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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
____
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
X
____ OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 12, 1994
OR
____
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
____ OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ____________
COMMISSION FILE NUMBER 2-14466
_____
SUPER FOOD SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-2407235
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3233 Newmark Drive, Dayton, Ohio 45342
(Address of principal executive offices, including zip code)
(513) 439-7500
(Registrant's telephone number, including area 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 registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as
of the latest practicable date.
At February 12, 1994, there were 10,948,814 Common Shares, $1.00 par value per share, of the
issuer's Common Shares outstanding.
<PAGE>
2
SUPER FOOD SERVICES, INC. AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended
February 12, 1994
Page
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements:
Consolidated Summary Balance Sheets -- February 12, 1994,
February 13, 1993 and August 28, 1993. . . . . . . . . . . . . . 3
Consolidated Summary Statements of Income -- Twelve Weeks
Ended February 12, 1994 and February 13, 1993. . . . . . . . . . 5
Consolidated Summary Statements of Income -- Twenty-Four
Weeks Ended February 12, 1994 and February 13, 1993. . . . . . . 6
Consolidated Summary Statements of Cash Flows -- Twenty-
Four Weeks Ended February 12, 1994 and February 13, 1993 . . . . 7
Notes to Consolidated Financial Statements . . . . . . . . . . . 8
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . .12
Part II. OTHER INFORMATION
Item 6.
Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . .15
/TABLE
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3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Super Food Services, Inc. and Subsidiaries
Consolidated Summary Balance Sheets
February 12, 1994, February 13, 1993, and August 28, 1993
<CAPTION>
Feb. 12, 1994 Feb. 13, 1993 Aug. 28, 1993
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash $ 6,017,753 $ 5,239,473 $ 14,402,491
-------------- -------------- --------------
Receivables:
Retailer-trade 69,036,957 66,644,183 58,712,287
-notes (current portion) 4,733,487 4,673,487 4,733,487
Suppliers and miscellaneous 8,443,945 8,378,260 8,302,537
-------------- -------------- --------------
82,214,389 79,695,930 71,748,311
Less-Allowance for doubtful accounts (8,352,940) (6,949,762) (7,312,578)
-------------- -------------- --------------
Net Receivables 73,861,449 72,746,168 64,435,733
-------------- -------------- --------------
Merchandise inventory 77,091,017 84,042,846 65,161,994
-------------- -------------- --------------
Future tax benefits 1,709,327 3,834,000 1,709,327
-------------- -------------- --------------
Prepaid expenses 6,477,980 8,884,728 6,837,306
-------------- -------------- --------------
Total Current Assets 165,157,526 174,747,215 152,546,851
Notes Receivable-Retailers (long-term portion) 17,857,748 14,866,204 17,969,344
Land, Buildings and Equipment, net 57,417,594 52,349,865 51,558,037
Future Tax Benefits 5,709,981 7,057,575 5,709,981
Other Assets 20,249,010 9,727,864 20,453,526
-------------- -------------- --------------
Total Assets $ 266,391,859 $ 258,748,723 $ 248,237,739
============== ============== ==============
<FN>
The accompanying Notes are an integral part of these consolidated statements.
These interim statements are unaudited.
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4
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
Feb. 12, 1994 Feb. 13, 1993 Aug. 28, 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Current Liabilities:
Accounts payable $ 38,748,429 $ 36,634,063 $ 34,742,525
Notes payable to banks 14,000,000 18,000,000 0
Current maturities of long-term notes
and mortgages payable 2,657,000 2,657,000 2,657,000
Current maturities of obligations under
capitalized leases 1,013,407 843,446 1,013,407
Current portion of Florida closing liabilities 2,100,000 8,223,000 2,100,000
Other current liabilities 15,876,591 7,864,164 14,475,075
------------- ------------- -------------
Total Current Liabilities 74,395,427 74,221,673 54,988,007
Long-term Notes and Mortgages Payable 32,586,569 35,366,992 34,866,212
Obligations Under Capitalized Leases 24,818,823 15,702,335 25,418,226
Long-term Florida Closing Liabilities 4,223,962 9,419,006 5,324,006
------------- ------------- -------------
Total Liabilities 136,024,781 134,710,006 120,596,451
------------- ------------- -------------
Shareholders' Equity:
Common Shares, par value $1.00,
35,000,000 shares authorized 10,948,814 10,891,293 10,906,311
Paid-in capital 29,407,949 28,903,400 29,004,171
Retained earnings 90,010,315 84,244,024 87,730,806
------------- ------------- -------------
Total Shareholders' Equity 130,367,078 124,038,717 127,641,288
------------- ------------- -------------
Total Liabilities and Shareholders' Equity $ 266,391,859 $ 258,748,723 $ 248,237,739
============= ============= =============
<FN>
The accompanying Notes are an integral part of these consolidated statements.
These interim statements are unaudited.
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5
SUPER FOOD SERVICES, INC. AND SUBSIDIARIES
Consolidated Summary Statements of Income
For the Twelve Weeks Ended February 12, 1994 and February 13, 1993
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
Sales and Other Income $ 257,424,766 $ 262,479,755
------------- -------------
Cost and Expenses:
Cost of Sales 245,699,172 251,002,963
Selling, General and Administrative Expenses 7,907,489 7,761,183
Interest, net 598,137 712,692
------------- -------------
Total Costs and Expenses 254,204,798 259,476,838
------------- -------------
Income Before Income Taxes 3,219,968 3,002,917
Provision for Income Taxes 1,234,889 1,186,518
------------- -------------
Net Income Applicable to Common Shares $ 1,985,079 $ 1,816,399
============= =============
Weighted Average Number of Common
Shares outstanding 10,948,814 10,891,293
============= =============
Earnings Per Common Share $ 0.18 $ 0.17
============= =============
Dividends Declared Per Common Share $ .09 $ .085
============= =============
<FN>
The accompanying Notes are an integral part of these consolidated statements.
These interim statements are unaudited.
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6
SUPER FOOD SERVICES, INC. AND SUBSIDIARIES
Consolidated Summary Statements of Income
For the Twenty-Four Weeks Ended February 12, 1994 and February 13, 1993
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
Sales and Other Income $ 528,556,791 $ 545,082,285
------------- -------------
Cost and Expenses:
Cost of Sales 504,733,590 521,980,520
Selling, General and Administrative Expenses 15,615,929 15,171,183
Interest, net 1,282,440 1,528,595
------------- -------------
Total Costs and Expenses 521,631,959 538,680,298
------------- -------------
Income Before Income Taxes 6,924,832 6,401,987
Provision for Income Taxes 2,678,491 2,524,230
------------- -------------
Net Income Applicable to Common Shares $ 4,246,341 $ 3,877,757
============= =============
Weighted Average Number of Common
Shares outstanding 10,936,670 10,891,293
============= =============
Earnings Per Common Share $ 0.39 $ 0.36
============= =============
Dividends Declared Per Common Share $ .18 $ .17
============= =============
<FN>
The accompanying Notes are an integral part of these consolidated statements.
These interim statements are unaudited.
<PAGE>
7
SUPER FOOD SERVICES, INC. AND SUBSIDIARIES
Consolidated Summary Statements of Cash Flows
For the Twenty-Four Weeks Ended February 12, 1994 and February 13, 1993
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
CASH PROVIDED BY (USED FOR) OPERATIONS:
Net Income $ 4,246,341 $ 3,877,757
Items not affecting cash--
Depreciation and amortization 3,442,577 3,309,706
Current items (excluding cash and notes
payable)--
Receivables (9,425,716) (4,067,091)
Merchandise Inventory (11,929,023) (18,124,598)
Prepaid expenses and other 359,326 (390,267)
Accounts payable 4,005,904 1,889,779
Other current liabilities 1,431,864 (2,094,375)
Florida Closing Liabilities (1,100,044) (1,265,924)
-------------- --------------
NET CASH USED FOR OPERATIONS (8,968,771) (16,865,013)
-------------- --------------
CASH PROVIDED BY (USED FOR) INVESTMENTS:
Additions of property, equipment and
direct financing leases (9,127,965) (1,210,393)
Proceeds from sale of equipment 0 967,000
Increase in long-term notes receivable (1,681,234) (2,997,975)
Payments on long-term notes receivable 1,792,829 2,082,522
-------------- --------------
NET CASH USED FOR INVESTMENTS (9,016,370) (1,158,846)
-------------- --------------
CASH PROVIDED BY (USED FOR) FINANCING:
Notes payable to banks 14,000,000 13,000,000
Payments on term debt and capital leases (2,879,046) (2,910,940)
Proceeds from Stock Purchase Plan/
Stock Option Plan 446,281 0
Purchase of Preferred Shares 0 (566,534)
Cash dividends (1,966,832) (1,851,398)
-------------- --------------
NET CASH PROVIDED BY FINANCING 9,600,403 7,671,128
-------------- --------------
INCREASE (DECREASE) IN CASH (8,384,738) (10,352,731)
CASH, BEGINNING OF YEAR 14,402,491 15,592,204
-------------- --------------
CASH, END OF PERIOD $ 6,017,753 $ 5,239,473
============== ==============
<FN>
The accompanying Notes are an integral part of these consolidated statements.
These interim statements are unaudited.
</TABLE>
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8
Super Food Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Financial Statements -
The condensed financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. It is suggested that
these condensed financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's latest annual report
on Form 10-K.
2. Accounting Policies -
The interim financial information presented in this report has been prepared in
accordance with the accounting policies described in the Notes to the Company's
financial statements filed on the most recent Form 10-K. While management
believes that the procedures followed in the preparation of interim information
are reasonable, the accuracy of some estimated amounts is dependent upon facts
that will exist or calculations that will be accomplished later in the fiscal year.
Examples of such estimates (none individually significant) include unpaid
expenses not invoiced and pension costs. In addition, an amount is expensed
ratably for possible inventory shrinkage (based on prior experience and is
adjusted to actual twice during the fiscal year) and to adjust the LIFO reserve
(based upon the Company's best estimate of inflation to date).
The information included in this Form 10-Q reflects all adjustments which are
of a normal recurring nature and, in the opinion of management, necessary for
a fair statement of the results of operations for the period presented.
3. Reclassifications -
Certain reclassifications have been made to prior years' amounts to make them
comparable with the classifications of such amounts for fiscal year 1994.
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9
4. Early Retiree Health Care Benefits -
The Company provides early retiree health care benefits to certain employees
who retire from the Company after January 1, 1989. These early retirees
generally must have attained age 55 with 15 years of continuous service to be
eligible for health care benefits. These benefits are subject to deductibles,
copayment provisions and other limitations. Generally, Company-provided
health care benefits terminate when covered individuals become eligible for
Medicare benefits or reach age 65, whichever comes first. The Company
reserves the right to change or terminate such benefits at any time. In addition,
certain union employees of the Company will continue to be covered by collec-
tively bargained multi-employer plans. Costs under these plans are recognized
as expense when paid.
Prior to fiscal 1994, all early retiree health care benefit costs were recognized as
expense when paid and amounted to $46,000 and $93,000 in the twelve weeks
and twenty-four weeks ended February 13, 1993, respectively.
The Company adopted the new method of accounting for post-employment
benefits (Financial Accounting Standards No. 106) effective August 29, 1993.
This new standard requires that the expected cost of these benefits be charged
to expense during the years that the employees render service. This is a signifi-
cant change from the Company's current policy of recognizing these costs on the
cash basis. The Company has chosen to amortize the transition obligation over
20 years, which is longer than the average remaining service life of the partici-
pants. Company management has obtained its SFAS No. 106 liability from an
actuary based on the current provisions of such plans. These plans are
unfunded. The Company's Transition Obligation at August 29, 1993 was $2.5
million (pre-tax) and was based upon the following key assumptions:
Weighted average discount rate: 7.5
Retirement rates: Varies from 2% to 5% per year
between Ages 55 through 61.
Increases up to 10% to 25% per year
between Ages 62 through 64.
Health care costs trend rates: 12% for Fiscal 1994 and decreasing
ratably to 4.5% by Fiscal 2001.
A one percentage point change in the assumed health care costs trend rate would
change the Transition Obligation by approximately $300,000.
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10
The Company's annual expense to be recognized in accordance with SFAS
No. 106 is approximately $400,000 for fiscal 1994. Expense related to SFAS
No. 106 amounted to approximately $121,000 and $228,000 for the twelve weeks
and twenty-four weeks ended February 12, 1994, respectively. The new account-
ing method will have no effect on the Company's cash outlays for retiree
benefits.
5. Income Taxes -
During the first quarter of fiscal 1994, the Company adopted Statement of
Financial Accounting Standards No.109 (SFAS No. 109), "Accounting for
Income Taxes". This statement requires deferred tax recognition for all tempo-
rary differences in accordance with the liability method and requires adjustment
of deferred tax assets and liabilities for enacted changes in tax laws and rates.
Prior to the implementation of SFAS No. 109, the Company accounted for
income taxes using Accounting Principles Board Opinion No. 11. As permitted
under the SFAS No. 109, prior years' financial statements have not been restated
to reflect the change in accounting method. The cumulative effect of adopting
SFAS No. 109 as of August 29, 1993 was not material. Additionally, the impact
of the new standard on the provision for income taxes for the twelve weeks and
twenty-four weeks ended February 12, 1994 was immaterial.
Following are the temporary differences which gave rise to the significant
deferred tax assets and liabilities as of August 29, 1993:
Florida closing liabilities $ 3,344
Accumulated depreciation (3,195)
Leasing activities 2,580
Insurance accruals 911
Employee benefits accruals 989
Bad debts 1,526
Inventory activities 1,046
Other 218
Valuation allowance -
Total $ 7,419
Current Future Tax Benefits $ 1,709
Long-Term Future Tax Benefits $ 5,710
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11
The Company does not require a valuation allowance as described under SFAS
No. 109. In addition, the Company has no operating loss or tax credit carryfor-
wards. Company management has not increased its future tax benefit balances
for the recent 1% increase in federal tax rates given its projected taxable income
levels.
6. Florida Division Closing -
In the third quarter of Fiscal 1992, the Company recorded a special pretax
charge of $22,986,000 in connection with the closing of the Company's Florida
Division and the disposition of its assets. The closing was required as a result
of the loss by the Florida Division of its single largest customer, Albertson's,
Inc., ("Albertsons") which accounted for approximately 85% of the sales of the
Florida Division. This charge included provisions primarily for losses incurred
on the disposition of the inventory and fixed assets, the estimated portion of the
remaining lease obligations and the related operating costs necessary to maintain
the Florida warehouse facilities until tenants can be found, litigation costs in
connection with the Company's lawsuit against Albertsons, and other costs
relating to the closing. This provision was based on management's best estimate
and judgment under the prevailing circumstances but management believes such
provision will adequately provide for the costs associated with disposition of the
Florida assets and operations.
The Company's lawsuit against Albertsons was filed on March 30, 1992, in the
Ninth Judicial Circuit Court of Orange County, Florida. Initially, the Company
sought to enjoin Albertsons temporarily from proceeding with its plans to self-
distribute in Florida and to obtain specific performance of Albertsons agreement
to purchase the assets of the Florida Division in settlement of the Company's
claims against Albertsons. The Court declined to issue an injunction, holding
that the Company had an adequate remedy at law for damages if it proved that
Albertsons had violated its obligations to the Company, and this decision was
affirmed on appeal. The Company filed an amended complaint seeking mone-
tary damages for Albertsons breach of the requirements contract between the
parties or, in the alternative, damages for Albertsons failure to honor the
settlement agreement between the parties. The discovery phase of the litigation
has been completed and the Court has set a trial date of April 5, 1994.
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12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated financial
statements and notes thereto. All dollar information is in thousands, except per share amounts:
SECOND QUARTER COMPARISONS
1994 1993 % Change
Sales and Other Income $257,425 $262,480 (1.9%)
This decrease in sales resulted primarily from a sluggish economy, weather, competitive
pressures and food price deflation.
1994 1993 % Change
Cost of Sales $245,699 $251,003 (2.1%)
Cost of sales includes cost of the products distributed as well as warehouse, delivery and
building expenses. The Company experienced lower cost of sales due to lower sales volumes
and slightly higher margins as a result of a favorable shift in product mix. In addition, the
Company incurred higher warehouse expenses ($110) and higher delivery expenses ($125) due
primarily to higher payroll costs caused by the severe weather in its service areas. Building
costs increased ($187) because of higher payroll costs, storage costs and increases in certain real
estate taxes.
1994 1993 % Change
Selling, general and administrative expenses $ 7,907 $ 7,761 1.9%
Expenses increased by $146 due primarily to a higher provision for doubtful accounts ($57) and
an increase in the provision for early retiree health care benefits due to compliance with SFAS
No. 106 ($75).
1994 1993 % Change
Interest expense $ 598 $ 713 (16.1%)
Interest expense decreased due to lower interest rates on short-term borrowings as well as lower
average borrowing levels of both long-term and short-term debt.
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13
1994 1993
Effective tax rate 38.4% 39.5%
The Company's effective tax rate decreased because the Company received refunds due to
certain favorable tax treatments at the state level.
1994 1993
Net Income $ 1,985 $ 1,816
Earnings per common share $ .18 $ .17
As reported, the Company's earnings to sales ratio increased from .69% in the second quarter
of fiscal 1993 to .77% in the second quarter of fiscal 1994.
TWENTY-FOUR WEEKS
1994 1993 % Change
Sales and Other Income $528,557 $545,082 (3.0%)
The decrease in sales resulted primarily from a sluggish economy, competitive pressures and
food price deflation.
1994 1993 % Change
Cost of Sales $504,734 $521,981 (3.3%)
Cost of sales includes cost of the products distributed as well as warehouse, delivery and
building expenses. The Company experienced lower cost of sales due to lower sales volume and
slightly higher margins as a result of a favorable shift in product mix. The Company
experienced higher warehouse expenses ($18) and higher delivery expenses ($60) due primarily
to higher payroll costs. Building costs increased ($354) because of higher payroll costs, storage
costs, real estate taxes and repairs.
1994 1993 % Change
Selling, general and administrative expenses $ 15,616 $ 15,171 2.9%
Expenses increased by $445 due primarily to higher provision for doubtful accounts ($198) and
an increase in the provision for early retiree health care benefits due to compliance with SFAS
No. 106 ($135).
1994 1993 % Change
Interest expense $ 1,282 $ 1,529 (16.2%)
Interest expense decreased due to lower interest rates on short-term borrowing as well as lower
average borrowing levels of both long-term and short-term debt.
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14
1994 1993
Effective tax rate 38.7% 39.4%
The Company's effective tax rate decreased because the Company received refunds due to
certain favorable tax treatments at the state level.
1994 1993
Net Income $ 4,246 $ 3,878
Earnings per common share $ .39 $ .36
The Company's earnings to sales ratio increased to .80% from .71% for the twenty-four weeks
of fiscal 1994 compared to the twenty-four weeks of fiscal 1993.
As of and for the 24 Weeks
LIQUIDITY AND in the period ended As of
CAPITAL RESOURCES Feb. 12, 1994 Feb. 13, 1993 Aug. 28, 1993
Cash $ 6,018 $ 5,239 $14,402
Working Capital 90,763 100,525 97,559
Long-term debt 32,587 35,367 34,867
Cash provided by (used for) operations (8,969) (16,865)
Cash provided by (used for) investments (9,016) (1,159)
Cash provided by (used for) financing 9,600 7,671
The Company's financial condition remained strong as of February 12, 1994. The current ratio
was 2.22 to 1.
Since fiscal year-end 1993, receivables increased by $9,425 and inventories increased by $11,929
due to the seasonality of the business. The Company experienced minimal price changes on
products distributed during the first twenty-four weeks of fiscal 1994. To support the higher
levels of receivables and inventory, the Company borrowed from its banks an additional
$14,000 since year-end. In addition, the Company's accounts payable level increased by $4,006
in conjunction with the additional inventory purchases.
Depreciation and amortization of property, equipment and capital leases increased to $3,443
in fiscal 1994 compared to $3,310 in fiscal 1993. Total capital expenditures for the twenty-four
weeks ended February 12, 1994 were $9,128 compared to $1,210 during the first quarter of
fiscal 1993. The increase from the prior year resulted primarily from the Bridgeport warehouse
addition ($6,534). The remaining balance was spent on delivery and other miscellaneous
equipment.
The dividend on common shares was increased from $.085 to $.09 effective with the dividend
paid on December 15, 1993.<PAGE>
15
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
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16
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.
Super Food Services, Inc.
(Registrant)
Date: March 28, 1994 By /s/ Jack Twyman
Jack Twyman
Chairman of the Board
(Chief Executive Officer)
Date: March 28, 1994 By /s/ Robert F. Koogler
Robert F. Koogler
Senior Vice President-Finance,
Treasurer and Assistant Secretary
(Chief Financial and Accounting Officer)
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