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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 September 24, 2000
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)
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<S> <C>
DELAWARE 11-2826129
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
500 BI-COUNTY BLVD., FARMINGDALE, NEW YORK 11735
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (631)-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 November 6, 2000, 1,000 shares of the registrant's Common Stock were
outstanding.
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COLORADO PRIME CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
September 24, 2000 and December 24, 1999 1
Statements of Consolidated Operations
Thirteen weeks ended September 24, 2000 and
September 24, 1999 2
Statements of Consolidated Operations
Thirty-nine weeks ended September 24, 2000 and
September 24, 1999 3
Statements of Consolidated Cash Flows
Thirty-nine weeks ended September 24, 2000 and
September 24, 1999 4
Notes to Consolidated Financial Statements 5
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 6
PART II. OTHER INFORMATION
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
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COLORADO PRIME CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share data)
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<CAPTION>
SEPTEMBER 24, DECEMBER 24,
ASSETS 2000 1999
--------- ---------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash $ 306 $ 754
Accounts receivable - net 47,122 51,379
Inventories - net 2,775 3,217
Prepaid expenses and other current assets 1,697 1,830
Deferred income tax benefit 9,215 7,533
--------- ---------
Total current assets 61,115 64,713
--------- ---------
Property, Plant and Equipment - net 8,118 8,792
--------- ---------
Long-term accounts receivable - net 35,620 36,380
--------- ---------
Goodwill - net 42,769 43,986
--------- ---------
Other assets 5,939 6,677
--------- ---------
Deferred income tax benefit 3,834 3,834
--------- ---------
TOTAL ASSETS $ 157,395 $ 164,382
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 3,696 $ 4,868
Accrued expenses 10,557 12,084
Income and other taxes payable 370 622
Current portion of capital lease obligations 129 129
--------- ---------
Total current liabilities 14,752 17,703
--------- ---------
Revolver 40,974 40,477
--------- ---------
Senior unsecured notes, net of discount 84,357 84,155
--------- ---------
Long-term portion of capital lease obligations 3,601 3,694
--------- ---------
Other liabilities 1,817 1,978
--------- ---------
STOCKHOLDER'S EQUITY
Common Stock - par value, $.01, per share; 1,000
shares authorized issued and outstanding -- --
Paid-in capital 25,868 25,868
Accumulated deficit (13,974) (9,493)
--------- ---------
Total stockholder's equity 11,894 16,375
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 157,395 $ 164,382
========= =========
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COLORADO PRIME CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(Dollars in thousands)
(Unaudited)
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<CAPTION>
THIRTEEN WEEKS THIRTEEN WEEKS
ENDED ENDED
SEPTEMBER 24, SEPTEMBER 24,
2000 1999
-------- --------
<S> <C> <C>
PRODUCT SALES $ 24,157 $ 32,346
FINANCE INCOME EARNED 3,168 3,391
-------- --------
TOTAL REVENUE 27,325 35,737
COST OF GOODS SOLD 10,815 11,841
-------- --------
GROSS MARGIN 16,510 23,896
-------- --------
OTHER COST AND EXPENSES:
Selling, general and administrative 14,889 20,497
Amortization of goodwill 406 406
Interest expense 4,291 4,067
Other expense 129 150
-------- --------
Total cost and expenses 19,715 25,120
-------- --------
LOSS BEFORE BENEFIT FOR INCOME TAXES (3,205) (1,224)
BENEFIT FOR INCOME TAXES (952) (278)
-------- --------
NET LOSS ($ 2,253) ($ 946)
======== ========
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COLORADO PRIME CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(Dollars in thousands)
(Unaudited)
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<CAPTION>
THIRTY-NINE THIRTY-NINE
WEEKS ENDED WEEKS ENDED
SEPTEMBER 24, SEPTEMBER 24,
2000 1999
--------- ---------
<S> <C> <C>
PRODUCT SALES $ 85,871 $ 99,716
FINANCE INCOME EARNED 9,435 10,262
--------- ---------
TOTAL REVENUE 95,306 109,978
COST OF GOODS SOLD 35,278 37,239
--------- ---------
GROSS MARGIN 60,028 72,739
--------- ---------
OTHER COST AND EXPENSES:
Selling, general and administrative 51,887 63,360
Amortization of goodwill 1,217 1,217
Interest expense 12,702 12,228
Other expense 384 391
--------- ---------
Total cost and expenses 66,190 77,196
--------- ---------
LOSS BEFORE BENEFIT FOR INCOME TAXES (6,162) (4,457)
AND EXTRAORDINARY ITEM
BENEFIT FOR INCOME TAXES (1,681) (1,103)
--------- ---------
NET LOSS BEFORE EXTRAORDINARY ITEM (4,481) (3,354)
EXTRAORDINARY ITEM - GAIN ON
EXTINGUISHMENT OF DEBT - NET OF TAX -- 4,556
--------- ---------
NET (LOSS) INCOME ($ 4,481) $ 1,202
========= =========
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COLORADO PRIME CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in thousands)
(Unaudited)
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<CAPTION>
THIRTY-NINE THIRTY-NINE
WEEKS ENDED WEEKS ENDED
SEPTEMBER 24, SEPTEMBER 24,
2000 1999
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ($4,481) $ 1,202
------- -------
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation and amortization 2,170 2,388
Amortization of debt issuance costs 918 899
Extraordinary gain, net -- (4,556)
Deferred income taxes (1,681) (1,105)
Provision for doubtful accounts 3,044 6,046
Change in operating assets and liabilities:
Accounts receivable 1,973 (3,843)
Inventories 442 616
Prepaid expenses and other 133 35
Refundable income taxes -- 425
Other assets 22 14
Accounts payable (1,172) (900)
Accrued expenses (1,528) (1,691)
Other liabilities (161) (584)
Income and other taxes payable (252) 688
------- -------
Total adjustments 3,908 (1,568)
------- -------
Net cash used in operating activities (573) (366)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in investments of property, plant and equipment (279) (650)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolver 497 6,970
Repurchase of senior notes -- (6,259)
Decrease in capital lease obligations (93) (86)
------- -------
Net cash provided by financing activities 404 625
------- -------
NET DECREASE IN CASH (448) (391)
CASH, BEGINNING OF PERIOD 754 994
------- -------
CASH, END OF PERIOD $ 306 $ 603
======= =======
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4
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COLORADO PRIME CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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.
2. Reference is made to the notes to consolidated financial statements
contained within the Company's audited financial statements for the period
ended December 24, 1999 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.
Certain prior period balances have been reclassified to conform with the
current period presentation.
3. In 1999, the Company approved a change in its fiscal year end from the last
Friday to the last Sunday in December. Fiscal 2000 will be a 53 week year
and end on December 31, 2000.
4. 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 $100.0 million 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).
In January 1999, the Company repurchased in aggregate $14.7 million (face
value) of the then outstanding 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:
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<CAPTION>
SEPTEMBER 24, 2000
(DOLLARS IN THOUSANDS)
KAL-MAR CONCORD PRIME
--------- --------- ---------
<S> <C> <C> <C>
Current assets $ 18 $ 115,177 $ 12
Long-tern assets 978 34,536 --
Current liabilities -- (2,758) (711)
Long-term liabilities -- (91,482) --
--------- --------- ---------
Net assets (liabilities) 996 55,473 (699)
========= ========= =========
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FOR THE THIRTY-NINE WEEKS ENDED
SEPTEMBER 24, 2000
(DOLLARS IN THOUSANDS)
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<CAPTION>
KAL-MAR CONCORD PRIME
------- ------- ------
<S> <C> <C> <C>
Net revenues $ 27 $ 9,432 $ --
Gross profit 27 13,129 --
(Loss) Income before provision for income tax (47) 6,028 --
</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 investors in the Notes.
5. During January 1999, the Company repurchased in aggregate $14.7 million
(face value) of its Notes at a cost of $6.3 million. Additionally, the
Company wrote-off approximately $0.8 million of unamortized debt issuance
cost related to the repurchased Notes. The Company realized an extraordinary
gain of $4.6 million which was net of a tax provision of $3.0 million.
5
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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, as amended
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, currently serving 32 states through 70 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 butchers, fine 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 September 24, 2000 Compared To Thirteen Weeks Ended
September 24, 1999.
Total revenue for the thirteen weeks ended September 24, 2000 decreased by $8.4
million, or 23.5%, to $27.3 million from $35.7 million for the thirteen weeks
ended September 24, 1999. Food revenue for the thirteen weeks ended September
24, 2000 decreased by $4.3 million, or 21.8%, to $15.4 million from $19.7
million for the thirteen weeks ended September 24, 1999. Non-food revenue for
the thirteen weeks ended September 24, 2000 decreased by $3.9 million, or 30.8%,
to $8.8 million from $12.7 million for the thirteen weeks ended September 24,
1999. The reduction in food revenue was due to lower volume for new customers
and lower average order size and volume for existing customers. The decrease in
non-food revenue was due to lower volume for new and existing customers. In
July, 2000 the Company began to reduce the weekly telemarketing hours and
redirected the remaining hours to markets that have historically produced a
higher closing rate. The total telemarketing hours for the thirteen weeks ended
September 24, 2000 decreased by 132,000 hours, or 47.9%, to 144,000 hours from
276,000 hours for the thirteen weeks ended September 24, 1999. The reduction in
food and non-food volume was due in part to the reduced telemarketing hours.
Finance income for the thirteen weeks ended September 24, 2000 decreased by $0.2
million or 6.6% to $3.2 million from $3.4 million for the thirteen weeks ended
September 24, 1999. The decrease resulted from a reduction in interest eligible
non-food accounts.
Gross profit for the thirteen weeks ended September 24, 2000 decreased by $7.4
million, or 30.9%, to $16.5 million from $23.9 million for the thirteen weeks
ended September 24, 1999. The gross profit margin for the thirteen weeks ended
September 24, 2000 decreased to 60.4% from 66.9% for the thirteen weeks ended
September 24, 1999. The decrease in the gross profit margin was due primarily to
an increase in food costs. The increase in food costs was due primarily to
market conditions which began to improve in September 2000 and non-recurring
transitional cost related to the shift in the production and fulfillment of food
products from the Company owned facility to an outside processor which was
completed in March, 2000. Additionally, an increase in the average customer
discount negatively impacted the gross profit margin for the thirteen weeks
ended September 24, 2000.
SG&A expenses are principally comprised of selling, telemarketing, delivery and
general and administrative expenses. For the thirteen weeks ended September 24,
2000, these expenses decreased by $5.6 million, or 27.4%, to $14.9 million from
$20.5 million for the thirteen weeks ended September 24, 1999. The decrease was
due to lower telemarketing cost from the reduction in hours discussed above,
lower sales related variable cost from lower product sales, lower fixed payroll
and non-payroll cost from the cost reductions and lower bad debt expense from
improved receivable performance.
Interest expense for the thirteen weeks ended September 24, 2000 increased to
$4.3 million from $4.1 million for the thirteen weeks ended September 24, 1999.
The increase was attributable to an increase in interest rates, partially offset
by a reduction in borrowings under the working capital revolver.
Other expense for the thirteen weeks ended September 24, 2000 and September 24,
1999 was $0.1 million.
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Benefit for income taxes for the thirteen weeks ended September 24, 2000
increased by $0.7 million to a benefit of $1.0 million from a benefit of $0.3
million for the thirteen weeks ended September 24, 1999. The increase was due to
a higher pre-tax loss.
Net loss for the thirteen weeks ended September 24, 2000 increased to $2.2
million from a loss of $.9 million for the thirteen weeks ended September 24,
1999 for the reasons discussed above.
Thirty-nine Weeks Ended September 24, 2000 Compared to Thirty-nine Weeks Ended
September 24, 1999.
Total revenue for the thirty-nine weeks ended September 24, 2000 decreased by
$14.7 million, or 13.3%, to $95.3 million from $109.9 million for the
thirty-nine weeks ended September 24, 1999. Food revenue for the thirty-nine
weeks ended September 24, 2000 decreased by $9.3 million, or 15.4%, to $50.8
million from $60.1 million for the thirty-nine weeks ended September 24, 1999.
Non-food revenue for the thirty-nine weeks ended September 24, 2000 decreased by
$4.6 million, or 11.6%, to $35.0 million from $39.6 million for the thirty-nine
weeks ended September 24, 1999. The reduction in food revenue was due to lower
average order size and volume for new and existing customers. The decrease in
non-food revenue was due to lower volume for new customers and lower average
order size and volume for existing customers. In July, 2000 the Company began to
reduce the weekly telemarketing hours and redirected the remaining hours to
markets that have historically produced a higher closing rate. The total
telemarketing hours for the thirty-nine weeks ended September 24, 2000 decreased
by 212,000 hours, or 24.2%, to 664,000 hours from 876,000 hours for the
thirty-nine weeks ended September 24, 1999. The reduction in food and non-food
volume was due in part to the reduced telemarketing hours. Finance income for
the thirty-nine weeks ended September 24, 2000 decreased by $0.8 million, or
8.1%, to $9.4 million from $10.2 million for the thirty-nine weeks ended
September 24, 1999. The decrease resulted from a reduction in interest eligible
non-food accounts.
Gross profit for the thirty-nine weeks ended September 24, 2000 decreased by
$12.7 million, or 17.5%, to $60.0 million from $72.7 million for the thirty-nine
weeks ended September 24, 1999. The gross profit margin for the thirty-nine
weeks ended September 24, 2000 decreased to 63.0% from 66.1% for the thirty-nine
weeks ended September 24, 1999. The decrease in the gross profit margin was due
primarily to an increase in food costs. The increase in food costs was due
primarily to market conditions which began to improve in September 2000 and
non-recurring transitional cost related to the shift in the production and
fulfillment of the food products from the Company owned facility to an outside
processor which was completed in March, 2000. Additionally, an increase in the
average customer discount negatively impacted the gross profit margin for the
thirty-nine weeks ended September 24, 2000.
SG&A expenses are principally comprised of selling, telemarketing, delivery and
general and administrative expenses. For the thirty-nine weeks ended September
24, 2000, these expenses decreased by $11.5 million, or 18.1%, to $51.9 million
from $63.4 million for the thirty-nine weeks ended September 24, 1999. The
decrease was due to lower telemarketing cost from the reduction in hours
discussed above, lower sales related variable cost from lower product sales,
lower fixed payroll and non-payroll cost from the cost reductions and lower bad
debt expense from improved receivable performance.
Interest expense for the thirty-nine weeks ended September 24, 2000 increased to
$12.7 million from $12.2 million for the thirty-nine weeks ended September 24,
1999. The increase was attributable to an increase in interest rates, partially
offset by a reduction in borrowings under the working capital revolver.
Other expense for the thirty-nine weeks ended September 24, 2000 and September
24, 1999 was $0.4 million.
Benefit for income taxes for the thirty-nine weeks ended September 24, 2000
increased by $0.6 million to a benefit of $1.7 million from a benefit of $1.1
million for the thirty-nine weeks ended September 24, 1999. The increase was due
to higher pre-tax loss.
Extraordinary gain for the thirty-nine weeks ended September 24, 1999 resulted
from the repurchase of $14.7 million of Senior Notes at a cost of $6.3 million.
Additionally, the Company incurred $0.8 million of non-cash charges related to
the repurchase. The Company realized an extraordinary gain of $4.6 million which
was net of a tax provision of $3.0 million.
Net loss for the thirty-nine weeks ended September 24, 2000 was $4.5 million as
compared to net income of $1.2 million for the thirty-nine weeks ended September
24, 1999 for the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the thirty-nine weeks ended September
24, 2000 was $0.6 million, primarily comprised of a
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net loss of $4.5 million, non cash charges of $4.5 million, a decrease in
current assets of $2.5 million and a decrease in current liabilities of $2.9
million.
Net cash used in investing activities for the thirty-nine weeks ended September
24, 2000 of $0.3 million was for capital expenditures.
Net cash provided by financing activities for the thirty-nine weeks ended
September 24, 2000 was $.4 million, comprised primarily of borrowings under the
working capital revolver.
The Company had working capital of $46.4 million as of September 24, 2000
compared to $47.0 million as of December 24, 1999.
The Company has a $50.0 million working capital revolver (the "Revolver"), with
$1.7 million of unused availability and a cash balance of $0.3 million as of
September 24, 2000. Additionally, the Company has $85.3 million (face value) of
senior unsecured notes (the "Notes") which bear interest at 12.5% per annum and
mature in 2004. The Revolver contains certain covenants requiring the Company to
meet certain financial tests including a minimum fixed charge coverage ratio, a
maximum leverage ratio, and a limitation on capital expenditures. The Revolver
and the 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 the 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. As of September 24, 2000, the Company was in compliance with
certain provisions of the Revolver and had received a waiver of the default of
the maximum leverage ratio.
The Company has a $5.3 million interest payment to the holders of its senior
unsecured notes which was due on November 1, 2000. The Company has elected to
invoke the 30 day grace period under the terms of the indenture. The Company has
retained Donaldson, Lufkin & Jenrette Securities Corporation as its financial
advisor and has met with several of the senior unsecured noteholders to discuss
alternatives to the current capital structure. The failure to make the interest
payment at the end of the 30 day grace period would constitute an event of
default under the indenture granting the holders of the Notes the right to
accelerate the indebtedness. The acceleration of the indebtedness would have an
adverse impact on the Company. Additionally, an event of default under the
indenture would trigger gross default provisions under the Revolver.
The Company's independent public accountants have advised the Company that, if
this acceleration and other potential events of default or issues surrounding
the Company's liquidity continue as of its year end and beyond, the independent
public accountants may qualify their audit opinion as to the Company's ability
to continue as a going concern.
The Company is subject to certain market risk factors related to its Notes and
its Revolver. The Company does not believe the interest rate risk to be material
and has disclosed the factors in its Annual Report on Form 10-K for the year
ended December 24, 1999.
Inflation
The Company believes that inflation has not had a material impact on its results
of operations for the thirteen weeks ended September 24, 2000.
PART II OTHER INFORMATION
Item 5. Other Information
Fred Spivak joined the Company as Executive Vice President and Chief Financial
Officer on October 2, 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) There were no Exhibits filed during the period
(b) There were no Forms 8-K filed during the period
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: November 6, 2000 By: /s/ Steven Lachenmeyer
Vice President Finance
9
