<PAGE>
================================================================================
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 1, 1998
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
14, 1998 was 8,645,306 shares
THERE ARE NO EXHIBITS FILED WITH THIS FORM 10-Q
====================================================
Page 1 of 12
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BUTTREY FOOD AND DRUG STORES COMPANY
AND SUBSIDIARY
FORM 10-Q
For the Quarterly Period Ended August 1, 1998
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page
<S> <C>
Item 1. Financial Statements
a) Consolidated Balance Sheets as of August 1, 1998 (unaudited)
and January 31, 1998 3
b) Consolidated Statements of Operations for the 13 weeks
and the 26 weeks ended August 1, 1998 (unaudited) and
August 2, 1997 (unaudited) 4
c) Consolidated Statement of Stockholders' Equity as of January 31,
1998 and August 1, 1998 (unaudited) 4
d) Consolidated Statements of Cash Flows for the 13 weeks and
the 26 weeks ended August 1, 1998 (unaudited) and
August 2, 1997 (unaudited) 5
e) Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
</TABLE>
Page 2 of 12
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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 1, January 31,
1998 1998
- ----------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,137 $ 5,173
Accounts receivable 5,290 5,671
Inventories 40,992 45,230
Prepaid expenses 1,114 1,352
Deferred tax asset 694 694
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 53,227 58,120
Property and equipment, at cost 171,911 167,758
Less accumulated depreciation 69,854 64,312
- ----------------------------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 102,057 103,446
Intangible assets, net 6,262 6,573
Other assets 773 759
- ----------------------------------------------------------------------------------------------------------------------
Total assets $162,319 $168,898
======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 13,348 $ 12,743
Current obligations under capital leases 472 483
Accounts payable 14,778 17,773
Accrued payroll and benefits 6,985 8,031
Accrued expenses and reserves 3,672 3,491
Accrued interest payable 93 169
Income taxes (21) -
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 39,327 42,690
Long-term debt 17,214 20,456
Obligations under capital leases 8,252 8,475
Deferred taxes payable 1,951 1,950
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 8,645,306 shares as of August 1, 1998
and 8,644,631 shares as of January 31, 1998 87 86
Paid-in capital 79,179 79,174
Retained earnings 16,834 16,592
- ----------------------------------------------------------------------------------------------------------------------
96,100 95,852
Less stock subscriptions receivable 525 525
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NET STOCKHOLDERS' EQUITY 95,575 95,327
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $162,319 $168,898
======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
Page 3 of 12
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
==================================================================================================================
(Dollar Amounts in Thousands, Except Per Share Data)
- ------------------------------------------------------------------------------------------------------------------
13 Weeks Ended 26 Weeks Ended
- ------------------------------------------------------------------------------------------------------------------
August 1, August 2, August 1, August 2,
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
SALES $ 100,149 $ 101,125 $ 193,839 $ 196,059
Cost of sales and related occupancy expenses 76,445 75,965 146,722 147,055
- ------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 23,704 25,160 47,117 49,004
Marketing, general, and administrative expenses 22,322 22,095 44,529 43,318
- ------------------------------------------------------------------------------------------------------------------
Operating income 1,382 3,065 2,588 5,686
Other income / (expense):
Loss on disposal of owned property (44) - (44) (1)
Interest income 14 41 28 54
Interest expense (949) (785) (1,875) (1,592)
Interest expense - tax settlement - (1,274) - (1,274)
- ------------------------------------------------------------------------------------------------------------------
(979) (2,018) (1,891) (2,813)
- ------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 403 1,047 697 2,873
Income tax provision 217 419 455 1,149
- ------------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 186 $ 628 $ 243 $ 1,724
==================================================================================================================
NET EARNINGS PER SHARE:
Basic $ 0.02 $ 0.07 $ 0.03 $ 0.20
Diluted 0.02 0.07 0.03 0.20
==================================================================================================================
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Basic 8,645,239 8,640,950 8,644,943 8,639,980
Diluted 8,925,154 8,801,972 8,930,116 8,791,528
==================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity
========================================================================================================
(Dollar Amounts in Thousands)
- --------------------------------------------------------------------------------------------------------
Net
Common Paid-in Retained Stock stockholders'
stock capital earnings subscriptions equity
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 31, 1998 $ 86 $ 79,174 $ 16,592 $ (525) $ 95,327
Net additions on stock subscriptions - 6 - - 6
Net earnings - - 243 - 243
- --------------------------------------------------------------------------------------------------------
BALANCE AT AUGUST 1, 1998 (UNAUDITED) $ 86 $ 79,180 $ 16,834 $ (525) $ 95,575
========================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 4 of 12
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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 1, August 2, August 1, August 2,
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 186 $ 628 $ 243 $ 1,724
Adjustments to reconcile income to net cash
provided by operating activities:
Depreciation 2,865 2,560 5,665 5,040
Amortization 156 155 316 266
Loss on disposal of owned property 44 - 44 1
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (409) 132 381 288
Decrease (increase) in inventories 2,888 655 4,238 (357)
Decrease in prepaid expenses 263 345 238 317
Increase (decrease) in accounts payable (1,250) 2,912 (2,995) 3,119
Increase (decrease) in accrued payroll and benefits 747 1,209 (1,046) 866
Decrease in accrued expenses and reserves (724) (599) (298) (1,405)
Increase (decrease) in accrued interest payable 47 1,327 (76) 1,289
Increase in accrued income taxes 217 1,413 454 2,143
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 5,030 10,737 7,163 13,291
- ---------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of property and equipment (1,165) (888) (4,320) (3,214)
Increase in other assets (14) (2,215) (14) (3,203)
- ---------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (1,179) (3,103) (4,334) (6,417)
- ---------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Increase (decrease) on long-term debt (2,807) (4,831) 525 (3,866)
Proceeds (payments) in equipment financing (1,538) 2,386 (3,161) 2,386
Increase on stock subscriptions receivable - - - (125)
Issuance of common stock 5 - 5 12
Payments on capital lease obligations (119) (105) (234) (208)
- ---------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (4,459) (2,550) (2,865) (1,801)
- ---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (608) 5,084 (36) 5,073
Cash and cash equivalents at beginning of period 5,745 5,064 5,173 5,075
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 5,137 $ 10,148 $ 5,137 $ 10,148
=====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
Page 5 of 12
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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 January 31, 1998.
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.
In June, 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and displaying
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. This statement requires
that all items required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company does not have any elements of
comprehensive income other net income.
In June 1997, FASB issued SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information." This statement requires public business to
disclose selected information about operating segments including segment income,
revenues and asset data. Operating segments, as defined in SFAS No. 131, would
include those components for which financial information is available and
evaluated regularly by the chief operating decision maker in assessing
performance and making resource allocation determinations for operating
components such as those which contribute ten percent or more of combined
revenue, income or assets. SFAS No. 131 is effective for financial statements
for periods beginning after December 31, 1997. Adoption did not have a material
impact on the Company's presentation of consolidated financial statements.
On April 3, 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position 98-5. "Reporting on the Costs of Start-up Activities"
(SOP 98-5). SOP 98-5 requires that costs of start-up activities, including
organization costs, be expensed as incurred. Costs of start-up activities may
have been referred to as preopening costs, preoperating costs, start-up costs,
organization costs, or other terms. In other cases, costs of start-up
activities may have been included as a component of the cost of tangible or
intangible assets. Regardless of what these costs have been called or how these
costs have been classified in the past, the SOP applies to all costs of start-up
activities, including organization costs.
SOP 98-5 is effective for financial statements for fiscal years beginning
after December 15, 1998. Earlier application is encouraged in fiscal years for
which financial statements have not been issued. Restatement of previously
issued financial statements is not permitted. Initial application of the SOP
should be as the beginning of the fiscal year in which the SOP is first adopted
and should be reported as the cumulative effect of a change in accounting
principle as described in APB Opinion No. 20, "Accounting Changes". Management
expects that adoption will not have a material impact on the Company's
consolidated financial statements.
Page 6 of 12
<PAGE>
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 44 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.
RESULTS OF OPERATIONS
13 Weeks Ended August 2, 1998 Compared to 13 Weeks Ended August 1, 1997
Sales for the 13 weeks ended August 1, 1998 decreased $1.0 million, or 1.0%,
from $101.1 million in the second quarter of 1997 to $100.1 million in the
second quarter of 1998. The decrease in sales reflects a 3.0% decline in
comparable store sales partially offset by additional sales from the Company's
new store in Great Falls, Montana that opened in late March. The decline in
comparable store sales is attributable to the impact of new stores, remodels and
expansions by competitors during the past year which have yet to anniversary,
and the deflection of sales from the Company's two largest stores in Great Falls
into the Company's new store. Additionally, management believes that comparable
store sales continue to be negatively impacted by a more aggressive competitive
environment and customer response to the Company's pending merger with
Albertson's, Inc. (NYSE:ABS).
Gross profit for the 13 weeks ended August 1, 1998 decreased $1.5 million from
$25.2 million in the second quarter of 1997 to $23.7 million in the second
quarter of 1998. The decrease in gross profit is attributable to the decline in
sales and to decreased vendor support as a result of the pending merger with
Albertson's, including reductions in market development funds, new item
allowances and buy-in opportunities due to the announced closure of the Great
Falls distribution center by Albertson's upon completion of the merger
transaction. Gross profit as a percentage of sales decreased 1.2% from 24.9% in
the second quarter of 1997 to 23.7% in the second quarter of 1998.
Marketing, general and administrative ("MG&A") expenses for the 13 weeks ended
August 1, 1998 increased $0.2 million from $22.1 million in the second quarter
of 1997 to $22.3 million in the second quarter of 1998. The increase in MG&A is
principally attributable to increases in depreciation, store occupancy costs
attributable to the new store, and merger costs, partially offset by lower
administrative expenses. MG&A expenses as a percentage of sales increased 0.5%
from 21.8% in the second quarter of 1997 to 22.3% in the second quarter of 1998.
Operating income for the 13 weeks ended August 1, 1998 decreased $1.7 million
from $3.1 million, or 3.0% of sales, in the second quarter of 1997 to $1.4
million, or 1.4% of sales, in the second quarter of 1998.
Interest expense, net of interest income, for the 13 weeks ended August 1,
1998 decreased $1.1 million from $2.0 million, or 2.0% of sales, in the second
quarter of 1997 to $0.9 million, or 0.9% of sales, in the second quarter of
1998. The decrease in interest expense is the result of a one-time interest
charge, in the second quarter of 1997, of $1.3 million associated with the IRS
tax settlement, partially offset by $0.2 increase in interest expense
attributable to an increase in outstanding long-term debt. See "--Liquidity and
Capital Resources."
Page 7 of 12
<PAGE>
Net income for the 13 weeks ended August 1, 1998 decreased $0.4 million from
$0.6 million, or $0.07 per share, in the second quarter of 1997 to $0.2 million,
or $0.02 per share, in the second quarter of 1998. Excluding the one-time
interest charge described above of $1.3 million ($0.8 million after-tax, or
$0.09 per share), net income for the 13 weeks ended August 1, 1998 decreased
$1.2 million from $1.4 million, or $0.16 per share, in the second quarter of
1997 to $0.2 million, or $0.02 per share, in the second quarter of 1998. The
decrease in net income is attributable to the decline in operating income, the
increase in interest expense and the non-deductibility of merger costs for tax
purposes which has resulted in an increased effective tax rate.
26 Weeks Ended August 1, 1998 Compared to 26 Weeks Ended August 2, 1997
Sales for the 26 weeks ended August 1, 1998 decreased $2.3 million, or 1.1%,
from $196.1 million in 1997 to $193.8 million in 1998. The decrease in sales
reflects a 2.8% decline in comparable store sales partially offset by additional
sales from the Cody, Wyoming store that the Company acquired during the first
quarter of 1997, and from the Company's new store in Great Falls, Montana which
opened in late March 1998. The decline in comparable store sales is
attributable to the opening of competitor new stores during the current year,
the impact from competitor new stores, remodels and expansions during the past
year which have yet to anniversary, and the deflection of sales from the
Company's two largest stores in Great Falls into the Company's new store.
Additionally, management believes that comparable store sales have been
negatively impacted by a more aggressive competitive environment and customer
response to the Company's pending merger with Albertson's, Inc.
Gross profit for the 26 weeks ended August 1, 1998 decreased $1.9 million from
$49.0 million in 1997 to $47.1 million in 1998. The decrease in gross profit is
attributable to the decline in sales and to decreased vendor support as a result
of the pending merger with Albertson's, including reductions in market
development funds, new item allowances and buy-in opportunities due to the
announced closure of the Great Falls distribution center by Albertson's upon
completion of the merger transaction. Gross profit as a percentage of sales
decreased 0.7% from 25.0% in 1997 to 24.3% in 1998.
MG&A expenses for the 26 weeks ended August 1, 1998 increased $1.2 million
from $43.3 million in 1997 to $44.5 million in 1998. The increase in MG&A is
principally attributable to merger costs, to pre-opening expenses associated
with the Harlem, Montana replacement store and the new store in Great Falls, and
to increases in depreciation, store occupancy costs associated with the new
stores, and advertising expenses, partially offset by lower administrative
expenses. MG&A expenses as a percentage of sales increased 0.9% from 22.1% in
1997 to 23.0% in 1998.
Operating income for the 26 weeks ended August 1, 1998 decreased $3.1 million
from $5.7 million, or 2.9% of sales, in 1997 to $2.6 million, or 1.3% of sales,
in 1998.
Interest expense, net of interest income, for the 26 weeks ended August 1,
1998 decreased $1.0 million from $2.8 million, or 1.4% of sales, in 1997 to $1.8
million, or 1.0% of sales, in 1998. The decrease in interest expense is the
result of a one-time interest charge, in the second quarter of 1997, of $1.3
million associated with the IRS tax settlement, partially offset by $0.3
increase in interest expense attributable to an increase in outstanding long-
term debt. See "--Liquidity and Capital Resources."
Net income for the 26 weeks ended August 1, 1998 decreased $1.5 million from
$1.7 million, or $0.20 per share, in 1997 to $0.2 million, or $0.03 per share,
in 1998. Excluding the one-time interest charge described above of $1.3 million
($0.8 million after-tax, or $0.09 per share), net income for the 26 weeks ended
August 1, 1998 decreased $2.0 million from $2.2 million, or $0.29 per share, in
1997 to $0.2 million, or $0.03 per share, in 1998. The decrease in net income
is attributable to the decline in operating income, the increase in interest
expense and the non-deductibility of merger costs for tax purposes which has
resulted in an increased effective tax rate.
Page 8 of 12
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LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise primarily from debt service on its
indebtedness and the funding of the Company's capital expenditure and 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, and temporary borrowings
under the Company's working capital facility.
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 revolving credit
facility (with a $10.0 million sublimit for letters of credit) and includes
variable rate term loans totaling $12.8 million, which the Company used to
refinance existing equipment financing loans resulting in lower interest rates
and extended maturities. The borrowing base under which the revolving credit
facility can be utilized is equal to 65% of Eligible Inventory (essentially non-
perishable inventory). The estimated borrowing base as of August 1, 1998 was
$23.0 million. During the third quarter of 1996, the Financing Agreement was
amended to provide for a third term loan in an amount of up to $5.0 million
("Term Loan III") which the Company used to finance a substantial portion of the
purchase price related to its June 1996 acquisition of the Cheyenne, Wyoming
store, to increase the flexibility of the covenants relating to capital
expenditures contained therein, and to make other technical changes. 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:
<TABLE>
<S> <C>
$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%
$5.0 Term Loan III prime rate plus 1.50% or LIBOR plus 2.25%
</TABLE>
The Financing Agreement matures five years from inception, however, the
principal portion of Term Loans I and II are amortized on a straight-line basis
over 84 months and the principal portion of Term Loan III is amortized on a
straight-line basis over 60 months. In the event that the Financing Agreement
is not extended at the end of five years, all three term loans will become due
and payable. The Financing Agreement also provides that the maturity date of
all balances shall become accelerated upon a specified change in control or
ownership in the Company.
Borrowings under the Financing Agreement are secured by the Great Falls
Distribution Center, a retail store location in Butte, Montana and substantially
all of the personal property of the Company. The Financing Agreement contains
certain financial and operating covenants, including limitations on the amount
of the Company's capital expenditures, its ability to pay dividends, and its
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 26 weeks ended August 1, 1998 are as follows:
<TABLE>
<CAPTION>
Actual Test
<S> <C> <C>
Minimum Net Worth $95.6 Million $80.0 Million
Maximum Capital Expenditures $ 4.3 Million $18.6 Million
</TABLE>
Page 9 of 12
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<TABLE>
<S> <C> <C>
Maximum Net Capital Expenditures $ 4.3 Million $12.6 Million
Minimum Interest Charge Coverage Ratio 5.44 5.00
</TABLE>
As of August 1, 1998, the Company had $6.9 million in borrowings outstanding
under the revolving credit facility and letter of credit commitments of $2.6
million. The outstanding balance under Term Loan I was $4.7 million (of which
$1.2 million is classified as current), under Term Loan II was $2.7 million (of
which $0.7 million is classified as current), and under Term Loan III was $3.0
million (of which $1.0 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.
The Company has utilized equipment financing from time to time in order to
finance the purchases of store equipment and vehicles. The proceeds from each
of Term Loan I and Term Loan II were used by the Company to repay the remaining
outstanding obligations of all prior equipment financing loans. In addition to
these 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 ("NationsBanc") to
finance the purchase of new equipment related to the remodel of two stores in
Great Falls, Montana and to upgrade 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 loan
is payable in monthly installments over 48 months. On November 4, 1996, the
Company completed a loan transaction with NationsBanc in an amount of
approximately $1.6 million, which proceeds were used by the Company to finance
the Lewistown, Montana remodel and to further upgrade the Company's
transportation fleet. The new loan is payable in monthly installments over 48
months and bears interest at LIBOR plus 2.35%. On December 15, 1997, the
Company completed a loan transaction with NationsBanc in an amount of
approximately $1.0 million, which proceeds were used by the Company to further
upgrade the Company's transportation fleet. The new loan is payable in monthly
installments over 48 months and bears interest at LIBOR plus 2.35%. As of
August 1, 1998, the outstanding obligation under these equipment loans
aggregated $4.3 million (of which $2.0 million is classified as current).
The Company has also entered into a commitment to finance capital expenditures
with General Electric Capital Corporation ("GE Capital")to finance up to $10.0
million of new store equipment. During the second quarter 1997, the Company
completed a $2.4 million loan transaction with GE Capital for the financing of
the fixtures and equipment at the Company's new Bozeman, Montana store. The new
loan is payable in monthly installments over 60 months and bears interest at the
30-day commercial paper rate plus 2.18%. On December 19, 1997, the Company
completed a $5.3 million loan transaction with GE Capital for the financing of
the primarily fixtures and equipment associated with the Company's three
remodeled stores in Billings, Montana. The new loan is payable in monthly
installments over 60 months and bears interest at the 30-day commercial paper
rate plus 2.18%. As of August 1, 1998, the outstanding obligation under these
equipment loans aggregated $6.4 million (of which $1.5 million is classified as
current).
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 1, 1998 was $8.7 million (of which $0.5 million is classified as
current).
On April 1, 1997, the Company completed the acquisition of a conventional
store in Cody, Wyoming. The purchase price was $2.4 million for fixtures and
equipment, and a non-compete agreement, plus $0.3 million for inventory. The
Company also entered into a lease with the seller of the business for the real
property on which the grocery store was previously located.
Page 10 of 12
<PAGE>
Net cash provided by operating activities was $7.2 million for the 26 weeks
ended August 1, 1998, as compared with $13.3 million for the 26 weeks ended
August 2, 1997. The decrease in net cash provided by operating activities was
primarily attributable to a $5.4 million decrease in net changes in operating
assets and liabilities and by a $0.8 million decrease in net income before
depreciation, amortization, LIFO provision, deferred taxes and disposal of owned
property.
The Company spent an aggregate of $15.4 million, $22.9 million and $10.0
million on capital expenditures (primarily for acquisitions, store remodelings
and ongoing maintenance of its existing store base and support functions),
during fiscal years 1997, 1996 and 1995, respectively. Of these amounts, the
Company has funded approximately $8.6 million, $10.6 million and $1.2 million
through equipment and real estate financings in fiscal years 1997, 1996 and
1995, respectively. The Company has continued its store remodeling and
development program. During the first quarter of 1998, the Company completed
the replacement of an older store with a Buttrey Fresh Foods store in Harlem,
Montana, and the Company opened its ninth Buttrey Big Fresh store, in Great
Falls, Montana. The Company has spent $4.3 million for capital expenditures in
1998 primarily for the two stores described above. For the remainder of 1998,
capital expenditures will be limited pursuant to the Merger Agreement with
Albertson's Inc. to approximately $0.1 million per month.
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.
COMPUTERIZED OPERATIONS AND THE YEAR 2000
During recent years, there has been increasing global awareness regarding the
potential disruption to business operations worldwide resulting from the
inability of current technology to process properly the change from the year
1999 to 2000. The Company has evaluated the significance of the change from the
year 1999 to the year 2000 on its existing computer systems and has taken steps
designed to ensure that its computer systems will not be adversely affected
thereby. The financial impact of such steps is not anticipated to be material.
In addition, the Company's systems rely in part on computer-based systems of
other companies. As a result, if any such company failed to become year 2000
compliant, the Company could be adversely affected.
Page 11 of 12
<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.
During August 1997, the Company reached a proposed settlement with the IRS
with regard to adjustments associated with the Company's initial acquisition of
assets. The settlement was formally approved on September 17, 1997. Under the
terms of the settlement, the Company paid approximately $1,386,000 in federal
taxes plus approximately $1,086,000 in interest. Additionally, the Company will
have corresponding state tax liabilities of approximately $483,000 plus
approximately $188,000 in interest. The aggregate $2,092,000 in tax liability
has been recorded on the Company's balance sheet 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 associated with
the Company's initial acquisition of assets. The aggregate interest of
$1,274,000 ($764,000 after-tax, or $0.09 per share), however, has been recorded
as an expense in the fiscal quarter ended August 2, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Number
27 - Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended August 1, 1998, 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 14, 1998 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 12 of 12
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