SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended July 28, 1996
Commission File No. 34-025260
KASH N' KARRY FOOD STORES, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 95-4161591
(State of Incorporation) (IRS Employer Identification Number)
6422 Harney Road, Tampa, Florida 33610
(Address of Registrant's Principal Executive Offices)
(813) 621-0200
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.01 Per Share
Preferred Share Purchase Rights
-------------------------------
(Title of Class)
Indicate by check mark whether the registrant has (1) 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. [x] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
(continues on following page)
<PAGE>
(continuation of cover page)
The aggregate market value of the voting stock held by non-
affiliates of the registrant based on the average low bid and
high ask prices of such stock as of October 11, 1996 was
$25,512,732. For purposes of this report and as used herein, the
term "non-affiliate" includes all shareholders of the registrant
other than Directors, executive officers, and persons holding
more than five percent of the outstanding voting stock of the
registrant.
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. [x]
Yes [ ] No
As of October 11, 1996, there were 4,674,314 shares
outstanding of the registrant's common stock, $0.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1996 Annual Meeting
of Stockholders of the Company to be filed not more than 120 days
after the fiscal year ended July 28, 1996 are incorporated by
reference in Part III of this Form 10-K.
<PAGE>
TABLE OF CONTENTS
Page
Number
PART I
Item 1. Business 1
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote
of Security Holders 7
Executive Officers of the Registrant 7
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 8
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 15
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 47
PART III
Item 10. Directors of the Registrant *
Item 11. Executive Compensation **
Item 12. Security Ownership of Certain Beneficial
Owners and Management **
Item 13. Certain Relationships and Related Transactions **
* Certain information required by Item 10 of Part III is
hereby incorporated by reference to the registrant's
definitive proxy statement to be filed not more than 120
days after the fiscal year ended July 28, 1996.
** The information required by Items 11, 12 and 13 of Part III
is hereby incorporated by reference to the registrant's
definitive proxy statement to be filed not more than 120
days after the fiscal year ended July 28, 1996.
PART IV
Item 14. Exhibits and Reports on Form 8-K 48
Signatures 56
<PAGE>
PART I
ITEM 1. BUSINESS.
General
The Company is among the three largest food retailers in
west central Florida, operating 93 multi-department supermarkets,
five conventional supermarkets and 35 liquor stores under the
"Kash n' Karry" name and two super warehouse stores under the
"Save 'n Pack" name, all supported by a centrally-located
warehouse and distribution facility. More than one-half of the
Company's stores are located in the Tampa-St. Petersburg area,
which is Florida's largest retail food sales market, with the
balance located between Gainesville, approximately 130 miles to
the north, and Bonita Springs, approximately 150 miles to the
south. The west central Florida area has a diverse and growing
economy, which includes high technology and financial centers, an
insurance industry presence, retirement communities, coastal
resorts and commercial agricultural activity. The region's
population is estimated to be increasing at an annual rate of
approximately 2%.
Company Store Profile
The following table presents a profile of the Company's
stores:
<TABLE>
<CAPTION>
Number of Stores
at Fiscal Year End
Total Square -------------------------
Store Type Footage<F1> 1996 1995 1994 1993 1992
- -------------------- -------------- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Kash n' Karry Food 40,000--57,000 51 50 50 48 42
Stores 25,000--39,999 42 42 43 55 57
less than 25,000 5 5 5 9 12
Save 'n Pack Super 76,000--88,000 2 2 2 3 --
Warehouse Stores
Kash n' Karry Liquor 1,800--2,700 35 33 33 35 30
Stores
- --------------------
<F>
<F1> Includes selling and backroom areas.
</F>
</TABLE>
Supermarket stores
The Company currently operates 93 multi-department supermar
kets, with an average size of approximately 40,000 total square
feet. The Company also operates five conventional supermarkets,
which average approximately 18,000 total square feet. All of the
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Company's supermarket stores offer a wide selection of items
typically sold in grocery stores, including staple groceries,
fresh fruits and vegetables, bakery and dairy products, delica
tessen items, frozen foods and fresh meats. Each of the Company's
supermarket stores also sells certain non-food items such as
health and beauty care items, paper and tobacco products, soaps
and detergents, drugs, sundries and housewares. The Company's
multi-department stores offer, in addition, a wider variety of
non-food items, including cosmetics and toiletries, small
hardware and a limited selection of soft goods. Most of the
Company's multi-department stores also feature expanded
perishable goods departments, delicatessens and in-store
bakeries, and many contain pharmacies, full-service seafood and
full-service floral departments. All of the Company's stores
feature national brands and also carry a selection of corporate
brand merchandise. Most of the Company's food stores are located
in shopping centers. The Company's food stores are open seven
days a week, and most operate 24 hours a day.
Super warehouse stores
In October 1992, the Company acquired three super warehouse
stores (one of which was subsequently closed) operating under the
"Save 'n Pack" name. The two existing super warehouse stores,
which are 76,000 and 88,000 square feet in size, respectively,
feature among the lowest prices on basic items carried by
supermarkets and are designed to cater to the needs of the low-
income household. In its super warehouse store promotions, the
Company encourages consumers to verify the stores' tag line, "No
One Has Lower Prices." The assortment of packaged goods carried
by the super warehouse stores is more limited than that of a
supermarket and is frequently augmented by one-time purchases of
specially priced products that may not be available on a regular
basis. Store decor is austere compared to that of a traditional
supermarket, and product is displayed on warehouse racking and on
floor pallets to enhance productivity and promote a low-price
impression. The stores provide a full complement of perishable
departments, including meat, produce, bakery, deli and fresh
seafood, which also feature low prices and are frequently self-
service. The super warehouse stores do not have certain specialty
departments such as pharmacies or full-service floral departments
and do not provide supermarket services such as grocery bagging,
carry-out service, check cashing services and electronic funds
transfer. Because of reduced display, labor and advertising costs
and the more limited services, the Company is able to operate its
super warehouse stores successfully with lower gross margins than
the Kash n' Karry supermarket stores. The super warehouse stores
operate 24 hours a day, seven days a week.
Liquor stores
Each of the Company's 35 liquor stores is located on proper
ty adjacent to one of the Company's supermarket stores and is
operated as a department of such store, although, in accordance
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with Florida law, each liquor store must maintain a separate
entrance. Liquor stores complement the Company's core business,
as they can be advertised through existing media without incre
mental expense, pay supermarket (as compared to shopping center)
rents and benefit from operating and marketing synergies with the
adjacent supermarkets. The liquor stores offer a wide variety of
wines, beers and hard liquors, as well as mixers, soft drinks,
snacks, ice and other party accessories and a limited number of
traditional grocery items. Sales from the Company's liquor stores
represent approximately 2% of the Company's total sales. The
Company's liquor stores range in size from 1,800 to 2,700 square
feet, and most are open seven days a week.
Operations Strategy
The Company believes that up-to-date, strategically located
facilities, well-trained associates and information management
systems are key elements to the Company's future success. The
Company operates a modern, 687,000 square foot warehouse,
distribution and office facility in Tampa with sufficient
capacity to service anticipated store expansion for the
foreseeable future. The warehouse enables the Company to reduce
costs by purchasing in large quantities, taking advantage of
special promotional prices offered by vendors and purchasing
prior to impending price increases, and reducing delivery costs
through cross docking and backhauls. The central location of the
warehouse facility to its stores also provides the Company with
operating efficiencies.
During fiscal 1996, the Company began supplying grocery
products through its warehouse to Gooding's Supermarkets of
Orlando, Florida. However, the Company did not achieve the
expected benefits of this supply relationship and has agreed in
principle with Gooding's to terminate the agreement.
The Company relies on information technology to enhance
operating efficiency. In 1995, the Company entered into an
agreement to outsource its information systems development in
order to control costs, accelerate the implementation period for
systems improvements, facilitate future software upgrades and
reduce personnel issues. In connection with this agreement, a new
billing and procurement system has been installed, new point-of-
sale equipment has been placed in all stores, and upgraded labor
scheduling and accounts payable systems are scheduled within the
next 12 months.
Marketing Strategy
The Company emphasizes high quality perishables, strong
weekly features, competitive prices on everyday items, and a
broad assortment of both national and corporate brands. The
Company's food stores are open seven days a week, with most
operating 24 hours a day. The Company seeks to be either first or
second among its competitors in assortment of branded
merchandise, stocking
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over 29,000 SKU's (stock keeping units) of national brand and
corporate brand items. In addition to a full range of grocery and
general merchandise items, most of the Company's multi-department
supermarkets also feature expanded perishable goods departments,
delicatessens and in-store bakeries, and many contain pharmacies,
full-service seafood and full-service floral departments.
In 1992, the Company introduced "Kash n' Karry" corporate
branded merchandise. The Company's basic corporate brand strategy
is to offer a product comparable in quality to the best-selling
national brand at a lower price. The "Kash n' Karry" brand item
generally sells for approximately 10% less than the competing
best-selling national brand but generates a higher per unit gross
profit contribution. In order to increase corporate brand sales,
which currently average approximately 15% of total sales,
the Company will be introducing "KnK Preferred," a premium line
of products in categories experiencing customer demand for
premium products.
In 1995, the Company developed a strategy to position itself
as the preferred destination for perishables of uncompromising
quality and value. This strategy, which focuses on the consumer's
changing lifestyles and needs, will also provide meal solutions
where consumers can find ingredients for meals to be prepared at
home, as well as prepared meals for immediate consumption. During
the fourth quarter of 1995, the Company began a new marketing
program to emphasize its perishable products. The first wave of
advertising focuses on Kash n' Karry as "Your Destination for
Fresh," highlighted by a "Double Your Money Back" guaranty on
produce. Additionally, the Company began remodeling its stores to
emphasize the perishable departments, including improved
lighting, additional space and a new decor package that supports
the perishable emphasis. The second wave of advertising, which
began in the fourth quarter of 1996, highlights the meat and
seafood departments, and will be followed in the near future by
campaigns focusing on the other perishable departments.
The Restructuring
The Company was formed in connection with a leveraged
acquisition in 1988. Although the Company consistently generated
stable operating cash flows through its 1993 fiscal year, it
experienced net losses for each of the five fiscal years ending
July 31, 1994 due primarily to its highly leveraged position.
During the 1995 fiscal year, the Company completed a comprehensive
financial restructuring (the "Restructuring") pursuant to a
"prepackaged" plan of reorganization pursuant to Chapter 11 of the
U.S. Bankruptcy Code. As a result of the Restructuring, the
Company restructured its senior debt, converted its subordinated
debt into an 85% equity interest in the Company, and received
$10.0 million in cash from Green Equity Investors, L.P. for the
remaining 15% equity interest of the Company. The Company emerged
from bankruptcy on December 29, 1994. The provisions of the
4
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Restructuring had an immediate beneficial impact on the Company's
financial condition by reducing its long-term debt in excess of
$100.0 million.
Competition
The food retailing business is highly competitive. The
Company operates in an environment where more than 90% of sales
are by chains. The principal competitive factors include store
locations, product selection and quality, price, cleanliness of
stores, customer service and overall store image. Based on its
marketing research, the Company believes that consumers perceive
the Company as having a favorable value image in the markets that
it serves and offering a wide variety of quality products and
services in a pleasant environment. The Company believes that its
competitive strengths include desirable store locations combined
with a strong consumer franchise and efficient warehousing and
distribution facilities.
The Company competes with several national, regional and
local supermarket chains, particularly Publix, Winn-Dixie,
Albertson's, Food Lion, and, most recently, Wal-Mart
Supercenters. The Company is also in competition with convenience
stores, stores owned and operated or otherwise affiliated with
large food wholesalers, unaffiliated independent food stores,
merchandise clubs, discount drugstore chains and discount general
merchandise chains. The Company's principal competitors have
greater financial resources than the Company and could use those
resources to take steps which could adversely affect the
Company's competitive position and financial performance. For
example, operating results generally and sales growth in
particular have been adversely affected by competitive new store
openings and remodels, expansions, and replacement stores by the
Company's principal competitors, and it is anticipated that this
activity will continue. Another example of the highly competitive
nature of the food retailing business is the practice of
competitors to re-position their pricing structure. Over the past
several years, each of the Company's major competitors has
changed its pricing practices in a manner that has adversely
affected general retail pricing in the market. The Company has
had to deal with each of these changes in a manner that has, in
some instances, adversely affected its operating results and may
continue to do so in the future. In addition, the Company's
ability to compete may be adversely affected by its high leverage
and the limitations imposed by its credit agreement and other
debt agreements.
Seasonality
The Company's sales and related inventory levels tend to
increase during the winter months due to the holidays, increased
tourism and the influx of winter residents, and to decrease during
the summer months. Typically, approximately 60% of the Company's
5
<PAGE>
operating cash flow is generated during the second and third
quarters of its fiscal year.
Employees
The Company currently employs approximately 3,300 full-time
and 5,500 part-time associates, none of whom is covered by a
collective bargaining agreement. The Company believes that it has
good relations with its associates.
Trademarks and Licenses
The Company employs various trademarks, trade names and
service marks in its business, including the "Kash n' Karry" logo
and trade name, "Your Destination for Fresh," "So Much More to
Pay Less For!," "Kash $aver," "$mart Buy," "Five Star Meat,"
"Nature Friendly" and "Save 'n Pack." Except as a means of
identifying the source of the Company's products and services,
the Company does not believe that any of such trademarks or
service marks are material to the operations of the Company.
Certain governmental licenses and permits, including alco
holic beverage licenses, health permits and various business
licenses, are necessary in the Company's operations. The Company
believes it has all material licenses and permits necessary to
enable it to conduct its business.
ITEM 2. PROPERTIES.
The Company's 93 multi-department supermarkets and five
conventional supermarkets have an aggregate selling area of
approximately 2.8 million square feet. The Company owns one of
the supermarkets (comprising approximately 14,000 square feet)
and leases the remaining 97 supermarkets. Three of the leased
supermarkets are owned by affiliates of the Company. Eight of the
leased supermarkets are operated under long-term ground leases
with the Company owning the improvements at such locations.
Twenty leases expire during the next five years, with the Company
having options to renew all but one. Most of the Company's
supermarket leases have minimum rentals with additional rentals
based on a percentage of sales.
The Company's two Save 'n Pack super warehouse stores have
an aggregate selling area of approximately 119,000 square feet.
The Company leases both super warehouses, one pursuant to a long-
term ground lease, and owns the improvements at the ground-leased
location. One of those leases expires within the next five years,
with the Company having an option to renew.
The Company's 35 liquor stores have an aggregate selling area
of approximately 59,000 square feet. The Company leases all 35
liquor stores. Two of the leased liquor stores are operated under
long-term ground leases with the Company owning the improvements
6
<PAGE>
at such locations. Two of the leases expire during the next five
years, with the Company having an option to renew.
The Company's warehouse, distribution and office facility is
located on 53.6 acres of land, which the Company owns.
ITEM 3. LEGAL PROCEEDINGS.
The Company is engaged in various legal actions and claims
arising in the ordinary course of business including products
liability actions and suits charging violations of certain civil
rights laws and Florida's RICO Act. Management believes, after
discussions with legal counsel, that the ultimate outcome of such
litigation and claims will not have a material adverse effect on
the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security
holders during the quarter ended July 28, 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is certain information regarding each of the
executive officers of the Company as of October 11, 1996.
Name Age Position
- -------------------- --- ----------------------------------
Ronald E. Johnson 46 Chairman of the Board, President,
Chief Executive Officer, and Chief
Operating Officer
Richard D. Coleman 42 Senior Vice President, Chief
Financial Officer, and Secretary
Clifford C. Smith Jr. 37 Senior Vice President,
Marketing and Merchandising
BJ Mehaffey 47 Senior Vice President, Operations
Marvin H. Snow, Jr. 40 Vice President, Controller
7
<PAGE>
Biographical Information
Ronald E. Johnson has been Chairman of the Board of the
Company since March 1995 and has been its President and Chief
Executive Officer since January 1995. Mr. Johnson served as Chief
Operating Officer of Farm Fresh, Inc., from December 1993 to
January 1995 and as its Senior Vice President of Store Operations
from 1990 to 1993. Mr. Johnson also serves as a director of Farm
Fresh, Inc., and Jitney-Jungle Stores of America, Inc.
Richard D. Coleman has been Senior Vice President, Chief
Financial Officer, and Secretary of the Company since January
1996. Mr. Coleman previously served as Vice President and
Controller of the Company from October 1988 through January 1996;
and from October 1988 to January 1995, he also served as
Secretary of the Company.
Clifford C. Smith, Jr., has been Senior Vice President of
Marketing and Merchandising of the Company since March 1996, and
served as Senior Vice President of Perishables Marketing from
March 1995 to March 1996. Mr. Smith served as the Director of
Deli, Bakery and Food Service for Harris-Teeter from 1992 to
March 1995, and as the Vice President of Deli, Bakery and Food
Service for Mayfair Supermarkets, Inc. from 1981 to 1992.
BJ Mehaffey has been Senior Vice President, Operations, of
the Company since July 1995. Mr. Mehaffey served as District
Manager of the Grocery Stores Division of Farm Fresh, Inc. from
1992 to 1995, and in various capacities with Bi-Lo Incorporated
from 1972 to 1992.
Marvin H. Snow, Jr., has been Vice President and Controller
of the Company since March 1996. Mr. Snow was employed by Eckerd
Corporation in various capacities from 1977 to March 1996, most
recently serving as Assistant Controller.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
On March 2, 1995 the Common Stock was listed for trading on
the Nasdaq Small Cap Market under the symbol "KASH." On March 4,
1996, the Common Stock began trading on the Nasdaq National
Market under the same symbol. For the relevant periods in which
the Common Stock was listed for trading by Nasdaq, the range of
high and low bids for a single share of Common Stock, as quoted
in the Nasdaq Market, was as follows:
8
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Quarter
(or portion thereof) Range
-------------------- --------------
3/5/95-4/30/95 $12.17-$13.33
5/1/95-7/30/95 $12.75-$23.50
7/31/95-10/29/95 $21.50-$29.50
10/30/95-1/28/96 $21.50-$26.88
1/29/96-4/28/96 $19.63-$25.63
4/29/96-7/28/96 $21.63-$29.75
7/29/96-10/11/96 $20.00-$28.63
The average of the low bid and high ask prices on October
11, 1996 as quoted on the Nasdaq National Market was $21.00. Such
over-the-market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.
As of October 11, 1996, there were approximately 22 holders
of record of shares of Common Stock.
The Company has not in the past paid cash dividends to its
stockholders and does not intend to pay any cash dividends in the
foreseeable future. The Company's ability to declare cash
dividends on its Common Stock is materially limited by
restrictions in the Company's credit agreement and debt
indentures.
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ITEM 6. SELECTED FINANCIAL DATA.
The following table presents selected financial information
of the Company as of and for each of the fiscal years ended on
the Sunday nearest to July 31, 1996, 1995, 1994, 1993, and 1992,
and is derived from the audited financial statements of the
Company. Such financial statements, and the reports thereon, for
the 1996, 1995 and 1994 fiscal years are included elsewhere in
this document, and should be read in conjunction with this
selected financial data and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
As discussed herein, the Restructuring was consummated on
December 29, 1994 (the "Effective Date"). The financial
statements as of and for the 30 weeks ended July 30, 1995 and for
the 22 weeks ended January 1, 1995, respectively, reflect the
Company's emergence from Chapter 11 and were prepared utilizing
the principles of fresh start reporting contained in the American
Institute of Certified Public Accountants' Statement of Position
90-7, "Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code." Operations during the period from the
Effective Date through January 1, 1995 had no significant impact
on the emergence transactions and as a result have not been
separately identified. As a result of the implementation of fresh
start accounting, certain of the selected financial data as of
and for the fiscal year ended July 28, 1996, the 30 weeks ended
July 30, 1995 and the 22 weeks ended January 1, 1995 is not
comparable to the selected financial data of prior periods due to
the change in reporting entity resulting from the application of
fresh start accounting. Therefore, selected financial data for
the "Reorganized Company" has been separately identified from
that of the "Predecessor Company."
The selected store data have been derived from the Company's
management reporting records.
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<TABLE>
<CAPTION>
Reorganized Predecessor
Company Company
---------------------- ---------
52 weeks 30 Weeks 22 Weeks
Ended Ended Ended
July 28, July 30, January 1,
1996 1995 1995
--------- --------- ---------
(In Thousands, Except
Per Share Amounts)
<S> <C> <C> <C>
Statement of Operations Data:
Sales $1,021,667 $599,320 $426,681
Cost of sales 807,733 471,401 340,802
---------- --------- ---------
Gross profit 213,934 127,919 85,879
Selling, general and
administrative expenses 157,090 90,482 68,819
Depreciation and amortization 25,000 14,802 10,234
---------- --------- ---------
Operating income 31,844 22,635 6,826
Interest expense (1) 25,741 15,810 13,719
---------- --------- ---------
Income (loss) from operations before
reorganization items, income taxes,
extraordinary items and change in
accounting principle 6,103 6,825 (6,893)
Reorganization items -- -- (4,869)
Provision for income taxes (4,129) (3,682) --
Extraordinary item - gain on debt
discharge -- -- 70,166
Cumulative effect of change in
accounting principle - post-
retirement medical benefits -- -- (2,000)
---------- --------- ---------
Net income $ 1,974 $ 3,143 $56,404
========== ========= =========
Income per common share (2), (3) $0.41 $0.67 --
========== ========= =========
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Predecessor Company
----------------------------------
Fiscal Year Ended
Sunday Nearest July 31, (4)
----------------------------------
1994 1993 1992
--------- --------- ---------
(In Thousands)
Statement of Operations Data:
<S> <C> <C> <C>
Sales $1,065,165 $1,086,125 $1,071,038
Cost of sales 845,597 856,156 848,441
--------- --------- ---------
Gross profit 219,568 229,969 222,597
Selling, general and
administrative expenses 176,945 175,177 164,897
Depreciation and
amortization 24,112 23,455 20,132
Store closing and other
costs 11,016 -- --
--------- --------- ---------
Operating income 7,495 31,337 37,568
Interest expense (1) 45,390 43,257 44,869
--------- --------- ---------
Net loss $ (37,895) $ (11,920) $ (7,301)
========= ========= =========
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Reorganized
Company Predecessor Company
-------------------------------------------
Fiscal Year Ended Sunday Nearest July 31, (4)
--------------------------------------------
1996 1995 1994 1993 1992
-------- -------- ---------------- --------
(Dollar Amounts In Thousands)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Total assets $368,625 $373,572 $389,893 $423,208 $399,419
Inventories 90,332 86,840 76,094 95,385 91,226
Property and equipment, net 132,016 139,967 160,491 164,937 145,372
Working capital (deficit) 31,064 13,164 (12,747) 19,137 26,031
Total long-term debt and
capital leases (including
current maturities) (5) 220,971 223,694 360,121 351,890 316,220
Preferred stock -- -- 4,650 4,650 4,650
Total stockholders' equity
(deficit) 51,856 49,638 (61,054) (23,159) (11,239)
Other Data:
Operating cash flow (adjusted
EBITDA) (6) $56,844 $54,497 $42,623 $54,792 $57,700
Capital expenditures (7) 35,810 6,247 15,471 37,703 15,385
Store Data:
Food stores open at end of
period (8) 100 99 100 115 111
Avg. selling sq. ft. during
period (in thousands) (9) 2,925 2,913 3,084 3,100 2,970
Avg. sales per store week(10) $197 $199 $196 $183 $181
</TABLE>
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Notes to Selected Financial Information
(Dollar Amounts in Thousands)
(1) Includes amortization of deferred financing costs of $1,346,
$809 and $1,152 for the 52 weeks ended July 28, 1996, the 30
weeks ended July 30, 1995 and the 22 weeks ended January 1,
1995, respectively, and $2,950, $2,850, and $2,932 for the
1994, 1993, and 1992 fiscal years, respectively.
(2) Based on 4,780,810 shares (the weighted average number of
shares of Common Stock outstanding) for the 1996 Fiscal Year
and 4,712,021 shares for the 30 weeks ended July 30, 1995.
(3) Net income per share of Common Stock is not meaningful prior
to January 1, 1995 due to the significant change in the
capital structure in connection with the Restructuring.
(4) The Company's fiscal year is based on a 52/53 week fiscal
year ending on the Sunday nearest to July 31. Therefore, the
1992 fiscal year included 53 weeks of operations. The 1996,
1995, 1994, and 1993 fiscal years each had 52 weeks of opera
tions.
(5) Total long-term debt includes long-term debt, current maturi
ties of long-term debt, capital lease obligations and
certain other debt.
(6) Represents earnings before interest expense (which includes
amortization of deferred financing costs), provision for
income taxes, depreciation and amortization, store closing
and other costs, reorganization items, extraordinary items,
and cumulative effect of change in accounting principle.
Operating cash flow (adjusted EBITDA) is presented here as a
measure of the Company's debt service ability, and should
not be construed as an alternative to operating income (as
determined in accordance with generally accepted accounting
principles) or to cash flows from operating activities (as
determined on the Statements of Cash Flows in the Company's
financial statements).
(7) Capital expenditures consist of cash expenditures, additions
to capital leases and, for the 1994, 1993 and 1992 fiscal
years, amounts funded under the capital improvements
revolving credit facility under the old credit agreement.
(8) Data relating to the number of stores is expressed in actual
numbers.
(9) Represents the average of the selling square footage of the
Company's stores on the first and last day of the respective
periods. Selling square footage includes adjacent liquor
stores where applicable but does not include backroom and
receiving areas.
(10) Represents, for each of the respective periods, sales for
such period divided by the sum of the number of weeks for
which each of the Company's stores was open during such
period.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
This analysis should be read in conjunction with the finan
cial statements and related notes thereto included elsewhere in
this document. The Company follows a 52/53 week fiscal year
ending on the Sunday nearest to July 31. Historical results of
operations are given for the Company's 52 week periods of
operations ended July 28, 1996, July 30, 1995 and July 31, 1994
(respectively, the "1996, 1995 and 1994 Fiscal Years"). The
financial statements as of and for the 30 weeks ended July 30,
1995 reflect the Company's emergence from Chapter 11 proceedings
on December 29, 1994 and were prepared utilizing the principles
of fresh start reporting contained in the American Institute of
Certified Public Accountants' Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" (the "SOP 90-7"). Certain forward-looking
analyses are presented here that involve risks and uncertainties.
Future events and the Company's actual results could differ
materially from anticipated results due to certain factors set
forth below and elsewhere in this document.
The Restructuring
During the 1995 Fiscal Year, the Company completed a
comprehensive financial restructuring pursuant to a "prepackaged"
plan of reorganization (the "Restructuring") pursuant to Chapter
11 of the U.S. Bankruptcy Code. The Company filed its prepackaged
plan with the U.S. Bankruptcy Court for the District of Delaware
(the "Bankruptcy Court") on November 9, 1994 (the "Petition
Date"). During the pendency of the bankruptcy case, the Company,
with the approval of the Bankruptcy Court, operated its business
in the ordinary course, and paid all pre-petition and post-
petition claims of its general unsecured creditors, trade
creditors and employees in full. The Restructuring was confirmed
by the Bankruptcy Court on December 12, 1994, and the Company
emerged from bankruptcy on December 29, 1994 (the "Effective
Date").
As a result of the Restructuring, the Company restructured
its senior debt, converted its subordinated debt into an 85%
equity interest in the Company, and received $10 million in cash
from Green Equity Investors, L.P. for the remaining 15% equity
interest of the Company.
Also pursuant to the Restructuring, the Company entered into
a new credit agreement with The CIT Group/Business Credit, Inc.,
as administrative agent for itself and certain other lenders (as
amended, the "Credit Agreement"). The Credit Agreement provides
the Company with a $59.9 million credit facility expiring
December 1998, and is secured by liens upon substantially all of
the Company's real and personal property.
15
<PAGE>
Results of Operations
The discussion below compares the results of operations for
the 1996, 1995 and 1994 Fiscal Years. Except as specifically
acknowledged below, management believes that the impact of the
Restructuring and the implementation of fresh start reporting did
not significantly affect the results of operations for the 1995
Fiscal Year, and that the combined operating results of the
individual 30-week period and 22-week period ended July 30, 1995
and January 1, 1995, respectively, are indicative of the results
of operations for the 52-week period ended July 30, 1995.
The following table sets forth certain items from the
Company's Statements of Operations as a percentage of sales for
the periods indicated:
1996 1995 1994
Fiscal Fiscal Fiscal
Year Year Year
-------- -------- --------
Sales 100.0% 100.0% 100.0%
Gross profit 20.9% 20.8% 20.6%
Selling, general and
administrative expenses 15.4% 15.5%
16.6%(1)
Depreciation and amortization 2.4% 2.4% 2.3%
Operating income 3.1% 2.9% 0.7%
Interest expense 2.5% 2.9% 4.3%
Income (loss) before income
taxes and "fresh start"
accounting adjustments 0.6% 0.0% (3.6)%
"Fresh start" accounting
adjustments, net -- 6.2% --
Provision for income taxes 0.4% 0.4% --
Net income (loss) 0.2% 5.8% (3.6)%
(1) Selling, general and administrative expenses for the 1994
Fiscal Year included expenses of $11,016, or 1.0% of sales,
applicable to store closing and other costs.
Sales
1996 1995 1994
Fiscal Fiscal Fiscal
Year Year Year
-------- -------- --------
Sales (in millions) $1,022 $1,026 $1,065
Number of stores:
Food stores opened 2 -- 2
Food stores closed 1 1 17
Expansion remodels -- -- 1
Total food stores at period end 100 99 100
Average selling square feet during
year (in thousands) 2,925 2,913 3,084
During the first two quarters of Fiscal Year 1996, the
Company invested in significant promotional activity to drive
16
<PAGE>
sales, resulting in strong positive same store sales but a
reduced gross profit rate. During the second half of the year,
reduced promotional activity, generally lower retail prices, and
an increase in new store and remodel activity of traditional as
well as non-traditional competitors resulted in lower sales than
in 1995. In addition, the Company's remodeled stores experienced
sales decreases during the remodeling period. Same store sales
for the 1996 Fiscal Year were (0.9)%.
The reduction in sales from the 1994 Fiscal Year to the 1995
Fiscal Year was primarily the result of operating fewer stores
and the impact of competitive activities discussed above.
Gross Profit
As discussed above, during the first half of Fiscal Year
1996, the Company was very aggressive in its promotional
activities, which resulted in lower gross profit, as a percentage
of sales, than was experienced in the first half of Fiscal Year
1995. During the last two quarters of 1996, the Company reduced
its margin investment in promotional activities and began a new
marketing campaign stressing its variety and quality of
perishables. Through this marketing emphasis, which is
particularly evident in the Company's new and remodeled stores,
the Company has been able to improve overall gross profit, as a
percentage of sales, from 1995 to 1996, and expects that this
trend will continue.
The improvements in gross profit, as a percentage of sales,
for the 1995 Fiscal Year were primarily due to restoring
investment in forward buy inventory, improved perishable margins,
and increased efficiencies in store-level product preparation and
handling costs. Partially offsetting these improvements was the
receipt of substantially less promotional funds due in part to
the credit restrictions placed on the Company by its vendors
during the period preceding the Company's emergence from
bankruptcy.
Selling, General and Administrative Expenses
Improvements in store labor, group and casualty insurance,
repairs and maintenance, and utilities were partially offset by
increased advertising, systems and floor care expenses, and lower
recycling income due to significantly lower cardboard prices.
Also, during the 1996 Fiscal Year, the Company completed a series
of sale-leaseback transactions which resulted in a significant
reduction in long-term debt but an increase in rent expense for
the year of approximately $2.0 million. In addition, the Company
incurred expenses of approximately $0.5 million in connection
with a terminated merger transaction in the fourth quarter.
17
<PAGE>
The reductions of selling, general and administrative
expenses for the 1995 Fiscal Year compared with the 1994 Fiscal
Year were due to lower store labor costs, reduced corporate
overhead expenses and lower advertising expenditures associated
with a comprehensive operational restructuring of the Company
initiated during the year, and the elimination of operating costs
associated with stores that were closed during the 1994 Fiscal
Year. These improvements were partially offset by an increase in
workers' compensation insurance reserves.
Depreciation and Amortization
The slight increase in depreciation and amortization over
the three year period is primarily due to increased amortization
of intangible assets and depreciation applicable to new stores
and remodels, partially offset by the sale of fee-owned store
properties during the 1996 Fiscal Year.
Store Closing and Other Costs
During the first quarter of the 1994 Fiscal Year, the
Company recorded a non-recurring charge of $11.0 million. This
charge included $1.9 million of costs associated with the
proposed public offering of debt securities and a proposed real
estate-based revolving credit facility, neither of which was
consummated, $4.2 million of favorable lease interests written
off in connection with the closing of 12 underperforming stores,
$4.0 million representing an adjustment to the expected lease
liability on closed stores, net of sublease income, and $0.9
million of other store closing and related expenses.
Interest Expense
1996 1995 1994
Fiscal Fiscal Fiscal
Year Year Year
------- ------- -------
(In Thousands)
Interest expense $25,112 $27,638 $42,917
Amortization of
deferred financing costs 1,346 1,961 2,950
Capitalized interest (717) (70) (477)
-------- -------- --------
Total interest expense $25,741 $29,529 $45,390
======== ======== ========
Interest expense for the 1994 Fiscal Year was primarily
comprised of interest under the old credit agreement, the old
Senior Floating Rate Notes, the old Senior Fixed Rate Notes, the
old Subordinated Debentures, and various mortgages and capital
leases. For the 1995 Fiscal Year, interest expense was incurred on
the old Senior Floating Rate Notes, the old Senior Fixed Rate
Notes, and the old Subordinated Debentures through the Petition
Date; and interest expense was incurred on the new Senior Floating
Rate Notes and the new Senior Fixed Rate Notes from the Effective
18
<PAGE>
Date through July 30, 1995. In accordance with the provisions of
the Restructuring, no interest was due to the holders of the old
Senior Floating Rate Notes, old Senior Fixed Rate Notes, or old
Subordinated Debentures for the period between the Petition Date
and the Effective Date, and therefore no interest expense was
recorded for this period. As provided in the Restructuring,
interest accrued from and including February 2, 1994, in the case
of the old Senior Fixed Rate Notes, and from and including
February 3, 1994, in the case of the old Senior Floating Rate
Notes, through the Petition Date, was paid by issuing additional
new Senior Floating Rate Notes and new Senior Fixed Rate Notes.
Interest on the old Subordinated Debentures accrued from and
including February 2, 1994 through the Petition Date was converted
into newly issued Common Stock.
Interest expense for the 1996 Fiscal Year was lower due to
the debt restructuring discussed above, the lower mortgage debt
due to the sale-leaseback transactions completed during the year,
an increase in capitalized interest, and lower interest on
capitalized leases.
Reorganization Costs
In accordance with SOP 90-7, income and costs directly
related to the reorganization have been segregated and are
separately disclosed. The major components consist of adjustments
to fair value, provision for store closing costs, provision for
severance benefits, provision for other restructuring activities,
and professional fees.
Gain on Debt Discharge
The gain on debt discharge reflects the conversion of $105.0
million of old Subordinated Debentures, plus accrued interest
from and including February 2, 1994 through the Petition Date,
into $39.5 million of stockholders' equity, resulting in a $70.2
million gain. The gain is presented net of write-offs and costs
associated with the debt discharged.
Financial Condition
The Company's existing Credit Agreement provides for a term
loan facility of $9.9 million and a revolving credit facility of
$50.0 million for working capital requirements and letters of
credit. As of October 11, 1996 the Company had borrowed $9.9
million under the term loan and $24.1 million under the working
capital line and had $7.6 million of letters of credit issued
against the revolving credit facility.
In August 1995, the Company completed a sale-leaseback of
three of its fee-owned store properties and applied the net
proceeds of $9.1 million to the outstanding balance of the term
loan. In December, the Company amended its Credit Agreement with
The CIT Group/Business Credit, Inc., to effectively increase the
19
<PAGE>
credit facility by $5.0 million, to provide more favorable terms
and to extend the term of the agreement through December 1998. In
January 1996, the Company completed a sale-leaseback of four fee-
owned store properties, sold its beneficial interest in three
real estate trusts to a third party and applied the aggregate net
proceeds of $12.7 million to repay a mortgage encumbering eight
store properties. In March, the Company completed a sale-
leaseback of three additional fee-owned store properties, and in
July and August, the Company completed additional sale-leaseback
transactions with respect to a store facility that had been
operated as a ground lease and a fee-owned store property. Those
transactions provided the Company with net proceeds of $6.7
million.
The Company is still actively marketing its beneficial
interest in three real estate trusts to a third party, and
pursuing transactions on its one remaining fee-owned store
property, the sale of three unimproved real estate sites, and the
sale-leaseback of a store facility that is operating as a ground
lease, the total of which could provide up to an additional $8.3
million of net cash proceeds. In addition, the Company exercised
its option of paying interest in kind on its Senior Floating Rate
Notes in August and on its Senior Fixed Rate Notes in August and
February.
As a result of the Restructuring, the completion of the
transactions discussed above, and increased cash flow from
operations, the Company has improved its liquidity and continued
to decrease its leverage, as indicated below:
July 28, July 30,
1996 1995
--------- ---------
(Dollar Amounts in Thousands)
Current portion of long-term debt $ 5,507 $ 5,563
Total long-term debt 220,971 223,694
Operating cash flow (adjusted
EBITDA) (1) 56,844 54,497
Total interest expense 25,741 29,529
Capital expenditures 35,810 6,247
Long-term debt/operating cash flow 3.89 4.25(2)
Operating cash flow/ total
interest expense 2.21 1.85
(1) Represents twelve month trailing earnings before interest
expense (which includes amortization of deferred financing
costs), provision for income taxes, depreciation and
amortization, store closing and other costs, reorganization
items, extraordinary items, and cumulative effect of change
in accounting principle. Operating cash flow (adjusted
EBITDA) is presented here as a measure of the Company's debt
service ability and should not be construed as an alternative
20
<PAGE>
to operating income (as determined in accordance with
generally accepted accounting principles) or to cash flows
from operating activities (as determined on the Statements
of Cash Flows in the Company's financial statements).
(2) Assumes long-term debt is increased by the payment-in-kind
interest accrued as of July 30, 1995.
In 1995, the Company began a comprehensive remodeling
program to upgrade and expand, where necessary, its store
facilities to support its emphasis on quality perishables. Total
capital expenditures for the Company were $35.8 million in 1996,
of which approximately $21.0 million was spent on new stores and
remodels. For 1997, the Company expects total capital
expenditures of approximately $30.0 million, of which
approximately $22.0 million will be spent on two new stores, one
replacement store, four expansion remodels and four additional
major remodels.
Based upon the Company's ability to generate working capital
through its operations and its $50.0 million revolving credit
facility, the Company believes that it has the financial
resources necessary to pay its capital obligations and implement
its business plan.
Effects of Inflation
The Company's primary costs, inventory and labor, are
affected by a number of factors that are beyond its control,
including availability and price of merchandise, the competitive
climate and general and regional economic conditions. As is
typical of the supermarket industry, the Company has generally
been able to maintain margins by adjusting its retail prices, but
competitive conditions may from time to time render it unable to
do so while maintaining its market share.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data for the
Company begin on page 22.
21
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND]
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Kash n' Karry Food Stores, Inc.:
We have audited the accompanying balance sheets of Kash n' Karry
Food Stores, Inc. (the Company) as of July 28, 1996 and July 30,
1995 and the related statements of operations, stockholders'
equity and cash flows for the year ended July 28, 1996, the
thirty weeks ended July 30, 1995 and the twenty-two weeks ended
January 1, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Kash n' Karry Food Stores, Inc. as of July 28, 1996 and July
30, 1995, and the results of its operations and its cash flows
for the year ended July 28, 1996, the thirty weeks ended July
30, 1995 and the twenty-two weeks ended January 1, 1995, in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the
Bankruptcy Court confirmed the Company's prepackaged Plan of
Reorganization dated December 12, 1994, and the Company emerged
from bankruptcy on December 29, 1994. On January 1, 1995 the
Company accounted for the reorganization and adopted "fresh start
accounting." As a result, the Company's July 28, 1996 and July
30, 1995 balance sheets are not comparable to the July 31, 1994
balance sheet, since it presents the financial position of the
reorganized entity.
As discussed in Note 12 to the financial
statements, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits other
than Pensions," as of January 1, 1995.
/s/ Coopers & Lybrand, L.L.P.
- ---------------------------------
Tampa, Florida
September 17, 1996
22
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Kash n' Karry Food Stores, Inc.:
We have audited the accompanying balance sheet of Kash n' Karry
Food Stores, Inc. as of July 31, 1994 and the related statements
of operations, stockholders' deficit, and cash flows for the
fifty-two weeks ended July 31, 1994 and August 1, 1993. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Kash n' Karry Food Stores, Inc. at July 31, 1994, and the
results of its operations and its cash flows for the fifty-two
weeks ended July 31, 1994 and August 1, 1993, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that Kash n' Karry Food Stores, Inc. will continue as a going
concern. However, Kash n' Karry Food Stores, Inc. has suffered
recurring losses from operations and has a net capital
deficiency. As discussed in Note 1 to the financial statements,
Kash n' Karry Food Stores, Inc. filed a pre-packaged petition
under Chapter 11 of the United States Bankruptcy Code on November
9, 1994. These matters raise substantial doubt about its ability
to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.
/s/ KPMG Peat Marwick LLP
- --------------------------------
Tampa, Florida
September 16, 1994, except with respect to
Note 1, which is as of November 9, 1994
23
<PAGE>
<TABLE>
<CAPTION>
KASH N' KARRY FOOD STORES, INC.
BALANCE SHEETS
(Dollar Amounts in Thousands, Except Per Share Amounts)
ASSETS
July 28, July 30,
1996 1995
--------- --------
(Note 1)
<S>
Current assets: <C> <C>
Cash and cash equivalents $ 6,778 $ 4,803
Accounts receivable 12,239 6,504
Inventories 90,332 86,840
Prepaid expenses and other current assets 7,071 4,310
-------- --------
Total current assets 116,420 102,457
Property and equipment, at cost, less
accumulated depreciation 132,016 139,967
Favorable lease interests, less accumulated
amortization of $3,149 and $1,152 26,805 28,802
Deferred financing costs, less accumulated
amortization of $2,155 and $809 4,509 3,684
Excess reorganization value, less accumulated
amortization of $16,006 and $6,627 85,313 94,692
Deferred tax asset 1,200 1,200
Other assets 2,362 2,770
-------- --------
Total assets $368,625 $373,572
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S>
Current liabilities: <C> <C>
Current portion of long-term debt $ 5,507 $ 5,563
Accounts payable 43,440 39,231
Accrued expenses 36,409 44,499
--------- ---------
Total current liabilities 85,356 89,293
Long-term debt, less current obligations 215,464 218,131
Other long-term liabilities 15,949 16,510
Stockholders' equity:
Preferred Stock of $.01 par value.
Authorized 1,000,000 shares;
no shares outstanding. -- --
Common Stock of $.01 par value.
Authorized 5,500,000 shares; 4,674,314
and 4,649,943 shares outstanding. 46 46
Capital in excess of par value 46,693 46,449
Retained earnings 5,117 3,143
--------- ---------
Total stockholders' equity 51,856 49,638
--------- ---------
Total liabilities & stockholders' equity $368,625 $373,572
========= =========
</TABLE>
See accompanying notes to financial statements.
24
<PAGE>
<TABLE>
<CAPTION>
KASH N' KARRY FOOD STORES, INC.
STATEMENTS OF OPERATIONS
(Dollar Amounts in Thousands, Except Per Share Amounts)
Reorganized Predecessor
Company Company
-------------------- --------------------
52 Weeks 30 Weeks 22 Weeks 52 Weeks
Ended Ended Ended Ended
July 28, July 30, January 1, July 31,
1996 1995 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $1,021,667 $599,320 $426,681 $1,065,165
Cost of sales 807,733 471,401 340,802 845,597
----------- --------- --------- -----------
Gross profit 213,934 127,919 85,879 219,568
Selling, general and
administrative expenses 157,090 90,482 68,819 176,945
Depreciation and amortization 25,000 14,802 10,234 24,112
Store closing and other costs -- -- -- 11,016
----------- --------- --------- -----------
Operating income 31,844 22,635 6,826 7,495
Interest expense 25,741 15,810 13,719 45,390
Income (loss) before ----------- --------- --------- -----------
reorganization items,
income taxes, extra-
ordinary item, and change
in accounting principle 6,103 6,825 (6,893) (37,895)
Reorganization items -- -- (4,869) --
Income (loss) before ----------- --------- --------- -----------
income taxes, extraordinary
item and change in
accounting principle 6,103 6,825 (11,762) (37,895)
Provision for income taxes (4,129) (3,682) -- --
Income (loss) before ----------- --------- --------- -----------
extraordinary item and change
in accounting principle 1,974 3,143 (11,762) (37,895)
Extraordinary item- gain
on debt discharge -- -- 70,166 --
Cumulative effect of change in
accounting principle - post-
retirement medical benefits -- -- (2,000) --
----------- --------- --------- -----------
Net income (loss) $ 1,974 $ 3,143 $ 56,404 $ (37,895)
=========== ========= ========= ===========
Net income per common
share (A)(B) $ 0.41 $ 0.67
========== =========
</TABLE>
(A) Based on a weighted average number of shares of common stock
outstanding of 4,780,810 and 4,712,021 for the 52 weeks ended July 28,
1996 and the 30 weeks ended July 30, 1995, respectively.
(B) Net income per common share is not meaningful prior to January 1, 1995
due to the significant change in the capital structure in connection
with the Restructuring.
See accompanying notes to financial statements.
25
<PAGE>
<TABLE>
<CAPTION>
KASH N' KARRY FOOD STORES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
Fiscal Years Ended July 28, 1996,
July 30, 1995, and July 31, 1994
(Dollar Amounts In Thousands)
Capital
in Excess Retained
Common of Par Earnings Treasury
Stock Value (Deficit) Stock Total
----- ---------- ---------- ----- ----------
Predecessor Company:
<S> <C> <C> <C> <C> <C>
Balance at August 1, 1993 $ 28 $ 77,695 $(100,845) $(37) $(23,159)
(2,819,589 shares
outstanding)
Loss for period -- -- (37,895) -- (37,895)
----- --------- ---------- ----- ---------
Balance at July 31, 1994 28 77,695 (138,740) (37) (61,054)
(2,819,589 shares
outstanding)
Income for period -- -- 56,404 -- 56,404
Extinguishment of
preferred stock in
connection with
bankruptcy -- 4,650 -- -- 4,650
Extinguishment of
stockholders' equity
in connection with
bankruptcy (28) (82,345) 82,336 37 --
----- --------- ---------- ----- ---------
Balance at January 1, 1995 $ -- $ -- $ -- $ -- $ --
===== ========= ========== ===== =========
Reorganized Company:
Issuance of 4,649,943
shares of common stock $ 46 $ 46,449 $ -- $ -- $ 46,495
at reorganization value
Income for period -- -- 3,143 -- 3,143
----- --------- ---------- ----- ---------
Balance at July 30, 1995 46 46,449 3,143 -- 49,638
(4,649,943 shares
outstanding)
Issuance of 24,371
shares of common stock -- 244 -- -- 244
pursuant to stock option
exercise
Income for period -- -- 1,974 -- 1,974
----- --------- ---------- ----- ---------
Balance at July 28, 1996 $ 46 $ 46,693 $ 5,117 $ -- $ 51,856
(4,674,314 shares ====== ========= ========== ===== =========
outstanding)
</TABLE>
See accompanying notes to financial statements.
26
<PAGE>
<TABLE>
<CAPTION>
KASH N' KARRY FOOD STORES, INC.
STATEMENTS OF CASH FLOWS
(In Thousands)
Reorganized Predecessor
Company Company
------------------ ------------------
52 Weeks 30 Weeks 22 Weeks 52 Weeks
Ended Ended Ended Ended
July 28, July 30, January 1, July 31,
1996 1995 1995 1994
<S> -------- -------- -------- --------
Net cash flows from <C> <C> <C> <C>
operating activities:
Net income (loss) $ 1,974 $ 3,143 $56,404 $(37,895)
Adjustments to reconcile
net income (loss) to net
cash provided by
operating activities:
Depreciation and
amortization, excluding
deferred financing costs 25,000 14,802 10,234 24,112
Store closing and other costs -- -- -- 11,016
Amortization of deferred
financing costs 1,346 809 1,152 2,950
Provision for income taxes 4,129 3,682 -- --
Issuance of additional
senior notes in lieu
of cash interest 16,629 -- -- --
Reorganization items -- -- 4,869 --
Change in accounting
principle -- -- 2,000 --
Gain on debt discharge -- -- (70,166) --
(Increase) decrease in assets:
Accounts receivable (5,735) (743) 2,322 2,804
Inventories (3,492) 273 (5,917) 19,291
Prepaid expenses and
other assets (402) (1,241) (194) (278)
Increase (decrease) in
liabilities:
Accounts payable 4,209 2,522 1,800 (7,653)
Accrued expenses and
other liabilities (8,651) 5,359 9,083 (1,565)
-------- -------- -------- --------
Net cash provided by
operating activities 35,007 28,606 11,587 12,782
-------- -------- -------- --------
</TABLE>
See accompanying notes to financial statements.
27
<PAGE>
<TABLE>
<CAPTION>
KASH N' KARRY FOOD STORES, INC.
STATEMENTS OF CASH FLOWS
(CONTINUED)
(In Thousands)
Reorganized Predecessor
Company Company
------------------ -------------------
52 Weeks 30 Weeks 22 Weeks 52 Weeks
Ended Ended Ended Ended
July 28, July 30, January 1, July 31,
1996 1995 1995 1994
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Cash provided (used) by investing
activities:
Additions to property and
equipment (31,207) (5,582) (665) (10,942)
Sale of property and equipment 3,109 -- -- 504
-------- --------- --------- ---------
Net cash used by
investing activities (28,098) (5,582) (665) (10,438)
-------- -------- --------- ---------
Cash provided (used) by financing
activities:
Borrowings under credit
facility 26,592 9,992 50,800 17,700
Additions to obligations
under capital leases
and notes payable -- -- -- 701
Proceeds from sale-
leaseback transactions 26,147 -- -- --
Sale of common stock -- -- 10,000 --
Exercise of common
stock options 244 -- -- --
Repayments of credit
facility (34,079) (26,349) (60,928) (5,488)
Repayments of other long-
term liabilities (21,667) (2,588) (7,363) (9,212)
Financing costs (2,171) (265) (9,294) (1,338)
-------- --------- --------- ---------
Net cash provided
(used) by financing
activities (4,934) (19,210) (16,785) 2,363
-------- --------- --------- ---------
Net increase (decrease) in
cash and cash equivalents 1,975 3,814 (5,863) 4,707
Cash and cash equivalents at
beginning of period 4,803 989 6,852 2,145
-------- --------- --------- ---------
Cash and cash equivalents at
the end of period $ 6,778 $ 4,803 $ 989 $ 6,852
======== ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
28
<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts in Thousands, Except Per Share Amounts)
(1) Reorganization and Basis of Reporting.
During the 1995 fiscal year, the Company completed a
comprehensive financial restructuring pursuant to a "prepackaged"
plan of reorganization (the "Restructuring") pursuant to Chapter
11 of the U.S. Bankruptcy Code. The Company filed its prepackaged
plan with the U.S. Bankruptcy Court for the District of Delaware
(the "Bankruptcy Court") on November 9, 1994 (the "Petition
Date"). During the pendency of the bankruptcy case, the Company,
with the approval of the Bankruptcy Court, operated its business
in the ordinary course, and paid all pre-petition and post-
petition claims of its general unsecured creditors, trade
creditors and employees in full. The Restructuring was confirmed
by the Bankruptcy Court on December 12, 1994, and the Company
emerged from bankruptcy on December 29, 1994 (the "Effective
Date"). Pursuant to the provisions of the Restructuring, on the
Effective Date:
(i) Each $1 principal amount of the Company's old Senior
Floating Rate Notes was exchanged for (a) new Senior Floating
Rate Notes due February 1, 2003 (the "New Senior Floating Rate
Notes") in an original principal amount equal to $1 plus 100% of
the accrued interest under the old Senior Floating Rate Notes
from and including February 3, 1994, through but not including
the Petition Date, or, at such holder's election, (b) new 11.5%
Senior Fixed Rate Notes due February 1, 2003 (the "New Senior
Fixed Rate Notes") in the same original principal amount, or, at
such holder's election, (c) an amount of New Senior Floating Rate
Notes and an amount of New Senior Fixed Rate Notes equal, in the
aggregate, to 100% of such claim;
(ii) Each $1 principal amount of the Company's old Senior
Fixed Rate Notes was exchanged for (a) New Senior Floating Rate
Notes in an original principal amount equal to $1 plus 100% of
the accrued interest under the old Senior Fixed Rate Notes from
and including February 2, 1994, through but not including the
Petition Date, or, at such holder's election, (b) New Senior
Fixed Rate Notes in the same original principal amount, or, at
such holder's election, (c) an amount of New Senior Floating Rate
Notes and an amount of New Senior Fixed Rate Notes equal, in the
aggregate, to 100% of such claim;
(iii) the old Subordinated Debentures were exchanged for
newly-issued common stock of the Company representing 85 percent
of the common stock outstanding on the Effective Date;
(iv) Green Equity Investors, L.P. invested $10,000 cash in
exchange for newly-issued common stock of the Company
representing 15 percent of the common stock outstanding on the
Effective Date;
29
<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts in Thousands, Except Per Share Amounts)
(v) the Company entered into a new credit agreement with The
CIT Group/Business Credit, Inc. as Administrative Agent, and the
lenders under its old bank credit agreement; and
(vi) all of the existing preferred stock, common stock, and
options and warrants to purchase common stock of the Company was
extinguished.
The financial statements as of and for the period ended July
30, 1995 reflect the Company's emergence from Chapter 11 and were
prepared according to the principles of fresh start reporting
contained in American Institute of Certified Public Accountants'
Statement of Position 90-7 "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" (the "SOP 90-7").
Operations during the period from the Effective Date through
January 1, 1995 had no significant impact on the emergence
transactions and as a result have not been separately identified.
As a result of the implementation of fresh start reporting, the
Company's financial statements as of and for the period ended
July 30, 1995 are not comparable to the Company's financial
statements of prior periods. Therefore, financial statements for
the "Reorganized Company" have been separately identified from
those of the "Predecessor Company."
The total reorganization value assigned to the Company's
assets was estimated based on a ten-year projection of cash flow
before debt service requirements discounted back to present value
using a discount rate of 13.3% (representing the estimated
weighted cost of capital), as well as by analyzing market cash
flow multiples and applying a cash flow multiple of six to the
Company's adjusted 12-month trailing cash flows. After extensive
negotiations between independent investment banking firms
representing the Company and an ad hoc committee of bondholders,
the reorganization value was agreed to by the parties and
confirmed by the Bankruptcy Court. The excess of the
reorganization value over the value of the identifiable assets is
reported as "Excess Reorganization Value" and is being amortized
over twenty years. Under the principles of fresh start
accounting, the Company's total assets were recorded at this
assumed reorganization value, with the reorganization value
allocated to identifiable tangible and intangible assets on the
basis of their estimated fair value. In addition, the Company's
accumulated deficit was eliminated.
The effect of the Restructuring and the implementation of
fresh start accounting on the Company's balance sheet as of
January 1, 1995 was as follows:
30
<PAGE>
<TABLE>
<CAPTION>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts in Thousands, Except Per Share Amounts)
Pre-Fresh
Start Fresh
Balance Adjustments Start
Sheet of Fair Value Balance
January 1, Restruct- Adjustment January 1,
1995 uring(A) (B) 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 9,166 $ (8,177) $ -- $ 989
Accounts receivable 5,762 -- -- 5,762
Inventories 82,011 -- 5,104 87,115
Prepaid expenses and other
current assets 3,088 -- -- 3,088
-------- --------- --------- ----------
Total current assets 100,027 (8,177) 5,104 96,954
Property and equipment, net 162,754 -- (17,775) 144,979
Favorable lease interests, net 11,673 -- 18,280 29,953
Deferred financing costs 17,769 (7,456) (6,088) 4,225
Reorganization value in excess
of amounts allocable to
identifiable assets -- -- 102,519 102,519
Excess of cost over net
assets acquired 95,560 -- (95,560) --
Other assets 4,360 -- (1,498) 2,862
-------- --------- --------- ---------
Total assets $392,143 $(15,633) $ 4,982 $381,492
======== ========= ========= =========
Current liabilities, excluding
current portion of long-
term debt $ 82,983 $(12,617) $ 6,779 $ 77,145
Long-term debt, including
current obligations 366,231 (119,486) (3,959) 242,786
Other long-term liabilities 6,226 -- 8,840 15,066
Redeemable preferred stock 4,650 (4,650) -- --
Common stock 28 18 -- 46
Treasury stock (37) 37 -- --
Capital in excess of par value 77,695 (31,246) -- 46,449
Accumulated deficit (145,633) 152,311 (6,678) --
Total liabilities and -------- --------- --------- ---------
stockholders' equity $392,143 $(15,633) $ 4,982 $381,492
======== ========= ========= =========
</TABLE>
(A) To record the transactions applicable to the Restructuring as outlined
in footnote 1 and eliminate the deficit in accumulated deficit.
(B) To record the adjustments to state assets and liabilities at fair
value, and to record the cumulative effect of $2,000 of adopting SFAS
No. 106 as of the Effective Date in accordance with SOP 90-7.
31
<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts in Thousands, Except Per Share Amounts)
(2) Summary of Significant Accounting Policies.
Fiscal Year End. The Company follows a 52/53 week fiscal
year ending on the Sunday nearest July 31.
Inventories. Inventories consist of merchandise held for
resale and are stated at the lower of cost or market; cost is
determined using average cost, which approximates the first-in,
first-out (FIFO) method. In connection with the Restructuring,
the Company capitalized $5,466 of costs into inventory as a fair
value adjustment in its fresh start balance sheet at January 1,
1995. Selling, general and administrative costs capitalized into
ending inventory were $5,754 and $5,466 for the fiscal years
ended July 28, 1996 and July 30, 1995, respectively.
Prepaid Expenses and Other Current Assets. Other current
assets at July 28, 1996 include an equity interest in three Delaware
business trusts that the Company expects to sell within one year.
The realizable value of these assets, net of mortgage debt outstanding
of approximately $3,400, was $2,300 at July 28, 1996.
Depreciation, Amortization, and Maintenance and Repairs.
Depreciation is provided principally using the composite method
based on the estimated useful lives of the respective asset
groups. Amortization of leasehold improvements is based on the
estimated useful lives or the remaining lease terms, whichever is
shorter. Property under capital leases consists of buildings and
fixtures and equipment. Interest costs of property under
development are capitalized during the development period.
Capitalized amounts were $717, $70, and $477 for the fiscal years
ended July 28, 1996, July 30, 1995, and July 31, 1994,
respectively. The approximate annual rates used to compute
depreciation and amortization are:
Reorganized Predecessor
Company Company
----------- -----------
Buildings and improvements 3% 5%
Fixtures and equipment 10% 10%
Transportation equipment 12% 25%
Leasehold improvements 7% 8%
Maintenance and repairs are charged to expense as incurred. The
Company capitalizes expenditures for renewals and betterments.
Favorable Lease Interests. Prior to January 1, 1995,
favorable lease interests represented the present value of the
excess of current market rental rates over rents that existed
under the Company's operating leases of store locations as of
October 12, 1988. Such costs were being amortized on the
straight-line method over the average life of the favorable
leases. On January 1, 1995, the Company's favorable lease
32
<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts in Thousands, Except Per Share Amounts)
interests were adjusted to reflect the present value of the
excess of current market rental rates over rents that existed
under the operating leases of store properties at that date.
Favorable lease interests are amortized on the straight-line
method over the average life of the favorable leases, which is
approximately twenty years.
Deferred Financing Costs. Deferred financing costs represent
fees and expenses related to various financing activities and are
amortized on a straight-line basis over the life of the related
debt and classified as interest expense.
Excess Reorganization Value. As discussed in footnote 1,
under the principles of fresh start reporting, the Company
allocated total reorganization value to identifiable tangible and
intangible assets on the basis of their estimated fair values.
The remaining amount is classified as excess reorganization value
and is being amortized over twenty years.
Advertising Costs. Advertising costs are expensed as
incurred.
Costs of Opening and Closing Stores. Preopening costs of new
stores are charged to expense in the year the store opens. These
costs are primarily labor to stock the store, preopening
advertising, store supplies and other expendable items. When
operations are discontinued and a store is closed, the remaining
investment, net of realizable value, is charged against earnings,
and, for leased stores, a provision is made for the remaining
lease liability, net of expected sublease income.
Store Closing and Other Costs. During the first quarter of
fiscal 1994 the Company recorded a non-recurring charge of
$11,016. This charge included $1,900 of costs associated with
unsuccessful financing activities, $4,159 of favorable lease
interests written off in connection with the closing of twelve
underperforming stores, $4,000 representing an adjustment to the
expected lease liability on closed stores, net of sublease
income, and $957 of other store closing and related expenses.
Income Taxes. Prior to January 1, 1995, the Company was in a
loss position for income tax purposes, and, consequently, no
income taxes were provided. The Company adopted Statement of
Financial Accounting Standards No. 109 as of August 2, 1993.
Under SFAS 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and
liabilities are determined based upon differences between the
financial statement and income tax bases of assets and
liabilities, and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to
reverse.
33
<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts in Thousands, Except Per Share Amounts)
Interest Rate Hedge Agreements. The Company enters into
interest rate hedging agreements which involve the exchange of
fixed and floating rate interest payments periodically over the
life of such agreements without the exchange of the underlying
principal amounts. The differential to be paid or received is
accrued as interest rates change and is recognized over the life
of the agreements as an adjustment to interest expense.
Cash and Cash Equivalents. The Company considers all highly
liquid investment instruments with a maturity of three months or
less when purchased to be cash equivalents. There were no cash
equivalents at July 28, 1996 or July 30, 1995.
Cash interest paid (excluding financing costs) was $9,609,
$12,198, and $41,545 for the fiscal years ended July 28, 1996,
July 30, 1995, and July 31, 1994, respectively.
Use of Estimates. 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 revenues and expenses
during the reporting period. Actual results could differ from
those estimates; however, management does not believe these
differences would have a material effect on operating results.
New Accounting Pronouncements. In October 1995, the
Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock Based Compensation." With respect to stock
options granted to employees, SFAS No. 123 permits companies to
continue using the accounting method promulgated by the
Accounting Principles Board Opinion No. 25 ("APB No. 25"),
"Accounting for Stock Issued to Employees," to measure
compensation or to adopt the fair value based method prescribed
by SFAS No. 123. If APB No. 25's method is continued, pro forma
disclosures are required as if SFAS No. 123 accounting provisions
were followed. Management has determined not to adopt SFAS No.
123's accounting recognition provisions. In the opinion of
management, SFAS No. 123 is not expected to have a material
impact on the Company's financial statements.
SFAS No. 121, "Accounting for the Impairment of Long Lived
Assets and for Long Lived Assets to be Disposed Of," is effective
for years beginning after December 15, 1995. This statement
requires that long-lived assets and certain intangibles to be
held and used by the Company be reviewed for impairment. This
pronouncement is not expected to have a material impact on the
financial statements of the Company.
34
<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts in Thousands, Except Per Share Amounts)
Statement of Cash Flows. The Company incurred additions to capital
leases of $7,571 and $4,529 for the years ended July 28, 1996 and July
31, 1994, respectively. These transactions, in addition to recording the
the Company's equity interest in the three Delaware business trusts, were
non-cash transactions and have therefore been excluded from the
accompanying Statements of Cash Flows.
(3) Property and Equipment.
Property and equipment is summarized as follows:
July 28, July 30,
1996 1995
-------- --------
Land $ 6,857 $ 13,504
Buildings and improvements 35,386 55,896
Fixtures and equipment 90,459 66,631
Transportation equipment 1,502 902
Leasehold improvements 6,566 --
Construction in progress 2,528 6,193
-------- --------
143,298 143,126
Less accumulated depreciation (23,314) ( 8,869)
-------- --------
119,984 134,257
Property under capital leases
(less accumulated amortization
of $4,104 and $1,723) 12,032 5,710
-------- --------
$132,016 $139,967
======== ========
(4) Accrued Expenses.
Accrued expenses consist of the following:
July 28, July 30,
1996 1995
-------- --------
Accrued payroll and benefits $ 6,441 $ 9,217
Accrued interest 8,809 10,673
Taxes, other than income 5,520 5,789
Accrued insurance reserves 3,004 6,064
Other accrued expenses 12,635 12,756
-------- --------
$ 36,409 $ 44,499
======== ========
(5) Long-Term Debt.
Long-term debt consists of the following:
35
<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts in Thousands, Except Per Share Amounts)
July 28, July 30,
1996 1995
-------- --------
Credit facility (A) $ 25,656 $ 33,143
Senior Floating Rate Notes (B) 23,942 22,953
Senior Fixed Rate Notes (C) 136,802 121,162
Mortgages payable, bearing interest at
rates from 7.5% to 10.35%, in equal
monthly installments of $219, with
maturities from 1999 through 2003 17,655 33,108
Capital lease obligations and other 16,916 13,328
-------- --------
Long-term debt including
current portion 220,971 223,694
Less current portion (5,507) ( 5,563)
-------- --------
Long-term debt $215,464 $218,131
======== ========
Carrying value is considered a reasonable estimate of the
fair value of the Company's financial instruments.
(A) At July 28, 1996, the Company's Credit Agreement provides
for borrowings of up to $9,900 under a term loan facility
(due December 31, 1998) and a $50,000 revolving credit
facility with a $25,000 sublimit for letters of credit. At
July 28, 1996, the Company had $15,756 in borrowings under
the working capital line, and had $8,248 of letters of
credit issued against the revolving credit facility. Amounts
outstanding under the Credit Agreement bear interest (7.85%
at July 28, 1996) equal to, at the Company's option, (1)
prime rate plus 50 basis points or (2) the Eurodollar rate
(as defined in the Credit Agreement) plus 235 basis points.
At July 30, 1995, amounts outstanding under the term
facility bore interest at 11.5% and amounts outstanding
under the revolving facility bore interest at 10.0%
(B) The Senior Floating Rate Notes mature on February 1, 2003,
and bear interest (7.29% at July 28, 1996) payable August 1,
1995, and semiannually thereafter, at a rate equal to
six-month LIBOR (as defined in the Senior Floating Rate Note
Indenture) plus 200 basis points. The Senior Floating Rate
Notes are redeemable in whole or in part, at the option of
the Company, on not less than 30 nor more than 60 days'
prior notice in amounts of $1,000 or an integral multiple
thereof, at 100% of the principal amount and unpaid
interest, if any, to the redemption date. Through August 1,
1995, all interest on the Senior Floating Rate Notes was, at
the option of the Company, paid by issuing in lieu of cash
additional Senior Floating Rate Notes in an aggregate
principal amount equal to the amount of interest due.
36
<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts in Thousands, Except Per Share Amounts)
(C) The Senior Fixed Rate Notes mature on February 1, 2003, and
bear interest at 11.5% per annum, payable semiannually. The
Senior Fixed Rate Notes are redeemable in whole or in part,
at the option of the Company, on not less than 30 nor more
than 60 days' prior notice in amounts of $1,000 or an
integral multiple thereof, at 100% of the principal amount
and unpaid interest, if any, to the redemption date. Through
February 1, 1996, all interest on the Senior Fixed Rate
Notes was, at the option of the Company, paid by issuing in
lieu of cash additional Senior Fixed Rate Notes in an
aggregate principal amount equal to the amount of interest
due.
(D) Approximate principal payments for the next five fiscal
years are:
Year Credit Senior Capital
Ending Facility Notes Mortgages Leases Other Total
---- ------- ------ ------- ------ -------------
1997 $ -- $ -- $ 898 $3,446 $1,163 $ 5,507
1998 -- -- 988 1,543 874 3,405
1999 25,656(1) -- 1,087 1,216 826 28,785
2000 -- -- 13,093 757 873 14,723
2001 -- -- 502 428 985 1,915
(1) Since the facility terminates in December, 1998, the
entire current outstanding amount under the facility
matures at that time.
The Credit Agreement, which is secured by a pledge of
substantially all assets of the Company, requires the Company to
maintain a minimum net worth and to satisfy certain other
financial ratios, and provides for certain restrictions on
nonstock distributions and certain other restrictions. The Senior
Floating Rate Notes, the Senior Fixed Rate Notes, and certain
other of the Company's indebtedness also contain incurrence
covenants that are less restrictive than the covenants under the
Credit Agreement. At July 28, 1996, the Company was in compliance
with all covenants.
(6) Capital Stock.
The authorized capital stock of the Company consists of
5,500,000 shares of Common Stock, par value $.01 per share, and
1,000,000 shares of Preferred Stock, par value $.01 per share.
The authorized Preferred Stock includes 35,000 shares of Series A
Junior Participating Preferred Stock (the "Series A Preferred").
In April 1995, the Company declared, pursuant to its rights
plan, a dividend of one preferred share purchase right ("Right")
for each outstanding share of Common Stock. Each Right initially
entitled the holder thereof to purchase from the Company one one-
37
<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts in Thousands, Except Per Share Amounts)
hundredth of a share of Series A Preferred for a purchase price
of $76 per one one-hundredth of a preferred share, subject to
certain adjustments. As a result of the 3-for-2 stock split
discussed below, the number of one one-hundredths of a preferred
share issuable upon exercise of each Right was adjusted from one
to 0.6667.
The Rights are not currently exercisable, and would become
exercisable only if a person or group of persons (an "Acquiring
Person") acquires 25% or more of the Common Stock (29% or more in
the case of Leonard Green & Associates, L.P., formerly known as
Leonard Green & Partners, L.P. ("LGA") or any other person or
entity which at any time purchases all of the shares owned by
LGA), or certain actions are taken in respect of any such
acquisition. In the event any person or group becomes an
Acquiring Person, each holder of a Right would thereafter have
the right to receive upon exercise thereof that number of shares
of Common Stock having a market value of two times the exercise
price of the Right. In addition, if there is a merger or other
business combination between the Company and an Acquiring Person,
each Right would entitle the holder to purchase that number of
shares of common stock of the Acquiring Person which at the time
of such transaction will have a market value of two times the
exercise price of the Right. The Rights, which expire on April
13, 2000, are redeemable by the Company for a price of $.01 per
Right.
The payment of cash dividends and the repurchase or
redemption of capital stock by the Company is restricted by the
terms of the Credit Agreement and the indentures relating to the
Company's Senior Fixed Rate Notes and Senior Floating Rate Notes.
On June 14, 1995 the Company declared a 3-for-2 stock split
effected in the form of a stock dividend on its Common Stock,
paid on July 17, 1995 to stockholders of record on June 26, 1995.
All of the share and per share data in the accompanying financial
statements have been adjusted to reflect the stock split.
(7) Reorganization Items.
Reorganization items included in the accompanying statements
of operations consist of the following items:
Adjustments to fair value $ 5,551
Provision for store closing costs (2,500)
Provision for severance benefits (3,220)
Provision for other restructuring
activities (3,180)
Professional fees (1,520)
--------
$(4,869)
========
38
<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts in Thousands, Except Per Share Amounts)
(8) Stock Option Plans.
In March 1995, the Company adopted the 1995 Key Employee
Stock Option Plan (the "New Option Plan"), which authorizes the
issuance to eligible participants of options to purchase up to
355,419 shares of Common Stock of the Company. Options vest in
serial increments in the amount of 20% per year, on the last day
of each of the 1995, 1996, 1997, 1998 and 1999 fiscal years of
the Company. However, upon the occurrence of a Merger Event or a
Change of Control (as defined in the New Option Plan), the
options become 100% vested. The options expire, to the extent not
exercised, on the tenth anniversary of the date of grant.
However, upon termination of an optionee's employment with the
Company, all unvested options lapse, and all vested options
expire 180 days after the termination of employment, if such
termination is due to the death, disability or retirement of the
optionee, or 45 days after the termination of employment, if such
termination is due to any other reason, other than a termination
for cause. If a termination for cause occurs, all vested and
unvested options expire immediately.
Also in March 1995, the Company adopted the 1995 Non-
Employee Director Stock Option Plan (the "Director Plan").
Options to purchase 27,000 shares at $10.00 per share, vesting on
July 30, 1995 and options to purchase 27,000 shares at $13.33 per
share, vesting on July 28, 1996, were granted under the Director
Plan. At the same time, the Company granted to Green Equity
Investors, L.P. ("GEI") (in lieu of granting options under the
Director Plan to the representatives of GEI serving as Directors)
options to purchase 9,000 shares at $10.00 per share, vesting on
July 30, 1995 and options to purchase 9,000 shares at $13.33 per
share, vesting on July 28, 1996 (such grants to GEI, together
with the Director Plan and the New Option Plan, the "1995 Option
Plans"). All options granted to GEI and to the non-employee
Directors expire on March 8, 2005 or earlier upon the occurrence
of certain events.
A summary of changes in the 1995 Option Plans for the fiscal
years ended July 28, 1996 and July 30, 1995 is presented below:
1996 Option Shares Option Price
- ---- ------------- ------------
Outstanding at beginning
of year 320,786 $10.00-$22.00
Granted 78,699 $22.00-$22.63
Exercised 24,371 $10.00
Forfeited 51,788 $10.00
Outstanding at end of year 323,326 $10.00-$22.63
Exercisable at end of year 156,791 $10.00-$22.00
Reserved for future grant 79,722
39
<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts in Thousands, Except Per Share Amounts)
1995
- ----
Outstanding at beginning
of year -- --
Granted 351,250 $10.00-$22.00
Exercised -- --
Forfeited 30,464 $10.00
Outstanding at end of year 320,786 $10.00-$22.00
Exercisable at end of year 64,157 $10.00-$22.00
Reserved for future grant 34,633
(9) Leases.
The Company leases certain stores, other facilities and
equipment under leases that are not cancelable. Such leases
generally contain renewal options exercisable at the Company's
option. In addition to minimum rental payments, certain leases
provide for payments of taxes, maintenance and percentage rentals
based upon sales in excess of stipulated amounts. The future
minimum payments under leases that are not cancelable, as of July
28, 1996, are:
Operating Capital
Year Ending in leases leases
--------------- -------- --------
1997 $ 25,209 $ 3,861
1998 24,601 2,417
1999 24,511 1,805
2000 24,278 1,240
2001 24,013 817
Thereafter 255,763 --
Total minimum lease -------- --------
payments $378,375 10,140
========
Less portion
representing interest (3,324)
Present value of net
minimum lease payments at --------
July 28, 1996 $ 6,816
========
Total rent expense was $26,699, $25,738, and $26,883 for the
fiscal years ended July 28, 1996, July 30, 1995, and July 31,
1994, respectively. Included in total rent expense are percentage
rents totaling $233, $295, and $241 for 1996, 1995, and 1994,
respectively.
In August 1995, the Company completed a sale-leaseback of
three of its fee-owned store properties; and in January 1996, the
Company completed a sale-leaseback of four fee-owned store
properties and sold its beneficial interest in three real estate
trusts to a third party. In March, the Company completed a sale-
40
<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts in Thousands, Except Per Share Amounts)
leaseback of three additional fee-owned store properties, and in
July the Company completed an additional sale-leaseback
transaction with respect to a fee-owned store property. All of
these sale-leaseback transactions were recorded as 25-year non-
cancelable operating leases.
(10) Income Taxes.
Income taxes are provided based on the liability method of
accounting pursuant to Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
The components of the provision for income taxes for the
fiscal year ended July 28, 1996 are as follows:
52 Weeks 30 Weeks
Ended Ended
July 28, 1996 July 30, 1995
-------- --------
Current
Federal $ 16 $ 0
State 3 0
-------- --------
Total current 19 0
-------- --------
Deferred
Federal $ 3,509 $ 3,142
State 601 540
-------- --------
Total deferred 4,110 3,682
-------- --------
Total tax provision $ 4,129 $ 3,682
======== ========
41
<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts in Thousands, Except Per Share Amounts)
Deferred tax assets are comprised of the following:
Reorganized Predecessor
Company Company
----------------- -----------------
July 28, July 30, January 1, July 31,
1996 1995 1995 1994
------- ------- ------- -------
Deferred tax assets:
Net operating loss $21,156 $18,600 $18,700 $35,000
Charitable contribution
carryforward 1,870 3,200 3,100 3,200
Insurance and other
reserves 7,620 9,000 8,800 8,100
General business
carryforward 1,432 1,400 1,400 1,600
Other, net 922 1,200 1,500 2,700
------- ------- ------- -------
Total gross deferred
tax assets 33,000 33,400 33,500 50,600
Less valuation
allowance 31,800 32,200 33,500 50,600
------- ------- ------- -------
Net deferred tax
assets $ 1,200 $ 1,200 $ -- $ --
======= ======= ======= =======
The provision for income taxes differs from the amount
computed by applying the U.S. federal income tax rate (34%)
because of the effects of the following items:
52 Weeks 30 Weeks
Ended Ended
July 28, 1996 July 30, 1995
------------ ------------
Tax at U.S. federal income
tax rate $2,075 34.0% $2,320 34.0%
State income taxes, net
of federal tax benefit 222 3.6% 248 3.6%
Amortization of goodwill 1,792 29.4% 1,114 16.3%
Other 40 0.7% 0 0.0%
------ ----- ------ -----
Provision for income taxes $4,129 67.7% $3,682 53.9%
====== ===== ====== =====
The Company reported pretax losses for the 22 weeks ended
January 1, 1995 and for its 1994 fiscal year and, consequently,
no income tax expense was reported. There was no income tax
expense attributable to the extraordinary gain on debt discharge
recognized during the 22-week period ended January 1, 1995 due to
42
<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts in Thousands, Except Per Share Amounts)
certain provisions of the Internal Revenue Code (IRC) involving
exchange of stock for debt.
As of July 28, 1996, the Company had net operating loss
carryforwards for tax purposes of approximately $56,000. Due to
certain change of ownership requirements of Section 382 of the
IRC, utilization of the Company's operating losses is expected to
be limited to approximately $3,600 per year. If the full amount
of that limitation is not used in any year, the amount not used
increases the allowable limit in the subsequent year. Loss
carryforwards will expire during the years 2004 through 2011.
If the Company's net operating loss carryforwards and other
fresh start deferred tax asset balances are realized, the tax
benefits will reduce "Excess Reorganization Value." During the
year ended July 28, 1996, approximately $3,600 of tax expense was
recognized as a result of the realization of such fresh start
deferred tax assets.
The Company also has general business credit carryforwards
of approximately $1,400, which expire between the years 2004 and
2010. These credits are also subject to the Section 382 annual
limitation. Due to the ordering rules of IRC Section 382 with
respect to net operating losses and business credits, a valuation
allowance has been recognized against the entire amount of the
general business credit carryover.
(11) Supplementary Statements of Operations Information.
Supplementary Statements of Operations information is as
follows:
Reorganized Predecessor
Company Company
------------------ ------------------
52 Weeks 30 Weeks 22 Weeks 52 Weeks
Ended Ended Ended Ended
July 28, July 30, January 1, July 31,
1996 1995 1995 1994
------- ------- ------- -------
Amortization of:
Lease interests $ 1,997 $ 1,152 $ 639 $ 6,037
Prescription files 349 194 -- --
Goodwill 4,763 6,627 1,198 2,831
------- ------- ------- -------
Total amortization
of intangible
assets $ 7,109 $ 7,973 $ 1,837 $ 8,868
======= ======= ======= =======
Advertising costs $11,074 $ 4,896 $ 4,970 $14,099
======= ======= ======= =======
43
<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts in Thousands, Except Per Share Amounts)
(12) Employee Benefit Plans.
Kash n' Karry Retirement Estates ("KKRE"), a trusteed
defined contribution retirement plan, was authorized by the
Company's Board of Directors in 1988. KKRE is a tax
savings/profit sharing plan maintained primarily for the purpose
of providing retirement income for eligible employees of the
Company. KKRE is qualified under Section 401(a) and Section
401(k) of the Internal Revenue Code of 1986. Generally, all
employees who have attained the age of 21 years and complete one
year of participation service (as defined under KKRE) are
eligible to participate in KKRE. Participants may, subject to
certain federal limitations, elect to defer an amount not to
exceed 15% of their base compensation and have such amount
contributed to KKRE. The Company may match all or a portion of
the participant's deferred compensation, but the amount of the
matching contribution may not exceed 3% of such participant's
compensation. Additional non-matching contributions may be made
to KKRE by the Company in such amount as determined by the
Company's Board of Directors based on the Company's operating
performance. Funds that participants elect to defer are invested,
at the participant's option, into various investment accounts.
The vested percentage of the amounts allocated to a participant's
account will be payable to the participant upon such
participant's death, disability, retirement, or other separation
of service from the Company. The Company's contributions to KKRE
were $249, $505, and $573 for the fiscal years ended July 28,
1996, July 30, 1995, and July 31, 1994, respectively.
Kash n' Karry Executive Supplemental Retirement Plan
("KESP"), a nonqualified, unfunded salary deferral plan, was
authorized by the Company's Board of Directors in November 1989.
Certain Key Employees (as defined under KESP) of the Company as
selected by its Board of Directors participate in KESP.
Currently, twenty Key Employees participate in KESP. Prior to the
beginning of each plan year, a participant may elect to defer an
amount not to exceed 15% of such participant's annual base
compensation (as defined under KESP). The Company will match a
certain portion of the amount deferred by the participant, but
the amount of the match may not exceed 6% of such participant's
annual base compensation. The Company will record income to the
participant's account at an annual rate (11% for the 1996, 1995,
and 1994 plan years) as determined by the Company's Board of
Directors, but the rate of such income shall not be less than 8%
per annum.
The vested percentage of the amounts recorded in the
participant's account will be paid to the participant upon the
earlier of: (i) such participant's death, disability, retirement,
or other separation of service from the Company; (ii) the date
the plan is terminated; or (iii) the date that a change in
control occurs (as defined under KESP). Expense for this plan was
44
<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts in Thousands, Except Per Share Amounts)
$60, $84, and $135 for the fiscal years ended July 28, 1996, July
30, 1995, and July 31, 1994, respectively.
The Company has a retiree medical plan under which medical
coverage is available to current retirees and those active
employees who, on August 1, 1993, had attained age 65 with at
least 15 years of service. In accordance with SOP 90-7, which the
Company adopted on the Effective Date of the Restructuring, the
provisions of Financial Accounting Standards Board Statement 106
"Employers' Accounting for Postretirement Benefits Other Than
Pensions" were also adopted as of that date. The following table
sets forth the projected actuarial present value of unfunded
postretirement benefit obligations for the plan at July 28, 1996:
Accumulated postretirement
Benefit obligation:
Retirees $1,760
Fully eligible active
plan participants 78
------
Accrued postretirement
benefit obligation $1,838
======
The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 8.0%.
(13) Commitments and Contingencies.
The Company had letters of credit outstanding totaling
$8,248 and $12,770 at July 28, 1996 and July 30, 1995,
respectively, which amounts have been reflected as reductions of
the available revolving loan facility as of those dates. These
letters of credit primarily guarantee various insurance and
financing activities.
(14) Related Party Transactions.
During the 1994 fiscal year, as consideration for the
provision of financial advisory services, the Company agreed to
pay an annual fee of $554, plus related out-of-pocket expenses,
to Leonard Green & Associates, L.P. ("LGA"), and an annual fee of
$232, plus related out-of-pocket expenses, to Gibbons, Goodwin,
van Amerongen, L.P. ("GGvA"). From September 1993 through
December 1994, the Company did not pay the annual fees to LGA or
GGvA, but reimbursed them for out-of-pocket expenses billed to
the Company. Pursuant to the provisions of the Restructuring, on
December 29, 1994 the Company entered into a Management Services
Agreement with LGA, pursuant to which LGA agreed to provide
management, consulting, financial planning and financial advisory
services for a two year term, in consideration for an annual fee
of $200. LGA is not required to spend a fixed number of hours of
45
<PAGE>
KASH N' KARRY FOOD STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar Amounts in Thousands, Except Per Share Amounts)
service to the Company pursuant to the Management Services
Agreement. The amount of the annual fee payable to LGA was
determined in the course of negotiations among LGA, the Company
and an unofficial bondholders committee during the Restructuring.
The Company believes that the fee is not in excess of the fee
that would be charged by an unrelated third party in an arms-
length transaction for similar services. Total amounts paid to
LGA and GGvA were $200, $117, and $143, for the fiscal years
ended July 28, 1996, July 30, 1995, and July 31, 1994,
respectively.
LGA is the sole general partner of Green Equity Investors,
L.P., which owned approximately 60.9% of the Company's
outstanding common stock immediately prior to the consummation of
the Restructuring, and which owned approximately 27.8% of the
Company's outstanding New Common Stock as of July 28, 1996. One
director of the Company is the controlling shareholder of a
general partner of LGA, and another director of the Company is a
general partner of LGA.
46
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
On February 17, 1995, KPMG Peat Marwick LLP ("KPMG"), the
Company's independent accountants who were previously engaged as
the principal accountants to audit the Company's financial
statements, were dismissed. KPMG's report on the financial
statements of the Company for the past two years contained no
adverse opinion or disclaimer of opinion, and was not qualified
or modified as to uncertainty, audit scope, or accounting
principles, except that KPMG's report on the 1994 financial
statements of the Company contained a separate paragraph stating
that "Kash n' Karry Food Stores, Inc. has suffered recurring
losses from operations and has a net capital deficiency. As
discussed in note 1 to the financial statements, Kash n' Karry
Food Stores, Inc. filed a pre-packaged petition under Chapter 11
of the United States Bankruptcy Code on November 9, 1994 and
these matters raise substantial doubt about its ability to
continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty." The Company's plan of reorganization was
approved by the bankruptcy court on December 12, 1994 and became
effective on December 29, 1994.
The decision to change accountants was approved by the Board
of Directors of the Company. During the Company's two most recent
fiscal years and any subsequent interim period preceding the
dismissal, there were no disagreements between the Company and
KPMG on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure
which, if not resolved to the satisfaction of KPMG, would have
caused KPMG to make reference to the subject matter of the
disagreement in connection with its report. Also, during the
aforementioned period, there occurred no "reportable event"
within the meaning of Item 304(a)(1)(v) of Regulation S-K of the
Commission.
On February 17, 1995, the Company engaged Coopers & Lybrand,
L.L.P. as the principal accountants to audit the Company's
financial statements commencing with the fiscal year ended July
30, 1995. The Company did not consult with Coopers & Lybrand,
L.L.P. regarding accounting advice prior to its engagement.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Except for the discussion of Executive Officers set forth in
Part I hereof, the disclosures required by Item 10 are
incorporated herein by reference to the Company's definitive
proxy statement to be filed not more than 120 days after the
fiscal year ended July 28, 1996.
47
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The disclosures required by Item 11 are incorporated herein
by reference to the Company's definitive proxy statement to be
filed not more than 120 days after the fiscal year ended July 28,
1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The disclosures required by Item 12 are incorporated herein
by reference to the Company's definitive proxy statement to be
filed not more than 120 days after the fiscal year ended July 28,
1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The disclosures required by Item 13 are incorporated herein
by reference to the Company's definitive proxy statement to be
filed not more than 120 days after the fiscal year ended July 28,
1996.
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
Page No.
(1) Financial Statements:
Independent Auditors' Reports 22
Balance Sheets as of July 28, 1996 and July 30,
1995 24
Statements of Operations for the 52 weeks ended
July 28, 1996, the 30 weeks ended July 30,
1995, the 22 weeks ended January 1, 1995, and
the 52 weeks ended July 31, 1994 25
Statement of Stockholders' Equity for the fiscal
years ended July 28, 1996, July 30, 1995 and
July 31, 1994 26
Statements of Cash Flows for the 52 weeks ended
July 28, 1996, the 30 weeks ended July 30,
1995, the 22 weeks ended January 1, 1995, and
the 52 weeks ended July 31, 1994 27
Notes to Financial Statements 29
48
<PAGE>
(2) Financial Statement Schedules:
None
(3) Exhibits:
The following exhibits are filed as part of this report.
Certain of such exhibits, which have heretofore been filed with
the Securities and Exchange Commission under the Securities Act
of 1933 or the Securities Exchange Act of 1934 and which are
designated in prior filings as noted below, are hereby
incorporated by reference and made a part hereof:
Exhibit
No. Description
- ------- ---------------------------------------------------------
2 First Amended Plan of Reorganization filed by the
Company with the United States Bankruptcy Court of the
District of Delaware on November 9, 1994, as amended by
notices of technical modifications thereto filed on
November 9, 1994, and December 12, 1994 (previously
filed as Exhibit 2 to the Company's Quarterly Report on
Form 10-Q for the period ended October 30, 1994, which
exhibit is hereby incorporated by reference).
3(i)(a) Restated Certificate of Incorporation filed with the
Delaware Secretary of State on December 29, 1994
(previously filed as Exhibit 3(i) to the Company's
Quarterly Report on Form 10-Q for the period ended
January 29, 1995, which exhibit is hereby incorporated
by reference).
3(i)(b) Certificate of Designations of Series A Junior
Participating Preferred Stock filed with the Secretary
of State of the State of Delaware on April 26, 1995
(previously filed as Exhibit 3(i)(b) to the Company's
Registration Statement on Form S-1, Registration No. 33-
58999, which exhibit is hereby incorporated by
reference).
3(ii)(a) Bylaws adopted October 12, 1988 (previously filed as
Exhibit 3(ii)(a) to the Company's Quarterly Report on
Form 10-Q for the period ended January 29, 1995, which
exhibit is hereby incorporated by reference).
3(ii)(b) First Amendment to Bylaws adopted July 30, 1991
(previously filed as Exhibit 3(ii)(b) to the Company's
Quarterly Report on Form 10-Q for the period ended
January 29, 1995, which exhibit is hereby incorporated
by reference).
3(ii)(c) Second Amendment to Bylaws adopted December 29, 1994
(previously filed as Exhibit 3(ii)(c) to the Company's
49
<PAGE>
Quarterly Report on Form 10-Q for the period ended
January 29, 1995, which exhibit is hereby incorporated
by reference).
3(ii)(d) Third Amendment to Bylaws adopted April 13, 1995
(previously filed as Exhibit 3(ii)(d) to the Company's
Quarterly Report on Form 10-Q for the period ended
April 30, 1995, which exhibit is hereby incorporated by
reference).
3(ii)(e) Fourth Amendment to Bylaws adopted March 8, 1996
(previously filed as Exhibit 3(ii)(3) to the Company's
Quarterly Report on Form 10-Q for the period ended
April 28, 1996, which exhibit is hereby incorporated by
reference).
4.1 Indenture dated as of December 29, 1994, between
the Company and Shawmut Bank Connecticut, N.A., as
Trustee, relating to 11.5% Senior Fixed Rate Notes due
2003 (previously filed as Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the period ended
January 29, 1995, which exhibit is hereby incorporated
by reference).
4.2 Indenture dated as of December 29, 1994, between
the Company and IBJ Schroder Bank & Trust Company, as
Trustee, relating to Senior Floating Rate Notes due
2003 (previously filed as Exhibit 4.2 to the Company's
Quarterly Report on Form 10-Q for the period ended
January 29, 1995, which exhibit is hereby incorporated
by reference).
4.3(a) Rights Agreement dated as of April 13, 1995 between the
Company and Shawmut Bank Connecticut, N.A., as Rights
Agent (previously filed as Exhibit 1 to the Company's
Current Report on Form 8-K dated April 13, 1995, which
exhibit is hereby incorporated by reference).
4.3(b) First Amendment to Rights Agreement dated as of June
13, 1995 (previously filed as Exhibit 4.3(b) to the
Company's Quarterly Report on Form 10-Q for the period
ended April 30, 1995, which exhibit is hereby
incorporated by reference).
4.4 Specimen form of Common Stock certificate
(previously filed as Exhibit 4.4 to the Company's
Registration Statement on Form S-1, Registration No. 33-
58999, which exhibit is hereby incorporated by
reference).
10.1(a) Credit Agreement dated as of December 29, 1994, among
the Company, certain lenders, The CIT Group/Business
Credit, Inc., as administrative agent, and Bank of
America National Trust and Savings Association, as
co-agent (previously filed as Exhibit 10.1 to the
50
<PAGE>
Company's Quarterly Report on Form 10-Q for the period
ended January 29, 1995, which exhibit is hereby
incorporated by reference).
10.1(b) Amended and Restated Credit Agreement dated as of
December 19, 1995, among the Company, certain lenders,
and The CIT Group/Business Credit, Inc., as
administrative agent (previously filed as Exhibit
10.1(b) to the Company's Quarterly Report on Form 10-Q
for the period ended January 28, 1996, which exhibit is
hereby incorporated by reference).
10.1(c) First Amendment to Amended and Restated Credit
Agreement dated as of March 28, 1996, among the
Company, certain lenders and The CIT Group/Business
Credit, Inc., as administrative agent (previously filed
as Exhibit 10.1(c) to the Company's Quarterly Report on
Form 10-Q for the period ended April 28, 1996, which
exhibit is hereby incorporated by reference).
10.2 Mortgage, Fixture Filing, Security Agreement and
Assignment of Rents between the Company, as mortgagor,
and Sun Life Insurance Co. of America, as mortgagee,
dated as of September 7, 1989 (previously filed as
Exhibit 28.1(a) to the Company's Quarterly Report on
Form 10-Q for the period ended October 29, 1989, which
exhibit is hereby incorporated by reference).
10.3 Mortgage between the Company, as mortgagor, and
Ausa Life Insurance Company, as mortgagee, dated as of
November 21, 1989 (mortgage satisfied in January 1996)
(previously filed as Exhibit 28.2(a) to the Company's
Quarterly Report on Form 10-Q for the period ended
October 29, 1989, which exhibit is hereby incorporated
by reference).
10.4 Trademark License Agreement dated as of October
12, 1988 between the Company and Lucky Stores, Inc.
(previously filed as Exhibit 10.11 to the Company's
Registration Statement on Form S-1, Registration No. 33-
25621, which exhibit is hereby incorporated by
reference).
10.5(a) Services Agreement dated as of March 1, 1995 between
the Company and GSI Outsourcing Corporation (previously
filed as Exhibit 10.5(a) to the Company's Registration
Statement on Form S-1, Registration No. 33-58999, which
exhibit is hereby incorporated by reference).
10.5(b) First Amendment to Services Agreement between the
Company and GSI Outsourcing Corporation (previously
filed as Exhibit 10.5(b) to the Company's Registration
Statement on Form S-1, Registration No. 33-58999, which
exhibit is hereby incorporated by reference).
51
<PAGE>
10.5(c) Guaranty of Payment, Nondisturbance and Attornment
Agreement dated as of June 1995 among the Company, GSI
Outsourcing Corporation and IBM Credit Corporation
(previously filed as Exhibit 10.5(c) to the Company's
Annual Report on Form 10-K for the fiscal year ended
July 30, 1995, which exhibit is hereby incorporated by
reference).
10.5(d) Addendum to Services Agreement between the Company and
GSI Outsourcing Corporation dated as of July 1995
(previously filed as Exhibit 10.5(d) to the Company's
Annual Report on Form 10-K for the fiscal year ended
July 30, 1995, which exhibit is hereby incorporated by
reference).
10.6 Form of Indemnity Agreement between the Company
and its directors and certain of its officers
(previously filed as Exhibit 10.3 to the Company's
Registration Statement on Form S-1, Registration No. 33-
25621, which exhibit is hereby incorporated by
reference).
10.7(a) 1995 Non-Employee Director Stock Option Plan adopted on
March 9, 1995 (previously filed as Exhibit 10.7(a) to
the Company's Registration Statement on Form S-1,
Registration No. 33-58999, which exhibit is hereby
incorporated by reference).
10.7(b) Form of Non-Qualified Stock Option Agreement entered
into between the Company and certain directors, as
optionees, pursuant to the 1995 Non-Employee Director
Stock Option Plan (previously filed as Exhibit 10.7(b)
to the Company's Registration Statement on Form S-1,
Registration No. 33-58999, which exhibit is hereby
incorporated by reference).
10.8 Non-Qualified Stock Option Agreement dated as of
January 17, 1995, between the Company and Green Equity
Investors, L.P. (previously filed as Exhibit 10.8 to
the Company's Registration Statement on Form S-1,
Registration No. 33-58999, which exhibit is hereby
incorporated by reference).
10.9 Management Services Agreement dated as of December
29, 1994, by and between the Company and Leonard Green
& Partners (previously filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the period
ended January 29, 1995, which exhibit is hereby
incorporated by reference).
10.10(a) Employment Agreement dated as of January 24, 1995,
between the Company and Ronald Johnson (previously
filed as Exhibit 10.10 to the Company's Registration
Statement on Form S-1, Registration No. 33-58999, which
exhibit is hereby incorporated by reference).
52
<PAGE>
10.10(b) Letter agreement dated as of May 22, 1996, amending
Employment Agreement with Ronald Johnson (previously
filed as Exhibit 10.10(b) to the Company's Quarterly
Report on Form 10-Q for the period ended April 28,
1996, which exhibit is hereby incorporated by
reference).
10.11 Employment Agreement dated as of March 6, 1995,
between the Company and Gary M. Shell (previously filed
as Exhibit 10.11 to the Company's Registration
Statement on Form S-1, Registration No. 33-58999, which
exhibit is hereby incorporated by reference).
10.12(a) Employment Agreement dated as of March 16, 1995,
between the Company and Clifford C. Smith, Jr.
(previously filed as Exhibit 10.12 to the Company's
Registration Statement on Form S-1, Registration No. 33-
58999, which exhibit is hereby incorporated by
reference).
10.12(b) Letter agreement dated as of May 23, 1996, amending
Employment Agreement with Clifford C. Smith, Jr.
(previously filed as Exhibit 10.12(b) to the Company's
Quarterly Report on Form 10-Q for the period ended
April 28, 1996, which exhibit is hereby incorporated by
reference).
10.13(a) Employment Agreement dated as of July 8, 1995, between
the Company and BJ Mehaffey (previously filed as
Exhibit 10.13 to the Company's Annual Report on Form 10-
K for the fiscal year ended July 30, 1995, which
exhibit is hereby incorporated by reference).
10.13(b) Letter agreement dated as of May 23, 1996, amending
Employment Agreement with BJ Mehaffey (previously filed
as Exhibit 10.12(b) to the Company's Quarterly Report
on Form 10-Q for the period ended April 28, 1996, which
exhibit is hereby incorporated by reference).
10.14 Incentive Compensation Plan adopted on October 26,
1994 (previously filed as Exhibit 10.13 to the
Company's Registration Statement on Form S-1,
Registration No. 33-58999, which exhibit is hereby
incorporated by reference).
10.15 Amended and Restated Kash n' Karry Retirement
Estates and Trust (401(k) Plan) dated October 14, 1993,
effective as of January 1, 1992 (previously filed as
Exhibit 10.5 to the Company's Annual Report on Form 10-
K for the period ended August 1, 1993, which exhibit is
hereby incorporated by reference).
10.16(a) Form of Deferred Compensation Agreement dated as of
December 21, 1989 between the Company and key employees
53
<PAGE>
and a select group of management (KESP) (previously
filed as Exhibit 28.3(a) to the Company's Quarterly
Report on Form 10-Q for the period ended January 28,
1990, which exhibit is hereby incorporated by
reference).
10.16(b) Master First Amendment to Deferred Compensation
Agreements, dated as of November 11, 1991 between the
Company and the key employees party thereto (previously
filed as Exhibit 28.3 to the Company's Quarterly Report
on Form 10-Q for the period ended November 3, 1991,
which exhibit is hereby incorporated by reference).
10.16(c) Master Second Amendment to Deferred Compensation
Agreements, dated as of December 30, 1993 between the
Company and the key employees party thereto (previously
filed as Exhibit 10.13(d) to the Company's Quarterly
Report on Form 10-Q for the period ended January 30,
1994, which exhibit is hereby incorporated by
reference).
10.16(d) Master Third Amendment to Deferred Compensation
Agreements, dated as of September 2, 1994, between the
Company and the key employees party thereto (previously
filed as Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the period ended January 29, 1995,
which exhibit is hereby incorporated by reference).
10.17(a) 1995 Key Employee Stock Option Plan (previously filed
as Exhibit 10.16(a) to the Company's Registration
Statement on Form S-1, Registration No. 33-58999, which
exhibit is hereby incorporated by reference).
10.17(b) Non-Qualified Stock Option Agreement dated March 9,
1995 between the Company and Ronald E. Johnson
(previously filed as Exhibit 10.16(b) to the Company's
Registration Statement on Form S-1, Registration No. 33-
58999, which exhibit is hereby incorporated by
reference).
10.17(c) Form of Non-Qualified Stock Option Agreement entered
into between the Company and certain key employees, as
optionees, pursuant to the 1995 Key Employee Stock
Option Plan (previously filed as Exhibit 10.16(b) to
the Company's Registration Statement on Form S-1,
Registration No. 33-58999, which exhibit is hereby
incorporated by reference).
10.18 Employment and Consulting Agreement dated July 1,
1994 between the Company and Anthony R. Petrillo
(previously filed as Exhibit 10.18 to the Company's
Annual Report on Form 10-K for the fiscal year ended
July 30, 1995, which exhibit is hereby incorporated by
reference).
54
<PAGE>
10.19 Form of Bonus Deferred Compensation Agreement
dated as of July 28, 1995 between the Company and
certain key employees (previously filed as Exhibit
10.19 to the Company's Annual Report on Form 10-K for
the fiscal year ended July 30, 1995, which exhibit is
hereby incorporated by reference).
10.20 Supply Agreement dated as of November 29, 1995 between
the Company and Gooding's Supermarkets, Inc.
(previously filed as Exhibit 10.20 to the Company's
Quarterly Report on Form 10-Q for the period ended
October 29, 1995, which exhibit is hereby incorporated
by reference).
10.21 Separation, Waiver and Release Agreement dated as of
January 31, 1996 between the Company and Raymond P.
Springer (previously filed as Exhibit 10.21 to the
Company's Quarterly Report on Form 10-Q for the period
ended January 28, 1996, which exhibit is hereby
incorporated by reference).
10.22(a) Employment Agreement dated as of January 26, 1996
between the Company and Richard D. Coleman (previously
filed as Exhibit 10.22(a) to the Company's Quarterly
Report on Form 10-Q for the period ended April 28,
1996, which exhibit is hereby incorporated by
reference).
10.22(b) Letter Agreement dated as of May 23, 1996, amending
Employment Agreement with Richard D. Coleman
(previously filed as Exhibit 10.22(b) to the Company's
Quarterly Report on Form 10-Q for the period ended
April 28, 1996, which exhibit is hereby incorporated by
reference).
11 Statement re computation of per share earnings (filed
herewith).
16 Letter re change in certifying accountant
(previously filed as Exhibit 16 to the Company's
Current Report on Form 8-K dated February 17, 1995,
which exhibit is hereby incorporated by reference).
21 Subsidiaries of the Company (filed herewith).
27 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K:
None
55
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant has duly caused this Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Tampa, State of Florida, on October
25, 1996.
KASH N' KARRY FOOD STORES, INC.
By: /s/ Ronald E. Johnson
------------------------------
Ronald E. Johnson
Chairman of the Board,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933,
this Annual Report on Form 10-K has been signed by the following
persons in the capacities and on the dates indicated.
Signature/Capacity Date
- ----------------------------------- -----------------
/s/ Ronald E. Johnson
- ------------------------------ October 25, 1996
RONALD E. JOHNSON
Chairman of the Board,
President and Chief
Executive Officer
(principal executive officer)
/s/ Richard D. Coleman
- ------------------------------ October 25, 1996
RICHARD D. COLEMAN
Senior Vice President,
Chief Financial Officer
(principal financial officer)
/s/ Marvin H. Snow, Jr.
- ------------------------------ October 25, 1996
MARVIN H. SNOW, JR.
Vice President, Controller
(principal accounting officer)
56
<PAGE>
/s/ Everett L. Buckardt
- ------------------------------ October 23, 1996
EVERETT L. BUCKARDT
Director
- ------------------------------ October ___, 1996
JOHN G. DANHAKL
Director
/s/ John J. Delucca
- ------------------------------ October 21, 1996
JOHN J. DELUCCA
Director
/s/ Jennifer Holden Dunbar
- ------------------------------ October 21, 1996
JENNIFER HOLDEN DUNBAR
Director
/s/ Ben Evans
- ------------------------------ October 21, 1996
BEN EVANS
Director
/s/ Thomas W. Harberts
- ------------------------------ October 22, 1996
THOMAS W. HARBERTS
Director
/s/ Robert Spiegel
- ------------------------------ October 21, 1996
ROBERT SPIEGEL
Director
- ------------------------------ October ___, 1996
PETER ZURKOW
Director
Supplemental information to be furnished with reports filed
pursuant to Section 15(d) of the Act by registrants which have
not registered securities pursuant to Section 12 of the Act:
Not applicable
57
<PAGE>
EXHIBIT 11
QUARTER 4 - EARNINGS PER SHARE
13 Weeks 52 Weeks
------------------------ -----------------------
Primary Fully Diluted Primary Fully Diluted
(1) (1)
----------- ----------- ----------- -----------
Net income (loss) $(1,019,000) $(1,019,000) $1,974,000 $1,974,000
Common shares
outstanding 4,674,314 4,674,314 4,674,314 4,674,314
Shares under option
at end of period -- -- 323,326 323,326
Treasury shares
which could be
purchased -- -- (216,830) (201,315)
----------- ----------- ----------- -----------
4,780,810 4,796,325
$(0.22) $(0.22) $0.41 $0.41
=========== =========== =========== ===========
(1) Due to the net loss, the conversion of stock options is not used in
this calculation.
EXHIBIT 21
KASH N' KARRY FOOD STORES, INC.
SUBSIDIARIES
SUBSIDIARY STATE OF ORGANIZATION
- ------------------------------ ---------------------
KNK 702 DELAWARE BUSINESS TRUST DELAWARE
KNK 886 DELAWARE BUSINESS TRUST DELAWARE
KNK 891 DELAWARE BUSINESS TRUST DELAWARE
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS
OF KASH N' KARRY FOOD STORES, INC. AS OF AND FOR THE YEAR ENDED JULY 28, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-28-1996
<PERIOD-START> JUL-31-1995
<PERIOD-END> JUL-28-1996
<CASH> 6,778
<SECURITIES> 0
<RECEIVABLES> 12,239
<ALLOWANCES> 0
<INVENTORY> 90,332
<CURRENT-ASSETS> 116,420
<PP&E> 159,434
<DEPRECIATION> 27,418
<TOTAL-ASSETS> 368,625
<CURRENT-LIABILITIES> 85,356
<BONDS> 215,464
0
0
<COMMON> 46
<OTHER-SE> 51,810
<TOTAL-LIABILITY-AND-EQUITY> 368,625
<SALES> 1,021,667
<TOTAL-REVENUES> 1,021,667
<CGS> 807,733
<TOTAL-COSTS> 989,823
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,741
<INCOME-PRETAX> 6,103
<INCOME-TAX> 4,129
<INCOME-CONTINUING> 1,974
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,974
<EPS-PRIMARY> $0.41
<EPS-DILUTED> $0.41
</TABLE>
