<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period Ended August 3, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
Commission File Number 0-19802
BUTTREY FOOD AND DRUG STORES COMPANY
(Exact name of registrant as specified in its charter)
Delaware 81-0466189
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
601 6th Street, S.W.
Great Falls, Montana 59404
(Address of principal executive offices)
Registrants telephone number, including area code: (406) 761-3401
Indicate by check mark whether the registrant (1) has filed all documents
and reports required to be filed by Sections 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of the registrant's Common Stock outstanding at September
16, 1996 was 8,639,056 shares
Exhibit Index Appears at Page 13
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____________________________________________________
Page 1 of 13
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BUTTREY FOOD AND DRUG STORES COMPANY
AND SUBSIDIARY
FORM 10-Q
For the Quarterly Period Ended August 3, 1996
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
a) Consolidated Balance Sheets
as of August 3, 1996 (unaudited) and February
3, 1996 3
b) Consolidated Statements of Operations for the 13
weeks and the 26 weeks ended August 3, 1996
(unaudited) and July 29, 1995 (unaudited) 4
c) Consolidated Statement of Stockholders' Equity
as of February 3, 1996 and for the 26 weeks
ended August 3, 1996 (unaudited) 4
d) Consolidated Statements of Cash Flows for the 13
weeks and the 26 weeks ended August 3, 1996
(unaudited) and July 29, 1995 (unaudited) 5
e) Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Part II. Other Information
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
=============================================================================================================
(Dollar Amounts in Thousands)
- -------------------------------------------------------------------------------------------------------------
ASSETS
August 3, February 3,
1996 1996
- -------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,959 $ 6,140
Accounts receivable 4,271 4,488
Inventories 42,572 43,304
Prepaid expenses 1,251 1,230
Deferred tax asset 1,271 1,271
- -------------------------------------------------------------------------------------------------------------
Total current assets 58,324 56,433
Property and equipment, at cost 140,983 130,174
Less accumulated depreciation 49,863 45,765
- -------------------------------------------------------------------------------------------------------------
Net property and equipment 91,120 84,409
Intangible assets, net 3,595 3,259
Other assets 562 530
- -------------------------------------------------------------------------------------------------------------
Total assets $ 153,601 $ 144,631
=============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 3,021 $ 2,205
Current obligations under capital leases 393 379
Accounts payable 22,369 16,345
Accrued payroll and benefits 7,202 7,530
Accrued expenses and reserves 3,758 5,106
Accrued interest payable 126 111
Notes payable - 20
Income taxes 198 -
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 37,068 31,696
Long-term debt 15,553 13,510
Obligations under capital leases 9,187 9,385
Deferred taxes payable 1,735 1,735
- -------------------------------------------------------------------------------------------------------------
Total liabilities 63,543 56,326
Stockholders' equity:
Preferred stock $.01 par value, authorized 1,000,000 shares - -
Common stock $.01 par value, authorized 15,000,000 shares;
issued and outstanding 8,639,056 shares as of August 3, 1996
and as of February 3, 1996 86 86
Paid-in capital 79,133 79,133
Retained earnings 11,239 9,486
- -------------------------------------------------------------------------------------------------------------
90,459 88,705
Less stock subscriptions receivable 400 400
- -------------------------------------------------------------------------------------------------------------
Net stockholders' equity 90,059 88,305
- -------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 153,601 $ 144,631
=============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
===================================================================================================================================
(Dollar Amounts in Thousands, Except Per Share Data)
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13 Weeks Ended 26 Weeks Ended
------------------------------ ------------------------------
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
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(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Sales $ 94,082 $ 92,112 $ 182,217 $ 179,325
Cost of sales and related occupancy expenses 72,117 70,269 139,129 136,974
- -----------------------------------------------------------------------------------------------------------------------------------
Gross Profit 21,965 21,843 43,088 42,351
Marketing, general, and administrative expenses 19,633 20,591 38,925 40,124
- -----------------------------------------------------------------------------------------------------------------------------------
Operating income 2,332 1,252 4,163 2,227
Other income / (expense):
Gain / (loss) on disposal of owned property 11 (36) 11 219
Interest income 29 48 57 221
Interest expense (669) (643) (1,309) (1,649)
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(629) (631) (1,241) (1,209)
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Earnings before income taxes and extraordinary charge 1,703 621 2,922 1,018
Income tax provision 681 248 1,168 407
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Earnings before extraordinary charge 1,023 373 1,754 611
Extraordinary charge (net of tax) - - - (51)
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Net earnings $ 1,023 $ 373 $ 1,754 560
===================================================================================================================================
Earnings per share before extraordinary charge $ 0.12 $ 0.04 $ 0.20 $ 0.07
Extraordinary charge per share - - - (0.01)
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings per share $ 0.12 $ 0.04 $ 0.20 $ 0.06
===================================================================================================================================
Weighted average common and common
equivalent shares outstanding 8,640,057 8,592,511 8,626,291 8,605,739
===================================================================================================================================
</TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
===================================================================================================================================
(Dollar Amounts in Thousands)
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Net
Common Paid-in Retained Stock stockholders'
stock capital earnings subscriptions equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at February 3, 1996 $ 86 $ 79,133 $ 9,486 $ (400) $ 88,305
Net additions on stock subscriptions - - - 0 0
Net earnings - - 1,754 - 1,754
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Balance at August 3, 1996 (unaudited) $ 86 $ 79,133 $ 11,240 $ (400) $ 90,059
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
Buttrey Food and Drug Stores Company and Subsidiary
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
=========================================================================================================================
(Dollar Amounts in Thousands)
- -------------------------------------------------------------------------------------------------------------------------
13 Weeks Ended 26 Weeks Ended
----------------------------- ------------------------------
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,023 $ 373 $ 1,754 $ 560
Adjustments to reconcile income to net cash
provided by operating activities:
Depreciation 2,138 2,778 4,164 5,699
Amortization 37 76 82 237
Loss (gain) on disposal of owned property (11) 36 (11) (219)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 277 204 217 (128)
Decrease (increase) in inventories 353 1,990 732 (459)
Decrease (increase) in prepaid expenses (18) (312) (22) (291)
Increase (decrease) in accounts payable 3,107 (533) 6,024 2,162
Increase (decrease) in accrued payroll and benefits 734 (490) (387) (1,092)
Decrease in accrued expenses and reserves (701) (618) (1,051) (729)
Increase (decrease) in accrued interest payable 70 (3) 15 (47)
Increase in accrued income taxes (505) 52 (17) 37
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 6,504 3,553 11,500 5,730
- -------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of property and equipment (7,643) (863) (10,889) (2,691)
Proceeds from sale of property and equipment - 149 - 9,458
Increase in other assets (384) (67) (447) (109)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (8,026) (781) (11,336) 6,658
- -------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Payments on long-term debt (534) (5,078) (1,101) (19,470)
Proceeds from equipment financing 3,960 - 3,960 -
Collection on stock subscriptions receivable - 3 - 19
Payments on capital lease obligations (93) (83) (184) (163)
Decrease in notes payable, net (5) (10) (20) (24)
- -------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities 3,328 (5,168) 2,655 (19,638)
- -------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 1,806 (2,396) 2,819 (7,250)
Cash and cash equivalents at beginning of period 7,153 11,911 6,140 16,765
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 8,959 $ 9,515 $ 8,959 $ 9,515
=========================================================================================================================
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
________________________________________________________________________________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The unaudited interim consolidated financial statements and related
notes have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have not been presented. The
accompanying unaudited interim consolidated financial statements and related
notes should be read in conjunction with the financial statements and related
notes included in the Buttrey Food and Drug Stores Company ("Buttrey" or the
"Company") Annual Report on Form 10-K for the year ended February 3, 1996.
The information furnished reflects, in the opinion of the management of
the Company, all material adjustments consisting only of normal recurring
accruals necessary to present fairly the Company's financial condition and its
results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the
financial statements and related notes included elsewhere in this Form 10-Q.
GENERAL
Buttrey is a food and drug retailer in Montana and in the market areas
it serves in Wyoming and western North Dakota. Founded in Montana in 1896, the
Company currently operates 42 stores and a mail order pharmacy business,
including its recently acquired Cheyenne and Laramie Wyoming stores. The Company
is the successor to the Buttrey Food and Drug division (the "Predecessor
Division") of Skaggs Alpha Beta, Inc. ("Skaggs"), an indirect, wholly-owned
subsidiary of American Stores Company ("ASC"). The Company acquired certain
assets and liabilities of the Predecessor Division in October 1990 in a
transaction (the "Acquisition") organized by Freeman Spogli & Co. Incorporated
("FS&Co."), a private investment firm.
RISK FACTORS
The following risk factors should be carefully considered, in addition
to other information contained in this Form 10-Q.
Certain Restrictions Imposed by Lenders
The Company's credit agreement contains significant financial and
operating covenants including, among other things, requirements that the Company
maintain certain financial ratios and satisfy certain financial tests,
limitations on the amount of capital expenditures and restrictions on the
ability of the Company to incur indebtedness, to pay dividends or to take
certain corporate actions. See "--Liquidity and Capital Resources."
Competition
The food and drug retailing business is highly competitive. The
Company's competitors include, among others, multi-regional supermarket chains,
smaller, independent supermarket chains, drug stores, convenience stores,
discount hardware stores and large chain discount retailers. Some of these
competitors have substantially greater resources than the Company. The Company
expects competition from large chain discount retailers to further increase as
stores are opened in market areas served by the Company.
<PAGE>
Expansion Plans
During the remainder of 1996, the Company plans to replace its existing
store in Bozeman, Montana with a larger store under the Big Fresh format, and to
remodel the recently acquired Cheyenne store. In addition, the Company intends
to construct one or two new stores per year over the next two years. These plans
are subject to site availability and financing, competition, zoning and other
governmental regulations and general economic conditions, and no assurances can
be given that such plans will not be revised as a result of such factors.
Historically, the Company has experienced temporary disruptions and lost sales
during store remodelings, and believes that this will continue in connection
with future remodelings. Additionally, the Company may continue to make
selective acquisitions of existing food or drug stores that will complement the
Company's operations. See "--Liquidity and Capital Resources."
Control of the Company
A majority of the members of the Board of Directors of the Company are
affiliated with FS&Co., which controls FS Equity Partners II, L.P., the
Company's principal stockholder. FSEP currently holds 50.8% of the outstanding
Common Stock of the Company. As a result, FS&Co. controls and will continue to
control the Company's management policy and financing decisions.
RESULTS OF OPERATIONS
13 Weeks Ended August 3, 1996 Compared to 13 Weeks Ended July 29, 1995
Sales for the 13 weeks ended August 3, 1996 increased $2.0 million, or
2.1%, from $92.1 million in the second quarter of 1995 to $94.1 million in the
second quarter of 1996. Comparable store sales increased 1.1% despite more
aggressive promotional strategies by certain competitors and a reduction in
tourism in the state of Montana.
Gross profit for the 13 weeks ended August 3, 1996 increased from $21.8
million in the second quarter of 1995 to $21.9 million in the second quarter of
1996, primarily reflecting the increase in sales, offset by increased
promotional activity as the result of a more aggressive competitive environment.
Gross profit as a percentage of sales decreased 0.4% from 23.7% in the second
quarter of 1995 to 23.3% in the second quarter of 1996.
Marketing, general and administrative ("MG&A") expenses for the 13 weeks
ended August 3, 1996 decreased $1.0 million from $20.6 million in the second
quarter of 1995 to $19.6 million in the second quarter of 1996. The decrease in
MG&A reflects a reduction in depreciation expense, store labor, employee
benefits and other operating expenses. MG&A expenses as a percentage of sales
decreased 1.5% from 22.4% in the second quarter of 1995 to 20.9% in the second
quarter of 1996.
Operating income for the 13 weeks ended August 3, 1996 increased $1.0
million from $1.3 million, or 1.3% of sales, in the second quarter of 1995 to
$2.3 million, or 2.4% of sales, in the second quarter of 1996.
Interest expense, net of interest income, for the 13 weeks ended August
3, 1996 was essentially equal to the $0.6 million in the second quarter of 1995.
See "--Liquidity and Capital Resources."
Net income for the 13 weeks ended August 3, 1996 increased $0.6 million
from $0.4 million, or $0.04 per share, in the second quarter of 1995 to $1.0
million, or $0.12 per share, in the second quarter of 1996.
26 Weeks Ended August 3, 1996 Compared to 26 Weeks Ended July 29, 1995
<PAGE>
Sales for the 26 weeks ended August 3, 1996 increased $2.9 million, or
1.6%, from $179.3 million in 1995 to $182.2 million in 1996. Comparable store
sales increased 0.7% despite the loss of sales during the remodeling of the
Company's highest volume store during a portion of the first quarter, the
opening of one new competitor, more aggressive promotional strategies by certain
competitors and a reduction in tourism in the state of Montana.
Gross profit for the 26 weeks ended August 3, 1996 increased $0.7
million from $42.4 million in 1995 to $43.1 million in 1996, primarily
reflecting the increase in sales. Gross profit as a percentage of sales was
23.6% in 1995 and 1996.
MG&A expenses for the 26 weeks ended August 3, 1996 decreased $1.2
million from $40.1 million in 1995 to $38.9 million in 1996. The decrease in
MG&A is attributable to a reduction in depreciation expense, store labor,
employee benefits and other operating expenses, partially offset by an increase
in advertising costs. MG&A expenses as a percentage of sales decreased 1.0% from
22.4% in 1995 to 21.4% in 1996.
Operating income for the 26 weeks ended August 3, 1996 increased $2.0
million from $2.2 million, or 1.2% of sales, in 1995 to $4.2 million, or 2.3% of
sales, in 1996.
In the first quarter of 1995, the Company recorded a gain on disposal of
assets of $0.3 million primarily from the sale of excess land and the Payson
distribution center.
Interest expense, net of interest income, for the 26 weeks ended August
3, 1996 decreased $0.1 million from $1.4 million in 1995 to $1.3 million in
1996. The decrease in net interest expenses is the result of reductions in long-
term debt and the reductions in interest rates. See "--Liquidity and Capital
Resources."
Net income before extraordinary charge for the 26 weeks ended August 3,
1996 increased $1.1 million from $0.6 million, or $0.07 per share, in 1995 to
$1.8 million, or $0.20 per share, in 1996.
In the first quarter of 1995, the Company recorded an extraordinary
charge of $85,000 ($51,000 on an after-tax basis, or $0.01 per share) as a
result of the early retirement of debt. See "--Liquidity and Capital Resources."
Net income for the 26 weeks ended August 3, 1996 increased $1.2 million
from $0.5 million, or $0.06 per share, in 1995 to $1.8 million, or $0.20 per
share, in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise primarily from capital expenditures,
debt service on its indebtedness and the funding of the Company's working
capital requirements. The Company has financed its liquidity needs primarily
using cash flow from operations, lease and debt financing of capital
expenditures, cash provided by certain asset sales, temporary borrowings under
the Company's working capital facility and the public sale of equity securities
in an initial public offering of Common Stock in February 1992.
On September 7, 1995, the Company entered into a new credit facility
with The CIT Group/Business Credit, Inc. ("CITBC") and The CIT Group/Equipment
Financing, Inc. ("CEF") providing available credit of up to $42.8 million (the
"Financing Agreement"). The new facility includes a $30.0 million working
capital facility and includes variable rate term loans totaling $12.8 million,
which refinanced existing equipment financing loans resulting in lower interest
rates and extended maturities. The borrowing base under which the working
capital revolver can be utilized is equal to 65% of Eligible Inventory
(essentially non-perishable inventory). The estimated borrowing base as of
August 3, 1996 was $23.7 million. Under the Financing Agreement, interest is
determined, at the Company's option, at a defined prime rate or at the London
Interbank Offered Rate ("LIBOR") for each applicable loan as follows:
<PAGE>
$30.0 Working Capital Facility prime rate plus 0.50% or LIBOR plus 2.00%
$8.1 Term Loan I prime rate plus 1.00% or LIBOR plus 2.25%
$4.7 Term Loan II prime rate plus 1.50% or LIBOR plus 2.65%
The Financing Agreement matures five years from inception, however, the
principal portion of the term loans are amortized on a straight-line basis over
84 months. In the event that the Financing Agreement is not extended at the end
of five years, the term loans become due and payable. Additionally, the
Financing Agreement also provides that the maturity date of all balances shall
become accelerated upon a specified change in control or ownership.
Borrowings under the Financing Agreement are secured by the Great Falls
Distribution Center, a retail store location in Butte, Montana and all of the
personal property of the Company. The Financing Agreement contains financial and
operating covenants including limitations on the amount of capital expenditures,
dividends and the Company's ability to incur additional debt. The Financing
Agreement also requires the maintenance of certain financial ratios and the
satisfaction of certain tests which require escalating levels of performance
over time. The Company is currently in compliance with all such financial ratios
and tests.
The principal financial covenants defined in the Financing Agreement
compared to the Company's actual results for the 13 weeks ended August 3, 1996
are as follows:
Actual Test
Minimum Net Worth $90.1 Million $72.5 Million
Maximum Capital Expenditures $10.9 Million $26.9 Million
Maximum Net Capital Expenditures $6.9 Million $20.9 Million
Minimum Interest Charge Coverage Ratio 7.54 4.50
As of August 3, 1996, there were no borrowings or commitments under the
working capital facility other than letter of credit commitments of $2.7
million. In addition, the outstanding balance under Term Loan I was $7.0 million
(of which $1.2 million is classified as current) and under Term Loan II was $4.1
million (of which $0.7 million is classified as current). The Company's
borrowing requirements for working capital are somewhat seasonal, reflecting
increases in inventory in the fourth calendar quarter due to holiday purchases
and, historically, the Company's funding of employee benefit program
contributions in the first calendar quarter of each year.
Subsequent to the close of the second quarter 1996, the Financing
Agreement was amended to provide for a third term loan, for greater flexibility
in regards to the capital expenditure covenants, and for other technical
changes. On August 6, 1996, the Company received $5.0 million in proceeds for
Term Loan III, which amortizes the principal balance on a straight-line basis
over 60 months. The interest rate for Term Loan III is at the Company's option
to be either prime rate plus 1.50% or LIBOR plus 2.25%.
The Company has entered into a number of capital lease obligations for
store facilities. The Company's total outstanding capital lease obligation as of
August 3, 1996 was $9.6 million (of which $0.4 million is classified as
current).
<PAGE>
On April 17, 1995, the Company completed the sale of the Payson
Distribution Center to Associated Food Stores, Inc. of Salt Lake City, Utah
("Associated"), and received proceeds totaling $8.8 million ($3.5 million for
property and equipment and $5.3 million for inventory). The Company used
approximately $7.3 million of these proceeds to retire obligations under long-
term debt. In connection with the early retirement of debt, the Company recorded
an extraordinary charge of $0.1 million ($0.1 million on an after-tax basis)
reflecting the non-cash write-off of unamortized deferred debt issuance costs.
Additionally, in conjunction with the sale of the Payson Distribution Center,
the Company also entered into a supply agreement with Associated whereby the
Company agreed to purchase from Associated certain products previously
distributed from the Payson Distribution Center. In March 1996, the Company
negotiated a new supply agreement with McKesson Drug Company for the purchase of
pharmaceutical products. Associated continues to supply over-the-counter
products, health and beauty care items and general merchandise.
During the 13 weeks ended August 3, 1996, net cash provided by operating
activities was $6.5 million, and reflected noncash charges of $2.2 million in
depreciation and amortization expenses during this period. Net cash provided by
operating activities was favorably impacted by a $3.1 million increase in
accounts payable and a $0.2 million reduction in inventories, and was partially
offset by a net decrease in the remaining working capital accounts of $0.3
million, which is primarily attributable to income and property tax payments.
The Company spent an aggregate of $10.0 million, $8.8 million and $12.8
million on capital expenditures, primarily for store remodelings and new store
expansion, during 1995, 1994 and 1993, respectively. Of these amounts, the
Company has funded approximately $1.2 million, $9.2 million and $5.2 million
through equipment and real estate financings in 1995, 1994 and 1993,
respectively. The Company plans to continue its store remodeling and development
program. During the first quarter of 1996, the Company completed the conversion
of one Great Falls store to the Big Fresh format and announced the acquisition
of a store in Cheyenne, Wyoming (the Company has two existing stores in this
market). The purchase price for the new Cheyenne store was $5.2 million for real
property, fixtures and equipment, and a non-compete agreement plus $0.3 million
for inventory. The transaction was completed on June 11, 1996, subsequent to the
close of the first quarter.
On September 4, the Company completed its previously announced
acquisition of a store and pharmacy business in Laramie, Wyoming. The combined
purchase price was $0.8 million for fixtures and equipment and non-compete
agreements plus $0.6 million for inventory. The Company also entered into a
lease for the real property with the seller of the business.
In addition, in September 1996, the Company completed the expansion and
conversion of its Lewistown, Montana store to the Big Fresh format and the
expansion and remodel of its Malta, Montana store. During the remainder of 1996,
the Company plans to replace its existing store in Bozeman, Montana with a
larger store under the Big Fresh format, and to remodel the recently acquired
Cheyenne store. For 1996, capital expenditures by the Company, including the
foregoing, are estimated to be approximately $22.4 million. Additionally, the
Company may continue to make selective acquisitions of existing food or drug
stores that will complement the Company's operations. The projected capital
expenditure amount for 1996 does not include any amounts for potential
acquisitions other than the completed Cheyenne and Laramie acquisitions.
The Company has utilized equipment financing from time to time in order
to finance the purchases of store equipment and vehicles. In addition to the
outstanding term loans, on September 1, 1995, the Company completed a $1.2
million financing of new store equipment for the Company's new store in Butte,
Montana. The loan bears interest at LIBOR plus 2.65% and is payable in equal
monthly installments over four years. On July 26, 1996, the Company completed a
$4.0 million loan transaction with NationsBanc Leasing Corporation to finance
the purchase of new equipment for the recently completed Great Falls remodels
and for the upgrading of the Company's transportation fleet. Approximately $3.5
million of this loan bears interest at an 8.03% fixed rate while the remaining
$0.5 million bears interest at LIBOR plus 2.35%. The new loan is
<PAGE>
payable in monthly installments over 48 months. As of August 3, 1996, the
outstanding obligation under these equipment loans was $4.9 million (of which
$1.1 million is classified as current). The Company has also entered into
commitments with institutional financing sources to finance an aggregate of
$14.0 million of its 1996 capital expenditures, $9.0 million which has been
funded.
Based upon the foregoing, and considering current and projected
operating results as well as the current budgeted capital expenditures described
above, the Company believes that it will have sufficient cash available,
including amounts available under the Financing Agreement and cash generated
from operations, and amounts available from lease and mortgage financings, to
meet its liquidity needs for debt service, its capital expenditure program,
working capital and general corporate purposes for the foreseeable future.
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY
AND SUBSIDIARY
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Internal Revenue Service ("IRS") has completed its examination of
the Company's income tax returns for the periods ended February 1, 1992 and
February 2, 1991, the period of the Company's initial acquisition of assets. On
December 1, 1995, the Company received notice from the IRS of proposed
adjustments for the Company's fiscal periods 1991 to 1994. These adjustments
generally relate to the Company's allocation of purchase price among the assets
initially acquired by the Company and the treatment of certain of these assets
for tax depreciation and amortization purposes. The notice proposes adjustments
which would reduce the Company's net operating loss and alternative minimum tax
credit carryover and would result in additional federal taxes of up to $5.6
million plus interest from the date when such additional taxes are asserted to
have been due to the date of payment.
The Company, after consultation with tax counsel, continues to believe
in the propriety of its positions set forth in its tax returns and it will
vigorously contest the adjustments being proposed by the IRS. If the IRS were to
ultimately prevail, in whole or in part, with respect to its proposed
adjustments, the Company would account for such change in its tax liability by
adjusting deferred tax assets and liabilities to reflect the revised tax basis
of its assets, by adjusting the current tax liability to reflect the prior year
taxes due, and by applying the effect of those adjustments to increase goodwill.
Any interest related to prior year taxes due would be expenses when accruable.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Number
--------------
10.1 Letter Amendment dated August 5, 1996 to Financing Agreement dated
September 7, 1995 by and among the Company, CITBC and CEF.
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
During the quarter ended August 3, 1996, the Company did not file any
reports on Form 8-K
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: September 16, 1996 BUTTREY FOOD AND DRUG
STORES COMPANY
(Registrant)
/s/ Wayne S. Peterson
--------------------------------------------
Wayne S. Peterson
Senior Vice President, Chief Financial
Officer and Secretary
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
<PAGE>
EXHIBIT 10.1
[LETTERHEAD OF THE CIT GROUP]
August 5 , 1996
-----
Buttrey Food and Drug Company
601 6th Street S.W.
Great Falls, MT. 59404
Gentlemen:
Reference is made to the Financing Agreement between you and the Lenders party
thereto dated September 7, 1995, as the same may be amended from time to time
(the "Financing Agreement"). Capitalized terms used herein and defined in the
Financing Agreement shall have the same meanings as set forth therein unless
otherwise specifically defined herein.
You have advised us that on or about the June 11, 1996, you purchased a "Dan's
Supermarket" in Cheyenne, Wyoming. You have requested that the Lenders extend to
you an additional term loan in the principal amount of $5,000,000, and the
Lenders have agreed to make such additional term loan subject to, and in
accordance with, the terms, provisions and conditions set forth herein.
Effective immediately upon fulfillment to the Lenders' satisfaction of the
Conditions Precedent (as defined below) the Financing Agreement shall be, and
hereby is, amended as follows:
1. (a) Section 1 of the Financing Agreement is hereby amended by deleting the
definitions of "Line of Credit", "Promissory Notes" and "Term Loans" and
substituting the following in lieu thereof:
"LINE OF CREDIT shall mean the aggregate commitment of the Lenders to make
---------------
loans and advances pursuant to Section 3, 4 and 5 of this Financing
Agreement, to the Company in the aggregate amount of $47,800,000."
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"PROMISSORY NOTE(S) shall mean the notes, in the forms of Exhibits A, B, C
-------------------
and E attached hereto, delivered by the Company to the Agent on behalf of
the Lenders to evidence the Term Loans pursuant to, and repayable in
accordance with, the provisions of Section 4 and the Revolving Loans
pursuant to Section 3 of this Financing Agreement."
"TERM LOANS shall mean the term loans in the aggregate original principal
-----------
amount of $17,800,000, consisting of Term Loan I in the original principal
amount of the $8,100,000, Term Loan II in the original principal amount of
$4,700,000, and Term Loan III in the original principal amount of
$5,000,000 each made by the Agent on behalf of the Lenders pursuant to, and
repayable in accordance with, the provisions of Section 4 of this Financing
Agreement."
(b) Section 1 of the Financing Agreement shall be, and hereby is, amended by
the addition thereto of the following new definitions:
"TERM LOAN III shall mean the loan in the original principal amount of
--------------
$5,000,000 made by the Lenders pursuant to, and repayable in accordance
with the provisions of Section 4(c) of this Financing Agreement."
2. Section 4 of the Financing Agreement shall be, and hereby is, amended and
restated in its entirety as of the date hereof as follows:
"SECTION 4. TERM LOANS
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A. TERM LOAN I
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4.1 The Company hereby agrees to execute and deliver to the Agent on
behalf of the Lenders the Promissory Note, in the form of Exhibit A
attached hereto, to evidence Term Loan I to be extended by the Lenders.
4.2 Upon receipt of such Promissory Note, the Agent on behalf of the
Lenders hereby agrees to extend to the Company Term Loan I in the principal
amount of $8,100,000.00.
4.3 The principal amount of Term Loan I shall be repaid to the Agent
on behalf of the Lenders by the Company by eighty four (84) equal monthly
principal installments of $96,428.58 each whereof the first installment
shall be due and payable on October 1, 1995 and the subsequent installments
shall be due and payable on the first business day of each month thereafter
until paid in full.
B. TERM LOAN II
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4.4 The Company hereby agrees to execute and deliver to the Agent on behalf
of the Lenders within thirty (30) days of the Closing Date (and upon repayment
of the FINOVA Indebtedness) the Promissory Note, in the form of Exhibit B
attached hereto, to evidence Term Loan II to be extended by the Lenders.
4.5 Upon receipt of such Promissory Note, the Agent on behalf of the
Lenders hereby agrees to extend to the Company Term Loan II in the principal
amount of $4,700,000.
4.6 The principal amount of Term Loan II shall be repaid to the Agent on
behalf of the Lenders by the Company by eighty four (84) equal monthly principal
installments of $55,952.39 each, whereof the first installment shall be due and
payable on October 1, 1995 and the subsequent installments shall be due and
payable on the first business day of each month thereafter until paid in full.
C. TERM LOAN III
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4.7 The Company hereby agrees to execute and deliver to the Agent on behalf
of the Lenders the Promissory Note, in the form of Exhibit E attached hereto, to
evidence Term Loan III to be extended by the Lenders.
4.8 Upon receipt of such Promissory Note, the Agent on behalf of the
Lenders hereby agrees to extend to the Company Term Loan III in the principal
amount of $5,000,000.00
4.9 The principal amount of Term Loan III shall be repaid to the Agent on
behalf of the Lenders by the Company by sixty (60) monthly principal
installments of $83,333.34 each whereof the first installment shall be due and
payable on September 1, 1996 and the subsequent installments shall be due and
payable on the first business day of each month thereafter until paid in full.
D. TERM LOANS
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4.10 In the event this Financing Agreement or the Line of Credit is
terminated by either the Agent, the Required Lenders or the Company for any
reason whatsoever, the Term Loans shall become due and payable on the effective
date of such termination notwithstanding any provisions to the contrary in the
Promissory Note or this Financing Agreement.
4.11 The Company may prepay at any time, at its option, in whole or in
part, the Term Loans, provided that on each such prepayment, the Company
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<PAGE>
shall pay accrued interest on the principal so prepaid to the date of such
prepayment and any such voluntary prepayments may be applied as the Company
directs or upon the occurrence of an Event of Default, as the Agent may
otherwise direct.
4.12 In the event the Company has Surplus Cash in any fiscal year
beginning with fiscal year ending January 31, 1998 in excess of
$3,000,000.00, the Company must make a Mandatory Prepayment of the Term
Loans within ninety (90) days of any such fiscal year end by an amount
equal to fifty percent (50%) of said Surplus Cash in excess of
$3,000,000.00; whereof any such prepayments shall first be applied to Term
Loan II, in inverse order of maturity and upon payment in full thereof to
Term Loan I in inverse order of maturity and upon repayment in full
thereof, to Term Loan III in inverse order of maturity, or upon the
occurrence of any Default or Event of Default in such order as the Agent
may determine.
4.13 The Company hereby authorizes the Agent to charge its revolving
loan account with the amount of all amounts due under this Section 4 as
such amounts become due. The Company confirms that any charges which the
Agent may so make to its account as herein provided will be made as an
accommodation to the Company and solely at the Agent's discretion."
3. Subparagraphs 7.11(a) and (b) of Section 7 of the Financing Agreement are
hereby amended by:
(a) with respect to subparagraph 7.11(a), inserting the following
after the amount of "$15,000,000" therein:
"provided that, for fiscal year ending February 1, 1997 Capital
Expenditures shall be limited to $22,000,000"; and
(b) with respect to subparagraph 7.11(b), renumbering subsection
"(ii)" thereof as "(iii)" and inserting a new subsection "(ii)" at the end of
"(i)" thereof as follows:
", (ii) $16,000,000 for fiscal year ending February 1, 1997 (which
amount does not include any "carry over" amounts permitted
hereinbelow)".
4. (a) Section 8, paragraph 8.2 of the Financing Agreement shall be, and hereby
is deleted, and the following paragraph 8.2 shall be, and hereby is, substituted
in lieu thereof as follows:
"8.2 (a) Interest at the Chemical Bank Rate on Term Loan I, shall be
payable monthly as of the end of each month on the unpaid balance or
on payment in full
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<PAGE>
prior to maturity thereof in an amount equal to one percent (1%) plus the
Chemical Bank Rate (or any successor thereof). In the event of any change
in said Chemical Bank Rate, the rate hereunder shall change as of the first
of the month following any such change so as to remain one percent (1%)
above the Chemical Bank Rate. The rate hereunder shall be calculated based
on a 365 day year. The Agent shall be entitled to charge the Company's
account at the rate provided for herein when due until all Obligations have
been paid in full."
"(b) Interest at the Chemical Bank Rate on Term Loan II, shall be
payable monthly as of the end of each month on the unpaid balance or on
payment in full prior to maturity thereof in an amount equal to one and
one-half percent (1.5%) plus the Chemical Bank Rate (or any successor
thereof). In the event of any change in said Chemical Bank Rate, the rate
hereunder shall change as of the first of the month following any such
change so as to remain one and one-half percent (1.5%) above the Chemical
Bank Rate. The rate hereunder shall be calculated based on a 365 day year.
The Agent shall be entitled to charge the Company's account at the rate
provided for herein when due until all Obligations have been paid in full."
"(c) Interest, at the Chemical Bank Rate, on Term Loan III shall be
payable monthly as of the end of each month on the unpaid balance or on
payment in full prior to maturity thereof in an amount equal to one and one
half percent (1.5%) plus the Chemical Bank Rate (or any successor thereof).
The rate hereunder shall be calculated based on a 365 day year. In the
Event of any change in said Chemical Bank Rate the rate hereunder shall
change as of the first of the month following any such change so as to
remain one and one-half percent (1.5%) above the Chemical Bank Rate. The
Agent shall be entitled to charge the Company's account at the rate
provided for herein when due until all Obligations have been paid in full."
"(d) Interest on Term Loan I, II and/or III at the LIBO Rate shall be
payable in accordance with paragraphs 8.14 et seq.
(b) Section 8, subparagraph 8.14(a)(ii) is hereby deleted and the following
subparagraph is hereby substituted in lieu thereof:
"(ii) 2.25% with respect to Term Loan I and III; and"
5. Section 8 is hereby further amended by the addition of the following
Eurodollar Loan paragraphs designated as "8.22, 8.23 and 8.24" as of the end of
paragraph 8.21 as follows:
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<PAGE>
"8.22 APPLICATION OF PROCEEDS
-----------------------
Notwithstanding anything to the contrary contained herein, the Agent
shall apply all proceeds of Collateral, including the Accounts, and
all other amounts received by it from or on behalf of the Company (i)
initially to the Chemical Bank Rate Loans and (ii) subsequently to
Eurodollar Loans, provided, however, x) absent the occurrence of any
-----------------
of the events set forth in (y) through (z) below, with respect to
clause (ii) above, at the Agents reasonable discretion, in the event
proceeds of Collateral are received in excess of Chemical Bank Rate
Loans, such proceeds may be (A) held in the Company's account and
applied to subsequent Chemical Rate Loans or as otherwise provided in
this Financing Agreement, (B) the Company may request (at such time)
that such proceeds be transferred to its operating account, or (C)
applied to the outstanding Eurodollar Loans (provided however that the
Agent shall take into consideration the outstanding tranches of
Eurodollar Loans and the breakage fee with respect to each such
tranche in determining which tranche(s) shall be prepaid); y) upon the
occurrence of an Event of Default; and/or z) any requested LIBO Rate
Loan exceeds the Borrowing Base, the Agent may apply all such amounts
received by it to the payment of Obligations in such manner and in
such order as the Agent may elect in its reasonable business judgment.
In the event that any such amounts are applied to Revolving Loans
which are LIBO Rate Loans such application shall be treated as a
prepayment of such loans and the Agent shall be entitled to the LIBO
Rate prepayment penalty with respect thereto."
"8.23 PREPAYMENT
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The Company may prepay at its option at any time, in whole or in part
LIBO Rate Loans upon prior written notice, provided that, on each such
prepayment, the Company shall pay x) accrued interest, on the
principal so prepaid to the date of such prepayment and y) the LIBO
Rate prepayment penalty, if applicable."
"8.24 TERMINATION
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As further set forth in Section 10 hereof, the Agent may terminate the
Financing Agreement upon the occurrence of an Event of Default, and
the Company shall be obligated to pay the LIBO Rate prepayment
penalty, if applicable.
6. In addition, it is hereby agreed that:
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(a) The terms "Obligations" and "Term Loan(s)" as used in the Financing
Agreement shall also include, without limitation, all indebtedness,
liabilities and obligations of the Company to the Agent and the
Lenders pursuant to Term Loan III (herein the "Term Loan III
Obligations") which Term Loan III Obligations shall be and hereby are
secured by all Collateral under the Financing Agreement and any of the
ancillary security agreements executed in connection therewith.
(b) The form of Promissory Note attached hereto shall be
attached to the Financing Agreement as Exhibit E and shall
constitute Promissory Note E thereunder.
7. The effectiveness of all of the amendments and/or waivers set forth above and
the extension of Term Loan III shall be, and hereby is, subject to the
fulfillment to the Agent's satisfaction of the Conditions Precedent. The
"Conditions Precedent" shall mean each of the following:
(i) the execution and delivery to the Agent of all documentation requested
by the Agent to validly perfect the Agent's first lien upon the Company's
Real Estate to secure the Term Loan III Obligations (subject to such liens
and encumbrances as may be satisfactory to the Agent in its sole
discretion), including, without limitation, mortgages (in form and
substance satisfactory to the Agent), title insurance policies and surveys
or updates thereof so that the survey exception is removed from all such
title insurance policies (all of which shall be acceptable to the Agent in
its sole discretion) and any other documentation reasonably requested by
the Agent in connection therewith;
(ii) the absence of (x) any Default and/or Event of Default after giving
effect to Term Loan III and (y) any material adverse change in the
financial condition, business, prospects, profitability, assets or
operations of the Companies;
(iii) The Agent's receipt of copies of the asset purchase agreement with
respect to the Cheyenne, Wyoming facility and any related expenditures for
Capital Expenditures (purchased with the proceeds of Term Loan III), and
which purchase agreement and related documents must indicate values for
such assets which are acceptable to the Agent.
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<PAGE>
(iv) the Company shall pay (x) all Out-of-Pocket Expenses incurred by the
Agent in connection with this amendment agreement and Term Loan III, and
(y) a Documentation Fee of $2,500; and
(v) The Agent's receipt of a secretary's certificate certifying Board of
Directors Resolutions authorizing the execution, delivery and performance
by the Company of this amendment agreement and all documents and
transactions contemplated hereby.
Except to the extent set forth herein, no other waiver of, or change in any of
the terms, provisions or conditions of the Financing Agreement is intended or
implied.
This agreement may be executed in two (2) or more counterparts, each of which
shall constitute an original but all of which when taken together shall
constitute but one (1) agreement, and shall become effective when copies hereof
which, when taken together, bear the original signatures of each of the parties
hereto are delivered to the Agent. It is hereby further agreed that with
respect to this agreement and any other documents contemplated hereby, as may
be amended, signed faxed documents shall be deemed to be of the same force and
effect as an original of a manually signed copy, and the Company hereby further
agrees to obtain and deliver original documents to the Agent and each Lender
(provided that the failure to deliver such original documents shall not be
deemed to modify the foregoing).
8
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly so indicate by signing and returning the enclosed copy of this letter.
Very truly yours,
THE CIT GROUP/BUSINESS
CREDIT, INC., as Agent and Lender
By: /s/ Bonnie Schain
------------------------------
Title: Assistant Vice President
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THE CIT GROUP/EQUIPMENT
FINANCING, INC., as Lender
By: /s/ Norm Hall
------------------------------
Title: Vice President
---------------------------
Read and Agreed to:
BUTTREY FOOD AND DRUG COMPANY
By: /s/ Wayne S. Peterson
--------------------------
Title: SVP & CFO
-----------------------
9
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