SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
-- THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 6, 2001
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OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-549
FRESH BRANDS, INC.
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(Exact Name of Registrant as Specified in its Charter)
WISCONSIN 39-2019963
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(State or other jurisdiction (I.R.S. Employer
of incorporation of organization) Identification No.)
2215 UNION AVENUE 53081
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SHEBOYGAN, WISCONSIN (Zip Code)
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(Address of principal
executive offices)
Registrant's telephone number
including area code 920-457-4433
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Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days. Yes__X__ No____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes____ No____
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date.
As of November 16, 2001, 5,039,174 shares of Common Stock, $0.05 par value,
were issued and outstanding.
FRESH BRANDS, INC.
FORM 10-Q INDEX
PAGE
NUMBER
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
Unaudited Consolidated Statements of Earnings 4
Unaudited Consolidated Statements of Cash Flows 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 12
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
FRESH BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
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(Unaudited) (Audited)
October 6, December 30,
Assets 2001 2000
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Current assets:
Cash and equivalents $ 12,171,000 $ 31,309,000
Receivables 11,204,000 11,691,000
Inventories 32,877,000 24,259,000
Other current assets 5,271,000 2,916,000
Deferred income taxes 4,262,000 4,102,000
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Total current assets 65,785,000 74,277,000
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Noncurrent receivable under capital subleases 3,844,000 4,163,000
Property under capital leases, net 2,734,000 3,051,000
Goodwill 20,153,000 717,000
Other noncurrent assets 820,000 1,278,000
Property and equipment, net 28,713,000 21,413,000
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Total assets $122,049,000 $104,899,000
==========================================================================================================
Liabilities and Shareholders' Investment
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Current liabilities:
Accounts payable $ 32,744,000 $ 27,700,000
Accrued salaries and benefits 7,904,000 5,673,000
Accrued insurance 3,742,000 3,032,000
Other accrued liabilities 5,755,000 6,197,000
Current obligations under capital leases 889,000 785,000
Current maturities of long-term debt 331,000 169,000
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Total current liabilities 51,365,000 43,556,000
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Long-term obligations under capital leases 7,611,000 8,284,000
Long-term debt 15,871,000 2,685,000
Deferred income taxes 861,000 861,000
Shareholders' investment:
Common stock 438,000 438,000
Additional paid-in capital 15,371,000 15,174,000
Retained earnings 73,554,000 69,767,000
Treasury stock (43,022,000) (35,866,000)
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Total shareholders' investment 46,341,000 49,513,000
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Total liabilities and shareholders' investment $122,049,000 $104,899,000
==========================================================================================================
3
FRESH BRANDS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
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For the 12-weeks ended For the 40-weeks ended
October 6, 2001 October 7, 2000 October 6, 2001 October 7, 2000
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Net sales $ 145,488,000 $ 116,341,000 $ 433,111,000 $ 380,488,000
Costs and expenses:
Cost of products sold 117,092,000 97,498,000 355,532,000 317,716,000
Operating and
administrative expenses 25,589,000 16,510,000 68,909,000 54,476,000
Operating income 2,807,000 2,333,000 8,670,000 8,296,000
Interest income 16,000 372,000 600,000 950,000
Interest expense (341,000) (197,000) (875,000) (656,000)
Earnings before income taxes 2,482,000 2,508,000 8,395,000 8,590,000
Provision for income taxes 947,000 953,000 3,194,000 3,264,000
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Net earnings $ 1,535,000 $ 1,555,000 $ 5,201,000 $ 5,326,000
============================================================================================================================
Earnings per share - basic $ 0.30 $ 0.26 $ 0.99 $ 0.90
Earnings per share - diluted $ 0.30 $ 0.26 $ 0.98 $ 0.89
Cash dividends paid per share
of common stock $ 0.09 $ 0.09 $ 0.27 $ 0.27
Weighted average common shares
and equivalents 5,097,000 5,998,000 5,304,000 5,994,000
4
FRESH BRANDS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
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For the 40-weeks ended
October 6, 2001 October 7, 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 5,201,000 $ 5,326,000
Adjustments to reconcile net earnings to net cash flows
from operating activities
Depreciation and amortization 4,943,000 4,022,000
Deferred income taxes (160,000) -
Changes in assets and liabilities, excluding impact of acquisition
Receivables 1,407,000 (5,243,000)
Inventories (3,319,000) 2,776,000
Other current assets (1,196,000) 388,000
Accounts payable (494,000) 7,804,000
Accrued liabilities (359,000) 255,000
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Net cash flows from operating activities 6,023,000 15,328,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition, net of cash acquired (27,260,000) -
Expenditures for property and equipment (4,233,000) (2,714,000)
Proceeds from sale of assets 2,184,000 7,000
Receipt of principal amounts under capital
sublease agreements 283,000 251,000
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Net cash flows from investing activities (29,026,000) (2,456,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt borrowing 13,236,000 -
Payment for acquisition of treasury stock (8,258,000) (55,000)
Payment of cash dividends (1,414,000) (1,604,000)
Exercise of stock options 1,078,000 232,000
Principal payments under capital lease obligations (604,000) (536,000)
Principal payments on long-term debt (197,000) (124,000)
Other 24,000 24,000
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Net cash flows from financing activities 3,865,000 (2,063,000)
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CASH AND EQUIVALENTS:
Net change (19,138,000) 10,809,000
Balance, beginning of period 31,309,000 22,433,000
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Balance, end of period $ 12,171,000 $ 33,242,000
=====================================================================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 858,000 $ 654,000
Income taxes paid 4,012,000 3,697,000
5
FRESH BRANDS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The financial statements included herein have been prepared by the Company
without audit. Although certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted, the Company believes that
the disclosures are adequate to make the information presented not misleading.
The interim financial statements furnished with this report reflect all
adjustments of a normal recurring nature which are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods presented. It is suggested that these financial statements be read in
conjunction with the audited financial statements and the notes thereto included
in the Company's 2000 annual report to shareholders, as incorporated by
reference in the Company's Form 10-K for the fiscal year ended December 30,
2000.
(2) Business Combinations
On June 16, 2001, the Company acquired all of the outstanding common stock of
Dick's Supermarkets, Inc. for approximately $30.0 million in cash (including
assumption of funded debt), subject to adjustment based on net working capital
of Dick's as of the closing date. This acquisition has been accounted for under
the purchase method of accounting and the results of Dick's Supermarkets, Inc.
have been included in the Company's results from the date of acquisition. The
Company continues to allocate the purchase price, on a pro forma basis, to the
fair market value of the assets acquired and the liabilities assumed resulting
in goodwill of approximately $19.3 million. The final adjustments to the
purchase price allocations are not expected to be material to the consolidated
financial statements.
The unaudited pro forma results of operations for the 12-week and 40-week
periods ended October 6, 2001 and October 7, 2000 included in the table below
have been prepared for comparative purposes only. These results have been
prepared as if the acquisition of Dick's Supermarkets, Inc. had occurred at the
beginning of fiscal 2000, but do not necessarily reflect the results that would
have occurred had the acquisition actually occurred at the beginning of fiscal
2000. The results presented below include certain pro forma adjustments to
reflect the amortization of goodwill, depreciation of fixed assets, adjustments
to interest expense and the inclusion of an income tax provision on all earnings
(in thousands except earnings per share):
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For the 12-weeks ended For the 40-weeks ended
October 6, 2001 October 7, 2000 October 6, 2001 October 7, 2000
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Net sales $ 161,300 $ 141,100 $ 493,300 $ 461,600
Net earnings 1,665 1,649 4,780 5,193
Net earnings per share:
Basic $ 0.33 $ 0.28 $ 0.91 $ 0.87
Diluted $ 0.33 $ 0.27 $ 0.90 $ 0.87
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6
(3) Other Current Assets (in thousands)
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October 6, 2001 December 30, 2000
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Prepaid expenses $ 2,221 $ 1,417
Property held for resale 2,205 647
Retail systems and supplies for resale 441 484
Receivable under capital subleases 404 368
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Other current assets $ 5,271 $ 2,916
===============================================================================
(4) Segment Reporting
Summarized financial information for the third quarter and year-to-date of 2001
and 2000 concerning the Company's reportable segments is shown in the following
tables (in thousands):
Sales
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For the 12-weeks ended For the 40-weeks ended
October 6, 2001 October 7, 2000 October 6, 2001 October 7, 2000
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Wholesale sales $ 109,280 $ 94,871 $ 339,351 $ 309,336
Intracompany sales (38,079) (26,219) (104,171) (87,180)
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Net wholesale sales 71,201 68,652 235,180 222,156
Retail sales 74,287 47,689 197,931 158,332
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Total sales $ 145,488 $ 116,341 $ 433,111 $ 380,488
================================================================================================
Earnings Before Income Tax
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For the 12-weeks ended For the 40-weeks ended
October 6, 2001 October 7, 2000 October 6, 2001 October 7, 2000
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Wholesale $ 2,150 $ 1,880 $ 6,681 $ 6,505
Retail 657 453 1,989 1,791
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Total operating income 2,807 2,333 8,670 8,296
Interest income 16 372 600 950
Interest expense (341) (197) (875) (656)
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Earnings before income
taxes $ 2,482 $ 2,508 $ 8,395 $ 8,590
================================================================================================
(5) New Accounting Pronouncements
In June 2001, the Statement of Financial Accounting Standards ("SFAS") issued
SFAS No. 141, "Business Combinations" and No. 142, "Goodwill and Other
Intangible Assets" effective for fiscal years beginning after December 15, 2001.
Under the new rules, goodwill and intangible assets deemed to have indefinite
lives will no longer be amortized but will be subject to periodic impairment
tests in accordance with these statements. The nonamortization provisions of
SFAS No. 142 will not initially impact amortization expense related to
acquisitions initiated prior to June 30, 2001, but any goodwill or indefinite
lived intangibles on acquisitions subsequent to June 30, 2001 will not be
amortized. Effective December 30, 2001, all amortization expense on goodwill and
intangible assets with indefinite lives will stop. The Company estimates that
the nonamortization provisions of SFAS No. 142 will eliminate approximately $1.0
million of amortization that would have been expensed in fiscal 2002 under the
previous rules. During fiscal 2002, the Company will perform the first of the
required impairment tests of goodwill as of December 30, 2001. The Company has
not yet determined what effect this test will have on its net earnings and
financial position.
7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Selected costs and results as a percent of net sales:
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For the 12-weeks ended For the 40-weeks ended
October 6, October 7, October 6, October 7,
2001 2000 2001 2000
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Gross margin 19.5% 16.2% 17.9% 16.5%
Operating and administrative expenses 17.6 14.2 15.9 14.3
Earnings before income taxes 1.7 2.2 1.9 2.3
Net earnings 1.1 1.3 1.2 1.4
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Net Sales
Record net sales for the 12- and 40-week periods ended October 6, 2001 were
$145.5 million and $433.1 million, respectively, compared to $116.3 million and
$380.5 million, respectively, for the same periods in 2000. The increases of
$29.2 million and $52.6 million, or 25.1% and 13.8%, respectively, were due to
increases in both wholesale and retail sales volume.
Retail sales for the 12- and 40-week periods ended October 6, 2001 were $74.3
million and $197.9 million, respectively, compared to $47.7 million and $158.3
million for the same periods in 2000. The retail sales increases of $26.6
million and $39.6 million represented percentage increases of 55.8% and 25.0%
for the third quarter and fiscal 2001 year-to-date, respectively. The Company's
June 16, 2001 acquisition of Dick's Supermarkets, Inc. was the primary factor
contributing to the growth in retail sales. Dick's added retail sales of $23.2
million and $31.7 million, or 48.6% and 20.0%, to third quarter and fiscal 2001
year-to-date operations, respectively. Additional key factors behind the retail
sales improvement were the opening of the state-of-the-art prototype store in
Sheboygan, Wisconsin, in August 2001; the continuing success of the Piggly
Wiggly(R) Preferred Power Pricing marketing and promotional program that was
initiated in January 2001; the replacement of one corporate store in Racine,
Wisconsin in May 2000; and store closures by competitors over the past year. For
the Piggly Wiggly franchise and corporate retail chain, same store sales
increased 4.0% for the third quarter and 3.8% for the first three quarters of
fiscal year 2001, compared to the same periods in 2000. For fiscal 2002, the
Company anticipates certain retail sales volume improvement due to the planned
opening of a replacement corporate supermarket in Zion, Illinois in January and
a new market corporate store in Kenosha, Wisconsin in the fall.
Net wholesale sales for the 12- and 40-week periods ended October 6, 2001 were
$71.2 million and $235.2 million, respectively, compared to $68.6 million and
$222.2 million for the same periods in 2000. The net wholesale sales increases
of $2.6 million and $13.0 million represented percentage increases of 3.8% and
5.9% for the third quarter and fiscal 2001 year-to-date, respectively. The
opening of three replacement franchise stores, the first in New Holstein,
Wisconsin in September 2000, the second in Slinger, Wisconsin in January 2001
and the third in Campbellsport, Wisconsin in April 2001, combined with the
opening of one new market franchise supermarket in Kewaskum, Wisconsin in June
2000, were significant reasons for the wholesale volume increase. The combined
year-to-date wholesale sales improvement through October 6, 2001 attributable to
these stores was approximately $4.4 million, or nearly 50% measured against last
year's same store sales. The conversion to a Piggly Wiggly of an independent
store in Kohler, Wisconsin in April 2001 and the Company's successful marketing
and promotional programs provided additional wholesale sales improvements. Also,
at the end of the third quarter, the Company converted a retail supermarket to
the Piggly Wiggly program from another wholesaler in Howard, Wisconsin. The
construction of a replacement store for Howard is expected to be
8
completed by fall, 2002. There are also additional projects currently underway
which are expected to increase future wholesale sales. Construction is
continuing on the remodeling and store expansion of the franchise store in
Mequon, Wisconsin, with the opening scheduled for spring, 2002. Plans are also
moving forward for the addition of 20,000 square feet to the existing freezer
facility in the Sheboygan, Wisconsin warehouse. The freezer addition is expected
to accommodate the Company's strategic growth plans. These plans include, among
others, the increase of total frozen food SKUs and the integration of
manufactured bakery items from Dick's into Piggly Wiggly corporate and franchise
supermarkets.
As of October 6, 2001, the Company had 71 independent franchise-owned
supermarkets and 27 corporate stores, 90 of which operated under the Piggly
Wiggly banner and eight that operated as Dick's Supermarkets.
Gross Margin
Gross margin increased to 19.5% and 17.9% for the 12- and 40-week periods ended
October 6, 2001, compared to 16.2% and 16.5%, respectively, for the same periods
in 2000. This significant improvement was primarily attributable to the
increased mix of higher margin retail sales resulting from the Dick's
acquisition. For the remainder of the year, the Company anticipates further
year-to-date gross margin improvements as the mix of retail sales to total sales
approaches 50%. For the 40-week period ended October 6, 2001, retail sales to
total sales was 45.7%, compared to 41.6% for the 40-week period ended October 7,
2000.
Operating and Administrative Expenses
Operating and administrative expenses, as a percent of sales, increased to 17.6%
and 15.9% for the 12- and 40-week periods ended October 6, 2001, compared to
14.2% and 14.3%, respectively, for the same periods in 2000.
The increase in retail mix resulting from the Dick's acquisition resulted in a
corresponding and anticipated increase in operating and administrative expenses.
Further, goodwill amortization and depreciation on revalued assets for the
Dick's acquisition totaled approximately $400,000 during the third quarter. For
the year, the Company anticipates the additional asset depreciation and goodwill
amortization to total approximately $880,000. However, as a result of two new
accounting pronouncements, goodwill amortization over its estimated useful life
will be eliminated effective as of the beginning of the new fiscal year.
Instead, goodwill will be subject to at least an annual impairment assessment
with the application of a fair-value-based test. Impairment to the value of
goodwill is not anticipated as of the first test date of December 30, 2001. With
goodwill valuation of $20.2 million, this accounting change is expected to
increase the Company's operating earnings next year by approximately $1.0
million from what would have otherwise been reported under the old goodwill
amortization level.
In addition to increased operating and administrative expenses resulting from
the Dick's acquisition, the Company continues to experience significant
increases in its employee health care costs. These cost increases are the result
of increased costs attributable to the Company's retail union employee's
multi-employer health plan, as well as increased internal health care costs
associated with its non-union and warehouse union employees. Health care costs
attributable to the Company's multi-employer plan are expected to increase by
approximately an additional $250,000 in the fourth quarter of fiscal 2001. The
Company anticipates that these increased levels of health care costs will
continue in the future, but a number of steps have been taken to mitigate the
increasing costs. In the third quarter of 2001, the Company introduced an
employee premium cost sharing element to the corporate health plan and certain
plan design changes have been made to the union multi-employer health plan.
Due to the ongoing highly competitive nature of the industry in the Company's
markets, certain Company franchise operators and corporate retail supermarkets
continue to experience a variety of
9
operational issues. The Company continues to evaluate various business
alternatives relating to these underperforming operations. The Company's
business alternatives include, but are not limited to, the sale and subsequent
conversion of corporate stores to franchise units, closing stores, or
implementing other operational difficulties. Implementation of these
alternatives could result in the Company incurring certain repositioning or
restructuring charges for these replaced, closed or sold stores and negatively
impact net earnings in the short term. However, the Company believes that such
actions will help improve the Company's long-term profitability. The Company did
not incur any significant repositioning costs for the third quarter ended
October 6, 2001 and no additional repositioning costs are expected to be
incurred for the remainder of fiscal year 2001.
The Company borrowed $12.5 million in the second quarter of 2001 to help fund
its acquisition of Dick's Supermarkets, Inc. For the third quarter ended October
6, 2001, the corresponding interest charge was approximately $135,000. For the
year, the Company expects total interest expense from borrowings related to the
Dick's acquisition to approximate $350,000.
Net Earnings
Net earnings for the 12- and 40-week periods ended October 6, 2001 decreased
1.3% and 2.3% to $1.5 million and $5.2 million, respectively, compared to $1.6
million and $5.3 million for the same periods in 2000. Diluted earnings per
share for the 12-week period ended October 6, 2001 increased 15.4% to $0.30,
compared to $0.26 in 2000, and increased 10.1% for the 40-week period ended
October 6, 2001 to $0.98 compared to $0.89 in 2000. The Company's weighted
average common shares and equivalents for the third quarter and 2001
year-to-date were 5,097,000 and 5,304,000, compared to 5,998,000 and 5,994,000,
respectively, for the same periods in 2000. The decreases of 901,000 shares and
690,000 shares, or 15.0% and 11.5%, respectively, were due to significant share
repurchases since December 30, 2000.
Liquidity and Capital Resources
As of October 6, 2001, the Company had cash and equivalents totaling $12.2
million. At year-end 2000, cash and equivalents aggregated $31.3 million. The
net cash outflow of $19.1 million was primarily attributable to the acquisition
of Dick's Supermarkets, Inc. on June 16, 2001. Additional operating, investing
and financing activities contributing to changes in cash flows are described
below.
The Company had net cash inflows from operating activities of $6.0 million
during the first three quarters of 2001, compared to net cash inflows of $15.3
million for the same period in 2000. The decrease in year-to-date cash inflows
from operations was due primarily to the combined effect of changes in accounts
receivable, inventory and accounts payable resulting in net cash outflows of
$2.4 million compared to cash inflows of $5.3 million during the same time
period in the prior year.
Net cash outflows from investing activities for the 40-week period ended October
6, 2001 totaled $29.0 million, compared to $2.5 million for the same period in
2000. The acquisition of Dick's Supermarkets, Inc. accounted for nearly $27.3
million of the year-to-date investing cash outflows. Additionally, the Company
carried out its plan to sell and lease back the Wilson Avenue, Sheboygan,
Wisconsin retail facility during the quarter. The Company realized a nominal
gain from the $2.2 million sales transaction. The Company then converted this
facility to a supplementary distribution facility.
During the second quarter of 2001, the Company announced a $15 million,
three-year capital expenditure project to replace and expand its current
business information technology systems. The new systems are expected to support
the Company's aggressive growth plans and provide improved operational
efficiencies and cost savings. The project, which is expected to be rolled-out
over a three-year period, includes four critical business process phases. The
first two phases of the program, the core infrastructure and the systems
relating to the Company's wholesale business operations, are expected to
10
be completed over the next 12 to 18 months. The final two phases, relating to
the Company's retail pricing and promotional card marketing, human resources and
financial reporting systems, are projected to be completed over the next 24 to
36 months. This project is expected to be funded substantially with internally
generated cash from operations. Cash outflows for the systems project during the
third quarter of 2001 were nominal. The Company continues to project capital
expenditures in the range of $3 to $4 million for this project during the fourth
quarter of 2001.
The Company expects that its growth in earnings and earnings per share could be
affected as a result of the implementation of this business information
technology project for the next several years. For 2001, the impact on earnings
and earnings per share is expected to be nominal because the project is
currently in its initial phase of implementation. The impact of this project on
the Company's earnings and earnings per share in the future is uncertain and
will be dependent upon the Company's ability to successfully achieve its
strategic growth initiatives and realize the expected efficiencies and cost
savings from its new business information systems.
Principally as a result of the Company's systems project, the Company's capital
budget for 2001 has been increased to $15.1 million from $7.0 million. Of this
capital budget, approximately $4.2 million was committed for corporate retail
replacement stores and $2.3 million for distribution facility additions.
Additionally, up to $5.0 million of the budget has been allocated for the
Company's business systems project. Through the third quarter of fiscal 2001,
the Company has spent approximately $4.2 million of the $15.1 million capital
budget.
Net cash inflows from financing activities for the 40-week period ended October
6, 2001, totaled nearly $3.9 million compared to cash outflows of $2.1 million
for the same period in 2000. In the second quarter of 2001, the Company entered
into a new $35 million revolving credit facility. The lenders under the new
facility remained the same as under the Company's former $16 million credit
agreement. The Company borrowed $12.5 million on its new revolving credit
facility to help fund its acquisition of Dick's Supermarkets, Inc. in the second
quarter of 2001. Approximately $12.9 million is currently outstanding on the
revolving credit facility. Additionally, financing activity outflows increased
principally due to the Company's repurchases of nearly 670,000 shares of common
stock aggregating $8.3 million during the first three quarters of 2001. The
Company repurchased 5,000 shares for $55,000 during the same time period in the
prior year. Approximately $3.2 million of the Board of Directors' authorized $25
million stock repurchase program remains available for future share repurchases.
The Company's working capital position at October 6, 2001 was $14.4 million,
compared to $30.7 million at December 30, 2000. The Company's current ratio at
October 6, 2001 was 1.28 to 1.00 with cash and equivalents contributing
approximately $12.2 million to working capital. The current ratio for the same
period last year was 1.84 to 1.00. As of October 6, 2001, the Company had
unsecured revolving bank credit facilities aggregating $35 million, with $22.1
million remaining available for use. Although the Company's working capital
position decreased due to the Dick's acquisition, its liquidity position
continues to be very favorable and strong. Additionally, the Company continues
to remain in compliance with all credit facility debt covenants
Special Note Regarding Forward-Looking Statements
Certain matters discussed in this Form 10-Q are "forward-looking statements"
intended to qualify for the safe harbors from liability established by the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements can generally be identified as such because the context of the
statement will include words such as the Company believes, anticipates, expects
or words of similar import. Similarly, statements that describe the Company's
future plans, objectives, strategies or goals are also forward-looking
statements. Such forward-looking statements are subject to certain risks and
uncertainties including, but not limited, to the following: (1) presence of
intense competitive market activity in the Company's market areas; (2) ability
to identify and develop new market locations and/or acquisition candidates for
expansion purposes; (3) continuing ability to obtain reasonable vendor marketing
funds for promotional purposes; (4) the cost and results of the Company's new
business information
11
technology systems replacement project; (5) ongoing absence of food price
inflation; (6) the Company's ability to continue to recruit, train and retain
quality franchise and corporate retail store operators; (7) the potential
recognition of repositioning charges resulting from potential closure,
conversions and consolidations of retail stores due principally to the
competitive nature of the industry and to the quality of the Company's retail
store operators; and (8) economic and political uncertainties resulting from the
terrorist attacks of September 11, 2001. Shareholders, potential investors and
other readers are urged to consider these factors carefully in evaluating the
forward-looking statements and are cautioned not to place undue reliance on such
forward-looking statements. The forward-looking statements made herein are only
made as of the date of this report and the Company undertakes no obligation to
publicly update such forward-looking statements to reflect subsequent events or
circumstances.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's only variable rate financial instrument subject to interest rate
risk is a $35 million revolving credit facility which permits borrowings at
interest rates based on either the bank's prime rate or adjusted LIBOR. The
Company has borrowed approximately $12.9 million under this facility as of
October 6, 2001 and, as a result, increases in market interest rates would cause
the Company's interest expense to increase and its earnings before income taxes
to decrease. Based on the Company's outstanding revolving credit facility
borrowings as of October 6, 2001, a 100 basis point increase in market interest
rates would increase annual interest expense by approximately $129,000.
Similarly, a 100 basis point decrease in the market interest rate would reduce
annual interest expense by approximately $129,000.
The Company believes that its exposure to market risks related to changes in
foreign currency exchange rates and trade accounts receivable is immaterial.
12
PART II Other Information
Item 2. Changes in Securities and Use of Proceeds
(c) On September 18, 2001, the Company issued and sold 1,784 shares of common
stock for an aggregate purchase price of $24,993.84 to Walter G. Winding, the
Company's Chairman of the Board. The per share purchase price was $14.01, which
was the fair market value of the common stock on September 18, 2001. The Company
issued these shares to Mr. Winding in reliance upon the exemption from
registration provided by Section 4(2) under the Securities Act because the
issuance did not involve a public offering.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.2 By-laws, as amended and restated as of October 11, 2001.
(b) Reports of Form 8-K
The Company filed one current report on Form 8-K/A, amendment No. 1
dated August 30, 2001, with respect to financial information provided
for Item 7 of Form 8-K dated June 26, 2001.
The Company filed one current report on Form 8-K/A, amendment No. 2
dated October 9, 2001, with respect to corrections of certain
financial information included in Item 7(a) and 7(b) of Form 8-K/A
amendment No. 2 dated August 30, 2001.
The Company filed one current report on Form 8-K, dated October 11,
2001, pursuant to Item 5 in regard to the adoption of a Shareholder
Rights Plan under which the Company declared a dividend of one common
stock purchase right for each outstanding share. The dividend is
payable on November 23, 2001 to shareholders of record on November 9,
2001.
The Company filed one current report on Form 8-K, dated October 25,
2001, pursuant to Item 9 with respect to its press release for the
third quarter and related disclosure requirements of Regulation FD.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
FRESH BRANDS, INC.
Dated: November 19, 2001 By: /s/ Armand C. Go
-----------------------------------
Armand C. Go, Vice President,
Chief Financial Officer,
Secretary and Treasurer
14
EXHIBIT INDEX
Exhibit No. Description
3.2 By-laws, as amended and restated as of October 11, 2001.
15