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 March 3, 2002
|_| 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 April 8, 2002, 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
March 3, 2002 and December 2, 2001 Page 3
Consolidated Statements of Operations for
the quarters ended March 3, 2002
and March 4, 2001 Page 4
Consolidated Statements of Stockholders'
Equity for the year ended
December 2, 2001 and the
quarter ended March 3, 2002 Page 5
Consolidated Statements of Cash Flows for
the quarters ended March 3, 2002
and March 4, 2001 Page 6
Notes to Consolidated Financial Statements Page 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations Page 10
PART II - OTHER INFORMATION Page 15
2
Item 1
Financial Statements
GRISTEDE'S FOODS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 3, December 2,
ASSETS 2002 2001
============= =============
CURRENT ASSETS:
Cash $ 550,877 $ 475,873
Accounts receivable - net of allowance for doubtful accounts
of $441,000 at March 3, 2002 and $413,000 at December 2, 2001 6,982,896 6,702,715
Inventory 32,570,833 32,378,606
Due from related parties - trade 1,245,361 1,092,571
Prepaid expenses and other current assets 1,628,841 2,233,876
------------- -------------
Total current assets 42,978,808 42,883,641
------------- -------------
PROPERTY AND EQUIPMENT:
Furniture, fixtures and equipment 18,797,954 18,067,058
Capitalized equipment leases 23,970,127 23,970,127
Leaseholds and leasehold improvements 53,966,433 52,901,265
------------- -------------
96,734,514 94,938,450
Less accumulated depreciation and amortization 43,053,420 41,193,533
------------- -------------
Net property and equipment 53,681,094 53,744,917
Deposits and other assets 1,052,475 1,044,141
Other assets 3,024,396 3,458,662
------------- -------------
TOTAL $ 100,736,773 $ 101,131,361
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $ 23,924,329 $ 26,978,700
Accrued payroll, vacation and withholdings 2,323,130 2,435,312
Accrued expenses and other current liabilities 2,021,801 2,067,031
Capitalized lease obligation - current portion 4,046,114 3,950,221
Current portion of long term debt 2,722,492 2,378,262
------------- -------------
Total current liabilities 35,037,866 37,809,526
Long-term debt - noncurrent portion 25,433,334 23,108,333
Due to affiliates 15,477,746 15,318,843
Capitalized lease obligation - noncurrent portion 8,000,479 9,048,692
Deferred rent 4,433,862 4,253,466
------------- -------------
Total liabilities 88,383,287 89,538,860
------------- -------------
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 March 3, 2002 and December 2, 2001 392,732 392,732
Additional paid-in capital 14,136,674 14,136,674
Retained earnings/ (deficit) (2,175,920) (2,936,905)
------------- -------------
Total stockholders' equity 12,353,486 11,592,501
------------- -------------
TOTAL $ 100,736,773 $ 101,131,361
============= =============
See notes to consolidated financial statements (unaudited).
3
GRISTEDE'S FOODS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE 13 WEEKS ENDED MARCH 3, 2002 AND MARCH 4, 2001
13 weeks 13 weeks
ended ended
March 3, March 4,
2002 2001
============ ============
Sales $ 59,790,660 $ 59,586,146
Cost of sales 36,029,545 36,488,204
------------ ------------
Gross profit 23,761,115 23,097,942
Store operating, general and administrative expenses 18,140,022 18,061,742
Pre-store opening startup costs 0 66,000
Depreciation and amortization 1,908,654 1,683,734
Insurance proceeds - terrorist attack (100,000)
Non-store operating expenses:
Administrative payroll and fringes 1,626,469 1,247,632
General office expense 511,089 609,919
Professional fees 124,807 146,367
Corporate expense 55,174 43,992
------------ ------------
Total non-store operating expenses 2,317,539 2,047,910
------------ ------------
Operating income 1,494,900 1,238,556
------------ ------------
Other income (expense):
Interest expense (711,829) (957,007)
Interest income 2,914 4,670
Other income 0 184,953
------------ ------------
Total other income (expense) - net (708,915) (767,384)
------------ ------------
Income before income taxes 785,985 471,172
Provision for income taxes 25,000 10,000
------------ ------------
Net income $ 760,985 $ 461,172
============ ============
Net income per share; basic and diluted $ 0.04 $ 0.02
============ ============
Weighted average number of shares and
equivalents outstanding 19,636,574 19,636,574
============ ============
See notes to consolidated financial statements (unaudited).
4
GRISTEDE'S FOODS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 2, 2001
AND FOR THE QUARTER ENDED MARCH 3, 2002
Additional Retained Total
Common stock Paid-In earnings Stockholders'
Shares Amount Capital (Deficit) Equity
========== ======== =========== =========== =============
Balance at December 3, 2000 19,636,574 $392,732 $14,136,674 $(3,211,962) $11,317,444
Net income for the year ended
December 2, 2001 275,057 275,057
---------- -------- ----------- ----------- -----------
Balance at December 2, 2001 19,636,574 $392,732 $14,136,674 $(2,936,905) $11,592,501
Net income for the quarter
ended March 3, 2002 760,985 760,985
---------- -------- ----------- ----------- -----------
Balance at March 3, 2002 19,636,574 $392,732 $14,136,674 $(2,175,920) $12,353,486
========== ======== =========== =========== ===========
See notes to consolidated financial statements (unaudited).
5
GRISTEDE'S FOODS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED MARCH 3, 2002 AND MARCH 4, 2001
13 weeks 13 weeks
ended ended
March 3, March 4,
2002 2001
=========== ===========
Cash flows from operating activities:
Net income $ 760,985 $ 461,172
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,908,653 1,683,734
Change in allowance for bad debts 28,405 18,000
Gain on sale of store (192,177)
Changes in operating assets and liabilities:
Accounts receivable (308,586) (338,556)
Inventory (192,227) 571,505
Due from related parties - trade (152,790) (304,171)
Prepaid expenses and other current assets 605,035 455,774
Other assets (110,200) (97,088)
Accounts payable, trade (3,054,371) (1,865,018)
Accrued payroll, vacation and withholdings (112,182) (38,436)
Accrued expenses and other current liabilities (45,229) (740,335)
Deferred rent 180,396 202,800
----------- -----------
Net cash used in operating activities (492,111) (182,796)
----------- -----------
Cash flows from investing activities:
Proceeds from sale of store 225,000
Capital expenditures (1,308,697) (1,519,029)
----------- -----------
Net cash used in investing activities (1,308,697) (1,294,029)
----------- -----------
Cash flows from financing activities:
Repayments of bank loan (230,769) (700,000)
Proceeds from bank loans 2,900,000 0
Repayment capitalized lease obligations (952,321) (658,308)
Advances from affiliates 158,903 2,872,607
----------- -----------
Net cash provided by financing activities 1,875,813 1,514,299
----------- -----------
Net Increase in Cash 75,005 37,474
Cash, begining of period 475,873 412,408
----------- -----------
Cash, end of period $ 550,878 $ 449,882
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 916,782 $ 973,224
Cash paid (refunded) for taxes $ (46,481) $ 63,632
Supplemental schedule of non cash financing activity:
Assets acquired under capital lease obligations $ 0 $ 805,198
See notes to consolidated financial statements (unaudited).
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 August 12, 1999, the Company changed its name to Gristede's Foods,
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 a predecessor company, Sloan's Supermarkets,
Inc. ("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.
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. All of the supermarkets / pharmacies are operated under
the "Gristede's" name. The Company leases all of its Supermarket locations and
its two pharmacies.
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.
Basis of presentation - The unaudited consolidated financial statements included
herein have been prepared by the Company pursuant to the rules and regulations
of the Securities and Exchange Commission ("SEC"). 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 and financial position of the Company for the interim period. The
interim figures are not necessarily indicative of the results to be expected for
the fiscal year.
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 and Depreciation - Property and equipment is stated at
cost. Depreciation of furniture, fixtures and equipment is computed by the
straight-line method over the estimated useful lives of the assets.
Leases and Amortization - 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.
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.
7
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.
The Company's Annual Report on Form 10-K for the 12 month period ended December
2, 2001 contains information which should be read in conjunction herewith.
2. RELATED PARTY TRANSACTIONS
Certain stores have entered into capital and operating leases with an affiliate,
Red Apple Lease Corp. , a company wholly owned by the majority shareholder. Such
leases are primarily for store operating equipment. Obligations under capital
leases at March 3, 2002 were $1,212,482 and require monthly payments of $76,790
through July 2003. In January 2002, the Company entered into an amendment of
these leases, which will result in the availability of additional financing of
$2,750,000. Such monthly payments will be extended through March 2007 and will
constitute the debt service required of the Company on the new financing.
Certain stores have entered into capital leases with an affiliate, United
Acquisition Leasing Corp. (a company wholly owned by the majority shareholder).
Such leases are primarily for store equipment. Obligations under capital leases
at March 3, 2002 were $1,501,427 and require monthly payments of $34,813 through
November 2006.
The Company leases the following locations: a 25,000 square foot warehouse, its
office facilities and five store locations from affiliates. During the quarter
ended March 3, 2002 the Company paid to such affiliates $464,450 for rent and
real estate taxes under such leases. The leases are triple net whereby the
tenant pays all real estate taxes, insurance and maintenance.
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 2, 2001, 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 March 3, 2002 was $15,477,746; of this amount $12,800,000
was subordinated to the Company's banks. The liability presently does not bear
interest. However, the Company's credit agreement with its banks permits the
Company to pay interest on such subordinated debt provided the Company has a
positive net income.
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 under extended terms, as well as
management fees receivable for administrative and managerial services performed
for the affiliated companies by the Company. During the quarters ended March 3,
2002, and March 4, 2001, merchandise sales to affiliates were $314,196 and
$675,423, respectively.
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 the
majority shareholder. 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
8
operating agreement presently terminates on December 1, 2002, but the term will
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 $1.00 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 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 the nominal amount of $1 per annum, plus such other
consideration as may be approved by the Company's directors (excluding John
Catsimatidis). The operating agreement presently terminates on May 10, 2003, but
the term will 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.
3. LITIGATION
Reference is made to Item 3 contained in the Company's Annual Report on Form
10-K for the year ended December 2, 2001 to the matter captioned: Ansoumana v.
various defendants. The action brought by Great American in Nassau County was
transferred to the Eastern District of New York. The bankruptcy petition
previously filed by Great American and Baur, two of the defendants in this
action, was dismissed.
Reference is also made to Item 3 contained in the Company's Annual Report on
Form 10-K for the year ended December 2, 2001 to the matter captioned: RMED
International Inc. v. Sloan's Supermarkets Inc. and John A. Catsimatidis.:
Defendants have filed a motion to reargue the Court's decision as to the counts
not dismissed on summary judgment. This motion is currently pending before the
Court.
4. IMPACT OF THE TERRORIST ATTACKS OF SEPTEMBER 11, 2001
The Company has two stores in the World Trade Center area of Manhattan, which
were forced to close as a result of the terrorist attacks of September 11, 2001.
One store reopened for business on October 1, 2001, the other is being
renovated. The Company has suffered property damage losses, including inventory,
costs to repair and clean fixtures and facilities and loss of revenue.
Management has filed claims for the above losses with its insurance carriers,
including business interruption. Management believes it is probable that payment
will be received for the claims in the upcoming fiscal year. The Company
received an advance of $300,000 against these claims in October 2001.
9
GRISTEDE'S FOODS, INC. AND SUBSIDIARIES
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE QUARTERS ENDED MARCH 3, 2002 AND MARCH 4, 2001
RESULTS OF OPERATIONS
The following table sets forth items from the Company's Consolidated Statements
of Operations as a percentage on sales.
13 weeks 13 weeks
ended ended
3/3/02 3/4/01
----- -----
Sales 100.0% 100.0%
Cost of sales 60.3 61.2
----- -----
Gross profit 39.7 38.8
Store operating, general and
administrative expenses 30.3 30.3
Pre-store opening startup costs -- 0.1
Depreciation and amortization 3.2 2.8
Insurance proceeds - terrorist attack 0.2 --
Non-store operating expenses 3.9 3.4
----- -----
Operating income 2.5 2.1
Other income (expense) (1.2) (1.3)
----- -----
Income from operations before
income taxes 1.3 0.8
Provisions for income taxes 0.0 0.0
----- -----
Net income 1.3% 0.8%
----- -----
Sales for the quarter ended March 3, 2002 were $59,790,660 as compared to sales
for the quarter ended March 4, 2001 of $59,586,146. The Company had four stores
temporarily closed during the quarter ended March 3, 2002. Three stores were
closed for renovation and one store was closed due to the September 11, 2001
attack on America.
Of the stores closed for renovation, two stores re-opened in the second quarter
and the third is expected to re-open later this year. The store closed due to
the September 11, 2001 attacks is expected to re-open during May 2002.
Had these stores been open during the quarter ended March 3, 2002, sales would
have been higher.
Same store sales increased 3.7% during the 2002 period compared to the 2001
period (4.8% excluding the effect of a snowstorm in the 2001 period).
Gross profit was $23,761,115 or 39.7% of sales for the quarter ended March 3,
2002 as compared with $23,097,942 or 38.8% of sales for the quarter ended March
4, 2001. The increase in gross profit as a percentage of sales, during the 2002
period was primarily due to the absence of any store grand re-openings during
the 2002 period, negating the need for
10
promotional pricing. During fiscal 2001 the Company had several grand
re-openings, which resulted in improved margins for the 2002 quarter from newly
enlarged perishable departments.
Store operating, general and administrative expenses was $18,140,022 or 30.3% of
sales for the quarter ended March 3, 2002 as compared with $18,061,742 or 30.3%
of sales for the quarter ended March 4, 2001. Store operating, general and
administrative expenses as a percentage of sales were unchanged in the 2002 and
2001 periods mainly due to effective cost controls.
Pre-store opening startup costs were $0 for the quarter ended March 3, 2002 as
compared with $66,000 or 0.1% of sales for the quarter ended March 4, 2001. No
remodeled or new stores were opened in the 2002 quarter.
Non-store operating expenses were $2,317,539 or 3.9% of sales for the quarter
ended March 3, 2002 as compared with $2,047,910 or 3.4% of sales for the quarter
ended March 4, 2001. Administrative payroll and fringes were 2.7% of sales for
the quarter ended March 3, 2002 as compared with 2.1% of sales for the quarter
ended March 4, 2001. The change in the 2002 period as a percent of sales
reflects the utilization of the Company's internal construction and maintenance
personnel for increased maintenance duties as compared to the 2001 period. The
Company experienced higher levels of fringe benefits during the 2002 period due
to somewhat higher administrative salaries and higher costs of health care
benefits. General office expenses were 0.9% of sales for the quarter ended March
3, 2002 as compared 1.0% of sales for the quarter ended March 4, 2001.
Professional fees were 0.2% of sales for both the quarter ended March 3, 2002
and for the quarter ended March 4, 2001. Corporate expenses were 0.1% of sales
for both the quarter ended March 3, 2002 and for the quarter ended March 4,
2001.
Depreciation expense was $1,908,654 or 3.2% of sales for 2002, versus $1,683,734
or 2.8% of sales for 2001. The increase in depreciation expense was primarily
the result of significant capital expenditures incurred in connection with the
Company's store renovation and remodeling program.
Interest expense was $711,829 or 1.2% of sales for the quarter ended March 3,
2002 as compared with $957,007 or 1.6% of sales for the quarter ended March 4,
2001. The decrease in the 2002 period was primarily attributable to lower
interest rates, partially offset by increased borrowings under capital leases
for equipment financing.
Other income was $0 for the quarter ended March 3, 2002 as compared with
$184,953 or 0.3% of sales for the quarter ended March 4, 2001 (attributable to
the closure of a store and the sale of its lease in January 2001).
As a result of the items reviewed above, net income before provision for income
taxes for the quarter ended March 3, 2002 was $785,985, as compared to $471,172
for the quarter ended March 4, 2001.
11
Liquidity and Capital Resources
Liquidity:
The consolidated financial statements of the Company indicate that at
March 3, 2002 current assets exceed current liabilities by $7,940,942 and
stockholders' equity was $12,353,486. Management believes that cash flows
generated from operations, supplemented by financing from its banks facility,
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:
Effective October 2001, the Company's credit agreement with a group of banks was
amended and increased to an aggregate total of $32,500,000, consisting of a
$15,500,000 term loan and a $17,000,000 revolving line of credit. As of March 3,
2002, the credit facility as amended, provides for (i) a maturity date of
November 28, 2004 for the revolving line of credit, and December 3, 2006 for the
term loan, at which time all amounts outstanding thereunder are due, (ii)
certain financial covenants, and (iii) amortization of the term loan in monthly
amortizations totaling $2,000,000, $2,300,000, $2,600,000, $2,900,000 and
$3,200,000 respectively in each year during its term, and a $2,500,000 balloon
payment at maturity.
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 quarter ended March 3, 2002 was 5.2%
per annum.
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 $15.4 million through March 3, 2002, in the form of unsecured
non-interest bearing demand loans, with $12.8 million subordinated to its banks.
The liability presently does not bear interest. However, the Company's credit
agreement with its banks permits the Company to pay interest on such
subordinated debt provided the Company has a positive net income.
The Company has available approximately $3.2 million in third party and
affiliate leasing lines of credit to lease finance equipment for its store
remodeling and expansion program.
Capital Expenditures:
Capital expenditures for the quarter ended March 3, 2002, including
property acquired under capital leases, were $1.3 million compared to $2.3
million for the quarter ended March 4, 2001.
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 2002. Such
amount is subject to adjustment based on the availability of funds.
12
Cash Flows:
Cash used in operating activities amounted to $492,111 in the quarter
ended March 3, 2002 compared to $182,796 in the quarter ended March 4, 2001. The
change in cash flow from operating activities was primarily due to cash used in
reducing accounts payable and provided by operating assets and liabilities and a
net profit. Net cash used for investing activities was $1.3 million in 2002
compared to $1.3 million in 2001, (net of proceeds from a store closed in
January 2001.). Cash provided by financing acitivities was $1.9 million in 2002
compared with $1.5 million in 2001 reflecting the bank financing drawn upon in
2002, the additional proceeds provided by an affiliate, offset by repayments of
bank loans and capital leases.
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 in fiscal 2001 did not affect the financial statements of the Company.
In June 2001, the Financial Accounting Standards Board finalized FASB Statements
No. 141, "Business Combinations" (SFAS 141), and No. 142, Goodwill and Other
Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase method
of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if they meet certain criteria. SFAS 141 applies to all business
combinations initiated after June 30, 2001 and for purchase business
combinations completed on or after July 1, 2001. It also requires, upon adoption
of SFAS 142 that the Company reclassify the carrying amounts of intangible
assets and goodwill based on the criteria in SFAS 141. The Company believes that
the adoption of SFAS 141 will not materially affect the financial statements of
the Company.
SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidelines in SFAS 142. SFAS 142 is required to be applied
in fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. It also requires the Company to complete a transitional
goodwill impairment test within six months from the date of adoption. The
Company is also required to reassess the useful lives of other intangible assets
within the first interim quarter after adoption of SFAS 142. The Company
believes that the adoption of SFAS 142 will not materially affect the financial
statements of the Company.
Forward-looking information:
This report and documents incorporated by reference contain both
historical and "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Words such as "anticipates",
"believes", "expects", "intends", "future", and similar expressions identify
forward-looking statements. Any such "forward-looking" statements in this report
reflect the Company's current views with respect to future events and financial
performance, and are subject to a variety of factors that could cause the actual
results or performance to differ materially from historical results or from the
anticipated results or performance expressed or implied by such forward-looking
statements. Because of such factors, there can be no assurance that the actual
results or developments anticipated by the Company will be realized or, even if
substantially realized, that they will have the anticipated results. The risks
and uncertainties that may affect the Company's business include, but are not
limited to: economic conditions, governmental regulations, technological
advances, pricing and competition, acceptance by the marketplace of new
products, retention of key personnel, the sufficiency of financial resources to
sustain and expand the Company's
13
operations, and other factors described in this report and in prior filings with
the Securities and Exchange Commission. Readers should not place undue reliance
on such forward-looking statements, which speak only as of the date hereof, and
should be aware that except as may be otherwise legally required of the Company,
the Company undertakes no obligation to publicly revise any such forward-looking
statements to reflect events or circumstances that may arise after the date
hereof. A more detailed description of some of the risk factors is set forth in
the Company`s Annual Report on Form 10-K, dated December 2, 2001.
14
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: April 17, 2002
By: /s/ Gary Pokrassa
------------------------------------
Gary Pokrassa
Chief Financial Officer
Dated: April 17, 2002
16