<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 December 26, 1997
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 February 4, 1998, 1,000 shares of the registrant's Common Stock were
outstanding.
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COLORADO PRIME CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
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<S> <C> <C>
Item 1. CONSOLIDATED FINANCIAL STATEMENTS 1
Consolidated Balance Sheets
December 26, 1997 and September 26, 1997
Consolidated Statements of Income 2
Thirteen weeks ended December 26, 1997 and December 27, 1996
Consolidated Statements of Cash Flows 3
Thirteen weeks ended December 26, 1997 and December 27, 1996
Notes to Consolidated Financial Statements 4
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 5
RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
</TABLE>
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COLORADO PRIME CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 26, SEPTEMBER 26,
1997 1997
(Unaudited) (Audited)
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 444 $ 972
Accounts receivable-net 58,712 57,482
Inventories-net 4,474 4,538
Prepaid expenses and other current assets 1,640 1,399
Refundable income tax 2,483 2,483
Deferred income tax benefit 6,992 6,992
-------- --------
Total current assets 74,745 73,866
-------- --------
PROPERTY, PLANT AND EQUIPMENT-NET 5,666 5,905
-------- --------
NONCURRENT ACCOUNTS RECEIVABLE-NET 36,902 36,503
-------- --------
GOODWILL-NET 44,438 44,744
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OTHER ASSETS-NET 8,862 8,755
-------- --------
TOTAL ASSETS $170,613 $169,773
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,062 $ 5,998
Accrued expenses 10,845 15,191
Income and other taxes payable 1,648 1,184
Current portion of capital lease
obligations 195 258
-------- --------
Total current liabilities 16,750 22,631
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REVOLVER 27,070 20,339
-------- --------
SENIOR UNSECURED NOTES, NET OF DISCOUNT 98,106 98,059
-------- --------
LONG-TERM PORTION OF CAPITAL LEASE
OBLIGATIONS 17 19
-------- --------
OTHER LIABILITIES 2,983 3,100
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STOCKHOLDER'S EQUITY
Common Stock, $.01 per share, 1,000
shares authorized, issued and
outstanding -- --
Paid-in capital 25,868 25,873
Accumulated deficit (181) (248)
-------- --------
Total stockholders' equity 25,687 25,625
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $170,613 $169,773
======== ========
</TABLE>
1
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COLORADO PRIME CORPORATION
STATEMENTS OF CONSOLIDATED INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS THIRTEEN WEEKS
ENDED ENDED
DECEMBER 26, DECEMBER 27,
1997 1996
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<S> <C> <C>
PRODUCT SALES $ 34,378 $ 35,008
FINANCE INCOME EARNED 3,684 3,486
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TOTAL REVENUE 38,062 38,494
COST OF GOODS SOLD 12,719 13,449
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GROSS PROFIT 25,343 25,045
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OTHER COST AND EXPENSES:
Selling, general and administrative 19,743 19,516
Amortization of goodwill 377 291
Interest expense 4,050 2,322
Other expense 156 120
-------- --------
Total cost and expenses 24,326 22,249
-------- --------
INCOME BEFORE PROVISION
FOR INCOME TAXES 1,017 2,796
PROVISION FOR INCOME TAXES 539 1,242
-------- --------
NET INCOME $ 478 $ 1,554
======== ========
</TABLE>
2
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COLORADO PRIME CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOW
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS THIRTEEN WEEKS
ENDED ENDED
DECEMBER 26, DECEMBER 27,
1997 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 478 $ 1,554
------- -------
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 1,054 952
Change in operating assets and liabilities:
Accounts receivable (1,629) (2,593)
Inventories 64 (395)
Prepaid expenses and other (241) 14
Other assets (381) 17
Accounts payable (1,936) (896)
Accrued expenses (4,418) (1,873)
Other liabilities (117) (191)
Income and other taxes payable 464 1,152
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Total adjustments (7,140) (3,813)
------- -------
Net cash used in operating activities (6,662) (2,259)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in property, plant and equipment (116) (174)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolver 6,731
Increase in notes payable 2,190
Decrease in capital lease obligations (65) (104)
Dividend to CPH (411)
Return of capital to CPH (5)
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Net cash provided by financing activities 6,250 2,086
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NET DECREASE IN CASH (528) (347)
CASH, BEGINNING OF PERIOD 972 1,716
------- -------
CASH, END OF PERIOD $ 444 $ 1,369
======= =======
</TABLE>
3
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COLORADO PRIME CORPORATION
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.
4
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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 78 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 DECEMBER 26, 1997 COMPARED TO THIRTEEN WEEKS ENDED DECEMBER
27, 1996.
Total revenue for the thirteen weeks ended December 26, 1997 decreased by $0.4
million or 1.1%, to $38.1 million from $38.5 million for the thirteen weeks
ended December 27, 1996. Food revenue for the thirteen weeks ended December 26,
1997 decreased by $0.5 million or 2.4% to $20.9 million from $21.4 million for
the thirteen weeks ended December 27, 1996. The decrease in sales was primarily
due to a temporary increase in food order backlog. Non-food revenue for the
thirteen weeks ended December 26, 1997 decreased by $0.1 million or .7% to $13.5
million from $13.6 million for the thirteen weeks ended December 27, 1996.
Finance income for the thirteen weeks ended December 26,1997 increased by $0.2
million or 5.7%, to $3.7 million from $3.5 million for the thirteen weeks ended
December 27, 1996. 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 December 26, 1997 increased by $0.3
million, or 1.2%, to $25.3 million from $25.0 million for the thirteen weeks
ended December 27, 1996. The gross profit margin increased to 66.6% for the
thirteen weeks ended December 26, 1997 from 65.1% for the thirteen weeks ended
December 27, 1996. The increase in gross profit was primarily the
5
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result of a favorable mix of product sales toward non-food items which have a
higher profit margin and an increase in finance income.
SG&A expenses are principally comprised of selling, telemarketing, delivery and
general and administrative expenses. For the thirteen weeks ended December 26,
1997, these expenses increased by $0.2 million or 1.2%, to $19.7 million from
$19.5 million for the thirteen weeks ended December 27, 1996. The increase was
primarily due to higher medical insurance cost. As a percentage of total
revenues, SG&A expenses increased to 51.9% for the thirteen weeks ended December
26, 1997 from 50.7% for the thirteen weeks ended December 27, 1996.
Interest expense for the thirteen weeks ended December 26, 1997 increased to
$4.1 million from $2.3 million for the thirteen weeks ended December 27, 1996.
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 December 26, 1997 increased to $0.2
million from $0.1 million for the thirteen weeks ended December 27, 1996.
Provision for income tax for the thirteen weeks ended December 26, 1997
decreased by $0.7 million to $0.5 million from $1.2 million for the thirteen
weeks ended December 27, 1996. The effective income tax rate was 53.0% for the
thirteen weeks ended December 26, 1997 as compared to 44.4% for the thirteen
weeks ended December 27, 1996. The increase in the effective income tax rate is
due primarily to an increase in certain nondeductible expenses and a reduction
in income before taxes.
Net income decreased to $0.5 million or 1.3% of total revenues for the thirteen
weeks ended December 26, 1997 from $1.6 million or 4.0% of total revenues for
the thirteen weeks ended December 27, 1996 for the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the thirteen weeks ended December 26,
1997 was $6.7 million, primarily comprised of net income of $0.5 million and
non-cash charges of $1.0 million offset by a $1.6 million increase in accounts
receivable and a $6.4 million decrease in accounts payable and accrued expenses
resulting from the semi-annual interest payment on the senior unsecured notes.
Net cash used in investing activities for the thirteen weeks ended December 26,
1997 of $0.1 million was for capital expenditures.
Net cash provided by financing activities for the thirteen weeks ended December
26, 1997 was $6.3 million, comprised of $6.7 million in net borrowings under the
revolver primarily to fund the semi-annual interest payment on the senior
unsecured notes, offset by a $0.4 million dividend to CPH to fund certain cost
incurred by CPH.
The Company had working capital of $58.0 million as of December 26, 1997
compared to $51.2 million as of December 27, 1996.
6
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The Company has a $50.0 million working capital revolver, with $22.9 million of
unused capacity as of December 26, 1997. The working capital revolver contains
certain covenants requiring the Company to meet certain financial tests
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 thirteen weeks ended December 26, 1997.
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 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.
7
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PART II OTHER INFORMATION
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 December 5, 1997 announcing the
resignation of William Willett as Director, President and Chief
Operating Officer of Colorado Prime Corporation.
8
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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: February 5, 1998 By: /s/ William F. Dordelman
-------------------------------
Chief Executive Officer and
Chairman of the Board
Dated: February 5, 1998 By: /s/ Thomas S. Taylor
-------------------------------
Chief Financial Officer, Vice
President and Director
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-25-1998
<PERIOD-START> SEP-27-1997
<PERIOD-END> DEC-26-1997
<EXCHANGE-RATE> 1
<CASH> 444
<SECURITIES> 0
<RECEIVABLES> 104,812
<ALLOWANCES> 9,198
<INVENTORY> 4,474
<CURRENT-ASSETS> 74,745
<PP&E> 13,765
<DEPRECIATION> 8,099
<TOTAL-ASSETS> 170,613
<CURRENT-LIABILITIES> 16,750
<BONDS> 98,106
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 25,687
<SALES> 34,378
<TOTAL-REVENUES> 38,062
<CGS> 12,719
<TOTAL-COSTS> 19,743
<OTHER-EXPENSES> 156
<LOSS-PROVISION> 1,256
<INTEREST-EXPENSE> 4,050
<INCOME-PRETAX> 1,017
<INCOME-TAX> 539
<INCOME-CONTINUING> 478
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 478
<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>
