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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: December 29, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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
(State or other jurisdiction of incorporation or organization)
920135158
(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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Common - par value $.01
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Name of each exchange on which registered: New York Stock Exchange
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Securities registered pursuant to section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 7, 1997: $28,026,541
Number of Shares of Common Stock outstanding as of March 24, 1997: 7,930,396.
DOCUMENTS INCORPORATED BY REFERENCE
(To the Extent Indicated Herein)
<PAGE>
CARR-GOTTSTEIN FOODS CO.
INDEX TO ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 29, 1996
PART I
Page
Item 1. Business 1
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Item 2. Properties 6
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Item 3. Legal Proceedings 7
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Item 4. Submission of Matters to a Vote of Security Holders 7
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PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 8
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Item 6. Selected Financial Information and Other Data 9
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Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
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Item 8. Financial Statements and Supplementary Data 13
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Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 13
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PART III
Item 10. Directors and Officers of the Registrant 14
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Item 11. Executive Compensation 15
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Item 12. Security Ownership of Certain Beneficial
Owners and Management 15
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Item 13. Certain Relationships and Related Transactions 16
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PART IV
Item 14. Exhibits, Financial Statement Schedules, Reports on Form 8-K 16
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<PAGE>
Item 1. Business
As used in this annual Report on Form 10-K ("Form 10-K"), unless the
context indicates otherwise, the terms "Company" and "CGF" refer to
Carr-Gottstein Foods Co., a Delaware corporation. Unless otherwise indicated, as
used in this Form 10-K (i) all references to square feet are to gross square
feet, rather than net selling space; (ii) all references to a year shall mean
the fiscal year of the Company which commences in such year (for example, the
fiscal year commencing January 1, 1996 and ending December 29, 1996 is referred
herein as "1996").
The Company
The Company is the leading food and drug retailer in Alaska, with 42
stores primarily located in Anchorage, as well as in Fairbanks, Juneau, Kenai
and other Alaska communities. The Company operates a chain of 15
super-combination food, drug and general merchandise stores under the name Carrs
Quality Centers (the "Carrs Stores"). The Company also operates eight smaller
stores, four under the name Eagle Quality Centers and two under other trade
names (collectively, the "Eagle Stores"), as well as two neighborhood food
stores in smaller Alaska communities. The Company is also Alaska's
highest-volume alcoholic beverage retailer through its chain of 16 wine and
liquor stores operated under the name Oaken Keg Spirit Shops (the "Oaken Keg
Stores"). During 1996 the Company opened three small tobacco stores which
operate under the name The Great Alaska Tobacco Company (the "Tobacco Stores").
In addition, the Company's vertically integrated organization, which includes
freight transportation operations and Alaska's only full-line food warehouse and
distribution center, provides the Company's retail and wholesale operations
important merchandising benefits, cost advantages and operating efficiencies
generally not available to its competitors.
History
The Company's predecessor (the "Predecessor") was formed in 1986 as the
result of a merger of J.B. Gottstein & Co., a retail grocery and wholesale
grocery distributor founded in 1915, and Carrs Quality Centers, an Alaska
grocery store company that commenced operations in 1950. The Company was formed
in 1990 by Leonard Green & Partners, L.P. ("LGA"), for the purpose of acquiring,
through Green Equity Investors, L.P. ("GEI") and with certain members of the
Company's senior management, assets of the Predecessor used in its retail,
wholesale and freight operations. On October 12, 1990, the Company acquired
certain assets of the Predecessor, including real property, and certain
subsidiaries used or held for use in the business and operation of retail food
and liquor stores, food wholesaling and freight operations, and assumed certain
liabilities, pursuant to an acquisition agreement among the Company, the
Predecessor, Laurence J. Carr and Barnard J. Gottstein.
Business Strategy
The Company's business strategy is to enhance its leading market
position in Alaska and to increase revenue and profitability by providing
competitively priced, high-quality grocery and perishable merchandise at
superior levels of customer convenience and satisfaction. The Company believes
it is at the forefront of supermarket industry innovations in customer offerings
and expects to capitalize on its competitive advantages within Alaska. The
Company has devoted significant resources to expand and remodel its
well-established stores to take full advantage of their prime locations. The
Company expects to vigorously pursue opportunities to improve its profitability
through increased efficiencies at both the store and distribution levels,
enhanced systems and cost controls and recently implemented state-of-the-art
electronic marketing programs. Management believes that these efforts to improve
revenue and reduce costs, combined with opportunistic acquisition or
construction of new stores, primarily Eagle Stores in smaller Alaska communities
and, selectively, Carrs Stores, will address the Company's goal of maximizing
profitable growth.
The Company's strategy capitalizes on the following competitive
advantages:
Superior Merchandising Capabilities. The primary objectives of
the Company's merchandising strategy are customer convenience and
satisfaction. Hallmarks of the Company's stores are their variety,
quality and presentation of fresh produce and other perishables offered
together with a wide range of specialty departments and services not
found in conventional supermarkets. The Company believes that freshness
and quality of produce is generally the single most important
determinant for a customer in choosing a supermarket, and that the
freshness, quality, variety and presentation of its perishables are
among the finest in the United States supermarket industry.
<PAGE>
Quality Store Base. Over the past 30 years the Company has
strategically located its stores in prime residential shopping areas
intended to provide maximum accessibility and convenience to customers.
In addition, from 1990 through 1995, the Company has invested in excess
of $100 million to remodel and expand its existing store base and
acquire or construct new stores. Due to the excellent condition of the
current store base, the Company does not expect that significant
capital improvements will be necessary in the foreseeable future.
Vertically Integrated Freight Distribution and Warehouse
Facilities. The Company's freight distribution and warehouse facilities
provide it with distinct competitive advantages in its procurement
costs, quality of perishables and inventory management. The Company is
able to supply merchandise to its Anchorage area stores generally
within 12 hours, six days per week, allowing it to offer fresher
perishables, minimize stock-outs and devote a greater percentage of
store square footage to selling rather than on-site storage space.
Because the Company's competitors rely on distribution facilities
located more than 2,200 miles away, the Company believes that its
competitors experience a five-day or more delay in receiving
merchandise, must use more store square footage for inventory storage
and are not able to match the Company's shipping volume efficiencies.
Furthermore, the economies of scale provided by the Company's
third-party wholesale and freight distribution businesses reduce the
Company's own delivered cost of goods.
State-of-the-Art Electronic Direct Marketing Program. Through
its "Carrs Plus" electronic marketing program, the Company tracks
consumer buying patterns, enabling the Company to optimize its
marketing expenditures. By using a "Carrs Plus" card with their
purchases, customers automatically obtain discounts on various store
items while the Company collects detailed information about consumer
preferences. The Company uses the information generated through its
"Carrs Plus" program to develop targeted direct mail marketing
campaigns, which are typically more cost-effective and successful than
mass mailings or newspaper advertisements.
Merchandising Strategy
The Company's retail merchandising strategy emphasizes shopping
convenience, superlative customer service and high-quality produce, meat and
other perishables. The integration of the Company's retail and distribution
operations is important to the success of its merchandising strategy, as it
allows the Company to offer fresher perishables and experience fewer stock-outs
than its competitors. Key elements of the Company's merchandising strategy
include:
Quality Produce, Meat and other Perishables. Carrs Stores and Eagle
Stores emphasize superior quality produce, meat, seafood and other perishables
in addition to a wide selection of food, drugstore items and general
merchandise. The Company believes that the freshness, quality, variety and
presentation of its perishables are among the finest in the United States
supermarket industry.
Innovative Specialty Departments. A hallmark of the Company's stores is
the variety of innovative specialty departments. A number of Carrs Stores offer
a combination of specialty service meat departments, 59-minute photo developing,
"Orient Express" Chinese and other specialty food take-out counters, service
seafood departments, sushi counters, candy departments, fresh fruit and juice
bars, espresso and ice cream stands, and full-service Bank of America branches.
All Carrs Stores also include full-service pharmacies, floral departments and
service delicatessens. All Carrs Stores and most Eagle Stores include natural
food departments, soup and salad bars, in-store bakeries and video rental
departments. In the Anchorage area, the Company also offers catering services
for large and small events. In addition, the Company is the exclusive ticketing
agent for most major Alaska cultural and sporting events, selling tickets
through its Carrs TixTM outlets in all but one Carrs Store and at certain event
locations.
Competitive Prices. The Company maintains a reputation as the provider
of the best overall supermarket values in Alaska by supplementing its
competitive pricing with targeted temporary price reductions on selected food
and non-food merchandise. The Company's sophisticated information systems and
distribution network give management the flexibility to respond to market
conditions by rapidly adjusting its prices.
Customer Service. The Company distinguishes itself from its competitors
by offering excellent customer service. The Company has adopted operating
policies designed to maximize customer convenience and satisfaction. Checkout
services include price scanning in all stores, acceptance of credit cards and
debit cards, use of the Company's proprietary "Carrs Plus" card, "candy-free"
checkout aisles for customers with young children, and carryout for all
customers with more than one bag. Many Carrs Stores and Eagle Stores feature
special services to assist customers, including baby changing rooms with
complimentary diapers and a service center from which customers can send and
receive faxes, send overnight packages and purchase hunting and fishing licenses
and money orders.
<PAGE>
Store Base
Over the past 30 years the Company has strategically located its stores
in prime residential shopping areas to provide maximum accessibility and
convenience to customers. The Carrs Stores and Eagle Stores are destination
stores that offer customers one-stop shopping convenience in modern,
easy-to-shop formats. Due to the Company's Anchorage distribution center, the
Company's stores are not required to maintain a significant amount of space for
inventory storage and are therefore able to maximize selling area.
Carrs Stores. Carrs Stores are super-combination food, drug and general
merchandise stores. Specialty departments and merchandise mix in each Carrs
Stores are based upon management's review of the location of a store,
demographics of the area surrounding each store and a store's proximity to other
Carrs Stores. The 15 Carrs Stores range from approximately 28,500 total square
feet to approximately 73,000 total square feet, and average approximately 52,000
total square feet.
Eagle Stores and Other Stores. Eagle Stores are designed to serve the
smaller and more rural communities in which they operate by offering a full
range of food items, a variety of non-food and drugstore items and general
merchandise products with a selection of the Company's higher margin specialty
departments. The Eagle Stores range from approximately 16,300 total square feet
to approximately 43,900 total square feet and average approximately 25,600 total
square feet. The Company operates Eagle Stores in Homer, Seward, Valdez,
Unalaska/Dutch Harbor, Nome and Kotzebue. In addition, the Company operates two
smaller neighborhood stores in Big Lake and Seldovia which average approximately
10,000 square feet.
Oaken Keg Stores. The Company is the state's highest-volume alcoholic
beverage retailer. Alaska law does not permit alcoholic beverages to be sold in
grocery stores. Accordingly, a wholly-owned subsidiary of the Company operates a
chain of 16 Oaken Keg Stores. The Company has positioned 14 of the 16 Oaken Keg
Stores adjacent to Carrs Stores to provide convenient access to customers and
generate walk-in traffic. Oaken Keg Stores range in size from 900 total square
feet to 5,300 total square feet.
Tobacco Stores. Tobacco Stores were designed to offer the consumer a
customer friendly environment, in a tightly controlled area, to purchase a full
range of tobacco items including a broad selection of cigars and miscellaneous
accessories. The three Tobacco Stores range in size from 850 total square feet
to approximately 1,500 total square feet.
Store Expansions, Remodels and Additions. From 1990 through 1995, the
Company pursued a program of store expansions and remodels, as well as store
additions through either construction or acquisition. Remodels involve the
addition of specialty departments and cosmetic renovations. Expansions involve
the same type of work as remodels, but include the addition of square footage.
Management believes that the addition or expansion of specialty departments and
services into the Company's stores, combined with the upgrading and enlargement
of core product departments, has led to increased customer traffic and sales
volume and improved store operating performance. In addition, management
believes that providing a broad range of products and services strengthens the
competitive position of its Carrs Stores and Eagle Stores as destination stores
in each of their markets.
In 1995, the Company opened a new 70,000 square foot Carrs Store in
Juneau. In 1994, the Company opened a new 43,920 square foot Eagle Store in
Unalaska/Dutch Harbor. Additionally, in March 1994, the Company acquired two
stores in Nome and Kotzebue from an independent operator and converted them to
Eagle Stores. The Company has several major remodels planned for its Carrs
locations during fiscal 1997 and will continue to search for opportunities to
grow its Eagle Division either through acquisition or new construction.
<PAGE>
Warehouse Facilities and Freight Distribution
Warehouse Operations. The Company's full-line food warehouse and
distribution center in Anchorage is the only facility of its kind in Alaska. The
warehouse and distribution center consists of a 233,000 square foot facility in
Anchorage which supplies approximately 80% of the merchandise sold in the
Company's stores. This facility also contains refrigeration and freezer space
and six state-of-the-industry banana ripening rooms. The Company's computerized
store ordering system allows each individual store to place its own merchandise
orders directly with the warehouse. Special computerized storage and picking
systems track merchandise from point of receiving through point of sale to
ensure precise inventory control and minimize handling costs. The warehouse and
distribution center operates above a 95% fill rate. This efficiency, plus the
proximity of the facility to a significant number of the Company's stores,
enables the Company to respond quickly to store orders and to minimize
stock-outs at its stores.
Freight Operations. The Company operates its own 105,000 square foot
warehouse and cross-dock facility in Tacoma, Washington, which serves as a
collection point for substantially all of the inventory purchased by the Company
in the lower 48 states. At the Tacoma facility, inventory is received, sorted
and logged into the Company's computerized inventory management system. The
Company operates 26 tractors and 550 trailers. This fleet, in addition to
trailers leased as needed on a short-term basis, handles all transportation from
the Company's Tacoma facility to ocean ports, from the Anchorage port to the
Company's warehouse, and most of the transportation from the Company's warehouse
to the Company's retail stores and third-party customers.
Third-Party Wholesale and Freight Services. In addition to supplying
its own stores, the Company utilizes its warehouse and distribution capabilities
to sell grocery and household products on a wholesale basis to customers
throughout Alaska, including other retailers and military commissaries. The
Company believes that this expanded customer base allows it to take advantage of
purchasing and other operating synergies which might otherwise be unavailable to
it. In addition to its warehouse sales, the Company utilizes its existing
shipping and freight handling systems to offer freight services to third
parties. The economies of scale resulting from these third-party sales and
services reduce the Company's own delivered cost of goods.
Competitive Advantages. The Company's freight and warehouse operations
give the Company several logistical and cost advantages relative to its
competition. The Company has developed logistical expertise in long-range
distribution which enables it to service efficiently stores and customers
throughout Alaska, up to approximately 900 miles from its Anchorage warehouse.
The Company manages the inventory for its retail operations and its wholesale
distribution operations on a combined basis. It is able to consolidate van loads
at its Tacoma facility for maximum space efficiency, reducing the number of vans
that must be shipped and the landed cost of the Company's inventory in
Anchorage.
In contrast, the Company's competitors do not have centralized
warehousing and distribution facilities in Alaska and must supply individual
retail sites in Alaska from warehouses in the lower 48 states, more than 2,200
miles from Anchorage. This requires a longer lead time for store orders and
makes it difficult for competitors to match the consistent freshness of the
Company's perishables or its responsiveness to market conditions. Without a
consolidation and distribution center in Alaska, the Company's competitors must
ship vans from the lower 48 states directly to their Alaskan stores, and the
Company believes that the competitors generally have a five-day or more period
from placement of order to receipt of merchandise. Since the Company ships to an
Alaska warehouse where loads can be redistributed for shipment to individual
stores, management believes the Company is able to load vans more efficiently,
reducing the cost of shipment. In order to reduce stock-outs, the Company's
competitors must maintain larger in-store inventories, thereby reducing selling
square footage that could otherwise be devoted to a broader selection of
merchandise.
Marketing and Promotion
The Company's retail advertising strategy is directed primarily at
emphasizing its variety of high-quality perishables, customer service and a
broad selection of nationally advertised brand name products, available at
competitively low prices. The Company markets its retail operations through
newspaper, radio and television advertising and also uses direct mail
advertising, including periodic advertisements, and special season catalogues.
The Company's proprietary "Carrs Plus" card is used by customers for quick check
cashing and video rental, special discounts and bonuses without using coupons.
Through its "Carrs Plus" electronic marketing program the Company tracks
consumer buying patterns, enabling the Company to optimize its marketing
expenditures. The Company uses the information generated through its "Carrs
Plus" program to develop targeted direct mail marketing campaigns which are
typically more cost-effective and successful than mass mailings or newspaper
advertisements. The Company markets its wholesale operations primarily through a
wholesale sales force. The Company also participates actively in local community
affairs through the donation of funds and products to local sporting events and
charities, and it encourages employees to participate in civic groups.
<PAGE>
Management Information Systems
The Company employs sophisticated information technology systems in all
of its stores and distribution operations to improve operating efficiency and
achieve lower costs, particularly in the areas of buying, distribution, scanning
and in-store computing, merchandising and expense management. Management
believes that its commitment to management information systems provides labor
cost savings, better control of prices and increased checkout speed and accuracy
due to improved product procurement, store delivery schedules, inventory
management and pricing accuracy. The Company's information system also handles
real time electronic mail and authorizations for check, debit and credit
payments, and processing for third-party pharmacy authorization. In addition,
the Company uses scanner-generated information by store of individual product
sales for better merchandising of stores, tighter inventory control and better
space allocation.
All Company stores and a majority of the Company's independent
wholesale customers place orders via hand-held TelxonTM terminals. Such orders
can be processed by the warehouse within the hour. The Company developed and
maintains a warehouse inventory tracking and productivity improvement system to
manage all of the Company's warehouse inventory levels. This system includes
inventory control and labor management components that help reduce product cost
and maximize the Company's ability to service customers. This system also tracks
inventory that is "on the water" during ocean transport from Washington to
Alaska. Sophisticated logistics systems anticipate inventory needs and recommend
product moves between the Tacoma and Anchorage sites. Central purchasing and a
proprietary forward-buying system provide the Company with purchasing power that
helps minimize product acquisition costs.
During the first quarter of 1996, the Company completed the process of
replacing its 4381 IBM mainframe computer with the installation of its new
purchasing and financial system ("Project Fusion") that was designed to improve
operating efficiencies and help streamline the Company's administrative
operations. Project Fusion will allow the Company to support modern database
tools and client/server technology. The Company believes that this new flexible
systems environment will enable it to respond more rapidly to business
opportunities and competitive situations as a result of better utilization of
management information data.
Trademarks and Licenses
The Company employs various trademarks, trade names and service marks.
Certain governmental licenses and permits, including alcoholic beverage
licenses, health permits and various business licenses, are necessary to
operations. Management believes that the Company holds and is in material
compliance with all necessary licenses and permits.
Competition
The food, drug and general merchandise retail businesses are highly
competitive. The principal competitive factors in the Alaska market include
quality of products, customer service, product assortment, price, store location
and convenience. The Company believes that its competitive strengths include its
high-quality perishables, customer service, specialty departments, low prices,
variety of product offering, convenient store locations and long history of
community involvement. The Company believes that its freight network and
Anchorage warehouse and distribution center also provide significant competitive
advantages.
<PAGE>
Given the wide assortment of products its stores offer, the Company
competes with various types of retailers, including independent and national
supermarket operators, retail drug chains, national general merchandisers and
discount retailers and membership wholesale clubs. The Company's principal
competitors in the supermarket business include Safeway, Fred Meyer, Alaska
Commercial, a number of independent supermarket operators, and four military
commissaries. The Company's primary competitors for general merchandise are Fred
Meyer, Kmart and Wal-Mart, and Costco and Sam's Club membership warehouse
stores. The pace of new store openings and store expansions has slowed
considerably since April 1994 and, to the Company's knowledge, other than one
small independent store scheduled to open during the first half of 1997 in
Anchorage, no other new competitive openings are scheduled or have been
announced, there can be no assurance that other competitors will not either
expand or begin operations in Alaska.
Alaska Economy
Historically, Alaska had been one of the more rapidly growing states in
the United States in terms of both population and employment, although
employment growth has slowed recently. The Alaska Department of Labor had
projected growth in Alaska's population from approximately 553,000 in 1990 to
approximately 716,000 in 2000, a compound annual growth rate of approximately
2.6% compared to the estimated national population growth rate of approximately
1.0% for that period. Employment in Alaska, which grew 0.5% in 1996, is
projected to remain fairly flat over the next few years. Alaska's residents are
not subject to any state sales or income taxes and receive annual distributions
from the state of Alaska Permanent Fund, a fund of approximately $20 billion
that is supported by royalties from oil production. The distribution totaled
$643 million ($1,130 per eligible resident) in Alaska's fiscal year ended June
30, 1996.
The traditional strengths of the Alaska economy have been petroleum,
fishing, forest products and mining industries. Military and government
spending, as well as tourism, have also been major contributors to the state's
economy. Military and government spending provide a stimulus to the state's
economy through payroll and benefit payments and capital spending on
transportation and other infrastructure. In recent years, tourism has become an
increasingly important contributor to the Alaska economy.
Employees
As of March 1, 1997, the Company employed a total of approximately
3,300 people, approximately 2,400 of whom are covered by collective bargaining
agreements. Certain employees engaged in the Company's warehouse operations are
represented by the Teamsters Union, grocery store and administrative employees
are represented by the United Food and Commercial Workers Union ("UFCW"), and
pharmacists are represented by the Alaska State District Council of Laborers.
The Company has not experienced a labor strike since 1971 and believes its
relations with its employees to be satisfactory.
On July 24, 1996, the Company entered into a three-year labor agreement
covering approximately 2,000 grocery store employees represented by the UFCW. On
December 1, 1996, the Company entered into a three-year contract with the UFCW
covering its administrative employees and on February 28, 1997, the Company
entered into a three-year agreement with the Teamsters Union covering its
Anchorage warehouse and distribution employees. The two latter contracts provide
for pay increases over their terms.
Item 2. Properties
The Company owns eight neighborhood shopping centers. Five centers are
located within the Anchorage area, and each is anchored by a Carrs Store. The
other centers are located in Homer, Valdez, and Unalaska/Dutch Harbor and are
anchored by Eagle Stores. These eight centers include an aggregate of
approximately 491,000 square feet of retail space, approximately 347,000 square
feet of which is occupied by the Company's grocery and liquor stores and
approximately 144,000 square feet of which is leased to retail tenants.
<PAGE>
In addition to its shopping centers, the Company owns five stand-alone
supermarkets, one each in Anchorage, Fairbanks, Juneau, Seward, and Nome. The
Anchorage, Fairbanks, and Juneau facilities include adjacent Oaken Keg Stores.
The Company owns a supermarket in Ketchikan, Alaska, which is part of a shopping
center owned by an unaffiliated party. The Company owns its warehouse and
distribution center in Anchorage (approximately 233,000 square feet), its
cross-dock and warehouse facility in Tacoma, Washington (approximately 105,000
square feet with associated truck yard), an office building in Anchorage
(approximately 9,300 square feet), and one stand-alone Oaken Keg Store in
Fairbanks. The Company owns a small village store located in Seldovia, Alaska.
The Company leases five Carrs Stores, six Oaken Keg Stores and its two
headquarters buildings from general partnerships controlled by the former owners
of the Predecessor. The Company leases one Carrs Store, two Oaken Keg Stores and
two neighborhood stores from unaffiliated landlords.
The remaining terms for all leased Carrs Stores locations, except one,
exceed 20 years, including renewal options. The lease term of one Carrs location
in Anchorage expired in 1996, and negotiations are underway to extend that term.
The lease term of one Oaken Keg location exceeds twenty years, and one expires
in 2015. The lease term of one Oaken Keg expires in each of 2001, 2000, 1999 and
1998. Two Oaken Keg Stores are currently on month-to-month lease terms while new
long-term leases are being negotiated. The lease for the Kotzebue Eagle Store
expires in 1998, and the Company has four two-year options to extend the lease
terms. The Company's lease for its neighborhood store in Big Lake expires in
1998.
Most of the properties owned in fee by the Company are collateral for
approximately $42.5 million principal amount of first mortgage financing that
matures in June 2001. Certain of the Company's leased properties are collateral
for the Company's $130 million bank facility.
The Company is subject to federal, state and local laws and regulations
that impose liability for cleaning up past or present releases of pollutants to
the environment. In this regard, the Company has performed remedial
investigations and cleanup activities with respect to contamination from
underground storage tanks at certain of its properties. One such situation
remains pending at the present time. Management believes that any liability
relating to that situation will not have a material adverse impact on the
financial condition, results of operations or business of the Company.
Item 3. Legal Proceedings
The Company is a party to a number of legal proceedings in the ordinary
course of business. Management believes that these proceedings will not, in the
aggregate, have a material adverse impact on the financial condition, results of
operations or business of the Company.
A subsidiary of the Company, AOL Express ("AOL"), operates a warehouse
and cross-dock facility near the Port of Tacoma, Washington. In 1981, the United
States Environmental Protection Agency ("EPA") designated the bottom of
Commencement (Tacoma) Bay (the "Bay") as a site to be cleaned up under the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA").
In 1989, the EPA named as potentially responsible parties ("PRPs") over 130
parties, including AOL, that own property located along the Bay or on storm
sewer systems that discharge into the Bay. The agency divided the Bay into
several areas and intends to negotiate cleanup responsibilities separately with
those PRPs in each area. The cleanup costs for the area to which AOL has been
assigned have been estimated preliminarily to range from $8 million to $13.8
million. The EPA announced that it has named too many PRPs to discuss dismissal
or settlement with any single party. The Company therefore joined with
approximately 40 other PRPs who claim to have contributed little or nothing
toward the contamination of the Bay (the "Minor PRPs Group"). The Minor PRP
Group is currently working with a group of large, industrial PRPs to create a
privately mediated allocation of liability. No assurance can be given that a
private allocation of liability will be agreed upon or, if agreed upon, that it
will be acceptable to the Company. The Company has commissioned environmental
investigations of its Tacoma facility site and operations, and, based on these
investigations, management believes that the Company is not responsible for the
contamination that is the subject of these proceedings. Accordingly, the Company
has made no accrual for liability in connection with this action. It will
continue to seek its dismissal from the action, directly, through the Minor PRP
Group, and through the allocation mediation. While there can be no assurance
that the Company will be dismissed from these proceedings and an estimate of the
portion (if any) of the cost allocable to the Company is uncertain, based on the
Company's findings to date, the Company believes that any costs or liability
resulting from this action will not have a material adverse impact on the
financial condition, results of operations or business of the Company.
Item 4. Submissions of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 29, 1996.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholders Matters.
The Company's Common Stock is traded on the New York Stock Exchange
under the symbol CGF. The quarterly high and low closing sale prices for the
Common Stock as reported on the New York Stock Exchange during 1994, 1995 and
1996 are as follows:
<TABLE>
<CAPTION>
High Low
1994 ------- -------
<S> <C> <C>
First quarter ....................................................... $10.63 $ 7.38
Second quarter ...................................................... $ 8.13 $ 5.50
Third quarter ....................................................... $ 7.75 $ 5.75
Fourth quarter ...................................................... $ 7.88 $ 5.88
1995
First quarter ....................................................... $ 6.75 $ 5.88
Second quarter ...................................................... $ 5.88 $ 5.75
Third quarter ....................................................... $ 6.88 $ 6.00
Fourth quarter ...................................................... $ 8.50 $ 5.13
1996
First quarter ....................................................... $ 5.63 $ 4.50
Second quarter ...................................................... $ 5.13 $ 4.13
Third quarter ....................................................... $ 4.38 $ 3.63
Fourth quarter ...................................................... $ 4.13 $ 3.38
1997
First quarter (through March 21, 1997) ............................. $ 6.38 $ 3.63
</TABLE>
As of March 21, 1997, the number of stockholders of record of
the Company's Common Stock was 238.
The Company has not declared or paid cash dividends to its
stockholders. The Company anticipates that all of its earnings in the near
future will be used for debt repayments or be retained for the development and
expansion of its business and, therefore, does not anticipate paying dividends
on its Common Stock in the foreseeable future. Declaration of dividends on the
Common Stock will depend, among other things, upon the level of indebtedness,
future earnings, the operating and financial conditions of the Company, its
capital requirements and general business conditions. The agreements governing
the Company's indebtedness contain provisions which prohibit the Company from
paying dividends on its Common Stock. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity and Capital
Resources."
On October 13, 1995 the Company announced a tender offer for 7.5
million shares of Common Stock at $11.0 per share, approximately 50% of the
Company's outstanding Common Stock. The tender offer was completed on November
15, 1995 and the Company repurchased and retired 7.5 million shares of Common
Stock at a cost $82.5 million plus $750,000 of expenses. The tender offer was
financed through the issuance of $100 million principal amount of unsecured
senior subordinated notes. In addition to financing the tender offer, the
proceeds from the sale of the notes were used to repay a portion of the debt
outstanding under the Company's existing credit facility and to pay fees and
expenses of $8.3 million for the issuance of the notes and to amend and restate
the Company's existing credit facility. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity and Capital
Resources."
<PAGE>
<TABLE>
<CAPTION>
Item 6. Selected Financial Information and Other Data.
(1)
(Amounts in Thousands, except for per share Fiscal year Fiscal year Fiscal year Fiscal year Fiscal year
and store information) 1996 1995 1994 1993 1992
- ---------------------------------------------- ---------------- -------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Operating Results:
Sales $ 612,576 $ 601,322 $ 577,063 $ 555,266 $ 556,549
Cost of merchandise sold, including
warehousing and transportation expenses (2) 442,996 431,230 417,183 396,080 400,048
Gross profit 169,580 170,092 159,880 159,186 156,501
Operating and administrative expenses (2) 144,525 141,884 130,255 131,313 125,427
Operating income 25,055 28,208 29,625 27,873 31,074
Interest expense, net 27,923 16,079 12,210 19,327 27,231
Income (loss) before extraordinary item and
cumulative effect of change
in accounting for income taxes (2,810) (4) 4,650 9,211 (3) 4,244 972
Net income (loss) (2,810) 3,744 9,211 (14,581) 2,007
=============== ============== =============== ============== ===============
Other Data:
Depreciation and amortization 17,702 17,626 15,690 18,294 19,977
Compensation expense stock options (5) - 1,518 - - -
Cash interest 26,484 15,558 12,143 18,680 25,549
Income (Loss) Per Share:
Before extraordinary items $ (0.36) $ 0.32 $ 0.55 $ 0.30 $ 0.09
Net income (loss) $ (0.36) $ 0.26 $ 0.55 $ (1.03) $ 0.18
Weighted average shares outstanding 7,814 (6) 14,457 16,763 14,139 11,390
Financial Position:
Total assets 330,844 336,620 326,369 308,912 297,630
Long-term debt,
excluding current maturities 227,640 234,740 136,339 137,456 190,844
Stockholders' equity 29,598 32,302 112,636 113,366 50,323
Capital expenditures $ 4,390 $ 16,660 $ 26,473 $ 27,949 $ 9,827
Other Year End Statistics:
Number of stores 42 39 36 33 32
Number of employees 3,243 3,568 3,597 3,525 3,560
</TABLE>
(1) The Company's fiscal year is a 52 or 53 week year, ending on the Sunday
closest to the calendar year-end. All fiscal years presented consist
of 52 weeks, except for fiscal year 1992 which consist of 53 weeks.
(2) Reclassifications have been made to fiscal years 1992 through 1995. During
these years, warehousing, transportation and the related occupancy costs
were originally reported as operating and administrative expenses. For the
current years presentation, these expenses have been classified as cost of
sales.
(3) In fiscal year 1993 extraordinary item consisted of a $21,100 ($1.49 per
share) charge resulting from early retirement of debt.
(4) In fiscal year 1995, extraordinary item consisted of a $906 ($0.06 per
share) charge resulting from early retirement of debt.
(5) In 1995, the Company recognized a one time pre-tax charge of $1.5
million for non-cash expenses associated with the restructuring of a
management stock option incentive plan.
(6) On November 15, 1995 the Company repurchased and retired 7,500 shares of
common stock. This repurchase reduced the weighted average shares for
fiscal year 1995 by approximately 800 shares.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
In recent years, Alaska, primarily the greater Anchorage area, has
attracted an increased presence of existing and new competitors, including
supermarkets, general merchandisers, discount retailers and warehouse membership
club stores. The Company has addressed the competition by remerchandising
certain general merchandise categories and by continuing its aggressive capital
expenditure program to remodel existing stores and establish additional stores
in new regions of Alaska. From 1993 through 1995, 13 of the 15 Carrs Stores have
been remodeled or expanded, and two new Carrs Stores and three new Eagle Stores
have been added.
The table below sets forth certain income statement components as a percentage
of sales.
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Sales ........................................................ 100.0% 100.0% 100.0%
Cost of merchandise sold, including warehousing
and transportation expenses............................. 72.3 71.7 72.3
Gross profit.................................................. 27.7 28.3 27.7
Operating and administrative expenses......................... 23.6 23.6 22.6
---- ---- ----
Operating income.............................................. 4.1 4.7 5.1
=== === ===
</TABLE>
Results of Operations
Fiscal 1996 Compared to Fiscal 1995
Sales. Sales for fiscal 1996 were $612.6 million compared to $601.3
million for fiscal 1995. The 1.9% increase was due primarily to increases in
Eagle Stores sales as well as sales improvements from the wholesale and freight
divisions. The increase in sales for 1996 reflects a 0.1% decrease and a 2.9%
increase in comparable store sales for the Carrs Stores and Eagle Stores,
respectively.
Gross Profit. Gross profit for fiscal 1996 was $169.6 million compared
to $170.1 million for fiscal 1995. The decrease in gross margin dollars is
primarily attributable to the increased promotional spending associated with the
kick-off of the Carrs Plus "Swipe the Gold, Save the Green" electronic marketing
campaign which impacted the first three quarters of 1996. As a percentage of
sales, gross profit was 27.7% for fiscal 1996 as compared to 28.3% for fiscal
1995. Gross profit as a percentage of sales for fiscal 1996 decreased as a
result of the increased promotional spending during the first three quarters of
1996 and an overall increase in third party wholesale and freight business sales
mix, generating a lower gross profit margin.
Operating and Administrative Expenses. Operating expenses for fiscal
1996 were $144.5 million compared to $141.9 million for fiscal 1995. Operating
expenses as a percentage of sales were 23.6% for each of fiscal 1996 and fiscal
1995. The increase in operating expenses reflects expenses associated with the
new Carrs Store opened in March 1995, as well as increased expenses associated
with the Company's "Fusion" corporate reengineering project which was designed
to bring operating efficiencies and improvements to the backstage side of the
business.
Operating Income. Operating income for fiscal 1996 was $25.1 million
compared to $28.2 million for fiscal 1995. The decrease was due primarily to the
increased promotional expenses associated with the Carrs Plus electronic
marketing campaign, increased expenses associated with the Company's "Fusion"
project and increases in depreciation and amortization.
Other Income and Expense. Net interest expense was $27.9 million for fiscal
1996 compared to $16.1 million for fiscal 1995. The increase in interest expense
reflects increased borrowings associated with the financing of the Company's
tender offer for approximately 50% of its outstanding stock in November 1995.
See "Liquidity and Capital Resources."
<PAGE>
Income Taxes. Income tax expense for fiscal 1996 was $30,000 compared
to $5.2 million (a 52.8% effective tax rate) for fiscal 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 was $2.8 million, or $0.36 per share, for
fiscal 1996, compared to net income before extraordinary items of $4.7 million,
or $0.32 per share, for fiscal 1995. An extraordinary charge of $1.5 million
($0.9 million, or $0.06 per share, on an after-tax basis) was recorded during
1995 as a result of the early retirement of debt. After giving effect to the
extraordinary charge, net income for 1995 was $3.7 million, or $0.26 per share.
The net income for fiscal 1995 reflects a $2.2 million pre-tax non-recurring
charge (or $0.09 per share on an after-tax basis) for expenses associated with a
sale/leaseback transaction that the Company elected not to pursue.
Fiscal 1995 Compared to Fiscal 1994
Sales. Sales for fiscal 1995 were $601.3 million compared to $577.1
million for fiscal 1994. The 4.2% increase was due in part to a new Carrs Store
opened in March 1995 coupled with results from three new Eagle Stores and the
new institutional food service business that were opened or acquired late in the
first quarter of 1994. The increase in sales for 1995 reflects a 0.4% and 4.2%
increase in comparable store sales for the Carrs Stores and Eagle Stores,
respectively.
Gross Profit. Gross profit for fiscal 1995 was $170.1 million compared
to $159.9 million for fiscal 1994. The increase in gross margin dollars is
partially attributable to the increase in sales resulting from the increase in
comparable store sales and the new Carrs Store opened in March 1995. As a
percentage of sales, gross profit was 28.3% for fiscal 1995 as compared to 27.7%
for fiscal 1994. Gross profit as a percentage of sales for fiscal 1995 increased
as a result of improved operating results from existing specialty departments
and the addition of new specialty departments, together with a higher overall
gross margin in the wholesale operations resulting primarily from the
acquisition of YES Foods which was acquired late in the first quarter of 1994.
Operating and Administrative Expenses. Operating expenses for fiscal
1995 were $141.9 million compared to $130.3 million for fiscal 1994. Operating
expenses as a percentage of sales were 23.6% for fiscal 1995 compared to 22.6%
for fiscal 1994. The increase in operating expenses reflects expenses associated
with the new Carrs Store opened in March 1995, as well as the three additional
Eagle Stores and the new institutional food service business which were acquired
or opened late in the first quarter of 1994.
Operating Income. Operating income for fiscal 1995 was $28.2 million
compared to $29.6 million for fiscal 1994. This decrease was due primarily to a
one time pre-tax charge of $1.5 million for non-cash expenses associated with
the restructuring of a management stock option incentive plan coupled with an
increase in depreciation expense partially offset by improvement in the gross
profit margin discussed above as well as continued reductions in selling,
general and administrative expenses. The increase in depreciation expense was
the result of the new Carrs Store added in March 1995 coupled with the three
additional Eagle Stores and the new institutional food service business which
were acquired or opened late in the first quarter of 1994.
Other Income and Expense. Net interest expense was $16.1 million for
fiscal 1995 compared to $12.2 million for fiscal 1994. The increase in interest
expense reflects both higher interest rates on borrowed funds in the current
year and increased borrowings associated with the financing of the Company's
tender offer for approximately 50% of its outstanding stock in November 1995
stock repurchase plan. See "Liquidity and Capital Resources." Additionally, in
September 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 fiscal 1995 was $5.2 million (a
52.8% effective tax rate) compared to $8.2 million (a 47.1% effective tax rate)
for fiscal 1994. The high effective tax rates resulted from the amortization of
intangible assets for which no tax benefit was available.
Net Income. Net income before extraordinary items was $4.7 million, or
$0.32 per share, for fiscal 1995, compared to net income of $9.2 million, or
$0.55 per share, for fiscal 1994. An extraordinary charge of $1.5 million ($0.9
million, or $0.06 per share, on an after-tax basis) was recorded during 1995 as
a result of the early retirement of debt. After giving effect to the
extraordinary charge, net income was $3.7 million, or $0.26 per share. The net
income for fiscal 1995 includes a $2.2 million pre-tax non-recurring charge (or
$0.09 per share on an after-tax basis) for expenses associated with a
sale/leaseback transaction that the Company elected not to pursue.
<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 $22.2 million for fiscal
1996 compared to $17.1 million for fiscal 1995 and $30.1 million for fiscal
1994. The fiscal 1996 increase compared to fiscal 1995 was due primarily to the
one-time charge in 1995 for expenses associated with a sale/leaseback
transaction that the Company elected not to pursue. The balance of the changes
is due to higher inventory balances offset by increases in accrued payables and
expenses.
The Company spent an aggregate of $4.4 million, $16.7 million and $26.5
million on capital expenditures, during fiscal 1996, 1995 and 1994 respectively.
During fiscal 1996 the Company completed its "Fusion" corporate reengineering
program and opened three new Tobacco Stores. Management anticipates that capital
expenditures for fiscal 1997 will be approximately $5.0 to $8.0 million, the
majority of which will be spent for maintenance capital improvements.
The table below summarizes year-end historical remodels, expansions and
new store information, as well as added selling square footage resulting from
expansions and new stores, for the period from 1990 through December 1996. Due
to the Company's substantial investment in the store base since 1990, the
Company does not expect that significant capital improvements will be necessary
in the foreseeable future.
<TABLE>
<CAPTION>
Number of stores Total selling
--------------------------------------------
Remodels Expansions New Stores square feet added Total selling square feet
---------- ----------- ---------- ----------------- -------------------------
Year Carrs Eagle Carrs Eagle Carrs Eagle Carrs Eagle Carrs Eagle
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1990 3 1 -- -- -- -- -- -- 407,446 44,076
1991 7 -- -- 1 -- -- -- 5,240 407,446 49,316
1992 -- -- 2 -- -- -- 38,581 -- 446,027 49,316
1993 5 2 2 -- 1 -- 50,450 -- 496,477 49,316
1994 3 -- 2 -- -- 3 5,320 67,184 501,797 116,500
1995 -- -- 1 -- 1 -- 43,976 -- 545,773 116,500
1996 -- -- -- -- -- -- -- -- 545,773 116,500
</TABLE>
Net cash used by financing activities was $12.3 million for fiscal
1996. 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 expenditure requirements.
On November 15, 1995 the Company completed a cash tender offer in which
it purchased 7.5 million shares of previously outstanding common stock at $11.0
per share. In conjunction with the tender offer, the Company completed the
issuance of $100 million principal amount of unsecured senior subordinated
notes. In addition to financing the tender offer, the net proceeds from the sale
of the notes were used to repay a portion of the debt outstanding under the
Company's existing credit facility and to pay fees and expenses associated with
the offering of the notes, the tender offer and the amendment and restatement of
the Company's existing credit facility.
Concurrently with the consummation of the tender offer, the Company
amended and restated its credit facility (the "New Credit Facility"). The New
Credit Facility provides for (i) two term loan facilities, a $35.0 million
facility maturing on June 30, 2001 and a $60.0 million facility maturing on
December 31, 2002, and (ii) a revolving credit facility of $35.0 million
expiring on June 30, 2001. The revolving credit facility and the $35.0 million
term loan bears interest at an annual rate equal to the lender's base rate plus
1.5% or the reserve-adjusted Eurodollar rate plus 2.5%, at the Company's option,
and the $60.0 million term loan bears interest at an annual rate equal to the
lender's base rate plus 2% or the reserve-adjusted Eurodollar rate plus 3%, at
the Company's option. Interest rates on the revolving credit facility and the
$35.0 million term loan are subject to reduction by up to .75% in the event the
Company meets certain financial tests.
<PAGE>
The principal amount of the $35.0 million term loan and $60.0 million
term loan is required to be amortized commencing on June 30, 1996. Scheduled
amortization payments under the $35.0 million term loan is $5.0 million in 1996,
$7.0 million in each of 1997, 1998 and 1999, $5.0 million in 2000 and $4.0
million in 2001. Scheduled amortization payments under the $60.0 million term
loan are $600,000 in 1996, 1997, 1998, 1999 and 2000, $15.0 million in 2001 and
$42.0 million in 2002. Availability under the revolver will be reduced by $5.0
million on each of December 31, 1999 and 2000.
At December 29, 1996 there was $7.0 million outstanding on the
Company's revolving credit facility. The Company had available unused credit of
$28.0. Funds borrowed under the revolving credit portion of the New Credit
Facility are restricted to working capital and general corporate purposes.
Inflation. As is typical of the supermarket industry, the Company has
adjusted its retail prices in response to inflationary trends. Competitive
conditions may from time to time limit the Company's ability to increase its
prices as a result of inflation.
New Accounting Pronouncements. Statement of Financial Accounting
Standard No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, was issued in June 1996 and is effective for the
Company as of January 1, 1997. This statement provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities based on consistent application of a financial-components approach
that focuses on control. It distinguishes transfers of financial assets that are
sales from transfers that are secured borrowings. Management of the Company does
not expect that adoption of SFAS No. 125 will have a significant impact on the
Company's financial position, results of operations, or liquidity.
Item 8. Financial Statements and Supplementary Data.
See the Index to Consolidated Financial Statements at page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
<PAGE>
PART III
Certain information required by Part III is omitted from this Report as
CGF will file a definitive proxy statement pursuant to Regulation 14A (the
"Proxy Statement") not later than 120 days after the end of the fiscal year
covered by this Report, and certain information included therein is incorporated
herein by reference. Only those sections of the Proxy Statement which
specifically address the items set forth herein are incorporated by reference.
Such incorporation does not include the Compensation Committee Report or the
Performance Graph included in the Proxy Statement.
Item 10. Directors and Executive Officers of the Registrant
John J. Cairns, 69, is the current Chairman of the Board of CGF. He
joined Carr-Gottstein Inc., CGF's predecessor, in 1981 and served as General
Manager, Executive Vice President, Chief Operating Officer, Secretary, and a
director until the sale of its operating assets to CGF in 1990. From 1990 until
1993, Mr. Cairns served as President of CGF and served as Chairman of the Board
of Directors of CGF. In 1993, he was made Chief Executive Officer upon the
creation of that position. In September, 1994, Mr. Cairns retired from his
position as Chief Executive Officer. Mr. Cairns continues to serve as Chairman
and is employed by the Company on a part-time basis to assist the Chief
Executive Officer on special projects and matters of strategic planning. Prior
to joining CGF's predecessor, Mr. Cairns held various operating ,
administrative, and executive positions with the Great Atlantic and Pacific Tea
Company from 1943 to 1978 and served as Vice President-Corporate Development and
a director of Smith Management Corporation, a regional retail food operator in
Salt Lake City, from 1978 to 1981. Mr. Cairns currently serves on the Board of
Directors of Western Association of Food Chains, Inc.
Mark R. Williams, 48, is the current Vice-Chairman of the Board of CGF.
He joined the Company's predecessor in 1976 as a store manager and was later
promoted to Vice President of Operations. He became Chief Operating Officer and
a director of CGF in 1990 and was promoted to President in 1993. In September,
1994, Mr. Williams was promoted to Chief Executive Officer and served in that
position until his retirement in August 1996. Mr. Williams has more than 24
years of experience in the retail food business. Prior to joining CGF's
predecessor, he was store manager with Supermarkets Interstate and Fred Meyer,
Inc. in Seattle.
Lawrence H. Hayward, 42, is President and Chief Executive Officer of CGF.
He joined the Company in March 1995 as its Senior Vice President and Chief
Operating Officer and was promoted to President and Chief Executive Officer in
August 1996. From 1990 to 1995, Mr. Hayward was employed by Buttrey Food and
Drug Co. as Vice President for Distribution/Transportation, Vice President for
Support Services and then Vice President of Store Operations. Mr. Hayward
currently serves on the Board of Directors of Western Association of Food
Chains, Inc.
Donald J. Anderson, 36, is Senior Vice President, Chief Financial
Officer and Secretary of CGF. He joined the Company in his present position in
April 1995. Mr. Anderson has 20 years of experience in the grocery industry.
From 1977 to 1994, he served in various positions with Buttrey Food and Drug
Co., including Director of Financial Reporting, Corporate Controller, and Vice
President. In 1994, Mr. Anderson returned to American Stores Corporate were he
was Program Manager for the financial portion of a multi-million dollar
re-engineering program.
Jeff L. Philipps, 41, is Senior Vice President Retail Division of CGF. He
joined the Company in his present position in February 1997. Mr. Philipps has
more than 20 years of experience in the retail food business. Prior to joining
CGF Mr. Philipps served as the Director of Business Development for the National
Procurement Organization at American Stores Company headquartered in Salt Lake
City, Utah.
<PAGE>
Leonard I. Green, 63, has served as a director of the Company since
1990. Since 1989, he has been, individually or through a corporation, a partner
of LGA, a merchant banking firm that is the general partner of GEI. Since 1994,
Mr. Green has also been an executive officer and equity owner of Leonard Green &
Partners, L.P. ("LGP"), a second merchant banking firm that manages another
investment fund. Before forming LGA in 1989, Mr. Green had been a partner of the
merchant banking firm of Gibbons, Green, van Amerongen for more than five years.
Mr. Green is also a director of Horace Mann Educators Corp., Rite-Aid
Corporation and several private companies.
Jonathan D. Sokoloff, 39, has been a director of the Company since 1990. He
joined LGA as a partner in 1990. Mr. Sokoloff has also been an executive officer
and equity owner of LGP since its formation in 1994. Mr. Sokoloff was previously
a managing director in corporate finance at Drexel Burnham Lambert Incorporated.
Mr. Sokoloff is also a director of Twin Laboratories, Inc. and several private
companies.
Gregory J. Annick, 33, has been a director of the Company since 1990.
He joined LGA as an associate in 1989, became a principal in 1993, and through a
corporation became a partner in 1994. Since 1994, Mr. Annick has also been an
executive officer and equity owner of LGP. From 1988 to 1989, he was an
associate with the merchant banking firm of Gibbons, Green, van Amerongen.
Before that time, Mr. Annick was a financial analyst in mergers and acquisitions
with Goldman, Sachs & Co. Mr. Annick is also a director of several private
companies.
E. Dean Werries, 67, became a director of CGF in 1994. From 1989 to 1994,
Mr. Werries served as Chairman of the Board of Fleming Companies, Inc. He joined
Fleming in 1955 and held various positions within that company through 1988,
when he was appointed President and Chief Executive Officer. In 1994, Mr.
Werries retired as Chairman. He currently serves as a Chairman of the Board of
Sonic Corp.
Donald E. Gallegos, 62, became a director of CGF in 1994. He is
currently the President of King Soopers, a retail grocery chain owned by Kroger,
Inc. On April 1, 1997, after serving seven years as President, Mr. Gallegos will
retire from that position and become Chairman of the Executive Committee. Mr.
Gallegos held various positions with King Soopers prior to being appointed
Senior Vice President of King Soopers in 1982 and then President in 1990.
To the best of CGF's knowledge, based solely upon review of the copies
of such reports furnished to CGF and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to its
officers, directors, and greater than ten-percent shareholders were complied
with during the fiscal year ended December 29, 1996.
Item 11. .........Executive Compensation
The information required by this Item is included under the captions
"Executive Compensation" in the Proxy Statement.
Item 12. .........Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is included under the caption
"Ownership of Voting Securities By Certain Beneficial Owners and Management" in
the Proxy Statement.
<PAGE>
Item 13. Certain Relationships and Related Transactions
The information required by this Item is included under the caption
"Certain Transactions" in the Proxy Statement.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1 Financial Statements - See Index to Consolidated Financial
Statements at page F-.1
(a) 2 Financial Statement Schedule - none
(a) 3 Exhibits - See Index to Exhibits immediately following page S-1.
(b) No reports on Form 8-K were filed during the fourth quarter of
the fiscal year ended December 29, 1996.
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 28th day of
March, 1997.
CARR-GOTTSTEIN FOODS CO.
By: /S/ Lawrence H. Hayward
----------------------------------------
Lawrence H. Hayward, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 28th day of March, 1997.
PRINCIPAL EXECUTIVE OFFICERS DIRECTORS
(AND DIRECTORS)
/S/ Leonard I. Green
-----------------------
/S/ Lawrence H. Hayward Leonard I. Green
- ----------------------------------------
Lawrence H. Hayward, President and Chief
Executive Officer
/S/ Jonathan Sokoloff
-----------------------
Jonathan Sokoloff
PRINCIPAL FINANCIAL OFFICER
and ACCOUNTING OFFICER
/S/ Gregory Annick
-----------------------
Gregory Annick
/S/ Donald J. Anderson
- -------------------------------------------
Donald J. Anderson, Chief Financial Officer
and Accounting Officer
/S/ John J. Cairns
-----------------------
John J. Cairns
/S/ Mark R. Williams
-----------------------
Mark R. Williams
/S/ E. Dean Werries
-----------------------
E. Dean Werries
/S/ Donald Gallegos
----------------------
Donald Gallegos
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Index to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Page
----
Independent Auditors' Report F-2
.........................................................
Consolidated Statements of Operations for the years ended
December 29, 1996, December 31, 1995 and January 1, 1995 F-3
.........................................................
Consolidated Balance Sheets as of December 29, 1996 and
December 31, 1995 F-4
.........................................................
Consolidated Statements of Stockholders' Equity for the
years ended December 29, 1996, December 31, 1995,
January 1, 1995 F-5
.........................................................
Consolidated Statements of Cash Flows for the years ended
December 29, 1996, December 31, 1995, and January 1, 1995 F-6
.........................................................
Notes to Consolidated Financial Statements F-7
.........................................................
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Independent Auditors' Report
- --------------------------------------------------------------------------------
The Board of Directors and Stockholders
Carr-Gottstein Foods Co.
We have audited the consolidated financial statements of Carr-Gottstein
Foods Co. and subsidiaries as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Carr-Gottstein Foods Co. and subsidiaries as of December 29, 1996 and December
31, 1995 and the results of their operations and their cash flows for each of
the years in the three-year period ended December 29, 1996 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Anchorage, Alaska
February 21, 1997
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years ended
- --------------------------------------------------------------------------------------------------------------------------
December 29, December 31, January 1,
Amounts In Thousands (except per share data) 1996 1995 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 612,576 $ 601,322 $ 577,063
Cost of merchandise sold, including warehousing
and transportation expenses 442,996 431,230 417,183
- --------------------------------------------------------------------------------------------------------------------------
Gross profit 169,580 170,092 159,880
Operating and administrative expenses 144,525 140,366 130,255
Compensation expense for stock options - 1,518 -
- --------------------------------------------------------------------------------------------------------------------------
Operating income 25,055 28,208 29,625
Other income (expense):
Interest expense, net (27,923) (16,079) (12,210)
Gain (loss) on disposals of property and equipment 88 (23) 11
Non-recurring costs related to sale-leaseback - (2,249) -
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) before income tax expense,
and extraordinary item (2,780) 9,857 17,426
Income tax expense (30) (5,207) (8,215)
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item (2,810) 4,650 9,211
Extraordinary item - loss on early retirement of debt,
net of income tax benefit - (906) -
- --------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (2,810) $ 3,744 $ 9,211
==========================================================================================================================
Income (loss) per common share:
Income (loss) before extraordinary item $ (0.36) $ 0.32 $ 0.55
Extraordinary item - (0.06) -
- --------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share $ (0.36) $ 0.26 $ 0.55
==========================================================================================================================
Weighted average common shares outstanding 7,814 14,457 16,763
==========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 29, December 31,
Amounts in Thousands 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 8,655 $ 2,817
Accounts receivable, net 16,650 17,853
Income taxes receivable - 164
Inventories 54,232 50,505
Deferred taxes 1,918 1,756
Prepaid expenses and other current assets 2,809 2,881
- ------------------------------------------------------------------------------------------------------------------------
Total current assets 84,264 75,976
Property, plant and equipment, at cost, net of accumulated depreciation 142,179 152,836
Intangible assets, net of accumulated amortization 91,731 94,589
Deferred taxes 334 -
Other assets 12,336 13,219
- ------------------------------------------------------------------------------------------------------------------------
$ 330,844 $ 336,620
========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
Current liabilities:
<S> <C> <C>
Accounts payable $ 38,467 $ 35,986
Accrued expenses 15,145 7,352
Income taxes payable 298 -
Current maturities of long-term debt 7,281 3,551
Revolving line of credit 7,000 16,000
Estimated obligation for self-insurance 1,958 2,794
- ------------------------------------------------------------------------------------------------------------------------
Total current liabilities 70,149 65,683
Long-term debt, excluding current maturities 227,640 234,740
Estimated obligation for self-insurance 1,536 1,536
Deferred tax liability - 488
Other liabilities 1,921 1,871
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 301,246 304,318
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Stockholders' equity:
Common stock, $.01 par value, authorized 25,000 shares,
<S> <C> <C>
issued 9,680 shares at 1996 and 1995, respectively 97 97
Additional paid in capital 52,513 52,595
Stock subscriptions receivable - (44)
Deficit (10,544) (7,734)
- ------------------------------------------------------------------------------------------------------------------------
42,066 44,914
Less treasury stock, 1,855 shares and 1,876 shares, respectively, at cost 12,468 12,612
- ------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 29,598 32,302
- ------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
========================================================================================================================
$ 330,844 $ 336,620
========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 29, 1996
December 31, 1995, and
January 1, 1995
<TABLE>
<CAPTION>
Total
Additional Stock Stock-
Common Paid-In Subscriptions Treasury holders'
Amounts in Thousands Stock capital Deficit Receibable Stock Equity
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 2, 1994 $ 172 $ 134,251 $ (20,689) $ (123) $ (245) $ 113,366
Issuance of common stock - 7 - - - 7
Issuance of treasury stock - - - - 13 13
Purchase of treasury stock - - - - (10,044) (10,044)
Net income - - 9,211 - - 9,211
Payments under stock purchase plan - - - 83 - 83
- ------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1995 172 134,258 (11,478) (40) (10,276) 112,636
Issuance of treasury stock - (6) - - 162 156
Purchase of treasury stock - - - - (2,498) (2,498)
Purchase and retirement of common
stock (75) (83,175) - - - (83,250)
Issuance of stock options - 1,518 - - - 1,518
Net income - - 3,744 - - 3,744
Change under stock purchase plan - - - (4) - (4)
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 97 52,595 (7,734) (44) (12,612) 32,302
Issuance of treasury stock - (82) - - 144 62
Net loss - - (2,810) - - (2,810)
Payments under stock purchase plan - - - 44 - 44
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 29, 1996 $ 97 $ 52,513 $ (10,544) $ - $ (12,468) $ 29,598
========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended
- -----------------------------------------------------------------------------------------------------------------------
December 29, December 31, January 1,
Amounts in Thousands 1996 1995 1995
- -----------------------------------------------------------------------------------------------------------------------
Operating activities:
<S> <C> <C> <C>
Net income (loss) $ (2,810) $ 3,744 $ 9,211
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary loss before income tax benefit - 1,539 -
Depreciation 14,844 14,141 12,157
Amortization of intangibles 2,858 3,485 3,533
Amortization of loan fees and discounts 1,439 696 510
Loss (gain) on disposal of property and equipment (84) 23 (11)
Compensation recognized for stock options - 1,518 -
Changes in assets and liabilities:
Decrease (increase) in receivables 1,203 (2,244) (5,085)
Increase in inventories (3,727) (1,111) (6,725)
Decrease (increase) in prepaid expenses 72 564 (2,271)
Increase in other assets (556) (1,284) (987)
Increase in income taxes payable 298 - -
Decrease (increase) in deferred taxes (984) 390 9,757
Increase (decrease) in accounts payable 2,481 (4,368) 14,015
Increase (decrease) in accrued expenses 7,793 1,024 (3,604)
Decrease (increase) in income tax receivable 164 93 (257)
Increase (decrease) in obligation for self-insurance (836) (422) 486
Increase (decrease) in other liabilities 50 (650) (632)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 22,205 17,138 30,097
- -----------------------------------------------------------------------------------------------------------------------
Investing activities:
Additions to property and equipment (4,390) (16,660) (26,473)
Additions to intangible assets - (26) (1,350)
Proceeds from sale of property and equipment 287 66 59
Proceeds from sale of subsidiary - 983 -
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (4,103) (15,637) (27,764)
- -----------------------------------------------------------------------------------------------------------------------
Financing activities:
Proceeds from issuance of long-term debt - 95,000 10,044
Proceeds from issuance of senior subordinated notes - 91,750 -
Proceeds from issuance of common stock - - 7
(Payments) borrowings under revolving line of credit, net (9,000) 4,044 6,956
Payments on long-term debt, including prepayment penalties (3,370) (104,202) (9,407)
Change in stock subscriptions receivable 44 (4) 83
Purchase and retirement of common stock - (83,250) -
Purchase of treasury stock - (2,498) (10,044)
Issuance of treasury stock, net 62 156 13
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (12,264) 996 (2,348)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 5,838 2,497 (15)
Cash and cash equivalents at beginning of year 2,817 320 335
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 8,655 $ 2,817 $ 320
=======================================================================================================================
Supplemental information:
Interest paid $ 25,198 $ 14,387 $ 11,430
Income taxes paid (received) $ 552 $ 4,091 $ (1,285)
=======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Amounts in Thousands (except for per share data)
- --------------------------------------------------------------------------------
(1) BUSINESS
Carr-Gottstein Foods Co. and subsidiaries (Company) is the leading food and drug
retailer in Alaska with 42 stores primarily located in Anchorage, as well as in
Fairbanks, Juneau, Kenai and other Alaska communities. The Company operates a
chain of 15 super-combination food, drug and general merchandise stores under
the name Carrs Quality Centers. The Company also operates eight smaller stores
under the name of Eagle Quality Centers or other names in smaller Alaska
communities. The Company is also Alaska's highest-volume alcoholic beverage
retailer through its chain of 16 wine and liquor stores operated under the name
of Oaken Keg stores. During 1996, the Company opened three small tobacco stores
which operate under the name of the Great Alaska Tobacco Company. In addition,
the Company operates a freight transportation business under the names of AOL
Express and APR Forwarders, a full-line food warehouse and distribution center
under the name of J.B. Gottstein and a institutional food service distribution
business under the name of YES Foods. The Company through CGF Properties, Inc.
owns many of the buildings and shopping centers from which its Carr and Eagle
Quality Centers operate.
(2) ACQUISITION AND BASIS OF PRESENTATION
As of October 12, 1990, CG Acquisition Co. acquired certain assets and
liabilities of Carr-Gottstein Inc. and other related entities (Predecessor) and
changed the corporate name to Carr-Gottstein Foods Co. The transactions
described above are referred to herein as the Acquisition. The cost of the
Acquisition approximated $280,000 and was financed through bank borrowings,
issuance of senior notes, subordinated notes and common stock. The Acquisition
was accounted for using purchase accounting in which the purchase price was
allocated to the acquired assets and liabilities based on their relative
estimated fair values. The excess of the purchase price over the fair value of
assets and liabilities acquired resulted in identified intangibles of $25,100
and goodwill of $105,700.
(3) CAPITALIZATION
On May 6, 1993, the Company reclassified its common stock into a single class
and authorized 25,000 shares of $.01 par value common stock and 10,000 shares of
$.01 par value preferred stock and a two for one split for the reclassified
common stock. As a result of the split, 5,678 shares were issued and additional
paid-in capital was reduced by $57.
During 1993 the Company undertook an initial public offering of its common
stock. The shares were issued at an initial price of $14.50 per share. The
Company issued 5,824 new shares of common stock and received net proceeds of
$77,632. Common stock and additional paid-in capital were increased by $58 and
$77,574, respectively.
(4) TENDER OFFER
On October 13, 1995, the Company announced a tender offer for 7,500 shares of
common stock at $11.00 per share. The Company completed the tender offer on
November 15, 1996 and repurchased and retired 7,500 shares of common stock at a
cost of $82,500 plus $750 of fees and expenses. The Company financed the tender
offer through the issuance of $100,000 of 12% unsecured senior subordinated
notes. Concurrent with the tender offer, the Company renegotiated and amended
its bank debt and revolving line of credit. The Company paid $8,250 of fees and
expenses to issue the senior subordinated notes and to amend its bank debt and
revolving line of credit. The debt amendment is accounted for as an early
extinguishment of debt.
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Amounts in Thousands (except for per share data)
- --------------------------------------------------------------------------------
(5) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Estimates and Assumptions
In preparing the consolidated financial statements in accordance with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and revenue and expenses for the reporting period. Actual results
could differ from those estimates and assumptions. The more significant
estimates and assumptions applied in the preparation of the consolidated
financial statements are discussed below.
Fiscal Year
The Company's fiscal year is a 52 or 53 week year, ending on the Sunday closest
to the calendar year-end. All years presented in the consolidated financial
statements consist of 52 weeks. References to fiscal years 1996, 1995 and 1994
represent the 52 week years ending December 29, 1996, December 31, 1995 and
January 1, 1995, respectively.
Consolidation
The consolidated financial statements of the Company include the accounts of
Carr-Gottstein Foods Co. and its divisions, J.B. Gottstein, Carrs Quality
Centers and Eagle Quality Centers and its wholly-owned subsidiaries, AOL
Express, Inc., APR Forwarders, Inc., Oaken Keg Spirit Shops, Inc., Alaska
Advertisers, Inc. and CGF Properties, Inc. The Company sold its wholly-owned
computer services subsidiary in the first quarter of 1995. Significant
intercompany transactions and accounts have been eliminated from the
consolidated financial statements.
Cash Equivalents
For purposes of the statement of cash flows, short-term investments with a
maturity of three months or less are considered to be cash equivalents. Cash and
cash equivalents include cash on hand, checking accounts and savings accounts.
Inventories
Inventories are stated at the lower of cost or market. Retail food company and
liquor company store inventory cost is determined by reducing inventories taken
at retail prices by estimated gross margin percentages. Wholesale inventories
are valued at weighted average cost. Inventories include direct transportation,
warehouse and allocated administrative costs.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Maintenance, repairs and
minor replacements are charged to expense as incurred. When assets are sold,
retired or fully depreciated, their cost and related accumulated depreciation
are removed from the property, plant and equipment accounts, and any gain or
loss is recorded.
Depreciation
The costs of buildings, equipment and fixtures are depreciated over their
estimated useful lives on a straight-line basis. The components of buildings are
depreciated over lives ranging from ten to 31.5 years or over the respective
lease terms, if such periods are shorter. Fixtures and equipment are depreciated
over estimated lives of three to 15 years.
Intangible Assets and Amortization
Intangible assets represent the excess of purchase price over fair value of net
assets acquired. Goodwill is generally amortized on a straight-line basis over
40 years. Costs allocated to specifically identified assets are amortized on a
straight-line basis over three to five years. On an annual basis the Company
assesses the recoverability of goodwill and other intangible assets by
determining whether the amortization of the balances over the remaining lives
can be recovered through the undiscounted future operating cash flows of the
acquired operations.
Loan Fees
Loan fees are amortized over the term of the related debt.
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Amounts in Thousands (except for per share data)
- --------------------------------------------------------------------------------
Buying and Promotional Allowances
Allowances and credits received from vendors in connection with the Company's
buying and merchandising activities are recognized as earned.
Investment in Affiliate
The equity method of accounting is used to account for the Company's ownership
of 33-1/3% of the stock of Denali Commercial Management, Inc. (DCM). The
financial position and results of operations of DCM are not material.
Income Taxes
The Company files consolidated federal and state income tax returns. Income
taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry-forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation,
fines and penalties, and other sources are recorded when it is probable that a
liability has been incurred and the amount of the assessment or cost can be
reasonably estimated.
Earnings Per Common Share
Primary earnings per common share are determined by dividing net income (loss)
by the weighted average number of common shares outstanding plus dilutive common
stock equivalents, which are stock options. Primary and fully diluted earnings
per common share are the same.
Impairment of Long-Lived Assets
Statement of Financial Accounting Standard No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
sets forth new standards for determining when long-lived assets are impaired and
requires impaired assets to be carried at the lower of cost or fair value. The
Company adopted the new standard as of January 1, 1996 which has had no effect
on the Company's financial statements.
Stock Option Plan
Statement of Financial Accounting Standard No. 123, Accounting for Stock-Based
Compensation, was adopted by the Company as of January 1, 1996. This statement
establishes accounting and reporting standards for stock-based employee
compensation plans. As permitted by this statement, the Company has elected to
continue to use the accounting method it is currently using, APB Opinion No. 25,
Accounting for Stock Issued to Employees, to determine the amount of any
compensation expense related to stock options. Consequently, the Company will
disclose the amount of compensation expense and the impact on net earnings and
earnings per share had the fair value method set forth in the new statement been
used to calculate compensation.
Reclassifications
Certain reclassifications have been made to the fiscal year 1995 and 1994
consolidated financial statements to conform to the current period presentation.
During these years, warehousing, transportation and the related occupancy costs
were originally reported as operating and administrative expenses. For the
current year's presentation, these expenses have been classified as cost of
sales.
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Amounts in Thousands (except for per share data)
- --------------------------------------------------------------------------------
(6) ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
December 29, December 31,
- -----------------------------------------------------------------------------------------------------------------------
1996 1995
<S> <C> <C>
Wholesale and retail trade $ 15,267 $ 14,605
Tenant 248 215
Other 1,378 3,154
- -----------------------------------------------------------------------------------------------------------------------
16,893 17,974
Less allowance for doubtful accounts 243 121
- -----------------------------------------------------------------------------------------------------------------------
Accounts receivable, net $ 16,650 $ 17,853
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
(7) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
December 29, December 31,
1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 25,393 $ 25,614
Buildings 95,458 102,353
Fixtures and equipment 93,326 82,554
- -----------------------------------------------------------------------------------------------------------------------
214,177 210,521
Less accumulated depreciation 71,998 57,685
- -----------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net $ 142,179 $ 152,836
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
(8) INTANGIBLE ASSETS
Intangible assets consist of the following:
December 29, December 31,
1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Goodwill $ 107,505 $ 107,505
Other intangibles 18,485 18,485
- -----------------------------------------------------------------------------------------------------------------------
125,990 125,990
Less accumulated amortization 34,259 31,401
- -----------------------------------------------------------------------------------------------------------------------
Intangible assets, net $ 91,731 $ 94,589
=======================================================================================================================
</TABLE>
(9) REVOLVING LINE OF CREDIT
The Company has a $35,000 revolving line of credit (revolver) available for
working capital purposes. The revolver, along with the bank term debt, are
secured by substantially all of the Company's assets, except for certain real
estate assets. The revolver and term debt agreements contain restrictive
covenants. Interest is payable quarterly on the revolver at the lower of prime
plus 1.5% or LIBOR plus 2.5%. Availability under the revolver is reduced by
$5,000 on each December 31, 1999 and 2000. The Company is required to pay an
annual commitment fee of 0.5% per annum on the average unused portion of the
revolver. The interest rate on the revolver at December 31, 1996 was
approximately 8.0%.
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Amounts in Thousands (except for per share data)
- --------------------------------------------------------------------------------
(10) LONG-TERM DEBT
Long-term debt consist of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First mortgage notes payable in monthly payments of $426;
including interest at 10.55%; unpaid balance due at maturity
of June 1, 2001; prepayments prohibited through 1996;
prepayment penalties apply; secured by real estate $ 42,532 $ 43,080
Senior subordinated notes with interest payable semiannually at
12%; entire balance due at maturity of November 15, 2005;
prepayment penalties apply; unsecured 100,000 100,000
Bank term note payable with varying semiannual principal
payments; interest payable quarterly at the lower of
prime plus 1.5% or LIBOR plus 2.5%, approximately
8.0% at December 29, 1996; maturity of June 30, 2001 32,500 35,000
Bank term note payable with varying semiannual principal
payments; interest payable quarterly at the lower of
prime plus 2.0% or LIBOR plus 3.0%, approximately
8.5% at December 31, 1996; maturity December 31, 2002 59,700 60,000
Other notes payable 189 211
- -----------------------------------------------------------------------------------------------------------------------
234,921 238,291
Less current maturities of long-term debt 7,281 3,551
- -----------------------------------------------------------------------------------------------------------------------
Total long-term debt $ 227,640 $ 234,740
=======================================================================================================================
</TABLE>
The Company's debt agreements contain various restrictive covenants pertaining
to net worth levels, limitations on additional indebtedness and capital
expenditures, financial ratios and monthly, quarterly and annual reporting
requirements. In addition, the agreements require certain mandatory pre-payment
of amounts resulting from real estate or fixed asset sales, increases in
outstanding cash balances, issuance of stock, or the issuance of additional
debt. Substantially all of the assets of the Company are pledged as security for
long-term debt. The Company is in compliance with all debt agreements.
The aggregate maturities of long-term debt for periods subsequent to December
29, 1996 are as follows:
Fiscal year Amount
- --------------------------------------------------------------------------------
1997 $ 7,281
1998 12,155
1999 4,637
2000 7,632
2001 46,216
Thereafter 157,000
- --------------------------------------------------------------------------------
$ 234,921
================================================================================
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Amounts in Thousands (except for per share data)
- --------------------------------------------------------------------------------
Interest expense consists of the following:
<TABLE>
<CAPTION>
Fiscal year
- -----------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest on debt $ 26,484 $ 15,558 $ 12,143
Amortization of loan fees 1,439 696 510
- -----------------------------------------------------------------------------------------------------------------------
27,923 16,254 12,653
Less capitalized interest - 175 443
- -----------------------------------------------------------------------------------------------------------------------
Interest expense, net $ 27,923 $ 16,079 $ 12,210
=======================================================================================================================
</TABLE>
Loan fees are classified as other assets and total $7,879 and $9,318, net of
amortization, at December 29, 1996 and December 31, 1995, respectively. In
fiscal year 1995 the Company incurred $8,250 of loan fees to issue the senior
subordinated notes and to amend its bank debt and revolver.
The amendment and renegotiation of the Company's bank debt and revolver in
fiscal year 1995 is considered an early extinguishment of debt. This transaction
resulted in an extraordinary loss of $906, from the write-off of unamortized
loan fees of $1,539, net of income tax benefit of $633.
(11) OTHER LIABILITIES
Other long-term obligations consist primarily of installment obligations payable
to former or current employees arising from deferred compensation agreements of
the Predecessor which were assumed in the Acquisition. These obligations are
payable over a ten-year period, without interest, commencing on the employee's
termination from the Company. Each employee's principal balance, which accrues
interest at 8% to the date of termination, is discounted from the date the
employee attains the age of 65 for current employees or the remaining payoff
period for terminated employees.
(12) INCOME TAXES
Income tax expense (benefit) for continuing operations before extraordinary item
consist of the following:
<TABLE>
<CAPTION>
Fiscal year
- -----------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
Current:
<S> <C> <C> <C>
Federal $ 782 $ 3,546 $ (1,313)
State 232 638 (229)
- -----------------------------------------------------------------------------------------------------------------------
1,014 4,184 (1,542)
- -----------------------------------------------------------------------------------------------------------------------
Deferred:
Federal (759) 871 8,307
State (225) 152 1,450
- -----------------------------------------------------------------------------------------------------------------------
(984) 1,023 9,757
- -----------------------------------------------------------------------------------------------------------------------
Income tax expense $ 30 $ 5,207 $ 8,215
=======================================================================================================================
</TABLE>
A reconciliation of income taxes expense (benefit) at the statutory rate of 35%
applied to earnings before income taxes and extraordinary item to the Company's
effective rate is as follows:
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Amounts in Thousands (except for per share data)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Fiscal year
- -----------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $ (973) $ 3,450 $ 6,099
State income taxes, net of federal benefit 4 764 1,231
Nondeductible goodwill amortization 925 925 925
Other 74 68 (40)
- -----------------------------------------------------------------------------------------------------------------------
$ 30 $ 5,207 $ 8,215
=======================================================================================================================
</TABLE>
Total tax expense for fiscal year 1996 is $30. Total tax expense for fiscal year
1995 is $4,576, which reflects tax expense for continuing operations of $5,207
and a tax benefit of $633 for the extraordinary loss.
In August, 1995, an examination by the Internal Revenue Service ("IRS") of the
Company's federal tax returns for fiscal years 1990 through 1993 was finalized
resulting in a settlement that decreased the Company's net operating loss
carry-forwards, modified the timing and deductibility of certain items and
required an immaterial cash payment.
The settlement had no effect on previously recorded expense or net income.
The Company fiscal year 1995 and 1994 federal tax returns are currently under
examination by the IRS. The IRS has proposed tentative adjustments to the timing
of deductibility of certain amounts. The Company believes that the ultimate
resolution of the examination will not have a material effect on the results of
operations or financial condition of the Company.
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carry-forward $ - $ 736
Alternative minimum tax credit carry-forward 4,949 4,637
Intangible assets, due to differences in
amortization 460 922
Financial statement accrual of self-
insurance costs 1,436 1,780
Financial statement accrual for compensated
absences 826 663
Revenues received in advance, amortized
for financial reporting 452 -
Financial statement expense for stock options 612 624
Inventory capitalized for taxes 497 389
Other 100 51
- -----------------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 9,332 9,802
- -----------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Property, plant, equipment, due to
differences in depreciation (7,055) (8,249)
Other (25) (285)
- -----------------------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities (7,080) (8,534)
- -----------------------------------------------------------------------------------------------------------------------
Net deferred tax asset $ 2,252 $ 1,268
=======================================================================================================================
</TABLE>
At December 29, 1996 the Company has alternative minimum tax credit
carry-forwards of approximately $4,188 and $761 for federal and state income
taxes, respectively, which carry-forward indefinitely.
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Amounts in Thousands (except for per share data)
- --------------------------------------------------------------------------------
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. Based on the Company's
historical taxable income, adjusted for significant items such as, the loss from
early retirement of debt and utilization of net operating losses, and expected
future taxable income, management believes it is more likely than not that the
Company will realize the benefit of deferred tax assets existing at December 29,
1996. Further, management believes the existing net deductible temporary
differences will reverse during periods in which the Company generates net
taxable income. Therefore, the Company has not provided a valuation allowance.
However, the amount of the deferred tax asset considered realizable could be
reduced in the near term if estimates of future taxable income are reduced.
(13) LEASE COMMITMENTS
The Company leases (as lessee) land, buildings, fixtures and equipment primarily
for retail stores and its headquarters under operating leases expiring at
various dates through 2029. Generally, these leases include options to renew at
the end of the initial lease period. Commitments for future minimum payments
under non-cancelable operating leases for periods subsequent to December 29,
1996 are as follows:
Fiscal Year Amount
- --------------------------------------------------------------------------------
1997 $ 7,802
1998 6,801
1999 6,702
2000 6,632
2001 6,612
Thereafter 49,420
- --------------------------------------------------------------------------------
$ 83,969
================================================================================
Rental expense under operating lease agreements include contingency rentals
which are based on a certain percentage of sales that are achieved over a set
amount of sales determined on an individual store basis. Rental expense is as
follows:
Fiscal year Minimum payments Percentage rents Total
- --------------------------------------------------------------------------------
1994 $ 9,355 $ 999 $ 10,354
1995 9,426 1,024 10,450
1996 9,338 355 9,693
================================================================================
In May 1995, the Company entered into letters of intent regarding a
sale-leaseback transaction which would have encompassed substantially all of the
real estate owned by the Company. In August 1995, the Company elected not to
pursue the sale-leaseback transaction and expensed $2,249 of non-recurring costs
related to this transaction.
<PAGE>
ARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Amounts in Thousands (except for per share data)
- --------------------------------------------------------------------------------
(14) LESSOR
The Company is the lessor of commercial and office facilities. Generally, these
operating leases include options to renew at the end of the initial lease
period. Substantially all of the leases for commercial facilities provide for
minimum rentals and contingent rentals while leases for office facilities are
generally for fixed rentals. Minimum annual rentals under non-cancelable
operating leases for periods subsequent to December 29, 1996 are as follows:
Fiscal year Amount
- --------------------------------------------------------------------------------
1997 $ 1,048
1998 1,032
1999 866
2000 605
2001 500
Thereafter 788
- --------------------------------------------------------------------------------
$ 4,839
================================================================================
<TABLE>
<CAPTION>
Net rental income related to these operating leases is as follows:
Fiscal year Minimum rents Percentage rents Related expenses Net rental income
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 1,391 96 715 772
1995 1,266 48 582 732
1996 1,582 19 661 940
========================================================================================================================
</TABLE>
(15) RETIREMENT AND UNION PENSION PLANS
The Company contributes to 401(k) retirement savings plans covering
substantially all employees qualified by age and length of service, except
employees covered by union contracts. The Company employs approximately 3.4
people of which 2.4 or 73% are covered by union contracts. The retirement
savings plan allows participant contributions in an amount equal to 15% of the
participant's compensation, not to exceed federal statutory maximum
contributions. The amount of discretionary Company contributions is determined
by the Board of Directors, subject to Internal Revenue Code limitations.
Participants are 100% vested in Company contributions. In addition, the Company
contributes to union sponsored multi-employer pension plans on behalf of union
employees. Contributions to retirement savings and pension plans are as follows:
Fiscal year 401(k) plans Pension plans
- --------------------------------------------------------------------------------
1994 622 2,743
1995 636 3,367
1996 611 3,445
================================================================================
(16) INCENTIVE BONUS PLAN
The Company has an incentive bonus plan for key employees. The amount of bonuses
distributed to eligible employees and individual bonus awards are based on the
Company's financial performance and other criteria set by a committee appointed
by the Board of Directors. The cost of this plan approximated $0, $0, and $920
for fiscal years 1996, 1995 and 1994, respectively.
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Amounts in Thousands (except for per share data)
- --------------------------------------------------------------------------------
(17) STOCK OPTIONS
Outside Director Plan
The Company has an outside director stock option plan for directors who are not
for three years prior to appointment to the Board of Directors an employee of
the Company or a partner or employee of Leonard Green & Associates, L.P., (LGA),
Green Equity Investors, L.P. (GEI) or any partnership controlled by such
partnerships. Each outside director is automatically granted the option to
purchase 20 shares of common stock at the then fair market value on the date of
such appointment or election to the Board of Directors. The options are fully
vested upon grant. The plan permits awards with respect to a maximum of 100
shares. As of December 31, 1996 two directors each have been granted an option
to purchase 20 shares of common stock at $5.25 per share.
Employee Performance Plan
The Company has a non-qualified performance stock option plan, under which a
committee of the Board of Directors may award key employees options to purchase
common stock in the Company. The plan permits awards with respect to a maximum
of 1,312 shares. As of December 29, 1996, options for 1,157 shares are
outstanding, of which 1,077 options are fully vested. The committee determines
the exercise price of the options and the period over which the options will
vest. Options are generally awarded at fair market value of the Company's stock
as of the date of the award. On December 20, 1995 the Board of Directors
canceled 749 options for common shares with exercise prices of $5.00 to $10.63
per share and immediately reissued 749 options with exercise prices of $2.88 or
$5.25 per share. The Board of Directors undertook this action to compensate key
employees who held unvested options and were unable to participate in the
Company's tender offer for 7,500 shares of common stock in November 1995. See
note 4. The Company recognized $1,518 of compensation expense for certain
options that were reissued at an exercise price of $2.88 per share as this price
was below the fair market value of Company's common stock of $5.25 on the
reissuance date.
At December 26, 1996, there were 155 additional shares available for grant under
the Plan. The per share weighted-average fair value of stock options granted
during 1996 and 1995 was $1.34 and $2.86 on the date of grant using a qualified
option-pricing model with the following weighted-average assumptions. 1996 -
expected dividend yield 0.0%, risk-free interest rate of 7.1% and an expected
life of 9 years; 1995 - expected dividend yield 0.0%.
risk-free interest rate of 6.8%, and an expected life of 10 years.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, compensation expense is only recognized for stock options which the
exercise price is less than fair value on the date of grant. Had the Company
determined compensation cost based on the fair value at the grant date for its
options under SFAS No. 123, the Company's net income would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net income (loss) As reported $ (2,810) $ 3,744
Pro forma (3,066) 3,613
Net income (loss) per share As reported $ (0.36) $ 0.26
Pro forma (0.39) 0.25
</TABLE>
Pro forma net income reflects only options granted in 1996 and 1995. Therefore,
the full impact of calculating compensation cost for stock options under SFAS
No. 123 is not reflected in the pro forma net income amounts presented above
because compensation cost is reflected over the options' vesting period of 3
years and compensation cost for options granted prior to January 1, 1995 is not
considered.
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Amounts in Thousands (except for per share data)
- --------------------------------------------------------------------------------
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
Number of Weighted-Average
Shares Exercise Price
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at January 2, 1994 661 $ 6.06
Granted 84 6.62
Exercised (2) 5.39
Forfeited (3) 5.39
Canceled - -
Expired (1) 5.41
- -----------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1995 739 $ 6.13
Granted 1,075 3.89
Exercised (27) 5.69
Forfeited (39) 6.30
Canceled (749) 6.11
Expired (9) 6.07
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 990 $ 3.72
Granted 235 3.62
Exercised (21) 2.88
Forfeited (7) 5.12
Canceled (35) 5.88
Expired (5) 4.30
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 29, 1996 1,157 $ 3.66
=======================================================================================================================
</TABLE>
At December 29, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $2.88 - $5.25 and 9 years,
respectively.
The number of options exercisable was 1,078, 813 and 601 at fiscal year-end
1996, 1995 and 1994, respectively, and the weighted-average exercise price of
those options was $3.54, $3.38 and $6.14, respectively.
(18) RELATED PARTY TRANSACTIONS
GEI owns approximately 37% of the Company's common stock. LGA is the general
partner of GEI. The Company paid LGA fees of $450, $577 and $577 for fiscal
years 1996, 1995 and 1994, respectively for management consulting and advisory
services. The Company also engaged LGA to provide financial advisory services
with respect to the 1995 tender offer and negotiating the terms of the senior
subordinated notes, revolver and bank term debt. LGA was paid $1,500 for such
financial advisory services.
(19) COMMITMENTS AND CONTINGENCIES
Shared Appreciation Agreement
The Company has entered into a shared appreciation agreement with the
Predecessor which requires the Company to pay the Predecessor 50% of certain
proceeds in excess of $65,500 from the financing, refinancing, condemnation,
sale or other disposition or realization of value of certain real properties.
The cumulative maximum amount payable under the agreement was $7,300 through
fiscal year 1994. Beginning in fiscal year 1995, the maximum amount payable is
increased by 10% per annum of any remaining unpaid portion of the maximum. As of
December 29, 1996 the maximum amount payable is $8,760, of which no amount is
currently due as the conditions of the agreement have not been met.
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Amounts in Thousands (except for per share data)
- --------------------------------------------------------------------------------
Self-Insurance
The Company is self-insured for basic automobile, workers' compensation, general
liability and employee health benefits, and purchases insurance coverage for
amounts in excess of the basic self-insurance program. Reserves are established
to cover estimated reported losses, estimated unreported losses based on past
experience modified for current trends, and estimated expenses for investigating
and settling claims. Actual losses will vary from the established reserves.
While management uses what it believes is pertinent information and factors in
determining the amount of reserves, future additions to the reserves may be
necessary due to changes in the information and factors used.
Environmental Remediation
The Company, along with other parties, has been identified by the Environmental
Protection Agency (EPA) as a potentially responsible party (PRP) for the cleanup
of a site in Tacoma, Washington. The EPA has estimated primarily the cost of the
required remediation to range from $8,000 to $13,800. Based on a
Company-commissioned environmental investigation, management believes that the
Company is not responsible for the subject contamination. Accordingly, the
Company has made no accrual for liability in connection with this site and is
seeking dismissal from the proceedings both directly and indirectly through a
group of PRPs who are responsible for a minimal amount, if any, of the
contamination. While there can be no assurance that the Company will be
dismissed from these proceedings and an estimate of the portion, if any, of the
cost allocable to the Company is uncertain, based on the Company's findings to
date, management believes that any liability the Company may incur in connection
with these proceedings will not have a material adverse impact on the financial
condition, results of operations or business of the Company.
Legal Proceedings
The Company is subject to legal proceedings and claims which arisen in the
ordinary course of its business that are not fully adjudicated. Management
believes, after consultation with legal counsel, these actions when finally
concluded and determined will not have a material adverse effect on the
Company's financial position.
(20) GEOGRAPHIC CONCENTRATION
All of the Company's retail outlets are in Alaska, with nine of its 15 Carrs
Quality Centers and nine of its 16 Oaken Keg Stores located in Anchorage,
Alaska. In addition the Company's wholesale distribution business is conducted
in Alaska. As a result of this geographic concentration, the Company's growth
and operations depend upon economic conditions in Alaska. Because the economy of
Alaska is dependent on the natural resources industry, particularly oil, as well
as on tourism, commercial fishing, government and U.S. military spending, any
deterioration or improvements in these markets could affect the Company. This
geographic concentration is somewhat offset by the large number of customers
that the Company has and that no single customer accounts for more than 5% of
the Company's sales.
(21) FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Accounts Receivable
The carrying amount approximates fair value due to the short maturity of these
instruments.
Short and Long-Term Debt
The carrying amount of the Company's borrowings under the revolver approximate
fair value. The fair value of long-term debt is based on the current rates
offered to the Company for debt with similar terms and average maturities. The
carrying amount of long-term debt of $241,921 and $254,291 has approximate fair
values of $245,020 and $256,214, at December 29, 1996 and December 31, 1995,
respectively.
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Amounts in Thousands (except for per share data)
- --------------------------------------------------------------------------------
(22) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Following is a presentation of selected financial data for each of the four quarters of fiscal year 1996 and 1995:
First Second Third Fourth
quarter quarter quarter quarter
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996:
Sales $ 142,809 $ 160,953 $ 158,506 $ 150,308
Gross profit 40,103 43,836 44,273 41,368
Operating income 4,668 6,827 7,172 6,388
Net loss (1,633) (415) (64) (698)
Loss per share (0.21) (0.05) (0.01) (0.09)
Average shares outstanding 7,805 7,808 7,815 7,825
1995:
Sales $ 139,069 $ 154,648 $ 155,653 $ 151,952
Gross profit 39,368 44,571 44,281 41,872
Operating income 5,975 8,777 8,690 4,766
Net income (loss) before
extraordinary item 1,204 2,726 1,469 (749)
Extraordinary loss, net of tax - - - 906
Net income (loss) 1,204 2,726 1,469 (1,655)
Earnings (loss) per share 0.08 0.18 0.09 (0.14)
Average shares outstanding 15,701 15,414 15,286 11,427
=======================================================================================================================
</TABLE>
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Amounts in Thousands (except for per share data)
- --------------------------------------------------------------------------------
(23) CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Company issued $100,000 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 reflect 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:
<TABLE>
<CAPTION>
Balance Sheet Non-Guarantor Guarantor Parent
Subsidiary Subsidiaries Company
December 29, 1996 CGF Properties (Combined) Only
Elimination Consolidated
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Inventories $ - $ 4,690 $ 49,542$ - $ 54,232
Other current assets 5,526 63,389 6,117 (45,000) 30,032
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 5,526 68,079 55,659 (45,000) 84,264
Property, plant and equipment, net 65,191 5,725 71,263 - 142,179
Intangible, net - - 91,731 - 91,731
Investments in subsidiaries - - 101,920 (101,920) -
Other assets 32 483 12,155 - 12,670
- -----------------------------------------------------------------------------------------------------------------------
$ 70,749 $ 74,287 $ 332,728 $ (146,920) $ 330,844
=======================================================================================================================
Liabilities and Stockholders' Equity
Current liabilities $ 966 $ 279 $ 113,904 $ (45,000) $ 70,149
Long-term debt, excluding current
maturities 41,871 - 185,769 - 227,640
Other liabilities - - 3,457 - 3,457
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 42,837 - 303,130 (45,000) 301,246
- -----------------------------------------------------------------------------------------------------------------------
Common stock 10 44 97 (54) 97
Additional paid-in capital 28,966 39,381 52,513 (68,347) 52,513
Stock subscription receivable - - - - -
Retained earnings (deficit) (1,064) 34,583 (10,544) (33,519) (10,544)
- -----------------------------------------------------------------------------------------------------------------------
27,912 74,008 42,066 (101,920) 42,066
Less treasury stock - - 12,468 - 12,468
- -----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 27,912 74,008 29,598 (101,920) 29,598
- -----------------------------------------------------------------------------------------------------------------------
$ 70,749 $ 74,287 $ 332,728 $ (146,920) $ 330,844
=======================================================================================================================
</TABLE>
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Amounts in Thousands (except for per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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>
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Amounts in Thousands (except for per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The following are condensed consolidating statements of operations:
Statement of Operations Non-Guarantor Guarantor Parent
Subsidiary Subsidiaries Company
Fiscal year 1996 CGF Properties (Combined) Only
Elimination Consolidated
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $ - $ 75,159 $ 574,182 $ (36,765) $ 612,576
Cost of merchandise sold, including
warehousing and transportation - 54,261 425,500 (36,765) 442,996
- -----------------------------------------------------------------------------------------------------------------------
Gross profit - 28,898 148,682 - 169,580
Operating and administrative
(income) expenses (5,155) 11,884 137,796 - 144,525
- -----------------------------------------------------------------------------------------------------------------------
Operating income 5,155 9,014 10,886 - 25,055
Interest expense, net (4,522) - (23,401) - (27,923)
Other income (expense) - - 88 - 88
Equity in subsidiary earnings - - 5,691 (5,691) -
- -----------------------------------------------------------------------------------------------------------------------
Income before income tax 633 9,014 (6,736) (5,691) (2,780)
Income tax (expense) benefit (260) (3,696) 3,926 - (30)
- -----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 373 $ 5,318 $ (2,810) $ (5,691) $ (2,810)
=======================================================================================================================
</TABLE>
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Amounts in Thousands (except for per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Operations Non-Guarantor Guarantor Parent
Subsidiary Subsidiaries Company
Fiscal year 1995 CGF Properties (Combined) Only Elimination Consolidated
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $ - $ 78,302 $ 562,830 $ (39,810) $ 601,322
Cost of merchandise sold, including
warehousing and transportation - 56,359 414,777 (39,810) 431,230
- -----------------------------------------------------------------------------------------------------------------------
Gross profit - 21,943 148,053 - 170,092
Operating and administrative
(income) expenses (4,981) 10,439 136,330 - 141,884
- -----------------------------------------------------------------------------------------------------------------------
Operating income 4,981 11,504 11,723 - 28,208
Interest expense, net (4,589) - (11,490) - (16,079)
Gain (loss) on disposal of fixed assets 2 12 (37) - (23)
Equity in subsidiary earnings - - 7,015 (7,015) -
Non-recurring costs related to sale-leaseback - - (2,249) - (2,249)
- -----------------------------------------------------------------------------------------------------------------------
Income before income tax
and extraordinary item 394 11,516 4,962 (7,015) 9,857
Income tax expense (162) (4,733) (312) - (5,207)
- -----------------------------------------------------------------------------------------------------------------------
Income before extraordinary
item 232 6,783 4,650 (7,015) 4,650
Extraordinary item - loss on early
retirement of debt, net of tax benefit - - (906) - (906)
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 232 $ 6,783 $ 3,744 $ (7,015) $ 3,744
=======================================================================================================================
</TABLE>
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Amounts in Thousands (except for per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Operations Non-Guarantor Guarantor Parent
Subsidiary Subsidiaries Company
Fiscal year 1994 CGF Properties (Combined) Only Elimination Consolidated
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $ - $ 77,613 $ 539,964 $ (40,514) $ 577,063
Cost of merchandise sold, including
warehousing and transportation - 56,234 401,463 (40,514) 417,183
- -----------------------------------------------------------------------------------------------------------------------
Gross profit - 21,379 138,501 - 159,880
Operating and administrative
(income) expenses (5,122) 9,144 126,233 - 130,255
- -----------------------------------------------------------------------------------------------------------------------
Operating income 5,122 12,235 12,268 - 29,625
Interest expense, net (4,645) - (7,565) - (12,210)
Other income (expense) (3) - 14 - 11
Equity in subsidiary earnings - - 7,485 (7,485) -
- -----------------------------------------------------------------------------------------------------------------------
Income before income tax 474 12,235 12,202 (7,485) 17,426
Income tax (expense) benefit (195) (5,029) (2,991) - (8,215)
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 279 $ 7,206 $ 9,211 $ (7,485) $ 9,211
=======================================================================================================================
</TABLE>
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Amounts in Thousands (except for per share data)
- --------------------------------------------------------------------------------
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>
Statement of Cash Flows Non-Guarantor Guarantor Parent
Subsidiary Subsidiaries Company
Fiscal year 1996 CGF Properties (Combined) Only Consolidated
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net cash provided by operating activities $ 548 $ 417 $ 21,240 $ 22,205
- -----------------------------------------------------------------------------------------------------------------------
Investing activities
Addition to property and equipment - (368) (4,022) (4,390)
Proceeds from sale of property and equipment - - 287 287
Other - - - -
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities - (368) (3,735) (4,103)
- -----------------------------------------------------------------------------------------------------------------------
Financing activities
Net payments under line of credit - - (9,000) (9,000)
Payments on long-term debt (548) - (2,822) (3,370)
Purchase of treasury stock - - 62 62
Change in stock subscriptions receivable - - 44 44
- -----------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (548) - (11,716) (12,264)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents - 49 5,789 5,838
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 53 57 2,707 2,817
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 53 $ 106 $ 8,496 $ 8,655
=======================================================================================================================
</TABLE>
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Amounts in Thousands (except for per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Cash Flows Non-Guarantor Guarantor Parent
Subsidiary Subsidiaries Company
Fiscal year 1995 CGF Properties (Combined) Only Consolidated
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating activities $ (1,336) $ 605 $ 17,869 $ 17,138
- -----------------------------------------------------------------------------------------------------------------------
Investing activities
Addition to property and equipment (139) (637) (15,884) (16,660)
Addition to intangible assets - - (26) (26)
Proceeds from sale of subsidiary - - 983 983
Other 2 12 52 66
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (137) (625) (14,875) (15,637)
- -----------------------------------------------------------------------------------------------------------------------
Financing activities
Proceeds from issuance of debt - - 186,750 186,750
Net borrowings under line of credit - - 4,044 4,044
Payments on long-term debt (540) - (103,662) (104,202)
Purchase and retirement of common stock - - - (83,250) (83,250)
Purchase of treasury stock - - (2,498) (2,498)
Other - - 152 152
- -----------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (540) - 1,536 996
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (2,013) (20) 4,530 2,497
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 2,066 77 (1,823) 320
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 53 $ 57 $ 2,707 $ 2,817
=======================================================================================================================
</TABLE>
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Amounts in Thousands (except for per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Cash Flows Non-Guarantor Guarantor Parent
Subsidiary Subsidiaries Company
Fiscal year 1994 CGF Properties (Combined) Only Consolidated
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net cash provided by operating activities $ 2,560 $ 1,043 $ 26,494 $ 30,097
- -----------------------------------------------------------------------------------------------------------------------
Investing activities
Addition to property and equipment (17) (1,008) (25,448) (26,473)
Addition to intangible assets - - (1,350) (1,350)
Other 9 - 50 59
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (8) (1,008) (26,748) (27,764)
- -----------------------------------------------------------------------------------------------------------------------
Financing activities
Proceeds from issuance of long-term debt - - 10,044 10,044
Net borrowings under line of credit - - 6,956 6,956
Payments on long-term debt (486) - (8,921) (9,407)
Purchase of treasury stock - - (10,044) (10,044)
Other - - 103 103
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (486) - (1,862) (2,348)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 2,066 35 (2,116) (15)
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year - 42 293 335
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 2,066 $ 77 $ (1,823) $ 320
=======================================================================================================================
</TABLE>
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Index to Exhibits
================================================================================
Sequentially
Exhibit No. Description Numbered
3.1(1) Restated Certificate of Incorporation
3.3(2) Restated Bylaws
4.1(3) Indenture dated as of November 15, 1995 among
Registrant, the certain subsidiaries of Registrant
and U.S. Trust company of California, N.A., as Trustee
4.2(3) Registration Rights Agreement dated as of
November 15, 1995 among Registrant, certain subsidiaries
of Registrant, and Donaldson, Lufkin, & Jenrette
Securities Corporation, BT Securities Corporation and
Goldman, Sachs & Co.
4.3 Form of Note Certificate (included in Exhibit 4.1)
4.4 First Supplemental Indenture dated as of March 14, 1996
among Carr-Gottstein Foods Co., the guarantors named
therein and U.S. Trust Company of California, N.A., as
Trustee
10.1(4) Deed of Trust, Assignment of Rents, Security Agreement
and Fixture filing dated October 11, 1991 by and
between CGF Properties, Inc., Stewart Title Company of
Alaska, Inc., and Teachers Insurance and Annuity
Association of America
10.2(4) Assignment of Lessor's Interest in lease dated
October 11, 1991 by Registrant in favor of
Teachers Insurance and Annuity Association of America
10.3(4) Environmental Indemnity dated October 11, 1991 by
Registrant payable to Teachers Insurance and
Annuity Association of America
10.8(4) Carr-Gottstein Foods Co. 1991 Stock Option Plan
10.14(4) Shared Appreciation Agreement dated October 12, 1990
between Carr-Gottstein Foods Co. and Registrant
10.22(4) Amended and Restated Retail Lease
(Huffman Shopping Center) dated October 12, 1990
between Labar Co. and Registrant
10.65(5) Carr-Gottstein Foods Co. Retirement Savings &
Investment Plan and Trust as Amended and
Restated July 1, 1991
10.66(5) Oaken Keg Spirit Shops Retirement Savings &
Investment Plan and Trust as Amended and
Restated July 1, 1991
10.67(5) Amendment to the Carr-Gottstein 1991 Stock Option Plan
10.71(6) Form of Assignment and Assumption Agreement
10.72(6) Form of Assignment of Leases and Rents
10.73(6) Form of Environmental Indemnity Agreement
10.74(6) Form of Fee Mortgage
10.75(6) Form of Leasehold Mortgage
10.79(6) Swing Line Loan Promissory Note ($5,000,000) between
Registrant and Bankers Trust Company
10.80(6) Guaranty Agreement
10.81(6) Security Agreement
10.82(6) Pledge Agreement
10.83(6) Collateral Account Agreement
10.97(7) 1991 Outside Directors Stock Option Plan
10.98(8) Agreement by and between CGF and United Food &
Commercial Workers Union Local 1496, effective
as of June 1, 1994
10.99(8) Employment Agreement - Lawrence Hayward
10.101(9) Employment Agreement - Donald Anderson
10.102(10) Amended and Restated Credit Agreement,
Dated as of November 15, 1995 among Registrant,
Certain lenders and Bankers Trust Company, as agent
10.103(11) Management Service Agreement between Registrant
and Leonard Green & Associates, L.P.
21(11) Subsidiaries of Registrant
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
Index to Exhibits
================================================================================
(1) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 4, 1993.
(2) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for
the quarter ended October 3, 1993
(3) Incorporated by reference to the exhibit filed with the Registrant's
Amendment Number 2 to Schedule
13E-4 first published on October 13, 1995
(4) Incorporated by reference to the exhibit filed with the Registrant's
Form S-1 Registration Statement filed on May 21, 1993.
(5) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 4, 1993.
(6) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended October 3, 1993.
(7) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 3, 1994.
(8) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended October 2, 1994.
(9) Incorporated by reference to the exhibit filed with the Registrant's
Annual Report on Form 10-K for the fiscal year ended January 1,
1995.
(10) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 2, 1995.
(11) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-4 on December 19, 1995.
<TABLE> <S> <C>
<ARTICLE>5
<MULTIPLIER>1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> DEC-29-1996
<CASH> 8655
<SECURITIES> 0
<RECEIVABLES> 16893
<ALLOWANCES> 243
<INVENTORY> 54232
<CURRENT-ASSETS> 84264
<PP&E> 142179
<DEPRECIATION> 0
<TOTAL-ASSETS> 330844
<CURRENT-LIABILITIES> 70149
<BONDS> 0
0
0
<COMMON> 97
<OTHER-SE> 29501
<TOTAL-LIABILITY-AND-EQUITY> 330844
<SALES> 612576
<TOTAL-REVENUES> 612576
<CGS> 442996
<TOTAL-COSTS> 144525
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27923
<INCOME-PRETAX> (2780)
<INCOME-TAX> 30
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2810)
<EPS-PRIMARY> (.36)
<EPS-DILUTED> 0
</TABLE>
