SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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 November 30, 1995; 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: 33-12173
AMERICOLD CORPORATION
(Exact name of registrant as specified in its charter)
OREGON 93-0295215
(State of Incorporation) (I.R.S. Employer
Identification Number)
7007 S.W. Cardinal Lane, Suite 135
Portland, Oregon 97224
(Address of principal executive offices) (Zip Code)
(503) 624-8585
(Registrant's telephone number, including area code)
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 / /
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes /X/ No / /
Number of shares outstanding of the registrant's common stock, par
value $.01 per share, as of December 31, 1995: 4,860,934 shares.
AMERICOLD CORPORATION
Form 10-Q
INDEX
-----
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 5
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations xx
PART II OTHER INFORMATION
Item 1. Legal Proceedings xx
Item 6. Exhibits and Reports on Form 8-K xx
SIGNATURES xx
EXHIBIT INDEX xx
PART I - Financial Information
Item 1. Financial Statements
AMERICOLD CORPORATION
CONSOLIDATED BALANCE SHEETS
Last day of February 1995 and November 1995
(In thousands, except share data)
Last day of Last day of
February 1995 November 1995
------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents (note 6) $ 33,163 $ 7,971
Trade receivables, net 20,510 30,048
Other receivables, net 2,105 5,493
Prepaid expenses 5,240 2,868
Other current assets 974 906
---------- ----------
Total current assets 61,992 47,286
Property, plant and equipment, less accumulated depreciation
of $156,806 and $169,315, respectively 367,248 382,414
Cost in excess of net assets acquired, less accumulated
amortization of $19,765 and $21,511, respectively 80,028 77,882
Other noncurrent assets 35,327 15,961
---------- ----------
Total assets $ 544,595 $ 523,543
========== ==========
LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 6,741 $ 15,808
Accrued interest 17,683 13,693
Accrued expenses 11,345 8,544
Deferred revenue 5,914 6,297
Current maturities of long-term debt (note 2) 31,315 2,702
Other current liabilities 3,912 1,319
---------- ----------
Total current liabilities 76,910 48,363
Long-term debt, less current maturities (note 2) 442,912 461,791
Deferred income taxes 106,098 102,401
Other noncurrent liabilities 10,633 10,742
---------- ----------
Total liabilities 636,553 623,297
---------- ----------
Preferred stock, $100 par value; authorized 1,000,000 shares;
issued and outstanding 52,936 shares (note 5) 5,789 6,325
---------- ----------
Common stockholders' deficit (note 3):
Common stock, $.01 par value; authorized
10,000,000 shares; issued and outstanding 4,860,934 shares 49 49
Additional paid-in capital 49,022 49,022
Retained deficit (146,775) (155,107)
Equity adjustment to recognize minimum pension liability (43) (43)
---------- ----------
Total common stockholders' deficit (97,747) (106,079)
---------- ----------
Total liabilities, preferred stock and
common stockholders' deficit $ 544,595 $ 523,543
========== ==========
See accompanying notes to consolidated financial statements.
AMERICOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and nine months ended last day of November 1994 and 1995
(In thousands, except per share data)
Three months Three months Nine Months Nine months
ended ended ended ended
last day of last day of last day of last day of
November 1994 November 1995 November 1994 November 1995
------------- ------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net sales $ 60,150 $ 86,852 $ 162,214 $ 199,897
---------- ---------- ---------- ----------
Operating expenses:
Cost of sales 37,355 62,206 104,188 135,903
Amortization of cost in excess of
net assets acquired 633 626 1,902 2,146
Selling and administrative expenses 6,467 7,082 19,500 21,154
---------- ---------- ---------- ----------
Total operating expenses 44,455 69,914 125,590 159,203
---------- ---------- ---------- ----------
Gross operating margin 15,695 16,938 36,624 40,694
---------- ---------- ---------- ----------
Other income (expense):
Interest expense (13,760) (14,009) (41,318) (42,135)
Gain on insurance settlement (note 8) 16,953 - 16,953 -
Reorganization expenses (note 2) - (404) - (6,704)
Other, net 248 (171) 720 (347)
---------- ---------- ---------- ----------
Total other income (expense) 3,441 (14,584) (23,645) (49,186)
---------- ---------- ---------- ----------
Income (loss) before income taxes and
extraordinary item 19,136 2,354 12,979 (8,492)
(Provision) benefit for income taxes (note 4) (7,731) (1,169) (5,754) 2,489
---------- ---------- ---------- ----------
Net income (loss) before extraordinary item 11,405 1,185 7,225 (6,003)
Extraordinary item, net of income tax
benefit of $1,157 (note 7) - - - (1,793)
---------- ---------- ---------- ----------
Net income (loss) $ 11,405 $ 1,185 $ 7,225 $ (7,796)
========== ========== ========== ==========
Income (loss) per common share (note 5)
Income (loss) before extraordinary item $ 2.31 $ 0.21 $ 1.38 $ (1.34)
Extraordinary item - - - (0.37)
---------- ---------- ---------- ----------
Net income (loss) per common share $ 2.31 $ 0.21 $ 1.38 $ (1.71)
========== ========== ========== ==========
Weighted average number of shares
outstanding 4,864 4,861 4,864 4,861
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
AMERICOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended last day of November 1994 and 1995
(In thousands)
Nine months Nine months
ended last ended last
day of day of
November 1994 November 1995
------------- -------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income (loss) $ 7,225 $ (7,796)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation 15,154 14,505
Amortization and other noncash expenses 3,874 3,915
Changes in assets and liabilities (7,519) (10,743)
Provision for deferred taxes 2,634 (3,697)
Gain on insurance settlement (16,953) -
Write-off of unamortized issuance costs - 962
Write-off of unamortized original issue discount - 1,988
--------- ----------
Net cash provided (used) by operating activities 4,415 (866)
--------- ----------
Cash flows from investing activities:
Net expenditures for property, plant
and equipment (13,213) (29,300)
Proceeds from insurance policies and other items, net 24,590 1,815
--------- ---------
Net cash provided (used) by investing activities 11,377 (27,485)
--------- ---------
Cash flows from financing activities:
Principal payments under capitalized
lease and other debt obligations (1,577) (2,156)
Retirement of mortgage bonds - (10,000)
Release of escrowed funds 2,957 15,315
--------- ---------
Net cash provided by financing activities 1,380 3,159
--------- ---------
Net increase (decrease) in cash and cash equivalents 17,172 (25,192)
Cash and cash equivalents at beginning of period 3,892 33,163
--------- ---------
Cash and cash equivalents at end of period $ 21,064 $ 7,971
========== ==========
Supplemental disclosure of cash flow information:
Cash paid year-to-date for interest,
net of amounts capitalized $ 44,196 $ 46,125
========= ==========
Capital lease obligations incurred to lease new equipment $ 671 $ 343
========== ==========
Cash paid during the year for income taxes $ 28 $ 395
========== ==========
Property sale proceeds placed in escrow $ 463 $ -
========== ==========
See accompanying notes to consolidated financial statements.
AMERICOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRINCIPLES OF CONSOLIDATION
---------------------------
The consolidated balance sheet as of the last day of November
1995; the related consolidated statements of operations for
the three and nine months ended the last day of November 1994
and November 1995; and the related consolidated statements of
cash flows for the nine months ended the last day of November
1994 and November 1995 are unaudited. In the opinion of
management, all adjustments necessary for a fair presentation
of such financial statements have been included. Such
adjustments consisted of normal recurring items. Interim
results are not necessarily indicative of results for a full
year. The financial information presented herein should be
read in conjunction with the financial statements included in
the registrant's Annual Report on Form 10-K for the year ended
the last day of February 1995.
2. PLAN OF REORGANIZATION UNDER CHAPTER 11
---------------------------------------
On May 9, 1995, the Company filed a prepackaged plan of
reorganization (the "Plan") under Chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court
for the District of Oregon (the "Court"). The principal
purpose of the Plan was to reduce the Company's short-term
cash requirements with respect to payments due on its
subordinated indebtedness and to adjust certain restrictive
financial covenants and certain other provisions contained in
the Amended and Restated Investment Agreement, dated March 2,
1993, between the Company and Metropolitan Life Insurance
Company ("MetLife"). On the filing date, the Plan had been
approved by both of the classes of debtholders entitled to
vote on the Plan.
On June 19, 1995, the Court approved the Company's Disclosure
Statement dated April 14, 1995 and the Company's solicitation
of votes to accept or reject the Plan, and confirmed the Plan.
On June 30, 1995, the Plan became effective, pursuant to
which:
(i) each holder of the Company's 11% Senior Subordinated
Debentures due 1997 was entitled to receive a
corresponding amount of new 15% Senior Subordinated
Debentures due 2007, and an amount in cash equal to the
accrued but unpaid interest on the old Senior
Subordinated Debentures through June 29, 1995; and
(ii) the Company repurchased on June 30, 1995, $10.0 million
of its 11.45% Series A First Mortgage Bonds due 2002 at
par and paid an agreement modification fee of $2.25
million to MetLife in conjunction with amending the
Amended and Restated Investment Agreement, dated March 2,
1993, between the Company and MetLife.
In addition, the Company has:
(a) Amended on June 30, 1995, the existing credit agreement
with its primary bank, which provides an aggregate
availability of $27.5 million, to be used for any
combination of letters of credit (up to $10.0 million)
and revolving cash borrowings, subject to borrowing base
limitations. The new credit agreement is secured by the
Company's trade receivables and, at the Company's option,
mortgages on certain of the Company's warehouse
properties.
(b) Rejected certain lease agreements relating to four
warehouse facilities at Watsonville, Oakland and San
Francisco, California; and Chicago, Illinois.
In November 1990, the American Institute of Certified Public
Accountants issued Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization Under the Bankruptcy
Code" ("SOP 90-7"). Under SOP 90-7, the financial statements
for periods including and subsequent to filing a Chapter 11
petition are structured to distinguish transactions and events
that are directly associated with the reorganization from the
ongoing operations of the Company. Since the Company was in
Chapter 11 proceedings for less than two months, and since the
Plan did not differentiate between prepetition and post-
petition liabilities and did not include any forgiveness of
liabilities, the Company has elected not to follow the
presentation proposed by SOP 90-7. The Company has expensed
all professional fees and similar types of expenditures
incurred through the last day of November 1995 directly
relating to the Chapter 11 proceedings as "reorganization
expenses." The Company also has not recorded the effects of
any possible damage claims as a result of the rejection of
certain lease agreements in the financial statements for the
first nine months of fiscal 1996.
3. COMMON STOCKHOLDERS' DEFICIT
----------------------------
The Company has reserved 300,000 shares of common stock for
issuance under a stock option plan established in 1987. Under
the plan, options are granted by the compensation committee of
the Board of Directors to purchase common stock at a price not
less than 85% of the fair market value on the date the option
is granted.
Information with regard to the plan as of the last day of
November 1995 follows:
Number of Shares Exercise Number of Shares Expiration
Subject to Option Price Exercisable Date
----------------- -------- ---------------- ----------
89,656 $10.00 89,656 May 1998
100,000 $18.95 100,000 June 2000
30,000 $21.88 12,000 May 2003
30,000 $20.40 6,000 December 2003
4. PROVISION FOR INCOME TAXES
--------------------------
The provision for income taxes was computed using a tax rate
of 39.2%. The tax rate was applied to loss before income
taxes and extraordinary item, after adjusting for amortization
of cost in excess of net assets acquired.
5. LOSS PER COMMON SHARE
------------------------------
Loss per common share is computed by dividing net loss, less
preferred dividend requirements, by the weighted average
number of common shares outstanding. See Exhibit 11,
Statement Re Computation of Per Share Earnings.
6. CASH AND CASH EQUIVALENTS
-------------------------
Cash and cash equivalents includes highly liquid instruments,
with original maturities of three months or less when
purchased. There were cash equivalents totaling approximately
$25.2 million and $3.0 million as of the last day of February
1995 and November 1995.
7. EXTRAORDINARY ITEM
------------------
In conjunction with the exchange of the senior subordinated
debentures and the repurchase of the $10.0 million of first
mortgage bonds, as discussed in note 2, unamortized original
issue discount of approximately $2.0 million and unamortized
issuance costs of approximately $1.0 million were written off,
resulting in an extraordinary loss, net of taxes, of
approximately $1.8 million.
8. GAIN ON INSURANCE SETTLEMENT
----------------------------
Gain on insurance settlement of approximately $17.0 million
relates to the Company's settlement of its first party claims
with its insurance carriers for business interruption,
property damage and out-of-pocket expenses with respect to the
December 1991 fire at the Company's Kansas City, Kansas
warehouse facility.
9. NEW ACCOUNTING STANDARD
-----------------------
The Company has not implemented the requirements of Financial
Accounting Standard Board Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of,"
although it will be required to do so for fiscal years
beginning March 1, 1996 and thereafter. This statement
generally requires assessment of recoverability of an asset
after events or circumstances that indicate an impairment to
the asset and its future cash flows. Any impairment loss
would be recognized as a one-time charge to earnings affecting
results of operations, but would not affect the cash flow of
the Company. At this time, the Company does not believe there
will be an impairment loss to report.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
INTRODUCTION
- ------------
Americold provides integrated logistics services for the
frozen food industry consisting of warehousing and
transportation management. These services are provided
through the Company's network of 49 refrigerated warehouses
and its refrigerated transportation management unit. The
Company's fiscal year ends on the last day of February.
DEVELOPMENT OF TRANSPORTATION MANAGEMENT SERVICES - In recent
quarters, the Company has experienced increased interest by
customers in procuring transportation management services from
the Company. In this regard, the Company entered into
arrangements in the first half of fiscal 1996 pursuant to
which it is providing such services to three subsidiaries of
one large customer. Transportation management services
provided to these three customers account for substantially
all of the increase in the Company's transportation management
revenues thus far in fiscal 1996. The Company has made
proposals to offer similar services to certain other potential
customers by emphasizing its logistics expertise and warehouse
industry position which enable customers to obtain services in
support of distribution of frozen food products from a single
provider.
The maintenance and continued growth of transportation
management services revenues is dependent upon meeting
customer expectations. Transportation management services
require substantial coordination and the implementation of
complex systems. The Company encountered start-up
difficulties with respect to the introduction of certain
transportation management services for customers in the latter
part of fiscal 1996. The Company believes that it has
overcome such difficulties, but there can be no assurance that
the Company will not encounter difficulties in the future, or
that such difficulties, if encountered, would not adversely
affect operating income. There can also be no assurance that
difficulties, if encountered, would not adversely affect
customer relationships. The Company believes, however, that
its transportation management activities may lead to increased
revenues in the higher-margin warehousing business.
DEVELOPMENT OF WAREHOUSE PROPERTIES - The Company continually
evaluates the need for warehouse space and intends to pursue
growth of its refrigerated warehouse business both by
expanding its network of warehouses and by expanding existing
facilities in response to customer requirements. Since August
1994 (mid-fiscal 1995), the Company has added approximately
16.1 million cubic feet of storage capacity in five locations.
Two of such facilities became operational in fiscal 1995 and
one in the second quarter and two in the third quarter of
fiscal 1996. The increase, net of warehouse closures
discussed below, represents a 1.8% increase in available
warehouse space. The Company is currently working toward the
development of several new warehouses which include the
acquisition of 2.1 million cubic feet and the construction of
13 million cubic feet of new refrigerated warehouse space.
The Company intends to finance such expansion primarily
through operating leases pursuant to an existing commitment
and from other financing sources. See "--Liquidity and
Capital Resources-- Capital Resources."
Since August 1994, the Company has reduced the amount of
available refrigerated warehouse space by approximately 12
million cubic feet due to the sale of one property,
termination of four operating leases in the prepackaged
bankruptcy in the third quarter of fiscal 1996 and the
non-renewal of three other operating leases. The Company
expects that the effects of the closure or disposition of such
non-strategic facilities will have a positive effect on future
gross operating margin as a percentage of net sales.
PREPACKAGED BANKRUPTCY - On May 9, 1995, the Company filed a
prepackaged plan of reorganization (the "Plan") under Chapter
11 of the Bankruptcy Code (the "Prepackaged Bankruptcy"). The
principal purpose of the Plan was to reduce the Company's
short term cash requirements with respect to payments due on
its subordinated indebtedness by extending the maturity of
such indebtedness and to adjust certain restrictive financial
covenants and other provisions contained in an agreement with
one of its principal investors. The bankruptcy court approved
the Plan as filed and it became effective on June 30, 1995.
The Plan as approved provided, among other things, that each
holder of the Company's then outstanding 11% Senior
Subordinated Debentures due 1997 (the "11% Debentures") was
entitled to receive a corresponding amount of the Company's
new 15% Senior Subordinated Debentures due 2007 (the "15%
Debentures"), plus accrued but unpaid interest; that the
Company's 11.45% First Mortgage Bonds, Series A, due 2002 (the
"Series A Bonds") and its 11.5% First Mortgage Bonds, Series
B, due 2005 (the "Series B Bonds", and together with the
Series A Bonds, the "First Mortgage Bonds") were unaffected by
the Prepackaged Bankruptcy; and that the prior Amended and
Restated Investment Agreement dated as of March 2, 1993 (the
"Investment Agreement") was superseded by the Second Amended
and Restated Investment Agreement dated as of May 5, 1995 (the
"Second Investment Agreement") with Metropolitan Life
Insurance Company (the "Institutional Investor"). See "Legal
Proceedings." The Company believes the Prepackaged Bankruptcy
has not adversely affected the holders of its senior debt or
its relationships with its customers, suppliers or
shareholders. See "-- Liquidity and Capital Resources --
Liquidity -- Effect of Prepackaged Bankruptcy."
Through the third quarter of fiscal 1996, the Company incurred
approximately $6.7 million in reorganization expenses related
to the Prepackaged Bankruptcy. In addition, the write-off of
unamortized original issue discount and unamortized issuance
costs related to the exchange of the 11% Debentures and the
redemption of $10.0 million of the Series A Bonds in the
Prepackaged Bankruptcy resulted in an extraordinary loss, net
of taxes, of approximately $1.8 million in the same period.
RESULTS OF OPERATIONS
- ---------------------
COMPARISON OF NINE-MONTHS PERIODS ENDED NOVEMBER 30, 1994 AND
1995
-------------------------------------------------------------
NET SALES - The Company's net sales increased 23.2% from
$162.2 million for the first nine months of fiscal 1995 to
$199.9 million for the first nine months of fiscal 1996,
reflecting a substantial increase in transportation management
sales as well as a 3.7% increase in warehousing sales. The
Company's third fiscal quarter is typically its strongest
sales quarter.
Americold's net sales for the first nine months of fiscal 1995
and the first nine months of fiscal 1996 are detailed in the
table below, by activity:
NET SALES
(Dollars in Millions)
Nine Months Nine Months
Ended Ended % Change
November 30, 1994 November 30, 1995 FY95 to FY96
----------------- ----------------- ------------
Amount % Amount %
------ --- ------ ---
Logistics
Warehousing
Storage $ 77.4 47.7% $ 79.9 40.0% 3.2 %
Handling 53.1 32.7% 56.8 28.4% 6.7 %
Leasing 5.3 3.3% 5.1 2.6% (3.8)%
Freezing
and other 9.4 5.8% 8.7 4.3% (7.4)%
------ ----- ------ ----- ------
145.2 89.5% 150.5 75.3% 3.7%
Transportation
management
services 12.9 8.0% 46.0 23.0% 256.6 %
------ ---- ------ ----- ------
Total logistics 158.1 97.5% 196.5 98.3% 24.3 %
Other non-
logistics 4.1 2.5% 3.4 1.7% (17.1)%
------ ----- ------ ----- ------
Total net sales $162.2 100.0% $199.9 100.0% 23.2 %
====== ===== ====== ===== ======
Warehousing sales increased 3.7% from $145.2 million for the
first nine months of fiscal 1995 to $150.5 million for the
first nine months of fiscal 1996, principally due to a 3.2%
increase in storage revenue and a 6.7% increase in handling
revenue. The increase in storage revenue is primarily due to
price increases and changes in product mix, as storage volume
remained stable at approximately 1.56 billion pounds stored on
average per month in each of the two periods.
The Company is aware that a portion of the revenue derived
from one warehouse location and reflected in the first nine
months of fiscal 1996 will be directed to another company's
warehouse, which is expected to be constructed and operational
by mid- to late fiscal 1997. Unless mitigated by the
Company's efforts to obtain replacement business, the effect
on operating earnings from this relocation will be a reduction
of approximately $2.0 million per year. The Company believes
that it will locate replacement business to recover some
portion of such revenues and operating earnings by fiscal
1998.
The 6.7% increase in handling revenue resulted primarily from
a 3.7% increase in volume of product handled, with the
remaining increase due to price increases and changes in
product mix. For the first nine months of fiscal 1995, 15.2
billion pounds of product were handled by the Company compared
with 15.7 billion pounds during the same period in fiscal
1996.
Transportation management sales increased 256.6% from $12.9
million for the first nine months of fiscal 1995 to $46.0
million for the first nine months of fiscal 1996, due to the
outsourcing to the Company of additional transportation
management responsibilities by three customers.
Other non-logistics sales (quarry sales) decreased 17.1% from
$4.1 million for the first nine months of fiscal 1995 to $3.4
million for the first nine months of fiscal 1996. The Company
has entered into a letter of intent with respect to the sale
of the quarry. See "--Liquidity and Capital
Resources--Capital Resources--Capital Expenditures."
COST OF SALES - Cost of sales increased 30.4% from $104.2
million for the first nine months of fiscal 1995 to $135.9
million for the first nine months of fiscal 1996. The
increased volume of transportation management services, which
required increases in transportation capacity purchased from
carriers and the addition of new employees, resulted in an
approximately $32.1 million increase in cost of sales. In
addition, the cost of sales decreased as a result of warehouse
additions and closures, as discussed above, in the net amount
of $1.6 million.
Cost of sales as a percentage of net sales increased from
64.2% for the first nine months of fiscal 1995 to 68.0% for
the first nine months of fiscal 1996, as handling and
transportation management sales, which each have high variable
cost requirements, increased from 40.7% of net sales in the
prior period to 51.4% in the more recent period.
As the Company does not own transportation equipment, the
Company has entered into contracts with independent carriers
to provide freight transportation at negotiated rates.
Accordingly, the margins that the Company earns in providing
transportation management services are lower than its
warehousing services.
SELLING AND ADMINISTRATIVE EXPENSES - Selling and
administrative expenses increased 8.5% from $19.5 million for
the first nine months of fiscal 1995 to $21.2 million for the
first nine months of fiscal 1996. The increase primarily
reflects an increase of approximately $1.0 million in salaries
and related fringe benefits. Selling and administrative
expenses as a percentage of net sales decreased from 12.0% in
the first nine months of fiscal 1995 to 10.6% in the first
nine months of fiscal 1996 due to the increase in
transportation management sales which did not require a
corresponding increase in selling and administrative expenses.
GROSS OPERATING MARGIN - As a result of the factors discussed
above, gross operating margin increased 11.1% from $36.6
million for the first nine months of fiscal 1995 to $40.7
million for the first nine months of fiscal 1996.
INTEREST EXPENSE - Interest expense increased from $41.3
million for the first nine months of fiscal 1995 to $42.1
million for the first nine months of fiscal 1996 as a result
of slightly higher overall interest rates partially offset by
slightly lower overall borrowings. The increase in interest
rates resulted from the exchange in the Prepackaged Bankruptcy
of the Company's 11% Debentures for the new 15% Debentures.
REORGANIZATION EXPENSES - Reorganization expenses of
approximately $6.7 million reflect the expenses incurred for
professional services related to the Prepackaged Bankruptcy
including investment banking, accounting and legal fees,
through the third quarter of fiscal 1996.
INCOME (LOSS) - The Company's income before income taxes and
extraordinary item for the first nine months of fiscal 1995
was $13.0 million, compared to a loss of $8.5 million in the
first nine months of fiscal 1996. The decrease in income
between the two periods is due to the approximately $6.7
million of reorganization expenses incurred during the first
nine months of fiscal 1996 and the recognition by the Company
of an approximately $17.0 million gain from the insurance
settlement related to the Kansas City, Kansas fire in the
first nine months of fiscal 1995. These two factors were
offset in part by improved earnings from operations.
EXTRAORDINARY ITEM - In connection with the exchange of the
Company's 11% Debentures for the 15% Debentures and the
repurchase of the $10.0 million of Series A Bonds in the
Prepackaged Bankruptcy, unamortized original issue discount of
approximately $2.0 million and unamortized issuance costs of
approximately $1.0 million were written off, resulting in an
extraordinary loss, net of taxes, of approximately $1.8
million.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company believes it has sufficient liquidity and capital
resources to meet its needs related to payment of interest
expense, continued operation and maintenance of its
warehouses, operation and planned expansion of its
transportation management business and limited growth in
warehouse investment. Anticipated growth in the volume of
transportation management services is not expected to consume
significant capital resources. Although the Company's
internal resources for new warehouse acquisition or
construction are limited, the Company has arranged for up to
$25.0 million in lease financing for new warehouse facilities
from a finance company (the "Lease Line"). See "--Capital
Resources." The Company plans to finance its warehouse
expansion program principally through such lease financing
and the Company believes it has the ability to finance all of
its fiscal 1997 expansion projects from the Lease Line, other
than with respect to one project for which the Company is
seeking additional financing. In light of the significant
debt obligations due between fiscal 2000 and fiscal 2008, the
Company continues to need to increase operating cash flow and
seek external sources for refinancing. To the extent such
operating cash flow growth will result from warehouse capacity
growth, the Company will be required to obtain additional
sources of financing.
LIQUIDITY
---------
OPERATING CASH FLOW - Net cash flow from operating activities,
representing cash provided from operations, is used to fund
capital expenditures and meet debt service requirements.
Operating cash flow reported for any one period is sensitive
to the timing of the collection of receivables and the payment
of payables. Net cash flow from operating activities as
reported in the Company's consolidated financial statements
decreased from $4.4 million for the first nine months of
fiscal 1995 to a negative $0.9 million for the first nine
months of fiscal 1996. The decrease is due to the
reorganization expenses associated with the Prepackaged
Bankruptcy and changes in certain working capital items. The
Company's operating cash flow would have been $5.8 million for
the first nine months of fiscal 1996 without reorganization
costs of $6.7 million. Net cash flow from operating
activities in fiscal years 1993, 1994 and 1995 was $17.7
million, $18.5 million and $12.7 million, respectively.
WORKING CAPITAL - The Company's working capital position as of
the last day of the nine-month period ended November 30, 1995
was a negative $1.1 million. This position compares to a
negative $14.9 million at fiscal 1995 year end. Working
capital was reduced in the more recent period due to the
decrease in net cash flow from operations discussed above and
the funding of the construction of the Grand Island, Nebraska
warehouse facility discussed below, but was increased by the
effects of the Prepackaged Bankruptcy. Under the Plan,
approximately $28.8 million of senior subordinated debt
payments were postponed from May 1995 until fiscal 2008, which
reduced the current portion of long-term debt. Partially
offsetting this decrease in the current portion of long-term
debt, as part of the reorganization proceedings, the Company
repurchased for cash $10.0 million of long-term Series A
Bonds.
The Company's historical negative working capital position has
not affected its ability to meet its cash operating needs.
The Company, however, in fiscal 1995 experienced a shortfall
in the working capital necessary to make the fiscal 1995 and
fiscal 1996 sinking fund payments required with respect to the
11% Debentures, leading to the Prepackaged Bankruptcy.
CAPITAL RESOURCES
-----------------
The credit agreement with the Company's primary bank provides
an aggregate availability of $27.5 million, which may be used
for any combination of letters of credit (up to $10.0 million)
and revolving cash borrowings for general working capital
purposes, subject to borrowing base limitations. The
borrowing base for both cash borrowings and letter of credit
amounts equals 85% of eligible accounts receivable pledged to
the bank plus, at the option of the Company, 70% of the value
of all real property mortgaged to the bank, up to a maximum of
$27.5 million. The Company has not mortgaged any properties
under the credit agreement. The credit agreement, which
matures on February 28, 1999, requires a 30-day resting period
(during which there may be no outstanding borrowings) in
fiscal 1997, and requires two such periods during each of
fiscal 1998 and fiscal 1999. The credit agreement also
contains certain restrictive covenants, including financial
covenants.
Based on eligible accounts receivable as of November 30, 1995,
the Company had an available credit line of $25.4 million, of
which $7.9 million was used for letters of credit, principally
related to leasing commitments and worker's compensation
reserves. No cash borrowings were outstanding.
The Lease Line, for which the Company signed a commitment
letter in November 1995, is available to finance, subject to
meeting certain conditions, the construction or acquisition of
new warehouses or the expansion of existing warehouses which
are not pledged as collateral security for senior debt. The
Company intends to finance several of the planned warehouse
additions with the new Lease Line. The terms of each lease
financing will be separately established. The first funding
of approximately $5.7 million is expected to close in late
fiscal 1996 with respect to the Company's recently completed
Grand Island, Nebraska facility. The Lease Line commitment
expires December 31, 1996. The lease rate will be fixed at
the time of funding each property, and will be based on a
spread over seven-year Treasury Bills.
The Company, as part of its Kansas City, Kansas location,
operates a limestone quarry. Subject to the resolution of
certain remaining due diligence issues, the Company expects to
dispose of this business during fiscal 1997. Net proceeds of
the sale of approximately $4.5 million must, in accordance
with the Second Investment Agreement, be reinvested in
warehouse properties within 360 days or used to satisfy, in
part, the mortgage obligation on the property. There can be
no assurance that such sale will be completed.
CAPITAL EXPENDITURES - Budgeted fiscal 1996 capital
expenditures total approximately $35.4 million, including
approximately $25.6 million for warehouse expansions.
Expenditures for property, plant and equipment for the first
nine months of fiscal 1996 totaled $29.7 million, of which
approximately $24.5 million related to warehouse expansions.
Of the $24.5 million, all but the construction of the Grand
Island facility was covered by external funds and the Company
expects to finance the Grand Island facility with funds from
the Lease Line.
The Company has completed construction of two new warehouse
facilities in Pasco, Washington and Rochelle, Illinois, funded
with approximately $18.6 million of escrow funds provided
under the Bond Indenture. As a result, the Company has
expended substantially all of the escrowed funds under the
Bond Indenture, except for approximately $4.8 million from the
insurance proceeds from the Kansas City fire. A portion of
the $4.8 million is expected to be released to the Company in
late fiscal 1996 conditioned upon the Company submitting to
the Bond Trustee under the Indenture related to the First
Mortgage Bonds (the "Bond Trustee") an accounting of
restoration expenses incurred to date at the Kansas City
warehouse facility. The Company is working with the Bond
Trustee to define its options with respect to the use of any
remaining funds held by the Bond Trustee following the
reimbursement of such restoration expenses.
The projects the Company is currently exploring for fiscal
1997 would require the expenditure of up to $34.0 million, no
portion of which is presently committed. The Company
anticipates that it will use the Lease Line to finance all but
one of such projects. Certain capital expenditures planned
for late fiscal 1996 will be deferred until early fiscal 1997,
and certain capital expenditures planned for early fiscal 1997
are expected to be deferred until late fiscal 1997, resulting
in corresponding delays in the realization of benefits from
such investments.
EFFECT OF PREPACKAGED BANKRUPTCY - The Bankruptcy Court
approved the Plan on June 19, 1995 and the Plan became
effective on June 30, 1995. The Plan as approved provided,
among other things, that each holder of the Company's then
outstanding 11% Debentures was entitled to receive a
corresponding amount of the Company's new 15% Debentures at
par, plus accrued but unpaid interest; that the holders of the
Company's Senior Debt were not adversely affected by the
Prepackaged Bankruptcy; and that the prior Investment
Agreement was superseded by the Second Investment Agreement
with the Institutional Investor.
Subsequently, the Company rejected in the Prepackaged
Bankruptcy certain operating lease agreements relating to four
warehouse facilities at Watsonville, Oakland and San
Francisco, California; and Chicago, Illinois. Properties
subject to the leases accounted for approximately $11.7
million of sales and a minimal amount of gross operating
margin in fiscal 1995. The outcome of any damage claims
resulting from the lease rejections cannot be predicted at
this time, but the Company does not believe that the
resolutions of such claims will be material.
The Company believes that the effect of the Plan has been to
improve the Company's financial position by postponing the
maturity of its subordinated debt and increasing the
likelihood that the Company will realize the benefits of its
capital expenditures and the continuing expansion of its
transportation management activities. The Company remains
highly leveraged, however, and will continue to be subject to
substantial principal and interest obligations with respect to
its indebtedness.
NEW ACCOUNTING STANDARD
-----------------------
The Company has not implemented the requirements of Financial
Accounting Standards Board Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," although it will be required to do so for fiscal years
beginning March 1, 1996 and thereafter. This statement
generally requires assessment of recoverability of an asset
after events or circumstances that indicate an impairment to
the asset and its future cash flows. Any impairment loss
would be recognized as a one-time charge to earnings affecting
results of operations, but would not affect the cash flow of
the Company. At this time, the Company does not believe there
will be an impairment loss to report.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ---------------------------
On May 9, 1995, the Company filed the Plan under Chapter 11 of
the United States Bankruptcy Code in the Court (Case No.
395-33058elp11). The principal purpose of the Plan was to
reduce the Company's short-term cash requirements with respect
to payments due on its subordinated indebtedness and to adjust
certain restrictive financial covenants and certain other
provisions contained in the Amended and Restated Investment
Agreement, dated March 2, 1993, between the Company and
Metropolitan Life Insurance Company. On the filing date, the
Plan had received approval from both of the classes of
debtholders entitled to vote on the Plan.
On June 19, 1995, the Court approved the motion of the Company
requesting the Court (1) to approve the Company's Disclosure
Statement dated April 14, 1995 and the Company's procedure for
solicitation of votes to accept or reject the Plan, and (2) to
confirm the Plan. The Plan became effective on June 30, 1995.
As part of the bankruptcy proceedings, the Company has
rejected certain lease agreements relating to four warehouse
facilities resulting in the filing of lease rejection claims
by two landlords. The Company does not believe that the
resolution of such claims will have a material adverse effect
upon the Company, but there can be no assurance as to the
outcome of such proceedings.
For additional information with respect to the Plan, see Part
I, Item 2. -"Management's Discussion and Analysis of Financial
Condition and Results of Operations," and Part I, Item 1 -
Note 2 to Consolidated Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) Exhibits
10.1 Employment Agreement dated November 1, 1995 between
the Company and Ronald H. Dykehouse
10.2 Form of Employment Agreement dated August 1, 1995
between the Company and certain named executive
officers, and schedule
10.3 Form of Covenant Not to Compete and Consulting and
Non-Disclosure Agreement between the Company and
certain named executive officers, and schedule
(11) Statement re Computation of Per Share Earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter for
which this report is filed.
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.
AMERICOLD CORPORATION
/s/ Joel M. Smith
---------------------------------
JOEL M. SMITH, Senior Vice
President and Chief Financial
Officer
Date: January 16, 1996
FORM 10-Q
Exhibit Index
Exhibit Page
- ------- ----
(a) Exhibits
10.1 Employment Agreement dated November 1, 1995
between the Company and Ronald H. Dykehouse
10.2 Form of Employment Agreement dated August 1,
1995 between the Company and certain named
executive officers, and schedule
10.3 Form of Covenant Not to Compete and
Consulting and Non-Disclosure Agreement
between the Company and certain named
executive officers, and schedule
(11) Statement re Computation of Per Share
Earnings
(27) Financial Data Schedule