UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 3, 2001
|_| TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from .............to ............
Commission File Number 1-7013
GRISTEDE'S FOODS, INC.
----------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-1829183
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
823 Eleventh Avenue, New York, New York 10019
---------------------------------------------
(Address of Principal Executive Offices)
(212) 956-5803
--------------
(Registrant's Telephone Number, Including Area Code)
N/A
---
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15 (d) of the Securities Exchange Act 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 |_|
At July 23, 2001, registrant had issued and outstanding 19,636,574 shares of
common stock.
GRISTEDE'S FOODS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 3, 2001 and December 3, 2000 Page 3
Consolidated Statements of Operations for
the quarters and six months ended
June 3, 2001 and May 28, 2000 Page 4
Consolidated Statements of Stockholders'
Equity for the year ended
December 3, 2000 and the
six months ended June 3, 2001 Page 5
Consolidated Statements of Cash Flows for
the quarters and six months ended
June 3, 2001 and May 28, 2000 Page 6
Notes to Consolidated Financial Statements Page 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations Page 12
PART II - OTHER INFORMATION Page 16
2
Item 1
Financial Statements
GRISTEDE'S FOODS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
June 3, December 3,
ASSETS 2001 2000
============ ============
CURRENT ASSETS:
Cash $ 437,274 $ 412,408
Accounts receivable - net of allowance for doubtful accounts
of $186,640 at June 3, 2001 and $150,000 at December 3, 2000 5,832,903 6,864,329
Inventory 31,245,794 30,104,955
Due from related parties - trade 1,227,704 879,000
Due from related parties - other 0 3,072,000
Prepaid expenses and other current assets 1,469,309 2,488,337
------------ ------------
Total current assets 40,212,984 43,821,029
------------ ------------
PROPERTY AND EQUIPMENT:
Furniture, fixtures and equipment 17,221,654 16,838,262
Capitalized equipment leases 19,736,493 18,714,519
Leaseholds and leasehold improvements 50,177,503 47,963,768
------------ ------------
87,135,650 83,516,549
Less accumulated depreciation and amortization 37,876,536 35,228,221
------------ ------------
Net property and equipment 49,259,114 48,288,328
Deposits and other assets 979,534 951,596
Other assets 3,577,736 3,385,104
------------ ------------
TOTAL $ 94,029,368 $ 96,446,057
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $ 25,426,833 $ 26,956,398
Accrued payroll, vacation and withholdings 1,621,825 2,397,593
Accrued expenses and other current liabilities 513,552 1,343,421
Capitalized lease obligation - current portion 2,644,637 2,362,457
Current portion of long term debt 9,645,235 6,388,426
------------ ------------
Total current liabilities 39,852,082 39,448,295
Long-term debt - noncurrent portion 17,570,843 22,027,652
Due to affiliates 12,802,411 12,129,031
Capitalized lease obligation - noncurrent portion 8,129,184 8,221,842
Rent leveling liability 3,565,809 3,301,793
------------ ------------
Total liabilities 81,920,329 85,128,613
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $50 Par, -share authorized 500,000; none issued 0 0
Common stock, $0.02 par value - shares authorized 25,000,000; outstanding
19,636,574 shares at June 3, 2001 and December 3, 2000 392,732 392,732
Additional paid-in capital 14,136,674 14,136,674
Retained earnings/ (deficit) (2,420,367) (3,211,962)
------------ ------------
Total stockholders' equity 12,109,039 11,317,444
------------ ------------
TOTAL $ 94,029,368 $ 96,446,057
============ ============
See accompanying notes.
3
GRISTEDE'S FOODS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE 26 WEEKS AND 13 WEEKS ENDED JUNE 3, 2001 AND MAY 28, 2000
26 weeks 13 weeks 26 weeks 13 weeks
ended ended ended ended
June 3, June 3, May 28, May 28,
2001 2001 2000 2000
============= ============ ============= ============
Sales $ 116,834,076 $ 56,949,260 $ 106,017,817 $ 52,269,920
Cost of sales 71,005,520 34,218,645 63,881,642 31,473,563
------------- ------------ ------------- ------------
Gross profit 45,828,556 22,730,615 42,136,175 20,796,357
Store operating, general and administrative expenses 35,744,501 17,606,797 32,516,371 16,256,185
Pre-store opening startup costs 132,000 66,000 422,223 138,890
Depreciation and amortization 3,323,468 1,639,735 2,675,756 1,404,456
Non-store operating expenses:
Administrative payroll and fringes 2,509,429 1,261,798 2,185,950 1,109,612
General office expense 1,182,955 648,998 770,770 359,352
Professional fees 354,227 207,860 284,134 173,561
Corporate expense 89,033 45,041 87,514 45,199
------------- ------------ ------------- ------------
Total non-store operating expense 4,135,644 2,163,697 3,328,368 1,687,724
------------- ------------ ------------- ------------
Operating income 2,492,943 1,254,386 3,193,457 1,309,102
------------- ------------ ------------- ------------
Other income (expense):
Interest expense (1,869,793) (912,786) (1,803,302) (917,116)
Interest income 7,305 2,635 25,275 10,568
Other income 181,140 (3,813) 0 0
------------- ------------ ------------- ------------
Total other expense - net (1,681,348) (913,964) (1,778,027) (906,548)
------------- ------------ ------------- ------------
Income before income taxes 811,595 340,422 1,415,430 402,554
Provision for income taxes 20,000 10,000 13,050 6,550
------------- ------------ ------------- ------------
Net income $ 791,595 $ 330,422 $ 1,402,380 $ 396,004
============= ============ ============= ============
Income per share, basic and diluted $ 0.04 $ 0.02 $ 0.07 $ 0.02
============= ============ ============= ============
Weighted average number of shares and
equivalents outstanding 19,636,574 19,636,574 19,636,574 19,636,574
============= ============ ============= ============
See accompanying notes
4
GRISTEDE'S FOODS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 3, 2000
AND FOR THE SIX MONTHS ENDED JUNE 3, 2001
Additional Retained Total
Common stock Paid-In earnings Stockholders'
Shares Amount Capital (Deficit) Equity
========== ========= =========== =========== =============
Balance at November 28, 1999 19,636,574 $ 392,732 $14,136,674 $(3,021,054) $11,508,352
Net loss for the year ended
December 3, 2000 (190,908) (190,908)
---------- --------- ----------- ----------- -----------
Balance at December 3, 2000 19,636,574 $ 392,732 $14,136,674 $(3,211,962) $11,317,444
Net income for the six months
ended June 3, 2001 791,595 791,595
---------- --------- ----------- ----------- -----------
Balance at June 3, 2001 19,636,574 $ 392,732 $14,136,674 $(2,420,367) $12,109,039
========== ========= =========== =========== ===========
See accompanying notes.
5
GRISTEDE'S FOODS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 3, 2001 AND MAY 28, 2000
26 weeks 26 weeks
ended ended
June 3, May 28,
2001 2000
=========== ===========
Cash flows from operating activities:
Net income $ 791,595 $ 1,402,380
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,323,468 2,675,756
Change in allowance for bad debts 36,640
Gain on sale of store (192,177)
Changes in operating assets and liabilities:
Accounts receivable 994,786 (68,237)
Inventory (1,140,839) (2,688,768)
Notes receivable 0 562,826
Due from related parties - trade (348,704) 0
Prepaid expenses and other current assets 1,019,027 529,635
Other assets (620,882) (206,868)
Accounts payable, trade (1,529,565) 101,225
Accrued payroll, vacation and withholdings (775,768) (485,113)
Accrued expenses and other current liabilities (829,583) 185,251
Accrued rent leveling 264,016 325,897
Other credits 0 (358,043)
----------- -----------
Net cash provided by operating activities 992,014 1,975,941
----------- -----------
Cash flows from investing activities:
Proceeds from sale of store 225,000 0
Capital expenditures (2,463,463) (4,247,020)
----------- -----------
Net cash used in investing activities (2,238,463) (4,247,020)
----------- -----------
Cash flows from financing activities:
Repayments of bank loan (1,200,000) (600,000)
Proceeds from bank loans 0 800,000
Repayment capitalized lease obligations (1,274,066) (908,167)
Advances from affiliates 3,745,381 2,929,837
----------- -----------
Net cash provided by financing activities 1,271,315 2,221,670
----------- -----------
NET INCREASE (DECREASE) IN CASH 24,866 (49,409)
CASH, begining of period 412,408 298,582
----------- -----------
CASH, end of period $ 437,274 $ 249,173
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 2,120,919 $ 1,447,821
Cash paid for taxes $ 57,312 $ 89,050
Supplemental schedule of non cash financing activity:
Assets acquired under capitalized lease obligations $ 1,463,588 $ 1,841,636
See accompanying notes.
6
GRISTEDE'S FOODS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - On November 4, 1997, Sloan's Supermarkets, Inc. ("Sloan's") changed
its name to Gristede's Sloan's, Inc. ("GRI" or the "Company"). On November 10,
1997, GRI acquired certain assets, net of liabilities, of 29 selected
supermarkets and a wholesale distribution business ("The Food Group") controlled
by Mr. John Catsimatidis, Chairman and 37% stockholder of Sloan's. The
transaction was accounted for as the acquisition of Sloan's by The Food Group
pursuant to Emerging Issues Task Force 90-13 as a result of The Food Group
obtaining control of Sloan's after the transaction. The assets and liabilities
of The Food Group were recorded at their historical cost. Sloan's assets and
liabilities were recorded at their fair value to the extent acquired.
Consideration for the transaction was based on an aggregate of $36,000,000 in
market value of the Company's common stock and the assumption of $4,000,000 of
liabilities. 16,504,298 shares of common stock were issued on the date of the
acquisition based on a market price of $2.18 per share. On August 16, 1999 the
Company changed its name to Gristede's Foods, Inc.
The Company operates 42 supermarkets (the "Supermarkets") and two pharmacy
stores. 37 Supermarkets and two pharmacy stores are located in Manhattan, New
York, three Supermarkets are located in Westchester County, New York, one
Supermarket is located in Brooklyn, New York and one Supermarket is located in
Long Island, New York. Three of the Supermarkets are operated under the
"Sloan's" name and 39 are operated under the "Gristede's" name. The Company
leases all of its store locations.
The Company also owns City Produce Operating Corp., a corporation which operates
a warehouse and distribution center primarily for fresh produce on leased
premises in the Bronx, New York.
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in consolidation.
Quarter End - The Company operates using the conventional retail 52/53 week
fiscal year. The fiscal quarter ends on the Sunday closest to the end of the
quarter. The Company's fiscal year ends on the Sunday closest to November 30.
Inventory - Store inventories are valued principally at the lower of cost or
market with cost determined under the retail first in, first out (FIFO) method.
Property and Equipment - Depreciation of furniture, fixtures and equipment is
computed by the straight-line method over the estimated useful lives of the
assets.
Leases - The Company charges the cost of noncancelable operating lease payments
and beneficial leaseholds to operations on a straight-line basis over the lives
of the leases.
7
GRISTEDE'S FOODS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Provision for income taxes - Income taxes reflect Federal and State alternative
minimum tax only, as all regular income taxes have been offset by utilization of
the Company's net operating loss carry forward.
Income per share - Per share data are based on the weighted average number of
shares of common stock and equivalents outstanding during each quarter. Income
per share is computed by the treasury stock method; basic and diluted income per
share are the same.
In the opinion of management, the information furnished reflects all adjustments
(consisting of normal recurring adjustments), which are necessary for a fair
statement of the results of operations for the interim period. The interim
figures are not necessarily indicative of the results to be expected for the
fiscal year.
The Company's Annual Report on Form 10-K for the 12 month period ended December
3, 2000 contains information which should be read in conjunction herewith.
2. RELATED PARTY TRANSACTIONS
Under a management agreement dated November 10, 1997, Namdor Inc., a subsidiary
of the Company, performs consulting and managerial services for one supermarket
owned by a corporation controlled by John Catsimatidis. In consideration of such
services, Namdor Inc. is entitled to receive on a quarterly basis a management
fee of 1.25% of all sales of merchandise made at the managed supermarket. During
the six months and the quarter ended June 3, 2001, respectively, the management
fee income was $23,705 and $11,721. For the six months and the quarter ended May
28, 2000, respectively, the management fee income was $43,267 and $19,291.
During the 2000 period there were two additional stores included in this
agreement, one of which has since closed and another which has been contributed
to the Company and is now included in the Company's operations.
C&S Acquisition Corp. (formerly Red Apple Leasing, Inc.) a corporation wholly
owned by John Catsimatidis, leases equipment to the Company. Such leases are
primarily for store operating equipment. There were no obligations under capital
leases remaining at June 3, 2001, which previously required monthly payments of
$35,114 through March 1, 2001. Obligations under operating leases were $41,676
per month during the six months ended June 3, 2001.
Advertising services are provided to the Company by an affiliated company, MCV
Advertising Associates Inc., a company owned by John Catsimatidis. For the six
months and the quarter ended June 3, 2001, respectively, the costs were $20,448.
For the six months and the quarter ended May
8
28, 2000, respectively, the costs incurred were $763,967 and $388,865. During
the quarter ended March 4, 2001, the Company began dealing directly with various
media and no longer utilizes MCV Advertising Associates Inc.
The Company leases a 25,000 square foot warehouse, its office facilities, four
supermarket locations and a pharmacy contained within a supermarket from Red
Apple Real Estate, Inc., a company solely owned by John Catsimatidis. For the
six months and the quarter ended June 3, 2001 the Company paid to Red Apple Real
Estate, Inc. $774,122 and $390,672 for rent under such leases. For the six
months and the quarter ended May 28, 2000, respectively, the rent was $579,858
and $272,000 for three locations. The lease terms provide for an aggregate of
$1,562,000 per year in lease payments. The leases are triple net whereby the
tenant pays all real estate taxes and maintenance.
Wolf, Block, Schorr and Solis-Cohen LLP, a law firm of which Martin Bring, a
director of the Company, is a partner, charged fees of approximately $27,300 and
$18,100, respectively, for rendering legal services to the Company during the
six months and the quarter ended June 3, 2001. For the six months and the
quarter ended May 28, 2000, respectively, the fees were $145,419 and $92,561.
Amounts due to affiliates are primarily to United Acquisition Corp., a
corporation wholly owned by John Catsimatidis, and represent liabilities in
connection with the consummation of the merger, as discussed in Item 13 to the
Form 10-K for the year ended December 3, 2000, and additional advances made by
the affiliates since the merger. The affiliates have agreed not to demand
payment of these liabilities in the next fiscal year. Accordingly, the liability
has been classified as noncurrent. As part of post-closing adjustments in
connection with the Food Group Acquisition, approximately $3,600,000 in due from
affiliates has been offset against the amounts due to affiliates. The net amount
due to affiliates at June 3, 2001 and December 3, 2000 was $12,802,411 and
$12,129,031, respectively; of these amounts $9,000,000 was subordinated to the
Company's banks. The liability does not bear interest.
Due from related parties - trade, represents amounts due from affiliated
companies for merchandise shipped from the Company's subsidiary City Produce
Operating Corp. in the ordinary course of business and for which payments are
made to such subsidiary on a continuous basis, as well as management fees
receivable for administrative and managerial services performed for the
affiliated companies by the Company. For the six months and the quarter ended
June 3, 2001, merchandise sales to affiliates were approximately $1,081,000 and
$406,000, respectively. This affiliate purchased its merchandise from a third
party prior to 2000.
On February 6, 1998, the Company agreed to purchase substantially all of the
assets and assumed certain of the liabilities of a supermarket located at 1644
York Avenue, New York City, that was owned by a corporation controlled by John
Catsimatidis. On March 1, 2000 the Company and the affiliate determined to
restructure the transaction by rescinding the purchase effective as as of
February 6, 1998, and entering into an operating agreement which gives the
Company full control of the supermarket and the right to operate the supermarket
for the account of the Company. The operating agreement terminates on December
2, 2001, but the term shall be extended for additional one year periods unless
either party shall give notice of termination not later than 90 days prior to
the end of the then current term of the agreement. Under the operating
agreement, the Company shall pay to the affiliate $1 per annum, plus such other
consideration as may be approved by the Company's directors (excluding John
Catsimatidis). Pursuant to the operating agreement the Company or any designee
of the Company, also has the option until December 31, 2005 to purchase
9
the supermarket for $2,778,000, which price is the fair market price of the
supermarket established on October 11, 1999 by the Company's directors
(excluding John Catsimatidis).
In May 2000, another affiliate and the Company entered into a similar operating
agreement for a store owned by the affiliate. As consideration, the affiliate
receives $1 per annum, plus such other consideration as may be approved by the
Company's directors (excluding John Catsimatidis). The operating agreement
terminates on May 10, 2002, but the term shall be extended for additional one
year periods unless either party shall give notice of termination not later than
90 days prior to the end of the then current term of the agreement. Pursuant to
the operating agreement, the Company, or any designee of the Company, also has
the option until December 31, 2005 to purchase the supermarket for the fair
market price of the supermarket as established by the Company's directors
(excluding John Catsimatidis) using a valuation criterion similar to that issued
for valuing the store at 1644 York Avenue, New York City. It is management's
opinion that the fair market value of this store is approximately $3 million.
The affiliates' intention in entering into these two operating agreements where
the Company enjoys full benefits of ownership for the nominal consideration of
$1 per annum per store was to effect post closing adjustments in connection with
the Food Group acquisition. If the option to purchase the supermarkets is
exercised, the excess of the purchase price over the net book value of the
assets will be shown as a charge to equity.
During fiscal 1999 Mr. John Catsimatidis issued a limited $600,000 guarantee of
the collection of all accounts receivable acquired pursuant to the Food Group
acquisition and agreed not to permit the level of the Company's liability due to
the affiliate to fall below $600,000, prior to the issuance of the fiscal year
ended December 3, 2000 audited financial statements. In fiscal 2000 such limited
guarantee and commitment regarding the level of the Company's liability to the
affiliate was extended until prior to the issuance of the fiscal year ending
December 2, 2001 audited financial statements, in the amount of $700,000.
3. LITIGATION
Reference is made to Item 3 (2) contained in the Company's Annual Report on Form
10-K for the year ended December 3, 2000 to the matter captioned: Ansoumana v.
various defendants. On April 2, 2001, The Court certified a Rule 23(b)(3) class,
with no sub-classes. This certification is on appeal before the Second Circuit
Court of Appeals. To date, approximately 60 employees of The Great American
Delivery Service Company have opted into the class action. Management expects
the matter will be resolved in the near future. The Company will vigorously
defend the fact that these workers are employees of Great American, and not
employees of the Company.
10
GRISTEDE'S FOODS, INC. AND SUBSIDIARIES
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE SIX MONTHS AND THE QUARTERS ENDED JUNE 3, 2001 AND
MAY 28, 2000
RESULTS OF OPERATIONS
The following table sets forth items from the Company's Consolidated Statements
of Operations as a percentage on sales.
26 weeks 13 weeks 26 weeks 13 weeks
ended ended ended ended
6/3/01 6/3/01 5/28/00 5/28/00
------ ------ ------- -------
Sales 100.0 100.0 100.0 100.0
Cost of sales 60.8 60.1 60.3 60.2
----- ----- ----- -----
Gross profit 39.2 39.9 39.7 39.8
Store operating, general and
administrative expenses 30.6 30.9 30.7 31.1
Pre-store opening startup costs 0.1 0.1 0.4 0.3
Depreciation and amortization 2.9 2.9 2.5 2.7
Non-store operating expense 3.5 3.8 3.1 3.2
----- ----- ----- -----
Operating income 2.1 2.2 3.0 2.5
Other income (expense) -1.4 -1.6 -1.7 -1.7
----- ----- ----- -----
Income from operations before
income taxes 0.7 0.6 1.3 0.8
Provisions for income taxes 0.0 0.0 0.0 0.0
----- ----- ----- -----
Net income 0.7 0.6 1.3 0.8
----- ----- ----- -----
Sales for the six months and for the quarter ended June 3, 2001 were
$116,834,076 and $56,949,260, respectively, as compared to sales for the six
months and for the quarter ended May 28, 2000 of $106,017,817 and $52,269,920,
respectively. The increase in sales during the 2001 periods was primarily the
result of the Company's remodeling program, which is continuing and two new
stores which opened subsequent to the 2000 period.
Gross profit for the six months and for the quarter ended June 3, 2001 were
$45,828,556 and $22,730,615, respectively, or 39.2% and 39.9% of sales,
respectively, as compared with $42,136,175 and $20,796,357, respectively, or
39.7% and
11
39.8% of sales for the six months and for the quarter ended May 28, 2000. The
decrease in gross profit as a percentage of sales, during the 2001 six-month
period, was primarily due to the recovery of certain stores in the 2000 period
from unusually low gross margins during the fourth quarter of fiscal 1999, which
resulted in above normal margins during the 2000 first quarter.
Store operating, general and administrative expenses for the six months and for
the quarter ended June 3, 2001 were $35,744,501 and $17,606,797, respectively,
or 30.6% and 30.9% of sales, respectively, as compared with $32,516,371 and
$16,256,185, respectively, or 30.7% and 31.1% of sales for the six months and
for the quarter ended May 28, 2000. Store operating, general and administrative
expenses as a percentage of sales were marginally lower in the 2001 period as
compared to the 2000 period mainly due to lower labor costs as a percentage of
sales, lower advertising expense and equipment rentals converted to capitalized
leases, offset by substantially greater electric costs in our trading area.
Pre-store opening startup costs for the six months and for the quarter ended
June 3, 2001 were $132,000 and $66,000, respectively, or 0.1% and 0.1% of sales,
as compared with $422,223 and $138,890 or 0.4% and 0.3% of sales for the six
months and for the quarter ended May 28, 2000. The decrease in pre-store opening
startup costs in the 2001 periods was due to the fact that fewer stores were
remodeled or new stores opened as compared to the same period in 2000. The
stores remodeled required less pre-opening advertising and store set-up labor
costs.
Non-store operating expenses for the six months and for the quarter ended June
3, 2001 were $4,135,644 and $2,163,697 respectively, or 3.5% and 3.8% of sales,
as compared with $3,328,368 and $1,687,724 or 3.1% and 3.2% of sales for the six
months and for the quarter ended May 28, 2000. Administrative payroll and
fringes were 2.1% and 2.2% of sales for the six months and for the quarter ended
June 3, 2001 as compared with 2.1% of sales for the six months and for the
quarter ended May 28, 2000. General office expenses were 1.0% and 1.1% of sales
for the six months and for the quarter ended June 3, 2001 as compared with 0.7%
of sales for the six months and for the quarter ended May 28, 2000. The increase
during the 2001 period was primarily due to additional back office costs in
relation to the increased sales. Professional fees were 0.3% and 0.4% of sales
for the six months and for the quarter ended June 3, 2001 as compared with 0.3%
of sales for the six months and for the quarter ended May 28, 2000. Corporate
expenses were 0.1% of sales for the six months and for the quarter ended June 3,
2001 and for the six months and for the quarter ended May 28, 2000.
Interest expense was $1,869,793 and $912,786 or 1.6% of sales for the six months
and for the quarter ended June 3, 2001 as compared with $1,803,302 and $917,116
or 1.7% and 1.8% of sales for the six months and for the quarter ended May 28,
2000. The increase in the 2001 six month period was primarily attributable to
increased borrowings under capital leases for equipment financing, partially
offset by lower interest rates.
Other income was $181,140 and ($3,813) or 0.2% and 0.0% of sales for the six
months and for the quarter ended June 3, 2001 as compared with $0 for the six
months and for the quarter ended June 3, 2001. This was attributable to the
closure of a store and the sale of its lease in the 2001 period.
As a result of the items reviewed above the net income before provision for
income taxes for the six months and for the quarter ended June 3, 2001 was
$811,595 and $340,422, as compared to $1,415,430 and $402,554 for the six months
and for the quarter ended May 28, 2000.
12
LIQUIDITY AND CAPITAL RESOURCES
Liquidity:
The consolidated financial statements of the Company indicate that at June 3,
2001 current assets exceed current liabilities by $360,902 and stockholders'
equity was $12,109,039. Management believes that cash flows generated from
operations, supplemented by financing from third party leasing companies and/or
additional financing from the Company's majority shareholder, will be sufficient
to pay the Company's debts as they may come due, provide for its capital
expenditure program and meet its other cash requirements.
Debt and Debt Service:
On November 10, 1997, the Company completed its financial arrangements with a
group of banks for a credit facility in the aggregate amount of $25,000,000.
Under the credit agreement the Company obtained a term loan in the amount of
$12,000,000 to refinance prior bank debt, an improvement term loan line of
credit in the amount of $8,000,000 to finance capital improvements to its
Supermarkets and a revolving line of credit in the amount of $5,000,000 to
provide working capital. Subsequently, the banks amended the credit facility to
(i) extend its maturity date until November 30, 2003, (ii) change certain
financial covenants, and (iii) change the amortization of the term loan and the
improvement term loans, and increased the revolving credit facility to
$14,000,000 all as follows: at fiscal year end December 3, 2000, the term loan
amortizes at $142,857 per month, with the balance due at maturity; the
improvement term loan amortizes $0 during December, 2000, $262,500 during
January 2001, $137,500 during February, 2001, $50,000 per month commencing March
1, 2001 through and including June 1, 2001 and $133,333 per month thereafter,
with the balance due at maturity; the revolving credit commitment reduces by
$466,667 per month commencing July 1, 2001.
Presently, the bank facilities are fully utilized and the Company is negotiating
an increase in the credit facilities with its banks. There is no assurance that
the Company will be able to negotiate such an increase on terms satisfactory to
the Company. If the Company is unable to obtain its desired financing from its
banks, the Company will seek increased financing from third party leasing
companies and/or additional financing from the Company's majority shareholder
and other sources.
Borrowings under the facility bear interest at a spread over either the prime
rate of the bank acting as agent for the group of banks or a LIBOR rate, with
the spread dependent on the ratio of the Company's funded debt to EBITDA ratio,
as defined in the credit agreement. The average interest rate on amounts
outstanding under the facility during the six months and the quarter ended June
3, 2001 was 8.87% and 8.22% per annum, respectively.
The credit facility contains covenants, representations and events of default
typical of credit facility agreements, including financial covenants which
require the Company to meet, among other things, a minimum tangible net worth,
debt service coverage ratios and fixed charge coverage ratios, and which limit
transactions with affiliates. The facility is secured by equipment, inventories
and accounts receivable.
The Company's majority shareholder, through affiliates, has contributed in
excess of $12,800,000 through June 3, 2001, in the form of assumed liabilities
and unsecured non-interest bearing demand loans, with $9,000,000 subordinated to
its banks.
Capital Expenditures:
The Company has not incurred any material commitments for capital expenditures,
although it anticipates spending approximately $8 million to $10 million on its
store remodeling and expansion program in fiscal 2001. Such amount is subject to
adjustment based on the availability of funds.
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Cash Flows:
Cash provided by operating activities amounted to $1.0 million in fiscal 2001
compared to $2.0 million in the prior year. The change in cash flow from
operating activities was primarily due to cash provided by operating assets and
liabilities and a smaller net income. Cash used for investing activities was
$2.2 million in 2001 compared to $4.2 million in 2000, resulting from reduced
capital expenditures. Cash provided by financing acitivities was $1.3 million in
2001 compared with $2.2 million in 2000 reflecting the bank financing drawn upon
in 2000, the additional proceeds provided by an affiliate, offset by repayments
of bank loans and capital leases. Presently, the bank facilities are fully
utilized and the Company is negotiating an increase in the credit facilities
with its banks.
Recent Accounting Pronouncements:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 represents a
comprehensive framework of accounting rules that standardizes the accounting for
all derivatives. SFAS No. 133 applies to all entities and to all types of
derivatives, and is effective as amended in fiscal year 2001. The adoption of
SFAS 133 is not expected to materially affect the financial statements of the
Company.
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GRISTEDE'S FOODS INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Change in Securities And Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) No Current Reports on Form 8-K were filed for the quarter for which
this report is being filed.
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SIGNATURES
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.
Gristede's Foods, Inc.
By: /s/ John A. Catsimatidis
------------------------------------
John A. Catsimatidis
Chairman of the Board and
Chief Executive Officer
Dated: July 27, 2001
By: /s/ Gary Pokrassa
------------------------------------
Gary Pokrassa
Chief Financial Officer
Dated: July 27, 2001
16