Fairway Group Holdings Corp
Fairway Group Holdings Corp (Form: 10-Q, Received: 02/05/2016 08:03:58)

Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 27, 2015

 

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 001-35880

 

Fairway Group Holdings Corp.

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

 

74-1201087

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

2284 12th Avenue

New York, New York 10027

(646) 616-8000

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days .    Yes    No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) .    Yes    No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

Large accelerated filer 

 

Accelerated filer 

Non-accelerated filer 

 

Smaller reporting company 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) .    Yes    No

 

As of January 29 , 201 6 ,   the registrant had 29, 903 , 9 64 shares of Class A common stock and 14,225,455 shares of Class B common stock outstanding .

 

 

 


 

Table of Contents

Fairway Group Holdings Corp.

Quarterly Report on Form 10-Q

For the quarterly period ended December 27, 2015

Table of Contents

 

 

 

 

 

Part I—Financial Information  

 

 

 

Item 1. Financial Statements (Unaudited)  

 

 

Consolidated Balance Sheets as of December 27 , 2015 and March  29, 2015

 

 

Consolidated Statements of Operations for the thirteen   and thirty-nine   weeks ended Dec ember 27 , 2015 and Dec ember 28 , 2014

 

 

Consolidated Statements of Cash Flows for the t hirty-nine weeks ended December 27, 2015 and     Dec ember 28, 2014

 

 

Consolidated Stateme nt of Changes in Stockholders’ Deficit for the t hirty-nine weeks ended       December 27, 2015  

 

 

Notes to Unaudited Consolidated Financial Statements

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations  

 

21 

Item 3. Quantitative and Qualitative Disclosures About Market Risk  

 

39 

Item 4. Controls and Procedures  

 

39 

 

 

 

Part II—Other Information  

 

 

 

Item 1. Legal Proceedings  

 

40 

Item 1A. Risk Factors  

 

40 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  

 

41 

Item 3. Defaults Upon Senior Securities  

 

41 

Item 4. Mine Safety Disclosures  

 

41 

Item 5. Other Information  

 

41 

Item 6. Exhibits  

 

41 

Signatures  

 

42 

 

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this report are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “forecast,” “continue,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected store openings, costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, strateg y or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:

 

·

our ability to increase sales and same store sales;

·

our ability to maintain or improve our operating margins;

·

our ability to compete effectively with other retailers;

·

our ability to maintain price competitiveness;

·

our ability to satisfy our ongoing capital needs and unanticipated cash requirements;

·

our history of net losses;

·

our ability to remain in compliance with the financial or other covenants in our credit agreement;

·

negative effects to our reputation from real or perceived quality or health issues with our food products;

·

our ability to achieve the anticipated benefits of our centralized production facility;

·

rising costs of providing employee benefits, including increased healthcare costs and pension contributions due to unfunded pension liabilities;

·

ordering errors or product supply disruptions in the delivery of perishable products;

·

our ability to negotiate reasonable terms with our vendors ;

·

our ability to open new stores on a timely basis or at all;

·

our ability to achieve sustained sales and profitable operating margins at new stores;

·

our ability to satisfy our ongoing capital needs and unanticipated cash requirements;

·

the availability of financing to pursue our new store openings on satisfactory terms or at all;

·

impairment of our goodwill and/or indefinite-lived intangible assets;

·

ongoing economic uncertainty;

·

the failure of our information technology or administrative systems to perform as anticipated;

·

data security breaches and the release of confidential customer or employee information;

·

our ability to retain and attract senior management, key employees and qualified store-level employees;

·

our ability to renegotiate expiring collective bargaining agreements and new collective bargaining agreements;

·

the geographic concentration of our stores;

·

additional indebtedness incurred in the future;

·

our high level of fixed lease obligations;

·

restrictions on our use of the Fairway name other than on the East Coast and in California and certain parts of Michigan and Ohio;

·

our ability to protect or maintain our intellectual property;

·

changes in law;

·

claims made against us resulting in litigation, and the costs of defending, and adverse developments in, such litigation;

·

increases in commodity prices;

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·

severe weather and other natural disasters in areas in which we have stores, warehouses and/or production facilities;

·

wartime activities, threats or acts of terror or a widespread regional, national or global health epidemic;

·

changes to financial accounting standards regarding store leases; and

·

other factors discussed under “Item 1A—Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 29 , 201 5 .

 

We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. Although we believe that our assumptions are reason able, we caution that it is difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations or cautionary statements are disclosed above and under the sections entitled “Item 1A—Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended March  29 , 201 5 ,   “Part I—Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II Item 1A Risk Factors” in this report. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements as well as other cautionary statements that are made from time to time in our other filings with the Securities and Exchange Commission (“SEC”) and public communications. You should evaluate all forward-looking statements made in this report in the context of these risks and uncertainties, and you should not rely upon forward-looking statements as predictions of future events.

 

We caution you that the important factors described in the Risk Factors and Management’s Discussion and Analysis of Financial Condition and Results of Operations may not be all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially and adversely from those contained in any forward-looking statements we may make. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

 

Unless we state otherwise or the context otherwise requires, the terms “we,” “us,” “our,” “Fairway,” “Fairway Market,” “the Company,” “our business” and “our company” refer to Fairway Group Holdings Corp. and its consolidated subsidiaries as a combined entity.

 

 

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Part   I — Financial Information

Item 1. FINANCIAL STATEMENTS

 

FAIRWAY GROUP HOLDINGS CORP. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

 

 

December 27,

 

March 29,

 

    

2015

    

2015

ASSETS

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

35,340

 

$

36,362

Accounts receivable, net

 

 

4,871

 

 

3,404

Merchandise inventories

 

 

31,444

 

 

29,150

Income tax receivable

 

 

497

 

 

890

Prepaid rent

 

 

1,407

 

 

829

Deferred financing fees

 

 

1,743

 

 

1,745

Prepaid expenses and other current assets

 

 

2,729

 

 

3,036

Total current assets

 

 

78,031

 

 

75,416

PROPERTY AND EQUIPMENT, NET

 

 

134,387

 

 

148,293

GOODWILL

 

 

95,412

 

 

95,412

INTANGIBLE ASSETS, NET

 

 

27,022

 

 

27,161

OTHER ASSETS

 

 

11,105

 

 

12,854

Total assets

 

$

345,957

 

$

359,136

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Current portion of long-term debt

 

$

2,750

 

$

2,750

Accounts payable

 

 

41,033

 

 

31,872

Accrued expenses and other

 

 

25,084

 

 

23,227

Total current liabilities

 

 

68,867

 

 

57,849

NONCURRENT LIABILITIES

 

 

 

 

 

 

Long-term debt, net of current maturities

 

 

254,829

 

 

254,336

Deferred income taxes

 

 

31,460

 

 

28,091

Other long-term liabilities

 

 

41,922

 

 

41,463

Total liabilities

 

 

397,078

 

 

381,739

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

Class A common stock, $0.00001 par value per share, 150,000 shares authorized, 29,906 and 29,366 shares issued at December 27, 2015 and March 29, 2015, respectively

 

 

 —

 

 

 —

Class B common stock, $0.001 par value per share, 31,000 shares authorized, 14,225 shares issued and outstanding at December 27, 2015 and March 29, 2015

 

 

14

 

 

14

Treasury stock at cost, 3 shares at December 27, 2015 and March 29, 2015

 

 

 —

 

 

 —

Additional paid-in capital

 

 

389,449

 

 

382,271

Accumulated deficit

 

 

(440,584)

 

 

(404,888)

Total stockholders’ deficit

 

 

(51,121)

 

 

(22,603)

Total liabilities and stockholders’ deficit

 

$

345,957

 

$

359,136

 

The accompanying notes are an integral part of these c onsolidated financial statements

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FAIRWAY GROUP HOLDINGS CORP. AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

Thirty-Nine Weeks Ended

 

December 27,

  

December 28,

  

December 27,

  

December 28,

 

2015

 

2014

 

2015

 

2014

 

 

 

    

 

 

    

 

 

    

 

 

Net sales

$

191,683

 

$

206,219

 

$

565,286

 

$

598,466

Cost of sales and occupancy costs (exclusive of depreciation and amortization)

 

132,006

 

 

141,357

 

 

389,156

 

 

412,905

Gross profit

 

59,677

 

 

64,862

 

 

176,130

 

 

185,561

 

 

 

 

 

 

 

 

 

 

 

 

Direct store expenses

 

46,470

 

 

48,516

 

 

139,497

 

 

144,094

General and administrative expenses

 

16,011

 

 

19,503

 

 

48,893

 

 

52,525

Store opening costs

 

1,026

 

 

1,380

 

 

3,587

 

 

5,742

Production center start-up costs

 

23

 

 

1,316

 

 

1,580

 

 

4,486

Loss from operations

 

(3,853)

 

 

(5,853)

 

 

(17,427)

 

 

(21,286)

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

(4,940)

 

 

(4,807)

 

 

(14,541)

 

 

(14,418)

Loss before income taxes

 

(8,793)

 

 

(10,660)

 

 

(31,968)

 

 

(35,704)

 

 

 

 

 

 

 

 

 

 

 

 

Income tax provision

 

(951)

 

 

(400)

 

 

(3,728)

 

 

(2,285)

Net loss

$

(9,744)

 

$

(11,060)

 

$

(35,696)

 

$

(37,989)

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per common share

$

(0.22)

 

$

(0.25)

 

$

(0.81)

 

$

(0.88)

Weighted average common shares outstanding

 

44,102

 

 

43,433

 

 

43,973

 

 

43,402

 

The accompanying notes are an integral part of these c onsolidated financial statements

 

 

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FAIRWAY GROUP HOLDINGS CORP. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirty-Nine Weeks Ended

 

December 27,

  

December 28,

 

2015

 

2014

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net loss

$

(35,696)

 

$

(37,989)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

 

 

 

 

 

Loss on disposal of assets

 

1,524

 

 

 —

Deferred income taxes

 

3,369

 

 

2,279

Deferred rent

 

214

 

 

7,447

Depreciation and amortization of property and equipment

 

21,041

 

 

21,085

Amortization of intangibles

 

139

 

 

221

Amortization of discount on term loans

 

2,556

 

 

2,523

Amortization of deferred financing fees

 

1,309

 

 

1,314

Amortization of prepaid rent

 

238

 

 

239

Stock compensation expense

 

6,802

 

 

10,644

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(1,467)

 

 

(1,798)

Merchandise inventories

 

(2,293)

 

 

(3,021)

Prepaid expense and other

 

122

 

 

302

Other assets

 

203

 

 

1,386

Accounts payable

 

9,161

 

 

2,245

Accrued expenses and other

 

2,137

 

 

6,838

Other long-term liabilities

 

341

 

 

(872)

Net cash provided by operating activities

 

9,700

 

 

12,843

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Capital expenditures

 

(8,658)

 

 

(28,694)

Acquisition of intangible assets

 

 —

 

 

(1,567)

Net cash used in investing activities

 

(8,658)

 

 

(30,261)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

Payments on long-term debt

 

(2,064)

 

 

(1,375)

Cash settlement of vested equity awards

 

 —

 

 

(260)

Net cash used in financing activities

 

(2,064)

 

 

(1,635)

 

 

 

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

(1,022)

 

 

(19,053)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

36,362

 

 

58,800

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

35,340

 

$

39,747

Cash paid during the period for:

 

 

 

 

 

Interest, net of capitalized amounts

$

10,573

 

$

7,091

Income taxes

$

2

 

$

2

 

The accompanying notes are an integral part of these consolidated financial statements

 

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FAIRWAY GROUP HOLDINGS CORP. AND SUBSIDIARIES

Consolidated Statement of Changes in Stockholders’ Deficit

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ DEFICIT

 

 

Class A

 

Class B

 

Additional 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Common Stock

 

Paid in

 

Treasury Stock

 

Accumulated

 

 

 

 

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Shares

    

Amount

    

Deficit

    

Total

Balance at March 29, 2015

 

29,366

 

$

 —

 

14,225

 

$

14

 

$

382,271

 

3

 

$

 —

 

$

(404,888)

 

$

(22,603)

Non-cash stock compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

7,178

 

 —

 

 

 —

 

 

 —

 

 

7,178

Issuance of stock for vested RSUs

 

540

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(35,696)

 

 

(35,696)

Balance at December 27, 2015

 

29,906

 

$

 —

 

14,225

 

$

14

 

$

389,449

 

3

 

$

 —

 

$

(440,584)

 

$

(51,121)

 

The accompanying notes are an integral part of these financial stat ements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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FAIRWAY GROUP HOLDINGS CORP. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

1. D ESCRIPTION OF BUSINESS AND ORGANIZATION

 

Fairway Group Holdings Corp. was incorporated in the State of Delaware on September 29, 2006 and is controlled by investment funds managed by Sterling Investment Partners and affiliates (collectively, “Sterling”).

 

Fairway Group Holdings Corp. and subsidiaries (the “Company” or “Fairway”) operate in the retail food industry, selling fresh, natural and organic pr oducts, prepared foods and hard-to- find specialty and gourmet offerings along with a full assortment of conventional groceries .   The Company operates fifteen stores in the Greater New York metropolitan area, four of which include Fairway Wine & Spirits locations .   Fourteen of the stores (including three Wine & Spirits locations) were in operation prior to the beginning of the fiscal year ended March 29 , 201 5 (“fiscal 2015”) ,   one store   opened during the thirty-nine weeks ended December 28, 2014 but prior to the thirteen weeks ended December 28,   2014   and the Company’s   fourth Wine & Spirits location was opened during the thirteen weeks ended December 28, 2014 .   The Company has determined that it has one reportable segment .   Substantially all of the Company’s revenue comes from the sale of items at its retail food stores.  

 

2. OPERATING AND LIQUIDITY MATTERS

 

As of December 27, 2015, the Company has an accumulated deficit of $440.6 million, $266.8   million outstanding under its 2013 Senior Credit Facility (“Senior Credit Facility”), as amended, and continues to experience significant losses resulting from lower than expected operating performance. The Company continues to work closely with its advisors   to explore alternatives to raise additional capital to de-lever the balance sheet and fund additional growth initiatives, including investments to rebuild sales and pursuing new stores opportunistically.

 

While the Company was in compliance with all applicable affirmative, negative and financial covenants of the Senior Credit Facility , as amended, at December 27, 2015, if the Company’s financi al performance does not improve or additional third-party eq uity financing is not obtained,   the Company anticipates that it will not be in compliance with the maximum total leverage ratio financial covenant at the end of the Company’s fiscal quarter ending April 3, 2016 unless such covenant is amended or compliance waived . If t he Company is not in compliance with the covenant, it has the ability to exercise equity cure rights within 150 days following the end of the fiscal quarter ending April, 3, 2016 , which allows for the issuance of additional equity and for the proceeds to be treated as C onsolidated EBITDA for purposes of the covenant, subject to certain restrictions, including that the amount of equity that can be used as C onsolidated EBITDA cannot exceed the C onsolidated EBITDA shortfall, the proceeds must be used to repay debt, and the equity cure can only be used twice within a four quarter period and only four time s during the term of the loan. In addition, the Company ca n seek an amendment to the covenant or waiver of the violation from its lenders. In the event of a covenant violation that remains uncured, the lenders have the right to declare all outstanding debt under the Senior Credit Facility , as amended, immediately due and payable, and the Company does not have sufficient working capital to fulfill this obligation.

 

There can be no assurance that the Company will be successful in obtaining additional capital on favorable terms or at all, or obtaining amended covenants from its lenders , or having compliance with the covenants waived by its lender for a sufficient length of time to allow an improve ment in profitability. The Company’s inability to raise additional capital, amend its c ovenants, have its covenants waived or improve its perf ormance w ould raise substantial doubt about the Company’s ability to continue as a going concern and pursue its longer-term growth strategy for a reasonable period of time.

 

These unaudited consolidated financial statements have been prepared on a going concern basis and, as such, do not include any adjustments that might result from the outcome of this uncertainty or the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern .  

 

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3 . BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X .   Accordingly, these financial statements do not include all of the information and footnotes required for complete financial statements in accordance with US GAAP, pursuant to such rules and regulations. Therefore, these unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 29, 2015 .  

 

The accompanying unaudited consolidated financial statements as of December 27, 2015 , and for the thirteen and thirty-nine weeks ended December 27, 2015 and December 28, 2014 reflect all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position and operating results of the Company. All material intercompany accounts and transactions have been eliminated in the unaudited consolidated financial statements. The results of operations for any interim period may not necessarily be indicative of the results that may be expected for the entire fiscal year or any interim period therein .

 

Certain amounts in the financial statements for prior periods have been reclassified to conform to the current year presentation and had no effect on previously reported consolidated net loss or stock holders’ deficit.

 

There have been no changes to the Company’s significant accounting policies described in the Company’s Annual Report on Form 10-K for the fiscal year ended March 29, 2015 that have had a material impact on the Company’s unaudited interim consolidated financial statements and related notes.

 

Fair Value of Financial Instruments

 

The Company applies the FASB guidance for “Fair Value Measurements.”  Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.  

 

In determining fair value, the Company uses various valuation approaches.  The hierarchy of those valuation approaches is broken down into three levels based on the reliability of inputs as follows:

 

     Level 1 -

Inputs that are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.  An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.  The valuation under this approach does not entail a significant degree of judgment.

 

 

     Level 2 -

Inputs, other than quoted prices inclu ded within Level 1, that are observable for the asset or liability, either directly or indirectly.  Level 2 inputs include: quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves observable at commonly quoted intervals or current market) and contractual prices for the underlying financial instrument, as well as other relevant economic measures.

 

 

     Level 3 -

Inputs that are unobservable for the asset or liability.  Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

 

The Company’s non-financial assets measured at fair value on a non-recurring basis include goodwill and intangible assets.  To estimate fair value for such assets, the Company uses techniques including discounted expected future cash flows (“DCF”) (Level 3 input).  A discounted cash flow analysis calculates the fair value by estimating the after-tax cash flows attributable to a reporting unit or asset and then discounting the after-tax cash flows to a present value using a risk-adjusted discount rate.  Assumptions used in the DCF require the exercise of significant judgment,

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including judgment about appropriate discount rates and terminal values, growth rates and the amount and timing of expected future cash flows.

 

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair value due to short term maturities as of December 27, 2015 and March 29, 2015. The estimated fair value of the Company’s long-term debt was approximately $221.3 million and $254.6 million as of December 27, 2015 and March 29, 2015, respectively. The fair value was determined by the Company to be Level 2 under the fair value hierarchy, and was based upon review of observable pricing in secondary markets for the debt instrument.

 

4 . NET LOSS PER COMMON SHARE

 

Basic net loss per common share is calculated by dividing net loss by the weighted average common shares outstanding for the fiscal period .   Diluted net loss per common share is calculated by dividing net loss by the weighted average common shares outstanding for the fiscal period plus the effect of any potential common shares that have been issued if these additional shares are dilutive .   For all periods presented, basic and diluted net loss per common share are the same, as any additional common stock equivalents would be anti-dilutive.

 

The following table is a summary of the share amounts (in thousands) used in computing basic and diluted earnings per share and anti-dilutive shares excluded from the computation :

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

Thirty-Nine Weeks Ended

 

December 27,

  

December 28,

 

December 27,

  

December 28,

 

2015

 

2014

 

2015

 

2014

Weighted average shares outstanding - basic and diluted

44,102

 

43,433

 

43,973

 

43,402

Anti-dilutive securities excluded from diluted loss per share computation:

 

 

 

 

 

 

 

Options

800

 

940

 

800

 

940

Unvested restricted stock

8

 

26

 

8

 

26

Restricted stock units

3,382

 

3,049

 

3,382

 

3,049

Total anti-dilutive securities

4,190

 

4,015

 

4,190

 

4,015

 

During the thirteen and thirty-nine weeks ended   December 27, 2015 and Dec ember 28, 2014   options to purchase sha res of Class A common stock had exercise prices in excess of the Company’s publicly quoted stock price and therefore are not considered potentially dilutive.

 

5 . GOODWILL, INTANGIBLE AND LONG-LIVED ASSETS

 

The Company’s annual goodwill impairment test is conducted   on the first day of the fourth quarter   of each   fiscal   year and interim evaluations are performed when   it is determined that   events or changes in circumstances exist   that would more likely than not reduce the fair value of goodwill below its carrying value.  During the thirteen weeks ended   September   27, 2015, due to   a continued decline in the market price of the Company’s stock and   revisions in expected operating performance, it was determined that an interim evaluation of goodwill for impairment was necessar y . The interim evaluation during the thirteen weeks ended September 27, 2015 concluded that the fair values of the Company’s indefinite-lived intangible assets and reporting unit were substantially in excess of the carrying values and no impairment existed.

 

D uring the thirteen weeks ended   December   27, 2015, due to   a continued decline in the mark et price of the Company’s stock , a downgrade in the Company’s debt rating   and   revisions in expected operating performance, it was determined that an interim evaluation of goodwill for impairment wa s again necessary .   This interim evaluation   t ook into consideration the additional pressures on the performance of the business as well as the impact the change in the

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Company’s debt rating had on the fair value of its debt.   This interim valuation indicated that the fair value of the Company’s indefinite-lived intangible assets and reporting unit exceeded the carrying value , thus there were no goodwill or indefinite-lived intangible asset impairment charges recorded in the thirteen weeks ended December 27, 2015 .   As of December   27, 2015   the carrying value s of goodwill and tradenames were   $95.4 million   and $23.6 million, respectively.

 

The Company believes the assumptions used in the evaluation are consistent with the plans and estimates used to manage the business as well as market conditions as of the date of testing. If actual results are not consistent with these estimates or assumptions the Company may be exposed to a non-cash impairment charge that could be material.  Some of the more significant assumptions include the Company’s projected operating performance and the estimated fair value of its debt, which could be impacted by the Company’s operating performance, credit rating and interest rate market conditions .

 

Long-lived assets, including finite-lived intangible assets, do not require that an annual impairment test be performed. Instead, long-lived assets are tested for impairment upon the occurrence of a triggering event. The impairment test for long-lived assets, including finite-lived intangible assets, utilized estimates of undiscounted future cash flows based on the use of the assets for their remaining useful life. The impairment test as of December 27, 2015 did not result in the impairment of any long-lived assets.

 

 

 

6. LONG-TERM DEBT

 

A summary of long-term debt is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 27,

 

March 29,

 

 

2015

 

2015

Credit facility, gross

 

$

266,750

 

$

268,813

Less unamortized discount

 

 

(9,171)

 

 

(11,727)

Credit facility, net

 

 

257,579

 

 

257,086

Less current maturities

 

 

(2,750)

 

 

(2,750)

Long-term debt, net of current maturities

 

$

254,829

 

$

254,336

 

A summary of interest expense is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

Thirty-Nine Weeks Ended

 

December 27,

 

December 28,

 

December 27,

 

December 28,

 

2015

    

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

Interest on senior credit facility

$

3,610

 

$

3,748

 

$

11,108

 

$

11,231

Amortization of original issue discount

 

854

 

 

844

 

 

2,556

 

 

2,523

Amortization of deferred financing fees

 

436

 

 

438

 

 

1,309

 

 

1,314

Other interest (income) expense, net

 

50

 

 

18

 

 

109

 

 

62

Capitalized interest

 

(10)

 

 

(241)

 

 

(541)

 

 

(712)

Total

$

4,940

 

$

4,807

 

$

14,541

 

$

14,418

 

 

 

 

 

 

 

 

 

 

 

 

Effective interest rate on senior credit facility

 

7.6%

 

 

7.8%

 

 

7.8%

 

 

7.8%

 

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The estimated fair value of the Company’s long-term debt was approximately $221.3 million and $254.6 million as of December 27, 2015 and March 29, 2015, respectively. The fair value was determined by the Company to be Level 2 under the fair value hierarchy, and was based upon review of observable pricing in secondary markets for the debt instrument.

 

2013 Senior Credit Facility

 

In February 2013, Fairway Group Holdings Corp. and its wholly-owned subsidiary, Fairway Group Acquisition Company, as the borrower, entered into a senior secured credit facility consisting of a $275 million term loan (the “2013 Term Facility”) and a $40 million revolving credit facility, which includes a $40 million letter of credit sub-facility (the “2013 Revolving Facility” and together with the 2013 Term Facility, the “2013 Senior Credit Facility”) with the 2013 Term Facility maturing in August 2018 and the 2013 Revolving Facility maturing in August 2017. The Company used the proceeds from the 2013 Term Facility to repay the $264.5 million of outstanding borrowings (including accrued interest) under its 2012 senior credit facility and pay fees and expenses. On May 3, 2013, the 2013 Senior Credit Facility was amended to, among other things, lower the interest rate margins and eliminate the interest coverage ratio financial covenant.

 

Borrowings under the 2013 Senior Credit Facility, as amended, bear interest, at the option of the Company, at (i) adjusted LIBOR (subject to a 1.0% floor) plus 4.0% or (ii) an alternate base rate plus 3.0%. In addition, there is a fee payable quarterly in an amount equal to 1.0% per annum of the undrawn portion of the 2013 Revolving Facility, calculated based on a 360-day year. Interest is payable quarterly in the case of base rate loans and on the maturity dates or every three months, whichever is shorter, in the case of adjusted LIBOR loans. The 4.0% and 3.0% margins will each be reduced by 50 basis points at any time when the Company’s corporate family rating from Moody’s Investor Services Inc. is B2 or higher and the Company’s corporate rating from Standard & Poors Rating Service is B or higher, in each case with a stable outlook, and as long as certain events of default have not occurred.

 

All of the borrower’s obligations under the 2013 Senior Credit Facility, as amended, are unconditionally guaranteed (the “Guarantees”) by Fairway Group Holdings Corp. and subsidiaries (other than the borrower and any future unrestricted subsidiaries as the Company may designate, at its discretion, from time to time) (the “Guarantors”). Additionally, the 2013 Senior Credit Facility and the Guarantees are secured by a first-priority perfected security interest in substantially all present and future assets of the borrower and each Guarantor, including accounts receivable, property and equipment, merchandise inventories, general intangibles, leases, intellectual property, investment property and intercompany notes among Guarantors.

 

Mandatory prepayments under the 2013 Senior Credit Facility, as amended, are required with: (i) 50% of adjusted excess cash flow (which percentage shall be reduced to 25% upon achievement and maintenance of a leverage ratio of less than 5.0:1.0, and to 0% upon achievement and maintenance of a leverage ratio of less than 4.0:1.0); (ii) 100% of the net cash proceeds of asset sales or other dispositions of property by the Company and certain of its subsidiaries (subject to certain exceptions and reinvestment provisions); and (iii) 100% of the net cash proceeds of issuances, offerings or placements of debt obligations (subject to certain exceptions).

 

The 2013 Senior Credit Facility, as amended, contains negative covenants, including restrictions on: (i) the incurrence of additional debt; (ii) liens and sale-leaseback transactions; (iii) loans and investments; (iv) guarantees and hedging agreements; (v) the sale, transfer or disposition of assets and businesses; (vi) dividends on, and redemptions of, equity interests and other restricted payments, including dividends and distributions to the Company by its subsidiaries; (vii) transactions with affiliates; (viii) changes in the business conducted by the Company; (ix) payment or amendment of subordinated debt and organizational documents; and (x) maximum capital expenditures. The Company is also required to comply with a maximum total leverage ratio financial covenant.

 

The Company was in compliance with all applicable affirmative, negative and financial covenants of the 2013 Senior Credit Facility, as amended, at December 27, 2015. At the time the Company entered into the 2013 Senior Credit Facility, as amended, new levels for the maximum total leverage ratio financial covenant were established. The level at the end of the third fiscal quarter of fiscal 2016 was 6.0:1, but steps down to 5.75:1 on April 1, 2016, which is prior to the end of the Company’s fiscal year. The Company’s current operating performance has been below expectations that

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existed at the time that the financial covenant levels were established, and if the Company’s financia l performance does not improve or additional third-party equity financing is not obtained, the Company anticipates that it will not be in compliance with the maximum total leverage ratio financial covenant at the end of the fourth fiscal quarter unless such covenant is amended or compliance waived . The Company has the ability to exercise equity cure rights , within 150 days following the end of the fourth fiscal quarter , which allows for the issuance of additional equity and for the proceeds to be treated as Consolidated EBITDA for purposes of the covenant, subject to certain restrictions, including that the amount of equity that can be used as Consolidated EBITDA cannot exceed the Consolidated EBITDA shortfall, the proceeds must be used to repay debt, and the equity cure can only be used twice within a four quarter period and only four times during the term of the loan. In addition, the Company can seek an amendment to the covenant or waiver of the violation from its lenders. In the event of a covenant violation that remains uncured, the lenders have the right to declare all outstanding debt under the Senior Credit Facility, as amended, immediately due and payable, and the Company does not have sufficient working capital to fulfill this obligation.

 

I n light of the Company’s lower than expected operating performance and leverage profile and the constraints those place on its current operations and longer-term growth strategy, it has concluded that it will need to raise additional capital to continue as a going concern over the long term. The Company continues to work with its advisors to explore alternatives to raise additional capital to de-lever the balance sheet and fund additional growth initiatives, including investments to rebuild sales and pursuing new stores opportunistically. Any new growth capital investment, or capital raised in the context of an equity cure, is likely to be in the form of equity or equity linked securities, and is likely to be dilutive to existing stockholder ownership. There can be no assurance that the Company will be successful in obtaining additional capital on favorable terms or at all, obtaining amended covenants, or having compliance with the covenants waived by its lenders for a sufficient length of ti me to improve profitability. T he Company ’s inability to raise additional capita l, amend its covenants, have its covenants waived, or improve its performance would raise substantial doubt about the Company’s ability continue as a going concern and pursue its longer-term growth strategy for a reasonable period of time.

At December 27, 2015, the Company had $34.6 million of outstanding letters of credit, and $5.4 million of availability under the 2013 Revolving Facility, all of which was available for letters of credit. Subsequent to December 27, 2015, in connection with the Company’s cancellation of the TriBeCa lease, the landlord drew $2.4 million on a letter of credit and surrendered the remaining $1.6 million of the letter of credit, resulting in a $4.0 million increase in availability under the 2013 Revolving Facility. Additionally, on January 28, 2016 the Company drew down $9.0 million on its 2013 Revolving Facility reducing the availability to $0.4 million.

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7. STOCK-BASED COMPENSATION

 

The Company accounts for stock-based compensation awards in accordance with the provisions of FASB Accounting Standards Codification (“ASC”) Topic 718 — Compensation — Stock Compensation which requires companies to estimate the fair value of share-based payment awards on the date of grant. The value of the portion of the awards ultimately expected to vest is recognized as expense over the requisite service period. The Company recognized total stock-based compensation of $2.3 million and $3. 6 million for the thirteen weeks ended December 27, 2015 and December 28, 2014 , respectively, and $6.8 million and $10.6 million for the thirty-nine weeks ended December 27, 2015 and December 28, 2014 , respectively, as general and administrative expenses in the Company’s Consolidated Statements of Operations.

 

Included in the amounts recorded for the thirteen and thirty-nine weeks ended December 28, 2014 are: ( i)  approximately $55,000 and $247,000 , respectively, representing the value of restricted stock units issued to certain directors during such period in payment of the directors’ fees for each of the corresponding calendar quarters ended June 30, 2014, September 30, 2014 and December 31, 2014; (ii )  approximately $0 and $82,000 , respectively, representing the value of restricted stock units issued during such period to the Company’s chairman in payment of his fees for serving as executive chairman for each of the corresponding calendar quarters ended June 30, 2014 and September 30,2014; and (iii )   $112,000 and $487,000 , respectively, representing the value of restricted stock units granted in such period to a former executive officer in partial payment of his salary for the calendar quarters ended June 30, 2014 and September 30, 2014 and for the period October 1, 2014 to November 14, 2014. All of these restricted stock units are vested upon issuance but will be settled in shares of Class A common stock in the future . No such items w ere included in stock-based compensation expense during the thirteen and thirty-nine weeks ended December 27, 2015.

 

The Company’s 2007 Equity Compensation Plan (the “2007 Plan”), which provided for the grant of stock options and restricted shares, and the 2013 Long-Term Incentive Plan (the “2013 Plan”), which provides for the grant of stock options, restricted stock units, restricted stock, other stock-based awards and other cash-based awards, are more fully described in the Company’s Annual Proxy Statement for its 2015 annual meeting of stockholders filed with the Securities and Exchange Commission on June 23, 2015 under the caption “Executive Compensation—Equity Compensation Plans.”  Changes in equity awards outstanding under the 2007 Plan and 2013 Plan during the thirteen and thirty-nine weeks ended December 27, 2015 are summarized as follows:

 

2007 Equity Compensation Plan

 

As of December 27, 2015, there was $16,000 of unrecognized compensation expense related to the restricted stock awards granted under the 2007 Plan.

 

The status of the Company’s unvested restricted stock grants for the thirty-nine weeks ended December 27, 2015 is summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Restricted

 

Average Grant

 

    

Stock

 

Date Fair Value

Outstanding unvested awards at March 29, 2015

 

15,573

 

$

7.81

Granted

 

 —

 

 

Vested

 

(7,786)

 

 

7.81

Forfeited

 

 —

 

 

Outstanding unvested awards at December 27, 2015

 

7,787

 

 

7.81

 

 

 

 

 

 

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2013 Long-Term Incentive Plan

 

Restricted Stock Units

As of December 27, 2015, there was $6.7  million of unrecognized compensation expense related to the restricted stock unit awards (“RSU”s) granted under the 2013 Plan.

 

The status of the Company’s unvested restricted stock units for the thirty-nine weeks ended December 27, 2015 is summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Restricted

 

Average Grant

 

 

Stock Units

 

Date Fair Value

Outstanding unvested awards at March 29, 2015

 

3,195,624

 

$

8.26

Granted

 

459,514

 

 

3.54

Forfeited

 

(115,065)

 

 

11.77

Vested

 

(422,057)

 

 

7.76

Outstanding unvested awards at December 27, 2015

 

3,118,016

 

$

7.50

 

During the thirty-nine weeks ended December 27, 2015 129,466 RSUs with a grant-date fair value of approximately $281,00 0 were granted related to executive separation agreements, which were charged to expense during fiscal 2016. As of December 27, 2015, approximately $36,000 is included in accrued expenses related to separation payments to be made in RSUs in future periods.

 

Stock Options

 

As of December 27, 2015, there was $1.0  million of unrecognized compensation expense related to the stock option compensation awards granted under the 2013 Plan.

 

A summary of stock option activity for the thirty-nine weeks ended December 27, 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

Weighted

 

Average

 

 

 

 

Average

 

Remaining

 

 

Stock

 

Exercise

 

Contractual

 

    

Options

    

Price

    

Life (years)

Balance at March 29, 2015

 

878,722

 

$

9.65

 

 

Granted

 

25,000

 

 

2.05

 

 

Forfeited

 

(103,228)

 

 

13.72

 

 

Exercised

 

 —

 

 

 —

 

 

Outstanding awards at December 27, 2015

 

800,494

 

 

8.89

 

8.2

 

 

 

 

 

 

 

 

Exercisable at December 27, 2015

 

192,744

 

$

13.22

 

7.5

 

Stock options outstanding as of December 27, 2015 had no intrinsic value. Aggregate intrinsic value represents the value of the Company’s stock based on the closing stock price on the last trading day of the fiscal period in excess of the weighted average exercise price multiplied by the number of options outstanding or exercisable.

 

8 . RELATED PARTY TRANSACTIONS

 

Operating Leases and Utility Services  

 

A director who is a former executive officer of the Company:

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·

owns one- sixth of certain entities from which the Company leases certain stores, a production bakery, and warehouses;

·

owns one- twelfth of an entity from which the Company leases its Red Hook, Brooklyn, NY (“Red Hook”) store; and

·

owns one- twelfth of an entity from which the Company obtains utility services for its Red Hook store.  ( See Note 10 : Commitments and Contingencies)

 

Total amounts related to the foregoing included $1.5  million in cost of sales and $0. 4  million in general and administrative expenses for each of the thirteen weeks ended December 27, 2015 and December 28, 2014 , respectively and $4.5 million and $4 . 4 million in cost of sales and $1.2 million and $1.3 million in general and administrative expenses for the thirty-nine weeks ended December 27, 2015 and December 28, 2014 , respectively .   At December 27, 2015 and March  29, 2015 , amounts payable to related parties included in accrued expenses were $0 . 2   million and $0. 1  million, respectively, and receivables from related parties of $0.3  million and $0 .2 million, respectively, were included in accounts receivable .

 

Executive Separations

 

In connection with the separation of the Company’s then Chief Executive Officer in February 2014, its then Interim Chief Executive Officer in September 2014, and the retirement of an individual who served as a n executive officer in November 2014 (although this individual remains a director) , the Company entered into separation agreement s with these individuals and was obligated to provide salary and benefit continuation, which required the payment of cash and in one instance the grant of restricted stock units in partial payment of severance . In addition, u nder certain of these agreements, the Company entered into consulting arrangements with the individuals .   Under these agreements, the Company paid cash of approximately $40 2 ,000 and $ 194 ,000 for the thirteen weeks ended December 27, 2015 and December 28, 2014, respectively , and $1. 9   million and $ 649 ,000 for the thirty-nine weeks ended December 27, 2015 and December 28, 2014, respectively .   Duri ng the thirteen and thirty-nine weeks ended December 27 , 2015, the Company granted approximately 89,285   and 129 , 466   restricted stock units , respectively, with a grant date fair value of approximately $94 ,000  a nd $281 ,000   related to these agreements .   No restricted stock units related to these agreements were granted during the thirteen and thirty-nine weeks ended Dec ember 28 , 2014.

 

As of   Dece mber 27 , 2015 and March 29, 2015 , amounts related to executive separation included in accrued expenses wer e approximately $ 258 ,000 and $2.4  million, respectively.

 

9 . INCOME TAXES

 

The reconciliation of the U.S. statutory rate with the Company’s effective tax rate for the thirteen and thirty-nine weeks ended December 27, 2015 and December 28, 2014 is summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Thirteen Weeks Ended

 

Thirty-Nine Weeks Ended

 

 

December 27,

 

December 28,

 

December 27,

 

December 28,

 

 

2015

 

2014

 

2015

 

2014

Federal statutory rate

 

34.0

%

 

34.0

%

 

34.0

%

 

34.0

%

Effect of:

 

 

 

 

 

 

 

 

 

 

 

 

State income taxes (net of federal tax benefit)

 

7.0

 

 

8.7

 

 

7.3

 

 

8.7

 

Permanent differences

 

(0.2)

 

 

(0.2)

 

 

(0.2)

 

 

(0.3)

 

Stock compensation

 

(5.0)

 

 

 —

 

 

(5.2)

 

 

 —

 

Valuation allowance

 

(46.6)

 

 

(45.9)

 

 

(47.0)

 

 

(48.5)

 

Other

 

 —

 

 

(0.4)

 

 

(0.6)

 

 

(0.3)

 

Effective rate

 

(10.8)

%

 

(3.8)

%

 

(11.7)

%

 

(6.4)

%

 

As a result of historical net operating losses (“NOLs”), the Company currently provides a full valuation allowance against its net deferred tax assets .   For the thirteen and thirty-nine weeks ended December 27, 2015 and December 28, 2014 , income tax expense was computed at the estimated annual effective rate based on the total

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estimated annual tax provision which included state income taxes and a deferred tax provision related to amortization of certain indefinite-lived intangible assets .  

 

Based on management’s assessment, the Company has placed a valuation reserve against its deferred tax assets, as it is more likely than not that the Company may not generate sufficient taxable income during the carryforward period to utilize the NOLs .   The Company regularly reviews the net deferred tax valuation allowance to determine if available evidence continues to support the position that it is more likely than not that a portion of or the entire deferred tax asset will not be realized in the future. As of December 27, 2015 , management could not conclude that it is more likely than not that the deferred tax assets will be realized. As a result, the Company continues to maintain a full valuation allowance against its deferred tax assets. The Company will continue to assess its position in future periods to determine if it is appropriate to reduce a portion of its valuation allowance in the future.

 

For more information regarding the Company’s valuation allowance a gainst its deferred tax assets, see N ote 13 to the Company’s audited financial statements included in its Annual Report on Form 10-K for the fiscal year ended March 29, 2015 .

 

The valuation allowance was $1 26 . 3  million and $110.8  million as of December 27, 2015 and March 29, 2015 , respectively.

 

10 . COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

The Company occupies premises pursuant to non-cancelable lease agreements, including the lease agreements with relate d parties described in Note 8 , which expire at various times through 2039. Required rent payments under lease agreements with related parties increase annually by either 50% of the percentage increase in the consumer price index or by the percentage increase in the consumer price index of up to 5% , except for certain lease years when the rent is determined by arbitration. Lease agreements with non-related parties include various escalation clauses.

 

The Company has signed certain leases for which the Company’s obligation is not yet established because the Company does not yet have possession of the site. The aggregate minimum rental commitments under all operating leases, for which the Company has possession, as of December 27, 2015 are as follows for the fiscal years ending (in thousands):

 

 

 

 

 

 

 

 

 

 

April 3, 2016

    

$

8,863

April 2, 2017

 

 

35,611

April 1, 2018

 

 

34,467

March 31, 2019

 

 

34,635

March 29, 2020

 

 

35,131

Thereafter

 

 

539,697

 

 

$

688,404

 

Rent e xpense for the thirty-nine weeks ended December 27, 2015 and December 28, 2014 was approximately $33 .4 million and $32.8 million , respectively. Rent expense for the thirteen weeks ended December 27, 2015 and December 28, 2014 was approximately $11.0 million and $11.2 million ,  respectively.

 

In May 2015, the Company entered into an agreement terminating its lease of a site in the new Hudson Yards development in west midtown Manhattan where the Company had expected to open a store in late calendar 2015 or early calendar 2016. In connection with the lease termination, the Company recorded a charge of $3.7 million during the thirty-nine weeks ended Decembe r 27, 2015 , which has been included in general and administrative expenses. The amount recorded includes $3.5 million paid in cash to the landlord   during the thirty-nine weeks ended December 27, 2015 , and the impairment of $0.2 million of previously capitalized investments in the store site.

 

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During the thirteen weeks ended December 27, 2015, the Company entered into an agreement terminating its lease of a site in the TriBeCa neighborhood of lower Manhattan where the Company had expected to open a store in calendar 2016. In connection with the lease termination, the Company recorded a charge of $ 4 .2 million   during the thirteen and thirty-nine weeks ended December 27, 2015, included in general and administrative expenses. The amount recorded includes $2.7 million of expens e for the lease termination fee and   $1.5 million of expense for the write-off of fixed assets . In addition the Company reversed the deferred rent liability related to this lease of $2.9 million also included in general and administrative expenses. A partial payment of $0.3 million was made in the thirteen weeks ended December 27, 2015 and the balance of $2.4 million, paid in January 2016, is reflected in accrued liabilities at December 27, 2015.

 

 

Other Contingencies

 

The Company obtains its utility services for the Red Hook store from an entity which is on e   twelfth  o wned by an individual who is a Company director and former executive officer. The Company believes that the entity has overcharged for utilities since its initial occupancy of the premises. Since November 2008, with the exception of the post-Hurricane Sandy period through fiscal 2014, when the Company received utilities from the local utility provider because the co-generation plant was not operational, the Company has taken deductions from the utility invoices based on the methodology that the Company believes represents the parties’ original intentions with respect to the utility calculations. The Company believes that it will be successful in negotiating an amicable resolution of this matter between the parties. The Company also believes that the resolution of this matter will not have a material adverse effect on its financial condition and results of operations.

 

The Company, from time to time, is and may be subject to legal proceedings and claims which arise in the ordinary course of its business. The Company has not accrued any amounts in connection with these uncertainties, including those discussed above as the Company has determined that losses from these uncertainties are not probable. For all matters, including unasserted claims, where a loss is reasonably possible, the aggregate range of estimated losses is not material to the financial position, results of operations, liquidity or cash flows of the Company.

 

Regardless of the outcome , litigation may require significant attention from management and could result in significant legal expenses, settlement costs or damage awards that could have a material impact on the Company’s financial position, results of operations and cash flows.

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11 . RECENTLY ISSUED ACCOUNTING STANDARDS

 

The Company do es not believe that any recently issued, but not yet effective, accounting standards if currently effective would have a material effect on the accompanying consolidated financial statements

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers .   ASU 2014-09 amends existing revenue recognition requirements and provides a new comprehensive revenue recognition model requiring entities to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This ASU was amended by ASU No. 2015-14, issued in August 2015, which deferred the origi nal effective date by one year. T he ASU is now   for fiscal years, and interim reporting periods within those years, beginning after December 15, 2017 .   The Company do es not expect this ASU to have a material impact on its financial statements.

 

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern .   ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. ASU 2014-15 is effective for the fiscal years ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted .   The Company does not expect this ASU to have a material impact on its financial statements.

 

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs .   ASU 2015-03 amends existing requirements for debt issuance costs, requiring entities to present debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts .   ASU 2015-03 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015, and requires retrospective application .   Early adoption is permitted for financial statements that have not been previously issued .   The Company does not expect this ASU to have a material impact on its financial statements.

 

In April 2015, the FASB issued ASU 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement .   ASU 2015-05 provides clarification about a customer’s accounting for fees paid in a cloud computing arrangement, and provides guidance to customers about whether a cloud computing arrangement includes a software license, and the portion of the arrangement that should be accounted for as a service contract. ASU 2015-05 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015 and may be applied either prospectively or retrospectively, and early adoption is permitted. The C o mpany does not expect this ASU to have a material impact on its financial statements.  

 

 

 

 

 

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended March 29, 2015, as filed with the Securities and Exchange Commission. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q. See “Special Note on Forward Looking Statements” above. The results of operations for the thirteen and thirty - nine weeks ended December  27, 2015 may not necessarily be indicative of the results that may be expected for the entire fiscal year ending April 3, 2016.

 

Our fiscal year is the 52- or 53-week period ending on the Sunday closest to March 31. For ease of reference, we identify our fiscal years by reference to the calendar year in which the fiscal year ends. Accordingly, “fiscal 2015” refers to our fiscal year ended on March 29, 2015 and “fiscal 2016” refers to our fiscal year ending April 3, 2016. The thirteen week periods ended December 28, 2014 and December 27, 2015 are the third fiscal quarter s of fiscal 2015 and fiscal 2016, respectively.

 

Overview

 

Fairway Market is a growth-oriented food retailer offering customers a differentiated one-stop shopping experience “Like No Other Market”. Since beginning as a small neighborhood market in the 1930s, Fairway has established itself as a leading food retailing destination in the Greater New York City metropolitan area, which we estimate is the largest food retail market in the United States. Our stores emphasize an extensive selection of fresh, natural and organic products, prepared foods and hard-to-find specialty and gourmet offerings, along with a full assortment of conventional groceries. Our prices typically are lower than natural/specialty stores and competitive with conventional supermarkets. We believe that the combination of our broad product selection, in-store experience and value pricing creates a premier food shopping experience that appeals to a broad demographic.

 

We operate fifteen locations in New York, New Jersey and Connecticut, four of which include Fairway Wines & Spirits locations .   Fourteen of the stores were in operation prior to the beginning of fiscal 2015; one store was opened during the thirty-nine weeks ended December 28, 2014 but prior to the thirteen weeks ended December 28, 2014 and our fourth Wine & Spirits location was opened during the thirteen weeks ended December 28 , 2014 .  

 

We believe our stores are among the most productive in the industry in net sales per store and net sales per square foot as a result of our distinctive merchandising strategies and value positioning.

 

We intend to continue our growth by expanding our store base in the Greater New York City metropolitan area, improving our operating margins and increasing sales at existing stores. For the next several years, we intend to grow our store base in the Greater New York City metropolitan area .

 

We intend to improve our operating margins through improved business processes, continued cost discipline and enhancements to our merchandise offerings. We expect store growth will also permit us to benefit from economies of scale in sourcing products and will enable us to continue to better leverage our existing infrastructure.

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Factors Affecting Our Operating Results

 

Various factors affect our operating results during each period, including:

 

Store Openings

 

We expect new stores will be a key driver of the growth in our sales and operating profit in the future. Our results of operations have been and will continue to be materially affected by the timing and number of new store openings and the amount of new store opening costs. For example, we typically incur higher than normal employee costs at the time of a new store opening associated with set-up and other opening costs. Operating margins are also affected by promotional discounts and other marketing costs and strategies associated with new store openings, as well as higher shrink, primarily due to overstocking, and costs related to hiring and training new employees. Additionally, promotional activities may result in higher than normal net sales in the first several weeks following a new store opening. A new store builds its sales volume and its customer base over time and, as a result, generally has lower margins and higher operating expenses, as a percentage of sales, than our more mature stores. A new store can take more than a year to achieve a level of operating performance comparable to our similarly existing stores. Stores that we have opened in higher density urban markets typically have generated higher sales volumes and margins than stores in suburban areas.

 

Unless we are able to raise additional capital, our current limited cash resources and significant leverage will adversely affect our ability to open new stores.

 

We believe our differentiated format and destination one-stop shopping appeal attr acts customers from as far as twenty-five miles away. As we open new stores in closer proximity to our customers who currently travel longer distances to shop at our stores, we expect some of these customers to take advantage of the convenience of our new locations. As a result, we have experienced in the past, and expect to experience in the future, some sales volume transfer from our existing stores to our new stores as some of our existing customers switch to these new, closer locations. Consequently, while we expect our new stores will impact sales at our existing stores in close proximity, we believe that by making shopping at our stores for those customers who travel longer distances more convenient, our overall sales to these customers will increase as they increase the frequency and amount of purchases from our stores.

 

General Economic Conditions and Changes in Consumer Behavior

 

The overall economic environment in the Greater New York City metropolitan area and related changes in consumer behavior have a significant impact on our business. In general, positive conditions in the broader economy promote customer spending in our stores, while economic weakness results in a reduction in customer spending. Macroeconomic factors that can affect customer spending patterns, and thereby our results of operations, include employment rates, business conditions, changes in the housing market, the availability of consumer credit, interest rates, tax rates and fuel and energy costs.

 

Inflation and Deflation Trends

 

Inflation and deflation can impact our financial performance. During inflationary periods, our financial results can be positively impacted in the short term as we sell lower-priced inventory in a higher price environment. Over the longer term, the impact of inflation is largely dependent on our ability to pass price increases to our customers, which is subject to competitive market conditions.

 

Infrastructure Investment

 

Our historical operating results reflect the impact of our on - going investments to support our growth. We have made significant investments in management, information technology systems, compliance and marketing. These investments include additions to our company’s personnel, including experienced industry executives and management and merchandising teams to support our long-term growth objectives.

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Pricing Strategy

 

Our strategy is to price our broad selection of fresh, natural and organic foods, hard-to-find specialty and gourmet items and prepared foods at prices typically lower than those of natural/specialty stores. We price our full assortment of conventional groceries at prices competitive with those of conventional supermarkets .  

 

Productivity Initiatives

 

We have undertaken a number of initiatives to improve our gross margin and operating costs, including (i) business process improvements, (ii) labor productivity, (iii) supply chain management and (iv) shrink reduction.

 

Developments in Competitive Landscape

 

The food retail industry as a whole, particularly in the Greater New York City metropolitan area, is highly competitive. Because we offer a full assortment of fresh, natural and organic products, prepared foods and hard-to-find specialty and gourmet offerings, along with a full assortment of conventional groceries, we compete with various types of retailers, including alternative food retailers such as natural foods stores, smaller specialty stores and farmers’ markets, conventional supermarkets, supercenters and membership warehouse clubs. Our principal competitors include alternative food retailers such as Whole Foods and Trader Joe’s, traditional supermarkets such as Stop & Shop, ShopRite and Acme , retailers with “big box” formats such as Target and Wal-Mart ,   warehouse clubs such as Costco and BJ’s Wholesale Club and online food retailers . These businesses compete with us for customers, products and locations. In addition, some are expanding aggressively in marketing a range of natural and organic foods, prepared foods and quality specialty grocery items. Some of these potential competitors have more experience operating multiple store locations or have greater financial or marketing resources than we do and are able to devote greater resources to sourcing, promoting and selling their products. Due to the increasingly competitive environment in which we operate, our operating results have been , and in the future may be, negatively impacted through a loss of sales, reduction in margin from competitive price changes, and/or greater operating costs such as marketing. In addition, other established food retailers could enter our markets, increasing competition for market share.

 

Changes in Interest Expense

 

Our interest expense in any particular period is impacted by our overall level of indebtedness during that period and changes in the interest rates payable on such indebtedness.

 

Effect of Weather-related and Other Emergencies

 

During any fiscal period, events of extreme weather and other emergencies such as mass utility outages can cause changes in consumer behavior, labor availability, suppliers’ ability to meet our demand and in some cases our ability to keep our stores open immediately before, during, and immediately following such events, which can have a   significant impact on our operating results .  

 

How We Assess the Performance of Our Business

 

In assessing performance, we consider a variety of performance and financial measures, principally growth in net sales, gross profit, and Adjusted EBITDA and Central Services as a percentage of net sales. The key measures that we use to evaluate the performance of our business are set forth below:

 

Net Sales

 

We evaluate sales because it helps us measure the impact of economic trends and inflation or deflation, the effectiveness of our merchandising, marketing and promotional activities, the impact of new store openings and the effect of competition over a given period. Our net sales comprise gross sales net of coupons and discounts. We do not record sales taxes as a component of retail revenues as we consider ourselves a pass-through conduit for collecting and remitting sales taxes.

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We evaluate same store sales as one measure of our performance; however, we do not consider same store sales to be as meaningful a measure for us as it may be for other retailers because as a destination food retailer with a small number of stores in a concentrated market area we have in the past experienced, and in the future expect to experience, sales transfer from our existing stores to our newly opened stores that are in closer proximity to some of our customers.

 

Our practice is to include sales from a store in same-store sales beginning on the first day of the fifteenth full month following the store’s opening. This practice may differ from the methods that our competitors use to calculate same-store or “comparable” sales. As a result, data in this report regarding our same-store sales may not be comparable to similar data made available by our competitors.

 

Various factors may affect our same-store sales, including:

 

·

our competition, including competitor store openings or closings near our stores;

·

our opening of new stores in the vicinity of our existing stores;

·

our price optimization initiative;

·

the pricing of our products, including the effects of competition, inflation or deflation and promotions;

·

the number and dollar amount of customer transactions in our stores;

·

overall economic trends and conditions in our markets;

·

consumer preferences, buying trends and spending levels;

·

our ability to provide product offerings that generate new and repeat visits to our stores;  

·

the level of customer service that we provide in our stores;  

·

our in-store merchandising-related activities;

·

our ability to source products efficiently;

·

whether a holiday falls in the same or a different fiscal period; and

·

the occurrence of severe weather conditions and other natural disasters during a fiscal period, which can cause store closures and/or consumer stocking of products.

 

The food retail industry and our sales are affected by general economic conditions and seasonality, as well as the other factors discussed below, that affect store sales performance. Consumer purchases of high-quality perishables and specialty food products are particularly sensitive to a number of factors that influence the levels of consumer spending, including economic conditions, the level of disposable consumer income, consumer debt, interest rates and consumer confidence. In addition, our business is seasonal and, as a result, our average weekly sales fluctuate during the year and are usually highest in our third fiscal quarter, from October through December, when customers make holiday purchases, and typically lower during the summer months in our second fiscal quarter.

 

Gross Profit

 

We use gross profit to measure the effectiveness of our pricing and procurement strategies as well as initiatives to increase sales of higher margin items and to reduce shrink. We calculate gross profit as net sales less cost of sales and occupancy costs. Gross margin measures gross profit as a percentage of our net sales. Cost of sales includes the cost of merchandise inventory sold during the period (net of discounts and allowances), distribution costs, food preparation costs (primarily labor) and shipping and handling costs. Occupancy costs include store rental costs and property taxes. The components of our cost of sales and occupancy costs may not be identical to those of our competitors. As a result, data in this report regarding our gross profit and gross margin may not be comparable to similar data made available by our competitors.

 

Changes in the mix of products sold may impact our gross margin. Unlike natural / specialty stores, we also carry a full assortment of conventional groceries, which generally have lower margins than fresh, natural and organic foods, prepared foods and specialty and gourmet items. We expect to enhance our gross margins through:

 

·

purchasing benefits and economies of scale resulting from expanding the store base;

·

our price optimization initiative;

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·

productivity gains through process and program improvements including the benefits we expect to derive over time from our production center; and

·

reduced shrink as a percentage of net sales

 

Stores that we operate in higher density urban markets typically have generated higher sales volumes and margins than stores that we operate in suburban areas. As the percentage of our sales volumes provided by our suburban stores increases, our overall gross margins may decline.

 

Direct Store Expenses

 

Direct store expenses consist of store-level expenses such as salaries and benefits for our store work force, supplies, store depreciation and store-specific advertising and marketing costs. Store-level labor costs are generally the largest component of our direct store expenses. Direct store expenses, as a percentage of net sales, at our new stores are typically higher than at our more established stores during the first few quarters of operations. The components of our direct store expenses may not be identical to those of our competitors. As a result, data in this report regarding our direct store expenses may not be comparable to similar data made available by our competitors.

 

General and Administrative Expenses

 

General and administrative expenses consist primarily of personnel costs that are not store specific, depreciation and amortization expense as well as other expenses associated with our corporate headquarters, management expenses and expenses for accounting, information systems, legal, business development, human resources, purchasing and other administrative departments.

 

The components of our general and administrative expenses may not be identical to those of our competitors. As a result, data regarding our general and administrative expenses may not be comparable to similar data made available by our competitors.

 

Store Opening Costs

 

Store opening costs include rent expense incurred during construction of new stores and costs related to new location openings, including costs associated with hiring and training personnel, supplies, the costs associated with our dedicated store opening team and other miscellaneous costs. Rent expense is recognized upon receiving possession of a store site, which generally ranges from three to six months before the opening of a store, although in some situations the possession period can exceed twelve months. Store opening costs vary among locations due to several key factors, including the length of time between possession date and the date on which the location opens for business along with the time designated as the training period for new staff for the store. Accordingly, we expect store opening costs to vary from period to period depending on the number of new stores opened in the period, whether such stores opened early or late in the period and whether new stores will open early in the following period. Store opening costs are expensed as incurred.

 

Production Center Start-up Costs

 

Production center start-up costs include rent expense incurred during construction of a new facility and costs related to the location opening, including costs associated with hiring and training personnel, supplies and other miscellaneous costs. Rent expense is recognized upon receiving possession of the site. Production center start-up costs are expensed as incurred.

 

Income from Operations

 

Income from operations consists of gross profit minus direct store expenses, general and administrative expenses, store opening costs and production center start-up costs. Income from operations will vary from period to period based on a number of factors, including the number of stores open and the number of stores in the process of being opened in each period.

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Adjusted EBITDA

 

We present Adjusted EBITDA, a non-GAAP measure, in this report to provide investors with a supplemental measure of our operating performance. We believe that Adjusted EBITDA is a useful performance measure to evaluate our core on-going operations and we use it to facilitate a comparison of our core on-going operating performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors and trends affecting our business than GAAP measures alone can provide. We also use Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected performance and for evaluating on a quarterly and annual basis actual results against such expectations, and as a performance evaluation metric in determining achievement of certain compensation programs and plans for employees, including our senior executives. Management and our board also use Adjusted EBITDA as one of the key measures in determining the value of any strategic, investing or financing opportunity. In addition, the financial covenant in our senior credit facility is based on Adjusted EBITDA, subject to dollar limitations on certain adjustments. The adjustments and related amounts included in Adjusted EBITDA are in substantial accordance with Consolidated EBITDA as defined in our existing senior credit agreement, subject to dollar limitations on certain adjustments. Consolidated EBITDA as computed under our existing senior credit agreement for the four fiscal quarter period ended December 27, 2015 and December 28, 2014 was $38.6  million and $45.6  million , respectively, compared to Adjusted EBITDA for the four fiscal quarter period ended December 27, 2015 and December 28, 2014 of   $35.7 million and $42.2 million,   respectively. Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

 

We define Adjusted EBITDA as earnings before interest expense, income taxes, depreciation and amortization expense, amortization of deferred financing costs, equity compensation charges, store opening costs (including pre-opening advertising costs), lease termination costs, production center start-up costs, severance related expenses, or ganizational realignment costs , transaction expenses and bonuses, and other one-time charges and non-operating expenses which we believe may distort period-to-period comparison . Omitting interest, taxes and the other items provides a financial measure that facilitates comparisons of our results of operations with those of companies having different capital structures. Since the levels of indebtedness and tax structures that other companies have are different from ours, we omit these amounts to facilitate investors’ ability to make these comparisons. Similarly, we omit depreciation and amortization because other companies may employ a greater or lesser amount of owned property, and because in our experience, whether a store is new or one that is fully or mostly depreciated does not necessarily correlate to the contribution that such store makes to operating performance. Items such as lease termination costs, production center start-up costs, severance-related expenses, non-recurring charges, or ganizational realignment costs and transaction expenses and bonuses were incurred and associated with discrete and different events not relating to our core on-going operations, including an organizational realignment to remove redundant costs and streamline parts of our business model to enhance overall productivity that we began in the fourth quarter of fiscal 2014 and completed in fiscal 2015 . We also believe that investors, analysts and other interested parties view our ability to generate Adjusted EBITDA as an important measure of our operating performance and that of other companies in our industry. Adjusted EBITDA should not be considered as an alternative to net income for the periods indicated as a measure of our performance.

 

The use of Adjusted EBITDA has limitations as an analytical tool and you should not consider this performance measure in isolation from, or as an alternative to, US GAAP measures such as net income (loss). Adjusted EBITDA is not a measure of liquidity under US GAAP or otherwise, and is not an alternative to cash flow from continuing operating activities. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by the expenses that are excluded from that term or by unusual or non-recurring items. The limitations of Adjusted EBITDA include: (i) it does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; (ii) it does not reflect changes in, or cash requirements for, our working capital needs; (iii) it does not reflect income tax payments we may be required to make; (iv) it does not reflect the cash requirements necessary to service interest or principal payments associated with indebtedness; and (v) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.

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To properly and prudently evaluate our business, we encourage you to review our consolidated financial statements included elsewhere in this report and the reconciliation to Adjusted EBITDA from net loss, the most directly comparable financial measure presented in accordance with US GAAP, set forth in the table below. All of the items included in the reconciliation from net loss to Adjusted EBITDA are either (i) non-cash items or (ii) items that management does not consider in assessing our on-going operating performance. In the case of the non-cash items, management believes that investors may find it useful to assess our comparative operating performance because the measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that affect operating performance. In the case of the other items that management does not consider in assessing our on-going operating performance, management believes that investors may find it useful to assess our operating performance if the measures are presented without these items because their financial impact may not reflect on-going operating performance.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

Thirty-Nine Weeks Ended

 

 

December 27,

 

December 28,

 

December 27,

 

December 28,

 

 

2015

 

2014

 

2015

 

2014

 

    

 

 

    

% of

 

 

 

    

% of

 

 

 

    

% of

 

 

 

    

% of

 

 

 

 

 

Net Sales

 

 

 

Net Sales

 

 

 

 

Net Sales

 

 

 

 

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(dollars in thousands)

Net loss

 

$

(9,744)

 

(5.1)

%

 

$

(11,060)

 

(5.4)

%

 

$

(35,696)

 

(6.3)

%

 

$

(37,989)

 

(6.3)

%