[DESCRIPTION]FORM 10-Q
<PAGE>
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 September 29, 1996
or
[ ] 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 1-12116
CARR-GOTTSTEIN FOODS CO.
(Exact name of registrant as specified in its charter)
Delaware 920135158
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
6411 A Street
Anchorage, Alaska 99518
(Address of principal executive offices)
Registrant's telephone number, including area code: (907) 561-
1944
Indicate by check mark whether the registrant (1) has filed
all documents and reports required to be filed by Sections 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for 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 [ ]
The number of shares of the registrant's Common Stock
outstanding at November 7, 1996 was 7,816,742 shares.
EXHIBIT INDEX
APPEARS AT PAGE 18
Page 1 of 20
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CARR-GOTTSTEIN FOODS CO.
AND SUBSIDIARIES
FORM 10-Q
For the Quarterly Period Ended September 29, 1996
INDEX
Part I. Financial Information
Page
Item 1. Financial Statements
a) Consolidated Balance Sheets
as of September 29, 1996 (unaudited) and December
31, 1995 1
b) Consolidated Statements of Operations for the 13
weeks and 39 weeks
ended September 29, 1996 (unaudited) and October 1,
1995 (unaudited) 2
c) Consolidated Statements of Cash Flows for the 39
weeks ended
September 29, 1996 (unaudited) and October 1, 1995
(unaudited) 3
d) Notes to Consolidated Financial Statements
(unaudited) 4
Item 2. Management's Discussion and Analysis of Financial
Condition
and Results of Operations (unaudited) 13
Part II. Other Information 16
Signatures 17
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Carr-Gottstein Foods Co. and Subsidiaries
Consolidated Balance Sheets
Amounts In Thousands
Sept. 29,
1996
Dec. 31,
1995
Assets
(unaudited)
Current assets:
Cash and cash equivalents
$ 4,309
$ 2,817
Accounts receivable, net
21,418
17,853
Income taxes receivable
212
164
Inventories
57,181
50,505
Deferred taxes
1,756
1,756
Prepaid expenses and other current
assets
2,682
2,881
Total current assets
87,558
75,976
Property, plant and equipment, at cost,
net of accumulated depreciation
145,003
152,836
Intangible assets, net of accumulated
amortization
92,445
94,589
Other assets
11,454
13,219
$ 336,460
$ 336,620
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
$ 38,124
$ 35,986
Accrued expenses
16,629
7,352
Current maturities of long-term
debt
7,265
3,551
Revolving line of credit
10,100
16,000
Estimated obligation for self-
insurance
2,477
2,794
Total current liabilities
74,595
65,683
Long-term debt, excluding current
maturities
227,816
234,740
Estimated obligation for self-insurance
1,536
1,536
Deferred tax liability
488
488
Other liabilities
1,729
1,871
Total liabilities
306,164
304,318
Stockholders' equity:
Common stock, $.01 par value,
authorized 25,000 shares,
issued and outstanding 9,736
and 17,181 shares, respectively
97
97
Additional paid in capital
52,513
52,595
Stock subscriptions receivable
-
(44)
Deficit
(9,846)
(7,734)
42,764
44,914
Less treasury stock, 1,850 and
1,876 shares, at cost
12,468
12,612
Total stockholders' equity
30,296
32,302
Commitments and contingencies
-
- -
$ 336,460
$ 336,620
See accompanying notes to consolidated financial statements.
<PAGE>
Carr-Gottstein Foods Co. and Subsidiaries
Consolidated Statements of Operations
Amounts In Thousands (except per share data)
13 Weeks Ended
39 Weeks Ended
Sept. 29,
1996
Oct. 1,
1995
Sept.29,
1996
Oct. 1,
1995
(unaudited)
(unaudited)
Sales
$158,506
$155,652
$462,268
$449,370
Cost of merchandise
sold, including
warehousing
and transportation
expenses (a)
114,232
107,481
334,055
309,075
Gross profit (a)
44,274
48,171
128,213
140,295
Operating and
administrative
expenses (a)
37,102
39,481
109,547
116,932
Operating income
7,172
8,690
18,666
23,363
Other income
(expense):
Interest expense,
net
(6,805)
(3,459)
(20,819)
(10,515)
Non-recurring
charge
-
(2,249)
-
(2,249)
Other income
73
4
75
39
Net earnings (loss)
before taxes
440
2,986
(2,078)
10,638
Income tax expense
(504)
(1,517)
(34)
(5,239)
Net earnings (loss)
$64)
$1,469
$(2,112)
$5,399
Earnings (loss) per
common share:
Net earnings (loss)
per share
$
(0.01)
$
0.10
$
(0.27)
$
0.35
Weighted average
common shares
outstanding
7,817
15,287
7,811
15,467
See accompanying notes to consolidated financial statements.
Note (a) Due to changes in allocation methods, 1996 and 1995
gross margin and expenses rates will not be comparable.
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<TABLE>
<CAPTION>
Carr-Gottstein Foods Co. and Subsidiaries
Consolidated Statements of Cash Flows
Amounts in Thousands 39 Weeks Ended
Sept. 29, Oct. 1,
1996 1995
(unaudited) (unaudited)
Operating activities:
<S> <C> <C>
Net income (loss) $ (2,112) $ 5,399
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 10,889 10,242
Amortization of intangibles 2,144 2,653
Amortization of
loan fees and discounts 1,084 396
(Gain) loss on disposal
of property and equipment (72) 39
(Increase) decrease in current assets:
Income tax receivable (48) 257
Receivables (3,565) (2,681)
Inventories (6,676) (898)
Prepaid expenses 199 1,734
Other assets 681 (1,986)
(Decrease) increase
in current liabilities:
Deferred taxes - 2,615
Accounts payable 2,138 (1,582)
Accrued expenses 9,277 (3,423)
Income taxes payable - 907
Self insurance reserve (317) (357)
Other liabilities (142) (1,762)
Net cash provided by operating activities 13,480 11,553
Investing activities:
Additions to property and equipment (3,216) (14,515)
Proceeds from sale
of property and equipment 232 16
Proceeds from sale of subsidiary - 983
Net cash used in investing activities (2,984) (13,516)
Financing activities:
Payments on long-term debt (3,210) (5,716)
Issuance of bank debt - 2,498
Short term borrowings (payments), net (5,900) 7,502
Issuance of treasury stock 62 76
Purchase of treasury stock - (2,499)
Change in stock subscriptions receivable 44 (3)
Net cash used in financing activities (9,004) (1,858)
Net increase (decrease)
in cash and cash equivalents 1,492 (105)
Cash and cash equivalents
at beginning of period 2,817 320
Cash and cash equivalents
at end of period $ 4,309 $ 215
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 15,298 $ 10,606
Income taxes - 4,075
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
Carr-Gottstein Foods Co. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(1) During interim periods, Carr-Gottstein Foods Co. and
subsidiaries (the "Company") follows the accounting policies set
forth in its audited financial statements included in its Annual
Report for the fiscal year ended December 31, 1995 filed with
the Securities Exchange Commission. These consolidated interim
financial statements should be read in conjunction with such
audited consolidated financial statements and notes thereto.
Management believes that the accompanying interim financial
statements reflect all adjustments which are necessary for a
fair statement of the results of the interim period presented.
All adjustments made in the accompanying interim financial
statements are of a normal recurring nature.
Carr-Gottstein Foods Co. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited) -
continued
(2) CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Company issued $100,000,000 of senior subordinated unsecured
notes on November 15, 1995. CGF Properties, Inc. has not
guaranteed the unsecured notes and financial information for
this wholly-owned subsidiary is presented separately. All of
the Company's other direct and indirect subsidiaries, AOL
Express, Inc., APR Forwarders, Inc., Oaken Keg Spirit Shops,
Inc. and Alaska Advertisers, Inc. are wholly-owned and have
fully and unconditionally guaranteed the unsecured notes on a
joint and several basis and, accordingly, are presented on a
combined basis. Parent company only information is presented for
Carr-Gottstein Foods Co., which reflects only its business
activity and its wholly-owned subsidiaries accounted for using
the equity method. Separate financial statements and other
disclosures for the guarantor subsidiaries are not presented
because in the opinion of management such information is not
material.
The following are condensed consolidating balance sheets:
Amounts in Thousands
Balance Sheet Non-Guarantor Guarantor Parent
Subsidiary Subsidiaries Company
Sept. 29, 1996 CGF Properties (Combined) Only Elimination Consolidated
Assets
<S> <C> <C> <C> <C> <C>
Inventories $ - $ 5,001 $ 52,180 $ - $ 57,181
Other current assets 3,211 63,061 25,814 (61,709) 30,377
Total current assets 3,211 68,062 77,994 (61,709) 87,558
Property, plant and equipment, net 65,827 5,410 73,766 -
145,003
Intangible, net - - 92,445 - 92,445
Investments in subsidiaries - - 97,902 (97,902) -
Other assets 32 483 10,939 - 11,454
$ 69,070 $ 73,955 $ 353,046 $ (159,611) $ 336,460
Liabilities and Stockholders' Equity
Current liabilities $ 576 $ 2,504 $ 133,224 $ (61,709) $ 74,595
Long-term debt, excluding current
maturities 42,043 - 185,773 - 227,816
Other liabilities - - 3,753 - 3,753
Total liabilities 42,619 2,504 322,750 (61,709) 306,164
Common stock 10 44 97 (54) 97
Additional paid-in capital 28,966 39,381 52,513 (68,347) 52,513
Retained earnings (deficit) (2,525) 32,026 (9,846) (29,501) (9,846)
26,451 71,451 42,764 (97,902) 42,764
Less treasury stock - - (12,468) - (12,468)
Total stockholders' equity 26,451 71,451 30,296 (97,902)
30,296
$ 69,070 $ 73,955 $ 353,046 $ (159,611) $ 336,460
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Carr-Gottstein Foods Co. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited) - continued
Amounts in Thousands
Balance Sheet Non-Guarantor Guarantor Parent
Subsidiary Subsidiaries Company
December 31, 1995 CGF Properties (Combined) Only Elimination Consolidated
Assets
<S> <C> <C> <C> <C> <C>
Inventories $ - $ 3,986 $ 46,519 $ - $ 50,505
Other current assets 5,397 57,859 7,261 (45,046) 25,471
Total current assets 5,397 61,845 53,780 (45,046) 75,976
Property, plant and equipment, net 67,921 6,336 78,579 -
152,836
Intangible, net - - 94,589 - 94,589
Investments in subsidiaries - - 96,229 (96,229) -
Other assets 33 509 12,677 - 13,219
$ 73,351 $ 68,690 $ 335,854 $ (141,275) $ 336,620
Liabilities and Stockholders' Equity
Current liabilities $ 3,332 $ - $ 107,397 $ (45,046) $ 65,683
Long-term debt, excluding current
maturities 42,480 - 192,260 - 234,740
Other liabilities - - 3,895 - 3,895
Total liabilities 45,812 - 303,552 (45,046) 304,318
Common stock 10 44 97 (54) 97
Additional paid-in capital 28,966 39,381 52,595 (68,347) 52,595
Stock subscription receivable - - (44) - (44)
Retained earnings (deficit) (1,437) 29,265 (7,734) (27,828) (7,734)
27,539 68,690 44,914 (96,229) 44,914
Less treasury stock - - 12,612 - 12,612
Total stockholders' equity 27,539 68,690 32,302 (96,229)
32,302
$ 73,351 $ 68,690 $ 335,854 $ (141,275) $ 336,620
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Carr-Gottstein Foods Co. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited) - continued
The following are condensed consolidating statements of operations:
Amounts in Thousands
Statement of Operations Non-Guarantor Guarantor Parent
Subsidiary Subsidiaries Company
Third Quarter 1996 CGF Properties (Combined) Only
Elimination Consolidated
<S> <C> <C> <C> <C> <C>
Sales $ - $ 19,022 $ 148,472 $ (8,988) $ 158,506
Cost of merchandise sold, including
warehousing and transportation
expenses - 13,844 109,376 (8,988) 114,232
Gross profit - 5,178 39,096 - 44,274
Operating and administrative
(income) expenses (242) 3,104 34,240 - 37,102
Operating income 242 2,074 4,856 - 7,172
Interest expense, net (1,127) - (5,678) - (6,805)
Other income (expense) - - 73 - 73
Equity in subsidiary earnings - - 702 (702) -
Earnings (loss) before income tax (885) 2,074 (47) (702) (440)
Income tax (expense) benefit 363 (850) (17) - (504)
Net earnings (loss) $ (522) $ 1,224 $ (65) $ (702) $ (64)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Carr-Gottstein Foods Co. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited) - continued
The following are condensed consolidating statements of operations:
Amounts in Thousands
Statement of Operations Non-Guarantor Guarantor Parent
Subsidiary Subsidiaries Company
39 Weeks Ended Sept. 29, 1996 CGF Properties (Combined) Only
Elimination Consolidated
<S> <C> <C> <C> <C> <C>
Sales $ - $ 56,650 $ 432,682 $ (27,064) $ 462,268
Cost of merchandise sold, including
warehousing and transportation
expenses - 40,733 320,386 (27,064) 334,055
Gross profit - 15,917 112,296 - 128,013
Operating and administrative
(income)expenses (714) 9,298 100,963 - 109,547
Operating income 714 6,619 11,333 - 18,666
Interest expense, net (3,393) - (17,426) - (20,819)
Other income (expense) - - 75 - 75
Equity in subsidiary earnings - - 2,324 (2,324) -
Earnings (loss) before income tax (2,679) 6,619 (3,694) (2,324) (2,078)
Income tax (expense) benefit 1,099 (2,715) 1,582 - (34)
Net earnings (loss) $ (1,580) $ 3,904 $ (2,112) $ (2,324) $
(2,112)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Carr-Gottstein Foods Co. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited) - continued
The following are condensed consolidating statements of operations:
Amounts in Thousands
Statement of Operations Non-Guarantor Guarantor Parent
Subsidiary Subsidiaries Company
Third Quarter 1995 CGF Properties (Combined) Only
Elimination Consolidated
<S> <C> <C> <C> <C> <C>
Sales $ - $ 20,898 $ 145,231 $ (10,477) $ 155,652
Cost of merchandise sold, including
warehousing and transportation
expenses - 12,591 105,367 (10,477) 107,481
Gross profit - 8,307 39,864 - 48,171
Operating and administrative
expenses (172) 6,132 33,521 - 39,481
Operating income 172 2,175 6,343 - 8,690
Interest expense, net (1,142) - (2,317) - (3,459)
Non-recurring charge - - (2,249) - (2,249)
Other income (expense) - - 4 - 4
Equity in subsidiary earnings - - 711 (711) -
Earnings before income tax (970) 2,175 2,492 (711) 2,986
Income tax (expense) benefit 398 (892) (1,023) - (1,517)
Net earnings (loss) $ (572) $ 1,283 $ 1,469 $ (711) $ 1,469
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Carr-Gottstein Foods Co. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited) - continued
The following are condensed consolidating statements of operations:
Amounts in Thousands
Statement of Operations Non-Guarantor Guarantor Parent
Subsidiary Subsidiaries Company
39 Weeks Ended Oct. 1, 1995 CGF Properties (Combined) Only
Elimination Consolidated
<S> <C> <C> <C> <C> <C>
Sales $ - $ 55,883 $ 421,103 $ (27,616) $ 449,370
Cost of merchandise sold, including
warehousing and transportation
expenses - 36,682 300,009 (27,616) 309,075
Gross profit - 19,201 121,094 - 140,295
Operating and administrative
(income) expenses (430) 11,288 106,074 - 116,932
Operating income 430 7,913 15,020 - 23,363
Interest expense, net (3,437) - (7,078) - (10,515)
Non recurring charge - - (2,249) - (2,249)
Other income (expense) - - 39 - 39
Equity in subsidiary earnings - - 2,895 (2,895) -
Earnings (loss) before income tax (3,007) 7,913 8,627 (2,895) 10,638
Income tax (expense) benefit 1,233 (3,244) (3,228) - (5,239)
Net earnings (loss) $ (1,774) $ 4,699 $ 5,399 $ (2,895) $ 5,399
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Carr-Gottstein Foods Co. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited) - continued
The following is condensed consolidating cash flow information. The
consolidated Company's cash and cash equivalents is positive at each
balance sheet date so negative balances for individual subsidiaries are
not classified as liabilities. The net cash provided by operating
activities fluctuates due to changes in intercompany receivables and
payables from the transfer of cash to and from the parent company.
Amounts in Thousands
Statement of Cash Flows Non-Guarantor Guarantor Parent
Subsidiary Subsidiaries Company
39 Weeks Ended Sept. 29, 1996 CGF Properties (Combined) Only Consolidated
<S> <C> <C> <C> <C>
Net cash provided by
operating activities $ 393 $ 4 $ 13,083 $ 13,480
Investing activities
Addition to property
and equipment - (4) (3,212) (3,216)
Proceeds from Sale
of property and equipment - - 232 232
Net cash used
in investing activities - (4) (2,980) (2,984)
Financing activities
Payments on long-term debt (393) - (2,817) (3,210)
Short term borrowings (payments), net (5,900) (5,900)
Issuance of treasury stock - 62 62
Change in Stock Subscription receivable- - 44 44
Net cash used by financing activities (393) - (8,611)
(9,004)
Net increase in cash and cash equivalents - 1,492 1,492
Cash and cash equivalents
at beginning of period 55 83 2,679 2,817
Cash and cash equivalents
at end of period $ 55 $ 83 $ 4,171 $ 4,309
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Carr-Gottstein Foods Co. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited) - continued
The following is condensed consolidating cash flow information. The
consolidated Company's cash and cash equivalents is positive at each
balance sheet date so negative balances for individual subsidiaries are
not classified as liabilities. The net cash provided by operating
activities fluctuates due to changes in intercompany receivables and
payables from the transfer of cash to and from the parent company.
Amounts in Thousands
Statement of Cash Flows Non-Guarantor Guarantor Parent
Subsidiary Subsidiaries Company
39 Weeks Ended Oct. 1, 1995 CGF Properties (Combined) Only Consolidated
<S> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $ (1,613) $ 671 $ 12,495 $ 11,553
Investing activities
Addition to property and equipment (691) (13,824) (14,515)
Proceeds from
sale of property and equipment- 16 16
Proceeds from sale
of subsidiary - 983 983
Net cash used
in investing activities (691) (12,825) (13,516)
Financing activities
Proceeds from
issuance of debt - 2,498 2,498
Payments on long
- -term debt (400) (5,316) (5,716)
Short term
borrowings, net - - 7,502 7,502
Purchase of
treasury stock - - (2,423) (2,423)
Change in Stock
Subscription receivable - - (3) (3)
Net cash used
in financing activities (400) - (2,258) (1,858)
Net increase (decrease)
in cash and cash
equivalents (2,013) (20) 1,928 (105)
Cash and cash
equivalents at
beginning of period 2,066 77 (1,823) 320
Cash and cash
equivalents at
end of period $ 53 $ 57 $ 105 $ 215
</TABLE>
<PAGE>
Carr-Gottstein Foods Co. and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion should be read in conjunction with the
unaudited financial statements and related notes included
elsewhere in this Form 10-Q.
General
Carr-Gottstein Foods Co. is the leading retail and wholesale
food company in Alaska operating full-service supermarkets and
wine and liquor stores as well as the only full-line food
warehouse and distribution center (under the J.B. Gottstein name)
in the state.
Results of Operations
13 Weeks Ended September 29, 1996 Compared to 13 Weeks Ended
October 1, 1995
Sales. Sales for the 13 weeks ended September 29, 1996 were
$158.5 million compared to $155.7 million for the 13 weeks ended
October 1, 1995. The 1.8% increase was due in part to increases
at the Eagle Quality Centers (the "Eagle Stores") and increases
attributable to Wholesale operations. The increase in sales for
the third quarter of 1996 reflects a 0.2% and 3.8% increase in
comparable store sales for the Carrs Quality Centers (the "Carrs
Stores") and Eagle Stores, respectively.
Gross Profit. Gross profit for the 13 weeks ended September
29, 1996 was $44.3 million compared to $48.2 million for the 13
weeks ended October 1, 1995. The decrease in gross margin
dollars is primarily attributable to the allocation of
warehousing and distribution expenses to cost of goods sold.
Prior to the first quarter of 1996, these expenses were not
charged to the cost of goods sold but were classified as
operating expenses. As a percentage of sales, gross profit was
27.9% for the 13 weeks 1996 compared to 31.0% for the 13 weeks
1995. Gross profit as a percentage of sales for the 13 weeks
1996 decreased primarily as a result of the allocation of
warehousing and distribution expenses during the quarter.
Operating and Administrative Expenses. Operating and
administrative expenses for the 13 weeks ended September 29, 1996
were $37.1 million compared to $39.5 million for the 13 weeks
ended October 1, 1995. Operating and administrative expenses as
a percentage of sales were 23.4% for the 13 weeks 1996 compared
to 25.4% for the 13 weeks 1995. The decrease in operating and
administrative expenses is primarily attributable to the
allocation of warehousing and distribution expenses to cost of
goods sold partially offset by some increases in depreciation and
other operational expenses incurred in the quarter.
Operating Income. Operating income for the 13 weeks ended
September 29, 1996 decreased $1.5 million from $8.7 million in
the third quarter of 1995 to $7.2 million in the third quarter of
1996. The decrease in operating income is due primarily to
increased expenses in the quarter as compared to the same quarter
in 1995.
Other Income and Expense. Net interest expense was $6.8
million for the 13 weeks ended September 29, 1996 compared to
$3.5 million for the 13 weeks ended October 1, 1995. The
increase in interest expense is primarily attributable to the
full quarter impact of increased interest costs related to the
borrowings associated with the self stock tender completed by
the Company in November of 1995. The 1995 quarter reflects a
non-recurring charge of $2.2 million for expenses incurred in
connection with a sale/leaseback transaction that the Company
elected not to pursue.
Income Taxes. Income tax expense for the 13 weeks ended
September 29, 1996 was $0.5 million compared to a $3.0 million
expense (a 50.8% effective tax rate) for the 13 weeks ended
October 1, 1995. The high effective tax rate in 1995 resulted
from the amortization of intangible assets for which no tax
benefit was available.
Net Income (Loss) Net loss for the 13 weeks ended September
29, 1996 was $64,000, or $0.01 per share, versus net income of $
1.5 million, or $0.10 per share for the 13 weeks ended October 1,
1995.
39 Weeks Ended September 29, 1996 Compared to 39 Weeks Ended
October 1, 1995
Sales. Sales for the 39 weeks ended September 29, 1996 were
$462.3 million compared to $449.4 million for the 39 weeks ended
October 1, 1995. The increase in sales for the 39 weeks of 1996
reflects a 0.4% and 1.8% increase in comparable store sales for
the Carrs Stores and Eagle Stores, respectively.
Gross Profit. Gross profit for the 39 weeks ended September
29, 1996 was $128.2 million compared to $140.3 million for the 39
weeks ended October 1, 1995. The decrease in gross margin
dollars is primarily attributable to the allocation of
warehousing and distribution expenses to cost of goods sold as
discussed above as well as extra promotional expenses that were
incurred primarily during the first two quarters. As a percentage
of sales, gross profit was 27.7% for the 39 weeks 1996 compared
to 31.2% for the 39 weeks 1995. Gross profit as a percentage of
sales for the 39 weeks 1996 decreased primarily as a result of
the allocation of warehousing and distribution expenses and
partially as the result of the increased promotional expenses
that were incurred primarily during the first two quarters.
Operating and Administrative Expenses. Operating and
administrative expenses for the 39 weeks ended September 29, 1996
were $109.5 million compared to $116.9 million for the 39 weeks
ended October 1, 1995. Operating and administrative expenses as
a percentage of sales were 23.7% for the 39 weeks 1996 compared
to 26.0% for the 39 weeks 1995. The decrease in operating and
administrative expenses is primarily attributable to the
allocation of warehousing and transportation expenses to the cost
of goods sold coupled with expenses related to the "Fusion"
corporate re-engineering project that were incurred throughout
1995 and into the second quarter of 1996.
Operating Income. Operating income for the 39 weeks ended
September 29, 1996 decreased $4.7 million from $23.4 million, or
5.2 percent of sales, in 1995 to $18.7 million, or 4.0 percent of
sales in 1996.
Other Income and Expense. Net interest expense was $20.8
million for the 39 weeks ended September 29, 1996 compared to
$10.5 million for the 39 weeks ended October 1, 1995. The
increase in interest expense is primarily attributable to the
impact of increased interest costs related to the borrowings
associated with the self stock tender completed by the Company
in November of 1995. In September of 1995, the Company
recognized a non-recurring charge of $2.2 million for expenses
incurred in connection with a sale/leaseback transaction that the
Company elected not to pursue.
Income Taxes. Income tax expense for the 39 weeks ended
September 29, 1996 was $34,000 as compared to a $5.2 million
expense (a 49.2% effective tax rate) for the 39 weeks ended
October 1, 1995. The high effective tax rate in 1995 resulted
from the amortization of intangible assets for which no tax
benefit was available.
Net Income (Loss) Net loss for the 39 weeks ended September
29, 1996 was $2.1 million, or $0.27 per share, versus net income
of $5.4 million, or $0.35 per share for the 39 weeks ended
October 1, 1995.
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash flows
from operations and its working capital revolving credit
facility, which are considered to be adequate for anticipated
cash needs. Primary uses are capital expenditures, debt service,
and lease payments.
Net cash provided by operating activities was $13.5 million
for the 39 weeks ended September 29, 1996 compared to net cash
provided by operating activities of $11.5 million for the same
period in 1995. The change in the 39 weeks 1996 compared to 1995
was due primarily to increased inventories and receivables offset
by larger increases in accounts payable and accrued expenses.
Capital expenditures for the 39 weeks ended September 29,
1996 were $3.2 million. The majority of these expenditures were
related to the "Fusion" project and other projects started in the
previous year. Although the Company will consider opportunities
for new store construction or acquisition, should they arise,
capital expenditures are currently expected to be approximately
$5.5 million for fiscal 1996. It is anticipated that the balance
of 1996 capital expenditures will be funded out of cash provided
by operations and borrowings under the working capital revolver.
Net cash used for financing activities during the 39 weeks
ended September 29, 1996 was $9.0 million. The level of
borrowings under the Company's revolving debt is dependent
primarily upon cash flows from operations, the timing of
disbursements, long-term borrowing activity and capital
expenditures.
At September 29, 1996 there was $10.1 million outstanding on
the revolving debt borrowings. The Company had available unused
credit of $24.9 million. Funds borrowed under the revolving
credit portion of the Company's credit facility are restricted to
working capital and general corporate purposes. Scheduled
amortization payments under the Company's $35.0 and $60.0 million
term loans will be made on December 31, 1996 in the amounts of
$2.5 and $0.3 million, respectively.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None.
Item 2. Changes in Securities - None.
Item 3. Defaults Upon Senior Securities - None.
Item 4. Submission of Matters to a Vote of Security Holders -
None.
Item 5. Other Information
Effective August 9, 1996, Lawrence H. Hayward was appointed
President and Chief Executive Officer of the Company. Mr.
Hayward formerly served as Senior Vice President and Chief
Operating Officer of the Company.
Effective August 9, 1996, Mark R. Williams resigned from his
position as Chief Executive Officer and President of the
Company. Mr. Williams will continue to serve as a Director
and was appointed Vice Chairman of the Board of Directors.
He will continue to be employed by the Company to assist Mr.
Hayward during the transition.
Effective August 9, 1996, John J. Cairns retired from his
role as Special Assistant to the President. Mr. Cairns will
continue to serve as a member and Chairman of the Board of
Directors of the Company. He will continue to be employed
by the Company on a part-time basis to work on special
projects relating to long-term strategic planning.
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits set forth in the Exhibit Index on
page 18 hereof are filed with this quarterly
report on Form 10-Q.
(b) No reports were filed on Form 8-K during the
quarter ended September 29, 1996.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
CARR GOTTSTEIN FOODS CO.
By: /s/ Lawrence H. Hayward
Lawrence H. Hayward
President and
Chief Executive Officer
Date: November 8, 1996
By: /s/ Donald J. Anderson
Donald J. Anderson
Senior Vice President and
Chief Financial Officer
Date: November 8, 1996
CARR-GOTTSTEIN FOODS CO.
Exhibit Index
The following exhibits are attached as indicated:
Exhibit Description of Exhibit
Number
10.102 Employment Agreement of Lawrence H. Hayward
27.1 Financial Data Schedule
EMPLOYMENT AGREEMENT
Carr-Gottstein Foods Co.
Lawrence H. Hayward
This Employment Agreement ("Agreement") is made as of August
7, 1996 by and between CARR-GOTTSTEIN FOODS CO., a Delaware
corporation, ("CGF") and LAWRENCE H. HAYWARD.
Recitals
A. CGF is a corporation organized under the laws of
Delaware. It is engaged in the business of marketing food and
drug products.
B. CGF desires to employ Mr. Hayward as President and Chief
Executive Officer of CGF to manage the business and affairs of
CGF. Mr. Hayward desires to be so employed and act in such
capacities.
Accordingly, the parties agree as follows:
1. Employment - CGF will employ Mr. Hayward, and Mr. Hayward
will be employed by CGF, as the President and Chief Executive
Officer of CGF. Mr. Hayward shall assume that position on August
10, 1996. Mr. Hayward shall serve at the will of the Board of
Directors. Mr. Hayward shall be accorded the authority by the
Board of Directors commensurate with his position as Chief
Executive Officer of CGF, and he shall make a good faith effort
act in the best interests of CGF and perform those duties
reasonably assigned to him by the Board of Directors. Mr.
Hayward will devote himself full-time to the interests of CGF and
shall not accept other employment, including service as a
consultant or director of any other business or organization,
except volunteer service for local charitable organizations which
service does not materially interfere with his work at CGF.
2. Location of Employment - Mr. Hayward's principal place of
employment shall be at the executive offices of CGF in Anchorage,
Alaska or at such other location as mutually agreed upon by the
parties.
3. Compensation
a. Salary - CGF shall pay Mr. Hayward a salary at the
annual rate of $325,000, less normal withholdings, for each
calendar year, pro-rated for any portion thereof, payable in
substantially equal installments in accordance with CGF's usual
payroll practice, but in no event less frequently than monthly.
b. Bonus - Mr. Hayward shall participate in the Bonus Plan
for the most senior executives of CGF, subject to the following.
Mr. Hayward shall be eligible for an annual bonus of up to 60%
of his annual salary, depending upon the financial performance of
CGF. Mr. Hayward shall be guaranteed a bonus for fiscal year
1996 of no less than $50,000.
c. Stock Options
i) Mr. Hayward currently holds options to purchase up
to 100,000 shares of CGF common stock. The purchase price
of 65,000 of these shares is $2.88. The purchase price of
35,000 of these shares is $5.25. As of the date of this
Agreement, the purchase price of the $5.25 shares shall be
reduced to $3.62, which is the closing market price of such
common stock on the NYSE as of this date.
ii) Effective this date, CGF shall award Mr. Hayward
an option to purchase up to 28,000 shares of CGF common
stock at a purchase price of $3.62. The option shall vest
immediately, but any stock purchased pursuant to such option
may not be sold or transferred by Mr. Hayward for six months
from the option award date.
iii) CGF shall award Mr. Hayward an option to purchase
up to 172,000 shares of CGF common stock at a purchase price
of $3.62
d. Other Benefits - Mr. Hayward shall receive other
benefits such as vacation, personal and sick leave, insurance and
other benefits consistent with the then-current policies of CGF
and equal to those benefits extended to the most senior
executives of CGF. Mr. Hayward will be provided with office
facilities, secretarial support, and business expense
reimbursement consistent with the policies of CGF with respect to
its most senior executives.
e. Travel - CGF shall provide Mr. Hayward with a non-
business travel allowance of up to $15,000 each fiscal year,
which travel allowance may be utilized at Mr. Hayward's
discretion. There shall be no carryover or accumulation of this
benefit from year to year.
f. Severance - If Mr. Hayward's employment is terminated
for any reason other than Just Cause, CGF shall continue to pay
him an amount equal to his then-current salary, less normal
withholdings, at intervals equal to the salary payments being
received by the other most senior executives of the Company.
Such payments shall continue through July 31, 1999 or the twelve-
month period following the termination, whichever is longer;
provided, however, that if Mr. Hayward becomes an employee,
consultant, or partner of a company or business entity that
directly competes with CGF after the expiration of the waiting
period described in section 10 below, any severance payments will
end as of the date such relationship between Mr. Hayward and the
competing entity effectively commences. For the purpose of this
section, a termination for "Just Cause" shall mean a termination
of employment for any of the following reasons: (i) an
intentional or grossly negligent violation of any reasonable rule
or regulation of the Board of Directors of the Company that
results in damage to the Company or which, after notice to do so,
the actor fails to correct within a reasonable time; (ii) any
willful misconduct or gross negligence in the responsibilities
assigned to the actor; (iii) any wrongful or illegal conduct of
the actor which has an adverse impact on the Company or which
constitutes a material misappropriation of Company assets; or
(iv) the performance of services for any other company, entity,
or person which directly competes with the Company during the
time the actor is employed by the Company, without the written
approval of the Board of Directors of the Company.
g. Relocation - In the event CGF terminates Mr. Hayward's
employment prior to July 31, 1999 for any reason other than Just
Cause, as defined above, CGF shall pay the reasonable cost, not
to exceed $25,000, of moving Mr. Hayward's household possessions
to a destination of Mr. Hayward's choice in or about the Pacific
Northwest region of the mainland United States. For the purposes
of this agreement, "household possessions" shall include a
reasonable and ordinary amount of furniture, clothing, and
personal property used in a single family household, including up
to two automobiles. CGF shall not be responsible for premiums
associated with the shipment of extraordinary items such as fine
art or animals.
4. Representation of Mr. Hayward - Mr. Hayward represents and
warrants that execution or delivery of this Agreement, nor his
performance hereunder will conflict with, or result in a breach
of, any obligation, contract, agreement, covenant or instrument
to which he is a party or prospectively a party.
5. Dispute Resolution - This Agreement shall be interpreted
according to Alaska law. Any disputes arising out of or relating
to this Agreement shall be settled by arbitration held in
Anchorage, Alaska in accordance with the Commercial Rules of the
American Arbitration Association and judgment upon the award
rendered by the arbitrator may be entered in any court having
jurisdiction thereof.
6. Entire Agreement / Modifications - This document constitutes
the entire agreement of the parties with respect to Mr. Hayward's
employment with CGF. It supersedes any prior agreement,
statement or representation. It may be modified only by written
instrument executed by the party against which the modification
is asserted. Failure to require performance of any provision
shall not affect the right at a later time to enforce the same.
No waiver by either party of a breach , whether by conduct or
otherwise, shall be construed as a further or continuing waiver
of any such breach.
7. Severability - Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability with invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any
jurisdiction shall no invalidate or render unenforceable such
provision in any other jurisdiction.
8. Survivability - The rights and obligations of the parties of
the parties to this Agreement under Sections 3(f), 4, 5, 9, and
10 shall survive the termination of this Agreement.
9. Assignability
a) In the event CGF shall merge or consolidate with any
other partnership, limited liability company, corporation, or
business entity or all or substantially all CGF's business or
assets shall be transferred in any manner to any other
partnership, limited liability company, corporation or business
entity, such successor shall thereupon succeed to, and be subject
to, all rights, interests, duties, obligations of, and shall
thereafter be deemed for all purposes hereof to be, CGF
hereunder.
b) This Agreement is personal in nature and none of the
parties hereto shall, without the written consent of the other,
assign or transfer this Agreement or any rights or obligations
hereunder, except by operation of law or pursuant to the terms of
section 10(a) above.
c) Nothing expressed or implied herein is intended or shall
be construed to confer upon or give to any person, other than the
parties hereto, any right, remedy or claim under or by reason of
this Agreement or of any term, covenant or condition hereof.
10. Non-competition - The parties recognize that Mr. Hayward
will have access to trade secrets and proprietary information of
the Company, and they recognize that should such information be
revealed to a competitor, the Company would be materially damaged
in an amount difficult to calculate. Accordingly, Mr. Hayward
agrees that for one (1) year after termination of his employment
with the Company, regardless of the reason for such termination,
he shall not accept employment with, become a contractor to, or
perform any substantially similar role for any person or business
entity that directly competes with the Company.
The parties hereto execute this Agreement as the day and year
first written above.
CARR-GOTTSTEIN FOODS CO. LAWRENCE H. HAYWARD
______________________________
_____________________________
By: John J. Cairns
Chairman of the Board of Directors
29
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