, insurance and maintenance (and
contingent rentals based on a percentage of sales volume, in the case of retail
store leases) by the Company. The Company subleases certain retail stores to
third parties.
As of May 1, 1999, 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:
<TABLE>
<CAPTION>
Minimum Sublease
Minimum Lease Rentals Rentals to be Net Minimum
Fiscal Year to be Paid Received Lease Rentals
- --------------------------------- ------------------------- ------------------- -----------------
<S> <C> <C> <C>
2000 $ 51,857 $ 5,162 $ 46,695
2001 49,383 3,858 45,525
2002 47,016 3,672 43,344
2003 103,212 3,372 99,840
2004 37,871 2,868 35,003
Thereafter 329,028 11,635 317,393
------------------------- ------------------- -----------------
Total $618,367 $ 30,567 $ 587,800
========================= =================== =================
</TABLE>
Total annual rental expense is as follows:
Fiscal Year Ended
----------------------------------------------
May 1, 1999 May 2, 1998 May 3, 1997
-------------- --------------- ---------------
Minimum rentals $52,542 $30,854 $27,886
Less sublease income (6,082) (5,226) (6,962)
-------------- --------------- ---------------
Rental expense $46,460 $25,628 $20,924
============== ============== ===============
In December 1998, the Company sold certain of its Farm Fresh properties for
$35,039 and immediately leased back the properties from the purchaser over a
period of 15 years. The related lease is being accounted for as an operating
lease.
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 $77,650 at May 1,
1999. The related leases expire at varying dates over the next 23 years.
42
<PAGE>
6. Long-term Debt and Capital Lease Obligations
Long-term debt, including capital lease obligations, consists of the following:
<TABLE>
<CAPTION>
May 1, 1999 May 2, 1998
-------------- --------------
<S> <C>
$250,000, five-year, senior unsecured revolving credit facility, average
effective interest rate of 6.18%, due May 2003 $172,000 $ -
Term loan, average interest rate of 6.40%, due November 1999 193,000 -
Revolving credit facility repaid May 18, 1998 - 192,000
$200,000 face amount Senior Notes, unsecured, interest rate of 9.75%, due
June 2004 210,966 -
Senior Notes, unsecured, interest rate of 6.15%,
due July 1999 to July 2000 18,000 27,000
Obligations under capital leases (Note 5) 56,159 48,106
Other long-term debt 23,763 2,665
-------------- --------------
Total long-term debt and capital lease obligations 673,888 269,771
Less current installments 217,907 16,684
-------------- --------------
Long-term debt and capital lease obligations, net of current
installments $455,981 $253,087
============== ==============
</TABLE>
On May 12, 1998, the Company entered into an agreement with a syndicate of
commercial banks that provides $450,000 senior unsecured credit facilities (the
"Facilities"), consisting of a $250,000, five-year revolving credit facility
(the "Revolver") and a $200,000, 18-month term loan (the "Term Loan"). Proceeds
from the Facilities were used primarily to fund the Dart Acquisition, to repay
the outstanding balance of $192,000 under the Company's terminated revolving
facility and to provide funds for other general corporate purposes. Also in
connection with the Dart Acquisition, the Company assumed $200,000 in face
amount of Shoppers' 9 3/4% Senior Notes due June 2004 ("Shoppers Notes") with a
fair value of $221,500 on the date of the acquisition. In June 1998, the Company
repurchased $6,500 in face amount of the Shoppers Notes in an open market
transaction for a total cash payment of approximately $7,200, including accrued
interest.
The $193,000 outstanding under the Term Loan is due November 1999, and is
reflected as a component of current installments of long-term debt and capital
lease obligations as of May 1, 1999. See Note 16 regarding subsequent events.
Principal advances under the Revolver and outstanding principal balances of the
Term Loan bear interest, at the option of the Company, at either (i) the Base
Rate plus the Applicable Margin or (ii) Adjusted one, two, three or six-month
LIBOR plus the Applicable Margin. The Base Rate is the higher of (i) First
Union's Prime Rate, or (ii) the Federal Funds Rate plus 0.50%. The Applicable
Margin for loans bearing interest based upon the Base Rate will be 0%. The
Applicable Margin for loans bearing interest based upon Adjusted LIBOR will vary
based on the Company's Total Funded Debt to EBITDA Ratio (as defined in the
agreement). The Facilities have a mandatory prepayment clause, which requires
the Company to prepay the outstanding balance of the Term Loan Facility with the
net proceeds of new equity offerings and new issuances of senior debt and with
the proceeds of any sale of Trak, Crown, Total Beverage or any real estate
assets of Dart. In May 1998, the Company prepaid the Term Loan by $7,000 with
net proceeds from the sale of Total Beverage. Subsequent to fiscal 1999, on June
4, 1999, the Company used the net proceeds from the sale of Trak of
approximately $35,000 to make a partial prepayment of the remaining outstanding
balance under the Term Loan. Under the terms of the Facilities, the Company has
43
<PAGE>
6. Long-term Debt and Capital Lease Obligations (continued)
agreed to maintain certain Fixed Charge Coverage and Total Funded Debt to EBITDA
ratios. The Facilities also contain covenants that limit the incurrence of
additional indebtedness and prohibit certain liens on assets. The Company is in
compliance with all such covenants at May 1, 1999.
In July 1993, the Company issued $45,000 aggregate principal amount of 6.15%
Senior Notes (the "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 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. The Senior Notes 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 Holdings, Inc. in the form of loans, advances or cash dividends; and
require certain financial ratios to be met as of each quarter end. The Company
is in compliance with all such covenants at May 1, 1999.
In April 1992, a predecessor of the Company issued $75,000 aggregate principal
amount of 10 5/8% Senior Subordinated Notes, due 2002. In April 1997, the first
permitted optional redemption date, the Company redeemed the remaining $47,525
in principal amount of the Senior Subordinated Notes at a redemption price of
105.31% of par. The Company primarily used cash on hand, supplemented by
borrowings under revolving credit facilities, to fund the early redemption of
the Senior Subordinated Notes. The fiscal 1997 redemption resulted in an
extraordinary loss of $1,882, net of a tax benefit of $1,308. The extraordinary
loss is comprised of amounts paid in excess of par value and the write-off of
related deferred financing costs.
Future principal repayments on long-term debt for the five fiscal years
subsequent to fiscal 1999, excluding obligations under capital leases, are as
follows: fiscal 2000--$212,762; fiscal 2001--$10,291; fiscal 2002--$1,307;
fiscal 2003--$179,498; and fiscal 2004--$229.
At May 1, 1999 other long-term debt consists primarily of three mortgages
secured by Dart real estate with an aggregate net book value of approximately
$15,263. The mortgages have maturity dates of December 1999, November 2002 and
December 2007 and an effective interest rate of 6.66%.
As of May 1, 1999, the Company issued $16,017 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 and capital leases were $52,536,
$5,363 and $7,973 for fiscal 1999, fiscal 1998 and fiscal 1997, respectively.
On September 30, 1998, the Company filed a Shelf Registration Statement, which
became effective in October 1998. Under the terms of the Shelf Registration
Statement, the Company may issue from time to time in one or more series up to
$500,000 aggregate offering price of its (i) unsecured debt securities, which
44
<PAGE>
6. Long-term Debt and Capital Lease Obligations (continued)
may be either senior debt securities or subordinated debt securities, (ii)
shares of preferred stock, without par value ("Preferred Stock"), which may be
issued in the form of depositary shares evidenced by depositary receipts, (iii)
shares of common stock, without par value ("Common Stock"), and (iv) warrants to
purchase shares of Common Stock or Preferred Stock on terms to be determined at
the time of sale.
7. Restructuring
In the fourth quarter of fiscal 1998, the Company announced a plan to
restructure its Pennsylvania frozen foods operations, which reduced fiscal 1998
earnings before taxes by $24,179. The implementation of the plan included
closing the West Point Facility and transferring related operations to the
Company's Harrisburg, Pennsylvania, distribution facility.
The aggregate charges included $17,820 for asset impairment and $6,359 for
activities under the restructuring plan. The asset impairment charge included
$14,616 to write-down the West Point Facility and related equipment to fair
value less estimated costs to sell and $3,204 to write-off the unamortized
goodwill associated with the Company's West Point operations. The estimated fair
value less estimated costs to sell the West Point Facility of approximately
$20,700 is classified as noncurrent assets held for sale at May 1, 1999 and May
2, 1998. At May 2, 1998, approximately $4,682 remained in the accrual. During
fiscal 1999, the Company paid approximately $3,810 cash toward certain
non-cancelable leases, employee separation costs and other obligations under the
restructuring plan. At May 1, 1999, approximately $872 remains in the accrual to
be utilized for employee separation costs and other obligations that will extend
beyond fiscal 1999.
45
<PAGE>
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 1, 1999 May 2, 1998 May 3, 1997
------------ ------------- -------------
Current:
Federal $41,462 $31,460 $27,800
State 2,802 4,760 5,094
------------ ------------- -------------
44,264 36,220 32,894
Deferred:
Federal 2,297 (801) 6,941
State (29) (1,940) 761
------------ ------------- -------------
2,268 (2,741) 7,702
------------ ------------- -------------
Income taxes $46,532 $33,479 $40,596
============ ============= =============
Income tax payments,
net of refunds received $39,219 $29,812 $40,074
============ ============= =============
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:
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------
May 1, 1999 May 2, 1998 May 3, 1997
------------- --------------- -------------
<S> <C>
Taxes computed using federal statutory rate 35.00% 35.00% 35.00%
State income taxes, net of federal income tax benefit 1.51 2.07 3.73
Nondeductibility of goodwill amortization expense 2.92 0.97 0.74
Other, net (0.52) (0.08) 0.35
---------------------------- -------------
Effective tax rate 38.91% 37.96% 39.82%
============= =============== =============
</TABLE>
46
<PAGE>
8. Income Taxes (continued)
Deferred income taxes for fiscal 1999 and fiscal 1998 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
1, 1999 and May 2, 1998 are as follows:
May 1, 1999 May 2, 1998
--------------- ---------------
Deferred tax assets:
Allowance for doubtful accounts $2,329 $2,256
Property and equipment 1,288 -
Deferred revenue 8,116 2,697
Deferred financing costs 2,240 -
Accrued expenses 24,769 15,648
Net operating loss carryforward 41,909 2,165
Other 446 2,494
--------------- ---------------
Total deferred tax assets 81,097 25,260
Deferred tax liabilities:
Property and equipment - (11,188)
Goodwill (32,957) (8,128)
Inventories (2,205) (1,302)
Lease acquisition costs and lease rights (8,318) (2,165)
Retirement plans (2,233) (444)
Other (109) (1,284)
--------------- ---------------
Total deferred tax liabilities (45,822) (24,511)
--------------- ---------------
Net deferred tax assets $35,275 $ 749
=============== ===============
Net current deferred tax assets $15,588 $15,197
Net noncurrent deferred tax assets 19,687 -
Net noncurrent deferred tax liabilities - (14,448)
=============== ===============
Net deferred tax assets $35,275 $ 749
=============== ===============
As a result of the Dart Acquisition, the Company acquired a net operating loss
carryforward, with a remaining balance of approximately $112,000 as of May 1,
1999. The net operating losses will expire in the years 2007 to 2018. Due to
Internal Revenue Service regulations, utilization of the net operating loss
carryforwards in a particular year may be limited. The Company also has an
alternative minimum tax credit carryforward of $1,100.
47
<PAGE>
9. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------------------
May 1, May 2, May 3,
1999 1998 1997
------------------- ------------------- ------------------
<S> <C> <C> <C>
Numerator:
Earnings before extraordinary loss $73,043 $54,706 $61,351
Extraordinary loss, net of tax - - (1,882)
=================== =================== ==================
Net earnings $73,043 $54,706 $59,469
=================== =================== ==================
Denominator:
Denominator for basic earnings per share-
weighted average common shares 47,689,003 47,528,161 47,290,092
Effect of dilutive securities:
Stock options 135,722 209,831 268,388
Warrants - 4,562 -
------------------- ------------------- ------------------
Dilutive securities 135,722 214,393 268,388
------------------- ------------------- ------------------
Denominator for diluted earnings per share-
adjusted weighted average shares 47,824,725 47,742,554 47,558,480
=================== =================== ==================
Earnings per common share:
Earnings before extraordinary loss $1.53 $1.15 $1.30
Extraordinary loss, net of tax - - (0.04)
------------------- ------------------- ------------------
Net earnings $1.53 $1.15 $1.26
=================== =================== ==================
Earnings per common share - assuming dilution:
Earnings before extraordinary loss $1.53 $1.15 $1.29
Extraordinary loss, net of tax - - (0.04)
------------------- ------------------- ------------------
Net earnings $1.53 $1.15 $1.25
=================== =================== ==================
</TABLE>
Options and warrants to purchase 2,152,450, 53,000 and 224,800 shares of common
stock at weighted-average exercise prices of $24.66, $26.97 and $23.77 per share
were outstanding in fiscal 1999, fiscal 1998, and fiscal 1997, respectively, but
were not included in the computation of diluted earnings per share because the
options' and warrants' exercise prices were greater than the average market
prices of the common shares and, therefore, would be antidilutive.
Under the Company's Amended and Restated Omnibus Stock Incentive Plan, dated
July 1997 (the "Omnibus Plan"), with respect to Incentive Awards granted for the
three fiscal year performance cycle that commenced on May 4, 1997, certain
employees would be entitled to receive approximately 51,400 shares of common
stock at May 1, 1999. These contingently issuable shares are not included in the
computation of diluted earnings per share because certain performance goals and
other necessary vesting conditions had not been satisfied as of May 1, 1999.
48
<PAGE>
10. Stock Options, Warrants and Other
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 990,000 shares of common stock remain outstanding under
the Omnibus Plan at May 1, 1999. Approximately 1,248,000 and 1,689,000 shares of
common stock remained available for grant at May 1, 1999 and May 2, 1998,
respectively.
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 67,000 shares of common stock remain outstanding under
the Directors' Stock Plan at May 1, 1999. Approximately 43,000 and 56,000 shares
of common stock remained available for grant at May 1, 1999 and May 2, 1998,
respectively.
At May 1, 1999, there were options to purchase approximately 554,000 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.
49
<PAGE>
10. Stock Options, Warrants and Other (continued)
Pro forma information regarding net earnings and earnings per share is required
by Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-based Compensation" ("SFAS No. 123"), and has been determined based on the
fair value at the grant date for options awarded in fiscal years 1999, 1998, and
1997 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 fiscal years 1999,
1998, and 1997:
<TABLE>
<CAPTION>
Risk Free
Dividend Yield Volatility Expected Life Interest Rate
--------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Fiscal 1999 0.90% 0.29 5 years 4.60%
Fiscal 1998 0.60% 0.18 5 years 5.80%
Fiscal 1997 0.50% 0.18 5 years 6.29%
</TABLE>
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 years
1998 and 1997 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 stock options
granted in fiscal years 1999, 1998 and 1997 in accordance with the provisions of
SFAS No. 123, the decrease in net earnings and net earnings per common share
would have been less than 2%.
A summary of the number of shares (in thousands) subject to outstanding stock
options and related information is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------------------------------------------------------------
May 1, 1999 May 2, 1998 May 3, 1997
---------------------------------- ---------------------------------- ----------------------------------
Weighted Average Weighted Average Weighted
Exercise Price Exercise Price Average Exercise
Shares Shares Shares Price
----------------- ---------------- ----------------- ---------------- --------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning
of year 1,236 $18.67 1,184 $ 14.68 1,404 $ 9.82
Granted 521 19.31 342 24.47 356 23.19
Exercised (72) 10.86 (265) 8.21 (492) 6.39
Canceled (74) 23.56 (25) 20.01 (84) 18.17
----------------- ---------------- ----------------- ---------------- --------------- ------------------
Outstanding-end of year 1,611 $19.00 1,236 $ 18.67 1,184 $ 14.68
----------------- ---------------- ----------------- ---------------- --------------- ------------------
Price range-end of year $2.55-$28.38 $2.55-$28.38 $2.55-$25.33
================= ================ ================= ================ =============== ==================
</TABLE>
50
<PAGE>
10. Stock Options, Warrants and Other (continued)
The weighted average fair value of each option granted during fiscal years 1999
and 1998 was $5.78 and $7.15, respectively. The number and weighted average fair
value of shares of nonvested restricted stock granted during fiscal year 1997
was $37,500 and $21.92 per share, respectively.
Information regarding the shares (in thousands) subject to outstanding stock
options at May 1, 1999 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------- ------------------------------
Weighted Average Weighted Weighted
Range of exercise Remaining Average Average
prices Shares Contractual Life Exercise Price Shares Exercise Price
- ----------------------- ---------- --------------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$2.55-$ 6.04 88 3 years $ 5.31 88 $ 5.31
$10.33-$15.38 158 5 years $10.69 149 $10.41
$16.17-$18.56 692 8 years $18.03 200 $17.18
$20.00-$28.38 673 8 years $23.76 216 $23.84
======================= ========== ===================== ================= =========== =================
$ 2.55-$28.38 1,611 8 years $19.00 653 $16.24
======================= ========== ===================== ================= =========== =================
</TABLE>
On March 4, 1998, in conjunction with the acquisition of substantially all of
the assets and assumption of certain liabilities of Farm Fresh, Inc. (Note 2),
the Company issued warrants to purchase 1,500,000 shares of the Company's common
stock at $25 per share as part of the purchase consideration. The warrants are
immediately exercisable and will expire five years from the date of issuance.
The estimated fair market value of the warrants at the date of issuance,
approximately $14,415, was valued as part of the total purchase consideration.
As of May 1, 1999, all of these warrants remained outstanding.
11. Retirement Plans
The Company adopted SFAS No. 132 in fiscal 1999. All of the Company's wholesale
and corporate employees are covered by a defined benefit plan. At May 2, 1998,
there were two such plans, which were subsequently merged into one plan
effective April 30, 1999. All prior year information has been adjusted to
reflect the plan merger and adoption of SFAS No. 132.
51
<PAGE>
11. Retirement Plans (continued)
The Company's retirement plan covers employees who meet certain age and service
requirements. Retirement benefits vest under the various plans after five 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 at May 1, 1999, consist of equity securities, preferred stock, U.S.
government and agency obligations, mortgage-backed securities, corporate
obligations and mutual funds.
The following tables provide a reconciliation of benefit obligations, plan
assets, and funded status of the plan.
<TABLE>
<CAPTION>
May 1, 1999 May 2, 1998
-------------------- ----------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $59,661 $46,820
Service cost 3,089 2,528
Interest cost 4,100 3,548
Actuarial loss 107 8,692
Benefits paid (2,014) (1,927)
-------------------- ----------------
Benefit obligation at end of year $64,943 $59,661
==================== ================
May 1, 1999 May 2, 1998
-------------------- ----------------
Change in plan assets:
Fair value of plan assets at beginning of year $74,929 $61,492
Actual return on plan assets 3,178 14,969
Employer contribution 775 395
Benefits paid (2,014) (1,927)
==================== ================
Fair value of plan assets at end of year $76,868 $74,929
==================== ================
Funded status of the plan:
Plan assets in excess of benefit obligation $11,925 $15,268
Unrecognized net loss (gain) 1,077 (5,177)
Unrecognized net transition asset (2,246) (2,380)
-------------------- ----------------
Prepaid benefit cost $10,756 $7,711
==================== ================
</TABLE>
52
<PAGE>
11. Retirement Plans (continued)
The following are the components of net retirement (benefit) expense related to
the defined benefit plan:
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------
------------- ------------- --------------
May 1, 1999 May 2, May 3, 1997
1998
------------- ------------- --------------
<S> <C> <C> <C>
Service cost-present value of benefits
earned during the year $3,089 $ 2,528 $ 2,710
Interest cost on projected benefit obligation 4,100 3,548 3,315
Expected return on plan assets (6,669) (5,452) (4,787)
Amortization and deferrals (784) (857) (1,193)
------------- ------------- --------------
Net retirement (benefit) expense $ (264) $ (233) $ 45
============= ============= ==============
</TABLE>
The weighted average discount rate assumed by the Company ranged from 7.00% to
7.75% and the projected increase in compensation ranged from 5% to 6% for all
years presented. The Company assumed an expected long-term rate of return of 9%
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 serve as a funding source for the plan. The
cash surrender value of the life insurance policies was $1,607 at May 1, 1999
and $1,440 at May 2, 1998. The projected benefit obligation for the plan was
$5,644 at May 1, 1999 and $2,617 at May 2, 1998.
The Company maintains defined contribution 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 pre-tax
contributions and employer matching contributions. The Company recognized
expense of $2,171, $633 and $664 related to contributions to the plans for
fiscal 1999, fiscal 1998 and fiscal 1997, respectively. Fiscal 1999 expense
increased approximately $1,499 due to the acquisitions of Farm Fresh and
Shoppers (Note 2).
Certain retail employees are covered under union-sponsored, collectively
bargained, multi-employer pension plans. The Company recognized expense of
$1,193, $353 and $371 related to contributions to these plans for fiscal 1999,
fiscal 1998 and fiscal 1997, respectively. Fiscal 1999 expense increased
approximately $840 over fiscal 1998 expense due to the acquisition of Shoppers
(Note 2).
53
<PAGE>
12. Significant Customer
The Company's supply agreement with its largest customer for fiscal years 1999,
1998, and 1997, Giant Food Stores, Inc. of Carlisle, Pennsylvania ("Giant"),
expires in December 1999. On April 22, 1999, Giant informed the Company that its
existing supply contract would not be renewed. The Company's sales to Giant for
fiscal 1999 were $629,000 and accounted for 15%, 19% and 17% of the Company's
sales in fiscal 1999, 1998 and 1997, respectively.
13. 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, results of operations or cash flows.
14. Business Segments
Effective May 3, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company has significant operations
principally in two segments: the wholesale grocery division and the retail
grocery division.
The Company's wholesale grocery division is the largest wholesale food
distributor in the Mid-Atlantic operating region. This segment distributes a
full range of grocery, dairy, frozen food, produce, meat and non-food items to
the Company's retail grocery division and to chain and independent retailers
throughout the region from its two principal distribution centers located in
Mechanicsville, Virginia, and Harrisburg, Pennsylvania. This segment also
includes the Company's fluid dairy operations located in Richmond, Virginia.
At May 1, 1999, the Company's retail grocery division consisted primarily of
three grocery store chains: 41 Farm Fresh supermarkets located primarily in
Virginia's Hampton Roads region; 37 Shoppers Food Warehouse price impact
warehouse-style supermarkets located in the Washington, D.C. metropolitan area;
and 18 Metro/Basics grocery stores located in the Baltimore, Maryland,
metropolitan area.
The accounting policies of the segments are the same as those described in Note
1. The Company evaluates performance based on a measurement of operating profit
(defined as sales less cost of goods sold and operating and administrative
expenses). The Company generally accounts for intersegment sales and transfers
at current market prices as if the sales or transfers were to unaffiliated third
parties. General corporate expenses are not allocated between the wholesale
grocery and retail grocery segments.
54
<PAGE>
14. Business Segments (continued)
The following summarizes key segment information and reconciles segment results
to consolidated financial results:
<TABLE>
<CAPTION>
Fiscal Year
----------------------------------------------
May 1, May 2, May 3,
1999 1998 1997
-------------- --------------- ---------------
<S> <C> <C> <C>
Sales:
Wholesale grocery $ 3,229,410 $ 3,021,124 $ 3,280,229
Intersegment sales (1,022,796) (242,905) (207,075)
-------------- --------------- ---------------
Wholesale grocery sales to
external customers 2,206,614 2,778,219 3,073,154
Retail grocery 1,761,625 425,512 338,471
-------------- --------------- ---------------
Total sales $ 3,968,239 $ 3,203,731 $ 3,411,625
============== =============== ===============
Operating profit:
Wholesale grocery $ 130,013 $ 115,832 $ 108,413
Retail grocery 46,074 7,099 5,027
General corporate expenses (13,425) (8,365) (7,999)
-------------- --------------- ---------------
Total operating profit 162,662 114,566 105,441
Restructuring costs - 24,179 -
Interest expense 46,707 6,013 7,166
Interest income (3,620) (3,811) (3,672)
-------------- --------------- ---------------
Earnings before income taxes
and extraordinary loss $ 119,575 $ 88,185 $ 101,947
============== =============== ===============
Identifiable assets:
Wholesale grocery $ 502,825 $ 491,928 $ 512,227
Retail grocery 918,280 416,923 69,253
-------------- --------------- ---------------
Total identifiable assets $ 1,421,105 $ 908,851 $ 581,480
============== ================ ==============
Depreciation and amortization:
Wholesale grocery $ 19,755 $ 25,628 $ 23,355
Retail grocery 37,007 6,444 5,879
-------------- ---------------- --------------
Total depreciation and amortization $ 56,762 $ 32,072 $ 29,234
============== ================ ==============
Capital expenditures:
Wholesale grocery $ 20,585 $ 11,650 $ 9,368
Retail grocery 50,223 10,544 6,047
-------------- ---------------- --------------
Total capital expenditures $ 70,808 $ 22,194 $ 15,415
============== ================ ==============
</TABLE>
55
<PAGE>
15. Selected Quarterly Data (Unaudited)
Summarized quarterly financial information for the quarters indicated and market
price and dividend information for the Company's common stock is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended May 1, 1999
------------------------------------------------------------
First Second Third Fourth
(12 Weeks) (12 Weeks) (12 Weeks) (16 Weeks)
--------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Sales $901,303 $909,206 $946,649 $1,211,081
Gross margin 155,639 166,547 172,012 227,024
Net earnings 13,286 15,079 19,434 25,244
Net earnings per common share $ 0.28 $ 0.32 $ 0.41 $ 0.53
Net earnings per common share-assuming
dilution $ 0.28 $ 0.32 $ 0.41 $ 0.53
Cash dividends declared per common share $ 0.05 $ 0.05 $ 0.05 $ 0.05
Market price range:
Low $ 19 1/4 $ 13 13/16 $ 16 $ 11 7/8
High $ 27 $ 23 $ 22 $ 24 13/16
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended May 2, 1998
---------------------------------------------------------
First Second Third Fourth
(12 Weeks) (12 Weeks) (12 Weeks) (16 Weeks)
------------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
Sales $ 739,125 $ 719,474 $743,951 $1,001,181
Gross margin 79,392 78,497 82,123 131,214
Net earnings 14,506 15,010 17,580 7,610
Net earnings per common share $ 0.31 $ 0.32 $ 0.37 $ 0.16
Net earnings per common share-assuming $ 0.30 $ 0.31 $ 0.37 $ 0.16
dilution
Cash dividends declared per common share $ 0.04 $ 0.04 $ 0.04 $ 0.04
Market price range:
Low $ 19 7/8 $21 11/16 $ 22 1/2 $ 26 3/16
High $ 26 3/16 $26 1/2 $28 15/16 $ 32
</TABLE>
Market price information reflects the sales prices of the common stock on the
New York Stock Exchange (NYSE) composite tape.
56
<PAGE>
16. Subsequent Events
On June 9, 1999, Richfood entered into an Agreement and Plan of Merger (the
"Merger Agreement"), dated as of June 9, 1999, among SUPERVALU INC., a Delaware
corporation ("SUPERVALU"), Winter Acquisition, Inc., a Delaware corporation and
wholly owned subsidiary of SUPERVALU ("Acquisition"), and Richfood. Pursuant to
the Merger, each share of common stock of Richfood will be converted into, and
become exchangeable for, at the election of the holder, either (i) $18.50 in
cash or (ii) the number of shares of common stock, par value $1.00 per share, of
SUPERVALU equal to the ratio determined by dividing $18.50 by the average of the
per share sales price of SUPERVALU Common Stock, subject to certain allocation
and proration procedures.
The transaction has been approved by the Boards of Directors of Richfood and
SUPERVALU, but remains subject to regulatory approvals (including expiration or
early termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976), approval by Richfood's shareholders and other
customary closing conditions. In addition, the Merger Agreement provides that if
the Average SUPERVALU Price (as defined in the Merger Agreement) is less than
$18.50, each of SUPERVALU and Richfood will have the right to terminate the
Agreement; provided, however, that if the Average SUPERVALU Price is between
$15.00 and $18.50, Richfood will not have such termination right if SUPERVALU
increases the portion of the Merger Consideration (as defined in the Merger
Agreement) payable in cash, and thereafter with additional SUPERVALU Common
Stock. The transaction is expected to be completed before the end of calendar
1999.
Either party may terminate the Merger Agreement under certain circumstances,
including if the Merger has not been consummated on or before January 15, 2000.
In addition, Richfood may terminate the Merger Agreement if it receives a bona
fide, written, unsolicited offer with respect to any merger, consolidation or
business combination involving Richfood or any of its subsidiaries, or the
acquisition of all or any significant part of the assets of Richfood or any of
its subsidiaries, that the Board of Directors of Richfood determines is more
favorable, from a financial point of view, to Richfood's shareholders than the
Merger (a "Superior Proposal"), and SUPERVALU does not match that Superior
Proposal. In the event that Richfood terminates the Merger Agreement to enter
into an agreement with respect to a Superior Proposal, or if Richfood or
SUPERVALU terminate the Merger Agreement in certain other limited circumstances,
Richfood would be required to pay SUPERVALU a termination fee of $27,000, plus
SUPERVALU's reasonable out-of-pocket expenses (not to exceed $3,000 in the
aggregate).
The Company is party to an interest rate lock agreement, which expires August
17, 1999, whereby the Company hedged the interest rate on $150,000 of ten year
debt securities ("debt securities") to be issued at a hedged base treasury yield
of approximately 6.3%. The purpose of the interest rate lock agreement was to
serve as an anticipatory hedge on the debt securities, which the Company
57
<PAGE>
expected to issue under its existing Shelf Registration Statement (Note 6). As a
result of the announcement of the Merger Agreement, it is no longer probable
that the debt securities will be issued. Accordingly, the Company expects to
recognize a one-time charge associated with the settlement of the interest rate
lock agreement. As of May 1, 1999, the settlement amount approximated $11,000
and as of June 9, 1999, the approximate settlement amount was $4,800.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
58
<PAGE>
PART III
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following persons are directors of the Company.
<TABLE>
<CAPTION>
Director
Principal Occupation or Continuously
Name Employment During Last Five Years Since Age
---- --------------------------------- ------------ ---
<S> <C> <C> <C>
Donald D. Bennett Chairman Emeritus of the Board of the Company 1990 63
(since 1998); former Chairman of the Board
(1995-1998), Chief Executive Officer (1995-1996)
and President and Chief Executive Officer
(1990-1995) of the Company.
Roger L. Gregory Managing Partner, Wilder & Gregory Law Office. 1994 46
Grace E. Harris Provost and Vice President for Academic Affairs, 1994 66
Virginia Commonwealth University.
John C. Jamison Chairman, Mallardee Associates, a corporate 1990 65
financial advisory service, and Limited Partner,
Goldman, Sachs & Co., an investment banking and
brokerage firm; former President and Chief
Executive Officer, The Mariner's Museum, an
international maritime museum (1990-1992);
Director, Hershey Foods Corporation.
G. Gilmer Minor, III Chairman of the Board (since 1994), President and 1988 58
Chief Executive Officer, Owens & Minor, Inc., a
wholesale distributor of medical and surgical
supplies; Director, SunTrust Banks, Inc.
Claude B. Owen, Jr. Former Chairman of the Board and Chief Executive 1988 54
Officer, DIMON Incorporated (1995-1999) (successor
to Dibrell Brothers, Incorporated), an importer and
exporter of leaf tobacco; former Chairman of the
Board, Chief Executive Officer and President,
Dibrell Brothers, Incorporated; Director, American
National Bankshares Inc.
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
Director
Principal Occupation or Continuously
Name Employment During Last Five Years Since Age
---- --------------------------------- ------------ ---
<S> <C> <C> <C>
Albert F. Sloan Former Chairman of the Board, Lance, Inc., a 1990 69
manufacturer of cookies, crackers and snack foods;
Director, Basset Furniture Industries, Inc., Cato
Corporation and PCA International, Inc.
John E. Stokely Chairman of the Board (since 1998), President 1995 46
(since 1995) and Chief Executive Officer (since
1996) of the Company; former President and Chief
Operating Officer (1995-1996), Executive Vice
President - Finance and Administration (1993-1995)
and Senior Vice President - Finance and Chief
Financial Officer (1991-1993) of the Company;
Director, Performance Food Group Company and Crown
Books Corporation.
George H. Thomazin Chief Executive Officer, Thomazin Enterprises, 1990 59
Inc., a business investment firm.
James E. Ukrop Chairman of the Board (since 1998), Ukrop's Super 1987 62
Markets, Inc., a retail grocery chain; former
Vice-Chairman and Chief Executive Officer
(1994-1998) and President and Chief Executive
Officer (1975-1994), Ukrop's Super Markets, Inc.;
Director, Legg Mason, Inc. and Owens & Minor, Inc.
Edward Villanueva Financial Consultant; Director, Circuit City 1990 64
Stores, Inc.
</TABLE>
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.
John E. Stokely, age 46, has served as Chairman of the Board, President
and Chief Executive Officer of the Company since June 1998. Mr. Stokely was
formerly President and Chief Executive Officer of the Company from January 1997
until June 1998, after serving as President and Chief Operating Officer of the
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<PAGE>
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 52, was elected Executive Vice President, Chief
Financial Officer and Secretary 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.
Alec C. Covington, age 42, was elected President - Wholesale
Operations of the Company in November 1997. Mr. Covington formerly served as
Executive Vice President and Chief Operating Officer - Wholesale Operations of
the Company from January 1997 to November 1997, 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.
Ronald E. Dennis, age 54, was elected President of Farm Fresh in March
1998. Mr. Dennis formerly served as President of Kash n' Karry Supermarkets
(1997) and Division Vice President in charge of the Florida division of
Albertsons, Inc. (1977-1997).
John P. Finneran, Jr., age 39, was elected Senior Vice President and
Treasurer of the Company in October 1998. Mr. Finneran formerly served as Vice
President, Chief Financial Officer and Treasurer (1996-1998) of Dominion Energy,
Inc. and Vice President and Treasurer (1987-1995) of Potomac Capital Investment
Corporation, an investment firm.
David W. Hoover, age 36, 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 D. Ryder, age 51, was elected President and Chief Operating
Officer of the Company's Metro chain in October 1995, after serving as President
and Chief Operating Officer of the retail division of Super Rite Foods, Inc.
since 1990.
William J. White, age 52, was elected President of Shoppers Food
Warehouse Corporation in September 1997. Mr. White formerly served as President
of Mega Foods from 1995 to 1997 and President of Piggly Wiggly from 1987 to
1994.
Mr. Stokely, Chairman of the Board, President and Chief Executive
Officer of the Company, Mr. Belknap, Executive Vice President, Chief Financial
Officer and Secretary of the Company and Mr. Covington, President and Chief
Operating Officer of the Company's Wholesale Division, were each elected to the
board of directors of Crown Books Corporation ("Crown") in May 1998 in
connection with the Company's acquisition of Dart Group Corporation, Crown's
parent company. Crown filed for protection under Chapter 11 of the U.S.
Bankruptcy Code on July 14, 1998.
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<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers and directors, and persons who own
more than 10% of the Common Stock, to file reports of ownership and changes in
ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission and
the New York Stock Exchange. Executive officers, directors and owners of more
than 10% of the Common Stock are required by regulation to furnish the Company
with copies of all Forms 3, 4 and 5 they file.
Based solely on the Company's review of the copies of such forms it has
received and written representations from certain reporting persons who were not
required to file a Form 5 for fiscal 1999, the Company believes that all of its
executive officers, directors and owners of more than 10% of the Common Stock
complied with all Section 16(a) filing requirements applicable to them with
respect to transactions during fiscal 1999, except that during fiscal 1999, Mr.
White filed one late report on Form 5.
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<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table shows, for the fiscal years ended May 1, 1999, May
2, 1998 and May 3, 1997, the cash compensation paid, as well as certain other
compensation paid or accrued, by the Company's Chief Executive Officer and its
four other most highly compensated executive officers (the "Named Executive
Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation(1) Long-Term
Compensation Awards
------------------------- -----------------------------
Securities
Name and Restricted Underlying
Principal Position Fiscal Stock Options/ All Other
at May 1, 1999 Year Salary Bonus (2) Awards (3) SARs (4) Compensation (5)
- -------------------------- --------- ----------- ------------- ------------- --------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
John E. Stokely 1999 $500,000 $500,000 100,000 $7,646
Chairman, President & 1998 452,115 550,000 50,000 11,113
Chief Executive Officer 1997 396,155 500,000 $821,888 95,000 10,634
John C. Belknap(6) 1999 325,000 175,000 50,000 4,922
Executive Vice 1998 253,846 250,000 50,000 5,769
President & CFO
Alec C. Covington 1999 325,000 200,000 50,000 5,849
President & COO, 1998 254,730 200,000 20,000 7,367
Wholesale Operations 1997 213,558 125,000 7,500 5,399
John D. Ryder 1999 285,002 110,000 10,000 1,479
President & COO, Metro 1998 269,630 125,000 7,500 2,696
Division 1997 269,630 110,000 7,500 1,670
William J. White(7) 1999 288,462 120,000 10,000
President, Shoppers
Food Warehouse
Corporation
</TABLE>
- ------------------
(1) None of the Named Executive Officers received perquisites or other
personal benefits, securities or property with an aggregate value in excess of
the lesser of $50,000 or 10% of the total of his salary and bonus.
(2) With respect to Mr. Stokely, consists of cash bonus, in accordance
with his Employment and Severance Benefits Agreement, together with the
following special bonus awards: in fiscal 1999, Mr. Stokely was granted a
special cash award of $250,000 as a result of his role in completing the
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<PAGE>
acquisition of Dart Group Corporation and in recognition of the Company's
exemplary performance during fiscal 1999; in fiscal 1998, Mr. Stokely was
granted a special cash award of $234,000 as a result of his role in completing
the Company's acquisition of Farm Fresh, Inc. and in recognition of the
Company's exemplary performance during fiscal 1998; in fiscal 1997, Mr. Stokely
was granted a special cash award of $230,000 as a result of his role in
completing the Company's acquisition of Norristown Wholesale, Inc. and in
recognition of the Company's exemplary performance during fiscal 1997.
(3) Reflects 37,500 shares of restricted stock granted to Mr. Stokely
on May 16, 1996, based on the fair market value of the Common Stock on the date
of grant, which vest as follows: 3,750 shares on May 16, 1997, 1998, 1999 and
2000, and 22,500 shares on May 16, 2001. All such shares of restricted stock
will vest immediately upon a change in control of the Company, including the
Merger. As of May 1, 1999, Mr. Stokely held 30,000 shares of restricted stock
with a value of $375,000. Dividends are paid on restricted stock at the same
rate and times as on all other shares of Common Stock. No other Named Executive
Officer held any shares of restricted stock as of May 1, 1999.
(4) Reflects nonqualified stock options granted under the Company's
Omnibus Stock Incentive Plan.
(5) "All Other Compensation" for fiscal 1999 consists of: (i) the
Company's 25% matching contributions under the Company's Savings and Stock
Ownership Plan to the Named Executive Officers as follows: Mr. Stokely - $2,664;
Mr. Covington - $2,406; and Mr. Ryder - $1,479; and (ii) the amounts awarded to
the following Named Executive Officers under the Company's Vacation to Stock
Conversion Plan (which amounts, net of applicable withholdings, were distributed
in the form of shares of Common Stock based on the fair market value of the
Common Stock as of the plan's determination date): Mr. Stokely - $4,982; Mr.
Belknap - $4,922 and Mr. Covington - $3,443.
(6) Mr. Belknap joined the Company as an executive officer in July
1997.
(7) Mr. White joined the Company as an executive officer in May 1998.
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<PAGE>
Stock Options and SARs
The following table contains information concerning the grants of
options made during fiscal 1999 under the Company's Omnibus Stock Incentive Plan
to the Named Executive Officers. No SARs were granted during fiscal 1999.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants for Option Term (1)
- ------------------------- --------------- -------------- ------------- ------------- -------------- -------------
% of Total
Number of Options/
Securities SARs
Underlying Granted to
Options/ Employees Exercise
SARs in Fiscal or Base Expiration
Name Granted (2) Year Price (3) Date 5%(4) 10%(4)
- ------------------------- --------------- -------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
John E. Stokely 100,000 21.3% $18.5625 12/02/08 $1,168,000 $2,959,000
John C. Belknap 50,000 10.7 18.5625 12/02/08 584,000 1,479,500
Alec C. Covington 50,000 10.7 18.5625 12/02/08 584,000 1,479,500
John D. Ryder 10,000 2.1 18.5625 12/02/08 116,800 295,900
William J. White 10,000 2.1 18.5625 12/02/08 116,800 295,900
</TABLE>
- ------------
(1) The potential realizable value is based upon assumed future prices
for the Common Stock that are derived from the specified assumed annual rates of
appreciation. Actual gains, if any, on stock option exercises and Common Stock
holdings are dependent on the actual future performance of the Common Stock.
There can be no assurance that the amounts reflected in this table will be
achieved.
(2) All option grants consisted of nonqualified stock options granted
under the Omnibus Stock Incentive Plan. These grants are exercisable in
one-fourth installments on December 2, 1999, 2000, 2001 and 2002. In the event
that the Merger is consummated, each unexpired and unexercised option granted by
the Company to purchase shares of Richfood Common Stock will be assumed by
SUPERVALU as follows: (i) 50% of the stock options that have a per share
exercise price equal to or less than $18.50 will be automatically converted into
the right to receive in cash the amount by which $18.50 exceeds the per share
exercise price; (ii) the remaining 50% of the stock options that have a per
share exercise price equal to or less than $18.50 will be automatically
converted into the right to receive options to purchase shares of SUPERVALU
common stock equal in number to the number of Richfood shares that could have
been purchased under the Richfood stock options multiplied by the "conversion
ratio" determined in accordance with the Merger Agreement; and (iii) each other
Richfood stock option will be converted into an option to purchase shares of
SUPERVALU common stock equal in number to the number of Richfood shares that
could have been purchased under the Richfood stock option, multiplied by such
conversion ratio. The exercise price of the options assumed by SUPERVALU will
equal the current exercise price of such options divided by the conversion
ratio.
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<PAGE>
(3) The exercise price was set at the fair market value of the Common
Stock on the date of the grant. The exercise price may be paid in cash or in
Common Stock valued at fair market value on the date preceding the date of
exercise, or a combination of cash and Common Stock.
(4) The 5% and 10% assumed annual rates of stock price appreciation
used to calculate potential option gains shown above are required by the rules
of the Securities and Exchange Commission. The actual gains that will be
realized, if and when the Named Executive Officers exercise the options granted
in fiscal 1999, will be dependent on the future performance of the Common Stock.
The following table is provided to illustrate the relationship between the
hypothetical gain that would be realized by the Named Executive Officers upon
the exercise of such options and the hypothetical gain that would be realized by
all shareholders as a result of the assumed stock price appreciation:
<TABLE>
<CAPTION>
Annual Rate of Stock Price
Appreciation
--------------- ---- -----------------
5% 10%
--------------- -----------------
<S> <C> <C>
Resulting stock price based on $18.5625 starting price $ 30.24 $ 48.15
Per share gain 11.68 29.59
Aggregate gain that would be realized by all shareholders (based on
47,682,805 shares outstanding on the December 2, 1998, grant date) 556,935,162 1,410,934,200
Aggregate hypothetical gain on all fiscal 1999 options granted to the Named
Executive Officers if $30.24 and $48.15 prices, respectively, are achieved 2,569,600 6,509,800
Hypothetical aggregate gains for the Named Executive Officers as a
percentage of all shareholders' gains 0.46% 0.46%
</TABLE>
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<PAGE>
Option/SAR Exercises and Holdings
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options and SARs during fiscal
1999, and unexercised options and SARs held by them on May 1, 1999.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities
Underlying Value of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Fiscal Year-End(2) Fiscal Year-End(3)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(1) Realized Unexercisable(4) Unexercisable(4)
- -------------------------- ----------------- ----------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
John E. Stokely 0 0 102,375 / 198,125 $127,007 / 0
John C. Belknap 0 0 12,500 / 87,500 0 / 0
Alec C. Covington 0 0 53,750 / 83,750 0 / 0
John D. Ryder 5,625 $21,094 17,344 / 13,281 0 / 0
William J. White 0 0 0 / 10,000 0 / 0
</TABLE>
- -----------
(1) Represents only nonqualified stock options granted under the
Company's Omnibus Stock Incentive Plan.
(2) Represents only nonqualified stock options granted under the
Company's Long-Term Incentive Plan and/or Omnibus Stock Incentive Plan. Each
nonqualified stock option granted under the Company's Long-Term Incentive Plan
includes a tandem SAR.
(3) The value of unexercised in-the-money options represents the
positive spread between the May 1, 1999, closing price of the Common Stock,
which was $12.50, and the exercise price of any unexercised options.
(4) The options represented could not be exercised by the Named
Executive Officer as of May 1, 1999, and future exercisability is subject to the
executive remaining employed by the Company or its subsidiaries, subject to
acceleration for death or total disability of the executive or a "change in
control" of the Company (as defined in the applicable option agreements).
Pension Plan Table
The table below illustrates the approximate aggregate retirement
benefits payable under the Company's funded defined benefit pension plan for its
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<PAGE>
salaried employees and supplemental retirement plan for certain officers and
other key employees retiring at age 65. The amounts reflected in the table are
stated in payments in the form of a life annuity. Other actuarially equivalent
forms of benefit may be selected. The amounts reflected in the table are subject
to offset for Social Security and other benefits.
<TABLE>
<CAPTION>
Annual Years of Credited Service (2)
--------------------------------------------------------------
Compensation (1) 10 15 20 25
------------------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
$100,000........ $ 60,000 $ 65,000 $ 70,000 $ 70,000
200,000........ 120,000 130,000 140,000 140,000
300,000........ 180,000 195,000 210,000 210,000
400,000........ 240,000 260,000 280,000 280,000
500,000........ 300,000 325,000 350,000 350,000
600,000........ 360,000 390,000 420,000 420,000
</TABLE>
- ------------
(1) Annual compensation is the average of a participant's highest five
consecutive years' compensation (base salary plus overtime and commissions)
during the last ten years and approximates, in the case of the Named Executive
Officers, the amounts reported as salary in the Summary Compensation Table.
(2) The years of credited service for the Named Executive Officers as
of May 1, 1999, were as follows: Mr. Stokely - 9; Mr. Belknap - 1; Mr. Covington
- - 3; and Mr. Ryder - 3. At May 1, 1999, Mr. White was not eligible to
participate in the Company's defined benefit pension plan. With respect to
Messrs. Stokely, Belknap and Covington's benefits under the Company's
Supplemental Executive Retirement Plan, see "Employment Continuity Agreements."
Persons who are employees of the Company or of its subsidiaries receive
no compensation for their services as directors of the Company. During fiscal
1999, directors who were not employees of the Company or of its subsidiaries
received an annual retainer of $25,000 and fees of $1,200 for each meeting of
the Company's Board attended, $750 for each meeting of a Board committee
attended and $500 for participation in a telephonic meeting of the Board or a
Board committee. In addition, chairmen of each Board committee who were not
employees of the Company or of its subsidiaries received an additional annual
retainer of $2,500. Pursuant to the Company's Non-Employee Directors' Stock
Option Plan, each year each director who is not an employee of the Company or of
its subsidiaries is granted an option to purchase 1,500 shares of Common Stock
for a per share exercise price equal to the fair market value of one share of
Common Stock on the date of grant.
Employment Continuity Agreements
John E. Stokely. Richfood entered into an employment and severance
benefits agreement with Mr. Stokely, effective April 28, 1996, which extended
his employment with Richfood in the capacity of President and Chief Executive
Officer through April 28, 2001. The agreement, as amended effective December 2,
1998, provides for the payment of a lump-sum severance benefit of $500,000 in
the event Mr. Stokely is terminated during the term of the agreement (i) by
Richfood other than for cause or upon his death or disability, (ii) by Richfood
for any reason other than death or disability within one year following a
"change in control" of Richfood (as defined below) or (iii) by Mr. Stokely
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<PAGE>
within one year following a "change in control" of Richfood. The agreement also
provides that upon any "change in control" of Richfood, Mr. Stokely shall be
entitled to receive a lump-sum payment in an amount equal to the actuarial
equivalent of the benefit he otherwise would be entitled to receive under
Richfood's Supplemental Executive Retirement Plan (the "SERP") upon retirement
on or after December 1, 2007. Mr. Stokely's employment and severance benefits
agreement also provides that if his employment with Richfood is terminated after
the completion of the second fiscal quarter of any fiscal year and, among
various circumstances, such termination occurs within one year of a "change of
control" of Richfood, then Mr. Stokely shall be entitled to receive immediate
full payment of his annual incentive bonus for that fiscal year.
Richfood entered into a benefits continuation agreement with Mr.
Stokely, effective April 22, 1998, which supersedes the benefits continuation
provisions of his employment and severance benefits agreement. The new benefits
continuation agreement provides that, unless Mr. Stokely's employment is
terminated for cause, Richfood will provide to Mr. Stokely following the
termination of his employment (at Richfood's expense, subject to mitigation to
the extent that substantially similar coverage is provided by any successor
employer) coverage under life insurance policies consistent with those currently
provided by Richfood for his benefit through age 65, and medical and dental
benefits of the type generally provided from time-to-time to Richfood's
executive employees until his death.
In considering the Merger, Richfood's board of directors determined
that it was essential that Richfood be managed and operated efficiently and
effectively through and until the Merger closes, and that Richfood retain its
key management in the event that the Merger does not occur. To provide an
incentive for Mr. Stokely to remain in Richfood's employ through the closing of
the Merger, Richfood amended Mr. Stokely's employment and severance benefits
agreement, effective June 9, 1999, to provide that if Mr. Stokely remains in the
employ of Richfood through the closing of the Merger, Mr. Stokely will receive a
lump sum cash payment of $1,500,000 in addition to all other amounts payable
under the agreement.
In addition, if a "change in control" of Richfood occurs during the
term of the agreement and Mr. Stokely becomes liable for any excise tax with
respect to any payment or benefit received under the agreement or any of
Richfood's benefits plans, Richfood shall pay Mr. Stokely an amount equal to (i)
such excise tax, plus (ii) the federal, state and local income taxes, and
federal hospitalization tax, for which Mr. Stokely is liable on account of the
payment described in clause (i) of this sentence and the additional payments
described in this clause (ii).
John C. Belknap. Richfood entered into an employment and severance
benefits agreement with Mr. Belknap, effective August 20, 1998, employing him as
Executive Vice President and Chief Financial Officer through August 19, 2001.
The agreement provides for the payment of a lump-sum severance benefit equal to
$650,000 in the event Mr. Belknap is terminated during the term of the agreement
(i) by Richfood other than for cause or upon his death or disability, (ii) by
Richfood for any reason other than death or disability within one year following
a "change in control" of Richfood or (3) by Mr. Belknap within one year
following a "change in control" of Richfood. The agreement, as subsequently
amended, also provides that upon any "change in control" of Richfood, Mr.
Belknap shall be entitled to receive a lump sum payment in an amount equal to
the actuarial equivalent of the benefit he otherwise would be entitled to
receive under the SERP upon retirement on or after September 1, 2009. In
addition to the benefits described above, if Mr. Belknap's employment with
Richfood is terminated during the term of the agreement and within one year
after a "change in control" of Richfood (other than by reason of his death or
disability), Mr. Belknap will be entitled to continued insurance coverage under
the Company's medical, dental and life insurance plans for a period of two years
thereafter.
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<PAGE>
In considering the Merger, Richfood's board of directors determined
that it was essential that Richfood be managed and operated efficiently and
effectively through and until the Merger closes, and that Richfood retain its
key management in the event that the Merger does not occur. To provide an
incentive for Mr. Belknap to remain in Richfood's employ through the closing of
the Merger, Richfood amended the agreement with Mr. Belknap, effective June 9,
1999, to provide that if Mr. Belknap remains in the employ of Richfood through
the closing of the Merger, Mr. Belknap will receive a lump sum cash payment of
$500,000 in addition to all other amounts payable under the agreement.
In addition, if a "change in control" of Richfood occurs during the
term of the agreement and Mr. Belknap becomes liable for any excise tax with
respect to any payment or benefit under his employment and severance benefits
agreement or any of Richfood's benefit plans, Richfood shall pay Mr. Belknap an
amount equal to (i) such excise tax, plus (ii) the federal, state and local
income taxes, and federal hospitalization tax, for which Mr. Belknap is liable
on account of the payment described in clause (i) of this sentence and the
additional payments described in this clause (ii).
Alec C. Covington. Richfood entered into an employment and severance
benefits agreement with Mr. Covington, effective August 20, 1998, employing him
as President-Wholesale Operations through August 19, 2001. The agreement
provides for the payment of a lump-sum severance benefit equal to $650,000 in
the event Mr. Covington is terminated during the term of the agreement (i) by
Richfood other than for cause or upon his death or disability, (ii) by Richfood
for any reason other than death or disability within one year following a
"change in control" of Richfood or (iii) by Mr. Covington within one year
following a "change in control" of Richfood. The agreement, as subsequently
amended, also provides that upon any "change in control" of Richfood, Mr.
Covington shall be entitled to receive a lump sum payment in an amount equal to
the actuarial equivalent of the benefit he otherwise would be entitled to
receive under the SERP upon retirement on or after April 1, 2012. In addition to
the benefits described above, if Mr. Covington's employment with Richfood is
terminated during the term of the agreement and within one year after a "change
in control" of Richfood (other than by reason of his death or disability), Mr.
Covington will be entitled to continued insurance coverage under the Company's
medical, dental and life insurance plans for a period of two years thereafter.
In addition, if a "change in control" of Richfood occurs during the
term of the agreement and Mr. Covington becomes liable for any excise tax with
respect to any payment or benefit under his employment and severance benefits
agreement or any of Richfood's benefit plans, Richfood shall pay Mr. Covington
an amount equal to (i) such excise tax, plus (ii) the federal, state and local
income taxes, and federal hospitalization tax, for which Mr. Covington is liable
on account of the payment described in clause (i) of this sentence and the
additional payments described in this clause (ii).
Definition of "Change in Control." For purposes of Mr. Stokely's, Mr.
Belknap's and Mr. Covington's employment and severance benefits agreements, a
"change in control" of Richfood means, in general, the occurrence of any of the
following events: (i) any person or group becomes the beneficial owner of
securities representing more than 50% of the aggregate voting power of all
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<PAGE>
classes of Richfood's then-outstanding voting securities; or (ii) the
shareholders of Richfood approve (a) a plan of merger, consolidation or share
exchange between Richfood and any entity other than a subsidiary, or (b) a
proposal with respect to the sale, lease, exchange or other disposal of all, or
substantially all, of Richfood's property. The Merger will constitute a "change
of control" of Richfood.
Compensation Committee Interlocks and Insider Participation
The Executive Compensation Committee of the Board is composed of Messrs. Albert
F. Sloan (Chairman), G. Gilmer Minor, III, Claude B. Owen, Jr., George H.
Thomazin and Dr. Grace E. Harris. No member of the Committee had relationships,
or engaged in transactions, with the Company during fiscal 1999 of the type
required to be disclosed under the caption "Certain Relationships and Related
Transactions."
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<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows, as of June 30, 1999 (except as provided
below), the direct and indirect beneficial ownership of shares of Common Stock
by (i) all directors of the Company, (ii) each executive officer named in the
Summary Compensation Table, (iii) all directors and executive officers of the
Company as a group and (iv) each person known by the Company to beneficially own
more than 5% of the outstanding shares of Common Stock.
<TABLE>
<CAPTION>
Sole Voting
and Investment Percentage
Name Power (1) Other (2) Total Ownership (3)
---- ----- ----- ----- ---------
<S> <C> <C> <C> <C>
Donald D. Bennett 186,460 23,519 209,979
Roger L. Gregory 3,750 0 3,750
Grace E. Harris 3,750 300 4,050
John C. Jamison 18,750 0 18,750
G. Gilmer Minor, III 5,950 0 5,950
Claude B. Owen, Jr. 33,900 0 33,900
Albert F. Sloan 9,750 6,250 16,000
John E. Stokely 197,549 26,250 223,799
George H. Thomazin 10,925 0 10,925
James E. Ukrop 26,900 931,131 958,031 2.01%
Edward Villanueva 101,570 10,000 111,570
John C. Belknap 12,871 0 12,871
Alec C. Covington 40,129 245 40,374
John D. Ryder 99,167 2,558 101,725
William J. White 11,000 0 11,000
All Directors and
Executive Officers as a Group
(18 persons) 854,784 1,005,684 1,860,468 3.90
T. Rowe Price Assoc., Inc.(4) 4,258,207 726,900 4,985,107 10.44
Baltimore, Maryland 21202
Alex. Brown Investment 1,130,288 2,194,433 3,324,721 6.97
Management(5)
One South Street
Baltimore, Maryland 21202
- ----------------------------
</TABLE>
(1) Includes the following number of shares of Common Stock that may
be acquired within sixty days of June 30, 1999, under one or more of the
Company's stock-based incentive plans by the following directors, executive
officers and group: Mr. Bennett - 48,750; Mr. Gregory - 3,750; Ms. Harris -
2,750; Mr. Jamison - 3,750; Mr. Minor - 1,875; Mr. Owen - 3,600; Mr. Sloan -
3,750; Mr. Stokely - 117,375; Mr. Thomazin - 1,875; Mr. Ukrop - 3,750; Mr.
Villanueva - 3,750; Mr. Belknap - 12,500; Mr. Covington - 38,750; Mr. Ryder -
8,438; and all directors and executive officers as a group - 347,026.
(2) With respect to Mr. Bennett, reflects shares held by his wife. Mr.
Bennett disclaims beneficial ownership of the shares held by his wife. With
respect to Mr. Sloan, reflects shares held by his wife. Mr. Sloan disclaims
72
<PAGE>
beneficial ownership of such shares. With respect to Mr. Ukrop, reflects shares
held by Ukrop's Super Markets, Inc. Mr. Ukrop disclaims beneficial ownership of
such shares. With respect to Mr. Villanueva, reflects shares held in trust for
Mr. Villanueva's children, with Mr. Villanueva as trustee. Mr. Villanueva
disclaims beneficial ownership of such shares. With respect to Mr. Stokely, Mr.
Covington, Mr. Ryder, Mr. White and all directors and executive officers as a
group, reflects shares held under the Company's 401(k) savings plans as of May
18, 1999.
(3) Except as indicated, each person or group beneficially owns less
than 1% of the outstanding shares of Common Stock.
(4) As reported in a Form 13G, dated April 12, 1999, as of April
9, 1999, T. Rowe Price Associates, Inc. ("Price Associates") served as an
investment advisor to individual and institutional investors that owned, in the
aggregate, 4,985,107 shares of the Company's Common Stock. Price Associates
disclaims beneficial ownership of all such shares.
(5) As reported in a Form 13G, dated March 5, 1999, as of February 12,
1999, Alex Brown Investment Management, a Maryland limited partnership and
registered investment advisor, owned, in the aggregate, 3,324,721 shares of the
Company's Common Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 1999, the Company sold products and services to, and
engaged in certain other transactions with, entities affiliated with Mr. James
E. Ukrop. Mr. Ukrop is Chairman of Ukrop's Super Markets, Inc. ("Ukrop's").
During fiscal 1999, Ukrop's paid $216,573,124 to the Company for products and
services purchased from the Company.
Effective August 3, 1997, the Company entered into a long-term supply
agreement with Ukrop's. The supply agreement provides that, in consideration of
an incentive payment, Ukrop's will continue to use the Company as its principal
source of wholesale supply and commits Ukrop's to purchase $1.2 billion of goods
from the Company over a term of approximately five years.
The Company believes that the transactions with Ukrop's were made on
terms comparable to those that would have been agreed to with unaffiliated third
parties in similar transactions.
During fiscal 1996, the Company made secured loans to Mr. Donald D.
Bennett, Chairman Emeritus of the Company, in the aggregate amount of $110,000
at rates of interest equal to 5.90% and 5.79% per annum. The largest aggregate
amount of indebtedness outstanding under such loans during fiscal 1999,
including accrued interest, was $132,454, and the aggregate unpaid balance
thereof on May 1, 1999, was $132,454.
During fiscal 1994, the Company made a $73,938 secured loan to Mr. John
E. Stokely, Chairman of the Board, President & Chief Executive Officer of the
Company, at a rate of interest equal to 3.68% per annum. In addition, in June
1994 the Company made secured loans to Mr. Stokely in the aggregate amount of
$457,127, at a rate of interest equal to 5.56% per annum. The largest aggregate
amount of indebtedness outstanding under such loans during fiscal 1999,
including accrued interest, was $159,597, and the aggregate unpaid balance
thereof on May 1, 1999, was $159,597.
During fiscal 1998, the Company made a secured loan to Mr. John C.
Belknap, Executive Vice President, Chief Financial Officer & Secretary of the
Company, in an amount equal to $113,050 at a rate of interest equal to 5.54% per
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annum. The largest aggregate amount outstanding under such loan during fiscal
1999, including accrued interest, was $120,923, and the aggregate unpaid balance
thereof on May 1, 1999, was $120,923. On May 17, 1999, subsequent to fiscal
1999, Mr. Belknap repaid the outstanding balance and all accrued interest on the
loan.
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 Annual Report on Form 10-K:
1........Financial Statements:
The following financial statements are included in this Annual
Report on Form 10-K:
Page
----
Report of Independent Auditors ........................................29
Consolidated Statements of Earnings for the fiscal years ended
May 1, 1999, May 2, 1998 and May 3, 1997................................30
Consolidated Balance Sheets as of May 1, 1999 and May 2, 1998..............31
Consolidated Statements of Shareholders' Equity for the fiscal years ended
May 1, 1999, May 2, 1998 and May 3, 1997................................32
Consolidated Statements of Cash Flows for the fiscal years ended
May 1, 1999, May 2, 1998 and May 3, 1997................................33
Notes to Consolidated Financial Statements.................................34
2. Financial Statement Schedules:
The following schedule, for the three years ended May 1, 1999, May 2,
1998, and May 3, 1997, is included beginning at the page indicated in this
Annual Report on Form 10-K:
Page
----
Schedule II - Valuation and Qualifying Accounts...................77
Schedules other than that 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 10.21 hereto constitute
management contracts or compensation plans or arrangements required to be filed
as exhibits hereto.
(b) Reports on Form 8-K:
74
<PAGE>
1. The Company filed a Current Report on Form 8-K, dated April 30,
1999, reporting (under Item 5 thereof) that Giant of Carlisle had informed the
Company that it would not be renewing its existing supply contract.
2. The Company filed a Current Report on Form 8-K, dated June 11, 1999,
reporting (under Item 5 thereof) the execution of the Agreement and Plan of
Merger, dated as of June 9, 1999, by and between SUPERVALU INC., Winter
Acquisition, Inc. and the Company.
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)
June 30, 1999 By /s/ John E. Stokely
-------------------
John E. Stokely
Chairman of the Board,
President & 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/ John E. Stokely By /s/ Albert F. Sloan
---------------------- -------------------------
John E. Stokely Albert F. Sloan
Chairman of the Board, President Director
& Chief Executive Officer
By /s/ Donald D. Bennett By /s/ George H. Thomazin
----------------------- -----------------------
Donald D. Bennett George H. Thomazin
Director Director
75
<PAGE>
By /s/ Roger L. Gregory By /s/ James E. Ukrop
----------------------- ----------------------
Roger L. Gregory James E. Ukrop
Director Director
By /s/ Grace E. Harris By /s/ Edward Villanueva
----------------------- ----------------------
Grace E. Harris Edward Villanueva
Director Director
By /s/ John C. Jamison By /s/ John C. Belknap
---------------------- ----------------------
John C. Jamison John C. Belknap
Director Executive Vice
President & Chief
Financial Officer
By /s/ G. Gilmer Minor, III By /s/ David W. Hoover
------------------------ ----------------------
G. Gilmer Minor, III David W. Hoover
Director Vice President-Finance
(Principal Accounting Officer)
By /s/ Claude B. Owen, Jr.
-----------------------
Claude B. Owen, Jr.
Director
Each of the above signatures is affixed as of June 30, 1999.
76
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
Richfood Holdings, Inc.
Valuation and Qualifying Accounts
(Dollar amounts in thousands)
Balance at Charged to Balance at
Beginning of Costs and Deductions End of
Description Fiscal year Expenses and other Fiscal Year
----------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
For Fiscal Year Ended
May 1, 1999
Deducted from asset accounts:
Allowance for doubtful accounts $5,047 $3,093 $3,341 $4,799
For Fiscal Year Ended
May 2, 1998
Deducted from asset accounts:
Allowance for doubtful accounts 5,331 4,148 4,432 5,047
For Fiscal Year Ended
May 3, 1997
Deducted from asset accounts:
Allowance for doubtful accounts 5,573 4,241 4,483 5,331
</TABLE>
77
<PAGE>
EXHIBIT INDEX
2.1 Asset Purchase Agreement, dated as of November 26, 1997, by and among
Farm Fresh, Inc., the Company and FF Acquisition, L.L.C. (1)
2.2 Agreement and Plan of Merger, dated April 9, 1998, among the Company,
DGC Acquisition, Inc. and Dart Group Corporation. (2)
2.3 Agreement and Plan of Merger, dated as of June 9, 1999, among SUPERVALU
INC., Winter Acquisition, Inc.and the Company. (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, as amended and restated through June 18,
1998. (5)
10.1 Employment and Severance Benefits Agreement, dated as of April 28,
1996, between the Company and Donald D. Bennett. (6)
10.2 Consulting Agreement, dated as of August 20, 1998, by and between the
Company and Donald D. Bennett.
10.3 Employment and Severance Benefits Agreement, dated as of April 28,
1996, between the Company and John E. Stokely. (6)
10.4 Benefits Continuation Agreement, dated as of April 22, 1998, between
the Company and John E. Stokely. (5)
10.5 Amendment No. 1 to Employment and Severance Benefits Agreement,
dated as of December 2, 1998, between the Company and John E. Stokely.
10.6 Addendum to Employment and Severance Benefits Agreement, effective
December 2, 1998, between the Company and John E. Stokely.
10.7 Amendment No. 2 to Employment and Severance Benefits Agreement,
dated as of June 9, 1999, between the Company and John E. Stokely.
10.8 Employment and Severance Benefits Agreement, dated as of August 20,
1998, between the Company and John C. Belknap.
10.9 Addendum to Employment and Benefits Agreement, effective December 2,
1998, between the Company and John C. Belknap.
10.10 Amendment No. 1 to Employment and Severance Benefits Agreement,
dated as of June 9, 1999, between the Company and John C. Belknap.
78
<PAGE>
10.11 Employment and Severance Benefits Agreement, dated as of August 20,
1998, between the Company and Alec C. Covington.
10.12 Addendum to Employment and Severance Benefits Agreement, effective
December 2, 1998, between the Company and Alec C. Covington.
10.13 Employment Agreement, dated October 13, 1995, between Super Rite
Corporation and John D. Ryder. (6)
10.14 Employment and Severance Benefits Agreement, dated as of October 6,
1997, between the Company and Ronald E. Dennis. (5)
10.15 Amended and Restated Long-Term Incentive Plan. (7)
10.16 Amended and Restated Omnibus Stock Incentive Plan. (7)
10.17 Amendment to the Amended and Restated Omnibus Stock Incentive Plan. (8)
10.18 Non-Employee Directors' Stock Option Plan. (9)
10.19 Supplemental Executive Retirement Plan and related Trust Agreement.(10)
10.20 Executive Officer Performance Plan. (11)
10.21 Super Rite Corporation 1991 Omnibus Stock Incentive Plan. (12)
10.22 Lease Agreement, dated as of April 20, 1998, between Atlantic
Financial Group, Ltd., as Lessor, and Super Rite Foods, Inc.,
as Lessee. (5)
10.23 Lease, dated November 1, 1977, originally made between Safe-Chester
Associates, as lessor, and Safeway Stores, Incorporated, as lessee, as
assigned to Richfood. (5)
10.24 Supply Agreement, dated as of August 3, 1997, between Richfood, Inc.
and Ukrop's Super Markets, Inc. (5)
11.1 Statement re computation of net earnings per common share. (13)
12.1 Statement re computation of certain ratios.
21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule.
99.1 Cautionary Statements for Purposes of the Safe Harbor Provisions of
the Securities Litigation Reform Act of 1995.
79
<PAGE>
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 Quarterly Report on Form
10-Q for the fiscal quarter ended October 18, 1997 (Commission File No.
1-16900).
(2) Incorporated by reference to the Company's Tender Offer Statement on
Schedule 14D-1 dated April 15, 1998 (Commission File No. 5-31136).
(3) Incorporated by reference to the Company's Current Report on Form
8-K filed June 11, 1999 (Commission File No. 1-16900).
(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 Annual Report on Form 10-K
for the fiscal year ended May 2, 1998 (Commission File No. 1-16900).
(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 30, 1994 (Commission File No. 0-16900).
(8) Incorporated by reference to the Appendix to the Company's Definitive
Proxy Statement on Schedule 14A dated July 30, 1997 (Commission File
No. 1-16900).
(9) 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).
(10) 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).
(11) 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).
(12) Incorporated by reference to the Company's Registration Statement on
Form S-8 (Commission File No. 33-63447).
(13) Set forth in footnote nine to the Company's Consolidated Financial
Statements, which are presented in Part II, Item 8 hereof.
EXHIBIT 10.2
------------
CONSULTING AGREEMENT
--------------------
CONSULTING AGREEMENT (the "Agreement"), dated as of August 20, 1998, by
and between RICHFOOD HOLDINGS, INC., a Virginia corporation (the "Company"), and
DONALD D. BENNETT ("Consultant").
RECITALS
--------
WHEREAS, the Company and the Consultant are parties to an Employment
and Severance Benefits Agreement, dated as of April 28, 1996 (the "Employment
Agreement"); and
WHEREAS, the Company and the Consultant desire to terminate the
Employment Agreement as of the date hereof, and enter into this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties agree as follows:
ARTICLE I
TERMINATION OF EMPLOYMENT;
COMMENCEMENT OF CONSULTING RELATIONSHIP
---------------------------------------
1.01 TERMINATION OF EMPLOYMENT AGREEMENT; RETIREMENT BENEFITS.
Consultant and the Company hereby agree that the Employment Agreement is
terminated in all respects as of the date hereof, and that all rights and
obligations of the parties thereunder have been satisfied in full or are waived
in favor of the benefits provided under this Agreement. The Company acknowledges
and agrees that, as a result of the termination of the Consultant's employment
with the Company, the Consultant shall begin receiving retirement benefits as of
the date hereof under the Company's pension plan and its Supplemental Executive
Retirement Plan (as previously amended or otherwise modified in accordance with
Section 5 of the Employment Agreement) in accordance with the terms of such
plans. Consultant acknowledges specifically that the termination of his
employment and entering into this Agreement does not and is not intended to
trigger the severance provision in Section 7 of the Employment Agreement and
that the consideration provided under this Agreement is and is accepted in lieu
thereof.
1
<PAGE>
1.02 DUTIES OF CONSULTANT. Throughout the term of this Agreement,
Consultant shall provide services and advice to the officers and directors of
the Company on an as-needed basis relating to the operations of the Company and
its subsidiaries, but shall not be required or expected to maintain regular
office hours at the Company.
1.03 COMPENSATION. In return for the services to be provided hereunder,
Consultant shall receive: (a) a consulting fee of $100,000 per annum throughout
the term of this Agreement, payable in monthly installments; and (b) (i)
coverage under life insurance policies consistent with those currently provided
for the benefit of Consultant through age 65, and (ii) coverage under such
medical and dental plans as is generally provided from time to time to the
Company's executive employees until Consultant's death (or, if Consultant is not
entitled to participate in such plans under the terms thereof, then under third
party arrangements (including, without limitation, Medicare, Medicade and
"Medigap" plans) that provide substantially comparable overall coverage);
provided, however, that the Company agrees to pay Consultant's portion of the
premiums for all such coverage. In addition, Consultant shall be reimbursed for
all expenses reasonably incurred by him in connection with the performance of
services hereunder in accordance with the Company's executive expense
reimbursement policies in effect from time to time.
1.04 OTHER BUSINESS OF CONSULTANT. Consultant may alone, or through any
business, partnership, corporation, affiliate or other related party, engage
independently or with others in other businesses and activities of any nature or
description so long as such activity does not violate Article III hereof.
1.05 INDEPENDENT CONTRACTOR. Consultant at all times will act as an
independent contractor and will not act or hold himself out to third parties as
an employee or agent of the Company. Nothing in this Agreement or to be done
pursuant to its terms and conditions is intended to, or shall, create a
partnership, joint venture, principal-agent or employer-employee relationship
between the parties. Consultant shall be responsible for all taxes and
recordkeeping in connection with amounts paid to him hereunder and, except as
provided in Section 1.03(b) hereof, shall have no right to participate in any of
the Company's employee benefit or welfare plans and specifically waives such
right to the extent it otherwise exists even if it is subsequently determined
that the Consultant constitutes a common-law employee of the Company.
2
<PAGE>
ARTICLE II
TERM OF AGREEMENT
-----------------
This term of this Agreement will commence as of the date hereof and
will continue in full force and effect until the earlier of the Consultant's
death or the second anniversary of the date hereof.
ARTICLE III
NONCOMPETITION; CONFIDENTIALITY
-------------------------------
3.01 NONCOMPETITION AGREEMENT. Consultant covenants and agrees that
during the term hereof, Consultant shall not, directly or indirectly, engage in
or accept employment with (as a consultant or otherwise), own a material
interest in, or otherwise give assistance to, whether or not for compensation,
any person, firm or corporation engaged in the ownership or management of a
wholesale or retail grocery business within the United States. In the event that
any provision of this Article III is determined to be invalid or overbroad by
any court or other entity of competent jurisdiction, the provisions of this
Article III shall be deemed to have been amended, and the parties hereto agree
to execute all documents necessary to evidence such amendment, so as to
eliminate or modify any such invalid or overbroad provision so as to carry out
the intent of this Article III as far as possible and to render the terms of
this Article III enforceable in all respects as so modified. Consultant
acknowledges that a violation of this Article III by the Consultant may cause
irreparable harm to the Company. Accordingly, Consultant hereby grants the
Company the right to seek and be granted injunctive relief for any such
violation, in addition to any other legal remedies that may be available.
3.02 CONFIDENTIALITY. Consultant agrees and acknowledges that by virtue
of his past employment relationship and his future consulting relationship with
the Company, he has acquired and will continue to acquire an intimate knowledge
of the activities and affairs of the Company and its affiliates, including trade
secrets and other confidential matters. Consultant agrees at all times during
the term of this Agreement and thereafter, to hold in strictest confidence, and
not to use for his own benefit or disclose to any person, firm or corporation
without express authorization of the Company's Board of Directors or as required
by law, any confidential information, development or experimental work, trade
secrets, or any other secret or confidential matter relating to the financial
affairs, personnel, products, sales, business or other affairs of the Company or
any division,
3
<PAGE>
subsidiary, affiliate, or parent of the Company or their successors, including,
without limitation, the name or names of any of the clients, customers or
accounts of the Company, their addresses, phone numbers or requirements.
Consultant agrees that upon termination of this Agreement, he will
deliver to the Company and will not keep in his possession nor deliver to anyone
else, any and all documents, or any other materials containing or disclosing any
confidential information relating to the Company, and Consultant will return to
the Company all calculations, letters, papers, books and records, and
information of any type or description relating to the business of the Company
and its affiliates.
3.03 ACKNOWLEDGMENTS. Consultant and the Company are entering into this
Agreement with full awareness of the geographic breadth of the noncompetion
provisions hereof, and acknowledge that this Agreement reflects exactly what the
parties intend, and both parties have negotiated this Agreement at arms length,
hold equal bargaining positions, and have had the opportunity to be advised by
experienced legal counsel in regard thereto. Further, the Company and Consultant
acknowledge that Consultant has extensive experience in the wholesale and retail
grocery business and possesses proprietary information about the Company's and
its affiliates' operations and has the ability to substantially injure the
Company, and for this reason the Company is willing to pay Consultant
substantial compensation for his future and ongoing agreement not to compete
with the Company. Consultant acknowledges that because of his extensive business
experience, and his ability to work in other industries and engage in other
business activities, this Agreement, including its noncompetition provision,
does not unduly curtail his ability to support himself and his family.
ARTICLE IV
MISCELLANEOUS
-------------
4.01 SUCCESSORS; BINDING AGREEMENT. (a) the Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. As used in this Agreement, "the Company"
shall mean the Company as defined herein and any successor to its business
and/or assets that otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law or otherwise.
4
<PAGE>
(b) This Agreement shall inure to the benefit of and be enforceable by
the personal or legal representatives, executors, administrators, successors,
heirs, distributees, devises and legatees of Consultant.
4.02 WAIVER. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by Consultant and such officer as may be specifically designated by
the Board of Directors of the Company. No waiver by either party hereto at any
time of any breach by the other party hereof of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Virginia.
4.03 VALIDITY. If any sentence, paragraph, clause or combination of the
same in this Agreement is held by a court of competent jurisdiction to be
unenforceable in any jurisdiction, such sentence, paragraph, clause or
combination will be unenforceable in the jurisdiction where it is invalid and
the remainder of this Agreement shall remain binding on the parties in such
jurisdiction as if such unenforceable provision had not been contained herein.
The unenforceability of such sentence, paragraph, clause or combination of the
same in this Agreement will be otherwise unaffected and will remain enforceable
in all other jurisdictions.
4.05 NOTICES. All notices required or permitted hereunder shall be
given in writing and shall be deemed to have been duly given when delivered or
mailed by United States registered mail, return receipt requested, to the
following addresses or at such other places as shall be designated in writing
(any such designation to be effective upon receipt):
5
<PAGE>
If to Consultant: Mr. Donald D. Bennett
49 Ribaut Drive
Hilton Head, South Carolina 29926
If to the Company: Richfood Holdings, Inc.
4860 Cox Road, Suite 300
Glen Allen, VA 23060
Attention: President
With copies to: Gary E. Thompson, Esq.
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219
4.06 HEADINGS. The headings in this Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized corporate officer, and Consultant has duly
executed this Agreement as of the day and year first written above.
RICHFOOD HOLDINGS, INC.
By: /s/ John E. Stokely
------------------------------------
John E. Stokely
Chairman, President & CEO
CONSULTANT:
/s/ Donald D. Bennett
------------------------------------
Donald D. Bennett
Exhibit 10.5
AMENDMENT NO. 1 TO
EMPLOYMENT AND SEVERANCE BENEFITS AGREEMENT
AMENDMENT NO. 1 (the "Amendment"), dated as of December 2, 1998, to the
Employment and Severance Benefits Agreement (the "Agreement"), dated as of April
28, 1996, between RICHFOOD HOLDINGS, INC., a Virginia corporation (the
"Company"), and JOHN E. STOKELY (the "Employee").
WHEREAS, the Company and the Employee are parties to the Agreement
which provides, among other things, for a severance benefit to be payable to the
Employee under certain circumstances described therein; and
WHEREAS, it is the intention of the Executive Compensation Committee
(the "Committee") of the Board of Directors of the Company to review such
severance benefit from time to time in light of the Employee's then-current
annual base salary.
NOW, THEREFORE, in consideration of the premises, the parties hereto
have agreed as follows:
1. Amendment. In recognition of the increase in the Employee's annual
base salary since the date of the Agreement, the first sentence of Section 8 of
the Agreement is hereby amended to delete the reference to "Four Hundred
Thousand Dollars ($400,000)" and replace such reference with "Five Hundred
Thousand Dollars ($500,000)." Except as specifically amended hereby, the
Agreement remains in full force and effect in accordance with its terms.
2. Miscellaneous. This Amendment constitutes the entire agreement, and
supersedes all prior agreements and understandings, between the parties with
respect to the subject matter hereof. No agreements or representations, express
or implied, with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Amendment. The validity,
interpretation, construction and performance of this Amendment shall be governed
by the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF, the Company has caused this Amendment to be duly
executed on its behalf, and the Employee has duly executed this Amendment, all
as of the date first above written.
RICHFOOD HOLDINGS, INC.
By: /s/ Albert F. Sloan
-----------------------
Albert F. Sloan
Director and Chairman, Executive
Compensation Committee
EMPLOYEE:
/s/ John E. Stokely
--------------------------
John E. Stokely
EXHIBIT 10.6
------------
ADDENDUM
JOHN E. STOKELY
EMPLOYMENT AND SEVERANCE BENEFITS AGREEMENT
-------------------------------------------
Pursuant to Section 12 of the Employment and Severance Benefits
Agreement, dated as of April 28, 1996, between RICHFOOD HOLDINGS, INC., a
Virginia Corporation (the "Company"), and John E. Stokely (the "Employee") (the
"Agreement"), and in accordance with Sections 1.01, 3.01, 3.02, 3.03, 3.04, 4.01
and 5.01 of the Richfood Supplemental Executive Retirement Plan, as amended and
restated as of December 2, 1998 (the "SERP"), and action taken by the Executive
Compensation Committee of the Board of Directors of the Company on December 2,
1998, this addendum constitutes specific written confirmation that the Agreement
and Employee's SERP benefit are modified as follows, effective December 2, 1998:
FIRST: Section 6 is amended by redesignating subsection (b) as
subsection (d) and revising it to read as follows:
Notwithstanding the above, upon any Change in Control of the
Company, Employee shall be entitled to receive a lump sum
payment in an amount equal to the present value of the benefit
Employee otherwise would have been entitled to receive upon
retirement under the SERP on or after December 1, 2007. The
amount of such lump sum payment shall be calculated in
accordance with Exhibit A attached hereto.
SECOND: Section 6 is amended, effective December 2, 1998, by adding
the following new subsections (b)and (c):
(b) Assuming Employee's continued employment with the Company or an
affiliate as of such date, Employee shall be entitled to and vested in the
following unreduced benefits under the SERP as of the indicated dates:
Percentage of Vested
Date Credited Monthly Compensation*
------ ------------------------------
December 1, 1998 40%
December 1, 2001 50%
December 1, 2007 70%
* Less applicable qualified plan and social security offsets.
(c) Employee may elect to retire or commence receiving his benefit (if
he is no longer employed on such date) under the SERP at any time on or after
December 1, 2007, and receive the vested benefit Employee has accrued under the
SERP as of such date.
<PAGE>
THIRD: Exhibit A referred to in Subsection 6(d) of the Agreement is
revised as of the date of this Addendum in the form attached hereto and made a
part of the Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed on its behalf, and Employee has duly executed this Agreement, all as of
December 2, 1998.
RICHFOOD HOLDINGS, INC.
By: /s/ John C. Belknap
----------------------
Executive Vice President and
Chief Financial Officer
JOHN E. STOKELY
/s/ John E. Stokely
---------------------------
John E. Stokely
Attachment
Exhibit 10.7
AMENDMENT NO. 2 TO
EMPLOYMENT AND SEVERANCE BENEFITS AGREEMENT
AMENDMENT NO. 2 (the "Amendment"), dated as of June 9, 1999, to the
Employment and Severance Benefits Agreement (the "Agreement"), dated as of April
28, 1996, as amended, between RICHFOOD HOLDINGS, INC. (the "Company") and JOHN
E. STOKELY (the "Employee").
WHEREAS, the Company has entered into an Agreement and Plan of Merger,
dated as of June 9, 1999, among SUPERVALU INC., Winter Acquisition, Inc. and the
Company (the "Merger Agreement"); and
WHEREAS, it is essential that the Company be managed and operated
efficiently and effectively through and until the Closing contemplated in the
Merger Agreement, and that the Company retain its key management in the event
that the Merger Agreement is terminated for any reason prior to the Closing; and
WHEREAS, the Company wishes to provide an incentive to Employee to
remain in the Company's employ through the Closing Date (as defined in the
Merger Agreement) to help assure that the Company discharges its commitments to
customers and that the change of ownership is effected smoothly.
NOW, THEREFORE, in consideration of the premises, the parties hereto
have agreed as follows:
1. Amendment. Existing Section 8 is designated as Section 8(a) and the
following paragraph is added as Section 8(b):
Stay Bonus. If Employee remains in the employ of the Company through
the Closing Date (as defined in the Agreement and Plan of Merger, dated
as of June 9, 1999, among SUPERVALU INC., Winter Acquisition, Inc. and
the Company), Employee shall receive a lump sum cash payment, in
addition to all other amounts payable hereunder, of $1,500,000. Such
payment will be made to the Employee at the Closing.
Except as specifically amended hereby, the Agreement remains in full force and
effect in accordance with its terms.
2. Miscellaneous. The Agreement as amended constitutes the entire
agreement between the parties, and supersedes all prior agreements and
understandings between the parties with respect to the subject matter hereof. No
agreements or representations, express or implied, with respect to the subject
matter hereof have been made by either party which are not set forth expressly
in the Agreement, as amended through the date hereof. The validity,
interpretation, construction and performance of this Amendment shall be governed
by the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF, the Company has caused this Amendment to be duly
executed on its behalf, and Employee has duly executed this Amendment, all as of
the date first written above.
RICHFOOD HOLDINGS, INC.
/s/ Albert F. Sloan
-----------------------
Albert F. Sloan
Director and Chairman, Executive
Compensation Committee
JOHN E. STOKELY
/s/ John E. Stokely
-----------------------
John E. Stokely
Exhibit 10.8
EMPLOYMENT AND SEVERANCE BENEFITS AGREEMENT
EMPLOYMENT AND SEVERANCE BENEFITS AGREEMENT (the "Agreement"), dated as
of August 20, 1998, between RICHFOOD HOLDINGS, INC., a Virginia corporation (the
"Company"), and JOHN C. BELKNAP (the "Employee").
WHEREAS, the Company expects that the Employee will make substantial
contributions to its future growth and prospects; and
WHEREAS, the Company desires to obtain the continued services of the
Employee; and
WHEREAS, the Employee desires to continue to be employed by the Company
and to remain in the employ of the Company during the term of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereto covenant and agree
as follows:
1. Definitions. When used in this Agreement, the following terms shall
have the meanings specified:
(a) Cause. "Cause", when referring to a termination of employment,
shall mean: (i) conviction by a court of competent jurisdiction for a felony;
(ii) breach of any material obligation to the Company under any material
agreement concerning any term of employment; or (iii) willful or gross neglect
of duties to the Company (other than by reason of illness or temporary
disability short of Disability) or willful or gross misconduct in the
performance of such duties. All determinations as to whether a termination of
employment is for Cause shall be made in good faith by the Board of Directors of
the Company and shall be binding on the parties hereto.
(b) Change in Control. A "Change in Control" of the Company shall be
deemed to have occurred if: (i) any "person" (as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended) becomes
the beneficial owner, directly or indirectly, of securities of the Company
representing more than 50% of the aggregate voting power of all classes of the
Company's then-outstanding voting securities; or (ii) the shareholders of the
Company approve (A) a plan of merger, consolidation or share exchange between
<PAGE>
the Company and an entity other than a direct or indirect wholly-owned
subsidiary of the Company, or (B) a proposal with respect to the sale, lease,
exchange or other disposal of all, or substantially all, of the Company's
property.
(c) Disability. "Disability" shall mean a condition, determined on the
basis of medical evidence satisfactory to a physician designated by the Board of
Directors of the Company, rendering the Employee, due to bodily injury or
disease or mental illness, unable to perform the duties pertaining to his
employment with the Company on a full-time basis for 180 consecutive days.
2. Term. This Agreement shall continue in full force and effect for
three (3) years following the date first above written (the "Term").
3. Employment by the Company. The Company agrees to employ the Employee
as its Executive Vice President and Chief Financial Officer through the Term of
this Agreement, with a job description, responsibilities and duties commensurate
with that position. Notwithstanding the foregoing, the parties agree that the
Company may terminate the Employee's employment hereunder at any time, subject
to the provisions of Section 5 hereof, it being expressly understood that this
Agreement is not intended to alter the at-will nature of the Company's
employment of the Employee. In consideration of the Company's obligations under
this Agreement, the Employee agrees that (i) he will not voluntarily leave the
employ of the Company during the Term of this Agreement without first complying
with the provisions of Section 5(d) hereof, and (ii) he will devote his full
business time and attention to service to the Company and its subsidiaries
commensurate with his position throughout the Term of this Agreement.
4. Compensation. During the Term of this Agreement and unless the
Employee's employment has been earlier terminated, the Company agrees to: (i)
pay the Employee as compensation for his services an annual base salary in the
amount of Three Hundred Twenty Five Thousand Dollars ($325,000) per year,
payable in equal periodic installments (less any amounts permitted or required
to be deducted or withheld under applicable law) not less frequently than
monthly, it being understood that the parties contemplate a good faith review of
such base salary on an annual basis for possible increase in light of the
Employee's performance; (ii) permit the Employee to participate in the Company's
executive officer annual performance plan, with a participation level of 40% of
his base salary; (iii) permit the Employee to participate in such long-term
incentive compensation programs as the Company may make generally available to
<PAGE>
its executive employees from time to time; (iv) provide for the benefit of the
Employee such vacation, pension and disability benefits as are, and such
coverage under life, accident, medical and dental plans as is, generally
provided from time to time to executive employees of the Company; and (v)
provide the Employee with an automobile consistent with those provided by the
Company to its other executive officers with similar titles and
responsibilities.
5. Termination of Employment; Severance.
(a) By the Company For Cause. The Company may terminate the Employee's
employment under this Agreement at any time for Cause by delivery of written
notice of termination to the Employee (which notice shall specify in reasonable
detail the basis upon which such termination is made). In the event the
Employee's employment is terminated for Cause, all provisions of this Agreement
(other than Sections 7 through 17 hereof) and the Term shall be terminated. Upon
any such termination, the Employee shall be entitled only to payment of his
earned and unpaid salary to the date of termination, any earned and unpaid bonus
under the Company's executive officer annual performance plan (or such
comparable successor program that may be in effect from time to time) for the
prior year, unreimbursed business and entertainment expenses in accordance with
the Company's policy, and unreimbursed medical, dental and other employee
benefit expenses incurred in accordance with the Company's employee benefit
plans (hereinafter referred to as the "Standard Termination Payments").
(b) Upon Death or Disability. If the Employee dies, all provisions of
this Agreement (other than Sections 6, 7 and 9 through 17 hereof, and other than
any rights or benefits arising as a result of such death) and the Term shall be
automatically terminated; provided, however, that the Standard Termination
Payments, together with additional salary payments equal to and in lieu of the
Employee's accrued and unused vacation, shall be paid to the Employee's
surviving spouse or, if none, his estate, and the death benefits under the
Company's employee benefit plans shall be paid in accordance with the terms of
the individual plans. If the Employee becomes Disabled, either the Company or
the Employee may terminate this Agreement and the Term at any time thereafter.
In such event, the Employee shall be entitled to receive his normal compensation
hereunder through the date of such termination, and shall thereafter be entitled
to receive the Standard Termination Payments, together with additional salary
payments equal to and in lieu of the Employee's accrued and unused vacation and
such disability and other employee benefits as may be provided under the terms
of the Company's employee benefit plans.
<PAGE>
(c) By the Company Without Cause.
(i) The Company may terminate the Employee's employment under
this Agreement without Cause, and other than by reason of his death or
Disability, by sending written notice of termination to the Employee, which
notice shall specify a date not more than ninety (90) days after the date of
such notice as the effective date of such termination (the "Termination Date").
From the date of such notice through the Termination Date, the Employee shall
continue to perform the normal duties of his employment hereunder, and shall be
entitled to receive when due all compensation and benefits applicable to the
Employee hereunder. Promptly (and in any event within 60 days) following the
Termination Date, the Company shall pay to the Employee (A) the Standard
Termination Payments, together with additional salary payments equal to and in
lieu of the Employee's accrued and unused vacation, plus (B) a lump sum
severance benefit in an amount equal to two times the Employee's base salary as
in effect on the Termination Date. The Employee shall have no obligation
whatsoever to mitigate any damages, costs or expenses suffered or incurred by
the Company with respect to the severance obligations set forth in this Section
5(c)(i) and, except as set forth in subsection (ii) of this Section, no such
severance payments received or receivable by the Employee shall be subject to
any reduction, offset, rebate or repayment as a result of any subsequent
employment or other business activity by the Executive.
(ii) Following any termination of the Employee's employment
pursuant to this Section 5(c), the Company shall also be obligated to provide
continued coverage under the Company's medical, dental and life insurance
benefit plans or arrangements with respect to the Employee for a period of two
years following the Termination Date (whether or not such period would extend
beyond the Term) or, if the Employee is not eligible for continuing coverage
under the terms of such plans or arrangements, the Company shall provide
substantially similar coverage on an individual basis for such period. The
Company's obligation to provide continued benefits coverage in accordance with
this Section 5(c)(ii) shall be subject to mitigation to the extent that
substantially similar benefits are provided by any successor employer during
such continuation period.
(d) By the Employee. The Employee may terminate his employment, and
any further obligations which Employee may have to perform services on behalf of
the Company hereunder at any time after the date hereof, by sending written
notice of termination to the Company not less than ninety (90) days prior to the
<PAGE>
effective date of such termination. During such ninety (90) day period, the
Employee shall continue to perform the normal duties of his employment
hereunder, and shall be entitled to receive when due all compensation and
benefits applicable to the Employee hereunder. Except as provided below, if the
Employee elects to terminate his employment hereunder (other than as a result of
Disability) and otherwise complies with his obligations under this paragraph,
then the Employee shall be entitled to receive the Standard Termination
Payments, together with additional salary payments equal to and in lieu of the
Employee's accrued and unused vacation, but the Company shall have no further
obligation to make payments or provide benefits to the Employee. Anything in
this Agreement to the contrary notwithstanding, the termination of the
Employee's employment by the Employee within one year after a Change in Control
of the Company shall be deemed to be a termination of the Employee's employment
without Cause by the Company for purposes of this Agreement, and the Employee
shall be entitled to the payments and benefits set forth in Section 5(c) above.
6. Change in Control/Excise Taxes. If a Change in Control occurs during
the Term of this Agreement and the Employee becomes liable, in any taxable year,
for the payment of an excise tax under Internal Revenue Service Code ("Code")
section 4999 with respect to any payment or benefit under this Agreement or
under any stock option plan or other program of the Company (including, for
example, the accelerated exercisability of stock options upon a Change in
Control) without regard to whether a termination of employment has occurred, the
Company shall pay to the Employee (i) an amount equal to the excise tax for
which the Employee is liable under Code section 4999, plus (ii) the federal,
state and local income taxes, and the hospital insurance tax under Code section
3111(b), for which the Employee is liable on account of the payment described in
clause (i) of this Section, together with an amount sufficient to satisfy any
additional federal, state or local income taxes or hospital insurance tax for
which the Employee is liable on account of the amounts received pursuant to this
clause (ii). Such payment shall be made in one or more installments at times
necessary to permit the Employee to make estimated tax payments with respect to
the Employee's relevant taxable year and a final payment shall be made not later
than 20 days after the date (or extended filing date) on which the tax return
reflecting the liability for such excise tax is required to be filed with the
Internal Revenue Service.
7. Confidentiality. (a) Except as specifically authorized by the
Company in writing, from the date hereof and continuing forever, the Employee
agrees not to (i) disclose any trade secrets or confidential information to any
<PAGE>
individual or entity, or otherwise permit any person or entity to obtain or
disclose any trade secrets or confidential information, or (ii) use any trade
secrets or confidential information for the Employee's own financial gain,
whether individually or on behalf of another individual or entity. For purposes
hereof, the phrase "trade secrets and confidential information" means any and
all information relating to any part of the business of the Company or the
business of any affiliate of the Company, provided to the Employee or to which
the Employee has had access, which information is not a matter of public record
or generally known to the public, including, without limitation: (i) financial
information regarding the Company or any affiliate of the Company; (ii)
personnel data, including compensation arrangements, relating to any employee of
the Company or any affiliate of the Company; (iii) internal plans, practices and
procedures of the Company or any affiliate of the Company; (iv) the names,
addresses and requirements of any customers of the Company or any affiliate of
the Company; (v) any other information expressly deemed confidential by the
officers or directors of the Company; and (vi) the terms and conditions of any
supply agreements and other agreements, documents and instruments to which the
Company or any of its affiliates are parties.
(b) All writings, records and other documents and things containing
any trade secrets or confidential information in the Employee's custody or
possession shall be the exclusive property of the Company, shall not be copied
and/or removed from the premises of the Company, except in pursuit of the
business of the Company, and shall be delivered to the Company, without
retaining any copies, upon the termination of the Employee's employment or at
any time as requested by the Company.
8. Non-competition Agreement. In consideration of the Company's
agreement to employ the Employee upon the terms and conditions set forth in this
Agreement and the Company's agreement to pay severance benefits under certain
circumstances pursuant to Section 5(c) hereof, the Employee covenants and agrees
that, for two years following the Termination Date, the Employee shall not,
directly or indirectly: (a) engage in or accept employment with (as a consultant
or otherwise), own a material interest in, or otherwise give assistance to,
whether or not for compensation, any person, firm or corporation (other than an
affiliate of a purchaser of, or successor to, the business of the Company)
engaged in the ownership or management of a business of the type conducted by
the Company or any of its subsidiaries within the geographical areas in which
the Company or any of its subsidiaries compete on the Termination Date; or (b)
solicit or recruit for employment any employee or independent contractor of the
Company or any of its subsidiaries. In the event of any breach of the provisions
<PAGE>
of this Section by the Employee, the restrictions set forth herein shall be
extended by a period equal to the duration of such breach.
9. Remedies. The parties hereto agree that each would suffer
irreparable harm from a breach by the other of any of the covenants or
agreements contained herein. Therefore, in the event of the actual or threatened
breach by either party hereto of any of the provisions of this Agreement, the
other party hereto may, in addition and supplementary to other rights and
remedies existing in favor of such party, apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violation of the provisions hereof.
10. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Company and its affiliates and their successors and
assigns, and shall be binding upon and inure to the benefit of the Employee and
his legal representatives and assigns, provided that in no event shall the
Employee's obligations to perform services for the Company and its affiliates be
delegated or transferred by the Employee. The Company may assign or transfer its
rights hereunder to a successor corporation in the event of a merger,
consolidation or transfer or sale of all or substantially all of the assets of
the Company or of the Company's business (provided, however, that no such
assignment or transfer shall have the effect of relieving the Company of any
liability to the Employee hereunder or under any other agreement or document
contemplated herein), but only if such assignment or transfer does not result in
employment terms, conditions, duties or responsibilities which are or may be
materially different than the terms, conditions, duties or responsibilities of
the Employee hereunder.
11. Modification or Waiver. No amendment, modification, waiver,
termination or cancellation of this Agreement shall be binding or effective for
any purpose unless it is made in a writing signed by the party against whom
enforcement of such amendment, modification, waiver, termination or cancellation
is sought. No course of dealing between or among the parties to this Agreement
shall be deemed to affect or to modify, amend or discharge any provision or term
of this Agreement. No delay on the part of the Company or the Employee in the
exercise of any of their respective rights or remedies shall operate as a waiver
thereof, and no single or partial exercise by the Company or the Employee of any
such right or remedy shall preclude other or further exercises thereof. A waiver
of a right or remedy on any one occasion shall not be construed as a bar to or
waiver of any such right or remedy on any other occasion.
<PAGE>
12. Notice. For purposes of this Agreement, notice and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered by hand or by overnight courier
service, or when mailed by United States registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Company:
Richfood Holdings, Inc.
P. O. Box 26967
Richmond, Virginia 23261
Attention: President & Chief Executive Officer
with a copy to:
Gary E. Thompson, Esquire
Hunton & Williams
Riverfront Plaza - East Tower
951 E. Byrd Street
Richmond, VA 23219
If to the Employee:
to his address as reflected from time-to-time in the
personnel records of the Company.
Either party hereto may change its address for purposes of this Section by
furnishing written notice to the other party in accordance herewith, except that
notices of change of address shall be effective only upon receipt.
13. Governing Law; Jurisdiction. This Agreement and all rights,
remedies and obligations hereunder, including, but not limited to, matters of
construction, validity and performance shall be governed by the laws of the
Commonwealth of Virginia without regard to its conflict of laws principles or
rules. To the full extent lawful, each of the Company and the Employee hereby
consents irrevocably to personal jurisdiction, service and venue in connection
with any claim or controversy arising out of this Agreement in the courts of the
Commonwealth of Virginia located in Richmond, Virginia, and in the federal
courts in the Eastern District of Virginia.
14. Severability. Whenever possible each provision and term of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision or term of this Agreement shall be
held to be prohibited by or invalid under such applicable law, then such
<PAGE>
provision or term shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating or affecting in any manner whatsoever the
remainder of such provisions or term or the remaining provisions or terms of
this Agreement.
15. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same Agreement.
16. Headings. The headings of the Sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute a part
hereof and shall not affect the construction or interpretation of this
Agreement.
17. Entire Agreement. This Agreement (together with all documents and
instruments referred to herein) constitutes the entire agreement, and supersedes
all other prior agreements and undertakings, both written and oral, among the
parties with respect to the subject matter hereof.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed on its behalf, and the Employee has duly executed this Agreement, all
as of the date first above written.
RICHFOOD HOLDINGS, INC.
By: /s/ John E. Stokely
--------------------------
John E. Stokely
President & Chief Executive
Officer
EMPLOYEE:
/s/ John C. Belknap
--------------------------
John C. Belknap
EXHIBIT 10.9
------------
ADDENDUM
JOHN C. BELKNAP
EMPLOYMENT AND SEVERANCE BENEFITS AGREEMENT
-------------------------------------------
Pursuant to Section 11 of the Employment and Severance Benefits
Agreement, dated as of August 20, 1998, between RICHFOOD HOLDINGS, INC., a
Virginia Corporation (the "Company"), and John C. Belknap (the "Employee") (the
"Agreement"), and in accordance with Sections 1.01, 3.01, 3.02, 3.03, 3.04, 4.01
and 5.01 of the Richfood Supplemental Executive Retirement Plan, as amended and
restated as of December 2, 1998 (the "SERP"), and action taken by the Executive
Compensation Committee of the Board of Directors of the Company on December 2,
1998, this addendum constitutes specific written confirmation that the Agreement
and Employee's SERP benefit are modified by adding the following new Section
5.A.:
5.A. SERP Benefit. (a) Assuming Employee's continued employment with
the Company or an affiliate as of such date, Employee shall be entitled to and
vested in the following unreduced benefits under the SERP as of the indicated
dates:
Percentage of Vested
Date Credited Monthly Compensation*
---- ------------------------------
December 1, 1998 30%
December 1, 2001 50%
December 1, 2007 70%
* Less applicable qualified plan and social security offsets.
(b) Employee may elect to retire under the SERP at any time on or after
attaining age sixty-three (63) and receive the vested benefit Employee has
accrued under the SERP as of such date.
(c) Notwithstanding the above, upon any Change in Control of the
Company, Employee shall be entitled to receive a lump sum payment in an amount
equal to the present value of the benefit Employee otherwise would have been
entitled to receive upon retirement under the SERP on or after September 1,
2009. The amount of such lump sum payment shall be calculated in accordance with
Exhibit A attached hereto.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed on its behalf, and Employee has duly executed this Agreement, all as of
December 2, 1998.
RICHFOOD HOLDINGS, INC.
By: /s/ John E. Stokely
--------------------------------
Chairman, President and Chief
Executive Officer
JOHN C. BELKNAP
/s/ John C. Belknap
-----------------------------------
John C. Belknap
Attachment
Exhibit 10.10
AMENDMENT NO. 1 TO
EMPLOYMENT AND SEVERANCE BENEFITS AGREEMENT
AMENDMENT NO. 1 (the "Amendment"), dated as of June 9, 1999, to the
Employment and Severance Benefits Agreement (the "Agreement"), dated as of
August 20, 1998, between RICHFOOD HOLDINGS, INC. (the "Company") and JOHN C.
BELKNAP (the "Employee").
WHEREAS, the Company has entered into an Agreement and Plan of Merger,
dated as of June 9, 1999, among SUPERVALU INC., Winter Acquisition, Inc. and the
Company (the "Merger Agreement"); and
WHEREAS, it is essential that the Company be managed and operated
efficiently and effectively through and until the Closing contemplated in the
Merger Agreement, and that the Company retain its key management in the event
that the Merger Agreement is terminated for any reason prior to the Closing; and
WHEREAS, the Company wishes to provide an incentive to Employee to
remain in the Company's employ through the Closing Date (as defined in the
Merger Agreement) to help assure that the Company discharges its commitments to
customers and that the change of ownership is effected smoothly.
NOW, THEREFORE, in consideration of the premises, the parties hereto
have agreed as follows:
1. Amendment. The following paragraph is added as Section 18:
Stay Bonus. If Employee remains in the employ of the Company through
the Closing Date (as defined in the Agreement and Plan of Merger, dated
as of June 9, 1999, among SUPERVALU INC., Winter Acquisition, Inc. and
the Company), Employee shall receive a lump sum cash payment, in
addition to all other amounts payable hereunder, of $500,000. Such
payment will be made to the Employee at the Closing.
Except as specifically amended hereby, the Agreement remains in full force and
effect in accordance with its terms.
2. Miscellaneous. The Agreement as amended constitutes the entire
agreement between the parties, and supersedes all prior agreements and
understandings between the parties with respect to the subject matter hereof. No
agreements or representations, express or implied, with respect to the subject
matter hereof have been made by either party which are not set forth expressly
in the Agreement, as amended through the date hereof. The validity,
interpretation, construction and performance of this Amendment shall be governed
by the laws of the Commonwealth of Virginia.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Amendment to be duly
executed on its behalf, and Employee has duly executed this Amendment, all as of
the date first written above.
RICHFOOD HOLDINGS, INC.
/s/ Albert F. Sloan
-----------------------
Albert F. Sloan
Director and Chairman, Executive
Compensation Committee
JOHN C. BELKNAP
/s/ John C. Belknap
------------------------
John C. Belknap
Exhibit 10.11
EMPLOYMENT AND SEVERANCE BENEFITS AGREEMENT
EMPLOYMENT AND SEVERANCE BENEFITS AGREEMENT (the "Agreement"), dated as
of August 20, 1998, between RICHFOOD HOLDINGS, INC., a Virginia corporation (the
"Company"), and ALEC C. COVINGTON (the "Employee").
WHEREAS, the Company expects that the Employee will make substantial
contributions to its future growth and prospects; and
WHEREAS, the Company desires to obtain the continued services of the
Employee; and
WHEREAS, the Employee desires to continue to be employed by the Company
and to remain in the employ of the Company during the term of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereto covenant and agree
as follows:
1. Definitions. When used in this Agreement, the following terms shall
have the meanings specified:
(a) Cause. "Cause", when referring to a termination of employment,
shall mean: (i) conviction by a court of competent jurisdiction for a felony;
(ii) breach of any material obligation to the Company under any material
agreement concerning any term of employment; or (iii) willful or gross neglect
of duties to the Company (other than by reason of illness or temporary
disability short of Disability) or willful or gross misconduct in the
performance of such duties. All determinations as to whether a termination of
employment is for Cause shall be made in good faith by the Board of Directors of
the Company and shall be binding on the parties hereto.
(b) Change in Control. A "Change in Control" of the Company shall be
deemed to have occurred if: (i) any "person" (as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended) becomes
the beneficial owner, directly or indirectly, of securities of the Company
representing more than 50% of the aggregate voting power of all classes of the
Company's then-outstanding voting securities; or (ii) the shareholders of the
Company approve (A) a plan of merger, consolidation or share exchange between
the Company and an entity other than a direct or indirect wholly-owned
subsidiary of the Company, or (B) a proposal with respect to the sale, lease,
<PAGE>
exchange or other disposal of all, or substantially all, of the Company's
property.
(c) Disability. "Disability" shall mean a condition, determined on the
basis of medical evidence satisfactory to a physician designated by the Board of
Directors of the Company, rendering the Employee, due to bodily injury or
disease or mental illness, unable to perform the duties pertaining to his
employment with the Company on a full-time basis for 180 consecutive days.
2. Term. This Agreement shall continue in full force and effect for
three (3) years following the date first above written (the "Term").
3. Employment by the Company. The Company agrees to employ the Employee
as President of its Wholesale Division through the Term of this Agreement, with
a job description, responsibilities and duties commensurate with that position.
Notwithstanding the foregoing, the parties agree that the Company may terminate
the Employee's employment hereunder at any time, subject to the provisions of
Section 5 hereof, it being expressly understood that this Agreement is not
intended to alter the at-will nature of the Company's employment of the
Employee. In consideration of the Company's obligations under this Agreement,
the Employee agrees that (i) he will not voluntarily leave the employ of the
Company during the Term of this Agreement without first complying with the
provisions of Section 5(d) hereof, and (ii) he will devote his full business
time and attention to service to the Company and its subsidiaries commensurate
with his position throughout the Term of this Agreement.
4. Compensation. During the Term of this Agreement and unless the
Employee's employment has been earlier terminated, the Company agrees to: (i)
pay the Employee as compensation for his services an annual base salary in the
amount of Three Hundred Twenty Five Thousand Dollars ($325,000) per year,
payable in equal periodic installments (less any amounts permitted or required
to be deducted or withheld under applicable law) not less frequently than
monthly, it being understood that the parties contemplate a good faith review of
such base salary on an annual basis for possible increase in light of the
Employee's performance; (ii) permit the Employee to participate in the Company's
executive officer annual performance plan, with a participation level of 40% of
his base salary; (iii) permit the Employee to participate in such long-term
incentive compensation programs as the Company may make generally available to
its executive employees from time to time; (iv) provide for the benefit of the
<PAGE>
Employee such vacation, pension and disability benefits as are, and such
coverage under life, accident, medical and dental plans as is, generally
provided from time to time to executive employees of the Company; and (v)
provide the Employee with an automobile consistent with those provided by the
Company to its other executive officers with similar titles and
responsibilities.
5. Termination of Employment; Severance.
(a) By the Company For Cause. The Company may terminate the Employee's
employment under this Agreement at any time for Cause by delivery of written
notice of termination to the Employee (which notice shall specify in reasonable
detail the basis upon which such termination is made). In the event the
Employee's employment is terminated for Cause, all provisions of this Agreement
(other than Sections 7 through 17 hereof) and the Term shall be terminated. Upon
any such termination, the Employee shall be entitled only to payment of his
earned and unpaid salary to the date of termination, any earned and unpaid bonus
under the Company's executive officer annual performance plan (or such
comparable successor program that may be in effect from time to time) for the
prior year, unreimbursed business and entertainment expenses in accordance with
the Company's policy, and unreimbursed medical, dental and other employee
benefit expenses incurred in accordance with the Company's employee benefit
plans (hereinafter referred to as the "Standard Termination Payments").
(b) Upon Death or Disability. If the Employee dies, all provisions of
this Agreement (other than Sections 6, 7 and 9 through 17 hereof, and other than
any rights or benefits arising as a result of such death) and the Term shall be
automatically terminated; provided, however, that the Standard Termination
Payments, together with additional salary payments equal to and in lieu of the
Employee's accrued and unused vacation, shall be paid to the Employee's
surviving spouse or, if none, his estate, and the death benefits under the
Company's employee benefit plans shall be paid in accordance with the terms of
the individual plans. If the Employee becomes Disabled, either the Company or
the Employee may terminate this Agreement and the Term at any time thereafter.
In such event, the Employee shall be entitled to receive his normal compensation
hereunder through the date of such termination, and shall thereafter be entitled
to receive the Standard Termination Payments, together with additional salary
payments equal to and in lieu of the Employee's accrued and unused vacation and
such disability and other employee benefits as may be provided under the terms
of the Company's employee benefit plans.
<PAGE>
(c) By the Company Without Cause.
(i) The Company may terminate the Employee's employment under
this Agreement without Cause, and other than by reason of his death or
Disability, by sending written notice of termination to the Employee, which
notice shall specify a date not more than ninety (90) days after the date of
such notice as the effective date of such termination (the "Termination Date").
From the date of such notice through the Termination Date, the Employee shall
continue to perform the normal duties of his employment hereunder, and shall be
entitled to receive when due all compensation and benefits applicable to the
Employee hereunder. Promptly (and in any event within 60 days) following the
Termination Date, the Company shall pay to the Employee (A) the Standard
Termination Payments, together with additional salary payments equal to and in
lieu of the Employee's accrued and unused vacation, plus (B) a lump sum
severance benefit in an amount equal to two times the Employee's base salary as
in effect on the Termination Date. The Employee shall have no obligation
whatsoever to mitigate any damages, costs or expenses suffered or incurred by
the Company with respect to the severance obligations set forth in this Section
5(c)(i) and, except as set forth in subsection (ii) of this Section, no such
severance payments received or receivable by the Employee shall be subject to
any reduction, offset, rebate or repayment as a result of any subsequent
employment or other business activity by the Executive.
(ii) Following any termination of the Employee's employment
pursuant to this Section 5(c), the Company shall also be obligated to provide
continued coverage under the Company's medical, dental and life insurance
benefit plans or arrangements with respect to the Employee for a period of two
years following the Termination Date (whether or not such period would extend
beyond the Term) or, if the Employee is not eligible for continuing coverage
under the terms of such plans or arrangements, the Company shall provide
substantially similar coverage on an individual basis for such period. The
Company's obligation to provide continued benefits coverage in accordance with
this Section 5(c)(ii) shall be subject to mitigation to the extent that
substantially similar benefits are provided by any successor employer during
such continuation period.
(d) By the Employee. The Employee may terminate his employment, and
any further obligations which Employee may have to perform services on behalf of
the Company hereunder at any time after the date hereof, by sending written
notice of termination to the Company not less than ninety (90) days prior to the
<PAGE>
effective date of such termination. During such ninety (90) day period, the
Employee shall continue to perform the normal duties of his employment
hereunder, and shall be entitled to receive when due all compensation and
benefits applicable to the Employee hereunder. Except as provided below, if the
Employee elects to terminate his employment hereunder (other than as a result of
Disability) and otherwise complies with his obligations under this paragraph,
then the Employee shall be entitled to receive the Standard Termination
Payments, together with additional salary payments equal to and in lieu of the
Employee's accrued and unused vacation, but the Company shall have no further
obligation to make payments or provide benefits to the Employee. Anything in
this Agreement to the contrary notwithstanding, the termination of the
Employee's employment by the Employee within one year after a Change in Control
of the Company shall be deemed to be a termination of the Employee's employment
without Cause by the Company for purposes of this Agreement, and the Employee
shall be entitled to the payments and benefits set forth in Section 5(c) above.
6. Change in Control/Excise Taxes. If a Change in Control occurs during
the Term of this Agreement and the Employee becomes liable, in any taxable year,
for the payment of an excise tax under Internal Revenue Service Code ("Code")
section 4999 with respect to any payment or benefit under this Agreement or
under any stock option plan or other program of the Company (including, for
example, the accelerated exercisability of stock options upon a Change in
Control) without regard to whether a termination of employment has occurred, the
Company shall pay to the Employee (i) an amount equal to the excise tax for
which the Employee is liable under Code section 4999, plus (ii) the federal,
state and local income taxes, and the hospital insurance tax under Code section
3111(b), for which the Employee is liable on account of the payment described in
clause (i) of this Section, together with an amount sufficient to satisfy any
additional federal, state or local income taxes or hospital insurance tax for
which the Employee is liable on account of the amounts received pursuant to this
clause (ii). Such payment shall be made in one or more installments at times
necessary to permit the Employee to make estimated tax payments with respect to
the Employee's relevant taxable year and a final payment shall be made not later
than 20 days after the date (or extended filing date) on which the tax return
reflecting the liability for such excise tax is required to be filed with the
Internal Revenue Service.
7. Confidentiality. (a) Except as specifically authorized by the
Company in writing, from the date hereof and continuing forever, the Employee
agrees not to (i) disclose any trade secrets or confidential information to any
<PAGE>
individual or entity, or otherwise permit any person or entity to obtain or
disclose any trade secrets or confidential information, or (ii) use any trade
secrets or confidential information for the Employee's own financial gain,
whether individually or on behalf of another individual or entity. For purposes
hereof, the phrase "trade secrets and confidential information" means any and
all information relating to any part of the business of the Company or the
business of any affiliate of the Company, provided to the Employee or to which
the Employee has had access, which information is not a matter of public record
or generally known to the public, including, without limitation: (i) financial
information regarding the Company or any affiliate of the Company; (ii)
personnel data, including compensation arrangements, relating to any employee of
the Company or any affiliate of the Company; (iii) internal plans, practices and
procedures of the Company or any affiliate of the Company; (iv) the names,
addresses and requirements of any customers of the Company or any affiliate of
the Company; (v) any other information expressly deemed confidential by the
officers or directors of the Company; and (vi) the terms and conditions of any
supply agreements and other agreements, documents and instruments to which the
Company or any of its affiliates are parties.
(b) All writings, records and other documents and things containing
any trade secrets or confidential information in the Employee's custody or
possession shall be the exclusive property of the Company, shall not be copied
and/or removed from the premises of the Company, except in pursuit of the
business of the Company, and shall be delivered to the Company, without
retaining any copies, upon the termination of the Employee's employment or at
any time as requested by the Company.
8. Non-competition Agreement. In consideration of the Company's
agreement to employ the Employee upon the terms and conditions set forth in this
Agreement and the Company's agreement to pay severance benefits under certain
circumstances pursuant to Section 5(c) hereof, the Employee covenants and agrees
that, for two years following the Termination Date, the Employee shall not,
directly or indirectly: (a) engage in or accept employment with (as a consultant
or otherwise), own a material interest in, or otherwise give assistance to,
whether or not for compensation, any person, firm or corporation (other than an
affiliate of a purchaser of, or successor to, the business of the Company)
engaged in the ownership or management of a business of the type conducted by
the Company or any of its subsidiaries within the geographical areas in which
<PAGE>
the Company or any of its subsidiaries compete on the Termination Date; or (b)
solicit or recruit for employment any employee or independent contractor of the
Company or any of its subsidiaries. In the event of any breach of the provisions
of this Section by the Employee, the restrictions set forth herein shall be
extended by a period equal to the duration of such breach.
9. Remedies. The parties hereto agree that each would suffer
irreparable harm from a breach by the other of any of the covenants or
agreements contained herein. Therefore, in the event of the actual or threatened
breach by either party hereto of any of the provisions of this Agreement, the
other party hereto may, in addition and supplementary to other rights and
remedies existing in favor of such party, apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violation of the provisions hereof.
10. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Company and its affiliates and their successors and
assigns, and shall be binding upon and inure to the benefit of the Employee and
his legal representatives and assigns, provided that in no event shall the
Employee's obligations to perform services for the Company and its affiliates be
delegated or transferred by the Employee. The Company may assign or transfer its
rights hereunder to a successor corporation in the event of a merger,
consolidation or transfer or sale of all or substantially all of the assets of
the Company or of the Company's business (provided, however, that no such
assignment or transfer shall have the effect of relieving the Company of any
liability to the Employee hereunder or under any other agreement or document
contemplated herein), but only if such assignment or transfer does not result in
employment terms, conditions, duties or responsibilities which are or may be
materially different than the terms, conditions, duties or responsibilities of
the Employee hereunder.
11. Modification or Waiver. No amendment, modification, waiver,
termination or cancellation of this Agreement shall be binding or effective for
any purpose unless it is made in a writing signed by the party against whom
enforcement of such amendment, modification, waiver, termination or cancellation
is sought. No course of dealing between or among the parties to this Agreement
shall be deemed to affect or to modify, amend or discharge any provision or term
of this Agreement. No delay on the part of the Company or the Employee in the
exercise of any of their respective rights or remedies shall operate as a waiver
thereof, and no single or partial exercise by the Company or the Employee of any
such right or remedy shall preclude other or further exercises thereof. A waiver
of a right or remedy on any one occasion shall not be construed as a bar to or
waiver of any such right or remedy on any other occasion.
<PAGE>
12. Notice. For purposes of this Agreement, notice and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered by hand or by overnight courier
service, or when mailed by United States registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Company:
Richfood Holdings, Inc.
P. O. Box 26967
Richmond, Virginia 23261
Attention: President & Chief Executive Officer
with a copy to:
Gary E. Thompson, Esquire
Hunton & Williams
Riverfront Plaza - East Tower
951 E. Byrd Street
Richmond, VA 23219
If to the Employee:
to his address as reflected from time-to-time in the
personnel records of the Company.
Either party hereto may change its address for purposes of this Section by
furnishing written notice to the other party in accordance herewith, except that
notices of change of address shall be effective only upon receipt.
13. Governing Law; Jurisdiction. This Agreement and all rights,
remedies and obligations hereunder, including, but not limited to, matters of
construction, validity and performance shall be governed by the laws of the
Commonwealth of Virginia without regard to its conflict of laws principles or
rules. To the full extent lawful, each of the Company and the Employee hereby
consents irrevocably to personal jurisdiction, service and venue in connection
with any claim or controversy arising out of this Agreement in the courts of the
Commonwealth of Virginia located in Richmond, Virginia, and in the federal
courts in the Eastern District of Virginia.
14. Severability. Whenever possible each provision and term of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision or term of this Agreement shall be
held to be prohibited by or invalid under such applicable law, then such
<PAGE>
provision or term shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating or affecting in any manner whatsoever the
remainder of such provisions or term or the remaining provisions or terms of
this Agreement.
15. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same Agreement.
16. Headings. The headings of the Sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute a part
hereof and shall not affect the construction or interpretation of this
Agreement.
17. Entire Agreement. This Agreement (together with all documents and
instruments referred to herein) constitutes the entire agreement, and supersedes
all other prior agreements and undertakings, both written and oral, among the
parties with respect to the subject matter hereof.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed on its behalf, and the Employee has duly executed this Agreement, all
as of the date first above written.
RICHFOOD HOLDINGS, INC.
By: /s/ John E. Stokely
--------------------------
John E. Stokely
President & Chief Executive
Officer
EMPLOYEE:
/s/ Alec C. Covington
---------------------------
Alec C. Covington
EXHIBIT 10.12
-------------
ADDENDUM
ALEC C. COVINGTON
EMPLOYMENT AND SEVERANCE BENEFITS AGREEMENT
-------------------------------------------
Pursuant to Section 11 of the Employment and Severance Benefits
Agreement, dated as of August 20, 1998, between RICHFOOD HOLDINGS, INC., a
Virginia Corporation (the "Company"), and Alec C. Covington (the "Employee")
(the "Agreement"), and in accordance with Sections 1.01, 3.01, 3.02, 3.03, 3.04,
4.01 and 5.01 of the Richfood Supplemental Executive Retirement Plan, as amended
and restated as of December 2, 1998 (the "SERP"), and action taken by the
Executive Compensation Committee of the Board of Directors of the Company on
December 2, 1998, this addendum constitutes specific written confirmation that
the Agreement and Employee's SERP benefit are modified, effective December 2,
1998, by adding the following new Section 5.A.:
5.A. SERP Benefit. (a) Assuming Employee's continued employment with
the Company or an affiliate as of such date, Employee shall be entitled to and
vested in the following unreduced benefits under the SERP as of the indicated
dates:
Percentage of Vested
Date Credited Monthly Compensation*
---- ------------------------------
December 1, 1998 30%
December 1, 2001 50%
December 1, 2007 70%
* Less applicable qualified plan and social security offsets.
(b) Employee may elect to retire under the SERP at any time on or after
attaining age fifty-five (55) and receive the vested benefit Employee has
accrued under the SERP as of such date.
(c) Notwithstanding the above, upon any Change in Control of the
Company, Employee shall be entitled to receive a lump sum payment in an amount
equal to the present value of the benefit Employee otherwise would have been
entitled to receive upon retirement under the SERP on or after April 1, 2012.
The amount of such lump sum payment shall be calculated in accordance with
Exhibit A attached hereto.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed on its behalf, and Employee has duly executed this Agreement, all as of
December 2, 1998.
RICHFOOD HOLDINGS, INC.
By: /s/ John E. Stokely
-----------------------------------
Chairman, President and Chief
Executive Officer
ALEC C. COVINGTON
/s/ Alec C. Covington
--------------------------------------
Alec C. Covington
Attachment
EXHIBIT 12.1
RICHFOOD HOLDINGS, INC.
COMPUTATION OF CERTAIN RATIOS
The following relates to the ratio computations in the Company's fiscal 1999
Annual Report on Form 10-K.
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.
EXHIBIT 21.1
RICHFOOD CONSOLIDATED GROUP
(As of May 1, 1999)
Unless otherwise noted, each of the subsidiaries listed below is 100% owned by
its parent company.
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 Foods, Inc.[Delaware]
Penn Perishables, Inc.[Virginia]
Pack `N Save Holdings, Inc.[Virginia]
GV Holdings, Inc.[Delaware]
Dart Group Corporation [Delaware]
Subsidiaries of Richfood, Inc.[Virginia]
- ----------------------------------------
Market Improvement Corporation [Virginia]
Market Insurance Agency, Inc.[Virginia]
Market Leasing Company [Virginia]
MFFL, Inc.[Virginia]
Market Brands, Inc. [Delaware]
<PAGE>
Subsidiaries of Super Rite Foods, Inc.[Delaware]
- ------------------------------------------------
Foodarama Incorporated [Delaware]
Richfood Procurement, Inc. [Virginia]
SRF Subsidiary Corporation [Delaware]
FF Acquisition, L.L.C. d/b/a Farm Fresh [Virginia]
Subsidiaries of Pack 'N Save Holdings, Inc. [Virginia]
- ------------------------------------------------------
Pack 'N Save LLC [Virginia]
Susidiaries of GV Holdings, Inc. [Virginia]
- -------------------------------------------
Great Value LLC [Virginia]
Subsidiaries of Dart Group Corporation [Delaware]
- -------------------------------------------------
Bridgeview Warehouse LLC [Delaware]
75th Avenue Headquarters LLC [Delaware]
Pennsy Warehouse LLC [Delaware]
SFW Holdings Corp. [Delaware]
Discount Books East Corp. [Delaware]
Trak Auto Corporation [Delaware] [67% owned by the Dart Group Corporation]
Subsidiaries of SFW Holding Corp. [Delaware]
- --------------------------------------------
Shoppers Food Warehouse Corporation [Delaware]
SFW Licensing Corporation [Delaware]
Shopper Food Warehouse DC Corporation [Delaware]
Subsidiaries of Trak Auto Corporation [Delaware] [67% owned by Dart Group
- -------------------------------------------------------------------------
Corporation
- -----------
Trak Corporation [Delaware]
Super Trak Corporation [Delaware]
Trak DHC Corporation [Delaware]
Subsidiaries of Discount Books East Corp. [Delaware]
- ----------------------------------------------------
Crown Books Corporation [Delaware] [51% owned by Disount Books East Corp.]
Subsidiaries of Crown Books Corporation [Delaware] [51% owned by Discount Books
- -------------------------------------------------------------------------------
East Corp.]
- ----------
Crown Books East Corporation [Delaware]
Crown Books West Corporation [Delaware]
Crown Books National Corporation [Delaware]
Crown Books DHC Corporation [Delaware]
Super Crown Books Corporation [Delaware]
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the following Registration
Statements of our report dated June 15, 1999, with respect to the consolidated
financial statements and schedule of Richfood Holdings, Inc., included in this
Annual Report (Form 10-K) for the fiscal year ended May 1, 1999.
Registration
Statement
Form Number Description
- -------------------------------------------------------------------------------
S-8 33-41210 Richfood Holdings, Inc. Long-Term Incentive Plan
S-8 33-41570 Richfood Holdings, Inc. Savings and Stock
Ownership Plan
S-8 33-43652 Richfood Holdings, Inc. Omnibus Stock Incentive
Plan
S-8 33-55299 Richfood Holdings, Inc. Non-Employee Directors'
Stock Option Plan
S-8 33-63447 Super Rite Corporation 1991 Omnibus Stock
Incentive Plan
S-8 333-01251 Super Rite Foods, Inc. Employee Investment
Opportunity Plan
S-8 333-01253 Super Rite Foods, Inc. Employee Investment
Opportunity Plan for Retail Union Employees
S-8 333-16411 Richfood Holdings, Inc. Amended and Restated
Omnibus Stock Incentive Plan
S-3 333-65061 Shelf Registration
/s/ ERNST & YOUNG LLP
------------------------
Richmond, Virginia
July 13, 1999
<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 1, 1999
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-01-1999
<PERIOD-END> MAY-01-1999
<CASH> 4,911
<SECURITIES> 0
<RECEIVABLES> 120,976
<ALLOWANCES> 3,219
<INVENTORY> 227,539
<CURRENT-ASSETS> 411,053
<PP&E> 392,181
<DEPRECIATION> 143,465
<TOTAL-ASSETS> 1,421,105
<CURRENT-LIABILITIES> 549,964
<BONDS> 0
0
0
<COMMON> 91,691
<OTHER-SE> 296,985
<TOTAL-LIABILITY-AND-EQUITY> 1,421,105
<SALES> 3,968,239
<TOTAL-REVENUES> 3,968,239
<CGS> 3,247,017
<TOTAL-COSTS> 3,247,017
<OTHER-EXPENSES> 558,560
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,707
<INCOME-PRETAX> 119,575
<INCOME-TAX> 46,532
<INCOME-CONTINUING> 73,043
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,043
<EPS-BASIC> 1.53
<EPS-DILUTED> 1.53
</TABLE>
EXHIBIT 99.1
CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE
PRIVATE 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 1,
1999, 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
General Wholesale 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.
Loss of Giant Business. On April 22, 1999, Giant Food Stores, Inc.
("Giant"), the Company's largest wholesale customer, notified the Company that
it would not renew its existing supply agreement, which will expire on December
31, 1999. Wholesale grocery sales to Giant were $628.8 million in fiscal 1999.
The Company has estimated that the non-renewal of the Giant supply agreement
will negatively impact fiscal 2000 earnings per share by approximately $0.15 to
$0.20, and will negatively impact earnings per share for future years by
approximately $0.28 to $0.33. In the event that the Company's pending merger
with SUPERVALU INC. (the "Merger") is not consummated, there can be no assurance
that the Company will be successful in mitigating the adverse effects of the
loss of the Giant business, or that the adverse effects of the loss of such
business will not exceed the Company's estimates.
<PAGE>
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.
YEAR 2000 RISKS
The risks faced by the Company in connection with the "Year 2000"
computer issue, including risks and costs associated with implementation of the
Company's Year 2000 remediation plans for its Wholesale and Retail Divisions,
are set forth under the caption "Year 2000 Compliance" in Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations in this
Annual Report on Form 10-K.
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.
RISKS FACED BY THE COMPANY IF THE MERGER IS NOT CONSUMMATED
Recent trends affecting the Company and its industry had an impact on
the Company's ability to implement its business strategy in fiscal 1999, and
were among the reasons considered by the Company's Board of Directors in
determining to approve the Merger. These trends include (i) continued rapid
industry consolidation and the effects of such consolidation on the Company's
wholesale and retail operations, including increased relative size required to
maximize purchasing power, increased competition affecting the Company's
wholesale customers and the potential acquisition of those customers by third
<PAGE>
parties, (ii) the escalating cost of technology necessary to compete
effectively, (iii) increased retail competition from self-distributing national
chains, supercenters and alternative channels of distribution and (iv) low
national population growth, low inflation, higher interest costs and a
tightening labor market. Public market valuations of food wholesalers compared
to relatively higher public market valuations of food retailers have also
reduced the attractiveness of the Company's Common Stock as a currency for
potential retail acquisitions. In addition, the Company's relative debt level
following recent acquisitions has made it more difficult for the Company to
finance additional wholesale or retail acquisitions on favorable financing
terms. Additionally, the Company may face increased difficulty retaining
existing employees and wholesale customers and attracting new employees and
wholesale customers in light of the uncertainties that may surround the Company
in the event the merger agreement is terminated. As a result, in the event the
Merger is not consummated, there can be no assurance that the Company would be
able to continue to implement its existing business strategy with the same
success it has experienced in the past.
The foregoing list of cautionary statements 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.
