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[ X ] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
  | |
For the quarterly period ended June 19, 1999. |
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
SECURITIES EXCHANGE ACT OF 1934 | |
  | |
For the transition period from ______________ to ______________. |
Michigan | 38-0593940 | |
(State or Other Jurisdiction | (I.R.S. Employer | |
of Incorporation or Organization) | Identification No.) | |
850 76th Street, S.W. | ||
P.O. Box 8700 | ||
Grand Rapids, Michigan | 49518 | |
(Address of Principal Executive Offices) | (Zip Code) | |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
As of July 17, 1999, the issuer had 10,266,817 outstanding shares of Class A Common Stock, $2 par value.
June 19, | March 27, | |||
1999 | 1999 | |||
ASSETS | ||||
Current assets | ||||
Cash and cash equivalents | $ 47,659,671 | $ 44,112,178 | ||
Marketable securities | 18,140,237 | 21,058,381 | ||
Accounts receivable | 87,392,404 | 75,940,878 | ||
Inventories | 110,211,896 | 82,186,247 | ||
Prepaid expenses | 5,822,245 | 6,961,948 | ||
Deferred taxes on income | 5,215,246 | 5,025,000 | ||
Total current assets | 274,441,699 | 235,284,632 | ||
Restricted Cash | 78,143,825 | |||
Deposits | 43,856,175 | |||
Goodwill | 96,764,720 | 5,943,685 | ||
Other assets | 21,546,251 | 17,157,485 | ||
Property and equipment | ||||
Land and improvements | 32,891,802 | 32,891,952 | ||
Buildings and improvements | 150,306,561 | 137,853,451 | ||
Equipment | 171,962,586 | 145,270,179 | ||
355,160,949 | 316,015,582 | |||
Less accumulated depreciation and amortization | 162,924,588 | 157,667,516 | ||
Net property and equipment | 192,236,361 | 158,348,066 | ||
Total assets | $ 584,989,031 |
$ 538,733,868 |
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LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
Current liabilities | ||||
Accounts payable | $ 99,259,632 | $ 83,333,101 | ||
Accrued payroll and benefits | 22,207,537 | 18,848,809 | ||
Insurance reserves | 15,067,260 | 14,164,064 | ||
Other accrued expenses | 31,964,729 | 11,228,699 | ||
Current maturities of long-term debt and capital | ||||
lease obligations | 6,377,058 | 5,726,153 | ||
Total current liabilities | 174,876,216 | 133,300,826 | ||
Deferred taxes on income | 2,156,622 | 2,125,000 | ||
Postretirement benefits other than pensions | 5,030,421 | 4,970,421 | ||
Long-term debt and capital lease obligations | 283,621,700 | 271,428,449 | ||
Other long-term liabilities | 351,018 | 5,847,782 | ||
Shareholders' equity | ||||
Class A common stock, voting, par value | ||||
$2 per share; authorized 20,000,000 shares; | ||||
outstanding 10,282,583 and 10,844,416 shares | 20,565,166 | 21,688,832 | ||
Additional paid-in capital | 11,433,087 | 13,814,823 | ||
Retained earnings | 86,954,801 | 85,557,735 | ||
Total shareholders' equity | 118,953,054 | 121,061,390 | ||
Total liabilities and shareholders' equity | $ 584,989,031 |
$ 538,733,868 |
First Quarter (12 Weeks) Ended | |||||
June 19, | June 20, | ||||
1999 | 1998 | ||||
Net sales | $ 684,369,970 | $ 585,824,005 | |||
Costs and expenses | |||||
Cost of sales | 600,723,885 | 525,404,090 | |||
Operating and administrative | 73,281,880 | 52,307,434 | |||
Restructuring charge | 395,802 | ||||
Interest expense | 6,203,625 | 2,049,450 | |||
Interest income | (1,182,637) | (558,722) | |||
Gain on sale of property and equipment | (2,620,959) | (1,917,610) | |||
Total costs and expenses | 676,801,596 | 577,284,642 | |||
Earnings before income taxes | 7,568,374 | 8,539,363 | |||
Income taxes | 2,638,000 | 3,237,000 | |||
Net earnings | $ 4,930,374 |
$ 5,302,363 |
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Basic and diluted net earnings per | |||||
Class A share | $ 0.48 |
$ 0.46 |
|||
Basic weighted average Class A shares | 10,268,171 |
11,459,601 |
|||
Diluted weighted average Class A shares | 10,272,610 |
11,463,371 |
Class A | Additional | |||||
Common | Paid-In | Retained | ||||
Stock | Capital | Earnings | ||||
Balance - March 29, 1998 | $ 22,887,970 | $ 16,431,937 | $ 74,872,344 | |||
Class A common stock transactions | ||||||
846,705 shares purchased | (1,693,410) | (5,108,183) | (3,557,881) | |||
247,136 shares issued | 494,272 | 2,491,069 | ||||
Net earnings | 14,798,986 | |||||
Cash dividends - $.05 per share | |
|
(555,714) |
|||
Balance - March 27, 1999 | 21,688,832 | 13,814,823 | 85,557,735 | |||
Class A common stock transactions | ||||||
618,043 shares purchased | (1,236,086) | (2,960,700) | (3,404,774) | |||
56,210 shares issued | 112,420 | 578,964 | ||||
Net earnings | 4,930,374 | |||||
Cash dividends - $.0125 per share | |
|
(128,534) |
|||
Balance -- June 19, 1999 | $ 20,565,166 |
$ 11,433,087 |
$ 86,954,801 |
First Quarter (12 Weeks) Ended | |||||
June 19, | June 20, | ||||
1999 |
1998 |
||||
Net earnings | $ 4,930,374 | $ 5,302,363 | |||
Adjustments to reconcile net earnings to | |||||
net cash provided by operating activities: | |||||
Depreciation and amortization | 6,239,707 | 4,549,085 | |||
Restructuring charge | 395,802 | ||||
Post-retirement benefits other than pensions | 60,000 | 75,000 | |||
Deferred taxes on income | (158,624) | 47,500 | |||
Gain on sale of property and equipment | (2,620,959) | (1,917,610) | |||
Change in assets and liabilities, net of acquisitions: | |||||
Marketable securities | 2,931,901 | (487,416) | |||
Accounts receivable | (5,082,679) | 1,257,281 | |||
Inventories | (3,109,617) | 12,338,335 | |||
Prepaid expenses | 1,382,976 | 414,377 | |||
Accounts payable | 235,111 | 7,255,619 | |||
Accrued payroll and benefits | (1,769,990) | (302,272) | |||
Insurance reserves | 143,570 | (391,341) | |||
Other accrued expenses | 11,928,236 | 2,928,250 | |||
Net cash provided by operating activities | 15,505,808 | 31,069,171 | |||
Cash flows from investing activities | |||||
Purchases of property and equipment | (3,769,983) | (2,852,699) | |||
Proceeds from the sale of property and equipment | 23,633 | 3,839,903 | |||
Decrease in restricted cash | 78,143,825 | ||||
Acquisitions, net of cash acquired | (82,583,190) | ||||
Other | (1,721,821) | 1,019,497 | |||
Net cash (used in) provided by investing activities | (9,907,536) | 2,006,701 | |||
Cash flows from financing activities | |||||
Changes in notes payable | (17,000,000) | ||||
Proceeds from long-term borrowings | 759,100 | 2,602,938 | |||
Repayment of long-term debt and capital lease obligations | (2,636,043) | (9,499,633) | |||
Proceeds from sale of common stock | 691,384 | 589,252 | |||
Common stock purchased | (736,686) | (363,559) | |||
Dividends paid | (128,534) | (143,385) | |||
Net cash used in financing activities | (2,050,779) | (23,814,387) | |||
Net increase in cash and cash equivalents | 3,547,493 | 9,261,485 | |||
Cash and cash equivalents at beginning of year | 44,112,178 | 37,026,640 | |||
Cash and cash equivalents at end of first quarter | $ 47,659,671 |
$ 46,288,125 |
Accounting Policies
The 1999 Annual Report on Form 10-K contains a summary of significant accounting policies in the notes to consolidated financial statements. The Company follows the same accounting policies in the preparation of interim financial statements.
Reclassifications
Certain reclassifications have been made to the March 27, 1999 presentation in order to conform to the June 19, 1999 presentation.
Statement of Registrant
The data presented herein is unaudited, but in the opinion of management includes all adjustments (which consist solely of normal recurring accruals) necessary for a fair presentation of the consolidated financial position of the Company and its subsidiaries at June 19, 1999 and the results of their operations and the changes in cash flows for the periods ended June 19, 1999 and June 20, 1998. These interim results are not necessarily indicative of the results of the fiscal years as a whole.
New Accounting Standard
Effective March 28, 1999, the Company adopted Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." As a result, the Company capitalizes internal labor costs associated with the application development phase of software purchased or developed for internal use. This SOP did not have a material impact on the Company's financial condition or results of operations.
Acquisitions
On January 4, 1999, the Company's wholly owned subsidiary, Valuland, Inc. ("Valuland") acquired certain assets and assumed certain liabilities of Ashcraft's Market, Inc., an operator of eight retail grocery stores located primarily in mid-Michigan. The acquisition of Ashcraft's Market, Inc. was accounted for as a purchase and accordingly, the acquired assets and assumed liabilities are included in the accompanying consolidated balance sheets as of March 27, 1999 at values representing an allocation of the purchase price.
On March 29, 1999, Valuland acquired all the issued and outstanding shares of Family Fare, Inc., Family Fare Management Services, Inc. and Family Fare Trucking, Inc. (collectively "Family Fare"). On May 19, 1999, Valuland acquired certain assets and
assumed certain liabilities
The consolidated statement of earnings for the first quarter ended June 19, 1999 includes the operations of Family Fare from March 29, 1999 and the operations of Glen's from May 19, 1999. The following unaudited pro forma information presents summary Consolidated Statements of Earnings data of the Company as if the acquisitions of Glen's, Family Fare and Ashcraft's Markets, Inc. had occurred at the beginning of the earliest period presented. These pro forma results are based upon assumptions considered appropriate by management and include adjustments as considered necessary in the circumstances. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of results which would have actually been reported had the acquisition of Glen's taken place on the dates indicated or which may be reported in the future.
First Quarter (12 weeks) Ended | |||||
June 19, 1999 | June 20, 1998 | ||||
Pro Forma | (Unaudited) | (Unaudited) | |||
Net sales | $ 743,600,700 | $ 676,094,490 | |||
Net earnings | $ 4,445,746 | $ 5,101,854 | |||
Basic and diluted net earning per | $ .43 | $ .45 | |||
Class A Share |
In connection with the Company's acquisition of Family Fare and Glen's, $14,721,099 in debt was assumed. As of June 19, 1999, $14,572,149 of this assumed debt was outstanding, of which $2,073,541 was considered current.
Contingencies
Thirty actions have been filed in state courts in Pennsylvania against the leading cigarette
Various other lawsuits and claims, arising in the ordinary course of business, are pending or have been asserted against the Company. While the ultimate effect of such actions cannot be predicted with certainty, management believes that their outcome will not result in a material adverse effect on the consolidated financial position, operating results or liquidity of the Company.
Leases
In connection with the Company's acquisition of Glen's and Family Fare, the Company has either assumed or entered into operating leases on 35 retail grocery store facilities. Future minimum obligations under those operating leases are as follows:
Year ending March, | |
2000 | $ 7,783,091 |
2001 | 7,737,876 |
2002 | 7,667,969 |
2003 | 7,530,209 |
2004 | 7,302,134 |
Later | 55,728,048 |
Total future minimum obligations | $ 93,749,327 |
Supplemental Cash Flow Information
In conjunction with the acquisitions of Family Fare and Glen's, the Company assumed certain liabilities approximating $39,466,230. In addition, approximately $28,700,000 (net of cash acquired) was included in Deposits at March 27, 1999 for the purchase of Family Fare and was allocated among acquired assets and assumed liabilities upon consummation of the acquisition on March 29, 1999. Also, approximately $6,900,000 was included in Deposits at March 27, 1999 for the redemption of common stock that occurred during the quarter ended June 19, 1999.
Operating Segment Information
As a result of three recent acquisitions, the Company owns and operates the following retail grocery stores that together comprise the Company's new retail grocery operating segment.
Name store operates under | Number of stores | Geographic region |
Ashcraft's Markets | 8 | Mid-Michigan |
Family Fare Supermarkets | 13 | Western Michigan |
Glen's Markets | 23 | Northern Michigan |
Revenue is recognized when product is sold to consumers.
First Quarter (12 weeks) ended | ||||
June 19, 1999 | June 20, 1998 | |||
(Unaudited) | (Unaudited) | |||
Net Sales: | ||||
Grocery store distribution sales | $ 422,122,192 | $ 406,234,257 | ||
Inter-segment sales | (52,780,077) |
(8,378,107) |
||
Grocery store distribution sales to external customers | 369,342,115 |
397,856,150 |
||
Retail grocery sales | 93,057,830 |
|
||
Convenience store distribution sales | 217,601,748 | 181,218,010 | ||
Inter-segment sales | (2,207,195) |
|
||
Convenience store distribution sales to external customers | 215,394,553 |
181,218,010 |
||
Insurance sales | 4,143,687 | 4,087,622 | ||
Inter-segment sales | (147,340) |
(69,128) |
||
Insurance sales to external customers | 3,996,347 |
4,018,494 |
||
Real estate | 2,579,125 |
2,731,351 |
||
Total | $ 684,369,970 |
$ 585,824,005 |
First Quarter (12 weeks) ended | ||||
June 19, 1999 | June 20, 1998 | |||
(Unaudited) | (Unaudited) | |||
Earnings before income taxes: | ||||
Grocery store distribution | $ 2,165,899 | $ 2,682,145 | ||
Retail grocery | 2,521,644 | |||
Convenience store distribution | 2,190,424 | 2,701,055 | ||
Insurance | 282,124 | 857,662 | ||
Real estate | 408,283 |
2,298,501 |
||
Total | $ 7,568,374 |
$ 8,539,363 |
June 19, 1999 | March 27, 1999 | |||
(Unaudited) | (Unaudited) | |||
Total assets: | ||||
Grocery store distribution | $ 416,300,602 | $ 415,726,183 | ||
Retail grocery | 193,197,652 | 26,521,122 | ||
Convenience store distribution | 94,871,372 | 84,693,147 | ||
Insurance | 29,234,736 | 30,354,134 | ||
Real estate | 60,152,959 | 60,146,801 | ||
Less -- eliminations | (208,768,290) |
(78,707,519) |
||
Total | $ 584,989,031 |
$ 538,733,868 |
Results of Operations
The following table sets forth items from the Company's Consolidated Statements of Earnings as percentages of net sales:
First Quarter (12 Weeks) Ended | |||||
June 19, | June 20, | ||||
1999 | 1998 | ||||
(Unaudited) | (Unaudited) | ||||
Net Sales | 100.0% | 100.0% | |||
Gross profit | 12.2 | 10.3 | |||
Less: | |||||
Operating and administrative expenses | 10.7 | 8.9 | |||
Restructuring charge | .1 | ||||
Interest expense | .9 | .3 | |||
Interest income | (.2) | (.1) | |||
Gain on sale of property | |||||
and equipment | (.3) | (.3) | |||
Total | 11.2 | 8.8 | |||
Earnings before income taxes | 1.0 | 1.5 | |||
Income taxes | .3 | .6 | |||
Net earnings | .7% |
.9% |
Net sales for the quarter ended June 19, 1999 increased $98.6 million compared to the quarter ended June 20, 1998.
Net sales to external customers in the grocery store distribution segment declined by approximately $28.5 million. During Fiscal 1999 and Fiscal 2000, the Company acquired three retail grocery store chains that were external customers of the Company. As a result of these acquisitions, the Company eliminated approximately $44.3 million in inter-company sales to corporate-owned retail grocery stores in the grocery store distribution segment. However, the acquisitions resulted in an increase in total consolidated net sales as discussed below. Increases of approximately $16.7 million in sales of pharmacy, bakery and delicatessen products partially offset the impact of eliminating inter-company sales to corporate-owned retail grocery stores.
Net sales to external customers in the convenience store distribution segment increased by approximately $34.2 million, or 18.8%. The net increase is primarily the result of two factors. First, during the third quarter of Fiscal 1999, cigarette manufacturers increased the price of cigarettes by approximately 33%. Offsetting this increase was the loss of a customer that was acquired by another company.
Net sales to external customers in the insurance segment were comparable with prior periods.
Net sales in the real estate segment declined by approximately $.2 million due to reductions in rental income resulting from management's planned reduction of the Company's real estate portfolio.
Gross Profit
Gross profit as a percentage of net sales for the quarter ended June 19, 1999 was 12.2% compared to 10.3% for the quarter ended June 20, 1998. The increase in gross profit as a percentage of net sales is primarily the result of the Company's new retail grocery segment for which gross margins as a percentage of sales are typically higher than in wholesale operations. The increase in the retail grocery segment was offset by a decrease in the convenience store segment where margins returned to historical levels. During the quarter ended June 20, 1998, the Company realized improved margins on the sale of cigarettes purchased prior to price increases imparted by cigarette manufacturers.
Operating and administrative expenses as a percentage of net sales for the quarter ended June 19, 1999 were 10.7% compared to 8.9% for the quarter ended June 20, 1998.
The increase in operating and administrative expenses as a percentage of net sales is primarily attributable to the retail grocery and insurance segments. The Company's acquisitions of retail grocery stores have caused operating and administrative expenses to increase as a percentage of net sales as operating costs are typically higher in retail operations than in wholesale operations. The increase in the insurance segment is due primarily to an increase in outstanding loss reserves and higher underwriting expenses.
In the grocery and convenience store distribution segments, the Company experienced declines in operating and administrative expenses as a percentage of net sales, due primarily to increased sales in these segments. As discussed previously, the Company has experienced increases in sales of pharmacy, bakery and deli products in the grocery store distribution segment. The incremental sales volumes of these products have exceeded the related incremental operating costs. The increase in cigarette prices in the convenience store distribution segment has had a similar impact on operating costs as a percentage of net sales in the convenience store distribution segment.
Restructuring Charge
On October 14, 1998, the Company's Board of Directors approved an initiative to replace the Company's Plymouth distribution center with a new multi-commodity distribution center in Northern Ohio. As of June 19, 1999, $6,093,540 has been accrued for contractual amounts to be paid under a collective bargaining agreement, additional severance pay, and amounts due in connection with the withdrawal from the union pension plan. Management expects additional severance costs to be recognized until the cessation of operations.
Interest Expense and Income
Interest expense for the quarter ended June 19, 1999 was .9% of net sales compared to .3% for the quarter ended June 20, 1998.
Total average borrowings increased to $283.6 million for the quarter ended June 19, 1999, up from $110.8 million for the quarter ended June 20, 1998. A majority of the increase occurred in the retail grocery segment due to the Company's acquisition of 44 retail grocery stores during Fiscal 1999 and Fiscal 2000. In addition, the Company's effective interest rate increased to 9.47% per annum for the quarter ended June 19, 1999 from 8.01% per annum for the quarter ended June 20, 1998. The increase is attributable to a new bank credit facility that was entered into during the fourth quarter of Fiscal 1999. Refer to "Liquidity and Capital Resources" section below for information regarding the new credit facility.
Gain on Sale of Property and Equipment
During the quarter ended June 19, 1999, the Company recognized a gain of approximately $2.6 million in the retail grocery segment on the sale of common stock held in a supplier. The gain on sale of property and equipment of $1.9 million for the quarter ended June 20, 1998 was due primarily to the sale of two retail properties in the real estate segment.
Earnings before income taxes
Earnings before income taxes were $7.6 million for the quarter ended June 19, 1999 compared to $8.5 million for the quarter ended June 20, 1998.
Earnings before income taxes decreased by approximately $516,000 in the grocery store distribution segment due primarily to severance costs relating to the relocation of the Plymouth distribution center and increased interest costs attributable to higher interest rates under the new credit facility.
Earnings before income taxes were approximately $2.5 million in the retail grocery segment due primarily to the sale of common stock held in a supplier. Management of the Company has forecasted losses in the retail grocery segment in its early stages of operations but anticipates improved earnings once centralization efforts are complete and other economies of scale are realized. The retail grocery segment's operating loss is expected to increase during the remainder of Fiscal 2000. Thirty-one of the Company's 44 retail grocery stores are located in northern and mid-Michigan where sales volumes are typically at higher levels during summer months than in the winter months.
Earnings before income taxes decreased by approximately $511,000 in the convenience store distribution segment. During the quarter ended June 20, 1998, the Company realized enhanced gross profit margins on the sale of cigarettes purchased prior to price increases imparted by manufacturers.
Earnings before income taxes decreased by approximately $576,000 in the insurance segment due primarily to an increase in outstanding loss reserves and higher underwriting expenses.
Earnings before income taxes in the real estate segment decreased by approximately $1.9 million, due primarily to gains on the sale of two retail properties recognized during the quarter ended June 20, 1998.
During Fiscal 1997, the Company began assessing the ability of its computers and other systems to accurately process date and time data in connection with the Year 2000. As a result of this assessment, the Company developed a plan that addressed internally developed systems, purchased systems, imbedded processors and third party risks. The strategy for internally developed systems has been to replace or convert non-compliant systems or eliminate unnecessary systems. The Company is using both internal resources as well as contracted consultants to assist in this process. The Company also has completed an inventory of its purchased systems and imbedded processors, has contacted or attempted to contact the related vendors or manufacturers to determine their Year 2000 compliance, and is in the process of replacing, converting or eliminating the purchased systems that the Company has been informed or otherwise has determined are not Year 2000 compliant. The Company has identified a small number of systems having non-compliant imbedded processors and has replaced or repaired substantially all those identified. Finally, the Company has mailed inquiries to its customers, suppliers and financial institutions relative to their Year 2000 compliance status. The Company continues to communicate Year 2000 issues to the Company's customers by conducting seminars and distributing tool kits and other similar materials.
The Company estimates that it already has replaced or converted approximately 90% of its non-compliant systems and that all major systems are Year 2000 compliant. The Company has spent approximately $5.9 million during the past two fiscal years and expects to incur an additional $.4 million to address the Year 2000 issues. The Company has delayed other non-critical development and support initiatives as a result of these expenditures. The Company believes that due to its current efforts and future plans the Year 2000 problem will not pose significant operational problems for the Company's computer systems. If all modifications and conversions to the Company's systems are not completed timely, however, or if the Company's customers, suppliers or financial institutions should fail to adequately modify their computer systems, the Year 2000 problem could have a material adverse impact on the Company's ability to order and distribute product as well as operate its insurance, retail and real estate and finance businesses. Management believes the Company's greatest exposure exists with its customers and suppliers and their inability to process business transactions should they fail to adequately address the Year 2000 problem. The Company is developing business interruption contingency plans designed to address adverse consequences potentially arising from the Year 2000.
Liquidity and Capital Resources
The Company's principal sources of liquidity are cash flows generated from operations and borrowings under a senior secured credit facility. The credit facility consists of (a) a Revolving Credit Facility in the amount of $100 million with a term of six years, (b) a Term Loan A in the amount of $100 million with a term of six years, (c) an Acquisition Facility in the amount of $75 million with a term of seven years and (d) a Term Loan B in the amount of $150 million with a term of eight years. As of June 19, 1999, $250 million was outstanding under this credit facility. Management believes that cash flows generated from operations and available borrowings under the credit facility will be sufficient to support operations in the foreseeable future.
The Company is also permitted to sell Variable Rate Promissory Notes under a note offering with a total principal amount of $100,000,000. The notes are offered in minimum denominations of $1,000 and may be issued by the Company at any time, although the Company's bank credit agreement restricts the total amount outstanding under the offering to approximately $16.1 million. As of June 19, 1999, approximately $52.1 million of these notes had been issued and approximately $14.7 million were outstanding.
While the Company's current ratio decreased from 1.77 to 1.00 at March 27, 1999 to 1.57 to 1.00 at June 19, 1999, working capital remained relatively stable. Management does not expect working capital to significantly change during Fiscal 2000.
The Company's debt to equity ratio increased from 2.24 to 1.00 at March 27, 1999 to 2.38 to 1.00 at June 19, 1999. The increase in leverage is due primarily to the assumption of certain debt in connection with the acquisitions of Family Fare and Glen's. Proceeds from long-term borrowings used to acquire both Family Fare and Glen's were received during Fiscal 1999. Management continues to evaluate other acquisition opportunities, which would increase the Company's current leverage position if consummated.
The Company is currently in the process of replacing its Plymouth distribution center with a new multi-commodity distribution center in Northern Ohio. Management is currently in negotiations regarding the construction and financing of the new distribution center. It is expected that the first phase of construction will be completed in April 2000 and that the Company will enter into a long-term leasing arrangement for the operation of this facility.
Recent Accounting Pronouncements
In 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement requires companies to record derivatives on the balance sheet as assets and liabilities measured at fair value. The accounting treatment of gains and losses resulting from changes in the value of derivatives depends on the use of the derivative and whether it qualifies for hedge accounting. The Company will adopt SFAS No. 133 as required no later than April 1, 2001, and is currently assessing the impact of adoption on its consolidated financial statements
Cautionary Statements for Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995
The matters discussed in this Quarterly Report on Form 10-Q include forward-looking statements that describe the Company's plans, strategies, objectives, goals, expectations or projections. These forward-looking statements are identifiable by words or phrases indicating that the Company or management "expects," "anticipates," "projects," "plans" or "believes" that a particular occurrence "may result" or "will likely result" or that a particular event "may occur" or "will likely occur" in the future, or similarly stated expectations. In addition to other risks and uncertainties described in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q, there are many important factors that could cause actual results to be materially different from the Company's current expectations.
Anticipated future sales are subject to competitive pressures from many sources. The Company's grocery store and convenience store distribution segments compete with numerous warehouse discount stores, supermarkets, pharmacies and product manufacturers.
The Company's insurance segment is subject to intense competition from numerous insurance agents and insurance companies, especially in the property and casualty insurance markets. Competitive pressures in these and other business segments may result in
unexpected reductions in sales volumes, product prices or service fees. Additionally, future sales will be dependent on the number of retail stores
Operating and administrative expenses may be adversely affected by unexpected costs associated with, among other factors: software development activities; computer and other system modifications and upgrades to address Year 2000 issues; unanticipated labor shortages, stoppages or disputes; business acquisitions, including the Company's acquisition of retail stores; business divestitures; the transition of the business operations of recently acquired retail stores; the defense, settlement or adverse judgments in connection with current or future legal or administrative proceedings; the cessation of operations at the Company's existing distribution center in Plymouth, Michigan; the discontinuance of the "Over-the-Road" freight department; and the adoption of SFAS No. 133. The Company's future interest expense and income also may differ from current expectations, depending upon: the amount of additional borrowings necessary in connection with retail store acquisitions; interest rate fluctuations; cigarette inventory levels; retail property sales; the volume of notes receivable; and the amount of fees received on delinquent accounts, among other factors.
The Company's estimated costs and completion dates for addressing Year 2000 issues, as well as the estimated potential effects on the Company's business operations arising from Year 2000 issues, are based upon management's best estimates. These estimates were derived using numerous assumptions with respect to future events. Actual results could differ materially from those anticipated if there are greater than expected disruptions or costs experienced by the Company or its customers or suppliers in connection with the Year 2000, including unanticipated delays in correcting Year 2000 problems; increased costs of trained personnel; increased costs associated with the Company's retail store acquisitions; the interruption of electronic or telephonic communications; the interruption in banking or commercial payment systems; transportation delays; the failure of basic utilities; or other similar events or factors. Accordingly, there can be no guarantee that the Company's estimates will be achieved.
The foregoing is intended to provide meaningful cautionary statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The foregoing should not be construed as an exhaustive list of all economic, competitive, governmental and technological factors that could adversely affect the Company's expected consolidated financial position, results of operations or liquidity. The Company disclaims any obligation to update its forward-looking statements to reflect subsequent events or circumstances.
ITEM 1. Legal Proceedings
For a discussion of certain litigation, reference is made to "Contingencies" in the Notes to Consolidated Financial Statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
ITEM 6. Exhibits and Reports on Form 8-K
(a) | Exhibits: The following documents are filed as exhibits to this Quarterly Report on Form 10-Q: | ||
Exhibit Number | Document | ||
27 | Financial Data Schedule | ||
(b) | Reports on Form 8-K. On June 3, 1999, the Company filed a Report on Form 8-K, to report under Item 2 of the Form 8-K the purchase of certain equipment, inventory and other assets of Glen's Market, Inc., Catt's Realty Co. and Glen's Pharmacy, Inc. (Glen's). Glen's operated 23 retail grocery stores, four pharmacies and a distribution center, all of which are located primarily in Northern Michigan. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 3, 1999 | SPARTAN STORES, INC. |
(Registrant) | |
By /s/Charles B. Fosnaugh Charles B. Fosnaugh Vice President Development (Principal Financial Officer and duly authorized signatory for Registrant) |
Exhibit Number | Document |
27 | Financial Data Schedule |
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