<PAGE>
===============================================================================
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 January 1, 2000
---------------
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 333-20155
GORGES\QUIK-TO-FIX FOODS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 58-2263508
(State or Other (I.R.S. Employer Identification No.)
Jurisdiction of Incorporation)
9441 LBJ Freeway
Suite 214
Dallas, Texas 75243
(Address of Principal Executive Offices)
(972) 690-7675
(Registrant's Telephone Number, Including Area Code)
Indicate by check [x] 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 [x] No
--- ---
The number of shares of the registrant's Common Stock outstanding at
February 14, 2000 was 1,000. There is no public trading market for shares of the
registrant's Common Stock.
================================================================================
<PAGE>
Part I - Financial Information
Item 1. - Financial Statements
--------------------
GORGES/QUIK-TO-FIX FOODS, INC.
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
October 2, January 1,
1999 2000
------------------- --------------------
(Audited) (Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 582 $ 969
Accounts receivable, net 13,937 11,333
Inventory 17,365 17,449
Prepaid expenses and other 589 842
------------------- --------------------
Total current assets 32,473 30,593
Property, plant and equipment:
Land 1,371 1,371
Buildings and leasehold improvements 35,171 35,180
Machinery and equipment 39,798 39,852
Land improvements and other 794 1,036
------------------- --------------------
77,134 77,439
Accumulated depreciation (20,524) (22,482)
------------------- --------------------
Net property, plant and equipment 56,610 54,957
Other assets:
Intangible assets, net 60,854 60,294
Organizational and deferred debt issuance costs, net 5,313 3,076
Other 555 472
------------------- --------------------
Total assets $155,805 $149,392
=================== ====================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 16,161 $ 12,864
Current portion of long-term debt 4,260 4,260
Convertible debt with shareholders 3,000 -
------------------- --------------------
Total current liabilities 23,421 17,124
Long-term debt, less current portion 90,945 92,037
Stockholders' equity:
Common stock, $.01 par value; 2,000 shares authorized,
1,000 shares issued and outstanding - -
Additional paid in capital 62,492 65,776
Accumulated deficit (21,053) (25,545)
------------------- --------------------
Total stockholders' equity 41,439 40,231
------------------- --------------------
Total liabilities and stockholders' equity $155,805 $149,392
=================== ====================
</TABLE>
See accompanying notes to financial statements
<PAGE>
GORGES/QUIK-TO-FIX FOODS, INC.
STATEMENTS OF OPERATIONS
(In thousands)
Three Three
months months
ended ended
January 2, January 1,
1999 2000
(Unaudited) (Unaudited)
------------ -----------
Sales $46,829 34,403
Costs of goods sold 39,594 27,885
------------ -----------
Gross profit 7,235 6,518
Operating expenses:
Selling, general and
Administrative 5,870 5,575
Amortization 812 560
------------ -----------
Total operating expenses 6,682 6,135
------------ -----------
Operating income 553 383
Interest expense 3,820 2,831
Other (income) expense 198
------------ -----------
(Loss) before taxes on income (3,465) (2,448)
Income tax expense - -
------------ -----------
Net income (loss) before
cumulative effect for change in
accounting principle and
extraordinary item (3,465) (2,448)
------------ -----------
Cumulative effect for change in
accounting principle - (2,043)
------------ -----------
Net (loss) before extraordinary
Item (3,465) (4,491)
------------ -----------
Extraordinary item net of tax 27,937 -
------------ -----------
Net income (loss) $24,472 $(4,491)
============ ===========
See accompanying notes to financial statements
<PAGE>
GORGES/QUIK-TO-FIX FOODS, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three months Three months
Ended Ended
January 2, January 1,
1999 2000
-------------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 24,472 $ (4,491)
Adjustments to reconcile net income (loss) to net
Cash provided by (used in) operating activities:
Depreciation 2,459 1,958
Amortization 812 560
Cumulative effect for change in accounting
principle - 2,043
Amortization of deferred debt 276 195
Allowance for bad debt 105 5
Extraordinary gain on early retirement of debt (28,628) -
Changes in assets and liabilities:
Decrease in accounts receivable 1,532 2,599
Increase in inventory (1,742) (84)
Increase in prepaid expenses and other (174) (172)
(Decrease) increase in accounts payable and
accrued expenses 617 (3,013)
-------------------- -----------------
Net cash used in operating activities (271) (400)
Cash flows from investing activities:
Purchases of plant and equipment (309) (303)
-------------------- -----------------
Net cash used in investing activities (309) (303)
Cash flows from financing activities:
Proceeds from revolving line of credit - -
Payments on revolving line of credit (3,000) (710)
Proceeds from long term debt 4,052 37,760
Payments on long term debt (18,656) (35,960)
Capital contributions 16,907 -
Debt issuance and organizational costs (394) -
-------------------- ----------------
Net cash provided by (used in) financing
activities (1,091) 1,090
-------------------- ----------------
Net increase in cash and cash equivalents (1,671) 387
Cash and cash equivalents at beginning of period 1,671 582
-------------------- ----------------
Cash and cash equivalents at end of period $ - $ 969
==================== ================
</TABLE>
See accompanying notes to financial statements
<PAGE>
GORGES/QUIK-TO-FIX FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
January 2, 1999
1. Organization and Basis of Presentation
The Company, a wholly owned subsidiary of Gorges Holding Company ("GHC"),
is a leading producer, marketer and distributor of value added processed beef
products for the foodservice industry and is one of the few companies in this
segment of the industry that markets and distributes nationally. The Company
purchases fresh and frozen beef and, to a lesser extent, pork and poultry, which
it processes into a broad range of fully cooked and ready to cook products.
Currently the Company produces value added products which include: (i) breaded
beef items such as country fried steak and beef fingers; (ii) charbroiled beef
items such as fully cooked hamburger patties, fajita strips, meatballs, meatloaf
and taco meat; and (iii) other specialty products, such as fully cooked and
ready to cook pork sausage, breaded pork and turkey, cubed steaks, and Philly
steak slices. The Company's products are sold primarily to the foodservice
industry, which encompasses all aspects of away-from-home food preparation,
including commercial establishments such as fast food restaurants and family
dining restaurants and non-commercial establishments such as healthcare
providers, schools and corporations. The Company sells its products primarily
through broadline and specialty foodservice distributors.
The interim financial information as of January 1, 2000 and for the three
month periods ended January 1, 2000 and January 2, 1999 have not been audited,
but normal recurring adjustments have been made to present of the financial
position at January 1, 2000 and the results of operations and cash flows for the
three months ended January 1, 2000 and January 2, 1999. The results of
operations for these periods are not necessarily indicative of the results to be
expected for any subsequent interim period or for the fiscal year.
Certain reclassifications have been made to prior years financial
statements to conform to the January 1, 2000 presentation.
2. Summary of Significant Accounting Policies
Fiscal Year
The Company utilizes a 52 or 53 week accounting period, ending on the
Saturday closest to September 30.
Accounts Receivable
The Company periodically evaluates the credit worthiness of its customers
because accounts receivable balances are not collateralized. The Company has not
experienced significant credit losses.
Inventories
Inventories, valued at the lower of cost (first-in, first-out) or market
(replacement or net realizable value), consist of the following (in thousands):
October 2, January 1,
1999 2000
------------------- -------------------
Finished products $10,901 $11,475
Supplies 6,464 5,974
------------------- -------------------
Total $17,365 $17,449
=================== ===================
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is calculated
primarily by the straight-line method over the estimated useful lives of the
assets, which range from 3 to 20 years. Capital expenditures for equipment and
capital improvements are generally capitalized while maintenance is expensed.
<PAGE>
GORGES/QUIK-TO-FIX FOODS, INC.
NOTES TO FINANCIAL STATEMENTS- (Continued)
2. Summary of Significant Accounting Policies - Continued
Intangible assets and Organizational and Deferred Debt Issuance Costs
Intangible assets, consisting of goodwill and trademarks, are stated at
cost and are amortized on a straight-line basis over 30 years. Recoverability of
the carrying value of intangible assets is evaluated on a recurring basis with
consideration toward recovery through future operating results on an
undiscounted basis.
Organizational costs were amortized on a straight-line basis over five
years, until the Company adopted the Statement of Position (SOP) 98-5 in the
first quarter of fiscal 2000. The result of adopting SOP 98-5 was the Company
expensed the remaining unamortized organizational costs of $2.0 million as a
cumulative effect for a change in accounting principle in the first quarter of
fiscal 2000, compared to amortization expense of $0.3 million at January 2,1999.
Deferred debt issuance costs are amortized over the life of the debt instrument
to which it relates. At October 2, 1999 and January 1, 2000, the accumulated
amortization was $0.9 million and $1.1 million, respectively.
Income Taxes
The Company follows the liability method of accounting for deferred income
taxes. The liability method provides that deferred tax liabilities are recorded
at currently enacted tax rates based on the difference between the tax basis of
assets and liabilities and their carrying amounts for financial reporting
purposes, referred to as temporary differences.
Selling Expenses
Selling expenses include product line expenses such as shipping and
storage, external handling, external freezer charges, product and package
design, brokerage expense, and other direct selling expenses such as certain
salaries, travel and research and development.
Advertising, Promotion and Research and Development Expenses
Advertising, promotion and research and development expenses are charged to
operations in the period incurred. Advertising and promotion expenses were $3.2
million for the period ending January 2, 1999 compared to $2.6 million for the
period ending January 1, 2000. Research and Development expenses were $0.2
million for the period ended January 2, 1999 compared to $0.2 million for the
period ending January 1, 2000.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Other (Income) Expense/Restructuring Expenses
The Company incurred additional costs related to the exit from the ground
beef business and restructuring of the value added business in the first quarter
of fiscal 1999 totaling $0.2 million. There were no expenses related to
restructuring in fiscal 2000.
Extraordinary Item
Included in the extraordinary item of $27.0 million for the quarter ended
January 2, 1999, is $31.1 million in income from the repurchase of the Notes,
$1.6 million in income from interest forgiven on the repurchase of Notes, $3.1
million of expenses related to the repurchase of the Notes, $2.6 million of
expenses related to the write off of deferred debt fees (partially related to
the repurchased Notes and partially related to the restructuring of the Senior
Credit Facility).
<PAGE>
GORGES/QUIK-TO-FIX FOODS, INC.
NOTES TO FINANCIAL STATEMENTS- (Continued)
Collective Bargaining Agreements
Currently the Company has approximately 68 employees of a total of 188
union-eligible employees at the Garland, Texas facility. The employees are
represented by the United Food & Commercial Workers International Union, AFL-
CIO, CLC, Local 540 (the "Union"). The employees are covered under a collective
bargaining agreement that expires on October 1, 2000.
3. Long Term Debt
Senior Debt
On March 5, 1999, the Company repaid all amounts outstanding under its Old
Credit Agreement (NationsBank) and entered into a new credit facility with The
CIT Group/Business Credit, Inc. ("CIT") as agent for a syndicate of banks and
financial institutions (the "New Credit Facility") which provides the Company
with a revolving credit facility (the "Revolver") and a $29.0 million term loan
facility (the "Term Loan"). The Revolver includes covenants under which the
Company can borrow funds based on the levels of its accounts receivable and
inventory in an aggregate amount of not more than $25.0 million. The Revolver
includes a sub-facility of $3.0 million for commercial and standby letters of
credit. The Revolver has a term of five years and all amounts outstanding under
the Revolver will become due and payable on April 1, 2004. The Term Loan has a
five year term and is subject to principal payments in an annual amount $4.3
million in each of fiscal 2000, 2001, 2002 and 2003 and $9.3 million in fiscal
2004.
Outstanding borrowings under the New Credit Facility bear interest at
floating rates per annum equal to the prime rate plus 1.625% for borrowings
under the Revolver and the prime rate plus 2.125% for borrowings under the Term
Loan. At January 1, 2000, the interest rate for the Company based on this
formula was 10.125% for borrowings under the Revolver and 10.625% for borrowings
under the Term Loan. The Company pays a commitment fee of 0.5% for unused
amounts under the Revolver.
The interest rates under the New Credit Facility may vary based on changes in
the prime rate or the London Interbank Offered Rate. Additionally, the interest
rates under the New Credit Facility may vary based on the Company's future
financial performance. The Company may be required to make mandatory prepayments
against both facilities, comprised of principal payments totaling: (i) 100% of
cash received in asset sales wherein the proceeds are not used to purchase
replacement assets, and (ii) 50% of the Company's Surplus Cash (as defined in
the New Credit Facility). These payments are to be applied first to the Term
Loan and, upon the Term Loan's retirement, to the Revolver as a permanent
reduction. At January 1, 2000, the Company's outstanding borrowings under the
New Credit Facility were $44.3 million, $18.5 million under the Revolver and
$25.8 million under the Term Loan. Also, at January 1, 2000, the Company had
$0.2 million in outstanding letters of credit. At January 1, 2000, the Company
had $2.2 million of additional available borrowings under the Revolver
Under the New Credit Facility, the Company is subject to customary
financial and other covenants including certain financial limit and ratio
covenants as well as limitations on further indebtedness, guaranties, liens,
dividends and other restricted payments (including transactions with
affiliates), prepayments and redemption of debt, mergers, acquisitions, asset
sales, consolidations, and other investments. The New Credit Facility also
provides that a first-priority security interest in, and lien upon,
substantially all of the Company's present and future tangible and intangible
assets and capital stock to secure indebtedness outstanding. As of January 1,
2000, the Company was not in compliance with all technical and financial
covenants under the New Credit Facility. On December 30, 1999, the Company and
"CIT" entered into an amendment and a written waiver to the New Credit Facility,
which waived the non-compliance for the first quarter and established new
financial covenants going forward.
<PAGE>
GORGES/QUIK-TO-FIX FOODS, INC.
NOTES TO FINANCIAL STATEMENTS- (Continued)
3. Long Term Debt - Continued
Subordinated Debt
On November 25, 1996, the Company consummated a private placement of $100.0
million aggregate principal amount Notes. The Notes will mature on December 1,
2006, unless previously redeemed. Interest on the notes is payable semiannually
in arrears, commencing June 1, 1997, and is payable on June 1 and December 1 of
each year at a rate of 11.5% per annum. The issuance of the Notes resulted in
net proceeds to the Company of approximately $95.0 million after underwriting
discounts and other debt issuance costs aggregating approximately $5.0 million.
On April 30, 1997, the Company consummated an exchange offer where by the
private placement Notes were replaced with similar Notes that are publicly
traded. In December 1998, the Company retired $48.0 million aggregate principal
amount of Notes, through a combination of open market purchases and a cash
tender offer. The Company's outstanding indebtedness under these Notes was $52
million at January 2, 1999. (See Note 10).
The Notes were issued pursuant to an indenture that contains certain
restrictive covenants and limitations. Among other things, the Indenture limits
the incurrence of additional indebtedness, limits the making of restricted
payments (as defined) including the declaration and/or payment of dividends,
places limitations on dividends and other payments by the Company, and places
limitations on liens, certain asset dispositions and merger/sale of assets
activity. The Company was in compliance with these covenants at January 1, 2000.
The Notes are unsecured subordinated general obligations of the Company.
The Notes become redeemable at the Company's option on December 1, 2001, at
which time the Notes are redeemable in whole or part, subject to a redemption
premium which begins at 105.75 % of the face value in 2001 and reduces at a
scheduled rate annually until 2004 at which time the redemption is 100% of face
value. No mandatory redemption or sinking fund payments are required with
respect to the Notes; however, at each Note holder's option, the Company may be
required to repurchase the Notes at a redemption premium of 101% in the event
the Company incurs a change of control as defined by the indenture.
The Company paid interest of $2.8 million for the three months ended
January 1, 2000, compared to $3.8 million for the three months ended January 2,
1999.
On December 15, 1999, the Bridge Loan and interest associated with the
Bridge Loan was converted to equity of the Company. The conversion of the Bridge
loan to equity resulted in the issuance of 822,188 shares of common stock and an
increase to shareholders equity of $3.2 million.
On December 30, 1999 the Company and CIT entered into an amendment of the
New Credit Facility which waived the Company's non-compliance with certain
financial covenants at fiscal year ended October 2, 1999, and January 1, 2000
The amendment to the New Credit Facility established new financial covenants for
future periods.
4. Commitments
The Company leases certain properties and equipment for which the total
rentals thereon approximated $98,000 for the three month period ended January 2,
1999, and approximately $94,000 for the three month period ended January 1,
2000.
5. Benefit Plans
The Company has defined contribution retirement and incentive benefit
programs for all employees after meeting requirements concerning time employed.
Incentive benefit programs are of a profit sharing nature, and are discretionary
as to amount and timing, no incentive contributions have been made by the
Company. Contributions to the defined contribution plans totaled $133,991 for
the three-month period ended January 2, 1999, and $94,444 for the three-month
period ended January 1, 2000.
<PAGE>
GORGES/QUIK-TO-FIX FOODS, INC.
NOTES TO FINANCIAL STATEMENTS- (Continued)
6. Income Taxes
The Company has not recorded an income tax benefit related to the net
deferred tax asset for the period ended January 2, 1999 because in the opinion
of management it is uncertain when the Company will be able to realize such
deferred tax asset.
7. Significant Customers
The Company's products are primarily sold to major foodservice distributors
for distribution to foodservice outlets. As a result, customers with purchases
greater than 10% of total sales accounted for approximately 27.6% of sales for
the three- month period ended January 1, 2000.
8. Transactions with Affiliates
The Company has entered into a consulting agreement with an affiliate of
majority shareholder CGW Southeast Partners III L.P. ("CGW"), under which CGW
will receive a monthly fee of $30,000 for financial and management consulting
services. In addition to the monthly fee to CGW, the Board of Directors may
approve an additional fee not to exceed $500,000 annually, based upon overall
Company operations. At the closing of the acquisition, CGW received a fee of
$2.65 million, included as part of the Company's organizational costs, for its
services in assisting the Company with the structuring and negotiating the
purchase of the Company from Tyson Foods, Inc.
Stock Options
In 1997, GHC adopted a stock option plan (the "Stock Option Plan") which
provides for the granting of up to 112,250 incentive stock options to employees
to purchase shares of GHC's common stock. All options granted under the Stock
Option Plan have a five year vesting period and a term of up to ten years. GHC
has no assets or liabilities, other than their direct investment in the Company.
Stock option activity is as follows:
Number of Shares Weighted Average and
Option Price per Share
---------------------------------------------
Options granted 84,968 $100.00
Options exercised - -
Options cancelled - -
---------------------------------------------
Options outstanding
September 27, 1997 84,968 $100.00
Options granted 8,543 $100.00
Options exercised - -
Options cancelled 15,843 $100.00
---------------------------------------------
Options Outstanding
October 3, 1998 77,668 $100.00
Options granted - -
Options exercised - -
Options canceled 25,868 $100.00
---------------------------------------------
Options Outstanding
October 2, 1999 51,800 $100.00
---------------------------------------------
Options granted - -
Options exercised - -
Options canceled - -
---------------------------------------------
Options Outstanding
January 1, 2000 51,800 $100.00
---------------------------------------------
<PAGE>
Gorges/Quik-to-Fix Foods, Inc., (the "Company"), or its representatives,
may make forward looking statements, oral or written, including statements in
this report's Management's Discussion and Analysis of Financial Condition and
Results of Operations, press releases and filings with the Securities and
Exchange Commission (the "Commission"), regarding estimated future operating
results, planned capital expenditures (including the amount and nature thereof)
and the Company's financing plans, if any, related thereto, changes in the
Company's financial position and other plans and objectives for future
operations. Certain of the matters discussed may involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from
future results, performance or achievements expressed or implied by such
forward-looking statements. Important factors that could cause the actual
results, performance or achievements of the Company to differ materially from
the Company's expectations are set forth among the factors set forth in the
"Factors Affecting Future Performance" section in Item 7 of this report or in
the description of the Company's business in Item 1 of this report, as well as
factors contained in the Company's other filings with the Commission.
All subsequent oral and written forward looking statements attributable to
the Company or persons acting on its behalf are expressly qualified in their
entirety by these factors. The Company assumes no obligation to update any of
these statements.
Item 2 Management's Discussion and Analysis of Financial condition and Results
of Operations
Results of Operations
Overview
Discussion of the results of operations for the Company as they relate to
the first fiscal quarter, or the fiscal three month periods ending January 2,
1999, and January 1, 2000, are referred to below as fiscal 1999 and fiscal 2000,
respectively.
Three months ended
January 2, 1999 January 1, 2000
------------------------------------
Sales Dollars:
Value Added $46,829 $34,403
------------------------------------
Pounds:
Total Value Added 38,039 21,557
------------------------------------
Dollars/Pound
Value Added $ 1.23 $ 1.60
------------------------------------
Sales. Total sales decreased $12.4 million, or 26.5%, from $46.8 million
in fiscal 1999 to $34.4 million in fiscal 2000. This decrease was primarily due
to an $8.8 million decrease in sales of ground beef and decreased sales to
national account customers of value added products, partially offset by
increased sales of value added products to retail customers.
Gross Profit. Gross profit decreased $0.7 million, or 9.9%, from $7.2
million in fiscal 1999 to $6.5 million in fiscal 2000. As a percentage of sales,
gross profit increased from 15.4% in fiscal 1999 to 18.9% in fiscal 2000. This
increase in gross profit percent reflects the exit from the low margin ground
beef business and some lower margin value added products.
Operating Expenses. Operating expenses decreased $0.5 million, or 8.2%,
from $6.7 million in fiscal 1999 to $6.1 million in fiscal 2000. This decrease
is the result of lower selling expenses in fiscal 2000.
Operating Income (loss). Operating income decreased $0.2 million, from $0.6
million in fiscal 1999 to $0.4 million in fiscal 2000. This decrease is
primarily the result of the decrease in gross profit due to sales mix.
Interest Expense. Interest expense decreased $1.0 million, or 26.3%, from
$3.8 million in fiscal 1999 to $2.8 million in fiscal 2000. This decrease
reflects the overall lower debt level in the quarter due to the repurchase and
retirement of $48 million of the Subordinated Notes.
<PAGE>
Other (Income) Expense. Other income and expense, which was minimal in
fiscal 2000, decreased $0.2 million from fiscal 1999. The decrease is a result
of the extraordinary Restructuring in fiscal 1999.
Cumulative effect of change in accounting principle. The cumulative effect
of change for adopting Statement of Position (SOP) 98-5 resulted in the Company
expensing the remaining unamortized organizational costs of $2.0 million in
fiscal 2000.
Extraordinary Item. The extraordinary item is comprised of $31.1 million in
income from the repurchase of the Notes, $1.6 million in income from interest
forgiven on the repurchase of the Notes, $2.3 million of expenses related to the
repurchase of the Notes, $2.6 million of expense related to the write off of
deferred debt fees (partially related to the repurchasing of the Notes and
partially related to the restructuring of the Senior Credit Facility). In fiscal
1999, and the extraordinary item in fiscal 2000 is due to the bridge loan and
interest being converted to equity.
Net Income (loss). Net income (loss) decreased $29.0 million, from $24.5
million in fiscal 1999 to $(4.5) million in fiscal 2000. The factors above
explain the change between the periods.
Liquidity and Capital Resources
As a result of the Acquisition, the Company has significant annual
principal and interest obligations. Borrowings under the Credit Facility, which
totaled $44.3 million at January 1, 2000 ($25.8 million under the Term Loan and
$18.5 million under the Revolver), accrued interest at an average rate of 10.28%
in the quarter ended January 1, 2000. Borrowings under the Notes totaled $52.0
million at January 1, 2000, and accrued interest at 11.5%.
As of January 1, 2000, the Company was in compliance with all financial
covenants under its credit agreement with the bank which provides the Company
with the Revolver and the Term Loan.
. Repurchase and Retirement of Notes. On October 29, 1998, the Company
announced a tender offer pursuant to which it offered to purchase not less
than $36,000,000 and up to $46,000,000 aggregate principal amount of its
Notes. On December 2, 1998, the Company elected to waive all conditions to
the consummation of the Offer, including the Minimum Tender Condition, and
consummated the Offer with respect to $29,970,000 aggregate principal
amount of Notes. Additionally, on December 21, 1998, the Company's
controlling stockholder, CGW, contributed to the Company $18,030,000
aggregate principal amount of Notes acquired by CGW through open market
purchases. The Tendered Notes and the CGW Notes were retired on December
21, 1998. The repurchase and retirement of the Tendered Notes and the CGW
Notes were financed through an equity investment by the shareholders in GHC
totaling $16,900,000.
. Bridge Loan. On December 21, 1998, the Company obtained from some of
its shareholders a $4,000,000 subordinated bridge loan, the proceeds of
which were used to fund the Interest Payment. The terms of the Bridge Loan
provide for a one-year loan to the Company at an interest rate of 9%. $1.0
million was paid back on the bridge loan on March 5, 1999, as part of the
new credit agreement with CIT leaving an amount due of $3.0 million and
interest at 9%. On December 15, 1999, the Company had not obtained a
Replacement Credit Facility, the Bridge Loan and the interest was
automatically convert to equity in GHC.
In addition to its debt service obligations, the Company will need
liquidity for working capital and capital expenditures. For the fiscal first
quarter ended January 1, 2000 and January 2,1999, the Company spent $0.3 million
and $0.3 million, respectively, on capital projects, primarily for the capital
maintenance of the Company's facilities.
The Company's primary sources of liquidity are the availability of cash under
the revolving credit facility and expected cash flows from operations. In the
quarter ended January 1, 2000 the Company used $0.4 million of operating cash
flow, the majority of which was used to fund interest payments. The Company used
another $0.3 million in investing activities for capital asset purchases. In
financing activities, the Company received $1.1 million from the credit
facility. The Company anticipates that its working capital requirements, capital
expenditures, and scheduled repayments for fiscal 2000 will be satisfied through
a combination of cash flows generated from operations together with funds
available under the Revolving Credit Facility.
<PAGE>
Recent Accounting Pronouncements
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires all derivatives to be
measured at fair value and recognized as either assets or liabilities on the
balance sheet. Changes in such fair value are required to be recognized
immediately in net income (loss) to the extent the derivatives are not effective
as hedges. SFAS No. 133 is effective for fiscal years beginning after June 15,
2000 and is effective for interim periods in the initial year of adoption. At
the present time, we do not feel the adoption of SFAS No. 133 will have a
material effect on our results of operation or cash flows.
Future Operating Results; Forward Looking Statements
The Company's future revenues and profitability are difficult to predict
due to a variety of risks and uncertainties, including (i) business conditions
and growth in the Company's existing markets, (ii) the success of new products
and development of new markets, (iii) the Company's existing indebtedness and
the uncertainty of capital needs for debt service and additional growth, (iv)
government regulation, including USDA regulations, (v) the successful
integration of future acquisitions and (vi) numerous competitive factors,
including number and size of competitors and alternative distribution, (vii)
market price and availability of raw materials.
The Company expects to pursue business growth strategies, add customers,
product lines and possibly acquire other businesses; however, the success of
these strategies and any rate of increase cannot be estimated with precision or
certainty.
Because of the foregoing uncertainties affecting the Company's future
operating results, past performance should not be considered to be a reliable
indicator of future performance, and investors should not use historical trends
to anticipate results or trends in future periods. In addition, the Company's
participation in a dynamic industry often results in significant volatility in
the price of the Company's bonds.
In addition to the matters noted above, certain other statements made in
this report are forward looking. Such statements are based on an assessment of a
variety of factors, contingencies and uncertainties deemed relevant by
management, including technological changes, competitive products and services,
management issues as well as those matters discussed specifically elsewhere
herein. As a result, the actual results realized by the Company could differ
materially from the statements made herein. Readers of this report are cautioned
not to place undue reliance on the forward looking statements made in this
report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's market risk is limited to fluctuations in interest rates as
it pertains to the Company's borrowings under its New Credit Facility.
Outstanding borrowings under the New Credit Facility bear interest at floating
rates per annum equal to the prime rate plus 1.625% for borrowings under the
Revolver and the prime rate plus 2.125% for borrowings under the Term Loan. At
January 1, 2000, the interest rate for the Company based on this formula was
10.125% for borrowings under the Revolver and 10.625% for borrowings under the
Term Loan. Based on the amount of borrowings as of January 1, 2000, if the
interest rates on the Company's borrowings average 100 basis points more in 2000
than they did in 1999, the Company's interest expense would increase and income
before income taxes would decrease by $443,000. This amount is determined solely
by considering the impact of the hypothetical change in the interest rate on the
Company's borrowing cost without consideration for other factors such as actions
management might take to mitigate its exposure to interest rate changes.
The Company is also exposed to market risk from changes in foreign exchange
rates and commodity prices. The Company does not use any hedging transactions in
order to modify the risk from these foreign currency exchange rate and commodity
price fluctuations. The Company also does not use financial instruments for
trading purposes and is not a party to any leveraged derivatives.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Exhibits to this report on Form 10-Q are listed on the Exhibit
Index, which immediately follows the signature page hereto.
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: February 15, 2000 GORGES/QUIK-TO-FIX FOODS, INC.
By: /s/ John P. McCarthy
-------------------------
John P. McCarthy
Corporate Controller
(Principal Accounting Officer)
<PAGE>
Exhibit Index
3.1 Restated Certificate of Incorporation of Gorges/Quik-to-Fix Foods, Inc.
(incorporated herein by reference to the Company's Registration Statement
on Form S-1, originally filed January 21, 1997 (Reg. No. 333-20155)(the
"Registration Statement on Form S-1")).
3.2 Bylaws of Gorges/Quik-to-Fix Foods, Inc. (incorporated herein by reference
to the Company's Registration Statement on Form S-1).
4. Indenture, dated November 25, 1996, between Gorges/Quik-to- Fix Foods,
Inc. and IBJ Schroder Bank & Trust Company, as Trustee, relating to the
Company's 11 1/2 Senior Subordinated Notes due 2006, Series B
(incorporated herein by reference to the Company's Registration Statement
on Form S-1).
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-03-1999
<PERIOD-END> JAN-01-2000
<CASH> 969
<SECURITIES> 0
<RECEIVABLES> 11,333
<ALLOWANCES> (503)
<INVENTORY> 17,449
<CURRENT-ASSETS> 30,593
<PP&E> 77,439
<DEPRECIATION> (22,482)
<TOTAL-ASSETS> 149,392
<CURRENT-LIABILITIES> 17,124
<BONDS> 92,037
0
0
<COMMON> 0
<OTHER-SE> 65,776
<TOTAL-LIABILITY-AND-EQUITY> 149,392
<SALES> 34,403
<TOTAL-REVENUES> 34,403
<CGS> 27,885
<TOTAL-COSTS> 6,135
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,831
<INCOME-PRETAX> (2,448)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,448)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (2,043)
<NET-INCOME> (4,491)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
