10-Q 1 y41465e10-q.txt COLORADO PRIME CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549-1004 --------------- FORM 10-Q |X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 24, 2000 OR | | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 1-09559 COLORADO PRIME CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 11-2826129 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 500 BI-COUNTY BLVD., FARMINGDALE, NEW YORK 11735 (Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (631)-694-1111 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 November 6, 2000, 1,000 shares of the registrant's Common Stock were outstanding. 2 COLORADO PRIME CORPORATION INDEX PART I. FINANCIAL INFORMATION PAGE NO. Item 1. CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets September 24, 2000 and December 24, 1999 1 Statements of Consolidated Operations Thirteen weeks ended September 24, 2000 and September 24, 1999 2 Statements of Consolidated Operations Thirty-nine weeks ended September 24, 2000 and September 24, 1999 3 Statements of Consolidated Cash Flows Thirty-nine weeks ended September 24, 2000 and September 24, 1999 4 Notes to Consolidated Financial Statements 5 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 6 PART II. OTHER INFORMATION Item 5. Other Information 8 Item 6. Exhibits and Reports on Form 8-K 8 SIGNATURES 9 3 COLORADO PRIME CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands except share data)

1 4 COLORADO PRIME CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED OPERATIONS (Dollars in thousands) (Unaudited)

2 5 COLORADO PRIME CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED OPERATIONS (Dollars in thousands) (Unaudited)

3 6 COLORADO PRIME CORPORATION STATEMENTS OF CONSOLIDATED CASH FLOWS (Dollars in thousands) (Unaudited)

4 7 COLORADO PRIME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Colorado Prime Corporation (the "Company" or "CPC") is a Delaware corporation and was incorporated in 1986. The Company is a wholly-owned subsidiary of Colorado Prime Holdings, Inc. ("CPH"), formerly KPC Holdings Corporation ("Holdings"). On May 9, 1997, pursuant to a merger agreement between Holdings and Thayer Equity Investors III, L.P., a private equity investment limited partnership ("Thayer"), Colorado Prime Acquisition Corp. ("CPAC"), a transitory acquisition company established by Thayer prior to the consummation of the merger, merged with and into Holdings (the "Merger") following which Holdings was the surviving corporation and was renamed CPH. 2. Reference is made to the notes to consolidated financial statements contained within the Company's audited financial statements for the period ended December 24, 1999 included in the Company's Annual Report on Form 10-K. In the opinion of management, the interim unaudited financial statements included herein reflect all adjustments necessary, consisting of normal recurring adjustments, for a fair presentation of such data on a basis consistent with that of the audited data presented therein. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year. Certain prior period balances have been reclassified to conform with the current period presentation. 3. In 1999, the Company approved a change in its fiscal year end from the last Friday to the last Sunday in December. Fiscal 2000 will be a 53 week year and end on December 31, 2000. 4. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries; Kal-Mar Properties Corp. ("Kal-Mar"), Concord Financial Services, Inc. ("Concord") and Prime Foods Development Corporation ("Prime"). In connection with the Merger discussed in Note 1, the Company issued $100.0 million of Senior Unsecured Notes (the "Notes"), which bear interest at 12.5% per annum and mature in 2004. (See the Company's Annual Report on Form 10-K for a further discussion of the Notes). In January 1999, the Company repurchased in aggregate $14.7 million (face value) of the then outstanding notes. The Notes are guaranteed on a senior unsecured basis by all existing subsidiaries (there are no non-guarantor subsidiaries) and any future U.S. subsidiaries of the Company. The guarantees of the subsidiaries are full, unconditional, joint and several. Summary financial data for Kal-Mar, Concord and Prime are as follows:

FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 24, 2000 (DOLLARS IN THOUSANDS)

Separate financial statements of the Company's subsidiaries are not presented, as the Company's management has determined that (i) the data presented above provides meaningful information and (ii) the data in separate financial statements other than that presented above would not be material to investors in the Notes. 5. During January 1999, the Company repurchased in aggregate $14.7 million (face value) of its Notes at a cost of $6.3 million. Additionally, the Company wrote-off approximately $0.8 million of unamortized debt issuance cost related to the repurchased Notes. The Company realized an extraordinary gain of $4.6 million which was net of a tax provision of $3.0 million. 5 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain information set forth herein contains forward-looking statements, as such term is defined in Section 27A of the Securities Act of 1933, as amended and Section 21 E of the Securities Exchange Act of 1934. Such statements are subject to certain risks and uncertainties discussed herein, which could cause actual results to differ materially from those in the forward-looking statements. OVERVIEW The Company is a leading direct marketer of high quality, value-added food programs and products related to in-home dining and entertainment. Using a combination of telemarketing and in-home selling, Colorado Prime Corporation believes that it is the only company to offer this type of in-home shopping service on a broad scale, currently serving 32 states through 70 sales offices. The Company sells individually packaged, top quality meats and poultry, seafood, assorted pasta dishes and a wide selection of prepared entrees for direct delivery to consumer households. The Company's food products are of a quality generally found only in specialty butchers, fine gourmet shops and high-end restaurants and require simple preparation using a microwave, conventional oven or grill. As a complement to its food products, the Company also sells food-related and home entertainment appliances and accessories with unique features not generally available in traditional retail channels. The purchase of non-food items enables customers to earn a lifetime discount on food purchases. RESULTS OF OPERATIONS Thirteen Weeks Ended September 24, 2000 Compared To Thirteen Weeks Ended September 24, 1999. Total revenue for the thirteen weeks ended September 24, 2000 decreased by $8.4 million, or 23.5%, to $27.3 million from $35.7 million for the thirteen weeks ended September 24, 1999. Food revenue for the thirteen weeks ended September 24, 2000 decreased by $4.3 million, or 21.8%, to $15.4 million from $19.7 million for the thirteen weeks ended September 24, 1999. Non-food revenue for the thirteen weeks ended September 24, 2000 decreased by $3.9 million, or 30.8%, to $8.8 million from $12.7 million for the thirteen weeks ended September 24, 1999. The reduction in food revenue was due to lower volume for new customers and lower average order size and volume for existing customers. The decrease in non-food revenue was due to lower volume for new and existing customers. In July, 2000 the Company began to reduce the weekly telemarketing hours and redirected the remaining hours to markets that have historically produced a higher closing rate. The total telemarketing hours for the thirteen weeks ended September 24, 2000 decreased by 132,000 hours, or 47.9%, to 144,000 hours from 276,000 hours for the thirteen weeks ended September 24, 1999. The reduction in food and non-food volume was due in part to the reduced telemarketing hours. Finance income for the thirteen weeks ended September 24, 2000 decreased by $0.2 million or 6.6% to $3.2 million from $3.4 million for the thirteen weeks ended September 24, 1999. The decrease resulted from a reduction in interest eligible non-food accounts. Gross profit for the thirteen weeks ended September 24, 2000 decreased by $7.4 million, or 30.9%, to $16.5 million from $23.9 million for the thirteen weeks ended September 24, 1999. The gross profit margin for the thirteen weeks ended September 24, 2000 decreased to 60.4% from 66.9% for the thirteen weeks ended September 24, 1999. The decrease in the gross profit margin was due primarily to an increase in food costs. The increase in food costs was due primarily to market conditions which began to improve in September 2000 and non-recurring transitional cost related to the shift in the production and fulfillment of food products from the Company owned facility to an outside processor which was completed in March, 2000. Additionally, an increase in the average customer discount negatively impacted the gross profit margin for the thirteen weeks ended September 24, 2000. SG&A expenses are principally comprised of selling, telemarketing, delivery and general and administrative expenses. For the thirteen weeks ended September 24, 2000, these expenses decreased by $5.6 million, or 27.4%, to $14.9 million from $20.5 million for the thirteen weeks ended September 24, 1999. The decrease was due to lower telemarketing cost from the reduction in hours discussed above, lower sales related variable cost from lower product sales, lower fixed payroll and non-payroll cost from the cost reductions and lower bad debt expense from improved receivable performance. Interest expense for the thirteen weeks ended September 24, 2000 increased to $4.3 million from $4.1 million for the thirteen weeks ended September 24, 1999. The increase was attributable to an increase in interest rates, partially offset by a reduction in borrowings under the working capital revolver. Other expense for the thirteen weeks ended September 24, 2000 and September 24, 1999 was $0.1 million. 6 9 Benefit for income taxes for the thirteen weeks ended September 24, 2000 increased by $0.7 million to a benefit of $1.0 million from a benefit of $0.3 million for the thirteen weeks ended September 24, 1999. The increase was due to a higher pre-tax loss. Net loss for the thirteen weeks ended September 24, 2000 increased to $2.2 million from a loss of $.9 million for the thirteen weeks ended September 24, 1999 for the reasons discussed above. Thirty-nine Weeks Ended September 24, 2000 Compared to Thirty-nine Weeks Ended September 24, 1999. Total revenue for the thirty-nine weeks ended September 24, 2000 decreased by $14.7 million, or 13.3%, to $95.3 million from $109.9 million for the thirty-nine weeks ended September 24, 1999. Food revenue for the thirty-nine weeks ended September 24, 2000 decreased by $9.3 million, or 15.4%, to $50.8 million from $60.1 million for the thirty-nine weeks ended September 24, 1999. Non-food revenue for the thirty-nine weeks ended September 24, 2000 decreased by $4.6 million, or 11.6%, to $35.0 million from $39.6 million for the thirty-nine weeks ended September 24, 1999. The reduction in food revenue was due to lower average order size and volume for new and existing customers. The decrease in non-food revenue was due to lower volume for new customers and lower average order size and volume for existing customers. In July, 2000 the Company began to reduce the weekly telemarketing hours and redirected the remaining hours to markets that have historically produced a higher closing rate. The total telemarketing hours for the thirty-nine weeks ended September 24, 2000 decreased by 212,000 hours, or 24.2%, to 664,000 hours from 876,000 hours for the thirty-nine weeks ended September 24, 1999. The reduction in food and non-food volume was due in part to the reduced telemarketing hours. Finance income for the thirty-nine weeks ended September 24, 2000 decreased by $0.8 million, or 8.1%, to $9.4 million from $10.2 million for the thirty-nine weeks ended September 24, 1999. The decrease resulted from a reduction in interest eligible non-food accounts. Gross profit for the thirty-nine weeks ended September 24, 2000 decreased by $12.7 million, or 17.5%, to $60.0 million from $72.7 million for the thirty-nine weeks ended September 24, 1999. The gross profit margin for the thirty-nine weeks ended September 24, 2000 decreased to 63.0% from 66.1% for the thirty-nine weeks ended September 24, 1999. The decrease in the gross profit margin was due primarily to an increase in food costs. The increase in food costs was due primarily to market conditions which began to improve in September 2000 and non-recurring transitional cost related to the shift in the production and fulfillment of the food products from the Company owned facility to an outside processor which was completed in March, 2000. Additionally, an increase in the average customer discount negatively impacted the gross profit margin for the thirty-nine weeks ended September 24, 2000. SG&A expenses are principally comprised of selling, telemarketing, delivery and general and administrative expenses. For the thirty-nine weeks ended September 24, 2000, these expenses decreased by $11.5 million, or 18.1%, to $51.9 million from $63.4 million for the thirty-nine weeks ended September 24, 1999. The decrease was due to lower telemarketing cost from the reduction in hours discussed above, lower sales related variable cost from lower product sales, lower fixed payroll and non-payroll cost from the cost reductions and lower bad debt expense from improved receivable performance. Interest expense for the thirty-nine weeks ended September 24, 2000 increased to $12.7 million from $12.2 million for the thirty-nine weeks ended September 24, 1999. The increase was attributable to an increase in interest rates, partially offset by a reduction in borrowings under the working capital revolver. Other expense for the thirty-nine weeks ended September 24, 2000 and September 24, 1999 was $0.4 million. Benefit for income taxes for the thirty-nine weeks ended September 24, 2000 increased by $0.6 million to a benefit of $1.7 million from a benefit of $1.1 million for the thirty-nine weeks ended September 24, 1999. The increase was due to higher pre-tax loss. Extraordinary gain for the thirty-nine weeks ended September 24, 1999 resulted from the repurchase of $14.7 million of Senior Notes at a cost of $6.3 million. Additionally, the Company incurred $0.8 million of non-cash charges related to the repurchase. The Company realized an extraordinary gain of $4.6 million which was net of a tax provision of $3.0 million. Net loss for the thirty-nine weeks ended September 24, 2000 was $4.5 million as compared to net income of $1.2 million for the thirty-nine weeks ended September 24, 1999 for the reasons discussed above. LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities for the thirty-nine weeks ended September 24, 2000 was $0.6 million, primarily comprised of a 7 10 net loss of $4.5 million, non cash charges of $4.5 million, a decrease in current assets of $2.5 million and a decrease in current liabilities of $2.9 million. Net cash used in investing activities for the thirty-nine weeks ended September 24, 2000 of $0.3 million was for capital expenditures. Net cash provided by financing activities for the thirty-nine weeks ended September 24, 2000 was $.4 million, comprised primarily of borrowings under the working capital revolver. The Company had working capital of $46.4 million as of September 24, 2000 compared to $47.0 million as of December 24, 1999. The Company has a $50.0 million working capital revolver (the "Revolver"), with $1.7 million of unused availability and a cash balance of $0.3 million as of September 24, 2000. Additionally, the Company has $85.3 million (face value) of senior unsecured notes (the "Notes") which bear interest at 12.5% per annum and mature in 2004. The Revolver contains certain covenants requiring the Company to meet certain financial tests including a minimum fixed charge coverage ratio, a maximum leverage ratio, and a limitation on capital expenditures. The Revolver and the Notes impose certain other restrictions on the Company, including restrictions on its ability to incur indebtedness, pay dividends, make investments, grant liens, sell its assets and engage in certain other activities. In addition, the indebtedness of the Company under the Revolver is secured by all of the assets of the Company, including the Company's real and personal property, inventory, accounts receivable, intellectual property and other intangibles. As of September 24, 2000, the Company was in compliance with certain provisions of the Revolver and had received a waiver of the default of the maximum leverage ratio. The Company has a $5.3 million interest payment to the holders of its senior unsecured notes which was due on November 1, 2000. The Company has elected to invoke the 30 day grace period under the terms of the indenture. The Company has retained Donaldson, Lufkin & Jenrette Securities Corporation as its financial advisor and has met with several of the senior unsecured noteholders to discuss alternatives to the current capital structure. The failure to make the interest payment at the end of the 30 day grace period would constitute an event of default under the indenture granting the holders of the Notes the right to accelerate the indebtedness. The acceleration of the indebtedness would have an adverse impact on the Company. Additionally, an event of default under the indenture would trigger gross default provisions under the Revolver. The Company's independent public accountants have advised the Company that, if this acceleration and other potential events of default or issues surrounding the Company's liquidity continue as of its year end and beyond, the independent public accountants may qualify their audit opinion as to the Company's ability to continue as a going concern. The Company is subject to certain market risk factors related to its Notes and its Revolver. The Company does not believe the interest rate risk to be material and has disclosed the factors in its Annual Report on Form 10-K for the year ended December 24, 1999. Inflation The Company believes that inflation has not had a material impact on its results of operations for the thirteen weeks ended September 24, 2000. PART II OTHER INFORMATION Item 5. Other Information Fred Spivak joined the Company as Executive Vice President and Chief Financial Officer on October 2, 2000. Item 6. Exhibits and Reports on Form 8-K (a) There were no Exhibits filed during the period (b) There were no Forms 8-K filed during the period 8 11 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 daily authorized. COLORADO PRIME CORPORATION (Registrant) Dated: November 6, 2000 By: /s/ Steven Lachenmeyer Vice President Finance 9

COLORADO PRIME CORP 10-Q