UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended May 4, 1996
Commission File Number: 33-86690
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STAR MARKETS COMPANY, INC.
--------------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3243710
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
625 MT. AUBURN STREET, CAMBRIDGE, MA 02138
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(Address of principal executive offices) (Zip Code)
(617) 528-2550
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(Registrant's telephone number, including area code)
NONE
----
(Former name, former address and former fiscal year, if
changed since last report)
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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ___.
Number of shares of the issuer's common stock, outstanding as of June 1, 1996:
5,000 shares.
STAR MARKETS COMPANY, INC.
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
The following statements of Star Markets Company, Inc. are included herein:
Balance sheets - May 4, 1996 and February 3, 1996
Statements of operations - 13 weeks ended May 4, 1996 and April 29, 1995
Statements of cash flows - 13 weeks ended May 4, 1996 and April 29, 1995
Notes to financial statements - May 4, 1996
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
Signatures
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
STAR MARKETS COMPANY, INC.
BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
May 4, February 3,
1996 1996
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<S> <C> <C>
Assets
Current assets:
Accounts receivable, net of reserve for doubtful
accounts of $2,032 in May and $1,779 in February $ 10,993 $ 13,544
Inventory 55,711 62,915
Prepaid expenses 5,642 5,044
Deferred taxes 12,680 9,946
-------- --------
Total current assets 85,026 91,449
Property and equipment at cost:
Land 31,082 32,402
Building 66,179 68,876
Equipment & fixtures 73,364 71,148
Leasehold improvements 31,263 28,670
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Total property & equipment 201,888 201,096
Less accumulated depreciation and amortization 23,225 19,423
-------- --------
Net property and equipment 178,663 181,673
Other assets, net 25,272 25,885
Goodwill, net 135,567 136,442
-------- --------
Total Assets $424,528 $435,449
======== ========
Liabilities and Shareholder's Equity
Current liabilities:
Accounts payable $ 34,921 $ 39,770
Accrued payroll & benefits 9,381 12,509
Current portion self-insurance 7,863 7,967
Accrued interest 750 5,133
Other current liabilities 7,344 10,170
-------- --------
Total current liabilities 60,259 75,549
Deferred taxes 12,680 9,946
Self-insurance and other liabilities 23,497 23,219
Long-term debt 261,600 257,400
Redeemable preferred stock, redemption value $11,000 10,158 10,134
Shareholder's equity:
Common stock, $.01 par value, 10,000 shares
authorized and 5,000 shares outstanding 0 0
Additional paid-in-capital 73,499 73,692
Retained earnings (deficit) (17,165) (14,491)
-------- --------
Total shareholder's equity 56,334 59,201
-------- --------
Total Liabilities and Shareholder's Equity $424,528 $435,449
======== ========
</TABLE>
See accompanying notes.
STAR MARKETS COMPANY, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
13 Weeks 13 Weeks
Ended Ended
May 4, April 29,
1996 1995
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<S> <C> <C>
Total revenues $217,055 $198,190
Cost of goods sold 162,332 155,086
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Gross profit 54,723 43,104
Operating and administrative expenses 45,232 35,853
Depreciation and amortization 5,106 4,698
-------- --------
Operating profit 4,385 2,553
Interest expense 6,934 6,696
Other (expenses) income, net (54) 12
-------- --------
Loss before income taxes (2,603) (4,131)
Income taxes 68 62
-------- --------
Net loss $ (2,671) $ (4,193)
======== ========
</TABLE>
See accompanying notes.
STAR MARKETS COMPANY, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
13 Weeks 13 Weeks
Ended Ended
May 4, April 29,
1996 1995
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<S> <C> <C>
Operating activities
Net loss $ (2,671) $ (4,193)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Amortization of deferred financing costs 386 382
Depreciation and amortization 5,106 4,698
Loss (gain) on sale or disposal of property and equipment 54 (8)
Changes in operating assets and liabilities:
Accounts receivable 2,551 1,280
Inventories 7,204 1,819
Prepaid expenses (598) (49)
Accounts payable (4,849) 2,681
Accrued payroll and benefits (3,128) (2,643)
Self-insurance reserves (104) (915)
Accrued interest (4,383) 3,604
Income taxes payable and other current liabilities (2,522) (5,123)
Other 602 (281)
-------- --------
Net cash (used in) provided by operating activities (2,352) 1,252
Investing activities
Purchases of property and equipment (5,321) (6,218)
Proceeds from sale of property and equipment 4,260 3,930
Increase in restricted cash (4,175)
-------- --------
Net cash used in investing activities (5,236) (2,288)
Financing Activities
Net proceeds from revolving credit facility 4,200 1,200
Preferred dividends paid (612)
Deferred financing costs (164)
Deposits refunded 4,000
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Net cash provided by financing activities 7,588 1,036
Net increase (decrease) in cash and cash equivalents 0 0
Cash and cash equivalents beginning of period 0 0
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Cash and cash equivalents end of period $ 0 $ 0
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Supplemental disclosure of cash flow information:
Cash paid for interest $ 10,895 $ 2,643
Cash paid for income taxes 0 106
</TABLE>
See accompanying notes.
STAR MARKETS COMPANY, INC.
Notes to Financial Statements
May 4, 1996
(Unaudited)
Note 1 - Background
- - -------------------
Star Markets Company, Inc., a Massachusetts corporation ("Star" or the
"Company"), is a leading food retailer in the metropolitan Boston area,
operating 38 stores as of May 4, 1996. Additionally, the Company operates a
wholesale business which provides warehousing, distribution and certain
administrative services to independent store locations throughout the New
England area.
The Company is a wholly-owned subsidiary of Star Markets Holdings, Inc., a
Massachusetts corporation ("Holdings"). Both Holdings and the Company were
formed for purposes of acquiring the business and assets of the Star Market
operating division of Jewel Food Stores, Inc. in September 1994. Companies
affiliated with INVESTCORP S.A. ("Investcorp") own all of the currently
outstanding voting stock of Holdings.
Note 2 - Basis of Presentation
- - ------------------------------
The unaudited financial information furnished herein reflects all adjustments,
which in the opinion of management are of a normal recurring nature, to fairly
state the Company's financial position and results of operations for the
periods presented. The results of operations for the 13 week period ended May
4, 1996 are not necessarily indicative of the results to be expected for the
entire year ending February 1, 1997. For further information, refer to the
financial statements and footnotes thereto included in the Registrant
Company's annual report on Form 10-K for the year ended February 3, 1996.
Note 3 - Accounting Policy
- - --------------------------
Effective February 4, 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amounts. There was no effect on the financial statements due to the
adoption of the provisions of this statement in the current fiscal quarter.
STAR MARKETS COMPANY, INC.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Results of Operations
- - ---------------------
Results of operations for the 13 weeks ended May 4, 1996 are referred to
herein as "Quarter 1996" and the 13 weeks ended April 29, 1995 are referred to
as "Quarter 1995".
Revenues
- - --------
Total revenues for the Company increased 9.5% in Quarter 1996 to $217.1
million from $198.2 million in Quarter 1995. Sales from retail operations for
Quarter 1996 increased 12.9% to $198.5 million from $175.8 for Quarter 1995.
The growth in retail sales was attributable both to an increase in the number
of retail stores operated and a 0.7% increase in comparable store sales in
Quarter 1996. Revenues from the wholesale operations for Quarter 1996 declined
17.0% to $18.6 million from $22.4 million in Quarter 1995. The decrease in
wholesale sales was primarily due to the loss of three wholesale accounts
which ceased operations due to increased competition in their respective
trading areas.
Gross Profit
- - ------------
Gross profit for the Company increased 27.0% in Quarter 1996 to $54.7 million
from $43.1 million in Quarter 1995. Gross profit as a percentage of total
revenues increased to 25.2% in Quarter 1996 from 21.8% in Quarter 1995. Gross
profit from retail operations increased 28.3% in Quarter 1996 to $53.5 million
from $41.7 million in Quarter 1995 primarily due to the increase in retail
revenues. Gross profit as a percentage of sales for the retail operations
increased to 27.0% in Quarter 1996 from 23.8% in Quarter 1995. The increase in
gross profit as a percentage of sales was primarily due to improvements in
merchandising margin, particularly in the perishable categories. Gross profit
from the wholesale operations for Quarter 1996 decreased 14.3% to $1.2 million
from $1.4 million in Quarter 1995. Gross profit as a percentage of wholesale
revenues for Quarter 1996 increased to 6.5% from 6.1% in Quarter 1995.
Operating and Administrative Expenses
- - -------------------------------------
Operating and administrative expenses increased by 26.2% to $45.2 million in
Quarter 1996 from $35.9 million in Quarter 1995. Operating and administrative
expenses as a percentage of total revenues increased to 20.8% in Quarter 1996
from 18.1% in Quarter 1995. The increase in operating and administrative
expenses as a percentage of total revenues was the result of a number of
factors, including an increase in retail operations which incur a higher rate
of operating and administrative expenses than wholesale operations, an
increase in rent expense during Quarter 1996 as a result of sale-leaseback
transactions, and additional administrative costs as the Company continues to
grow.
Interest Expense
- - ----------------
Net interest expense, primarily related to interest expense on debt incurred
to finance the acquisition of the Company, was $6.9 million in Quarter 1996.
Net interest expense was $6.7 million in Quarter 1995.
Liquidity and Capital Resources
- - -------------------------------
The Company's liquidity needs arise primarily from debt service on the
indebtedness incurred in connection with the acquisition of the Company, and
funding of the Company's capital expenditure and working capital requirements.
As of May 24, 1996 the Company's debt included (i) $109.0 million in
borrowings under the term loan portion of the Senior Credit Facility, (ii)
$40.4 million in borrowings under the revolving credit portion of the Senior
Credit Facility, and (iii) $110.0 million in Senior Subordinated Notes due
2004. At May 24, 1996, the Company had $10.2 million drawn under the letter of
credit facilities of the Senior Credit Facility and $40.4 million drawn under
the revolving credit portion of the Senior Credit Facility, leaving an
aggregate of $24.4 million of unused revolving credit available under the
Senior Credit Facility.
In January 1996, the Company entered into an agreement to acquire four stores
from The Stop & Shop Companies, Inc. ("Stop & Shop"), subject to Federal Trade
Commission ("FTC") approval, for an aggregate purchase price of $24.1 million
excluding related fees and inventory. The Company's lenders have agreed to an
amendment to the Senior Credit Facility which will allow the Company to
utilize $12.0 million in proceeds from the sale of assets to fund a portion of
this acquisition. The Company is currently holding $10.3 million from the sale
of assets for the purposes of acquiring the four stores. If not used for this
purpose, the funds will be used to pay down long-term debt. The Company will
receive an equity contribution of $12.0 million from certain of its existing
shareholders to fund the balance of the purchase price.
In May 1996, the Company entered into an additional agreement, subject to FTC
approval, to purchase seven stores located on Cape Cod, Massachusetts, from
Stop & Shop, bringing the total number of stores under agreement to 11.
The Company realized net proceeds of $4.3 million from the sale of one non-
operating property during Quarter 1996. The net proceeds from this
transaction, plus approximately $6.0 million from a prior sale-leaseback
transaction, are included in the amount being held as restricted cash for the
purpose of acquiring four of the stores under agreement.
In addition to the four store acquisition, the Company currently plans to make
total capital expenditures of approximately $26.0 million in fiscal 1996.
Capital expenditures for Quarter 1996 were $5.3 million compared with $6.2
million in Quarter 1995. Capital expenditures will include expanding and
remodeling one conventional store and remodeling two superstores, the
acquisition of the seven Cape Cod stores, as well as costs to convert the 11
stores under agreement to Star stores. The Company's fiscal 1996 capital
expenditure plan also anticipates spending for maintenance, systems, and
distribution.
The Company believes that funds generated from operations, proceeds from sale-
leaseback transactions of currently owned properties, and borrowings under the
Senior Credit Facility will provide sufficient resources through fiscal 1996
to permit it to meet its working capital requirements, to make all interest
and principal payments due and payable on the Subordinated Notes and its
existing indebtedness and planned capital expenditures. However, if the
Company's cash flow and capital resources are insufficient to fund its debt
service obligations, the Company may be required to reduce or delay planned
capital expenditures, sell assets, obtain additional equity capital or
restructure debt.
STAR MARKETS COMPANY, INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
The following exhibits are included herein:
(27) Financial Data Schedule
The Company did not file any reports on Form 8-K for the 13 weeks ended May 4,
1996.
STAR MARKETS COMPANY, INC.
Signatures
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.
Star Markets Company, Inc.
(Registrant)
Date:June 14, 1996 By: /s/ Robert R. Spellman
Robert R. Spellman
Executive Vice President,
Chief Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING BALANCE SHEETS AS OF MAY 4, 1996 AND FEBRUARY 3, 1996 AND THE
ACCOMPANYING STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE 13 WEEK PERIODS
ENDED MAY 4, 1996 AND APRIL 29, 1995 FOR STAR MARKETS COMPANY, INC., AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> MAY-04-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 13,025
<ALLOWANCES> 2,032
<INVENTORY> 55,711
<CURRENT-ASSETS> 85,026
<PP&E> 201,888
<DEPRECIATION> 23,225
<TOTAL-ASSETS> 424,528
<CURRENT-LIABILITIES> 60,259
<BONDS> 261,600
10,158
0
<COMMON> 0
<OTHER-SE> 73,499
<TOTAL-LIABILITY-AND-EQUITY> 424,528
<SALES> 217,055
<TOTAL-REVENUES> 217,055
<CGS> 162,332
<TOTAL-COSTS> 50,338
<OTHER-EXPENSES> 54
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,934
<INCOME-PRETAX> (2,603)
<INCOME-TAX> 68
<INCOME-CONTINUING> (2,671)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,671)
<EPS-PRIMARY> (534.20)
<EPS-DILUTED> (534.20)
</TABLE>
