================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
---------------------------------
(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 (I.R.S. Employer
incorporation or organization) 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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<PAGE>
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>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------------------------------------------
Amounts In Thousands
- --------------------------------------------------------------------------------------------------------------------------
Sept. 29, Dec. 31,
1996 1995
- ----------------------------------------------------------------------------------- -------------------- ------------------
<S> <C> <C>
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.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
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, Oct. 1, Sept. 29, Oct. 1,
1996 1995 1996 1995
============================================================== ============== ================= =============== ================
(unaudited) (unaudited)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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.
</TABLE>
2
<PAGE>
<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)
<S> <C> <C>
OPERATING ACTIVITIES:
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>
3
<PAGE>
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.
4
<PAGE>
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.
<TABLE>
<CAPTION>
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
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
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>
5
<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
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
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>
6
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
<TABLE>
<CAPTION>
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>
7
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
<TABLE>
<CAPTION>
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>
8
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
<TABLE>
<CAPTION>
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>
9
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
<TABLE>
<CAPTION>
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>
10
<PAGE>
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.
<TABLE>
<CAPTION>
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>
11
<PAGE>
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.
<TABLE>
<CAPTION>
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>
12
<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.
13
<PAGE>
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.
14
<PAGE>
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.
15
<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.
16
<PAGE>
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
17
<PAGE>
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.
<PAGE>
Employment Contract
Lawrence Hayward
Page 2 of 5
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
<PAGE>
Employment Contract
Lawrence Hayward
Page 3 of 5
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.
<PAGE>
Employment Contract
Lawrence Hayward
Page 4 of 5
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.
<PAGE>
Employment Contract
Lawrence Hayward
Page 5 of 5
CARR-GOTTSTEIN FOODS CO. LAWRENCE H. HAYWARD
JOHN J. CAIRNS LAWRENCE H. HAYWARD
- ------------------------------ -----------------------------
By: John J. Cairns
Chairman of the Board of Directors
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-29-1996
<CASH> 4309
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<RECEIVABLES> 21694
<ALLOWANCES> 276
<INVENTORY> 57181
<CURRENT-ASSETS> 87558
<PP&E> 145003
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<COMMON> 97
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<TOTAL-LIABILITY-AND-EQUITY> 336460
<SALES> 462268
<TOTAL-REVENUES> 462268
<CGS> 334055
<TOTAL-COSTS> 109547
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<INTEREST-EXPENSE> 20819
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