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:
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
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
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
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
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
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.
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
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.
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.
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
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.
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:
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.
ITEM 6.
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.
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.
ITEM 7.
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.
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
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.
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
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
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
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data for the Company begin on page 22.
[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
[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
See accompanying notes to financial statements.
(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.
See accompanying notes to financial statements.
See accompanying notes to financial statements.
See accompanying notes to financial statements.
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;
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:
(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.
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
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.
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.
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:
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.
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-
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) ========
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
KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts in Thousands, Except Per Share Amounts)
- ---- 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-
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 ======== ========
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
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 ======= ======= ======= =======
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
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
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.
ITEM 9.
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.
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.
ITEM 11.
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.
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.
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.
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
(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
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
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).
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).
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
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).
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
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)
/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