-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P7TmtXquoA0h6dg5evZOQDs8DW0TIFWep6DaYKU4T5uM+xoX7yAapSfkdvc/P/k4 o59Tf617J+rzmdjflw9JWQ== 0000871891-96-000005.txt : 19961113 0000871891-96-000005.hdr.sgml : 19961113 ACCESSION NUMBER: 0000871891-96-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARR GOTTSTEIN FOODS CO CENTRAL INDEX KEY: 0000871891 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 920135158 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12116 FILM NUMBER: 96657759 BUSINESS ADDRESS: STREET 1: 6411 A ST CITY: ANCHORAGE STATE: AK ZIP: 99518 BUSINESS PHONE: 9075611944 MAIL ADDRESS: STREET 1: 6411 A ST CITY: ANCHORAGE STATE: AK ZIP: 99518 10-Q 1 [DESCRIPTION]FORM 10-Q 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 September 29, 1996 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number 1-12116 CARR-GOTTSTEIN FOODS CO. (Exact name of registrant as specified in its charter) Delaware 920135158 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 6411 A Street Anchorage, Alaska 99518 (Address of principal executive offices) Registrant's telephone number, including area code: (907) 561- 1944 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 November 7, 1996 was 7,816,742 shares. EXHIBIT INDEX APPEARS AT PAGE 18 Page 1 of 20 CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES FORM 10-Q For the Quarterly Period Ended September 29, 1996 INDEX Part I. Financial Information Page Item 1. Financial Statements a) Consolidated Balance Sheets as of September 29, 1996 (unaudited) and December 31, 1995 1 b) Consolidated Statements of Operations for the 13 weeks and 39 weeks ended September 29, 1996 (unaudited) and October 1, 1995 (unaudited) 2 c) Consolidated Statements of Cash Flows for the 39 weeks ended September 29, 1996 (unaudited) and October 1, 1995 (unaudited) 3 d) Notes to Consolidated Financial Statements (unaudited) 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (unaudited) 13 Part II. Other Information 16 Signatures 17 PART I - FINANCIAL INFORMATION Item 1. Financial Statements Carr-Gottstein Foods Co. and Subsidiaries Consolidated Balance Sheets Amounts In Thousands Sept. 29, 1996 Dec. 31, 1995 Assets (unaudited) Current assets: Cash and cash equivalents $ 4,309 $ 2,817 Accounts receivable, net 21,418 17,853 Income taxes receivable 212 164 Inventories 57,181 50,505 Deferred taxes 1,756 1,756 Prepaid expenses and other current assets 2,682 2,881 Total current assets 87,558 75,976 Property, plant and equipment, at cost, net of accumulated depreciation 145,003 152,836 Intangible assets, net of accumulated amortization 92,445 94,589 Other assets 11,454 13,219 $ 336,460 $ 336,620 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 38,124 $ 35,986 Accrued expenses 16,629 7,352 Current maturities of long-term debt 7,265 3,551 Revolving line of credit 10,100 16,000 Estimated obligation for self- insurance 2,477 2,794 Total current liabilities 74,595 65,683 Long-term debt, excluding current maturities 227,816 234,740 Estimated obligation for self-insurance 1,536 1,536 Deferred tax liability 488 488 Other liabilities 1,729 1,871 Total liabilities 306,164 304,318 Stockholders' equity: Common stock, $.01 par value, authorized 25,000 shares, issued and outstanding 9,736 and 17,181 shares, respectively 97 97 Additional paid in capital 52,513 52,595 Stock subscriptions receivable - (44) Deficit (9,846) (7,734) 42,764 44,914 Less treasury stock, 1,850 and 1,876 shares, at cost 12,468 12,612 Total stockholders' equity 30,296 32,302 Commitments and contingencies - - - $ 336,460 $ 336,620 See accompanying notes to consolidated financial statements. Carr-Gottstein Foods Co. and Subsidiaries Consolidated Statements of Operations Amounts In Thousands (except per share data) 13 Weeks Ended 39 Weeks Ended Sept. 29, 1996 Oct. 1, 1995 Sept.29, 1996 Oct. 1, 1995 (unaudited) (unaudited) Sales $158,506 $155,652 $462,268 $449,370 Cost of merchandise sold, including warehousing and transportation expenses (a) 114,232 107,481 334,055 309,075 Gross profit (a) 44,274 48,171 128,213 140,295 Operating and administrative expenses (a) 37,102 39,481 109,547 116,932 Operating income 7,172 8,690 18,666 23,363 Other income (expense): Interest expense, net (6,805) (3,459) (20,819) (10,515) Non-recurring charge - (2,249) - (2,249) Other income 73 4 75 39 Net earnings (loss) before taxes 440 2,986 (2,078) 10,638 Income tax expense (504) (1,517) (34) (5,239) Net earnings (loss) $64) $1,469 $(2,112) $5,399 Earnings (loss) per common share: Net earnings (loss) per share $ (0.01) $ 0.10 $ (0.27) $ 0.35 Weighted average common shares outstanding 7,817 15,287 7,811 15,467 See accompanying notes to consolidated financial statements. Note (a) Due to changes in allocation methods, 1996 and 1995 gross margin and expenses rates will not be comparable.
Carr-Gottstein Foods Co. and Subsidiaries Consolidated Statements of Cash Flows Amounts in Thousands 39 Weeks Ended Sept. 29, Oct. 1, 1996 1995 (unaudited) (unaudited) Operating activities: Net income (loss) $ (2,112) $ 5,399 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 10,889 10,242 Amortization of intangibles 2,144 2,653 Amortization of loan fees and discounts 1,084 396 (Gain) loss on disposal of property and equipment (72) 39 (Increase) decrease in current assets: Income tax receivable (48) 257 Receivables (3,565) (2,681) Inventories (6,676) (898) Prepaid expenses 199 1,734 Other assets 681 (1,986) (Decrease) increase in current liabilities: Deferred taxes - 2,615 Accounts payable 2,138 (1,582) Accrued expenses 9,277 (3,423) Income taxes payable - 907 Self insurance reserve (317) (357) Other liabilities (142) (1,762) Net cash provided by operating activities 13,480 11,553 Investing activities: Additions to property and equipment (3,216) (14,515) Proceeds from sale of property and equipment 232 16 Proceeds from sale of subsidiary - 983 Net cash used in investing activities (2,984) (13,516) Financing activities: Payments on long-term debt (3,210) (5,716) Issuance of bank debt - 2,498 Short term borrowings (payments), net (5,900) 7,502 Issuance of treasury stock 62 76 Purchase of treasury stock - (2,499) Change in stock subscriptions receivable 44 (3) Net cash used in financing activities (9,004) (1,858) Net increase (decrease) in cash and cash equivalents 1,492 (105) Cash and cash equivalents at beginning of period 2,817 320 Cash and cash equivalents at end of period $ 4,309 $ 215 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 15,298 $ 10,606 Income taxes - 4,075 See accompanying notes to consolidated financial statements.
Carr-Gottstein Foods Co. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) (1) During interim periods, Carr-Gottstein Foods Co. and subsidiaries (the "Company") follows the accounting policies set forth in its audited financial statements included in its Annual Report for the fiscal year ended December 31, 1995 filed with the Securities Exchange Commission. These consolidated interim financial statements should be read in conjunction with such audited consolidated financial statements and notes thereto. Management believes that the accompanying interim financial statements reflect all adjustments which are necessary for a fair statement of the results of the interim period presented. All adjustments made in the accompanying interim financial statements are of a normal recurring nature. Carr-Gottstein Foods Co. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) - continued (2) CONDENSED CONSOLIDATING FINANCIAL INFORMATION The Company issued $100,000,000 of senior subordinated unsecured notes on November 15, 1995. CGF Properties, Inc. has not guaranteed the unsecured notes and financial information for this wholly-owned subsidiary is presented separately. All of the Company's other direct and indirect subsidiaries, AOL Express, Inc., APR Forwarders, Inc., Oaken Keg Spirit Shops, Inc. and Alaska Advertisers, Inc. are wholly-owned and have fully and unconditionally guaranteed the unsecured notes on a joint and several basis and, accordingly, are presented on a combined basis. Parent company only information is presented for Carr-Gottstein Foods Co., which reflects only its business activity and its wholly-owned subsidiaries accounted for using the equity method. Separate financial statements and other disclosures for the guarantor subsidiaries are not presented because in the opinion of management such information is not material. The following are condensed consolidating balance sheets: Amounts in Thousands Balance Sheet Non-Guarantor Guarantor Parent Subsidiary Subsidiaries Company Sept. 29, 1996 CGF Properties (Combined) Only Elimination Consolidated Assets Inventories $ - $ 5,001 $ 52,180 $ - $ 57,181 Other current assets 3,211 63,061 25,814 (61,709) 30,377 Total current assets 3,211 68,062 77,994 (61,709) 87,558 Property, plant and equipment, net 65,827 5,410 73,766 - 145,003 Intangible, net - - 92,445 - 92,445 Investments in subsidiaries - - 97,902 (97,902) - Other assets 32 483 10,939 - 11,454 $ 69,070 $ 73,955 $ 353,046 $ (159,611) $ 336,460 Liabilities and Stockholders' Equity Current liabilities $ 576 $ 2,504 $ 133,224 $ (61,709) $ 74,595 Long-term debt, excluding current maturities 42,043 - 185,773 - 227,816 Other liabilities - - 3,753 - 3,753 Total liabilities 42,619 2,504 322,750 (61,709) 306,164 Common stock 10 44 97 (54) 97 Additional paid-in capital 28,966 39,381 52,513 (68,347) 52,513 Retained earnings (deficit) (2,525) 32,026 (9,846) (29,501) (9,846) 26,451 71,451 42,764 (97,902) 42,764 Less treasury stock - - (12,468) - (12,468) Total stockholders' equity 26,451 71,451 30,296 (97,902) 30,296 $ 69,070 $ 73,955 $ 353,046 $ (159,611) $ 336,460
Carr-Gottstein Foods Co. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) - continued Amounts in Thousands Balance Sheet Non-Guarantor Guarantor Parent Subsidiary Subsidiaries Company December 31, 1995 CGF Properties (Combined) Only Elimination Consolidated Assets Inventories $ - $ 3,986 $ 46,519 $ - $ 50,505 Other current assets 5,397 57,859 7,261 (45,046) 25,471 Total current assets 5,397 61,845 53,780 (45,046) 75,976 Property, plant and equipment, net 67,921 6,336 78,579 - 152,836 Intangible, net - - 94,589 - 94,589 Investments in subsidiaries - - 96,229 (96,229) - Other assets 33 509 12,677 - 13,219 $ 73,351 $ 68,690 $ 335,854 $ (141,275) $ 336,620 Liabilities and Stockholders' Equity Current liabilities $ 3,332 $ - $ 107,397 $ (45,046) $ 65,683 Long-term debt, excluding current maturities 42,480 - 192,260 - 234,740 Other liabilities - - 3,895 - 3,895 Total liabilities 45,812 - 303,552 (45,046) 304,318 Common stock 10 44 97 (54) 97 Additional paid-in capital 28,966 39,381 52,595 (68,347) 52,595 Stock subscription receivable - - (44) - (44) Retained earnings (deficit) (1,437) 29,265 (7,734) (27,828) (7,734) 27,539 68,690 44,914 (96,229) 44,914 Less treasury stock - - 12,612 - 12,612 Total stockholders' equity 27,539 68,690 32,302 (96,229) 32,302 $ 73,351 $ 68,690 $ 335,854 $ (141,275) $ 336,620
Carr-Gottstein Foods Co. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) - continued The following are condensed consolidating statements of operations: Amounts in Thousands Statement of Operations Non-Guarantor Guarantor Parent Subsidiary Subsidiaries Company Third Quarter 1996 CGF Properties (Combined) Only Elimination Consolidated Sales $ - $ 19,022 $ 148,472 $ (8,988) $ 158,506 Cost of merchandise sold, including warehousing and transportation expenses - 13,844 109,376 (8,988) 114,232 Gross profit - 5,178 39,096 - 44,274 Operating and administrative (income) expenses (242) 3,104 34,240 - 37,102 Operating income 242 2,074 4,856 - 7,172 Interest expense, net (1,127) - (5,678) - (6,805) Other income (expense) - - 73 - 73 Equity in subsidiary earnings - - 702 (702) - Earnings (loss) before income tax (885) 2,074 (47) (702) (440) Income tax (expense) benefit 363 (850) (17) - (504) Net earnings (loss) $ (522) $ 1,224 $ (65) $ (702) $ (64)
Carr-Gottstein Foods Co. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) - continued The following are condensed consolidating statements of operations: Amounts in Thousands Statement of Operations Non-Guarantor Guarantor Parent Subsidiary Subsidiaries Company 39 Weeks Ended Sept. 29, 1996 CGF Properties (Combined) Only Elimination Consolidated Sales $ - $ 56,650 $ 432,682 $ (27,064) $ 462,268 Cost of merchandise sold, including warehousing and transportation expenses - 40,733 320,386 (27,064) 334,055 Gross profit - 15,917 112,296 - 128,013 Operating and administrative (income)expenses (714) 9,298 100,963 - 109,547 Operating income 714 6,619 11,333 - 18,666 Interest expense, net (3,393) - (17,426) - (20,819) Other income (expense) - - 75 - 75 Equity in subsidiary earnings - - 2,324 (2,324) - Earnings (loss) before income tax (2,679) 6,619 (3,694) (2,324) (2,078) Income tax (expense) benefit 1,099 (2,715) 1,582 - (34) Net earnings (loss) $ (1,580) $ 3,904 $ (2,112) $ (2,324) $ (2,112)
Carr-Gottstein Foods Co. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) - continued The following are condensed consolidating statements of operations: Amounts in Thousands Statement of Operations Non-Guarantor Guarantor Parent Subsidiary Subsidiaries Company Third Quarter 1995 CGF Properties (Combined) Only Elimination Consolidated Sales $ - $ 20,898 $ 145,231 $ (10,477) $ 155,652 Cost of merchandise sold, including warehousing and transportation expenses - 12,591 105,367 (10,477) 107,481 Gross profit - 8,307 39,864 - 48,171 Operating and administrative expenses (172) 6,132 33,521 - 39,481 Operating income 172 2,175 6,343 - 8,690 Interest expense, net (1,142) - (2,317) - (3,459) Non-recurring charge - - (2,249) - (2,249) Other income (expense) - - 4 - 4 Equity in subsidiary earnings - - 711 (711) - Earnings before income tax (970) 2,175 2,492 (711) 2,986 Income tax (expense) benefit 398 (892) (1,023) - (1,517) Net earnings (loss) $ (572) $ 1,283 $ 1,469 $ (711) $ 1,469
Carr-Gottstein Foods Co. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) - continued The following are condensed consolidating statements of operations: Amounts in Thousands Statement of Operations Non-Guarantor Guarantor Parent Subsidiary Subsidiaries Company 39 Weeks Ended Oct. 1, 1995 CGF Properties (Combined) Only Elimination Consolidated Sales $ - $ 55,883 $ 421,103 $ (27,616) $ 449,370 Cost of merchandise sold, including warehousing and transportation expenses - 36,682 300,009 (27,616) 309,075 Gross profit - 19,201 121,094 - 140,295 Operating and administrative (income) expenses (430) 11,288 106,074 - 116,932 Operating income 430 7,913 15,020 - 23,363 Interest expense, net (3,437) - (7,078) - (10,515) Non recurring charge - - (2,249) - (2,249) Other income (expense) - - 39 - 39 Equity in subsidiary earnings - - 2,895 (2,895) - Earnings (loss) before income tax (3,007) 7,913 8,627 (2,895) 10,638 Income tax (expense) benefit 1,233 (3,244) (3,228) - (5,239) Net earnings (loss) $ (1,774) $ 4,699 $ 5,399 $ (2,895) $ 5,399
Carr-Gottstein Foods Co. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) - continued The following is condensed consolidating cash flow information. The consolidated Company's cash and cash equivalents is positive at each balance sheet date so negative balances for individual subsidiaries are not classified as liabilities. The net cash provided by operating activities fluctuates due to changes in intercompany receivables and payables from the transfer of cash to and from the parent company. Amounts in Thousands Statement of Cash Flows Non-Guarantor Guarantor Parent Subsidiary Subsidiaries Company 39 Weeks Ended Sept. 29, 1996 CGF Properties (Combined) Only Consolidated Net cash provided by operating activities $ 393 $ 4 $ 13,083 $ 13,480 Investing activities Addition to property and equipment - (4) (3,212) (3,216) Proceeds from Sale of property and equipment - - 232 232 Net cash used in investing activities - (4) (2,980) (2,984) Financing activities Payments on long-term debt (393) - (2,817) (3,210) Short term borrowings (payments), net (5,900) (5,900) Issuance of treasury stock - 62 62 Change in Stock Subscription receivable- - 44 44 Net cash used by financing activities (393) - (8,611) (9,004) Net increase in cash and cash equivalents - 1,492 1,492 Cash and cash equivalents at beginning of period 55 83 2,679 2,817 Cash and cash equivalents at end of period $ 55 $ 83 $ 4,171 $ 4,309
Carr-Gottstein Foods Co. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) - continued The following is condensed consolidating cash flow information. The consolidated Company's cash and cash equivalents is positive at each balance sheet date so negative balances for individual subsidiaries are not classified as liabilities. The net cash provided by operating activities fluctuates due to changes in intercompany receivables and payables from the transfer of cash to and from the parent company. Amounts in Thousands Statement of Cash Flows Non-Guarantor Guarantor Parent Subsidiary Subsidiaries Company 39 Weeks Ended Oct. 1, 1995 CGF Properties (Combined) Only Consolidated Net cash provided by (used in) operating activities $ (1,613) $ 671 $ 12,495 $ 11,553 Investing activities Addition to property and equipment (691) (13,824) (14,515) Proceeds from sale of property and equipment- 16 16 Proceeds from sale of subsidiary - 983 983 Net cash used in investing activities (691) (12,825) (13,516) Financing activities Proceeds from issuance of debt - 2,498 2,498 Payments on long - -term debt (400) (5,316) (5,716) Short term borrowings, net - - 7,502 7,502 Purchase of treasury stock - - (2,423) (2,423) Change in Stock Subscription receivable - - (3) (3) Net cash used in financing activities (400) - (2,258) (1,858) Net increase (decrease) in cash and cash equivalents (2,013) (20) 1,928 (105) Cash and cash equivalents at beginning of period 2,066 77 (1,823) 320 Cash and cash equivalents at end of period $ 53 $ 57 $ 105 $ 215
Carr-Gottstein Foods Co. and Subsidiaries Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion should be read in conjunction with the unaudited financial statements and related notes included elsewhere in this Form 10-Q. General Carr-Gottstein Foods Co. is the leading retail and wholesale food company in Alaska operating full-service supermarkets and wine and liquor stores as well as the only full-line food warehouse and distribution center (under the J.B. Gottstein name) in the state. Results of Operations 13 Weeks Ended September 29, 1996 Compared to 13 Weeks Ended October 1, 1995 Sales. Sales for the 13 weeks ended September 29, 1996 were $158.5 million compared to $155.7 million for the 13 weeks ended October 1, 1995. The 1.8% increase was due in part to increases at the Eagle Quality Centers (the "Eagle Stores") and increases attributable to Wholesale operations. The increase in sales for the third quarter of 1996 reflects a 0.2% and 3.8% increase in comparable store sales for the Carrs Quality Centers (the "Carrs Stores") and Eagle Stores, respectively. Gross Profit. Gross profit for the 13 weeks ended September 29, 1996 was $44.3 million compared to $48.2 million for the 13 weeks ended October 1, 1995. The decrease in gross margin dollars is primarily attributable to the allocation of warehousing and distribution expenses to cost of goods sold. Prior to the first quarter of 1996, these expenses were not charged to the cost of goods sold but were classified as operating expenses. As a percentage of sales, gross profit was 27.9% for the 13 weeks 1996 compared to 31.0% for the 13 weeks 1995. Gross profit as a percentage of sales for the 13 weeks 1996 decreased primarily as a result of the allocation of warehousing and distribution expenses during the quarter. Operating and Administrative Expenses. Operating and administrative expenses for the 13 weeks ended September 29, 1996 were $37.1 million compared to $39.5 million for the 13 weeks ended October 1, 1995. Operating and administrative expenses as a percentage of sales were 23.4% for the 13 weeks 1996 compared to 25.4% for the 13 weeks 1995. The decrease in operating and administrative expenses is primarily attributable to the allocation of warehousing and distribution expenses to cost of goods sold partially offset by some increases in depreciation and other operational expenses incurred in the quarter. Operating Income. Operating income for the 13 weeks ended September 29, 1996 decreased $1.5 million from $8.7 million in the third quarter of 1995 to $7.2 million in the third quarter of 1996. The decrease in operating income is due primarily to increased expenses in the quarter as compared to the same quarter in 1995. Other Income and Expense. Net interest expense was $6.8 million for the 13 weeks ended September 29, 1996 compared to $3.5 million for the 13 weeks ended October 1, 1995. The increase in interest expense is primarily attributable to the full quarter impact of increased interest costs related to the borrowings associated with the self stock tender completed by the Company in November of 1995. The 1995 quarter reflects a non-recurring charge of $2.2 million for expenses incurred in connection with a sale/leaseback transaction that the Company elected not to pursue. Income Taxes. Income tax expense for the 13 weeks ended September 29, 1996 was $0.5 million compared to a $3.0 million expense (a 50.8% effective tax rate) for the 13 weeks ended October 1, 1995. The high effective tax rate in 1995 resulted from the amortization of intangible assets for which no tax benefit was available. Net Income (Loss) Net loss for the 13 weeks ended September 29, 1996 was $64,000, or $0.01 per share, versus net income of $ 1.5 million, or $0.10 per share for the 13 weeks ended October 1, 1995. 39 Weeks Ended September 29, 1996 Compared to 39 Weeks Ended October 1, 1995 Sales. Sales for the 39 weeks ended September 29, 1996 were $462.3 million compared to $449.4 million for the 39 weeks ended October 1, 1995. The increase in sales for the 39 weeks of 1996 reflects a 0.4% and 1.8% increase in comparable store sales for the Carrs Stores and Eagle Stores, respectively. Gross Profit. Gross profit for the 39 weeks ended September 29, 1996 was $128.2 million compared to $140.3 million for the 39 weeks ended October 1, 1995. The decrease in gross margin dollars is primarily attributable to the allocation of warehousing and distribution expenses to cost of goods sold as discussed above as well as extra promotional expenses that were incurred primarily during the first two quarters. As a percentage of sales, gross profit was 27.7% for the 39 weeks 1996 compared to 31.2% for the 39 weeks 1995. Gross profit as a percentage of sales for the 39 weeks 1996 decreased primarily as a result of the allocation of warehousing and distribution expenses and partially as the result of the increased promotional expenses that were incurred primarily during the first two quarters. Operating and Administrative Expenses. Operating and administrative expenses for the 39 weeks ended September 29, 1996 were $109.5 million compared to $116.9 million for the 39 weeks ended October 1, 1995. Operating and administrative expenses as a percentage of sales were 23.7% for the 39 weeks 1996 compared to 26.0% for the 39 weeks 1995. The decrease in operating and administrative expenses is primarily attributable to the allocation of warehousing and transportation expenses to the cost of goods sold coupled with expenses related to the "Fusion" corporate re-engineering project that were incurred throughout 1995 and into the second quarter of 1996. Operating Income. Operating income for the 39 weeks ended September 29, 1996 decreased $4.7 million from $23.4 million, or 5.2 percent of sales, in 1995 to $18.7 million, or 4.0 percent of sales in 1996. Other Income and Expense. Net interest expense was $20.8 million for the 39 weeks ended September 29, 1996 compared to $10.5 million for the 39 weeks ended October 1, 1995. The increase in interest expense is primarily attributable to the impact of increased interest costs related to the borrowings associated with the self stock tender completed by the Company in November of 1995. In September of 1995, the Company recognized a non-recurring charge of $2.2 million for expenses incurred in connection with a sale/leaseback transaction that the Company elected not to pursue. Income Taxes. Income tax expense for the 39 weeks ended September 29, 1996 was $34,000 as compared to a $5.2 million expense (a 49.2% effective tax rate) for the 39 weeks ended October 1, 1995. The high effective tax rate in 1995 resulted from the amortization of intangible assets for which no tax benefit was available. Net Income (Loss) Net loss for the 39 weeks ended September 29, 1996 was $2.1 million, or $0.27 per share, versus net income of $5.4 million, or $0.35 per share for the 39 weeks ended October 1, 1995. Liquidity and Capital Resources The Company's primary sources of liquidity are cash flows from operations and its working capital revolving credit facility, which are considered to be adequate for anticipated cash needs. Primary uses are capital expenditures, debt service, and lease payments. Net cash provided by operating activities was $13.5 million for the 39 weeks ended September 29, 1996 compared to net cash provided by operating activities of $11.5 million for the same period in 1995. The change in the 39 weeks 1996 compared to 1995 was due primarily to increased inventories and receivables offset by larger increases in accounts payable and accrued expenses. Capital expenditures for the 39 weeks ended September 29, 1996 were $3.2 million. The majority of these expenditures were related to the "Fusion" project and other projects started in the previous year. Although the Company will consider opportunities for new store construction or acquisition, should they arise, capital expenditures are currently expected to be approximately $5.5 million for fiscal 1996. It is anticipated that the balance of 1996 capital expenditures will be funded out of cash provided by operations and borrowings under the working capital revolver. Net cash used for financing activities during the 39 weeks ended September 29, 1996 was $9.0 million. The level of borrowings under the Company's revolving debt is dependent primarily upon cash flows from operations, the timing of disbursements, long-term borrowing activity and capital expenditures. At September 29, 1996 there was $10.1 million outstanding on the revolving debt borrowings. The Company had available unused credit of $24.9 million. Funds borrowed under the revolving credit portion of the Company's credit facility are restricted to working capital and general corporate purposes. Scheduled amortization payments under the Company's $35.0 and $60.0 million term loans will be made on December 31, 1996 in the amounts of $2.5 and $0.3 million, respectively. PART II. OTHER INFORMATION Item 1. Legal Proceedings - None. Item 2. Changes in Securities - None. Item 3. Defaults Upon Senior Securities - None. Item 4. Submission of Matters to a Vote of Security Holders - None. Item 5. Other Information Effective August 9, 1996, Lawrence H. Hayward was appointed President and Chief Executive Officer of the Company. Mr. Hayward formerly served as Senior Vice President and Chief Operating Officer of the Company. Effective August 9, 1996, Mark R. Williams resigned from his position as Chief Executive Officer and President of the Company. Mr. Williams will continue to serve as a Director and was appointed Vice Chairman of the Board of Directors. He will continue to be employed by the Company to assist Mr. Hayward during the transition. Effective August 9, 1996, John J. Cairns retired from his role as Special Assistant to the President. Mr. Cairns will continue to serve as a member and Chairman of the Board of Directors of the Company. He will continue to be employed by the Company on a part-time basis to work on special projects relating to long-term strategic planning. Item 6. Exhibits and Reports on Form 8-K (a) The exhibits set forth in the Exhibit Index on page 18 hereof are filed with this quarterly report on Form 10-Q. (b) No reports were filed on Form 8-K during the quarter ended September 29, 1996. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CARR GOTTSTEIN FOODS CO. By: /s/ Lawrence H. Hayward Lawrence H. Hayward President and Chief Executive Officer Date: November 8, 1996 By: /s/ Donald J. Anderson Donald J. Anderson Senior Vice President and Chief Financial Officer Date: November 8, 1996 CARR-GOTTSTEIN FOODS CO. Exhibit Index The following exhibits are attached as indicated: Exhibit Description of Exhibit Number 10.102 Employment Agreement of Lawrence H. Hayward 27.1 Financial Data Schedule EMPLOYMENT AGREEMENT Carr-Gottstein Foods Co. Lawrence H. Hayward This Employment Agreement ("Agreement") is made as of August 7, 1996 by and between CARR-GOTTSTEIN FOODS CO., a Delaware corporation, ("CGF") and LAWRENCE H. HAYWARD. Recitals A. CGF is a corporation organized under the laws of Delaware. It is engaged in the business of marketing food and drug products. B. CGF desires to employ Mr. Hayward as President and Chief Executive Officer of CGF to manage the business and affairs of CGF. Mr. Hayward desires to be so employed and act in such capacities. Accordingly, the parties agree as follows: 1. Employment - CGF will employ Mr. Hayward, and Mr. Hayward will be employed by CGF, as the President and Chief Executive Officer of CGF. Mr. Hayward shall assume that position on August 10, 1996. Mr. Hayward shall serve at the will of the Board of Directors. Mr. Hayward shall be accorded the authority by the Board of Directors commensurate with his position as Chief Executive Officer of CGF, and he shall make a good faith effort act in the best interests of CGF and perform those duties reasonably assigned to him by the Board of Directors. Mr. Hayward will devote himself full-time to the interests of CGF and shall not accept other employment, including service as a consultant or director of any other business or organization, except volunteer service for local charitable organizations which service does not materially interfere with his work at CGF. 2. Location of Employment - Mr. Hayward's principal place of employment shall be at the executive offices of CGF in Anchorage, Alaska or at such other location as mutually agreed upon by the parties. 3. Compensation a. Salary - CGF shall pay Mr. Hayward a salary at the annual rate of $325,000, less normal withholdings, for each calendar year, pro-rated for any portion thereof, payable in substantially equal installments in accordance with CGF's usual payroll practice, but in no event less frequently than monthly. b. Bonus - Mr. Hayward shall participate in the Bonus Plan for the most senior executives of CGF, subject to the following. Mr. Hayward shall be eligible for an annual bonus of up to 60% of his annual salary, depending upon the financial performance of CGF. Mr. Hayward shall be guaranteed a bonus for fiscal year 1996 of no less than $50,000. c. Stock Options i) Mr. Hayward currently holds options to purchase up to 100,000 shares of CGF common stock. The purchase price of 65,000 of these shares is $2.88. The purchase price of 35,000 of these shares is $5.25. As of the date of this Agreement, the purchase price of the $5.25 shares shall be reduced to $3.62, which is the closing market price of such common stock on the NYSE as of this date. ii) Effective this date, CGF shall award Mr. Hayward an option to purchase up to 28,000 shares of CGF common stock at a purchase price of $3.62. The option shall vest immediately, but any stock purchased pursuant to such option may not be sold or transferred by Mr. Hayward for six months from the option award date. iii) CGF shall award Mr. Hayward an option to purchase up to 172,000 shares of CGF common stock at a purchase price of $3.62 d. Other Benefits - Mr. Hayward shall receive other benefits such as vacation, personal and sick leave, insurance and other benefits consistent with the then-current policies of CGF and equal to those benefits extended to the most senior executives of CGF. Mr. Hayward will be provided with office facilities, secretarial support, and business expense reimbursement consistent with the policies of CGF with respect to its most senior executives. e. Travel - CGF shall provide Mr. Hayward with a non- business travel allowance of up to $15,000 each fiscal year, which travel allowance may be utilized at Mr. Hayward's discretion. There shall be no carryover or accumulation of this benefit from year to year. f. Severance - If Mr. Hayward's employment is terminated for any reason other than Just Cause, CGF shall continue to pay him an amount equal to his then-current salary, less normal withholdings, at intervals equal to the salary payments being received by the other most senior executives of the Company. Such payments shall continue through July 31, 1999 or the twelve- month period following the termination, whichever is longer; provided, however, that if Mr. Hayward becomes an employee, consultant, or partner of a company or business entity that directly competes with CGF after the expiration of the waiting period described in section 10 below, any severance payments will end as of the date such relationship between Mr. Hayward and the competing entity effectively commences. For the purpose of this section, a termination for "Just Cause" shall mean a termination of employment for any of the following reasons: (i) an intentional or grossly negligent violation of any reasonable rule or regulation of the Board of Directors of the Company that results in damage to the Company or which, after notice to do so, the actor fails to correct within a reasonable time; (ii) any willful misconduct or gross negligence in the responsibilities assigned to the actor; (iii) any wrongful or illegal conduct of the actor which has an adverse impact on the Company or which constitutes a material misappropriation of Company assets; or (iv) the performance of services for any other company, entity, or person which directly competes with the Company during the time the actor is employed by the Company, without the written approval of the Board of Directors of the Company. g. Relocation - In the event CGF terminates Mr. Hayward's employment prior to July 31, 1999 for any reason other than Just Cause, as defined above, CGF shall pay the reasonable cost, not to exceed $25,000, of moving Mr. Hayward's household possessions to a destination of Mr. Hayward's choice in or about the Pacific Northwest region of the mainland United States. For the purposes of this agreement, "household possessions" shall include a reasonable and ordinary amount of furniture, clothing, and personal property used in a single family household, including up to two automobiles. CGF shall not be responsible for premiums associated with the shipment of extraordinary items such as fine art or animals. 4. Representation of Mr. Hayward - Mr. Hayward represents and warrants that execution or delivery of this Agreement, nor his performance hereunder will conflict with, or result in a breach of, any obligation, contract, agreement, covenant or instrument to which he is a party or prospectively a party. 5. Dispute Resolution - This Agreement shall be interpreted according to Alaska law. Any disputes arising out of or relating to this Agreement shall be settled by arbitration held in Anchorage, Alaska in accordance with the Commercial Rules of the American Arbitration Association and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. 6. Entire Agreement / Modifications - This document constitutes the entire agreement of the parties with respect to Mr. Hayward's employment with CGF. It supersedes any prior agreement, statement or representation. It may be modified only by written instrument executed by the party against which the modification is asserted. Failure to require performance of any provision shall not affect the right at a later time to enforce the same. No waiver by either party of a breach , whether by conduct or otherwise, shall be construed as a further or continuing waiver of any such breach. 7. Severability - Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability with invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall no invalidate or render unenforceable such provision in any other jurisdiction. 8. Survivability - The rights and obligations of the parties of the parties to this Agreement under Sections 3(f), 4, 5, 9, and 10 shall survive the termination of this Agreement. 9. Assignability a) In the event CGF shall merge or consolidate with any other partnership, limited liability company, corporation, or business entity or all or substantially all CGF's business or assets shall be transferred in any manner to any other partnership, limited liability company, corporation or business entity, such successor shall thereupon succeed to, and be subject to, all rights, interests, duties, obligations of, and shall thereafter be deemed for all purposes hereof to be, CGF hereunder. b) This Agreement is personal in nature and none of the parties hereto shall, without the written consent of the other, assign or transfer this Agreement or any rights or obligations hereunder, except by operation of law or pursuant to the terms of section 10(a) above. c) Nothing expressed or implied herein is intended or shall be construed to confer upon or give to any person, other than the parties hereto, any right, remedy or claim under or by reason of this Agreement or of any term, covenant or condition hereof. 10. Non-competition - The parties recognize that Mr. Hayward will have access to trade secrets and proprietary information of the Company, and they recognize that should such information be revealed to a competitor, the Company would be materially damaged in an amount difficult to calculate. Accordingly, Mr. Hayward agrees that for one (1) year after termination of his employment with the Company, regardless of the reason for such termination, he shall not accept employment with, become a contractor to, or perform any substantially similar role for any person or business entity that directly competes with the Company. The parties hereto execute this Agreement as the day and year first written above. CARR-GOTTSTEIN FOODS CO. LAWRENCE H. HAYWARD ______________________________ _____________________________ By: John J. Cairns Chairman of the Board of Directors 29 EX-27 2
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