UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1999.
[ ] 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 1-7013
GRISTEDE'S SLOAN'S, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-1829183
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
823 Eleventh Avenue, New York, New York 10019
(Address of Principal Executive Offices)
(212) 956-5803
(Registrant's Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15 (d) of the Securities Exchange Act 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 [ ]
At April 13, 1999, the registrant had issued and outstanding 19,636,574 shares
of common stock.
<PAGE>
GRISTEDE'S SLOAN'S, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
February 28,1999 and November 29, 1998 Page 3
Consolidated Statements of Operations for
the quarters ended
February 28, 1999 and March 1, 1998 Page 4
Consolidated Statements of Stockholders' Equity
for the year ended November 29, 1998
and the quarter ended February 28, 1999 Page 5
Consolidated Statements of Cash Flows for
the quarters ended February 28, 1999
and March 1, 1998 Page 6
Notes to Consolidated Financial Statements Page 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations Page 9
- 2 -
<PAGE>
<TABLE>
<CAPTION>
Item 1
Financial Statements
GRISTEDE'S SLOAN'S, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
February 28, November 29,
ASSETS 1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash ............................................................................... $ 29,853 $ 53,794
Accounts receivable - net of allowance for doubtful accounts
of $0 at February 28, 1999 and $0 November 29, 1998 ............................. 4,619,221 5,091,174
Inventory .......................................................................... 19,749,574 18,425,802
Prepaid expenses and other current assets .......................................... 1,499,935 1,320,931
Notes receivable - current portion ................................................. 370,305 1,032,203
------------ ------------
Total current assets ............................................................... 26,268,888 25,923,904
------------ ------------
PROPERTY AND EQUIPMENT:
Furniture, fixtures and equipment .................................................. 14,934,652 14,610,788
Capitalized equipment leases ....................................................... 8,346,045 8,267,999
Leaseholds and leasehold improvements .............................................. 36,114,537 34,388,652
------------ ------------
59,395,234 57,267,439
Less accumulated depreciation and amortization ..................................... 26,769,552 25,716,915
------------ ------------
Net property and equipment ......................................................... 32,625,682 31,550,524
Deposits and other assets .......................................................... 727,946 719,429
Deferred costs ..................................................................... 2,190,215 1,968,859
Notes receivable - noncurrent portion .............................................. 474,324 543,793
------------ ------------
TOTAL ......................................................................................... $ 62,287,055 $ 60,706,509
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade ............................................................ $ 13,036,065 $ 11,951,436
Accrued payroll, vacation and withholdings ......................................... 819,607 1,543,748
Accrued expenses and other current liabilities ..................................... 1,350,460 896,716
Note payable ....................................................................... 319,138 319,138
Capitalized lease obligation - current portion ..................................... 771,331 695,665
Current portion of long term debt .................................................. 3,314,283 3,314,283
------------ ------------
Total current liabilities .......................................................... 19,610,884 18,720,986
Long-term debt - noncurrent portion ................................................ 18,547,030 18,663,935
Due to Affiliate ................................................................... 4,211,394 4,031,394
Deferred advertising ............................................................... 216,154 248,654
Capitalized lease obligation - noncurrent portion .................................. 3,072,410 2,986,007
Deferred rents ................................................................. 1,840,803 1,673,850
------------ ------------
Total liabilities ................................................................. 47,498,675 46,324,826
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.02 par value - shares authorized 25,000,000; outstanding
19,636,574 shares at February 29, 1999 and November 29, 1998 ....................... 392,732 392,732
Additional paid-in capital ......................................................... 14,136,674 14,136,674
Retained eanings/ (deficit) ........................................................ 258,974 (147,723)
------------ ------------
Total stockholders' equity ......................................................... 14,788,380 14,381,683
------------ ------------
TOTAL ......................................................................................... $ 62,287,055 $ 60,706,509
============ ============
See accompanying notes.
</TABLE>
-3-
<PAGE>
GRISTEDE'S SLOAN'S, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
13 WEEKS ENDED FEBRUARY 28, 1999 AND MARCH 1, 1998
13 weeks 13 weeks
ended ended
February 28, March 1,
1999 1998
============ ============
Sales ...................................... $ 44,187,791 $ 39,420,880
Cost of sales .............................. 27,135,886 23,513,947
------------ ------------
Gross profit ............................... 17,051,905 15,906,933
Store operating, general and
administrative expense ..................... 13,438,014 13,290,951
Depreciation and amortization .............. 1,138,484 1,053,960
Non-store operating expenses:
Administrative payroll and fringes ....... 979,417 780,382
General office expense ................... 321,065 317,243
Professional fees ........................ 196,189 56,486
Corporate expense ........................ 39,250 36,813
------------ ------------
Total non-store operating expense .......... 1,535,921 1,190,924
------------ ------------
Operating profit ........................... 939,487 371,098
------------ ------------
Other income (expense):
Interest expense ......................... (544,854) (379,567)
Interest income .......................... 28,788 51,007
------------ ------------
Total other expense - net .................. (516,066) (328,560)
------------ ------------
Income before income taxes ................. 423,421 42,538
Provision for income taxes ................. 16,724 12,500
------------ ------------
Net income ................................. $ 406,697 $ 30,038
============ ============
Income per share ........................... $ 0.02 $ 0.00
============ ============
Weighted average number of shares and
equivalents outstanding .................... 19,636,574 19,636,574
============ ============
See accompanying notes
-4-
<PAGE>
<TABLE>
<CAPTION>
GRISTEDE'S SLOAN'S, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED NOVEMBER 29, 1998 AND 13 WEEKS ENDED FEBRUARY 28, 1999
Additional Retained Total
Common stock Paid-In earnings Stockholders'
Shares Amount Capital (Deficit) Equity
=========== =========== =========== =========== ===========
<S> <C> <C> <C> <C> <C>
Balance at November 30, 1997 ............... 19,636,574 $ 392,732 $14,136,674 $ 140,616 $14,670,022
Net loss for the year ended
November 29, 1998 ...................... (288,339) (288,339)
----------- ----------- ----------- ----------- -----------
Balance at November 29, 1998 ............... 19,636,574 392,732 14,136,674 (147,723) 14,381,683
Net income for the thirteen weeks
ended February 28, 1999 ................. 406,697 406,697
----------- ----------- ----------- ----------- -----------
Balance at February 28, 1999 ............... 19,636,574 $ 392,732 $14,136,674 $ 258,974 $14,788,380
=========== =========== =========== =========== ===========
See accompanying notes.
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
GRISTEDE'S SLOAN'S, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
13 WEEKS ENDED FEBRUARY 29, 1999 AND MARCH 1, 1998
February 28, March 1,
1999 1998
=========== ===========
<S> <C> <C>
Cash flows from operating activities:
Net income ........................................ $ 406,696 $ 30,038
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ..................... 1,138,484 1,053,960
Changes in operating assets and liabilities:
Accounts receivable - net ....................... 471,953 (816,043)
Inventory ....................................... (1,323,772) (1,161,275)
Prepaid expenses and other current assets ....... (179,004) 64,202
Notes receivable ................................ 731,367 124,734
Receivable from office .......................... 0 (4,825)
Due from related parties ........................ 180,000 0
Other assets .................................... (315,720) (564,709)
Accounts payable, trade ......................... 1,084,630 (35,506)
Accrued payroll, vacation and withholdings ...... (724,141) (760,390)
Accrued expenses and other current liabilities .. 453,744 608,574
Deferred rents .................................. 166,953 196,326
Other credits ................................... (32,500) (32,500)
----------- -----------
Net cash provided by operating activities ....... 2,058,690 (1,297,414)
----------- -----------
Cash flows from investing activities:
Capital expenditures - net ........................ (2,127,795) (1,906,027)
----------- -----------
Net cash used in investing activities ........... (2,127,795) (1,906,027)
----------- -----------
Cash flows from financing activities:
Repayments of bank loan ........................... (816,905) (428,571)
Repayment capitalized lease obligations ........... (172,430)
Proceeds from bank loans .......................... 700,000 3,750,000
Proceeds from capitalized lease obligations ....... 334,499 (93,500)
----------- -----------
Net cash used in financing activities ........... 45,164 3,227,929
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (23,941) 24,488
CASH AND CASH EQUIVALENTS, beginning of period ....... 53,794 88,970
----------- -----------
CASH AND CASH EQUIVALENTS, end of period ............ $ 29,853 $ 113,458
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest ............................ $ 440,990 $ 369,164
Cash paid for taxes ............................... 5,097 10,429
See accompanying notes.
</TABLE>
-6-
<PAGE>
GRISTEDE'S SLOAN'S, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
BUSINESS - On November 4, 1997, Sloan's Supermarkets, Inc. ("Sloan's") changed
its name to Gristede's Sloan's, Inc. ("GRI" or the "Company"). On November 10,
1997, GRI acquired certain assets, net of liabilities, of 29 selected
supermarkets and a wholesale distribution business ("The Food Group") controlled
by Mr. John Catsimatidis, Chairman and 37% stockholder of Sloan's. The
transaction was accounted for as the acquisition of Sloan's by The Food Group
pursuant to Emerging Issues Task Force 90-13 as a result of The Food Group
obtaining control of Sloan's after the transaction. The assets and liabilities
of The Food Group were recorded at their historical cost. Sloan's assets and
liabilities were recorded at their fair value to the extent acquired.
Consideration for the transaction was based on an aggregate of $36,000,000 in
market value of the Company's common stock and the assumption of $4,000,000 of
liabilities. 16,504,298 shares of common stock were issued on the date of the
acquisition based on a market price of $2.18 per share.
The Company presently operates 40 supermarkets (the "Supermarkets"). 35
Supermarkets are located in Manhattan, New York, three Supermarkets are located
in Westchester County, New York, one Supermarket is located in Brooklyn, New
York and one Supermarket is located in Long Island, New York. 11 of the
Supermarkets are operated under the "Sloan's" name and 29 are operated under the
"Gristede's" name. The Company leases all of its Supermarket locations.
The Company also owns City Produce Operating Corp., a corporation which operates
a warehouse and distribution center primarily for fresh produce on leased
premises in the Bronx, New York.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in consolidation.
QUARTER END - The Company operates using the conventional retail 52/53 week
fiscal year. The fiscal quarter ends on the Sunday closest to the end of the
quarter. The Company's fiscal year ends on the Sunday closest to November 30.
INVENTORY - Store inventories are valued principally at the lower of cost or
market with cost determined under the retail first in, first out (FIFO) method.
PROPERTY AND EQUIPMENT - Depreciation of furniture, fixtures and equipment is
computed by the straight-line method over the estimated useful lives of the
assets.
LEASES - The Company charges the cost of noncancelable operating lease payments
and beneficial leaseholds to operations on a straight-line basis over the lives
of the leases.
- 7 -
<PAGE>
GRISTEDE'S SLOAN'S, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
PROVISION FOR INCOME TAXES - Income taxes reflect Federal and State alternative
minimum tax only, as all regular income taxes have been offset by utilization of
the Company's net operating loss carry forward.
INCOME PER SHARE - Per share data are based on the weighted average number of
shares of common stock and equivalents outstanding during each quarter. Income
per share is computed by the treasury stock method; primary and fully diluted
income per share are the same.
In the opinion of management, the information furnished reflects all adjustments
(consisting of normal recurring adjustments) which are necessary for a fair
statement of the results of operations for the interim period. The interim
figures are not necessarily indicative of the results to be expected for the
fiscal year.
The Company's Annual Report on Form 10-K for the 12 month period ended November
29, 1998 contains information which should be read in conjunction herewith.
2. RELATED PARTY TRANSACTIONS
Under a management agreement dated November 10, 1997, Namdor Inc., a subsidiary
of the Company, performs consulting and managerial services for three
supermarkets owned by corporations controlled by John Catsimatidis. In
consideration of such services, Namdor Inc. is entitled to receive on a
quarterly basis a cash payment of 1.25% of all sales of merchandise made at the
managed supermarkets. During the quarters ended February 28, 1999 and March 1,
1998 the management fee income was $27,541 and $29,779, respectively.
C&S Acquisition Corp. (formerly Red Apple Leasing, Inc.) a corporation wholly
owned by John Catsimatidis, leases equipment to the Company. Such leases are
primarily for store operating equipment. Obligations under capital leases at
February 28, 1999 were $733,788 and require monthly payments of $35,114 through
March 1, 2001. Obligations under operating leases were $41,676 per month during
the quarter ended February 28, 1999.
Advertising services are provided to the Company by an affiliated company, MCV
Advertising Associates Inc., a company owned by John Catsimatidis. For the
quarters ended February 28, 1999 and March 1, 1998 the costs incurred were
$285,032 and $295,758, respectively.
The Company leases three locations from Red Apple Real Estate, Inc., a company
solely owned by John Catsimatidis. During the quarters ended February 28, 1999
and March 1, 1998 the Company paid to Red Apple Real Estate, Inc. $225,666 and
$170,100, respectively.
Wolf, Block, Schorr and Solis-Cohen LLP, a law firm of which Martin Bring, a
director of the Company is a member, received fees of $36,644 and $35,177 for
the quarters ended February 28, 1999 and March 1, 1998, respectively.
- 8 -
<PAGE>
GRISTEDE'S SLOAN'S, INC. AND SUBSIDIARIES
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR THE QUARTERS ENDED FEBRUARY
28, 1999 AND MARCH 1, 1998
RESULTS OF OPERATIONS
The following table sets forth items from the Company's Consolidated Statements
of Operations as a percentage of sales.
13 weeks 13 weeks
ended ended
February 28, March 1,
1999 1998
------- -------
Sales .......................................... 100.0 100.0
Cost of sales .................................. 61.4 59.7
------- -------
Gross profit ................................... 38.6 40.3
Store operating, general and
administrative expense ..................... 30.4 33.7
Depreciation and amortization .................. 2.6 2.7
Non-store operating expense .................... 3.5 3.0
------- -------
Operating profit ............................... 2.1 0.9
Other income (expense) ......................... (1.2) (0.8)
------- -------
Income from operations
before income taxes ........................ 0.9 0.1
Provision for income taxes ..................... -- --
------- -------
Net income ..................................... 0.9 0.1
======= =======
Sales for the quarter ended February 28, 1999 were $44,187,791 as compared with
$39,420,880 for the quarter ended March 1, 1998. The increase in sales was
primarily the result of the Company's remodeling program, which is continuing.
- 9 -
<PAGE>
Gross profit was $17,051,905 or 38.59% of sales for the quarter ended February
28, 1999 as compared to $15,906,933 or 40.35% of sales for the quarter ended
March 1, 1998. The decrease in gross profit as a percentage of sales was
primarily due to selected promotional price reductions in connection with the
grand reopening periods of the newly remodeled stores.
Store operating, general and administrative expenses were $13,438,014 or 30.41%
of sales for the quarter ended February 28, 1999 as compared to $ 13,290,951 or
33.72 % of sales for the quarter ended March 1, 1998. The decrease in store
operating, general and administrative expenses as a percentage of sales in the
1999 period was mainly due to better cost controls in relation to the increased
sales.
Non-store operating expenses were $1,535,921 or 3.48% of sales for the quarter
ended February 28, 1999 as compared to $1,190,924 of 3.02% of sales for the
quarter ended March 1, 1998. Administrative payroll and fringes was 2.22% of
sales for the quarter ended February 28, 1999 as compared with 1.98% of sales
for the quarter ended March 1, 1998. The increase reflects the addition of
supervisory and data processing personnel, during the second half of fiscal
1998, to handle the additional business generated by the store remodeling
program. General office expenses as a percentage of sales decreased to 0.73% for
the quarter ended February 28, 1999 from 0.81% of sales for the quarter ended
March 1, 1998 primarily due to office efficiencies. Professional fees were 0.44%
of sales for the quarter ended February 28, 1999 as compared with 0.14% of sales
for the quarter ended March 1, 1998. The increase was due to the additional
needs for outside accounting and legal services. Corporate expense as a
percentage of sales was 0.09% of sales for both the 1999 and 1998 quarters.
Interest expense for the quarter ended February 28, 1999 was $544,854 as
compared to $379,567 for the quarter ended March 1, 1998. The increase in the
1999 quarter was primarily attributable to increased borrowings under our bank
credit facility and capitalized equipment leasing.
Interest income was $28,788 for the quarter ended February 28, 1999 as compared
with $51,007 for the quarter ended March 1, 1998. The decrease in the 1999
quarter was due to the reduction in outstanding notes receivable as compared to
the 1998 quarter.
As a result of the items reviewed above the net income before provision for
income taxes for the quarter ended February 28, 1999 was $423,421 as compared to
$42,538 for the quarter ended March 1,1998.
- 10 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On November 10, 1997, the Company completed its financial arrangements with a
group of banks for a credit facility in the aggregate amount of $25,000,000.
Under the credit agreement the Company obtained a term loan in the amount of
$12,000,000 to refinance prior bank debt, an improvement term loan line of
credit in the amount of $8,000,000 to finance capital improvements to its
supermarkets and a revolving line of credit in the amount of $5,000,000 to
provide working capital. The $12,000,000 term loan matures on October 31, 2002.
The improvement term loan line of credit and the revolving line of credit mature
on October 31,2002 and March 1, 2000, respectively, at which time all amounts
outstanding thereunder are payable.
Presently, the bank facilities are fully utilized and the Company is negotiating
an increase in the credit facilities with its banks. There is no assurance that
the Company will be able to negotiate such an increase on terms satisfactory to
the Company. If the Company is unable to obtain its desired financing from its
bank, the Company will seek increased financing from third party leasing
companies and/or additional financing from the Company's principal shareholder
and other sources.
The Company has not incurred any material commitments for capital expenditures,
although it anticipates spending approximately $10,000,000 on its store
remodeling and expansion program in fiscal 1999. Such amount is subject to
adjustment based on the availability of funds.
Borrowings under the facility bear interest at a spread over either the prime
rate of the bank acting as agent for the group of banks or a LIBOR rate, with
the spread dependent on the ratio of the Company's funded debt to EBITDA ratio,
as defined in the credit agreement. The average interest rate on amounts
outstanding under the facility during the 13 weeks ended February 28, 1999 was
7.7 % per annum.
The credit facility contains covenants, representations and events of default
typical of credit facility agreements, including financial covenants which
require the Company to meet, among other things, a minimum tangible net worth,
debt service coverage ratios and fixed charge coverage ratios, and which limit
transactions with affiliates. The facility is secured by equipment, inventories
and accounts receivable. During the quarter ended February 28, 1999 the Company
and the banks amended the credit facility to, among other things, modify certain
of the financial covenants and extend the term of the revolving line of credit
until March 1, 2000.
The Company has available approximately $2.5 million in third party leasing
lines of credit to lease finance equipment for its store remodeling and
expansion program.
YEAR 2000 ISSUE
The Company has assessed its information technology ("IT") systems for Year
2000 readiness and has given the highest priority to those IT systems it
considers mission critical. The systems the Company considers mission critical
are its store automation systems (including point of sale systems) and its
computer systems at its main office which support these store systems.
As of March 1, 1999, the Company, working with the original vendor, successfully
tested and implemented the Year 2000 compliant version of the systems at its
main office, which support the in store automation systems. In March of 1999,
the Company, working with the original vendor, successfully tested and
implemented the Year 2000 complaint version of its store automation system in
one of its automated stores. This Year 2000 compliant version of the in store
automation system will be implemented in the remaining stores, as required, by
the end of June, 1999.
- 11 -
<PAGE>
No additional expense has or will be incurred by the Company to bring these
systems into Year 2000 compliance as any necessary changes are provided by the
vendors under software maintenance programs in place.
The Company has assessed the other IT systems, including accounting and payroll
systems, deployed at its main office and its City Produce warehouse facility for
Year 2000 compliance and has identified the steps necessary to ensure that these
systems will be Year 2000 compliant.
The Company has decided to substantially expand and enhance its information
technology systems to further leverage the investment the Company has made on in
store automation and networking in the last few years. The Company will be
implementing state of the art client server systems on Microsoft windows NT
platforms, using best of breed applications from selected vendors, for time and
attendance, payroll, inventory control and distribution, and financial
applications. These systems will allow for better decisionmaking tools and
quicker information flow between the stores, the main office, and the Company
owned distribution facility.
The cost of this program, including new network enabled time clocks, computer
hardware, software, and implementation services is budgeted to be approximately
$850,000 and will be completed by the end of Fiscal 1999 (November 28, 1999).
The Company had previously expected to spend $100,000 out of cash flow generated
from its operations to modify its existing systems to be Year 2000 compliant.
The Company will redirect those resources towards this new effort and plans on
leasing the systems, where appropriate, in a manner similar to the way the
Company currently leases its store automation systems. The new systems will be
Year 2000 compliant.
The Company does not currently intend to hire an outside firm to independently
verify that its systems are Year 2000 compliant.
The Company has assessed the majority of its non-IT systems for Year 2000
readiness and has identified a small number of systems, including certain
equipment at store level, which may not be Year 2000 ready. The Company is
working with the vendor of these systems to identify the best approach. While
these systems have an internal clock and date, the date is not necessary for the
systems to be productive. Such systems could therefore continue to function as
needed and management does not anticipate that these systems will pose any
significant Year 2000 problem or expense.
The Company is continuing to review the Year 2000 readiness plans of its major
vendors in an effort to ensure that operations remain unaffected by Year 2000
related failures. The Company will place preset orders with certain major
vendors to help ensure product deliveries in the event that the vendor is
affected by failures at some level of its operations but is still able to
deliver merchandise. In the event a major vendor is unable to provide products
the Company will increase purchases from other vendors from which it currently
buys.
- 12 -
<PAGE>
The Company purchases merchandise sold in its stores from multiple vendors and
is not reliant on any one vendor for the normal conduct of its operations. The
Company is not dependent on these supplier relationships since merchandise is
readily available from numerous sources under different brand names, subject to
conditions affecting food supplies generally.
The Company believes that its efforts will result in year 2000 compliance.
However, the impact on business operations of failure by the Company to achieve
compliance or failure by external entities which the Company cannot control,
such as vendors, to achieve compliance, could be material to the Company's
consolidated results of operations.
- 13 -
<PAGE>
GRISTEDE'S SLOAN'S, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Change 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
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10. Fourth amendment to Loan Agreement dated as of February
27, 1999 between the Company, European American Bank,
Israel Discount Bank of New York, Keybank and Bank
Leumi (filed herewith).
27. Financial Data Schedule (filed herewith).
(b) No Current Reports on Form 8-K were filed for the quarter for
which this report is being filed.
- 14 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Gristede's Sloan's, Inc.
By: /s/ John A. Catsimatidis
-------------------------
John A. Catsimatidis
Chairman of the Board and
Chief Executive Officer
Dated: April 14, 1999
By: /s/ Stuart Spivak
-------------------------
Stuart Spivak
Executive Vice President and
Chief Financial Officer
Dated: April 14, 1999
- 15 -
FOURTH AMENDMENT TO LOAN AGREEMENT
THIS FOURTH AMENDMENT ("Amendment") made as of this 27th day of February,
1999 among GRISTEDE'S SLOAN'S, INC., a Delaware corporation having its principal
place of business at 823 Eleventh Avenue, New York, New York 10019 (the
"Borrower"), each of the Subsidiaries of the Borrower listed on Schedule 1
annexed to the Agreement (as hereinafter defined) (individually, a "Guarantor"
and collectively, the "Guarantors") (the Borrower and the Guarantors,
collectively, the "Credit Parties"), EUROPEAN AMERICAN BANK, a New York banking
organization, having an office at 335 Madison Avenue, New York, New York 10017
("EAB" or a "Bank") ISRAEL DISCOUNT BANK OF NEW YORK, a New York banking
organization, having an office at 511 Fifth Avenue, New York, New York 10017
("Israel Discount" or a "Bank"), KEYBANK NATIONAL ASSOCIATION, a national
banking association, having an office at 1377 Motor Parkway, Islandia, New York
11788 ("Key" or a "Bank") and BANK LEUMI USA (formerly known as Bank Leumi Trust
Company of New York), a New York trust company, having an office at 562 Fifth
Avenue, New York, New York 10036 ("Leumi" or a "Bank") and EUROPEAN AMERICAN
BANK, as agent for the Banks (the "Agent").
W I T N E S S E T H :
WHEREAS, the Credit Parties, the Banks and the Agent have entered into a
Loan Agreement dated as of the 7th day of November, 1997, which Loan Agreement
has heretofore been amended pursuant to that certain First Amendment dated April
30, 1998, that certain Second Amendment dated as of August 29, 1998 and that
certain Third Amendment dated as of November 28, 1998 (as so amended, the
"Agreement"); and
WHEREAS, the Banks have made loans to the Borrower as evidenced by certain
notes of the Borrower and specifying interest to be paid thereon; and
WHEREAS, the Credit Parties have requested that the Agent and the Banks
agree to extend the Revolving Credit Maturity Date to March 1, 2000; and
WHEREAS, the Credit Parties have requested that the Agent and the Banks
agree to increase the level of permitted purchase money Debt and Capital Leases
for the fiscal quarter ending February 28, 1999; and
WHEREAS, the Credit Parties have requested that the Agent and the Banks
amend certain of the financial covenants contained in Section 5.03 of the
Agreement; and
WHEREAS, the Agent and the Banks have agreed (i) to extend the Revolving
Credit Maturity Date to March 1, 2000, (ii) to increase the level of permitted
purchase money Debt and Capital Leases for
<PAGE>
the fiscal quarter ending February 28, 1999, and (iii) to amend certain of the
financial covenants contained in Section 5.03 of the Agreement, each on the
terms and conditions contained herein; and
NOW, THEREFORE, in consideration of Ten ($10.00) Dollars and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Credit Parties, the Banks and the Agent do hereby agree as
follows:
1. DEFINED TERMS. As used in this Amendment, capitalized terms, unless
otherwise defined, shall have the meanings set forth in the Agreement.
2. REPRESENTATIONS AND WARRANTIES. As an inducement for the Bank to enter
into this Amendment, the Credit Parties each represent and warrant as follows:
A. That with respect to the Agreement and the Loan Documents executed
in connection therewith and herewith:
(i) There are no defenses or offsets to the Borrower's or any
Guarantor's obligations under the Agreement as amended hereby, the
Notes or any of the Loan Documents or any other agreements in favor
of the Bank referred to in the Agreement, and if any such defenses or
offsets exist without the knowledge of the Borrower or any Guarantor,
the same are hereby waived.
(ii) All of the representations and warranties made by the
Borrower and any Guarantor in the Agreement as amended hereby are
true and correct in all material respects as if made on the date
hereof, except for those made with respect to a particular date,
which such representations and warranties are restated as of the date
of this Amendment to be true and correct in all material respects as
of such date; and provided further that the representations and
warranties set forth in Section 4.01(f) of the Agreement shall relate
to the audited consolidated financial statements of the Borrower and
its Consolidated Subsidiaries for the fiscal year ended November 29,
1998.
(iii) The outstanding aggregate principal balance of the Loans
as evidenced by the Notes is $21,308,934.62 as of April 12, 1999 and
interest has been paid through April 1, 1999.
3. AMENDMENTS. The following amendments are hereby made to the Agreement:
(a) The definition of Revolving Credit Maturity Date is hereby
deleted in its entirety and replaced as follows:
- 2 -
<PAGE>
"'Revolving Credit Maturity Date' means March 1, 2000."
(b) Section 5.02(a)(ix)(4) of the Agreement is hereby deleted in its
entirety and replaced as follows:
"(4) The Debt secured by all such Liens shall not exceed
$5,500,000.00 in the aggregate; and"
(c) Section 5.03(c) of the Agreement is hereby deleted in its
entirety and replaced as follows:
"(c) LEVERAGE RATIO. The Borrower and the Guarantors
will at all times maintain a Leverage Ratio, to be tested
quarterly, of not greater than the following:
Period Leverage Ratio
------------------------------ --------------
From the date of the Agreement 3.00 to 1.00
until May 29, 1999
From May 30, 1999 until 2.25 to 1.00
May 27, 2000
From May 28, 2000 and 2.00 to 1.00
thereafter."
(d) Section 5.03(d) of the Agreement is hereby deleted in its
entirety and replaced as follows:
"(d) FUNDED DEBT TO EBITDA RATIO. The Borrower and Guarantors will
maintain at all times on a consolidated basis, a Funded Debt to
EBITDA Ratio, to be tested quarterly, of not greater than the
following:
Period Funded Debt to EBITDA Ratio
---------------------------- ---------------------------
From November 30, 1998 until 3.50 to 1.00
May 29, 1999
From May 30, 1999 until 2.50 to 1.00
August 28, 1999
From August 29, 1999 until 2.25 to 1.00
August 26, 2000
From August 27, 2000 and 2.00 to 1.00
thereafter."
(e) Section 5.03(e) of the Agreement is hereby deleted in its
entirety and replaced as follows:
"(e) FIXED CHARGE COVERAGE RATIO. The Borrower and
Guarantors will maintain at all times (other than for the
- 3 -
<PAGE>
fiscal quarter ending August 30, 1998, the fiscal year ending
November 29, 1998 and the fiscal quarter ended February 28, 1999),
beginning with the fiscal quarter ending May 31, 1998, on a
consolidated basis, a minimum Fixed Charge Coverage Ratio of not less
than 1.25 to 1.0, such ratio to be tested quarterly. The Borrower and
Guarantors will maintain at all times on a consolidated basis during
the fiscal quarter ending August 30, 1998, the fiscal year ending
November 29, 1998 and the fiscal quarter ended February 28, 1999, a
minimum Fixed Charge Coverage Ratio of not less than 1.10 to 1.0."
(f) Section 5.03(f) of the Agreement is hereby deleted in its
entirety and replaced as follows:
"DEBT SERVICE RATIO. The Borrower and Guarantors will maintain at all
times during the fiscal year ending November 29, 1998, on a
consolidated basis, a minimum Debt Service Ratio of not less than
1.45 to 1.0. The Borrower and Guarantors will maintain at all times
during the fiscal quarter ending February 28, 1999, on a consolidated
basis, a minimum Debt Service Ratio of not less than 1.40 to 1.0. The
Borrower and Guarantors will maintain at all times, beginning with
the fiscal quarter ending May 31, 1998 (other than for the fiscal
year ending November 29, 1998 and the fiscal quarter ending February
28, 1999), on a consolidated basis, a minimum Debt Service Ratio of
not less than 1.50 to 1.0, such ratio to be tested quarterly."
4. EFFECTIVENESS. This Amendment shall become effective upon the
occurrence of the following events and the receipt and satisfactory review by
the Agent and its counsel of the following documents:
(a) The Agent and each Bank shall have received this Amendment, duly
executed by the Borrower and each Guarantor.
(b) The Agent shall have received copies of any and all modifications
of the documentation referred to in Section 3.01 of the Agreement which could
result in a Material Adverse Change.
(c) The Agent shall have been paid, on behalf of the Banks, an
amendment fee in the amount of $10,000.00.
5. GOVERNING LAW. This Amendment shall be governed by, and construed in
accordance with, the laws of the State of New York.
6. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
- 4 -
<PAGE>
7. RATIFICATION. Except as hereby amended, the Agreement and all other
Loan Documents executed in connection therewith shall remain in full force and
effect in accordance with their originally stated terms and conditions. The
Agreement and all other Loan Documents executed in connection therewith, as
amended hereby, are in all respects ratified and confirmed.
8. WAIVER OF JURY TRIAL. The Borrower, each Guarantor, the Agent and the
Banks waive all rights to trial by jury on any cause of action directly or
indirectly involving the terms, covenants or conditions of this Amendment or any
Loan Document.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
- 5 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the year and date first above written.
EUROPEAN AMERICAN BANK, as Agent
By: /s/George L. Stirling
--------------------------
George L. Stirling
Vice President
EUROPEAN AMERICAN BANK
By: /s/George L. Stirling
--------------------------
George L. Stirling
Vice President
ISRAEL DISCOUNT BANK OF NEW YORK
By: /s/Scott Fishbein
--------------------------
Name: Scott Fishbein
Title: Vice President
By: /s/Lisa Baum
--------------------------
Name: Lisa Baum
Title: Senior Vice President
KEYBANK NATIONAL ASSOCIATION
By: /s/Joseph Burns
--------------------------
Name: Joseph Burns
Title: Vice President
BANK LEUMI USA
By: /s/Richard Silverstein
--------------------------
Name: Richard Silverstein
Title: First Vice President
By: /s/Joseph Koenigsberg
--------------------------
Name: Joseph Koenigsberg
Title: Vice President
GRISTEDE'S SLOAN'S, INC.
By: /s/John Catsimatidis
--------------------------
John Catsimatidis
Chief Executive Officer
CITY PRODUCE OPERATING CORP.
By: /s/John Catsimatidis
--------------------------
John Catsimatidis
President
- 6 -
<PAGE>
GRISTEDE'S OPERATING CORP.
By: /s/John Catsimatidis
--------------------------
John Catsimatidis
President
NAMDOR INC.
By: /s/John Catsimatidis
--------------------------
John Catsimatidis
President
RAS OPERATING CORP.
By: /s/John Catsimatidis
--------------------------
John Catsimatidis
President
SAC OPERATING CORP.
By: /s/John Catsimatidis
--------------------------
President
- 7 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE PERIOD ENDED FEBRUARY 28, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Nov-28-1999
<PERIOD-START> Nov-30-1998
<PERIOD-END> Feb-28-1999
<CASH> $29,853
<SECURITIES> $0
<RECEIVABLES> $4,619,221
<ALLOWANCES> $0
<INVENTORY> $19,749,574
<CURRENT-ASSETS> $26,268,888
<PP&E> $59,395,234
<DEPRECIATION> $26,769,552
<TOTAL-ASSETS> $62,287,055
<CURRENT-LIABILITIES> $19,610,884
<BONDS> $0
$0
$0
<COMMON> $392,732
<OTHER-SE> $14,136,674
<TOTAL-LIABILITY-AND-EQUITY> $62,287,055
<SALES> $44,187,791
<TOTAL-REVENUES> $44,187,791
<CGS> $27,135,886
<TOTAL-COSTS> $27,135,886
<OTHER-EXPENSES> $1,535,921
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $544,854
<INCOME-PRETAX> $423,421
<INCOME-TAX> $16,724
<INCOME-CONTINUING> $423,421
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $406,697
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
