UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 30, 1999.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from .............to ............
Commission File Number 1-7013
GRISTEDE'S SLOAN'S, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-1829183
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
823 Eleventh Avenue, New York, New York 10019
---------------------------------------------
(Address of Principal Executive Offices)
(212) 956-5803
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
N/A
----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15 (d) of the Securities Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
At July 13, 1999, the registrant had issued and outstanding 19,636,574 shares of
common stock.
GRISTEDE'S SLOAN'S, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
May 30,1999 and November 29, 1998
Page 3
Consolidated Statements of Operations for
the quarters and six months ended
May 30,1999 and May 31,1998
Page 4
Consolidated Statements of Stockholders'
Equity for the year ended
November 29, 1998 and the six months
ended May 30, 1999
Page 5
Consolidated Statements of Cash Flows for
the six months ended May
30, 1999 and May 31, 1998
Page 6
Notes to Consolidated Financial Statements
Page 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Page 9
- 2 -
Item 1
Financial Statements
GRISTEDE'S SLOAN'S, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
May 30, November 29,
1999 1998
============ ============
ASSETS
CURRENT ASSETS:
Cash .................................................................... $ 93,697 $ 53,794
Accounts receivable - net of allowance for doubtful accounts
of $0 at May 30, 1999 and $0 November 29, 1998 ........................ 6,129,311 5,091,174
Inventory ............................................................... 22,097,694 18,425,802
Prepaid expenses and other current assets ............................... 1,406,542 1,320,931
Notes receivable - current portion ...................................... 293,124 1,032,203
------------ ------------
Total current assets ............................................... 30,020,368 25,923,904
------------ ------------
PROPERTY AND EQUIPMENT:
Furniture, fixtures and equipment ....................................... 14,854,433 14,610,788
Capitalized equipment leases ............................................ 9,977,119 8,267,999
Leaseholds and leasehold improvements ................................... 38,644,998 34,388,652
------------ ------------
63,476,550 57,267,439
Less accumulated depreciation and amortization .......................... 27,848,300 25,716,915
------------ ------------
Net property and equipment ........................................... 35,628,250 31,550,524
Deposits and other assets ............................................... 735,696 719,429
Deferred costs .......................................................... 2,408,783 1,968,859
Notes receivable - noncurrent portion ................................... 403,307 543,793
------------ ------------
TOTAL ...................................................................... $ 69,196,404 $ 60,706,509
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade ................................................. $ 13,630,781 $ 11,951,436
Accrued payroll, vacation and withholdings .............................. 660,994 1,543,748
Accrued expenses and other current liabilities .......................... 1,014,398 896,716
Note payable ............................................................ 319,138 319,138
Capitalized lease obligation - current portion .......................... 984,285 695,665
Current portion of long term debt ....................................... 1,200,000 3,314,283
------------ ------------
Total current liabilities .......................................... 17,809,596 18,720,986
Long-term debt - noncurrent portion ..................................... 19,832,744 18,663,935
Due to Affiliate ........................................................ 8,551,394 4,031,394
Deferred advertising .................................................... 1,818,654 248,654
Capitalized lease obligation - noncurrent portion ....................... 3,941,695 2,986,007
Deferred rents .......................................................... 2,017,613 1,673,850
------------ ------------
Total liabilities .................................................. 53,971,696 46,324,826
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.02 par value - shares authorized 25,000,000;
outstanding 19,636,574 shares at May 30, 1999 and November 29, 1998 ... 392,732 392,732
Additional paid-in capital .............................................. 14,136,674 14,136,674
Retained eanings/ (deficit) ............................................. 695,302 (147,723)
------------ ------------
Total stockholders' equity ......................................... 15,224,708 14,381,683
------------ ------------
TOTAL ...................................................................... $ 69,196,404 $ 60,706,509
============ ============
See accompanying notes.
-3-
GRISTEDE'S SLOAN'S, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE 26 WEEKS AND 13 WEEKS ENDED MAY 30, 1999 AND MAY 31, 1998
26 weeks 13 weeks 26 weeks 13 weeks
ended ended ended ended
May 30, May 30, May 31, May 31,
1999 1999 1998 1998
============ ============ ============ ============
Sales ...................................................... $ 88,543,266 $ 44,355,475 $ 78,665,355 $ 39,244,475
Cost of sales .............................................. 53,683,555 26,547,669 47,204,714 23,690,767
------------ ------------ ------------ ------------
Gross profit ............................................... 34,859,711 17,807,806 31,460,641 15,553,708
Store operating, general and administrative expense ........ 27,790,393 14,352,379 26,003,465 12,712,514
Depreciation and amortization .............................. 2,307,979 1,169,495 2,111,103 1,057,143
Non-store operating expenses:
Administrative payroll and fringes ....................... 1,861,176 881,759 1,465,036 684,654
General office expense ................................... 605,371 284,306 527,611 210,368
Professional fees ........................................ 293,408 97,219 127,997 71,511
Corporate expense ........................................ 115,083 75,833 72,776 35,963
------------ ------------ ------------ ------------
Total non-store operating expense .......................... 2,875,038 1,339,117 2,193,420 1,002,496
------------ ------------ ------------ ------------
Operating profit ........................................... 1,886,301 946,815 1,152,653 781,555
------------ ------------ ------------ ------------
Other income (expense):
Interest expense ......................................... (1,062,501) (517,647) (852,940) (473,373)
Interest income .......................................... 47,562 18,774 98,687 47,680
------------ ------------ ------------ ------------
Total other expense - net .................................. (1,014,939) (498,873) (754,253) (425,693)
------------ ------------ ------------ ------------
Income before income taxes ................................. 871,362 447,942 398,400 355,862
Provision for income taxes ................................. 28,337 11,613 42,500 30,000
------------ ------------ ------------ ------------
Net income ................................................. $ 843,025 $ 436,329 $ 355,900 $ 325,862
============ ============ ============ ============
Income per share ........................................... $ 0.04 $ 0.02 $ 0.02 $ 0.02
============ ============ ============ ============
Weighted average number of shares and
equivalents outstanding .................................... 19,636,574 19,636,574 19,636,574 19,636,574
============ ============ ============ ============
See accompanying notes
-4-
GRISTEDE'S SLOAN'S, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED NOVEMBER 29, 1998 AND 26 WEEKS ENDED MAY 30, 1999
Additional Retained Total
Common stock Paid-In earnings Stockholders'
Shares Amount Capital (Deficit) Equity
============ ============ ============ ============ ============
Balance at November 30, 1997 ................ 19,636,574 $ 392,732 $ 14,136,674 $ 140,616 $ 14,670,022
Net loss for the year ended
November 29, 1998 ....................... (288,339) (288,339)
------------ ------------ ------------ ------------ ------------
Balance at November 29, 1998 ................ 19,636,574 392,732 14,136,674 (147,723) 14,381,683
Net income for the twenty-six weeks
ended May 30, 1999 ....................... 843,025 843,025
------------ ------------ ------------ ------------ ------------
Balance at May 30, 1999 ..................... 19,636,574 $ 392,732 $ 14,136,674 $ 695,302 $ 15,224,708
============ ============ ============ ============ ============
See accompanying notes.
-5-
GRISTEDE'S SLOAN'S, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
26 WEEKS ENDED MAY 30, 1999 AND MAY 31, 1998
26 weeks 26 weeks
ended ended
May 30, May 31,
1999 1998
=========== ===========
Cash flows from operating activities:
Net income ................................................ $ 843,025 $ 355,900
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ........................... 2,307,979 2,111,103
Changes in operating assets and liabilities:
Accounts receivable - net ............................. (1,038,137) (569,965)
Inventory ............................................. (3,671,892) (1,206,390)
Prepaid expenses and other current assets ............. (85,611) (248,014)
Notes receivable ...................................... 879,565 259,262
Receivable from officer ............................... 0 (9,650)
Due to related party .................................. 4,520,000 0
Other assets .......................................... (632,785) (500,655)
Accounts payable, trade ............................... 1,679,345 (2,755,244)
Accrued payroll, vacation and withholdings ............ (882,754) (706,780)
Accrued expenses and other current liabilities ........ 117,682 649,046
Deferred rents ........................................ 343,763 392,337
Other credits ......................................... 1,570,000 (65,000)
----------- -----------
Net cash provided by / (used) in operating activities 5,950,180 (2,294,050)
----------- -----------
Cash flows from investing activities:
Capital expenditures - net ................................ (6,209,111) (4,784,142)
----------- -----------
Net cash used in investing activities ............... (6,209,111) (4,784,142)
----------- -----------
Cash flows from financing activities:
Repayments of bank loan ................................. (1,645,473) (907,142)
Repayment capitalized lease obligations ................. (414,780) (268,875)
Proceeds from bank loans ................................ 700,000 7,350,000
Proceeds from capitalized lease obligations ............. 1,659,087 942,438
----------- -----------
Net cash provided by financing activities ........... 298,834 7,116,421
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS .................. 39,903 38,229
CASH AND CASH EQUIVALENTS, begining of period ............... 53,794 88,970
----------- -----------
CASH AND CASH EQUIVALENTS, end of period .................... $ 93,697 $ 127,199
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest .................................. $ 904,843 $ 805,339
Cash paid for taxes ..................................... $ 13,337 $ 18,180
See accompanying notes.
-6-
GRISTEDE'S SLOAN'S, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
BUSINESS - On November 4, 1997, Sloan's Supermarkets, Inc. ("Sloan's") changed
its name to Gristede's Sloan's, Inc. ("GRI" or the "Company"). On November 10,
1997, GRI acquired certain assets, net of liabilities, of 29 selected
supermarkets and a wholesale distribution business ("The Food Group") controlled
by Mr. John Catsimatidis, Chairman and 37% stockholder of Sloan's. The
transaction was accounted for as the acquisition of Sloan's by The Food Group
pursuant to Emerging Issues Task Force 90-13 as a result of The Food Group
obtaining control of Sloan's after the transaction. The assets and liabilities
of The Food Group were recorded at their historical cost. Sloan's assets and
liabilities were recorded at their fair value to the extent acquired.
Consideration for the transaction was based on an aggregate of $36,000,000 in
market value of the Company's common stock and the assumption of $4,000,000 of
liabilities. 16,504,298 shares of common stock were issued on the date of the
acquisition based on a market price of $2.18 per share.
The Company presently operates 41 supermarkets (the "Supermarkets"). 36
Supermarkets are located in Manhattan, New York, three Supermarkets are located
in Westchester County, New York, one Supermarket is located in Brooklyn, New
York and one Supermarket is located in Long Island, New York. 10 of the
Supermarkets are operated under the "Sloan's" name and 31 are operated under the
"Gristede's" name. The Company leases all of its Supermarket locations.
The Company also owns City Produce Operating Corp., a corporation which operates
a warehouse and distribution center primarily for fresh produce on leased
premises in the Bronx, New York.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in consolidation.
QUARTER END - The Company operates using the conventional retail 52/53 week
fiscal year. The fiscal quarter ends on the Sunday closest to the end of the
quarter. The Company's fiscal year ends on the Sunday closest to November 30.
INVENTORY - Store inventories are valued principally at the lower of cost or
market with cost determined under the retail first in, first out (FIFO) method.
PROPERTY AND EQUIPMENT - Depreciation of furniture, fixtures and equipment is
computed by the straight-line method over the estimated useful lives of the
assets.
LEASES - The Company charges the cost of noncancelable operating lease payments
and beneficial leaseholds to operations on a straight-line basis over the lives
of the leases.
- 7 -
GRISTEDE'S SLOAN'S, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
PROVISION FOR INCOME TAXES - Income taxes reflect Federal and State alternative
minimum tax only, as all regular income taxes have been offset by utilization of
the Company's net operating loss carry forward.
INCOME PER SHARE - Per share data are based on the weighted average number of
shares of common stock and equivalents outstanding during each quarter. Income
per share is computed by the treasury stock method; primary and fully diluted
income per share are the same.
In the opinion of management, the information furnished reflects all adjustments
(consisting of normal recurring adjustments) which are necessary for a fair
statement of the results of operations for the interim period. The interim
figures are not necessarily indicative of the results to be expected for the
fiscal year.
The Company's Annual Report on Form 10-K for the 12 month period ended November
29, 1998 contains information which should be read in conjunction herewith.
2. RELATED PARTY TRANSACTIONS
Under a management agreement dated November 10, 1997, Namdor Inc., a subsidiary
of the Company, performs consulting and managerial services for three
supermarkets owned by corporations controlled by John Catsimatidis. In
consideration of such services, Namdor Inc. is entitled to receive on a
quarterly basis a cash payment of 1.25% of all sales of merchandise made at the
managed supermarkets. During the quarter and six months ended May 30, 1999 the
management fee income was $25,340 and $52,881, respectively. For the quarter and
six months ended May 31, 1998 the management fee income was $29,012 and $58,791,
respectively.
C&S Acquisition Corp. (formerly Red Apple Leasing, Inc.) a corporation wholly
owned by John Catsimatidis, leases equipment to the Company. Such leases are
primarily for store operating equipment. Obligations under capital leases at May
30, 1999 were $644,287 and require monthly payments of $35,114 through March 1,
2001. Obligations under operating leases were $41,676 per month during the
quarter ended May 30, 1999.
Advertising services are provided to the Company by an affiliated company, MCV
Advertising Associates Inc., a company owned by John Catsimatidis. For the
quarter and six months ended May 30, 1999 the costs incurred were $334,217 and
$619,249 respectively. For the quarter and six months ended May 31, 1998 the
costs incurred were $290,579 and $586,337, respectively.
- 8 -
The Company leases three locations from Red Apple Real Estate, Inc., a company
solely owned by John Catsimatidis. During the quarter and six months ended May
30, 1999 the Company paid to Red Apple Real Estate, Inc. $404,200 and $629,866,
respectively. During the quarter and six months ended May 31, 1998 the Company
paid $204,019 and $374,119, respectively.
Wolf, Block, Schorr and Solis-Cohen LLP, a law firm of which Martin Bring, a
director of the Company is a partner, received fees of $57,520 and $94,164
during the quarter and six months ended May 30, 1999, respectively. During the
quarter and six months ended May 31, 1998, they received fees of $46,618 and
$81,795, respectively.
GRISTEDE'S SLOAN'S, INC. AND SUBSIDIARIES
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR THE QUARTERS AND SIX MONTHS
ENDED MAY 30, 1999 AND MAY 31, 1998
RESULTS OF OPERATIONS
The following table sets forth items from the Company's Consolidated Statements
of Operations as a percentage of sales.
26 weeks 13 weeks 26 weeks 13 weeks
ended ended ended ended
5/30/99 5/30/99 5/31/98 5/31/98
-------- -------- -------- --------
Sales ........................... 100.0 100.0 100.0 100.0
Cost of sales ................... 60.6 59.9 60.0 60.4
------- ------- ------- -------
Gross profit .................... 39.4 40.1 40.0 39.6
Store operating, general and
administrative expense ...... 31.4 32.4 33.1 32.4
Depreciation and amortization ... 2.6 2.6 2.7 2.7
Non-store operating expense ..... 3.2 3.0 2.8 2.5
------- ------- ------- -------
Operating profit ................ 2.2 2.1 1.4 2.0
Other income (expense) .......... (1.2) (1.1) (0.9) (1.1)
------- ------- ------- -------
Income from operations
before income taxes ......... 1.0 1.0 0.5 0.9
Provisions for income taxes ..... -- -- 0.1 0.1
------- ------- ------- -------
Net income ...................... 1.0 1.0 0.4 0.8
======= ======= ======= =======
- 9 -
Sales for the quarter and six months ended May 30, 1999 were $44,355,475 and
$88,543,266 respectively. Sales for the quarter and six months ended May 31,
1998 were $39,244,475 and $78,665,355, respectively. The increase in sales
during the 1999 periods were primarily the result of Company's remodeling
program, which is continuing and a new store which was in operation during the
last three weeks of the 1999 period.
Gross profit was $17,807,806 or 40.15% of sales and $34,859,711 or 39.37% of
sales for the quarter and six months ended May 30, 1999, respectively, as
compared with $15,553,708 or 39.63% of sales and $31,460,641 or 39.99% of sales
for the quarter and six months ended May 31, 1998, respectively. The increase in
gross profit as a percentage of sales during the 1999 quarter reflects the
benefit of increased bulk purchases on a direct basis, utilizing the Company's
distribution center. The decrease in gross profit as a percentage of sales
during the 1999 six month period was primarily due to selected promotional price
reductions in connection with the grand reopening periods of the newly remodeled
stores.
Store operating, general and administrative expenses were $14,352,377 or 32.36%
of sales and $27,790,391 or 31.39% of sales for the quarter and six months ended
May 30, 1999, respectively, as compared to $ 12,712,514 or 32.39% of sales and
$26,003,465 or 33.06% of sales for the quarter and six months ended May 31,
1998, respectively. The decrease in store operating, general and administrative
expense as a percentage of sales in the 1999 periods was mainly due to better
cost controls in relation to the increased sales.
Non-store operating expenses were $1,339,417 or 3.02% of sales and $2,875,038 or
3.24% of sales for the quarter and six months ended May 30, 1999, respectively,
as compared to $1,002,496 or 2.55% of sales and $2,193,420 or 2.79% of sales for
the quarter and six months ended May 31,1998, respectively. Administrative
payroll and fringes were 1.99% of sales and 2.10% of sales for the quarter and
six months ended May 30,1999, respectively as compared with 1.75% and 1.86% of
sales for the quarter and six months ended May 31, 1998, respectively. The
increase reflects the addition of supervisory and data processing personnel to
handle the additional business generated by the store remodeling program.
General office expenses as a percentage of sales were 0.64% and 0.68% for the
quarter and six months ended May 30, 1999, respectively, as compared to 0.54%
and 0.67% for the quarter and six months ended May 31, 1998, respectively. The
increase during the 1999 periods was primarily due to additional supervisory
related expenses in connection with the remodeled stores. Professional fees were
0.22% and 0.33% of sales for the quarter and six months ended May 30, 1999,
respectively, as compared to 0.18% and 0.16% of sales for the quarter and six
months ended May 31, 1998, respectively. The increase in the 1999 periods was
due to the additional need for outside accounting and legal services. Corporate
expenses as a percentage of sales were 0.17% and 0.13% for the quarter and six
months ended May 30, 1999, respectively, as compared to 0.09% and 0.09% of sales
for the quarter and six months ended May 31, 1998, respectively. The increase
during the 1999 periods was primarily due to increased American Stock Exchange
fees and increased directors fees due to the addition of several new directors
to the Company's Board.
- 10 -
Interest expense for the quarter and six months ended May 30, 1999 was $517,647
and $1,062,501, respectively, as compared to $473,373 and $852,940 for the
quarter and six months ended May 31, 1998, respectively. The increase in the
1999 periods was primarily attributable to increased borrowings under the
Company's bank credit facility and increased capitalized equipment leasing.
Interest income for the quarter and six months ended May 30, 1999 was $18,774
and $47,562, respectively, as compared with $47,680 and $98,687 for the quarter
and six months ended May 31, 1998, respectively. The decrease in the 1999
periods was due to the reduction in outstanding notes receivable as compared to
the 1998 periods.
As a result of the items reviewed above, the net income before provision for
income taxes for the quarter and six months ended May 30, 1999 increased to
$447,944 and $871,364, respectively, as compared to $355,862 and $398,400 for
the quarter and six months ended May 31,1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
On November 10, 1997, the Company completed its financial arrangements with a
group of banks for a credit facility in the aggregate amount of $25,000,000.
Under the credit agreement the Company obtained a term loan in the amount of
$12,000,000 to refinance prior bank debt, an improvement term loan line of
credit in the amount of $8,000,000 to finance capital improvements to its
supermarkets and a revolving line of credit in the amount of $5,000,000 to
provide working capital. Effective May 29, 1999, the credit facility was amended
to (i) extend the maturity date until November 30, 2003, at which time all
amounts outstanding thereunder are due, (ii) amend certain financial covenants
and (iii) reduce the amortization of the term loan and improvement term loan
facilities and increase the revolving line of credit to $14,000,000, all as
follows: the term loan amortization was reduced to $100,000 per month until June
2000, and thereafter is $142,857 per month; amortization on the improvement term
loan is $50,000 per month commencing July 2000 until June 2001 and $133,333 per
month thereafter; the revolving credit commitment reduces by $466,667 per month
commencing July 1, 2001. Presently $5,500,000 is available under the revolving
line of credit; the term loan facility and the improvement term loan facility
are fully utilized.
Borrowings under the credit facility bear interest at a spread over either the
prime rate of the agent bank or a LIBOR rate, with the spread dependent on the
ratio of the Company's funded debt to EBITDA ratio, as defined in the credit
agreement. The average interest rate on amounts outstanding under the facility
during the 13 weeks ended May 30, 1999 was 7.6 % per annum.
The credit facility contains covenants, representations and events of default
typical of credit facility agreements, including financial covenants which
require the Company to meet, among other things, a minimum tangible net worth,
debt service coverage ratios and fixed charge coverage ratios, and which limit
transactions with affiliates. The facility is secured by equipment, inventories
and accounts receivable.
- 11 -
The Company has not incurred any material commitments for capital expenditures,
although it anticipates spending approximately $10,000,000 on its store
remodeling and expansion program in fiscal 1999.
The Company has available approximately $1.5 million in third party leasing
lines of credit to lease finance equipment for its store remodeling and
expansion program.
YEAR 2000 ISSUE
The Company has assessed its information technology ("IT") systems for Year
2000 readiness and has given the highest priority to those IT systems it
considers mission critical. The systems the Company considers mission critical
are its store automation systems (including point of sale systems) and its
computer systems at its main office which support these store systems.
As of March 1, 1999, the Company, working with the original vendor, successfully
tested and implemented the Year 2000 compliant version of the systems at its
main office, which support the in store automation systems. During March 1999,
the Company, working with the original vendor, successfully tested and
implemented the Year 2000 complaint version of its store automation system in
one of its automated stores. This Year 2000 compliant version of the in store
automation system is currently being implemented in the remaining stores, as
required.
No additional expense has or will be incurred by the Company to bring these
systems into Year 2000 compliance as any necessary changes are provided by the
vendors under software maintenance programs in place.
The Company has assessed the other IT systems, including accounting and payroll
systems, deployed at its main office and its City Produce warehouse facility for
Year 2000 compliance and has identified the steps necessary to ensure that these
systems will be Year 2000 compliant.
The Company has decided to substantially expand and enhance its information
technology systems to further leverage the investment the Company has made on
in-store automation and networking in the last few years. The Company will be
implementing state of the art client server systems on Microsoft Windows NT
platforms, using best of breed applications from selected vendors, for time and
attendance, payroll, inventory control and distribution, and financial
applications. The Company switched all payroll processing to the new system
during June 1999 and additional systems will go "live" in August and September
1999. These systems will allow for better decision tools and quicker information
flows between the stores, the main office, and the Company owned distribution
facility.
The cost of this program, including new network enabled time clocks, computer
hardware, software, and implementation services is budgeted to be approximately
$850,000 and will be completed by the end of fiscal 1999 (11/28/99). The Company
had previously expected to spend $100,000 out of cash flow generated from its
operations to modify its existing systems to be Year 2000 compliant. The Company
will redirect those resources towards this new effort and plans on leasing the
systems, where appropriate, in a manner similar to the way the
- 12 -
Company currently leases its store automation systems. The new systems will be
Year 2000 compliant.
The Company does not currently intend to hire an outside firm to independently
verify that its systems are Year 2000 compliant.
The Company has assessed the majority of its non-IT systems for Year 2000
readiness and has identified a small number of systems, including certain
equipment at store level, which may not be Year 2000 ready. The Company is
working with the vendor of these systems to identify the best approach. While
these systems have an internal clock and date, the date is not necessary for the
systems to be productive. Such systems could therefore continue to function as
needed and management does not anticipate that these systems will pose any
significant Year 2000 problem or expense.
The Company is continuing to review the Year 2000 readiness plans of its major
vendors in an effort to ensure that operations remain unaffected by Year 2000
related failures. The Company will place preset orders with certain major
vendors to help ensure product deliveries in the event that the vendor is
affected by failures at some level of its operations but is still able to
deliver merchandise. In the event a major vendor is unable to provide products
the Company will increase purchases from other vendors from which it currently
buys.
The Company purchases merchandise sold in its stores from multiple vendors and
is not reliant on any one vendor for the normal conduct of its operations. The
Company is not dependent on these supplier relationships since merchandise is
readily available from numerous sources under different brand names, subject to
conditions affecting food supplies generally.
The Company believes that its efforts will result in year 2000 compliance.
However, the impact on business operations of failure by the Company to achieve
compliance or failure by external entities which the Company cannot control,
such as vendors, to achieve compliance, could be material to the Company's
consolidated results of operations.
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GRISTEDE'S SLOAN'S, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Change in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule (filed herewith)
(b) No Current Reports on Form 8-K were filed for the quarter for
which this report is being filed.
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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.
Gristede's Sloan's, Inc.
By: /s/ John A. Catsimatidis
------------------------
John A. Catsimatidis
Chairman of the Board and
Chief Executive Officer
Dated: July 14, 1999
By: /s/ Stuart Spivak
------------------------
Stuart Spivak
Executive Vice President and
Chief Financial Officer
Dated: July 14, 1999
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