Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements (the "Pro Forma Financial Statements") as of March 3, 2002 are
derived from the unaudited consolidated financial statements of Gristede's as
of and for the 52 weeks ended March 3, 2002 and the audited financial
statements and underlying accounting records of Kings as of and for the 52
weeks ended March 30, 2002. The Pro Forma Financial Statements give effect to
the Kings acquisition and the other related transactions, as if such
transactions had occurred on March 5, 2001 with respect to the pro forma
statement of operations, and as of March 3, 2002 with respect to the pro forma
balance sheet.
The following unaudited pro forma condensed consolidated statement of
operations for the 52 week period ended December 2, 2001 is derived from the
audited consolidated financial statements of Gristede's for the 52 weeks ended
December 2, 2001 and the unaudited financial statements and underlying
accounting records of Kings for the 52 weeks ended December 29, 2001. The pro
forma statement of operations gives effect to our acquisition of Kings and the
other related transactions, as if such transactions had occurred on December 3,
2000.
The following unaudited pro forma condensed consolidated statement of
operations for the 13 weeks ended March 3, 2002 is derived from the unaudited
consolidated interim financial statements of Gristede's for the 13 weeks ended
March 3, 2002 and the unaudited interim financial statements of Kings for the
13 weeks ended March 30, 2002. The pro forma statement of operations gives
effect to our acquisition of Kings and the other related transactions, as if
such transactions had occurred on December 3, 2000.
The pro forma adjustments are based upon available information and certain
assumptions that management believes are reasonable. The Kings acquisition will
be accounted for under the purchase method of accounting. As discussed in Note
1 to the unaudited pro forma condensed consolidated balance sheet, a
determination of the fair value of Kings' assets and liabilities has not been
completed. Under this method, tangible and identifiable intangible assets
acquired and liabilities assumed are recorded at their estimated fair values.
The excess of purchase price (which is subject to certain closing adjustments
as defined in the stock purchase agreement), including estimated fees and
expenses related to the Kings acquisition, over the net assets acquired
("goodwill") is classified with intangibles on the accompanying unaudited pro
forma condensed consolidated balance sheet. In addition to the purchase price
allocation, there may be post-closing adjustments to the purchase price as
defined in the stock purchase agreement, which amounts cannot be determined
presently and are not included herein. Kings entered into severance and
incentive compensation arrangements with various employees subsequent to
March 31, 2001. If certain conditions are met and Kings is sold, Kings
could be obligated to pay incentive, severance and change-in-control
payments under these agreements in the range of approximately $2 million to
$8 million, excluding related benefit costs.
1
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE 52 WEEKS ENDED MARCH 3, 2002
(dollars in thousands)
Gristede's
52 weeks Kings 52
ended weeks ended
March 3, March 30, Pro Forma Pro
2002 2002 Adjustments Forma
---------- ----------- ----------- --------
Sales.................... $230,193 $444,769 $ -- $674,962
Cost of sales............ 138,722 287,984 (1,400)/(1),(2)/ 425,306
-------- -------- -------- --------
Gross profit............. 91,471 156,785 1,400 249,656
-------- -------- -------- --------
Store operating, general
and administrative
expenses............... 71,456 111,325 -- 182,781
Depreciation and
amortization/(3)/...... 7,429 12,282 -- 19,711
Non-store operating
expenses............... 8,600 15,501 -- 24,101
-------- -------- -------- --------
Operating income......... 3,986 17,677 1,400 23,063
-------- -------- -------- --------
Other income (expense),
net:
Interest expense, net. (3,285) (198) (17,800)/(4)/ (21,783)
(500)/(5)/
Other, net............ (12) (138) -- (150)
-------- -------- -------- --------
Total other income
(expense), net......... (3,297) (336) (18,300) (21,993)
-------- -------- -------- --------
Income before income
taxes.................. 689 17,341 (16,900) 1,130
Provision for income
taxes.................. 114 7,009 (6,671)/(6)/ 452
-------- -------- -------- --------
Net income............... 575 10,332 (10,229) 678
-------- -------- -------- --------
Preferred dividend....... -- -- (2,050)/(7)/ (2,050)
-------- -------- -------- --------
Net income/(loss)
attributable to common
stockholders........... $ 575 $ 10,332 $(12,279) $ (1,372)
======== ======== ======== ========
2
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the 52 weeks ended March 3, 2002
(dollars in millions)
(1) Represents the elimination of the historical LIFO provision for the current
year of $0.4 million.
(2) Reflects the recognition on a straight-line basis of $1.0 million in income
allocable from the vendor support agreement over the initial ten-year term.
(3) Amortization of goodwill is no longer permitted pursuant to Statement of
Financial Accounting Standards No. 142. Gristede's has elected to adopt FAS
No. 142 effective with its fiscal year beginning December 3, 2001.
(4) The adjustments to the unaudited pro forma condensed consolidated
statements of operations for the 52 weeks ended March 3, 2002 reflect a net
increase totaling $17.8 million in interest expense, including (i) a
decrease of $1.7 million applicable to the retirement of indebtedness under
Gristede's existing bank facility, (ii) an offsetting increase totaling
$18.8 million for interest expense applicable to the notes, and (iii) an
increase of $0.7 million of amortization of deferred financing costs
associated with the notes. The assumed interest rate on the notes is 10.75%.
(5) Reflects the write-off of the unamortized deferred financing costs of $0.5
million relating to the retirement of Gristede's existing bank facility
effective as if such retirement occurred on March 5, 2001.
(6) Reflects the income tax effect of $6.7 million for the above adjustments
and reflects the income taxes on the combined operations at an effective
rate of 40%.
(7) Reflects the 10% cumulative dividend payable semi-annually of $2.1 million
on the Series A Convertible Preferred Stock on a pay-in-kind basis.
3
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE 52 WEEKS ENDED DECEMBER 2, 2001
(dollars in thousands)
Gristede's Kings
52 weeks 52 weeks
ended ended
December 2, December 29, Pro Forma
2001 2001 Adjustments Pro Forma
----------- ------------ ----------- ---------
Sales................................................ $229,988 $445,492 $ -- $675,480
Cost of sales........................................ 139,181 289,187 (1,500)/(1),(2)/ 426,868
-------- -------- -------- --------
Gross profit......................................... 90,807 156,305 1,500 248,612
-------- -------- -------- --------
Store operating, general and administrative expenses. 71,544 109,916 -- 181,460
Depreciation and amortization/(3)/................... 7,204 12,366 -- 19,570
Non-store operating expenses......................... 8,330 15,250 -- 23,580
-------- -------- -------- --------
Operating income..................................... 3,729 18,773 1,500 24,002
-------- -------- -------- --------
Other income (expense), net:
Interest expense, net............................. (3,528) (166) (17,400)/(4)/ (21,594)
(500)/(5)/
Other income...................................... 173 62 -- 235
-------- -------- -------- --------
Total other income (expense), net.................... (3,355) (104) (17,900) (21,359)
-------- -------- -------- --------
Income before income taxes........................... 374 18,669 (16,400) 2,643
Provision for income taxes........................... 99 7,554 (6,596)/(6)/ 1,057
-------- -------- -------- --------
Net income........................................... 275 11,115 (9,804) 1,586
-------- -------- -------- --------
Preferred dividend................................... -- -- (2,050)/(7)/ (2,050)
-------- -------- -------- --------
Net income (loss) attributable to common stockholders $ 275 $ 11,115 $(11,854) $ (464)
======== ======== ======== ========
4
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the 52 Weeks ended December 2, 2001
(dollars in millions)
(1) Represents the elimination of the historical LIFO provision for the current
year of $0.5 million.
(2) Reflects the recognition on a straight-line basis of $1.0 million in income
allocable from the vendor support agreement over the initial ten-year term
of the agreement.
(3) Amortization of goodwill is no longer permitted pursuant to Statement of
Financial Accounting Standards No. 142. Gristede's elected early adoption
of SFAS No. 142 effective with its fiscal year beginning December 3, 2001.
(4) The adjustments to the unaudited pro forma condensed consolidated statement
of operations for the 52 weeks ended December 2, 2001 reflect: a net
increase totaling $17.4 million in interest expense, including (i) a
decrease of $2.1 million applicable to the retirement of indebtedness under
the Gristede's existing bank facility, (ii) an offsetting increase totaling
$18.8 million for interest expense applicable to the notes, and (iii) an
increase of $0.7 million of amortization of deferred financing costs
associated with the notes. The assumed interest rate on the notes is 10.75%.
(5) Reflects the write-off of the unamortized deferred financing costs of $0.5
million relating to the old bank credit agreements retired effective as if
the Kings acquisition occurred on December 3, 2000.
(6) Reflects the income tax effect of $6.6 million for the above adjustments
and reflects the income taxes on the combined operations at an effective
rate of 40%.
(7) Reflects 10% cumulative dividend payable semi-annually of $2.1 million on
the Series A Convertible Preferred Stock on a pay-in-kind basis.
5
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE 13 WEEKS ENDED MARCH 3, 2002
(dollars in thousands)
Gristede's Kings
13 weeks 13 weeks
ended ended
March 3, March 30, Pro Forma Pro
2002 2002 Adjustments Forma
---------- --------- ----------- --------
Sales................................................ $59,791 $110,064 $ -- $169,855
Cost of sales........................................ 36,030 70,844 (350)/(1),(2)/ 106,524
------- -------- ------- --------
Gross profit......................................... 23,761 39,220 350 63,331
------- -------- ------- --------
Store operating, general and administrative expenses. 18,040 27,975 -- 46,015
Depreciation and amortization/(3)/................... 1,909 2,894 -- 4,803
Non-store operating expenses......................... 2,318 4,000 -- 6,318
------- -------- ------- --------
Operating income..................................... 1,494 4,351 350 6,195
------- -------- ------- --------
Other income ((expense), net:
Interest expense, net............................. (709) (96) (4,600)/(4)/ (5,355)
50 /(5)/
Other, net........................................ -- (70) -- (70)
------- -------- ------- --------
Total other income (expense), net.................... (709) (166) (4,550) (5,425)
------- -------- ------- --------
Income before income taxes........................... 785 4,185 (4,200) 770
Provision for income taxes........................... 25 1,692 (1,409)/(6)/ 308
------- -------- ------- --------
Net income........................................... 760 2,493 (2,791) 462
------- -------- ------- --------
Preferred dividend................................... -- -- (500)/(7)/ (500)
------- -------- ------- --------
Net income (loss) attributable to common stockholders $ 760 $ 2,493 $(3,291) $ (38)
======= ======== ======= ========
6
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the 13 weeks ended March 3, 2002
(dollars in millions)
(1) Represents the elimination of the historical LIFO provision for the current
year of $0.1 million.
(2) Reflects the pro-forma recognition on a straight-line basis of $0.3 million
in income allocable from the vendor support agreement over the initial
ten-year term of the agreement.
(3) Amortization of goodwill is no longer permitted pursuant to Statement of
Financial Accounting Standards No. 142. Gristede's elected early adoption
of SFAS No. 142 effective with its fiscal year beginning December 3, 2001.
(4) The adjustments to the unaudited pro forma condensed consolidated statement
of operations for the 13 weeks ended March 3, 2002 reflect: a net increase
totaling $4.6 million in interest expense, including (i) a decrease of $0.3
million applicable to the retirement of indebtedness under Gristede's
existing bank facility, (ii) an offsetting increase totaling $4.7 million
for interest expense applicable to the notes, and (iii) an increase of $0.2
million of amortization of deferred financing costs associated with the
notes. The assumed interest rate on the notes is 10.75%.
(5) Reflects the reversal of the amortization recognized of $0.1 million for
deferred financing costs associated with the retired debt.
(6) Reflects the income tax effect of $1.4 million for the above adjustments
and reflects the income taxes on the combined operations at an effective
rate of 40%.
(7) Reflects the pro-forma cumulative dividend payable semiannually of $0.5
million on the Series A Convertible Preferred Stock on a pay-in-kind basis.
7
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 3, 2002
(dollars in thousands)
Gristede's Kings
March 3, March 30, Pro Forma Pro
2002 2002 Adjustments Forma/(1)/
---------- --------- ----------- ---------
ASSETS
CURRENT ASSETS:
Cash.............................................. $ 551 $ 15,620 $(15,620)/(2a),(2c),(2d)/ $ 551
Accounts receivable............................... 6,983 4,840 -- 11,823
Inventory......................................... 32,571 7,270 7,762/(4)/ 47,603
Due from related parties--trade................... 1,245 -- -- 1,245
Current deferred tax assets....................... -- 1,635 (1,635)/(2c)/ 572
572 /(3)/
Prepaid expenses and other current assets......... 1,629 4,046 -- 5,675
-------- -------- -------- --------
Total current assets............................. 42,979 33,411 (8,921) 67,469
-------- -------- -------- --------
Property and equipment............................ 53,681 81,918 -- 135,599
Goodwill.......................................... -- -- 83,970/(2a),(2b),(2c),(2d),(4)/ 74,527
(9,443)/(3)/
Deferred tax assets............................... -- 10,263 (10,263)/(2c)/ 8,871
8,871 /(3)/
Other assets...................................... 4,076 1,813 7,031 /(2a),(2d)/ 12,420
(500)/(2a)/
-------- -------- -------- --------
TOTAL ASSETS........................................ $100,736 $127,405 $ 70,745 $298,886
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses............. $ 25,946 $ 11,270 $ -- $ 37,216
Accrued payroll, vacation and withholdings........ 2,323 9,178 -- 11,501
Capitalized lease obligations--current portion.... 4,046 661 -- 4,707
Current portion of long term debt................. 2,722 -- (2,536)/(2a),(2d)/ 186
-------- -------- -------- --------
Total current liabilities........................ 35,037 21,109 (2,536) 53,610
Long-term debt--noncurrent portion................ 25,433 -- (25,433)/(2a),(2d)/ --
Senior notes...................................... -- -- 175,000 /(2a),(2d)/ 175,000
Accrued expenses--other........................... -- 3,905 -- 3,905
Due to affiliate.................................. 15,478 -- (15,000)/(2a),(2d)/ 478
Capitalized lease obligations--noncurrent portion. 8,000 6,239 -- 14,239
Vendor support agreement.......................... -- -- 10,000 /(2a),(2d)/ 10,000
Deferred rent..................................... 4,434 5,366 -- 9,800
-------- -------- -------- --------
Total liabilities................................ 88,382 36,619 142,031 267,032
-------- -------- -------- --------
STOCKHOLDERS' EQUITY:
Preferred stock................................... -- -- 5,000 /(2a),(2d)/ 20,000
15,000 /(2a),(2d)/
Common stock...................................... 393 -- -- 393
Additional paid-in capital........................ 14,137 -- -- 14,137
Retained earnings/ (deficit)...................... (2,176) 90,786 (90,786)/(2c)/ (2,676)
(500)/(2a)/
-------- -------- -------- --------
Total stockholders' equity....................... 12,354 90,786 (71,286) 31,854
-------- -------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......... $100,736 $127,405 $ 70,745 $298,886
======== ======== ======== ========
8
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
March 3, 2002
(dollars in millions)
(1) The determination of the fair values of Kings' assets and liabilities has
not been completed. Upon completion of such valuation, we will allocate the
purchase price to Kings' assets and liabilities, both tangible and
intangible, with the excess of the cost over the fair value of the net
assets acquired allocated to goodwill. Management expects that, based on
such allocation, additional purchase accounting adjustments will be made to
Kings' assets and liabilities.
(2)
a. Reflects an increase from the issuance of (a) $20.0 million of Series A
Convertible Preferred Stock to an affiliate of John A. Catsimatidis, the
majority stockholder and Chairman and CEO of Gristede's, and (b) $10.0
million cash infusion from a vendor support agreement, and (c) $175.0
million of notes, net of estimated transaction costs of $7.0 million.
These are partially offset by: (i) repayment of $28.0 million of
indebtedness under Gristede's existing bank facility; (ii) the repayment
of $15.0 million in loans from an affiliate of John A. Catsimatidis
outstanding as of the date of this offering memorandum; and (iii) the
write-off of the deferred financing costs of $0.5 million related to the
retired debt.
b. Reflects the excess of cost over the fair value of the net assets to be
acquired in connection with the Kings acquisition. The purchase price for
Kings exceeds the net book value of assets to be acquired by $84 million,
which excess has been allocated to goodwill.
c. Reflects adjustments related to the Kings acquisition, including the
elimination of historical retained earnings, cash and deferred tax
assets of Kings.
d. The pro forma balance sheet gives effect to the Kings acquisition and
this offering as if such transactions occurred on March 3, 2002. It also
reflects the net increases and decreases in cash from (i) the gross
proceeds received from the notes less the transaction costs, (ii) the
repayment of affiliate debt, (iii) the cash received with the issuance
of preferred stock, (iv) the cash received from the vendor support
agreement, (v) amounts used to retire debt from Gristede's existing bank
facility and (vi) purchase of common stock of Kings as set forth in the
following table:
(dollars in
millions)
-----------
Senior Notes..................................... $ 175.0
Investment from affiliate of majority stockholder 20.0
Proceeds from vendor support agreement........... 10.0
Purchase of Kings common stock................... (155.0)
Repay existing bank debt......................... (28.0)
Repayment of affiliate debt...................... (15.0)
Transaction costs................................ (7.0)
-------
Net cash increase................................ $ 0.0
=======
(3) Reflects a deferred tax asset of $9.4 million associated with the changes
in the financial reporting basis of assets and certain liabilities due to
the (i) realizability of Gristede's net operating losses due to the Kings
acquisition and (ii) acquisition adjustments resulting from the Kings
acquisition. Gristede's expects to make an IRS 338(h)(10) election to allow
it to reflect the book and tax bases of the assets acquired at fair value.
(4) Reflects the elimination of the historical LIFO reserve of $7.8 million to
reflect the write-up of inventory to fair value.
9