<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549-1004
-----------------------
FORM 10-Q
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 27, 1998
OR
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 1-09559
COLORADO PRIME CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 11-2826129
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization
1 Michael Avenue, Farmingdale, New York 11735
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516)-694-1111
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes/X/ No/ /
At May 8, 1998, 1,000 shares of the registrant's Common Stock were outstanding.
<PAGE> 2
COLORADO PRIME CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
- ------- --------------------- --------
<S> <C> <C>
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets 1
March 27, 1998 and September 26, 1997
Statements of Consolidated Operations 2
Thirteen and Twenty-six weeks ended March 27, 1998 and March 28, 1997
Statements of Consolidated Cash Flows 3
Twenty-six weeks ended March 27, 1998 and March 28, 1997
Notes to Consolidated Financial Statements 4
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 5
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
</TABLE>
<PAGE> 3
COLORADO PRIME CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
March 27, September 26,
1998 1997
ASSETS (Unaudited) (Audited)
- ------ ----------- -------------
<C> <C> <C>
CURRENT ASSETS:
Cash $ 590 $ 972
Accounts receivable-net 58,451 57,482
Inventories-net 4,727 4,538
Prepaid expenses and other current assets 1,784 1,399
Refundable income tax -- 2,483
Deferred income tax benefit 6,992 6,992
----------- -------------
Total current assets 72,544 73,866
----------- -------------
PROPERTY, PLANT AND EQUIPMENT-NET 5,761 5,905
----------- -------------
NONCURRENT ACCOUNTS RECEIVABLE-NET 36,738 36,503
----------- -------------
GOODWILL-NET 46,746 44,744
----------- -------------
OTHER ASSETS-NET 8,760 8,755
----------- -------------
TOTAL ASSETS $ 170,549 169,773
=========== =============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,499 $ 5,998
Accrued expenses 16,040 15,191
Income and other taxes payable 1,909 1,184
Current portion of capital lease obligations 129 258
----------- -------------
Total current liabilities 23,577 22,631
----------- -------------
REVOLVER 19,775 20,339
----------- -------------
SENIOR UNSECURED NOTES, NET OF DISCOUNT 98,157 98,059
----------- -------------
LONG-TERM PORTION OF CAPITAL LEASE OBLIGATIONS 14 19
----------- -------------
OTHER LIABILITIES 3,555 3,100
----------- -------------
STOCKHOLDER'S EQUITY
Common Stock; $.01 per share par value;
1,000 shares authorized, issued and
outstanding -- --
Paid-in capital 25,868 25,873
Accumulated deficit (397) (248)
----------- -------------
Total stockholder's equity 25,471 25,625
----------- -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 170,549 $ 169,773
=========== =============
</TABLE>
1
<PAGE> 4
COLORADO PRIME CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS THIRTEEN WEEKS TWENTY-SIX WEEKS TWENTY-SIX WEEKS
ENDED ENDED ENDED ENDED
MARCH 27, MARCH 28, MARCH 27, MARCH 28,
1998 1997 1998 1997
--------------- -------------- ----------------- ---------------
<S> <C> <C> <C> <C>
PRODUCT SALES $34,784 $35,508 $69,162 $70,516
FINANCE INCOME EARNED 3,690 3,526 7,373 7,012
--------------- -------------- ----------------- ---------------
TOTAL REVENUE 38,474 39,034 76,535 77,528
COST OF GOODS SOLD 13,028 13,634 25,747 27,083
--------------- -------------- ----------------- ---------------
GROSS PROFIT 25,446 25,400 50,788 50,445
--------------- -------------- ----------------- ---------------
OTHER COSTS AND EXPENSES:
Selling, general and
administrative 20,742 20,246 40,486 39,762
Interest expense 3,994 2,345 8,043 4,668
Other expense 534 464 1,066 875
--------------- -------------- ----------------- ---------------
Total cost and expenses 25,270 23,055 49,595 45,305
--------------- -------------- ----------------- ---------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 176 2,345 1,193 5,140
PROVISION FOR INCOME TAXES 392 1,061 931 2,303
--------------- -------------- ----------------- ---------------
NET INCOME (LOSS) ($ 216) $ 1,284 $ 262 $ 2,837
=============== ============== ================= ===============
</TABLE>
2
<PAGE> 5
COLORADO PRIME CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Twenty-Six Weeks Twenty-Six Weeks
Ended Ended
March 27, March 28,
1998 1997
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 262 $ 2,837
------- -------
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 2,102 1,918
Change in operating assets and liabilities:
Accounts receivable (1,204) (3,110)
Inventories (189) (972)
Prepaid expenses and other (385) (37)
Recoverable income taxes 2,483
Other assets (529) 87
Accounts payable (499) (913)
Accrued expenses (1,276) (335)
Other liabilities (182) (361)
Income and other taxes payable 725 2,078
------- -------
Total adjustments 1,046 (1,645)
------- -------
Net cash provided by operating activities 1,308 1,192
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in property, plant and equipment (576) (540)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments under revolver (564)
Decrease in notes payable (424)
Decrease in capital lease obligations (134) (225)
Dividend to CPH (411)
Return of capital to CPH (5)
------- -------
Net cash used in financing activities (1,114) (649)
------- -------
NET INCREASE(DECREASE) IN CASH (382) 3
CASH BEGINNING OF PERIOD 972 1,716
------- -------
CASH, END OF PERIOD $ 590 $ 1,719
======= =======
CASH PAID FOR INTEREST $ 6,919 $ 4,339
======= =======
</TABLE>
3
<PAGE> 6
COLORADO PRIME CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(unaudited)
1. Colorado Prime Corporation (the "Company" or "CPC") is a Delaware
corporation and was incorporated in 1986. The Company is a wholly-owned
subsidiary of Colorado Prime Holdings Inc. ("CPH"), formerly KPC
Holdings Corporation ("Holdings"). On May 9, 1997, pursuant to a merger
agreement between Holdings and Thayer Equity Investors III, L.P., a
private equity investment limited partnership ("Thayer"), Colorado
Prime Acquisition Corp. ("CPAC"), a transitory acquisition company
established by Thayer prior to the consummation of the merger, merged
with and into Holdings (the "Merger") following which Holdings was the
surviving corporation and was renamed CPH.
As a result of the Merger, a new basis of accounting under the "push
down" method was adopted effective May 9, 1997. Under the method, the
assets and liabilities of the Company were revalued to reflect CPH's
new cost basis in the Company, which is based on the fair values of
such assets and liabilities on May 9, 1997. Financial data for the
period subsequent to May 9, 1997 reflects the adoption of this new
basis of accounting and, accordingly, data for all fiscal periods
presented herein may not be comparable with the data presented which
includes the period subsequent to May 9, 1997.
2. Reference is made to the notes to consolidated financial statements
contained within the Company's audited financial statements for the
period ended September 26, 1997 included in the Company's Annual Report
on Form 10-K. In the opinion of management, the interim unaudited
financial statements included herein reflect all adjustments necessary,
consisting of normal recurring adjustments, for a fair presentation of
such data on a basis consistent with that of the audited data presented
therein. The results of operations for interim periods are not
necessarily indicative of the results to be expected for a full year.
3. The consolidated financial statements include the accounts of the
"Company" and its wholly-owned subsidiaries; Kal-Mar Properties Corp.
("Kal-Mar"), Concord Financial Services, Inc. ("Concord") and Prime
Foods Development Corporation ("Prime"). In connection with the Merger
discussed in Note 1, the Company issued $100,000 of Senior Unsecured
Notes (the "Notes"), which bear interest at 12.5% per annum and mature
in 2004. (See the Company's Annual Report on Form 10-K for a further
discussion of the Notes.) The Notes are guaranteed on a senior
unsecured basis by all existing subsidiaries (there are no
non-guarantor subsidiaries) and any future U.S. subsidiaries of the
Company. The guarantees of the subsidiaries are full, unconditional,
joint and several. Summary financial data for Kal-Mar, Concord and
Prime are as follows:
4
<PAGE> 7
<TABLE>
<CAPTION>
March 27, 1998
(Dollars in Thousands)
Kal-Mar Concord Prime
------- -------- -----
<S> <C> <C> <C>
Current assets $ 187 $ 63,768 $ 12
Non-current assets 846 36,844 --
Current liabilities (89) (2,779) --
Non-current liabilities -- (57,744) (711)
----- -------- -----
Net assets (liabilities) 944 40,089 (699)
===== ======== =====
</TABLE>
<TABLE>
<CAPTION>
For the twenty-six weeks ended
March 27, 1998
(Dollars in Thousands)
Kal-Mar Concord Prime
------- ------- -----
<S> <C> <C> <C>
Net revenues $80 10,306 $ 0
Gross profit 80 10,306 0
Income before provision for income tax 32 5,796 0
</TABLE>
Separate financial statements of the Company's subsidiaries are not presented,
as the Company's management has determined that (i) the data presented above
provides meaningful information and (ii) the data in separate financial
statements other than that presented above would not be material to the
investors of the Notes.
5
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain information set forth herein contains forward-looking statements, as
such term is defined in Section 27A of the Securities Act of 1933 and Section 21
E of the Securities Exchange Act of 1934. Such statements are subject to certain
risks and uncertainties discussed herein, which could cause actual results to
differ materially from those in the forward-looking statements.
OVERVIEW
The Company is a leading direct marketer of high quality, value-added food
programs and products related to in-home dining and entertainment. Using a
combination of telemarketing and in-home selling, Colorado Prime Corporation
believes that it is the only company to offer this type of in-home shopping
service on a broad scale, serving 31 states through 79 sales offices. The
Company sells individually packaged, top quality meats and poultry, seafood,
assorted pasta dishes and a wide selection of prepared entrees for direct
delivery to consumer households. The Company's food products are of a quality
generally found only in specialty gourmet shops and high-end restaurants and
require simple preparation using a microwave, conventional oven or grill. As a
complement to its food products, the Company also sells food-related and home
entertainment appliances and accessories with unique features not generally
available in traditional retail channels. The purchase of non-food items enables
customers to earn a lifetime discount on food purchases.
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED MARCH 27, 1998 COMPARED TO THIRTEEN WEEKS ENDED MARCH 28,
1997.
Total revenue for the thirteen weeks ended March 27, 1998 decreased by $0.5
million or 1.4%, to $38.5 million from $39.0 million for the thirteen weeks
ended March 28, 1997. Food revenue for the thirteen weeks ended March 27, 1998
increased by $0.1 million or .8%, to $21.5 million from $21.4 million for the
thirteen weeks ended March 28, 1997. The increase in food revenues was due to
higher sales volume to new customers partially offset by a decrease in sales
volume to existing customers. Non-food revenue for the thirteen weeks ended
March 27, 1998 decreased by $0.9 million or 6.4%, to $13.2 million from $14.1
million for the thirteen weeks ended March 28, 1997. The decrease in non-food
revenues was due to lower sales volume to new and existing customers. Finance
income for the thirteen weeks ended March 27, 1998 increased by $0.2 million or
4.7%, to $3.7 million from $3.5 million for the thirteen weeks ended March 28,
1997. The increase in finance income resulted from the introduction during the
third quarter of fiscal 1997 of a handling fee for food transactions.
Gross profit for the thirteen weeks ended March 27, 1998 and March 28, 1997 was
$25.4 million. The gross profit margin increased to 66.1% for the thirteen weeks
ended March 27, 1998 from 65.1% for the thirteen weeks ended March 28, 1997. The
increase in the gross profit margin was primarily due to a favorable mix within
non-food sales towards products that have a higher margin and an increase in
finance income.
6
<PAGE> 9
SG&A expenses are principally comprised of selling, telemarketing, delivery and
general and administrative expenses. For the thirteen weeks ended March 27,
1998, these expenses increased by $0.5 million or 2.5%, to $20.7 million from
$20.2 million for the thirteen weeks ended March 28, 1997. The increase was
primarily due to higher sales incentive and customer acquisition costs partially
offset by lower insurance costs. As a percentage of total revenues, SG&A
expenses increased to 53.9% for the thirteen weeks ended March 27,1998 from
51.9% for the thirteen weeks ended March 28, 1997.
Interest expense for the thirteen weeks ended March 27, 1998 increased to $4.0
million from $2.3 million for the thirteen weeks ended March 28, 1997. The
increase was attributable to a greater level of borrowing at a higher rate of
interest under the new debt facilities, as compared to the financing in effect
during the previous period.
Other expense for the thirteen weeks ended March 27, 1998 and March 28, 1997 was
$0.5 million.
Provision for income taxes for the thirteen weeks ended March 27, 1998 decreased
by $0.7 million to $0.4 million from $1.1 million for the thirteen weeks ended
March 28, 1997. The increase in the effective income tax rate is due to an
increase in certain nondeductible expenses as a percentage of taxable income.
Net loss for the thirteen weeks ended March 27, 1998 was $.2 million as compared
to net income of $1.3 million for the thirteen weeks ended March 28, 1997 for
the reasons discussed above.
TWENTY-SIX WEEKS ENDED MARCH 27, 1998 COMPARED TO TWENTY-SIX WEEKS ENDED MARCH
28, 1997.
Total Revenue for the twenty-six weeks ended March 27, 1998 decreased by $1.0
million or 1.3%, to $76.5 million from $77.5 million for twenty-six weeks ended
March 28, 1997. Food revenue for the twenty-six weeks ended March 27, 1998
decreased by $0.4 million or .9%, to $42.4 million from $42.8 million for the
twenty-six weeks ended March 28, 1997. The decrease in food revenue was due to
lower sales volume to existing customers partially offset by an increase in
sales volume to new customers. Non-food revenue for the twenty-six weeks ended
March 27, 1998 decreased by $.9 million or 3.5%, to $26.8 million from $27.7
million for the twenty-six weeks ended March 28, 1997. The decrease in non-food
revenue is due to lower sales volume to existing customers, partially offset by
an increase in sales volume to new customers. Finance income for twenty-six
weeks ended March 27, 1998 increased by $.4 million or 5.2%, to $7.4 million
from $7.0 million for the twenty-six weeks ended March 28, 1997. The increase in
finance income resulted from the introduction during the third quarter of fiscal
1997 of a handling fee for food transactions.
Gross Profit for the twenty-six weeks ended March 27, 1998 increased by $.4
million or .7% to $50.8 million from $50.4 million for the twenty-six weeks
ended March 28, 1997. The gross profit margin increased to 66.4% for the
twenty-six weeks ended March 27, 1998 from 65.1% for the twenty-six weeks ended
March 28, 1997. The increase in the gross profit margin was
7
<PAGE> 10
primarily due to a favorable mix within non-food sales towards products that
have a higher margin and an increase in finance income.
SG&A expenses are principally comprised of selling, delivery and general and
administrative expenses. For the twenty-six weeks ended March 27, 1998, these
expenses increased by $0.7 million or 1.8%, to $40.5 million from $39.8 million
for the twenty-six weeks ended March 28, 1997. The increase was primarily due to
higher sales incentive, customer acquisition and training costs partially offset
by lower insurance costs. As a percentage of total revenues, SG&A expenses
increased to 52.9% for the twenty- six weeks ended March 27, 1998 from 51.3% for
the twenty-six weeks ended March 28, 1997.
Interest expense for the twenty-six weeks ended March 27, 1998 increased to $8.0
million from $4.7 million for the twenty-six weeks ended March 28, 1997. The
increase was attributable to a greater level of borrowing at a higher rate of
interest under the new debt facilities, as compared to the financing in effect
during the previous period.
Other expense for the twenty-six weeks ended March 27, 1998 increased by $.2
million to $1.1 million from $.9 million for the twenty-six weeks ended March
28, 1997.
Provision for income tax for the twenty-six ended March 27, 1998 decreased by
$1.4 million to $0.9 million from $2.3 million for the twenty-six weeks ended
March 28, 1997. The increase in the effective income tax rate is due to an
increase in certain non-deductible expenses as a percentage of taxable income.
Net Income for the twenty-six weeks ended March 27, 1998 was $.3 million as
compared to $2.8 million for the twenty-six weeks ended March 28, 1997 for the
reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the twenty-six weeks ended March
27, 1998 was $1.3 million, primarily comprised of net income of $0.3 million,
non cash charges of $2.1 million and the proceeds from an income tax refund of
$2.5 million, partially offset by a $2.3 million increase in accounts
receivable, inventories, prepaid expenses and other assets and a $1.2 million
reduction in accounts payable, accrued liabilities, other liabilities and
income taxes payable.
Net cash used in investing activities for the twenty-six weeks ended March 27,
1998 of $0.6 million was for capital expenditures.
Net cash used in financing activities for the twenty-six ended March 27, 1998
was $1.1 million, primarily comprised of $0.6 million in net repayments under
the revolver and a $0.4 million dividend to CPH to fund certain costs incurred
by CPH.
The Company had working capital of $49.0 million as of March 27, 1998 compared
to $51.2 million as of September 26, 1997.
8
<PAGE> 11
The Company has a $50.0 million working capital revolver, with $30.2 million of
unused capacity as of March 27, 1998. The working capital revolver contains
certain covenants requiring the Company to meet certain financial test including
a minimum fixed charge coverage ratio, a minimum interest coverage ratio, a
maximum leverage ratio, the maintenance of a minimum net worth and a limitation
on capital expenditures. The working capital revolver and the senior unsecured
notes impose certain other restrictions on the Company, including restrictions
on its ability to incur indebtedness, pay dividends, make investments, grant
liens, sell its assets and engage in certain other activities. In addition, the
indebtedness of the Company under its working capital revolver is secured by all
of the assets of the Company, including the Company's real and personal
property, inventory, accounts receivable, intellectual property and other
intangibles.
Management believes that cash flow from operations, together with other
available sources of funds including the availability of borrowings under its
working capital revolver will be adequate for at least the next twelve months to
make required payments of principal and interest on the Company's indebtedness
and to fund anticipated capital expenditures and working capital requirements.
The ability of the Company to meet its debt service obligations and reduce its
total debt will be dependent, however, upon the future performance of the
Company which, in turn, will be subject to general economic conditions and to
financial, business and other factors, including factors beyond the Company's
control. Debt outstanding under the working capital revolver will bear interest
at floating rates; therefore, the Company's financial condition is and will
continue to be affected by changes in prevailing interest rates.
Inflation
The Company believes that inflation has not had a material impact on its results
of operations for the twenty-six weeks ended March 27, 1998.
Other - Year 2000
The Year 2000 issue exists because many computer systems and applications
currently use two-digit date fields to designate a year. As the century date
change occurs, date-sensitive systems will recognize the year 2000 as 1900, or
not at all. This inability to recognize or properly treat the Year 2000 may
cause systems to process critical financial and operational information
incorrectly. The Company has assessed and continues to assess the impact of the
Year 2000 on its operations. The Company believes, based upon its internal
reviews and other factors, the future external and internal costs to be incurred
relating to the modification of internal use software for the Year 2000 will not
have a material effect on the Company's results of operations or financial
position.
9
<PAGE> 12
PART II OTHER INFORMATION
Item 5. Other Information
Matthew Burris joined the Company on March 30, 1998 as Director, Vice President
and Chief Financial Officer.
Donald Keller resigned as Director of the Company effective April 15, 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) No exhibits have been filed during the quarter for which this report is
filed.
(b) The Company filed a Form 8-K on March 20, 1998 announcing the
resignation of Thomas Taylor as Director, Vice President and Chief
Financial Officer of Colorado Prime Corporation.
10
<PAGE> 13
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 daily authorized.
COLORADO PRIME CORPORATION
(Registrant)
Dated: May 8, 1998 By: /s/ William F. Dordelman
--------------------------------------
Chief Executive Officer and Chairman
of the Board
Dated: May 8, 1998 By: /s/ Matthew Burris
--------------------------------------
Chief Financial Officer, Vice President
and Director
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-25-1998
<PERIOD-START> SEP-27-1997
<PERIOD-END> MAR-27-1998
<EXCHANGE-RATE> 1
<CASH> 590
<SECURITIES> 0
<RECEIVABLES> 102,477
<ALLOWANCES> 7,288
<INVENTORY> 4,727
<CURRENT-ASSETS> 72,544
<PP&E> 14,226
<DEPRECIATION> 8,465
<TOTAL-ASSETS> 170,549
<CURRENT-LIABILITIES> 23,577
<BONDS> 98,157
0
0
<COMMON> 0
<OTHER-SE> 25,471
<TOTAL-LIABILITY-AND-EQUITY> 170,549
<SALES> 69,162
<TOTAL-REVENUES> 76,535
<CGS> 25,747
<TOTAL-COSTS> 40,486
<OTHER-EXPENSES> 1,066
<LOSS-PROVISION> 2,679
<INTEREST-EXPENSE> 8,043
<INCOME-PRETAX> 1,193
<INCOME-TAX> 931
<INCOME-CONTINUING> 262
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 262
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>THE COMPANY HAS NOT DISCLOSED EPS AS THERE IS NO PUBLIC MARKET FOR ITS
COMMON EQUITY. HOWEVER, THE COMPANY DOES HAVE PUBLICLY TRADED SENIOR UNSECURED
NOTES.
</FN>
</TABLE>
