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 27, 2000.
|_| 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
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GRISTEDE'S FOODS, 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 30, 2000, the registrant had issued and outstanding 19,636,574 shares
of common stock.
<PAGE>
GRISTEDE'S FOODS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
February 27, 2000 and November 28, 1999 Page 3
Consolidated Statements of Operations for
the quarters ended
February 27, 2000 and February 28, 1999 Page 4
Consolidated Statements of Stockholders' Equity
for the year ended November 28, 1999 and the
quarter ended February 27, 2000 Page 5
Consolidated Statements of Cash Flows for the
quarters ended February 27, 2000 and
February 28, 1999 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
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<PAGE>
Item 1
Financial Statements
GRISTEDE'S FOODS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 27, November 28,
ASSETS 2000 1999
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 339,270 $ 298,582
Accounts receivable - net of allowance for doubtful
accounts of $500,000 at February 27, 2000 and
$500,000 November 28, 1999 6,197,242 6,797,401
Inventory 26,401,530 25,241,677
Prepaid expenses and other current assets 1,932,675 1,761,378
Notes receivable - current portion 305,140 306,337
------------ ------------
Total current assets 35,175,857 34,405,375
------------ ------------
PROPERTY AND EQUIPMENT:
Furniture, fixtures and equipment 15,600,998 15,334,522
Capitalized equipment leases 14,265,986 13,072,200
Leaseholds and leasehold improvements 42,982,452 40,773,458
------------ ------------
72,849,436 69,180,180
Less accumulated depreciation and amortization 30,770,798 29,576,085
------------ ------------
Net property and equipment 42,078,638 39,604,095
Deposits and other assets 877,092 769,221
Deferred costs 2,883,957 2,994,991
Notes receivable - noncurrent portion 185,162 256,489
------------ ------------
TOTAL $ 81,200,706 $ 78,030,171
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $ 14,073,632 $ 14,800,350
Accrued payroll, vacation and withholdings 979,343 1,052,150
Accrued expenses and other current liabilities 1,535,404 1,510,690
Capitalized lease obligation - current portion 1,755,314 1,570,553
Current portion of long term debt 2,009,523 1,797,619
------------ ------------
Total current liabilities 20,353,216 20,731,362
Long-term debt - noncurrent portion 27,323,221 27,035,125
Due to Affiliate 10,863,500 9,113,500
Deferred advertising 1,399,954 1,597,654
Capitalized lease obligation - noncurrent portion 6,186,845 5,651,425
Deferred rents 2,559,242 2,392,753
------------ ------------
Total liabilities 68,685,978 66,521,819
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.02 par value - shares authorized
25,000,000; outstanding 19,636,574 shares at
February 27, 2000 and November 28, 1999 392,732 392,732
Additional paid-in capital 14,136,674 14,136,674
Retained eanings/ (deficit) (2,014,678) (3,021,054)
------------ ------------
Total stockholders' equity 12,514,728 11,508,352
------------ ------------
TOTAL
$ 81,200,706 $ 78,030,171
============ ============
</TABLE>
See accompanying notes.
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<PAGE>
GRISTEDE'S FOODS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
13 WEEKS ENDED FEBRUARY 27, 2000 AND FEBRUARY 28, 1999
<TABLE>
<CAPTION>
13 weeks 13 weeks
ended ended
February 27 February 28
2000 1999
------------ ------------
<S> <C> <C>
Sales $ 53,747,897 $ 44,187,791
Cost of sales 32,408,079 27,135,886
------------ ------------
Gross profit 21,339,818 17,051,905
Store operating, general and administrative expense 16,260,186 13,122,980
Pre-store opening startup costs 283,333 315,034
Depreciation and amortization 1,271,300 1,138,484
Non-store operating expenses:
Administrative payroll and fringes 1,076,338 979,417
General office expense 411,418 321,065
Professional fees 110,573 196,189
Corporate expense 42,315 39,250
------------ ------------
Total non-store operating expense 1,640,644 1,535,921
------------ ------------
Operating profit 1,884,355 939,486
------------ ------------
Other income (expense):
Interest expense (886,186) (544,854)
Interest income 14,707 28,788
------------ ------------
Total other expense - net (871,479) (516,066)
------------ ------------
Income before income taxes 1,012,876 423,420
Provision for income taxes 6,500 16,724
------------ ------------
Net income $ 1,006,376 $ 406,696
============ ============
Income per share $ 0.05 $ 0.02
============ ============
Weighted average number of shares and
equivalents outstanding 19,636,574 19,636,574
============ ============
See accompanying notes
</TABLE>
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<PAGE>
GRISTEDE'S FOODS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED NOVEMBER 28, 1999 AND 13 WEEKS ENDED FEBRUARY 27, 2000
<TABLE>
<CAPTION>
Additional Retained Total
Common stock Paid-In earnings Stockholders'
Shares Amount Capital (Deficit) Equity
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at November 27, 1998 19,636,574 $ 392,732 $14,136,674 $ (147,723) $14,381,683
Net loss for the year ended
November 28, 1999 (2,873,331) (2,873,331)
----------- ----------- ----------- ----------- -----------
Balance at November 28, 1999 19,636,574 392,732 14,136,674 (3,021,054) 11,508,352
Net income for the thirteen weeks
ended February 27, 2000 1,006,376 1,006,376
----------- ----------- ----------- ----------- -----------
Balance at February 27, 2000 19,636,574 $ 392,732 $14,136,674 $(2,014,678) $12,514,728
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
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<PAGE>
GRISTEDE'S FOODS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
13 WEEKS ENDED FEBRUARY 27, 2000 AND FEBRUARY 28, 1999
<TABLE>
<CAPTION>
February 27, February 28,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,006,376 $ 406,696
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,271,300 1,138,484
Changes in operating assets and liabilities:
Accounts receivable - net 600,159 471,953
Inventory (1,159,853) (1,323,772)
Prepaid expenses and other current assets (171,297) (179,004)
Notes receivable 72,524 731,367
Other assets 3,163 (315,720)
Accounts payable, trade (726,718) 1,084,630
Accrued payroll, vacation and withholdings (72,807) (724,141)
Accrued expenses and other current liabilities 24,714 453,744
Deferred rents 166,489 166,953
Other credits (197,700) (32,500)
----------- -----------
Net cash provided by operating activities 816,350 1,878,690
----------- -----------
Cash flows from investing activities:
Capital expenditures - net (3,745,843) (2,127,795)
----------- -----------
Net cash used in investing activities (3,745,843) (2,127,795)
----------- -----------
Cash flows from financing activities:
Repayments of bank loan (300,000) (816,905)
Repayment capitalized lease obligations (444,853) (172,430)
Proceeds from bank loans 800,000 700,000
Proceeds from capitalized lease obligations 1,165,034 334,499
Due from affiliates 1,750,000 180,000
----------- -----------
Net cash used in financing activities 2,970,181 225,164
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 40,688 (23,941)
CASH AND CASH EQUIVALENTS, begining of period 298,582 53,794
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 339,270 $ 29,853
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 339,270 $ 440,990
Cash paid for taxes 89,050 5,097
</TABLE>
See accompanying notes.
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<PAGE>
GRISTEDE'S FOODS, 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. On August 16, 1999 the
Company changed its name to Gristede's Foods, Inc.
The Company presently operates 41 supermarkets (the "Supermarkets") and two
pharmacy stores. 36 Supermarkets and two pharmacy stores are located in
Manhattan, New York, three Supermarkets are located in Westchester County, New
York, one Supermarket is located in Brooklyn, New York, one Supermarket is
located in Long Island, New York. 7 of the Supermarkets are operated under the
"Sloan's" name and 34 are operated under the "Gristede's" name. The Company
leases all of its store 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.
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<PAGE>
GRISTEDE'S FOODS, 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
28, 1999 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 27, 2000 and February
28, 1999 the management fee income was $23,976 and $27,541, 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 27, 2000 were $325,803 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 27, 2000.
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 27, 2000 and February 28, 1999 the costs incurred were
$375,102 and $285,032, respectively.
The Company leases three locations from Red Apple Real Estate, Inc., a company
solely owned by John Catsimatidis. During the quarters ended February 27, 2000
and February 28, 1999 the Company paid to Red Apple Real Estate, Inc. $307,858
and $225,666, 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 $52,858 and $36,644 for
the quarters February 27, 2000 and February 28, 1999, respectively.
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<PAGE>
GRISTEDE'S FOODS, INC. AND SUBSIDIARIES
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE QUARTERS ENDED FEBRUARY 27, 2000 AND
FEBRUARY 28, 1999.
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 27, February 28,
2000 1999
---- ----
Sales 100.0 100.0
Cost of sales 60.3 61.4
------ ------
Gross profit 39.7 38.6
Store operating, general and
administrative expense 30.3 29.7
Pre-store opening startup costs 0.5 0.7
Depreciation and amortization 2.4 2.6
Non-store operating expense 3.0 3.5
------ ------
Operating profit 3.5 2.1
Other income (expense) (1.6) (1.2)
------ ------
Income from operations
before income taxes 1.9 0.9
Provision for income taxes -- --
------ ------
Net income 1.9 0.9
------ ------
Sales for the 13 weeks ended February 27, 2000 were $ 53,747,897 as compared to
sales for the 13 weeks ended February 28, 1999 of $44,187,791. The increase in
sales during the 2000 period was primarily the result of the Company's
remodeling program, which is continuing and two new stores which opened
subsequent to the 1999 period.
Gross profit was $21,339,818 or 39.70 % of sales for the 13 week period ended
February 27, 2000 as compared with $17,051,905 or 38.59 % of sales for the 13
week period ended February 28, 1999. The increase in gross profit as a
percentage of sales, during the 2000 period, was primarily due to reduced
promotional price reductions in connection with the grand reopening periods of
the newly remodeled stores as well as the recovery of certain stores from
unusually low gross margins during the fourth quarter of fiscal 1999.
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<PAGE>
Store operating, general and administrative expenses were $16,260,186 or 30.25 %
of sales for the 13 week period ended February 27, 2000 as compared to
$13,122,980 or 29.70 % of sales for the 13 week period ended February 28, 1999.
The increase in store operating, general and administrative expenses as a
percentage of sales in the 2000 period was mainly due to increases in occupancy
cost, labor costs associated with the store remodels and advertising costs.
Pre-store opening startup costs were $283,333 or 0.53% of sales for the 13 weeks
ended February 27, 2000 as compared to $315,034 or 0.71% of sales for the 13
week period ended February 28, 1999. The decrease in pre-store opening startup
costs in the 2000 period was primarily due to the fact that the stores remodeled
required less pre-opening advertising and store set-up labor costs.
Non-store operating expenses were $ 1,640,644 or 3.05 % of sales for the 13
weeks ended February 27, 2000 as compared to $1,535,921 or 3.48 % of sales for
the 13 week period ended February 28, 1999. Administrative payroll and fringes
were 2.00 % of sales for the 2000 period as compared with 2.22 % of sales for
the 1999 period. The decrease in the 2000 period reflects the containment of
costs associated with the supervisory personnel required as a result of the
additional business generated by the store remodeling program. General office
expenses as a percentage of sales were 0.77 % for the 2000 period as compared to
0.73 % for the 1999 period. The increase during the 2000 period was primarily
due to additional back office costs in relation to the increased sales.
Professional fees were 0.20 % of sales for the 2000 period as compared to 0.44 %
of sales for the 1999 period. The decrease in the 2000 period was due to the
reduced need for outside accounting and legal services. Corporate expenses as a
percentage of sales were 0.08 % for the 2000 period as compared to 0.09 % for
the 1998 period. The slight decrease was primarily due to decreased shareholder
expenses.
Interest expense for the 13 weeks ended February 27, 2000 was $ 886,186 as
compared to $544,854 for the 13 weeks ended February 28,1999. The increase in
the 2000 period was primarily attributable to increased borrowings under the
Company's bank credit facility and increased capitalized equipment leasing.
Interest income for the 13 weeks ended February 27, 2000 was $ 14,707 as
compared with $28,788 for the 13 weeks ended February 28 1999. The decrease in
the 2000 period was due to the reduction in outstanding notes receivable as
compared to the 1999 period.
As a result of the items reviewed above the net income before provision for
income taxes for the 13 weeks ended February 27, 2000 was $1,012,876 as compared
to a net income of $423,421 for the 13 week period ended February 28, 1999.
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 revolving line of credit was increased to
$14,000,000 effective as of May 29, 1999. As of February 27, 2000, the credit
facility, as amended, provided for (i) a maturity date of November 30, 2003, at
which time all amounts outstanding thereunder are
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<PAGE>
due, (ii) certain financial covenants, (iii) amortization of the term loan by
$100,000 per month through and including June 1, 2000, and thereafter $142,857
per month; (iv) amortization of the improvement term loan by $50,000 per month
commencing July 1, 2000 through and including June 1, 2001 and $133,333 per
month thereafter and (v) a reduction in the revolving credit commitment by
$466,667 per month commencing July 1, 2001.
amortization was reduced to $100,000 per month through and including June 1,
2000, and thereafter is $142,857 per month; amortization on the improvement term
loan is $50,000 per month commencing July 1, 2000 through and including June 1,
2001 and $133,333 per month thereafter; the revolving credit commitment reduces
by $466,667 per month commencing July 1, 2001.
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
banks, 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 $15,000,000 to $20,000,000 on its
store remodeling and expansion program in fiscal 2000. 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 27, 2000 was
9.1% 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.
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<PAGE>
GRISTEDE'S FOODS, 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
27. Financial Data Schedule
(b) No Current Reports on Form 8-K were filed for the quarter for which this
report is being filed.
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<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 Foods, Inc.
By: /s/ John A. Catsimatidis
------------------------
John A. Catsimatidis
Chairman of the Board and
Chief Executive Officer
Dated: June 12, 2000
By: /s/ Stuart Spivak
-----------------
Stuart Spivak
Executive Vice President and
Chief Financial Officer
through April 30, 2000
Dated: June 12, 2000
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