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, 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: 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, 1996: 4,994,866 shares.
AMERICOLD CORPORATION
Form 10-Q
TABLE OF CONTENTS
-----------------
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Change in Securities
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
PART I - Financial Information
Item 1. Financial Statements
AMERICOLD CORPORATION
CONSOLIDATED BALANCE SHEETS
Last day of February 1996 and November 1996
(In thousands, except share data)
Last day of Last day of
February 1996 November 1996
------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents (note 6) $ 20,857 $ 11,011
Trade receivables, net 25,461 28,368
Other receivables, net 3,512 6,131
Prepaid expenses 4,286 2,262
Other current assets 4,181 4,140
----------- ----------
Total current assets 58,297 51,912
Property, plant and equipment, less accumulated depreciation
of $174,123 and $187,932, respectively 375,851 376,183
Cost in excess of net assets acquired, less accumulated
amortization of $22,138 and $24,018, respectively 77,255 75,376
Other noncurrent assets (note 10) 15,589 20,313
----------- ----------
Total assets $ 526,992 $ 523,784
=========== ==========
LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 11,363 $ 14,431
Accrued interest 19,056 13,547
Accrued expenses 11,604 10,074
Deferred revenue 5,707 6,249
Current maturities of long-term debt 2,732 2,516
Other current liabilities 4,630 3,565
---------- ----------
Total current liabilities 55,092 50,382
Long-term debt, less current maturities (note 7) 461,667 468,961
Deferred income taxes 102,041 100,121
Other noncurrent liabilities 9,861 10,731
---------- ----------
Total liabilities 628,661 630,195
---------- ----------
Preferred stock, $100 par value; authorized 1,000,000 shares;
issued and outstanding 52,936 shares (note 5) 5,771 5,581
---------- ----------
Common stockholders' deficit (note 3):
Common stock, $.01 par value; authorized
10,000,000 shares; issued and outstanding 4,931,194 and
4,980,347 shares, respectively 49 49
Additional paid-in capital 50,173 51,001
Retained deficit (157,345) (162,725)
Equity adjustment to recognize minimum pension liability (317) (317)
---------- ----------
Total common stockholders' deficit (107,440) (111,992)
---------- ----------
Total liabilities, preferred stock and
common stockholders' deficit $ 526,992 $ 523,784
========== ==========
See accompanying notes to consolidated financial statements.
AMERICOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and nine months ended last day of November 1995 and 1996
(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 1995 November 1996 November 1995 November 1996
------------- ------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net sales $ 86,852 $ 82,244 $ 199,897 $ 234,779
---------- ---------- ---------- ----------
Operating expenses:
Cost of sales 62,206 59,014 135,903 173,503
Amortization of cost in excess of
net assets acquired 626 627 2,146 1,880
Selling and administrative expenses 7,082 7,678 21,154 22,713
--------- --------- --------- ---------
Total operating expenses 69,914 67,319 159,203 198,096
--------- --------- --------- ---------
Gross operating margin 16,938 14,925 40,694 36,683
--------- --------- --------- ---------
Other (expense) income:
Interest expense (14,009) (13,601) (42,135) (42,857)
Reorganization expenses (note 2) (404) (476) (6,704) (879)
Other, net (171) (190) (347) 278
--------- --------- --------- ---------
Total other expense (14,584) (14,267) (49,186) (43,458)
--------- --------- --------- ---------
Income (loss) before income taxes and
extraordinary item 2,354 658 (8,492) (6,775)
(Provision) benefit for income taxes (note 4) (1,169) (504) 2,489 1,920
--------- --------- --------- ---------
Net income (loss) before extraordinary item 1,185 154 (6,003) (4,855)
Extraordinary item, net of income tax
benefit of $1,157 (note 9) - - (1,793) -
--------- --------- --------- ---------
Net income (loss) $ 1,185 $ 154 $ (7,796) $ (4,855)
========= ========= ========= =========
Income (loss) per common share (note 5):
Income (loss) before extraordinary item $ 0.21 $ 0.0 $ (1.34) $ (1.09)
Extraordinary item - - (0.37) -
--------- --------- --------- ---------
Net income (loss) per common share $ 0.21 $ 0.0 $ (1.71) $ (1.09)
========= ========= ========= =========
Weighted average number of shares
outstanding 4,861 4,943 4,861 4,935
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
AMERICOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended last day of November 1995 and 1996
(In thousands)
Nine months Nine months
ended last ended last
day of day of
November 1995 November 1996
------------- -------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $ (7,796) $ (4,855)
Adjustments to reconcile net loss to
net cash provided (used) by operating activities:
Depreciation 14,505 15,518
Amortization and other noncash expenses 3,915 4,386
Changes in assets and liabilities (10,743) (9,783)
Provision for deferred taxes (3,697) (1,920)
Write-off of unamortized issuance costs 962 -
Write-off of unamortized original issue discount 1,988 -
--------- ---------
Net cash provided (used) by operating activities (866) 3,346
--------- ---------
Cash flows from investing activities:
Net expenditures for property, plant
and equipment (29,300) (24,525)
Net proceeds from sale of assets - 6,517
Other items, net 1,815 (739)
--------- ---------
Net cash used by investing activities (27,485) (18,747)
--------- ---------
Cash flows from financing activities:
Principal payments under capitalized
lease and other debt obligations (2,156) (1,998)
Retirement of mortgage bonds (10,000) -
Proceeds from sale of senior subordinated notes - 120,000
Retirement of senior subordinated debentures - (115,000)
Proceeds from mortgage payable - 15,222
Retirement of mortgage payable - (11,376)
Debt issuance costs - (5,463)
Release of escrowed funds 15,315 4,820
Proceeds from exercise of stock option - 65
Preferred stock dividend - (715)
--------- ---------
Net cash provided by financing activities 3,159 5,555
--------- ---------
Net decrease in cash and cash equivalents (25,192) (9,846)
Cash and cash equivalents at beginning of period 33,163 20,857
--------- ---------
Cash and cash equivalents at end of period $ 7,971 $ 11,011
========= =========
Supplemental disclosure of cash flow information:
Cash paid year-to-date for interest,
net of amounts capitalized $ 46,125 $ 48,367
========= =========
Capital lease obligations incurred to lease new equipment $ 343 $ 231
========= =========
Cash paid during the year for income taxes $ 395 $ 58
========= =========
Property sale proceeds placed in escrow $ - $ 5,334
========= =========
Employee stock ownership plan contribution made with
common stock $ - $ 750
========= =========
Compensation expense on exercise of stock option $ - $ 13
========= =========
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
1996; the related consolidated statements of operations for
the three and nine months ended the last day of November 1995
and November 1996; and the related consolidated statements of
cash flows for the nine months ended the last day of November
1995 and November 1996 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 1996.
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 (the "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 Second Amended and Restated
Investment Agreement, dated March 2, 1993, between the Company
and Metropolitan Life Insurance Company (see Note 10,
Subsequent Event). 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.
In addition, the Company rejected certain lease agreements
relating to four warehouse facilities at Watsonville, Oakland
and San Francisco, California, and Chicago, Illinois. In
February 1996, the Company settled all lease rejection issues
with the lessor of three properties located in Watsonville,
Oakland and San Francisco, California. Such settlement did
not involve the payment of any damages by the Company. In
September 1996, the Company settled all lease rejection issues
with the lessor of the Chicago, Illinois property. Such
settlement, representing one year's rent recovery by the
lessor as provided by the Bankruptcy Code, required a payment
of approximately $0.4 million.
The Company has expensed the settlement payment and related
professional fees and all professional fees and similar
expenditures incurred related to the prepackaged bankruptcy as
"reorganization expenses."
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 1996 follows:
Number of Exercise
Shares Price
--------- --------
Outstanding, March 1, 1996 249,656 $10.00 to $21.88
Exercised (6,539) $10.00
Granted (fair value of
options, $12.00) 160,000 $12.30
Cancelled (162,760) $10.00 to $21.88
--------
Outstanding, November 30, 1996 240,357 $10.00 to $12.30
========
Exercisable, November 30, 1996 80,357 $10.00
========
The outstanding options expire from May 1998 through April
2006.
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 income before income
taxes, after adjusting for amortization of cost in excess of
net assets acquired.
5. INCOME PER COMMON SHARE
-----------------------
Income per common share is computed by dividing net income,
less preferred dividend requirements, by the weighted average
number of common shares outstanding. See Exhibit 11,
Statement Regarding 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 $15.4 million
and $2.0 million as of the last day of February 1996 and
November 1996, respectively.
7. LONG-TERM DEBT
--------------
On April 9, 1996, the Company sold $120.0 million aggregate
principal amount of the Company's 12.875% Senior Subordinated
Notes due 2008. The Company used $115.0 million of the
proceeds to redeem at par on May 9, 1996 the Company's 15%
Senior Subordinated Debentures due 2007. The remaining
proceeds were used to pay transaction costs. The interest
rate on the notes could be increased to 13.875% if the notes
are not rated B3 or higher by Moody's Investors Service and B-
or higher by Standard & Poor's by November 1, 1997.
8. EXTRAORDINARY ITEM
------------------
In June 1995, in conjunction with the exchange of the senior
subordinated debentures and the repurchase of the $10.0
million of First Mortgage Bonds due 2002 as part of 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.
9. SALE/LEASEBACK
--------------
In November 1996, the Company entered into a sale/leaseback
transaction of its Pasco, Washington facility. Of the
approximately $11.8 million of net proceeds, the Company
received approximately $6.5 million at closing and the
remaining $5.3 million was placed in escrow with the Trustee
under the indenture governing the Company's first mortgage
bonds. The Company has until November 1997 to substitute
unencumbered property for the total amount of cash, or any
portion thereof, held in escrow. Any escrowed funds remaining
after the one year period will be used to repurchase
outstanding mortgage bonds.
The lease was treated as an operating lease with a resulting
deferred gain of approximately $2.7 million, which is being
amortized over the approximate ten year life of the lease.
10. SUBSEQUENT EVENT
----------------
The Company was notified that in December 1996, the
Metropolitan Life Insurance Company (the "Met") sold its
entire $140 million holdings of the Company's Series A, 11.45%
First Mortgage Bonds. As a result of such transaction, the
Second Amended and Restated Investment Agreement, dated March
2, 1993, between the Met and the Company, which included
certain financial covenants and other restrictive covenants,
was terminated.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
INTRODUCTION - Americold Corporation (the "Company") 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
50 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 - Over the
past several years, 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. The Company has made
proposals to offer similar services to certain other potential
customers by emphasizing its full-service logistics expertise
and warehouse industry position which enable customers to
obtain services in support of distribution of frozen food
products from a single provider.
As the Company does not invest in or 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 for its warehousing services.
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. The Company
has added capacity at both the Burley, Idaho (completed
October 1, 1996), and Pasco, Washington (completed September
1, 1996) facilities, which resulted in a total of 5.9 million
cubic feet of new space. The Company is currently adding
capacity at the Fogelsville, Pennsylvania facility, which will
result in 7.6 million cubic feet of new space. The expansion
should be completed by the end of fiscal 1997. In addition,
the Company completed in November 1996 the construction of a
new warehouse facility in Park Rapids, Minnesota which totaled
2.0 million cubic feet. The Company is currently negotiating
a joint venture ownership structure for the property. The
Company will act as the operator of the facility. The Company
intends to or has completed the financing of such expansions
primarily through operating leases, through mortgage financing
from its principal bank and from other financing sources. See
"--Liquidity and Capital Resources--Capital Resources" and "--
Capital Expenditures."
The Company intends to vacate its Chicago (S. Blue Island
Ave.), Illinois facility by the end of fiscal 1997, and to
vacate its Kent, Washington facility at the end of March 1997
when that lease expires. The facilities total 3.9 million
cubic feet and are marginally profitable.
COMPARISON OF THREE-MONTH PERIODS ENDED NOVEMBER 30, 1995 AND
1996
-------------------------------------------------------------
Net sales decreased 5.3% from $86.9 million for the third
quarter of fiscal 1996 to $82.2 million for the same quarter
in fiscal 1997. The decrease is primarily related to a
reduction in transportation management sales which decreased
11.0% from the corresponding quarter in fiscal 1996 due to a
decrease in business from one customer. The reduction is the
result of decreasing consumer demand for one product line of
such customer.
Warehousing sales decreased 2.3% from $55.7 million for the
third quarter of fiscal 1996 to $54.4 million for the
corresponding quarter in fiscal 1997. The decrease is due
partially to closure of the Company's operations at four
warehouse locations during the third quarter of fiscal 1996 as
a result of the rejection of the leases in the prepackaged
bankruptcy. These closings accounted for approximately $0.6
million of the sales decrease. See Part I, Item 1. - Note 2
to Consolidated Financial Statements. In addition,
warehousing sales at the continuing locations decreased
approximately $2.2 million as a result of decreased volume of
certain vegetable products due to wet spring weather and
reduced volumes of certain potato products. These decreases
were offset in part by the approximately $1.5 million of sales
from the new facilities added in fiscal 1996.
Cost of sales decreased 5.1% from $62.2 million for the third
quarter of fiscal 1996 to $59.0 million for the same quarter
of fiscal 1997. The decrease is primarily related to the
decreased volume of transportation services during the
quarter. Warehousing cost of sales decreased slightly as a
result of the warehouse closures, but cost of sales increases
at the new facilities and at certain continuing locations more
than offset the decrease. The increases at the continuing
locations were due to increased handling volume which required
increased labor, and due to operational difficulties at two of
the Company's facilities which also resulted in increased
labor expense. The Company believes such difficulties have
been resolved at one location and should be resolved in the
near future at the other.
COMPARISON OF NINE-MONTH PERIODS ENDED NOVEMBER 30, 1995 AND
1996
--------------------------------------------------------------
NET SALES - The Company's net sales increased 17.4% from
$199.9 million for the first nine months of fiscal 1996 to
$234.8 million for the first nine months of fiscal 1997,
reflecting a substantial increase in transportation management
sales as well as a 0.5% decrease in warehousing sales.
Americold's net sales for the first nine months of fiscal 1996
and the first nine months of fiscal 1997 are detailed in the
table below, by activity:
NET SALES
(Dollars in Millions)
Nine Months Ended Nine Months Ended
November 30, 1995 November 30, 1996
----------------- ----------------- % Change
Amount % Amount % FY96 to FY97
------ --- ------ --- ------------
Logistics
Warehousing
Storage $ 79.9 40.0% $ 77.6 33.1% (2.9)%
Handling 56.8 28.4% 59.4 25.3% 4.6 %
Leasing 5.1 2.6% 5.0 2.1% (2.0)%
Freezing
and other 8.7 4.3% 7.8 3.3% (10.3)%
------ ----- ------ ----- ------
Total warehousing 150.5 75.3% 149.8 63.8% (0.5)%
Transportation
management
services 46.0 23.0% 80.7 34.4% 75.4 %
----- ----- ----- ----- -----
Total logistics 196.5 98.3% 230.5 98.2% 17.3 %
Other non-
logistics 3.4 1.7% 4.3 1.8% 26.5 %
----- ----- ----- ----- -----
Total net sales $199.9 100.0% $234.8 100.0% 17.4 %
====== ===== ====== ===== =====
Warehousing sales decreased from $150.5 million for the first
nine months of fiscal 1996 to $149.8 million for the first
nine months of fiscal 1997, principally due to a 2.9% decrease
in storage revenue and a 10.3% decrease in freezing and other
revenue. Storage revenue decreased 2.9%, as storage volume
decreased from approximately 1.55 billion pounds stored on
average per month for the first nine months of fiscal 1996 to
approximately 1.49 billion pounds for the first nine months of
fiscal 1997. Storage volume decreased 0.06 billion pounds
stored on average per month for the first nine months of
fiscal 1997 due to the closure of the Company's operations at
the four warehouse locations during the third quarter of
fiscal 1996 and decreased storage volumes at certain of the
continuing locations. The increase in storage volumes at the
three facilities that were added in fiscal 1996 helped offset
such decreases. As mentioned above, the Company's storage
levels were affected by the wet spring weather which reduced
or delayed the receipt of product, especially fruits and
vegetables. In addition, due to the high price of fresh
potatoes in late spring, potato processors extended their
downtime, which reduced warehouse receipts and storage volumes
at certain warehouses.
The 4.6% increase in handling revenue resulted primarily from
a 3.5% increase in volume of product handled, further affected
by price increases and changes in product mix. For the first
nine months of fiscal 1996, 15.7 billion pounds of product
were handled by the Company compared with 16.3 billion pounds
during the same period in fiscal 1997. The three new
facilities handled approximately 0.8 billion pounds of product
during the first nine months of fiscal 1997, which helped
offset the approximately 0.3 billion pounds of product handled
during the first nine months of fiscal 1996 at the four closed
facilities.
The Company anticipates that vegetable processors will
continue to maintain lower inventories for the balance of
fiscal 1997. Expected storage levels for potatoes and other
items for the balance of the year are also expected to be
lower than the prior year. Overall, the Company anticipates
that revenues and storage volumes at the existing facilities
will be lower in the fourth quarter of fiscal 1997 as compared
to the fourth quarter of last year. The Company expects such
decrease will be offset in part by sales and storage volumes
contributed by the new warehouse properties, including
expansions, added in the third quarter.
Transportation management sales increased 75.4% from $46.0
million for the first nine months of fiscal 1996 to $80.7
million for the first nine months of fiscal 1997, due to the
outsourcing to the Company of additional transportation
management responsibilities by three customers in the first
half of fiscal 1996.
Other non-logistics sales (quarry sales) increased 26.5% from
$3.4 million for the first nine months of fiscal 1996 to $4.3
million for the first nine months of fiscal 1997.
COST OF SALES - Cost of sales increased 27.7% from $135.9
million for the first nine months of fiscal 1996 to $173.5
million for the first nine months of fiscal 1997. 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 $34.0 million increase in cost of sales. In
addition, cost of sales increased by approximately $3.5
million as a result of increased warehouse labor and related
fringe benefits. A portion of the increased cost of sales was
due to the increased handling volume offset by a decrease of
approximately $1.0 million as the net result of the new
warehouse openings and closings. During the first nine
months, the Company also experienced operational difficulties
at two of the Company's warehouse facilities due to higher
than anticipated warehouse storage volumes and changes in
product mix, which resulted in increased labor expense. The
Company believes such difficulties have been resolved at one
location and should be resolved in the near future at the
other.
Cost of sales as a percentage of net sales increased from
68.0% for the first nine months of fiscal 1996 to 73.9% for
the first nine months of fiscal 1997, as handling and
transportation management sales, which each have high variable
cost requirements, increased from 51.4% of net sales in the
prior period to 59.7% in the more recent period.
SELLING AND ADMINISTRATIVE EXPENSES - Selling and
administrative expenses increased 7.4% from $21.2 million for
the first nine months of fiscal 1996 to $22.7 million for the
first nine months of fiscal 1997. The increase primarily
reflects an increase of approximately $0.7 million in salaries
and related fringe benefits, and $0.6 million in professional
fees. Selling and administrative expenses as a percentage of
net sales decreased from 10.6% in the first nine months of
fiscal 1996 to 9.7% in the first nine months of fiscal 1997
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 increase in lower-
margin transportation management sales along with increased
product handling activity, gross operating margin decreased
9.9% from $40.7 million for the first nine months of fiscal
1996 to $36.7 million for the first nine months of fiscal
1997.
INTEREST EXPENSE - Interest expense increased from $42.1
million for the first nine months of fiscal 1996 to $42.9
million for the first nine months of fiscal 1997 as a result
of the defeasance requirements related to the issuance in
April 1996 of $120.0 million of the Company's 12.875% Senior
Subordinated Debentures due 2008. Proceeds from the issue
were used in May 1996 to redeem at par all $115.0 million of
the Company's outstanding 15% Senior Subordinated Debentures.
Under the terms of the applicable indenture, both issues were
outstanding for thirty (30) days, accounting for a major
portion of the increase in interest expense. Excluding the
increased cost due to defeasance, interest expense decreased
due to lower overall interest rates experienced by the Company
even with higher overall borrowings. During the second
quarter of fiscal 1996, the Company, through the prepackaged
bankruptcy, refinanced its then $115.0 million of 11% Senior
Subordinated Debentures due 1997 with the 15% Senior
Subordinated Debentures which were refinanced in the first
quarter of fiscal 1997.
REORGANIZATION EXPENSES - Reorganization expenses of
approximately $6.7 million for the first nine months of fiscal
1996 reflect the expenses related to the prepackaged
bankruptcy incurred for professional services, including
investment banking, accounting and legal fees. For the first
nine months of fiscal 1997, the Company incurred
reorganization expenses of approximately $0.9 million as the
result of the settlement of the lease rejection issues related
to the Chicago, Illinois facility, including professional
services related to the prepackaged bankruptcy.
INCOME (LOSS) - The Company's loss before income taxes and
extraordinary item for the first nine months of fiscal 1996
was $8.5 million, compared to a loss of $6.8 million in the
first nine months of fiscal 1997. The decrease in the loss in
the more recent period is due to the approximately $6.7
million of reorganization expenses incurred during the first
nine months of fiscal 1996, offset in part by the higher
interest expense and lower gross operating margin realized in
the first nine months of fiscal 1997.
EXTRAORDINARY ITEM - In June 1995, in conjunction with the
exchange of the senior subordinated debentures and the
repurchase of the $10.0 million of first mortgage bonds as
part of 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 short-term needs related to the payment
of interest expense, the continued operation and maintenance
of its warehouses, the continued operation and planned
expansion of its transportation management business and the
funding of limited growth in warehouse capacity. 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 capacity from a finance company (the "Lease Line"),
of which approximately $7.3 million remained unused at
November 30, 1996. See "--Capital Resources." In October
1996, the Company also financed through a mortgage the
expansion of its Burley, Idaho facility. The Company plans to
finance its warehouse expansion program principally through
lease 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 also 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 increased from a
negative $0.9 million for the first nine months of fiscal 1996
to $3.3 million for the first nine months of fiscal 1997. The
fiscal 1997 improvement is due principally to the lower net
loss incurred in fiscal 1997 due to the significant reduction
in reorganization expenses, and to changes in certain working
capital items. Net cash flow from operating activities in
fiscal years 1994, 1995 and 1996 was $18.5 million, $12.7
million and $12.6 million, respectively. Funds provided from
operations (gross operating margin plus depreciation,
amortization and employee stock ownership plan expense) was
$57.8 million for the first nine months of fiscal 1996 and
$54.5 million for the first nine months of fiscal 1997. Funds
provided from operations in fiscal years 1994, 1995 and 1996
were $65.9 million, $71.6 million and $76.6 million,
respectively.
WORKING CAPITAL - The Company's working capital position as of
the last day of the nine-month period ended November 30, 1996
was $1.5 million. This position compares to $3.2 million at
fiscal 1996 year end. Working capital was reduced in the more
recent period due to the funding of approximately $10.4
million of warehouse expansions.
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 and revolving cash
borrowings for general working capital purposes, subject to
borrowing base limitations. The borrowing base for both cash
borrowings and letters of credit 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. 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 Company has already
satisfied the resting period requirement for fiscal 1997. The
credit agreement also contains certain restrictive covenants,
including financial covenants.
Based on eligible accounts receivable as of November 30, 1996,
the Company had an available credit line of $23.5 million, of
which $10.0 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 was used to finance, subject to meeting certain
conditions, the construction or acquisition of new warehouses
or the expansion of existing warehouses which were not pledged
as collateral security for senior debt. While the Lease Line
commitment was originally intended to expire December 31,
1996, based on discussions with the lender, the commitment
expiration date is expected to be extended into the first
quarter of fiscal 1998. In addition, the Lease Line is
expected to be increased by approximately $10.0 million, to an
available total of $17.3 million, in order to allow for the
planned sale/leaseback of an existing facility. The first
funding of approximately $5.7 million closed in late fiscal
1996 with respect to the Company's Grand Island, Nebraska
facility. The Company also funded $12.0 million for the
financing of the Pasco, Washington facility under the Lease
Line during November 1996. In October 1996, the Company
financed the Burley, Idaho facility expansion through a
mortgage with its principal bank.
The Company was notified that in December 1996, the
Metropolitan Life Insurance Company (the "Met") sold its
entire $140 million holdings of the Company's Series A, 11.45%
First Mortgage Bonds. As a result of such transaction, the
Second Amended and Restated Investment Agreement, dated March
2, 1993, between the Met and the Company, which included
certain financial covenants and other restrictive covenants,
was terminated.
CAPITAL EXPENDITURES - Expenditures for property, plant and
equipment for the first nine months of fiscal 1997 totaled
$24.6 million, of which approximately $18.9 million related to
warehouse expansions. Capital expenditures for the fourth
quarter of fiscal 1997 are expected to be approximately $12.0
million. The Company intends to finance the remaining fiscal
1997 expenditures from operating cash flow. The Company is
considering its alternatives regarding the financing of the
Fogelsville, Pennsylvania expansion.
NEW ACCOUNTING STANDARDS
------------------------
Effective March 1, 1996, the Company adopted 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."
This statement generally requires assessment of recoverability
of an asset after events or circumstances indicate that there
is 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. There was no impairment loss to
report upon adoption.
Effective March 1, 1996, the Company adopted Financial
Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123
requires that, except for transactions with employees that are
within the scope of Accounting Principles Board Opinion No. 25
("APB No. 25"), all transactions in which goods or services
are the consideration received for the issuance of equity
instruments are to be accounted for based on the fair value of
the consideration received or the fair value of the equity
instrument issued, whichever is more reliably measurable.
However, it also allows an entity to continue to measure
compensation costs for those plans using the intrinsic value
based method of accounting prescribed by APB No. 25. Entities
electing to follow the accounting methods of APB No. 25 must
make pro forma disclosures of net income and, if presented,
earnings per share, as if the fair value method of accounting
defined in SFAS No. 123 had been applied. Pro forma
disclosures required for entities that elect to continue to
measure compensation cost using APB No. 25 must include the
effects of all awards granted in fiscal years that begin after
December 15, 1994. The Company has elected to continue using
APB No. 25 and make the necessary SFAS No. 123 pro forma
disclosures.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
Subsequent to the end of the quarter, on December 27, 1996, an
opinion was issued by the Bankruptcy Judge in the Company's
declaratory judgment action against Non-Stop Logistics
Corporation ("Non-Stop"). In this action, the Company sought
certain rights to software pursuant to a letter agreement with
Non-Stop, and Non-Stop asserted various claims for damages to
its business, lost business opportunities and lost profits,
and asserted breaches of the letter agreement and a
confidentiality agreement.
The Bankruptcy Judge ruled that the Company did not breach the
letter agreement with Non-Stop, but that Non-Stop breached the
exclusivity provisions of the agreement by offering licenses
to persons in the United States. Under the ruling, Americold
is excused from further performance under the letter
agreement. The Judge also ruled that while the Company had
the conditional exclusive right to use Non-Stop's services as
they apply to frozen and refrigerated foods in the United
States, the Company did not have the right to obtain Non-
Stop's computer software source codes or object codes.
Furthermore, the Bankruptcy Judge rejected all but one of Non-
Stop's claims that the Company breached the confidentiality
agreement.
Although the Bankruptcy Judge deferred trial of Non-Stop's
request for damages for the Company's breach of the
confidentiality agreement, the Company believes the amount of
the damages, if any, able to be established by Non-Stop with
respect to such breach will not be material. The Bankruptcy
Judge also indicated she will enjoin one Company executive
from working on any third-party logistics system for the
Company. Non-Stop's request for an injunction preventing the
Company from developing an alternative logistics forecasting
system was denied.
The rulings are subject to preparation and entry of a final
order.
ITEM 2. CHANGES IN SECURITIES
---------------------
During the third quarter of fiscal 1997, the Company did not
engage in the sale of any of the Company's securities that
were not registered under the Securities Act of 1933, as
amended, except that on November 14, 1996, the Company
contributed 42,614 shares of the Company's Common Stock, $0.01
par value per share, valued at $750,000, to the Americold
Employee Stock Ownership Plan. The transaction was exempt
from registration under Section 4(2) of the Securities Act of
1933, as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
(11) Statement Regarding 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 13, 1997
FORM 10-Q
Exhibit Index
Exhibit Page
- ------- ----
(a) Exhibits
(11) Statement Regarding Computation of Per
Share Earnings
(27) Financial Data Schedule