Item 1. Business
GENERAL - -------
Americold Corporation ("Americold" or the "Company"), the nation's largest supplier of public refrigerated warehouse space, provides integrated logistics services for the frozen food industry. These services, consisting of warehousing and transportation management, are provided through the Company's network of 49 refrigerated warehouses in 16 states and through the Company's refrigerated transportation management unit.
Americold, an Oregon corporation, was founded in 1911, reincorporated in 1931 and, prior to 1984, operated as The Terminal Ice and Cold Storage Company and, subsequently, Termicold Corporation. In December 1982, Americold was acquired by Beatrice Companies, Inc., which combined its public refrigerated warehouse facilities, operating under various names, with Americold. In December 1986, Americold was purchased (the "Acquisition") by a private group consisting of affiliates of Kelso & Company, Inc. ("Kelso"), certain institutional investors, and certain key employees and members of Americold's management (the "Management Group").
On May 9, 1995, the Company filed a prepackaged plan of reorganization (the "Plan") under Chapter 11 of the Bankruptcy Code (the "Prepackaged Bankruptcy"). The principal purpose of the Plan was to reduce the Company's short-term cash requirements with respect to payments due on its senior subordinated indebtedness by extending the maturity of such indebtedness and to adjust certain restrictive financial covenants and other provisions contained in an agreement with one of its principal lenders. The bankruptcy court approved the Plan as filed and it became effective on June 30, 1995. See Part I, Item 3. - "Legal Proceedings," and Part II, Item 7. - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources."
As used herein, the terms "Americold" or the "Company" refer to Americold Corporation and its subsidiary unless the context indicates otherwise. All references to fiscal 1994, 1995 and 1996 refer to the years ended the last day of February 1994, 1995 and 1996, respectively.
COMPANY SERVICES - ----------------
The Company provides frozen food manufacturers with refrigerated warehousing and transportation management services. Integration of these services allows frozen food manufacturers to contract on an outsource basis with a single entity, the Company, for the following services to coordinate and manage the distribution of frozen food products:
Americold's Logistics Services
The Company offers these services both on a separate and an integrated basis. The Company also provides services such as electronic order processing, order status information and freight payment to its customers as part of its integrated services, although such services are not billed separately.
REFRIGERATED WAREHOUSING SERVICES ---------------------------------
Since its founding in 1911, the Company has grown to become the largest owner and operator of refrigerated warehouses in the United States. The Company believes it supplies approximately 15% of the total publicly-available freezer storage space in the country, based on the most recent data (October 1995) published by the United States Department of Agriculture and the data most recently prepared by the International Association of Refrigerated Warehouses (the "IARW"). As of the last day of February 1996, the Company's network of 49 refrigerated warehouse facilities in 16 states provided a total storage capacity of approximately 228.9 million cubic feet (compared to approximately 230.3 million cubic feet of storage capacity as of the last day of February 1995). Included in the Company's total storage capacity at February 29, 1996 is approximately 2.5 million cubic feet of storage capacity added in Pasco, Washington in July 1995; 5.9 million cubic feet of storage capacity added in Rochelle, Illinois in August 1995; and 2.2 million cubic feet added in Grand Island, Nebraska in November 1995. As part of the Prepackaged Bankruptcy, the Company rejected certain operating lease agreements relating to four underperforming warehouse facilities at Watsonville, Oakland and San Francisco, California; and Chicago, Illinois. These warehouses totaled approximately 12 million cubic feet of storage capacity. Approximately 94% of the storage space operated by the Company is freezer space (zero degrees Fahrenheit and below), with the remaining space comprised of cooler space (28 degrees Fahrenheit and above) and unrefrigerated dry storage space.
Most of the Company's warehouses may be classified as combination production and distribution facilities, although some provide solely production or distribution services. Production facilities differ from distribution facilities in that they typically serve one or a small number of customers located nearby. These customers store large quantities of processed or partially processed products in the facility until they are further processed or shipped to the next stage of production or distribution. Distribution facilities primarily serve customers of the Company's production warehouses and other customers who store a wide variety of finished products to support shipment to end-users, such as food retailers and food service companies, in a specific geographic market.
During the past four years, the Company has implemented new management operating systems and performance standards in its warehouses. The installation of the IBM AS400 warehouse management information system was completed in December 1992 to tie together into a single network with common services all of the Company's locations. To further integrate the Company's services, the Company, using upgraded computer hardware and a combination of purchased and internally developed software, completed in March 1995 a transportation management system which has been fully integrated with the Company's warehouse management system. The Company also offers electronic data interchange to receive customer orders and to transmit product flow and status information to its customers.
The Company has developed several services ancillary to its warehouse freezer operations and intends to continue developing and promoting such services as well as adding incremental freezer, cooler or dry space. Ancillary services include product assembly/ packaging, palletizing, labeling and SUPERCOLD [registered trademark symbol] freezer storage provided at 11 of Americold's facilities for the preservation of products, such as ice cream, which require storage at temperatures as low as 20 degrees below zero (Fahrenheit).
TRANSPORTATION MANAGEMENT -------------------------
The Company has recently expanded its focus to provide integrated warehousing and transportation management services to the frozen food industry.
To expand its transportation management business, the Company has consolidated its transportation management functions, added staff resources and improved its transportation management information systems capabilities, including integrating these systems with the Company's warehouse information systems. Utilizing its network of IBM AS400 computers, its transportation management and communications software and its multiple warehouse locations, the Company is currently providing integrated warehousing and transportation management services to certain of its customers.
Transportation management services offered by the Company include dispatching, freight rate negotiation, backhaul coordination, freight bill auditing, network flow management, local/store door delivery, order consolidation, truck routing and distribution channel assessment. The Company also offers services that enable customers to assess the most economical means to store and ship frozen food products. The Company believes that its temperature- controlled logistics expertise and access to both frozen food warehouses and distribution channels will enable its customers to respond quickly and efficiently to time-sensitive orders from distributors and retailers using the Company's systems.
In fiscal 1996, the Company began providing a broad range of transportation management services to three subsidiaries of H. J. Heinz Co. ("Heinz"). For each of the subsidiaries, the Company manages the distribution of frozen food products from manufacturing plants through distribution channels to the subsidiaries' customers. In addition, for one of these subsidiaries, the Company also manages the in-bound transportation of over 200 non-frozen ingredients to the subsidiary's manufacturing plants.
In providing transportation management services, the actual freight transportation is performed by carriers who have negotiated rates with the Company. The Company does not own and does not intend to own significant transportation equipment.
REVENUES AND CUSTOMERS - ----------------------
Americold's net sales for fiscal 1994, 1995 and 1996 are detailed below by activity:
Americold's customers consist primarily of national, regional and local frozen food manufacturers, distributors, retailers and food service organizations. Although the Company provides services to approximately 2,800 customers, in fiscal 1996 the ten largest customers accounted for approximately 65% of total net sales. One customer of the Company, Heinz and subsidiaries, accounted for approximately 39% of the Company's net sales in fiscal 1996. The Company believes that the risk to the Company of losing such large customers has been reduced in several cases through long-term storage and operating agreements and by the fact that services are provided to certain large customers in multiple locations.
At several locations, the Company's production warehouses are located adjacent to customers' processing facilities. Certain of the Company's customers guarantee a minimum quantity of product to be stored in return for guaranteed space pursuant to long-term contracts. At several locations, the Company leases space to manufacturers or distributors on a long-term, fixed-rate basis. At a number of facilities, particularly those located adjacent to customers' processing facilities, a majority of, and in some cases virtually all, business is attributable to a single user of the facility.
Management has observed in the past that to the extent products produced at locations adjoining the Company's facilities are commodities grown in the surrounding area, demand for the products has been more significant to the long-term sales and profitability of the facility than has been the viability of a single producer.
SEASONALITY - -----------
Warehousing sales are seasonal, depending upon the timing and availability of crops grown for frozen food production and the seasonal build-up of certain products for holiday consumption. The third quarter, ending each November 30, normally represents the strongest sales quarter. Capacity utilization at the Company's facilities varies from season to season, with an average annual capacity utilization of approximately 72%. The Company generally keeps sufficient space available at individual warehouses to meet peak season demand. The Company has experienced similar seasonality in its transportation management business.
COMPETITION - -----------
Americold operates in an environment in which breadth of service, warehouse locations, customer mix, warehouse size, service performance and price are the principal competitive factors. Since frozen food manufacturers and distributors incur transportation costs which typically are significantly greater than warehousing costs, breadth of total logistics services and warehouse location are major competitive factors. In addition, in certain locations, customers depend upon pooling shipments, which involves combining their products with the products of others destined for the same markets. In these cases, the mix of customers in a warehouse can significantly influence the cost of delivering products to markets. The size of a warehouse is important because large customers prefer to have all of the products needed to serve a given market in a single location and to have the flexibility to increase storage at that single location during seasonal peaks. The Company believes that customers generally will select a warehouse facility based upon the types of services available, service performance and price, if there are several warehouse locations which satisfy its transportation, customer mix and size requirements.
Competition is national, regional and local in nature. There are no significant barriers to entry, permitting a relatively large number of smaller competitors to enter the Company's markets. On the national level, Americold competes with United Refrigerated Services, Inc. ("URS"), United States Cold Storage, Inc., Millard Refrigerated Services and Christian Salvesen, Inc., which, according to statistics compiled by the IARW, accounted for approx- imately 7.5%, 5.5%, 5.1% and 3.0% of public freezer space, respectively, in 1995. On the regional and local level, there are many smaller warehouse operators that compete with the Company. According to data prepared by the IARW, warehouse operators who own or control less than 35 million cubic feet each of refrigerated space or freezer space accounted for approximately 71% of all public refrigerated storage space in 1995. The Company believes that competition from these local and regional competitors is significant because national competitors often do not compete in the same markets as the Company.
The Company believes that if its strategy of providing fully integrated warehousing and transportation management services is successful, the ability to reduce customer's distribution costs resulting from the economies of scale attendant to the movement of large quantities of diverse products through its national network of warehouses will create a marketing advantage not available to smaller competitors. Other companies, such as GATX Corporation and Exel Logistics, Inc., provide transportation management services to shippers, but the Company is not aware of another company's ability to provide such transportation services in conjunction with full service refrigerated warehousing capabilities.
Kelso holds approximately 57% of the common equity of URS and, therefore, owns a controlling interest in both the Company and URS. Kelso has implemented procedures intended to address possible conflicts of interest that might arise from its investment in both URS and the Company. Kelso had considered on a preliminary basis the possibility of a business combination between the Company and URS. Although Kelso continues to have discussions concerning such a combination, there currently are no discussions between Americold and URS.
ORGANIZATION - ------------
The Company's operations are headquartered in Portland, Oregon. The Company's warehouse facilities are organized into four districts. Each district is managed by a District Manager to whom the respective General Managers report. General Managers are responsible for one to five warehouses and are supported at the district and corporate levels by certain logistics, accounting, marketing, engineering, data processing and operational functions. The Company's transportation management services are managed from the Company's headquarters.
SALES AND MARKETING - -------------------
Sales responsibility at the Company resides primarily with district and local management who are supported at the national level by the Company's executive and sales and marketing staff. Marketing is principally a corporate management function.
Local sales efforts are supplemented by the national corporate sales, marketing and logistics departments, which supply sales support, logistics analysis, account pricing guidance and advertising, and monitor relationships with large district and national accounts. The Company employs two sales managers and a sales representative, all reporting to a director of sales in Portland, Oregon. The sales managers are based in California and Colorado, while the sales representative is based in Massachusetts. The Company also employs a Senior Vice President, Logistics, based in Portland.
In addition, a primary account manager and pricing contact is assigned to each of the Company's top 100 accounts in order to facilitate services for such customers. Certain customers storing product in multiple facilities, but who are not among the Company's top 100 accounts, are also offered similar contacts. It is the responsibility of each warehouse's or group's management to understand and be responsive to the needs of its individual marketplace and to adapt sales efforts accordingly. Each General Manager actively engages in the sales effort. Although the Company operates nationally, prices charged by the Company tend to reflect local market conditions.
The Company has promoted its logistics services to existing and potential customers through consultations during which the Company presents a range of potential logistics services to that customer. Although the Company has primarily focused on its existing large frozen food manufacturer customers, the Company is also currently approaching retailers, distributors and smaller manufacturers to offer the Company's network of warehouses and transportation management services, which such customers may find more attractive than maintaining or developing their own logistics resources. The Company intends to continue to emphasize integrated warehousing and transportation management services and to pursue other customers who may wish to outsource significant logistics responsibilities to Americold.
The majority of the Company's customers are billed on a monthly basis for warehousing charges. Handling and first period storage is billed upon receipt of the product. Recognition of one-half of the handling revenue is deferred until the product is released. Transportation management customers are generally billed on a shipment by shipment basis.
EMPLOYEES - ---------
The Company had approximately 2,021 employees as of February 29, 1996. A breakdown of employees by function is set forth below:
Employee Breakdown by Function
Number of Percentage Function Employees of Total - -------- --------- ----------
Warehousing Services 1,564 77.4% Transportation Management Services 48 2.4% Sales and Marketing 4 0.2% Non-Logistics 27 1.3% Administration (Warehouse and Corporate) 378 18.7% ----- ----- Total 2,021 100.0% ===== =====
Approximately 663 of the Company's employees are covered by union contracts. Currently, 23 facilities employ unionized labor, while 26 facilities are non-unionized. Union contracts for individual locations are with the local chapters of national unions, principally the International Brotherhood of Teamsters, and generally have staggered expiration dates. During the past three years, there has been one strike at one warehouse which lasted for approximately four days. The Company believes its relationships with its employees are satisfactory.
As a result of the anticipated continued expansion in transportation management services, the transportation management staff is expected to increase in fiscal 1997.
PATENTS, LICENSES AND TRADEMARKS - --------------------------------
The Company's operations are not dependent upon any single or related group of patents, licenses, franchises or concessions. The Company's operations are also not dependent upon a single trademark or service mark, although the Company has registered the SUPERCOLD [registered trademark symbol] service mark with the United States Patent and Trademark Office.
RESEARCH AND DEVELOPMENT - ------------------------
The Company believes that the refrigerated warehouse industry is not one in which research and development has traditionally played a significant role. The Company, however, has made significant expenditures in developing its integrated warehousing and transportation management services, including installing its new computer data processing support system which integrates modern transportation management systems with the Company's warehouse management system. The Company also continues to pursue methods of reducing energy costs at its facilities.
ENVIRONMENTAL COMPLIANCE - ------------------------
In fiscal 1995, the Company completed its conversion of its last remaining freon-based cooling system to an ammonia-based system. The Company's capital expenditures, earnings and competitive position are not materially affected by compliance with federal, state and local provisions which have been enacted or adopted to regulate or otherwise protect the environment.
ITEM 2.
ITEM 2. PROPERTIES
As of February 29, 1996, the Company owned or leased 49 facilities in 16 states. Although most of the facilities are owned by the Company, eight facilities comprising approximately 5.9% of the Company's total cubic feet of storage space are leased or subleased by the Company under operating-type lease arrangements. In addition, four facilities representing approximately 5.4% of the total cubic feet of storage space are leased, in whole or in part, under sale-and-leaseback or capitalized-type lease arrangements. Five facilities, or portions thereof, representing approximately 6.2% of the total cubic feet of storage space, are situated on leased land.
Capacity utilization at the Company's facilities varies from season to season, with an average annual capacity utilization of approximately 72%. All but five of the Company's owned warehouses are currently encumbered as security for the senior secured debt of the Company.
The Company's facilities are typically single-story concrete or insulated panel buildings constructed at dock height elevation, with very heavy insulation and vapor barrier protection. Refrigeration is generally supplied by screw-type compressors in ammonia-based cooling systems. All facilities are served by truck and all but seven are served by rail. Many facilities also have room for expansion.
The following table lists the 49 refrigerated warehouse properties owned or leased by the Company as of February 29, 1996. It also shows the 32 facilities that presently secure the Company's first mortgage bonds, and two facilities that presently secure the mortgage payables.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION - ------------
Americold provides integrated logistics services for the frozen food industry consisting of warehousing and transportation management. These services are provided through the Company's network of 49 refrigerated warehouses and its refrigerated transportation management unit.
DEVELOPMENT OF TRANSPORTATION MANAGEMENT SERVICES - In recent quarters, the Company has experienced increased interest by customers in procuring transportation management services from the Company. In this regard, the Company entered into arrangements in the first half of fiscal 1996 pursuant to which it is providing such services to three subsidiaries of one large customer. Transportation management services provided to these three customers account for substantially all of the increase in the Company's transportation management revenues in fiscal 1996. 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 to support the distribution of frozen food products from a single provider.
The maintenance and continued growth of transportation management services revenues is dependent upon meeting customer expectations. Due to the complexity of implementing and coordinating several interrelated systems, the Company encountered start-up difficulties in achieving agreed-upon service levels with respect to the introduction of certain transportation management services for certain customers in the latter part of fiscal 1996. In light of remedial actions taken by the Company and based on discussions with such customers, the Company believes that it has overcome such difficulties. There can be no assurance, however, that the Company will not encounter difficulties in the future or that such difficulties, if encountered, would not adversely affect operating income or customer relationships. The Company believes, however, that its transportation management activities may lead to stronger customer relationships and increased revenues in the higher-margin warehousing business.
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 REFRIGERATED WAREHOUSE PROPERTIES - The Company continually evaluates the need for warehouse space and intends to pursue growth of its refrigerated warehouse business both by expanding its network of warehouses and by expanding existing facilities in response to customer requirements. Since August 1994 (mid-fiscal 1995), the Company has added approximately 15.1 million cubic feet of storage capacity in five locations. Two of such facilities became operational in fiscal 1995, and one in the second quarter and two in the third quarter of fiscal 1996. The increase, net of warehouse closures discussed below, represents a 1.4% increase in available warehouse space. The Company is currently working toward the development of several new warehouses which include the acquisition of 2.1 million cubic feet and the construction of 16.8 million cubic feet of new refrigerated warehouse space. The Company intends to finance such expansion primarily through lease financing pursuant to an existing commitment and from other financing sources. See " - Liquidity and Capital Resources - Capital Resources."
Since August 1994, the Company has reduced the amount of available refrigerated warehouse space by approximately 12 million cubic feet due to the sale of one property, termination of four operating leases in the Prepackaged Bankruptcy in the third quarter of fiscal 1996 and the non-renewal of three other operating leases. The Company expects that the effects of the closure or disposition of such non-strategic facilities will have a positive effect on future gross operating margin as a percentage of net sales.
PREPACKAGED BANKRUPTCY - During the first quarter of fiscal 1996, the Company solicited acceptance of the Plan in the Prepackaged Bankruptcy. The principal purpose of the Plan was to reduce the Company's short-term cash requirements with respect to payments due on its subordinated indebtedness by extending the maturity on such indebtedness from May 1997 to November 2007 and to adjust certain restrictive financial covenants and certain other provisions contained in an agreement with one of its principal lenders. Each holder of the Company's 11% Senior Subordinated Debentures due 1997 ("11% Debentures") received a corresponding amount of the Company's new 15% Senior Subordinated Debentures due 2007 ("15% Debentures") at par, plus accrued but unpaid interest. The Company received approval from the classes of debtholders entitled to vote on the Plan and, on May 9, 1995, filed the Plan as approved with the United States Bankruptcy Court for the District of Oregon. On June 19, 1995, the Court approved the Company's Plan, and on June 30, 1995, the Plan became effective. The Company was debtor-in-possession during the proceedings. See -"Liquidity and Capital Resources - Capital Resources - Effect of Prepackaged Bankruptcy."
For fiscal 1996, the Company incurred approximately $7.3 million in reorganization fees and expenses related to the Prepackaged Bankruptcy. In addition, the write-off of unamortized original issue discount and unamortized issuance costs related to the exchange of the 11% Debentures and the repurchase of $10.0 million in principal amount of the Company's 11.45% First Mortgage Bonds, Series A Bonds due 2002 ("Series A Bonds") in the Prepackaged Bankruptcy resulted in an extraordinary loss, net of taxes, of approximately $1.8 million in the same period.
OFFERING OF SENIOR SUBORDINATED NOTES - Subsequent to the end of fiscal 1996, 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 all of the 15% Debentures.
EFFECT OF THE ACQUISITION - In December 1986, Kelso, certain institutional investors and the Management Group purchased the Company. The Company's operating results and cash flow have been and will continue to be materially affected by the indebtedness incurred to finance the Acquisition. For fiscal 1995 and 1996, interest expense, principally related to debt incurred to finance the Acquisition, totaled $55.3 million and $56.6 million, respectively.
EFFECT OF KANSAS CITY FIRE - In December 1991 a fire began at the Company's Kansas City, Kansas underground warehouse, the Company's largest warehouse facility. Due to its underground location, the fire required an extended period to extinguish. As a result of the fire, the Company's warehousing activities in Kansas City have operated at a substantially reduced level due to loss of public storage and lease customers. Although a substantial portion of the Kansas City warehouse facility has been restored to its pre-fire condition, the Company is unable to predict its ability to return the facility to pre-fire operating volumes and profits. The Company settled its first party claims with its insurance carriers for business interruption losses, property damage and out-of-pocket expenses with respect to the fire and recognized in the third quarter of fiscal 1995 approximately $17.0 million as a gain on insurance settlement.
HISTORICAL INCOME STATEMENT INFORMATION - ---------------------------------------
The following table sets forth, for the fiscal years ended the last day of February 1994, 1995 and 1996, respectively, certain consolidated financial data for the Company, expressed as a percentage of net sales, and the percentage changes in the dollar amount as compared to the prior period.
RESULTS OF OPERATIONS - ---------------------
NET SALES - The Company's net sales increased 30.0% from $215.2 million for fiscal 1995 to $279.8 million for fiscal 1996, reflecting a substantial increase in transportation management sales as well as a 4.6% increase in warehousing sales.
Warehousing sales increased from $192.5 million for fiscal 1995 to $201.4 million for fiscal 1996, principally due to a 4.1% increase in storage revenue and a 7.8% increase in handling revenue. The increase in storage revenue is primarily due to price increases and changes in product mix, as storage volume remained stable at approximately 1.56 billion pounds stored on average per month in each of the two years.
The 7.8% increase in handling revenue resulted primarily from a 4.3% increase in volume of product handled, with the remaining increase due to price increases and changes in product mix. For fiscal 1995, 20.0 billion pounds of product were handled by the Company compared with 20.9 billion pounds during fiscal 1996.
Although the Company has previously disclosed a customer's intention to relocate by late fiscal 1997 a significant portion of the customer's storage volume from one of the Company's warehouses to a new warehouse to be constructed by a competitor closer to one of the customer's production facilities, the Company has been advised that the customer has reassessed such relocation. The customer has notified the Company that it intends to maintain its current levels of storage volume in the Company's warehouse through at least the first quarter of fiscal 1998. Also, the Company believes that the customer has not reached a final decision to relocate such business. The Company believes that if the final decision is made to relocate such business, the Company will be allowed to participate in proposals to provide warehousing services in such new location. If such storage volume is relocated, the Company believes that it will secure replacement business to recover a substantial portion of the gross operating margin represented by such storage volume, but there can be no assurance in this regard.
Transportation management sales increased 312.2% from $18.0 million for fiscal 1995 to $74.2 million for fiscal 1996, due to the outsourcing to the Company of significant additional transportation management responsibilities by three subsidiaries of Heinz.
Other non-logistics sales (quarry sales) decreased 11.0% from $4.7 million for fiscal 1995 to $4.2 million for fiscal 1996. The Company has terminated its previously disclosed discussions related to the possible sale of the quarry and is currently considering its options with respect to such operations.
Net sales increased 8.2% from fiscal 1994 to fiscal 1995. The increase in warehousing sales was primarily the result of increases in storage and handling revenue due to the increased storage of vegetables attributable to the strong vegetable harvest in the Midwest in fiscal 1995. Transportation management sales increased 42.9% in fiscal 1995 due to the start-up by one customer of a distribution program during the year.
COST OF SALES - Cost of sales increased 41.1% from $138.1 million for fiscal 1995 to $194.9 million for fiscal 1996. The increased volume of transportation management services, which required increases in transportation capacity purchased from carriers and the addition of new employees, resulted in an approximately $54.7 million increase in cost of sales. In addition, the cost of sales decreased as a result of warehouse additions and closures in the net amount of $1.5 million. See " - Introduction - Development of Refrigerated Warehouse Properties".
Cost of sales as a percentage of net sales increased from 64.2% for fiscal 1995 to 69.7% for fiscal 1996, as handling and transportation management sales, which each have high variable cost requirements, increased from 41.2% of net sales in the prior period to 53.8% in the more recent period.
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 its warehousing services. The Company believes, however, that its transportation management activities may lead to stronger customer relationships and increased revenues in the higher-margin warehousing business.
Cost of sales increased 9.4% from fiscal 1994 to fiscal 1995 as a result of the increased transportation management sales and increased handling volume at the Company's facilities in the more recent period.
SELLING AND ADMINISTRATIVE EXPENSES - Selling and administrative expenses increased 9.9% from $26.0 million for fiscal 1995 to $28.5 million for fiscal 1996. The increase primarily reflects an increase of approximately $1.4 million in salaries and related fringe benefits. Selling and administrative expenses as a percentage of net sales decreased from 12.1% in fiscal 1995 to 10.2% in fiscal 1996 due to the increase in transportation management sales which did not require a corresponding increase in selling and administrative expenses.
Selling and administrative expenses decreased 4.2% from $27.1 million for fiscal 1994 to $26.0 million for fiscal 1995. The decrease primarily reflects a decrease of approximately $0.5 million in professional fees in the more recent period.
GROSS OPERATING MARGIN - As a result of the increase in warehousing sales, along with the closures of the underperforming warehouse facilities and the increase in transportation management sales, gross operating margin increased 10.4% from $47.8 million for fiscal 1995 to $52.8 million for fiscal 1996.
Gross operating margin increased 11.3% from $43.0 million for fiscal 1994 to $47.8 million for fiscal 1995 as a result of the increased warehouse business.
INTEREST EXPENSE - Interest expense increased from $55.3 million for fiscal 1995 to $56.6 million for fiscal 1996 as a result of higher overall interest rates partially offset by slightly lower overall borrowings. The increase in interest rates resulted from the exchange in the Prepackaged Bankruptcy of the Company's 11% Debentures for the new 15% Debentures. Subsequent to the end of fiscal 1996, the Company refinanced the 15% Debentures. See "Introduction - Offering of Senior Subordinated Notes," above.
Interest expense decreased from $55.4 million in fiscal 1994 to $55.3 million for fiscal 1995 as a result of slightly lower average borrowings.
GAIN ON INSURANCE SETTLEMENT - The one-time gain in fiscal 1995 reflects the gain on insurance settlement of approximately $17.0 million related to the Company's settlement with its insurance carriers of its first party claims for business interruption losses, property damage and out-of-pocket expenses incurred with respect to the Kansas City fire.
REORGANIZATION EXPENSES - Reorganization expenses of approximately $7.3 million reflect the expenses incurred in fiscal 1996 for professional services related to the Prepackaged Bankruptcy including investment banking, accounting and legal fees.
INCOME (LOSS) - The Company's income before income taxes and extraordinary item for fiscal 1995 was $10.8 million, compared to a loss of $11.5 million for fiscal 1996. The decrease in income between the two periods is due to the approximately $7.3 million in fiscal 1996 of reorganization expenses incurred during fiscal 1996 and the recognition by the Company of an approximately $17.0 million gain in fiscal 1995 from the insurance settlement related to the Kansas City, Kansas fire. These two factors were offset in part by improved earnings from operations in fiscal 1996.
The Company's loss before income taxes, extraordinary item and cumulative effect of accounting changes for fiscal 1994 was $12.2 million compared to income of $10.8 million in fiscal 1995, primarily the result of the insurance settlement referred to above.
EXTRAORDINARY ITEM - In connection with the exchange of the Company's 11% Debentures for the 15% Debentures and the repurchase of the $10.0 million of Series A Bonds in the Prepackaged Bankruptcy, unamortized original issue discount of approximately $2.0 million and unamortized issuance costs of approximately $1.0 million were written off, resulting in an extraordinary loss, net of taxes, of approximately $1.8 million in fiscal 1996.
INFLATION - The Company's operations have not been, nor are they expected to be, materially affected by inflation or changing prices.
NEW ACCOUNTING STANDARDS - Effective March 1, 1993, the Company implemented Financial Accounting Standards Board Statement of Financial Accounting Standard No. 106, "Employer's Accounting for Postretirement Benefits Other Than Pensions", and Statement No. 109, "Accounting for Income Taxes."
The Company has not implemented the requirements of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," although it will be required to do so for fiscal years beginning March 1, 1996 and thereafter. SFAS No. 123 generally requires assessment of recoverability of an asset after events or circumstances that indicate an impairment to the asset and its future cash flows. Any impairment loss would be recognized as a one-time charge to earnings affecting results of operations, but would not affect the cash flow of the Company. At this time, the Company does not believe there will be an impairment loss to report.
The Company has not implemented the requirements of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), although it will be required to do so for fiscal years beginning March 1, 1996 and thereafter. 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 not implemented SFAS No. 123 nor has it determined whether to elect to continue using APB No. 25 and make the necessary SFAS No. 123 pro forma disclosures.
LIQUIDITY AND CAPITAL RESOURCES - -------------------------------
The Company believes it has sufficient liquidity and capital resources to meet its 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 to fund limited growth in warehouse investments. Anticipated growth in the volume of transportation management services is not expected to consume significant capital resources. Although the Company's internal resources for new warehouse acquisition or construction are limited, the Company has arranged for up to $25.0 million in lease financing for new warehouse facilities from a finance company (the "Lease Line"). See " - Capital Resources." The Company plans to finance its warehouse expansion program principally through lease financing, and the Company believes it has the ability to finance all of its fiscal 1997 expansion projects from the Lease Line, similar lease financing or mortgage 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 interim sources of financing.
LIQUIDITY - ---------
OPERATING CASH FLOW - Net cash flow from operating activities, representing cash provided from operations, is used to fund capital expenditures and meet debt service requirements. Operating cash flow reported for any one period is sensitive to the timing of the collection of receivables and the payment of payables.
Net cash flow from operating activities as reported in the Company's consolidated financial statements decreased from $12.7 million for fiscal 1995 to $12.6 million for fiscal 1996. The decrease is due to the reorganization fees and expenses associated with the Prepackaged Bankruptcy and changes in certain working capital items. The Company's operating cash flow would have been $19.9 million for fiscal 1996 without reorganization fees and expenses of $7.3 million. Funds provided from operations (gross operating margin plus depreciation, amortization and employee stock ownership plan expense) for fiscal 1994, 1995 and 1996 totaled $65.9 million, $71.6 million and $76.6 million, respectively. Interest expenses, net of amortization of original issue discount, totaled $54.2 million, $54.0 million and $56.2 million, respectively. As a result of increased taxable earnings and the reversal of deferred tax liabilities, the Company anticipates that cash tax payments will increase. See Note 11 of Notes to Consolidated Financial Statements as of the last day of February 1995 and 1996.
WORKING CAPITAL - The Company's working capital position at fiscal 1996 year end was $3.2 million. This position compares to a negative $14.9 million at fiscal 1995 year end. Working capital increased due to the effects of the Prepackaged Bankruptcy. Under the Plan, approximately $28.8 million of senior subordinated debt payments were postponed from May 1995 until fiscal 2008, which reduced the current portion of long-term debt. Partially offsetting this decrease in the current portion of long-term debt, as part of the reorganization proceedings, the Company repurchased for cash $10.0 million in principal amount of long-term Series A Bonds.
The Company's typical negative working capital position has not historically affected its ability to meet its cash operating needs. The Company, however, in fiscal 1995 experienced a shortfall in working capital necessary to make the fiscal 1995 and fiscal 1996 sinking fund payments required with respect to the 11% Debentures, leading to the Prepackaged Bankruptcy. See "Capital Resources - Effect of Prepackaged Bankruptcy" below.
CAPITAL RESOURCES - -----------------
The existing credit agreement ("Bank Credit Agreement") with the Company's principal bank provides an aggregate availability of $27.5 million, which may be used for any combination of letters of credit (not to exceed $10.0 million) and revolving cash borrowings for general working capital purposes, subject to borrowing base limitations. The borrowing base for both cash borrowings and letter of credit amounts equals 85% of eligible accounts receivable pledged to the bank plus, at the option of the Company, 70% of the value of all real property mortgaged to the bank, up to a maximum of $27.5 million. The Company has not mortgaged any properties under the Bank Credit Agreement. The Bank 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 Bank Credit Agreement also contains certain restrictive covenants, including financial covenants.
Based on eligible accounts receivable as of February 29, 1996, the Company had an available credit line of $21.2 million, of which $7.2 million was used for letters of credit, principally related to leasing commitments and workers' compensation reserves. No cash borrowings were outstanding.
The Lease Line, for which the financing company signed a commitment letter in November 1995, is available to finance, subject to meeting certain conditions, the construction or acquisition of new warehouses or the expansion of existing warehouses which are not pledged as collateral security for senior debt. The Company intends to finance several of the planned warehouse additions with the new Lease Line. The terms of each lease financing will be separately established. The Lease Line commitment expires December 31, 1996. The lease rate will be fixed at the time of funding each property, and will be based on a spread over seven- year Treasury Bills. The first funding of approximately $5.6 million closed in late fiscal 1996 with respect to the Company's recently completed Grand Island, Nebraska facility.
CAPITAL EXPENDITURES - Expenditures for property, plant and equipment for fiscal 1996 totaled $35.0 million, of which approximately $26.7 million related to warehouse expansions. Of the $26.7 million, all but approximately $.2 million of the expenditures were funded from sources other than net cash flow from operations. Two new warehouse facilities, in Pasco, Washington and Rochelle, Illinois, were funded with approximately $18.6 million of escrow funds established with the proceeds from the sale of the Company's 11.5% First Mortgage Bonds, Series B due 2005 and available under the indenture governing the Company's first mortgage bonds ("Bond Indenture"); and the Grand Island, Nebraska facility was funded from the Lease Line.
As a result of the expenditures described above, the Company has exhausted substantially all of the escrowed funds under the Bond Indenture, except for approximately $4.8 million from the insurance proceeds from the Kansas City fire. In late fiscal 1996, the Company submitted to the trustee under the Bond Indenture an accounting of restoration expenses incurred to date at the Kansas City warehouse facility. Based on such submission, the Company has requested that the $4.8 million be released to the Company.
The projects the Company is currently exploring for fiscal 1997 would require the expenditure of up to $37.4 million, of which $19.6 million is presently committed. The Company plans to finance its warehouse expansion program principally through lease financing, and the Company believes it has the ability to finance all of its fiscal 1997 expansion projects from the Lease Line, similar lease financing or mortgage financing. Certain capital expenditures originally planned for late fiscal 1996 will be deferred until early fiscal 1997, and certain capital expenditures originally planned for early fiscal 1997 are expected to be deferred until late fiscal 1997, resulting in corresponding delays in the realization of benefits from such investments.
Expenditures, including capital leases, for property, plant and equipment for fiscal years 1994, 1995 and 1996 totaled $9.9 million, $14.3 million and $35.0 million, respectively, as summarized in the following table:
Historical Capital Expenditures (In Millions)
EFFECT OF PREPACKAGED BANKRUPTCY - The Bankruptcy Court approved the Plan on June 19, 1995 and the Plan became effective on June 30, 1995. The Plan as approved provided, among other things, that each holder of the Company's then outstanding 11% Debentures was entitled to receive a corresponding amount of the Company's new 15% Debentures at par, plus accrued but unpaid interest; that the holders of the Company's senior debt were not adversely affected by the Prepackaged Bankruptcy; and that the prior investment agreement was superseded by the Second Amended and Restated Investment Agreement dated as of May 5, 1995 between the Company and Metropolitan Life Insurance Company.
The Company rejected in the Prepackaged Bankruptcy certain operating lease agreements relating to four warehouse facilities at Watsonville, Oakland and San Francisco, California; and Chicago, Illinois. Properties subject to the leases accounted for approximately $11.7 million of sales and a minimal amount of gross operating margin in fiscal 1995. In late fiscal 1996, the Company settled all lease rejection issues with the lessor of three of the facilities located in Watsonville, Oakland and San Francisco, California. Such settlement did not involve the payment of any damages by the Company. The outcome of any damage claim resulting from the remaining lease rejection of the Chicago warehouse facility cannot be predicted at this time, but the Company does not believe that the resolution of such claim will be material.
The Company believes that the effect of the Plan has been to improve the Company's financial position by postponing the maturity of its subordinated debt and increasing the likelihood that the Company will realize the benefits of its capital expenditures and the continuing expansion of its transportation management activities. The Company remains highly leveraged, however, and will continue to be subject to substantial principal and interest obligations with respect to its indebtedness.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements as of the last day of February 1995 and 1996 and related information listed below, are set forth on pages 54 through 82 of this report.
TITLE PAGE --------- ----
Independent Auditors' Report 53
Consolidated Balance Sheets as of the last day of February 1995 and 1996 54
Consolidated Statements of Operations for years ended the last day of February 1994, 1995 and 1996 56
Consolidated Statements of Common Stockholders' Deficit for years ended the last day 57 of February 1994, 1995 and 1996
Consolidated Statements of Cash Flows for years ended the last day of February 1994, 1995 and 1996 58
Notes to Consolidated Financial Statements as of the last day of February 1995 and 1996 60
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of Americold as of May 1, 1996 are as follows:
NAME AGE TITLE ---- --- -----
Ronald H. Dykehouse 54 Chairman of the Board, President and Chief Executive Officer
Joel M. Smith 52 Senior Vice President, Chief Financial Officer and Director
John P. LeNeveu 49 Executive Vice President, Operations and Sales
F. Stanley Sena 47 Executive Vice President, Transportation and Distribution Logistics
J. Roy Coxe 55 Senior Vice President, Logistics
Ronald A. Nickerson 59 Vice President, Operations
Lon V. Leneve 39 Vice President and Treasurer
Frank Edelstein 70 Director
George E. Matelich 39 Director
James C. Pigott 59 Director
William A. Marquard 75 Director
RONALD H. DYKEHOUSE was named President of Americold Corporation in May 1990 and Chairman of the Board and Chief Executive Officer in June 1990. From 1989 to 1990, Mr. Dykehouse was a private investor and consultant. From 1986 to 1989, he was Executive Vice President and Chairman of the Food and Distribution Groups of Amfac Inc., a diversified holding company. Mr. Dykehouse is a past director of the National Frozen Foods Association and past Chairman of the American Frozen Food Institute.
JOEL M. SMITH has been Senior Vice President and a director of the Company since December 1986. Mr. Smith has been the Chief Financial Officer of Americold since 1978 and a Vice President since 1984. In April 1996, Mr. Smith was elected a director of the IARW.
JOHN P. LENEVEU was named Executive Vice President, Operations and Sales of Americold in July 1995. From July 1991 to 1995, he was Senior Vice President, Operations and Sales. From 1988 to 1991, he was a management consultant with the Institute of Management Resources, an international management consulting company.
F. STANLEY SENA was named Executive Vice President, Transportation and Distribution Logistics of the Company in July 1995. From August 1991 to 1995, he was Senior Vice President, Administration and Technical Services of the Company. From 1986 to 1990, Mr. Sena was Vice President, Operations, Western Region, and from 1990 to 1991, Mr. Sena was Vice President, Operations of the Company. Since 1994, Mr. Sena has been a board member of the International Frozen Food Association.
J. ROY COXE was named Senior Vice President, Logistics, of Americold in December 1993. From 1991 to 1993, he was a management consultant with A. T. Kearney, Inc., an international management consulting company. Mr. Coxe was a vice president of Drake Sheahan Stewart Dougall and successors, a logistics and transportation consulting firm, from 1983 to 1991.
RONALD A. NICKERSON has been Vice President, Operations since 1990. From 1987 to 1990, Mr. Nickerson was Vice President, Operations, Eastern Region, of the Company.
LON V. LENEVE was named Vice President in September 1992 and has been Treasurer of Americold since July 1988. Mr. Leneve joined Americold in 1982 and was Controller from 1984 to 1988.
FRANK EDELSTEIN was elected a director of the Company in 1986. He is currently a consultant to both Kelso and the Gordon+Morris Group, Inc., an investment banking firm. Mr. Edelstein joined Kelso in 1987 and held the position of Vice President at Kelso until 1992. Mr. Edelstein is also a director of Ceradyne, Inc., IHOP Corporation and Arkansas Best Corporation.
GEORGE E. MATELICH has been a director of the Company since December 1986. Mr. Matelich joined Kelso in 1985 as an Associate, served as a Vice President of Kelso from 1986 to 1990 and is currently a Managing Director of Kelso.
JAMES C. PIGOTT was elected a director of Americold in June 1987. He is President of Pigott Enterprises, Inc., a private investment company. Mr. Pigott has been Chairman of the Board and Chief Executive Officer of Management Reports and Services, Inc., an accounting consulting firm since 1987. Mr. Pigott's other business activities include membership on the Board of Directors of PACCAR, Inc.
WILLIAM A. MARQUARD was elected a director of Americold in June 1987. Mr. Marquard is a director of Treadco, Inc., Mosler, Inc., Earle M. Jorgenson Holding Company, Inc., Earle M. Jorgenson Company, Arkansas Best Corporation and Best Holding Corporation. He is also a director of Kelso.
All directors hold office until the next annual meeting of shareholders of the Company or until their successors have been elected and qualified. The executive officers of the Company are chosen by the Board and serve at its discretion.
For their services on the Board of Directors of the Company, Messrs. Pigott, Marquard and Edelstein are paid $16,000 per year. Mr. Pigott receives $1,000 per year as Chairman of the Company's Audit Committee. Messrs. Pigott, Marquard and Edelstein also receive $600 per meeting attended. Directors who are also officers of the Company and Mr. Matelich do not receive additional compensation as directors of the Company. Directors are reimbursed for out-of-pocket expenses incurred in connection with attendance at meetings.
The Compensation Committee for fiscal 1996 consisted of Mr. Matelich, Mr. Marquard and Mr. Pigott. The Audit Committee for fiscal 1996 consisted of Mr. Matelich, Mr. Edelstein and Mr. Pigott.
On December 23, 1992, Kelso and its chief executive officer, without admitting or denying the findings contained therein, consented to an administrative order in respect of a Securities and Exchange Commission (the "Commission") inquiry relating to the 1990 acquisition of a portfolio company by a Kelso affiliate. The order found that Kelso's tender offer filing in connection with the acquisition did not comply fully with the Commission's tender offer reporting requirements, and required Kelso and the chief executive officer to comply with these requirements in the future.
STOCKHOLDERS' AGREEMENT - -----------------------
Certain of the Company's shareholders have agreed, pursuant to the Stockholders' Agreement dated as of December 24, 1986 (as amended, the "Stockholders' Agreement"), that prior to the occurrence of an initial public offering of at least 25% of the outstanding shares of common stock of the Company pursuant to an effective registration statement under the Securities Act, or December 24, 1996, whichever is earlier, sales of shares of common stock by a member of the Management Group are subject to a right of first refusal granted to the Company. See "Principal Shareholders."
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE - --------------------------
The following table sets forth information as to the compensation of the Chief Executive Officer and each of the other four most highly compensated executive officers of the Company as of the last day of February 1996 for services in all capacities to the Company for the years ended the last day of February 1994, 1995 and 1996.
_______________ [FN] Consists of the cost of relocation, the value of automobiles, and other miscellaneous fringe benefits. For fiscal years 1994, 1995 and 1996, the amounts did not exceed the lesser of $50,000 or 10% of the named executive officer's annual salary and bonus.
Mr. Coxe's employment commenced December 20, 1993.
AGGREGATED OPTION TABLE - -----------------------
The following table sets forth information as to the options held by the Chief Executive Officer and each of the other four most highly compensated executive officers of the Company through the end of fiscal 1996.
BENEFIT PLAN AND ARRANGEMENTS - -----------------------------
MANAGEMENT INCENTIVE PLAN - The Company has a Management Incentive Plan (the "MIP Plan") to provide additional compensation to participants, including executive officers, upon the achievement of certain financial objectives of the Company and individual personal objectives of the participants. The MIP Plan is administered by the Compensation Committee of the Board of Directors (the "Compensation Committee") and is applicable to management employees of Americold and, at the option of the President of the Company, other employees of Americold. The financial objective award is 50% of the total award and is based on attainment of actual operating results as compared to financial targets. The financial targets were established and approved by the Company based upon the annual business plan. The personal objective award is 50% of the total award and is based on attainment of both quantifiable and nonquantifiable goals established at the beginning of the MIP Plan year. Incentive compensation earned under the MIP Plan is computed as soon as possible after the close of the Company's fiscal year and payment is generally made following approval by the Board unless a deferred payment election has been filed with the Company in accordance with the terms of the Plan.
The Board of Directors authorized the payment of approximately $1.6 million in total fiscal 1996 awards pursuant to the MIP Plan. These awards were paid in May 1996. Incentive compensation earned by the Company's executive officers for the fiscal year ended the last day of February 1996 is included in the Bonus column in the above Summary Compensation Table.
In addition to the MIP Plan, between March 1, 1991 and February 28, 1994, the Company had a Stock Incentive Plan, a long-term incentive plan which was intended to provide additional financial incentives to key employees, including executive officers of the Company.
RETIREMENT PLAN - Americold has a noncontributory defined benefit retirement plan for salaried employees, including executive officers (the "Retirement Plan"). The Retirement Plan provides retirement benefits based on credited years of service and average monthly compensation for the highest five calendar years of the final 15 calendar years of employment or, if higher, the highest 60 consecutive months in the last 120 months of employment. A participant's retirement benefits vest after the participant has completed at least five years of Vesting Service.
The following table shows the approximate annual retirement benefits payable to employees for life from normal retirement date pursuant to the Retirement Plan before reduction for Social Security payments. The actual retirement benefit to employees is offset by Social Security benefits. Service credited under a retirement plan of the Company's former owners will be recognized by the Retirement Plan for purposes of determining the pension benefits payable under the Retirement Plan.
Estimated years of credited service to date under the Retirement Plan for the individuals named in the Summary Compensation Table are as follows: Mr. Dykehouse, 5 years; Mr. Smith, 17 years; Mr. LeNeveu, 4 years; Mr. Sena, 26 years; and Mr. Coxe, 2 years. Estimated years of credited service at normal retirement date (age 65) under the Retirement Plan for the individuals named in the Summary Compensation Table are as follows: Mr. Dykehouse, 16 years; Mr. Smith, 26 years; Mr. LeNeveu, 20 years; Mr. Sena, 45 years; and Mr. Coxe, 12 years.
Years of Service ------------------------------------- Average Annualized Compensation 20 30 40 50 - ------------------ -------- -------- -------- ------
$100,000 $ 30,000 $ 45,000 $ 60,000 $ 75,000 125,000 37,500 56,250 75,000 93,744 150,000 45,000 67,500 90,000 112,500 175,000 45,000 67,500 90,000 112,500 200,000 45,000 67,500 90,000 112,500 300,000 45,000 67,500 90,000 112,500
In addition to the above, certain individuals named in the Summary Compensation Table are entitled to a benefit calculated by using additional years of service credited under supplements to the Retirement Plan. Years of credited service under the supplements for the individuals named in the Summary Compensation Table as of the last day of February 1996 are as follows: Mr. Dykehouse, 0 years; Mr. Smith, 5 years; Mr. LeNeveu, 0 years; Mr. Sena, 0 years; and Mr. Coxe, 0 years. The annual amount to be received at normal retirement date pursuant to the supplements is estimated to be as follows: Mr. Dykehouse, $0 per annum; Mr. Smith, $5,906 per annum; Mr. LeNeveu, $0 per annum; Mr. Sena, $0 per annum; and Mr. Coxe, $0 per annum.
A participant's retirement benefits (excluding any incremental benefit earned under any supplement) under the Retirement Plan plus 50% of Social Security benefits may not exceed 60% of his compensation at retirement after 40 years of service, subject to maximum dollar limitations. See Note 8 of Notes to Consolidated Financial Statements as of the last day of February 1995 and 1996.
EMPLOYEE STOCK OWNERSHIP PLAN - Americold established, effective March 1, 1987, an Employee Stock Ownership Plan, as amended January 1, 1994 (the "ESOP"), in which all qualifying employees of the Company not covered by collective bargaining arrangements are able to participate. It is contemplated that contributions on an annual basis will not exceed 15% of the aggregate total compensation of any participating employee. The Company may contribute cash as well as or in lieu of its stock. The consent of the Company's Board of Directors is required to authorize any contribution by Americold to the ESOP. Contributions are allocated among participants based on the ratio of each participant's compensation to the total compensation of all such participants, subject to certain limitations. The ESOP is intended to provide retirement funds to participants in addition to present pension benefits.
Benefits under the ESOP vest based upon years of service as follows: 20% after three years of service, increased by 20% for each of the next four years with a maximum of 100% after seven years of service. A participant is 100% vested if employed by the Company on or after his 65th birthday, or if the participant incurs a total and permanent disability or dies while employed by the Company. The ESOP has the right to repurchase previously distributed shares from employees terminating their ESOP participation, using funds obtained through cash contributions by the Company. Participant forfeitures are allocated pro rata to remaining participants.
Participants are eligible for distribution of their capital accumulation in the ESOP at the normal retirement age of 65. The distribution will be made in whole shares of the Company's stock, cash or a combination of both, as determined by the Compensation Committee, provided the participant has not elected to be paid in stock.
Upon termination of the ESOP, the ESOP's trust will be maintained until the capital accumulations of all participants have been distributed.
Management anticipates recommending, and the Board of Directors approving, at the Annual Meeting of Shareholders in June 1996 a $750,000 ESOP contribution for fiscal 1996.
KEY EMPLOYEE STOCK OPTION PLAN - In 1987, Americold established a Key Employee Stock Option Plan (the "Option Plan"). The Option Plan permits the issuance of nonstatutory options to purchase up to 300,000 shares of common stock of the Company to directors, officers and other key employees of the Company. Of these, options to purchase up to 150,000 shares were reserved for issuance to the Management Group and options to purchase the remaining 150,000 shares are reserved for issuance to all eligible employees (including the Management Group) of the Company.
An individual exercising options under the Option Plan must become a party to the Stockholders' Agreement. The Option Plan is administered by the Compensation Committee. The Compensation Committee determines the recipients of options granted, the exercise price and the number of shares of common stock subject to each option. Options to purchase common stock are granted at a price not less than 85% of the fair market value on the day that the option is granted. The Board of Directors may amend the Option Plan from time to time. The maximum term of each stock option is ten years. Options become exercisable at such time or times as the Compensation Committee may determine at the time of grant.
If the outstanding shares of common stock are changed into or exchanged for a different number or kind of shares of the Company or other securities of the Company, by reason of any merger, consolidation, recapitalization, reclassification, stock split-up, stock dividend or combination of shares, the Compensation Committee shall make an appropriate and equitable adjustment in the number and kind of shares as to which the unexercised portion of the option shall be exercisable, to the extent that after such event the optionee's right to a proportionate interest in the Company shall be maintained as if the option had already been exercised and the option shares were subject to such change or exchange. Such adjustment shall be made without change in the total price applicable to the unexercised portion of the option and with a corresponding adjustment in the exercise price per option share. Any such adjustment made by the Compensation Committee shall be final and binding upon the Company, the optionee and all other interested persons.
In the event of (i) dissolution or liquidation of the Company, (ii) a merger in which the Company is not the surviving corporation or (iii) a share exchange pursuant to which the outstanding shares of common stock of the Company are acquired by another corporation, then either (a) the Compensation Committee, upon authorization of the Board, shall make an appropriate and equitable adjustment in the number and kinds of securities covered by outstanding options, and such options shall be expressly assumed by the successor corporation, if any; or (b) in lieu of such adjustment, the Board shall provide a 30-day period immediately prior to such an event during which each optionee shall have the right to exercise the optionee's outstanding options, in whole or in part, without regard to the time the options have been outstanding or the vesting schedule provided for in any option agreement entered into pursuant to the Option Plan and all options not exercised shall expire at the end of the 30-day period.
Information with regard to the grant of options as of the last day of February 1996 under the Plan follows:
Number of Shares Subject to Exercise Number of Shares Expiration Option Price Exercisable Date - ---------- ------- ----------- ----------
89,656 $10.00 89,656 May 1998 100,000 $18.95 100,000 June 2000 30,000 $21.88 12,000 May 2003 30,000 $20.40 12,000 December 2003
No options were exercised during fiscal 1996. See Note 9 of Notes to Consolidated Financial Statements as of the last day of February 1995 and 1996.
OTHER ARRANGEMENTS - In calendar 1995, the Board of Directors authorized employment agreements for certain executive officers of the Company.
On November 1, 1995, the Company entered into an employment agreement with Mr. Dykehouse. The agreement expires on December 16, 1998 and may be extended for one-year periods by mutual agreement. Pursuant to the agreement, Mr. Dykehouse agreed to serve as Chairman of the Board, President and Chief Executive Officer of the Company for a minimum base monthly salary of $25,000 and the right to participate in the MIP Plan (or any other senior management incentive program offered by the Company) and receive all customary employee benefits ("Benefits"). The agreement provides that if during the term of the agreement Mr. Dykehouse is terminated "without cause", as defined, the Company will pay his base compensation through December 16, 1998, employ him as a consultant at his base salary for 24 months beginning January 1, 1999 and provide to him all Benefits through the earlier of the date he obtains other employment and December 16, 2006. The Company is not required to make any such payments if the termination is "for cause," as defined. Among other termination provisions, the agreement provides that Mr. Dykehouse may terminate the agreement with 30 days' written notice if such termination is for "good reason" (as defined), and in such case, Mr. Dykehouse will receive the same treatment as if he were terminated "without cause." The employment agreement contains other customary terms and conditions.
On August 1, 1995, the Company entered into two-year employment agreements with Messrs. Smith, LeNeveu, Sena and Coxe. Each employee agreed to serve in the position and at the minimum base monthly salary as follows: Mr. Smith, Senior Vice President and Chief Financial Officer, $13,666.66; Mr. LeNeveu, Executive Vice President, $14,166.66; Mr. Sena, Executive Vice President, $13,666.67; and Mr. Coxe, Senior Vice President, Logistics, $12,500.00. The agreements provide, among other conditions, that if during the term of the employment agreement the employee is terminated "without cause," as defined, the Company will pay the employee any unpaid base compensation, any benefits accrued to the date of termination and, for 24 months, a monthly amount equal to the last monthly salary amount received. The Company is not required to make any such payment if the termination is "for cause," as defined. The employee may terminate employment upon 30 days' written notice, and the Company will pay such employee an amount equal to either 12 months' salary if such termination is without "good reason," as defined, or 24 months' salary if such termination is for "good reason." The employment agreements contain other customary terms and conditions.
Concurrently with the entering into of the employment agreements, Messrs. Dykehouse, Smith, LeNeveu, Sena and Coxe each also entered into a covenant not to compete and consulting and non-disclosure agreement with the Company. Under these agreements, each individual has agreed not to compete with the Company during the term of his employment with the Company, under the terms of an employment contract or otherwise. Mr. Dykehouse has agreed not to compete with the company for a period of 24 months following termination of employment or until October 31, 2000, whichever is earlier, while the other officers have agreed not to compete with the Company (1) for a 24-month period following termination of his employment or until July 31, 2000, whichever is earlier, if the termination is "for cause," as defined in the employment agreement, or (ii) for a 12-month period or until July 31, 2000, whichever is earlier, if the employee terminates employment with or without "good reason," as defined in the employment agreement. Subject to certain exceptions, each individual has further agreed to be available for employment as a consultant to the Company following termination of employment.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of common stock as of May 1, 1996 by (i) each person known by the Company to own more than five percent of its common stock, (ii) each director of the Company, (iii) each named executive officer, (iv) all directors and officers as a group and (v) the Management Group:
___________________ [FN] These persons are party to the Stockholders' Agreement which gives the Company a right of first refusal for shares of common stock sold by these parties prior to an initial public offering of at least 25% of the outstanding shares of common stock of the Company. See Part II, Item 10, "Directors and Executive Officers of the Registrant".
Messrs. Schuchert, Nickell, Matelich and Wall may be deemed to share beneficial ownership of shares owned of record by KIA III, KIA II, Kelso Equity and Kelso & Company (Kelso & Company owns 23,600 shares) by virtue of their status as the general partners of Kelso Partners III, L.P. (the general partner of KIA III), Kelso Partners II, L.P. (the general partner of KIA II), and Kelso Equity and the controlling stockholders and officers of Kelso & Company. Messrs. Schuchert, Nickell, Matelich and Wall share investment and voting powers with respect to securities owned by the foregoing entities. Messrs. Schuchert, Nickell, Matelich and Wall disclaim beneficial ownership of such securities (other than the 23,600 shares owned by Kelso & Company).
Includes the following numbers of shares of common stock that may be acquired within 60 days after May 1, 1996 through the exercise of stock options granted pursuant to the Company's Option Plan: 100,000 shares for Mr. Dykehouse; 8,278 shares for Mr. Smith; 18,000 shares for Mr. LeNeveu; 8,279 shares for Mr. Sena; 12,000 shares for Mr. Coxe; 157,595 for all directors and officers as a group; and 219,656 shares for the Management Group.
The shareholders of the Company listed above hold approximately 83% of the voting power of the Company's common stock and are able to elect all of the members of the Board of Directors and thereby control the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Subsequent to the end of fiscal 1996, in consideration for certain assistance provided by Kelso in connection with the Prepackaged Bankruptcy and the issuance of the 12.875% Senior Subordinated Notes due 2008, the Company paid Kelso a financial advisory fee of $500,000. Mr. Matelich and Mr. Marquard, directors of the Company, are also directors of Kelso.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
1. FINANCIAL STATEMENTS PAGE -------------------- ----
Reference is made to Part II, Item 8 30 for the listing of the required financial statements filed with this report
2. FINANCIAL STATEMENT SCHEDULES -----------------------------
Schedule II - Valuation and Qualifying 82 Accounts for years ended the last day of February 1994, 1995 and 1996
All other schedules are omitted because they are not applicable, or are not required, or because the required information is included in the Company's consolidated financial statements as of the last day of February 1995 and 1996 or notes thereto.
3. EXHIBITS -------- (2) Plan of Reorganization, dated April 14, 1995 (filed as Exhibit (2) to the Form 10-K, dated May 30, 1995, for the fiscal year ended February 28, 1995, and incorporated herein by reference)
(3) Articles of Incorporation and Bylaws
(i) Second Restated Articles of Incorporation, as amended (filed as Exhibit (3)(i) to the Form 10-Q, dated July 14, 1995, for the quarter ended May 31, 1995, and incorporated herein by reference)
(ii) Restated Bylaws, as amended (filed as Exhibit (3)(ii) to the Form 10-K, dated May 30, 1995, for the fiscal year ended February 28, 1995, and incorporated herein by reference)
(4) Instruments defining the rights of security holders, including indentures
(i) Articles IV, V and VI of the Second Restated Articles of Incorporation as amended (see Exhibit (3)(i))
(ii) Articles I, II, V, VII and X of the Restated Bylaws as amended (see Exhibit (3)(ii))
(iii) Second Restated Stockholders' Agreement dated as of December 24, 1986, as amended as of April 15, 1987 and June 22, 1987 (filed as Exhibit (4)(iv) to the Form 10-K, dated May 27, 1988, for the fiscal year ended February 29, 1988, and incorporated herein by reference)
(iv) Third Amendment dated May 22, 1990 to Stockholders' Agreement dated as of December 24, 1986, as amended as of June 22, 1987 (filed as Exhibit (4) to the Form 10-Q dated July 12, 1990, for the quarter ended May 31, 1990, and incorporated herein by reference)
(v) Amended and Restated Indenture dated March 9, 1993, relating to the First Mortgage Bonds (filed as Exhibit (4)(vi) to the Registration Statement on Form S-1 (Registration No. 33- 53584) filed with the Commission on March 2, 1993, and incorporated herein by reference)
(vi) Stock Pledge Agreement dated as of February 28, 1989, between Registrant and The Connecticut National Bank (filed as Exhibit (19)(iii) to the Form 10-Q, dated October 14, 1992, for the quarter ended August 31, 1992, and incorporated herein by reference)
(vii) Stock Pledge Agreement dated as of February 28, 1989 between Registrant and United States National Bank of Oregon, acting as agent pursuant to Article IX of the Credit Agreement, as amended, dated as of April 30, 1987 (filed as Exhibit (19)(iv) to the Form 10-Q, dated October 14, 1992, for the quarter ended August 31, 1992, and incorporated herein by reference)
(viii) Form of Amended and Restated Security Agreement relating to the First Mortgage Bonds (filed as Exhibit (4)(xiv) to the Registration Statement on Form S-1 (Registration No. 33- 53584) filed with the Commission on March 2, 1993, and incorporated herein by reference)
(ix) Form of Series A Bond (included as part of Exhibit (4)(v))
(x) Form of Series B Bond (included as part of Exhibit (4)(v))
(xi) Form of Amended and Restated Cash Collateral Pledge Agreement relating to the First Mortgage Bonds (filed as Exhibit (4)(xix) to the Registration Statement on Form S-1 (Registration No. 33-53584) filed with the Commission on March 2, 1993, and incorporated herein by reference)
(xii) Form of Amended Stock Pledge Agreement relating to the First Mortgage Bonds (filed as Exhibit (4)(xx) to the Registration Statement on Form S-1 (Registration No. 33-53584) filed with the Commission on March 2, 1993, and incorporated herein by reference)
(xiii) Form of Amended Mortgage, Assignment of Rents and Security Agreement relating to the First Mortgage Bonds (filed as Exhibit (4)(xxi) to the Registration Statement on Form S-1 (Registration No. 33-53584) filed with the Commission on March 2, 1993, and incorporated herein by reference)
(xiv) First Supplemental Indenture relating to the First Mortgage Bonds (filed as Exhibit 4.1 to the Form 10-Q, dated July 14, 1995 for the quarter ended May 31, 1995, and incorporated herein by reference)
(xv) Indenture dated as of June 30, 1995 between Registrant and United States Trust Company of New York, as Trustee (filed as Exhibit 4.2 to the Form 10-Q, dated July 14, 1995 for the quarter ended May 31, 1995, and incorporated herein by reference)
(xvi) Second Amended and Restated Investment Agreement relating to the First Mortgage Bonds (filed as Exhibit 4.3 to the Form 10-Q, dated July 14, 1995 for the quarter ended May 31, 1995, and incorporated herein by reference)
(xvii) Form of 15% Senior Subordinated Debentures due 2007 (included as part of Exhibit 4(xv)
(xviii) Form of Indenture relating to the 12.875% Senior Subordinated Notes due 2008, between Registrant and Fleet Bank, as Trustee (filed as Exhibit (4)(xviii) to the Registration Statement on Form S-1 (Registration No. 333- 541) filed with the Commission on April 1, 1996, and incorporated herein by reference)
(xix) Form of 12.875% Senior Subordinated Notes due 2008 (included as part of Exhibit 4(xviii))
(xx) Fourth Amendment dated March 14, 1996 to Stockholders Agreement dated as of December 24, 1986, as amended on April 15, 1987, June 22, 1987 and May 22, 1990
(10) Material Contracts
(i) Americold Corporation Key Employee Stock Option Plan, as amended, effective July 12, 1988 (filed as Exhibit (4)(i) to the Form 10-Q dated October 14, 1988, for the quarter ended August 31, 1988, and incorporated herein by reference)
(ii) Form of Nonstatutory Stock Option Agreement, as amended, entered into between Registrant and certain employees pursuant to the Americold Corporation Key Employee Stock Option Plan (filed as Exhibit (4)(ii) to the Form 10-Q dated October 14, 1988, for the quarter ended August 31, 1988, and incorporated herein by reference)
(iii) Second Amended and Restated Investment Agreement relating to the First Mortgage Bonds (see Exhibit (4)(xvi))
(iv) Form of Amended and Restated Security Agreement relating to the First Mortgage Bonds (see Exhibit (4)(viii))
(v) Stock Pledge Agreement dated as of February 28, 1989, between Registrant and The Connecticut National Bank (see Exhibit (4)(vi))
(vi) Stock Pledge Agreement dated as of February 28, 1989, between Registrant and United States National Bank of Oregon, a national banking association, acting as agent pursuant to Article IX of the Credit Agreement, as amended, dated as of April 30, 1987 (see Exhibit (4)(vii))
(vii) Americold Corporation Management Incentive Plan (filed as Exhibit (10)(iii) to the Form 10-K, dated May 27, 1988, for the fiscal year ended February 29, 1988, and incorporated herein by reference)
(viii) Form of Indemnity Agreement entered into between the Company and each of its officers and directors (filed as Exhibit (4)(x) to Form 10-K dated May 29, 1992 for the fiscal year ended February 29, 1992, and incorporated herein by reference)
(ix) Second Restated Stockholders' Agreement, dated as of December 24, 1986, as amended as of June 22, 1987 (see Exhibit (4)(iii))
(x) Third Amendment dated May 22, 1990 to Stockholders' Agreement dated as of December 24, 1986, as amended as of June 22, 1987 (see Exhibit (4)(iv))
(xi) Amended and Restated Indenture relating to the First Mortgage Bonds (see Exhibit (4)(v))
(xii) Form of Amended and Restated Cash Collateral Pledge Agreement relating to the First Mortgage Bonds (see Exhibit (4)(xi))
(xiii) Form of Amended Stock Pledge Agreement relating to the First Mortgage Bonds (see Exhibit (4)(xii))
(xiv) Indemnification Agreement dated October 31, 1991 between the Company and The First Boston Corporation (included as Exhibit (10)(xx) to the Registration Statement on Form S-2 (Registration No. 33-41963) filed with the Commission on July 31, 1991 and incorporated herein by reference)
(xv) Master Lease Agreement dated February 28, 1989, between Registrant and Americold Services Corporation (filed as Exhibit (19)(vi) to the Form 10-Q, dated October 14, 1992, for the quarter ended August 31, 1992, and incorporated herein by reference)
(xvi) Americold Stock Incentive Plan effective March 1, 1991 (filed as Exhibit(10)(xviii) to the Form 10-K dated May 29, 1992 for the fiscal year ended February 29, 1992, and incorporated herein by reference)
(xvii) Americold Transportation Systems Purchase of Joint Venture Interest, effective November 1, 1991, between Registrant and Superior Transportation Systems, Inc. (filed as Exhibit (19)(vii) to the Form 10-Q, dated October 14, 1992, for the quarter ended August 31, 1992, and incorporated herein by reference)
(xviii) Lease dated May 15, 1992, between Registrant and Oregon Warehouse Partners, a Texas general partnership (lease agreement for Ontario, Oregon facility) (filed as Exhibit (19)(viii) to the Form 10-Q, dated October 14, 1992, for the quarter ended August 31, 1992, and incorporated herein by reference)
(xix) Form of First Amendment to Master Lease Agreement between Registrant and Americold Services Corporation (filed as Exhibit (10)(xxxi) to the Registration Statement on Form S-1 (Registration No. 33-53584) filed with the Commission on March 2, 1993, and incorporated hereby by reference)
(xx) Nonstatutory Stock Option Agreement dated May 19, 1993 between the Company and John P. LeNeveu (filed as Exhibit (10)(i) to the Form 10-Q, dated January 13, 1994 for the quarter ended November 30, 1993, and incorporated herein by reference)
(xxi) Nonstatutory Stock Option Agreement dated December 17, 1993 between the Company and J. Roy Coxe (filed as Exhibit 10 (xxvii) to the Form 10-K, dated May 26, 1994 for the fiscal year ended February 28, 1994, and incorporated herein by reference)
(xxii) Second Amended and Restated Credit Agreement between the Company and United States National Bank of Oregon dated June 19, 1995 (filed as Exhibit 10.1 to the Form 10-Q, dated July 14, 1995 for the quarter ended May 31, 1995, and incorporated herein by reference)
(xxiii) Employment Agreement dated November 1, 1995, between the Company and Ronald H. Dykehouse (filed as Exhibit 10.1 to the Form 10-Q dated January 16, 1996 for the quarter ended November 30, 1995, and incorporated herein by reference)
(xxiv) Form of Employment Agreement dated August 1, 1995, between the Company and certain named executive officers, and schedule thereto (filed as Exhibit 10.2 to the Form 10-Q dated January 16, 1996 for the quarter ended November 30, 1995, and incorporated herein by reference)
(xxv) Form of Covenant Not to Compete and Consulting and Non-Disclosure Agreement between the Company and certain named executive officers, and schedule thereto (filed as Exhibit 10.3 to the Form 10-Q dated January 16, 1996 for the quarter ended November 30, 1995, and incorporated herein by reference)
(xxvi) Fourth Amendment dated March 14, 1996 to Stockholders' Agreement dated as of December 24, 1986, as amended on April 15, 1987, June 22, 1987 and May 20, 1990 (see Exhibit (4)(xx))
(xxvii) First Amendment to Americold Corporation Management Incentive Plan, amended as of April 24, 1996
(11) Statement regarding computation of per share earnings
(21) Subsidiaries of the Registrant
(23) Consent of KPMG Peat Marwick LLP
(27) Financial Data Schedule
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AMERICOLD CORPORATION
By: /s/ Ronald H. Dykehouse By: /s/ Joel M. Smith Ronald H. Dykehouse Joel M. Smith Chairman of the Board, Senior Vice President and President and Chief Chief Financial Officer Executive Officer (Principal Financial Officer)
By: /s/ Thomas R. Ferreira Thomas R. Ferreira Corporate Controller (Principal Accounting Officer)
Dated: May 28, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Company and in the capacities and on the dates indicated.
/s/ Ronald H. Dykehouse - ------------------------------- May 28, 1996 Ronald H. Dykehouse, Director
/s/ Joel M. Smith - ------------------------------- May 28, 1996 Joel M. Smith, Director
- ------------------------------- May , 1996 Frank Edelstein, Director
/s/ George E. Matelich - ------------------------------- May 28, 1996 George E. Matelich, Director
/s/ James C. Pigott - ------------------------------- May 22, 1996 James C. Pigott, Director
/s/ William A. Marquard - ------------------------------- May 22, 1996 William A. Marquard, Director
Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act.
No proxy statement with respect to any annual or other meeting of security holders has been sent to security holders. The Company does not solicit proxies.
KPMG Peat Marwick LLP Telephone 503 221 6500 Suite 2000 Telefax 503 796 7650 1211 South West Fifth Avenue Portland, OR 97204
INDEPENDENT AUDITORS' REPORT ----------------------------
The Board of Directors and Stockholders Americold Corporation:
We have audited the consolidated balance sheets of Americold Corporation as of the last day of February 1995 and 1996, and the related consolidated statements of operations, common stockholders' deficit and cash flows for each of the years in the three-year period ended the last day of February 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Americold Corporation as of the last day of February 1995 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended the last day of February 1996, in conformity with generally accepted accounting principles.
As discussed in the notes to the consolidated financial statements, Americold Corporation adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" and No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" during the year ended the last day of February 1994.
/s/ KPMG Peat Marwick LLP
Portland, Oregon April 29, 1996
Member Firm of Klynveld Peat Marwick Goerdeler
AMERICOLD CORPORATION
Consolidated Balance Sheets
Last day of February 1995 and 1996
(In Thousands, Except Share Data)
See accompanying notes to consolidated financial statements.
AMERICOLD CORPORATION
Consolidated Statements of Operations
Years ended last day of February 1994, 1995 and 1996
(In Thousands, Except Per Share Data)
See accompanying notes to consolidated financial statements.
AMERICOLD CORPORATION
Consolidated Statements of Common Stockholders' Deficit
Years ended last day of February 1994, 1995 and 1996
(In Thousands, Except Share Data)
See accompanying notes to consolidated financial statements.
AMERICOLD CORPORATION
Consolidated Statements of Cash Flows
Years ended last day of February 1994, 1995 and 1996
(In Thousands)
AMERICOLD CORPORATION
Notes to Consolidated Financial Statements
Last day of February 1995 and 1996
(1) Summary of Significant Accounting Policies ------------------------------------------
Accounting policies and methods of their application that significantly affect the determination of financial position, cash flows and results of operations are as follows:
(a) Business Description --------------------
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 49 refrigerated warehouses and its refrigerated transportation management unit. The Company has a wholly-owned warehousing subsidiary, Americold Services Corporation.
In addition, the Company operates a limestone quarry. This business is not significant to the Company as a whole and is not required to be reported as a separate industry segment.
(b) Principles of Consolidation ---------------------------
The consolidated financial statements include the accounts of Americold Corporation and its wholly-owned subsidiary. All significant intercompany transactions, profits and balances have been eliminated.
(c) Property, Plant and Equipment -----------------------------
Property, plant and equipment are stated at cost. Depreciation is generally provided on the straight-line method over the estimated useful lives of the respective assets ranging from 3 to 45 years for financial reporting purposes and on accelerated methods for income tax purposes where possible. Property held under capital leases (at capitalized value) is amortized on the straight-line method over its estimated useful life, limited generally by the lease period. The amortization of the property held under capital leases is included with depreciation expense. Estimated remaining useful lives are reviewed periodically for reasonableness and any necessary change is generally effected at the beginning of the accounting period in which the revision is adopted.
Maintenance and repairs are expensed in the year incurred; major renewals and betterments of equipment and refrigeration facilities are capitalized and depreciated over the remaining life of the asset.
(d) Cost in Excess of Net Assets Acquired -------------------------------------
On December 24, 1986, all the outstanding capital stock of the Company was acquired by a private group consisting of affiliates of Kelso & Company, Inc., certain institutional investors and certain key employees and members of the Company's management. The acquisition of the Company was accounted for as a purchase. An allocation of the purchase price was made to the acquired assets and liabilities based on their estimated fair market values at the date of acquisition. The unallocated purchase price is the Company's estimate of goodwill associated with the acquisition and is being amortized using the straight-line method over a period of 40 years.
On March 1, 1990, the Company acquired the warehousing business of an unrelated third party. The goodwill associated with the acquisition was being amortized using the straight- line method over a period of 15 years. On October 1, 1995, the Company returned the warehousing business acquired to the seller. The Company expensed the remaining unamortized goodwill.
The Company assesses the recoverability of the goodwill by determining whether the amortization of the goodwill balance over its remaining useful life can be recovered through projected undiscounted future net income. The amount of goodwill impairment, if any, is measured based on projected discounted future net income using a discount rate reflecting the Company's current average cost of funds.
(e) Debt Issuance Costs -------------------
Debt issuance costs incurred are amortized over the term of the related debt.
(f) Income Taxes ------------
Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws.
(g) Management Estimates and Assumptions ------------------------------------
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(h) Revenue Recognition -------------------
The Company's revenues are primarily derived from services provided to customers in both handling and storing frozen products and from freight services. Handling and storage revenue is based primarily upon the total weight of frozen product received into and held in storage and is recognized as earned, not as billed. Differences between revenue earned and revenue billed are recorded as deferred revenue. Approximately 50% of the handling revenue is deferred until the customer's products are released. The freight services revenues and direct costs are recognized upon delivery of freight.
(i) Income (Loss) Per Share -----------------------
Income (loss) per common share is computed by dividing net income (loss) less preferred dividend requirements, by the weighted average of common shares outstanding.
(j) Major Customers ---------------
Consolidated net sales to H. J. Heinz Company and subsidiaries amounted to approximately $35.8 million, $45.5 million and $108.1 million in the years ended the last day of February 1994, 1995 and 1996, respectively. No other customer accounted for 10% or more of consolidated net sales.
(k) Cash and Cash Equivalents -------------------------
All highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. There were cash equivalents of $25.2 million and $15.4 million as of the last day of February 1995 and 1996, respectively.
(l) New Accounting Standard -----------------------
The Company has not implemented the requirements of Financial Accounting Standard Board Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed Of," although it will be required to do so for fiscal years beginning March 1, 1996 and thereafter. This statement generally requires assessment of recoverability of an asset after events or circumstances that indicate an impairment to the asset and its future cash flows. Any impairment loss would be recognized as a one-time charge to earnings affecting results of operations, but would not affect the cash flow of the Company. At this time, the Company does not believe there will be an impairment loss to report.
The Company has not implemented the requirements of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), although it will be required to do so for fiscal years beginning March 1, 1996 and thereafter. 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 not implemented SFAS No. 123 nor has it determined whether to elect to continue using APB No. 25 and make the necessary SFAS No. 123 pro forma disclosures.
(2) Net Property, Plant and Equipment ---------------------------------
Net property, plant and equipment consists of the following (in thousands):
Last day of February ----------- 1995 1996 ---- ----
Land $ 31,087 $ 31,911 Refrigerated facilities, buildings and land improvements 433,667 450,402 Machinery and equipment 59,300 67,661 ------- ------- 524,054 549,974
Less accumulated depreciation 156,806 174,123 ------- -------
Net property, plant and equipment $367,248 $375,851 ======= =======
(3) Other Noncurrent Assets -----------------------
Other noncurrent assets consist of the following (in thousands):
Last day of February ----------- 1995 1996 ---- ---- Restricted funds held by trustee (note 7) $ 20,669 $ 5,037 Real estate owned 300 300 Security deposits 393 261 Other 5,012 3,364 ------- -------
$ 26,374 $ 8,962 ======= =======
(4) Leases ------
Assets under capital leases are included in net property, plant and equipment and consist of the following (in thousands):
Last day of February ----------- 1995 1996 ---- ----
Land, refrigerated facilities, buildings and land improvements $ 7,140 $ 7,075 Machinery and equipment 4,249 4,635 ------- ------- 11,389 11,710 Less accumulated depreciation 3,575 4,108 ------- -------
$ 7,814 $ 7,602 ======= =======
Future minimum lease payments under noncancelable leases for years ended after the last day of February 1996 are as follows (in thousands):
Year ending the last Capital Operating day of February leases leases -------------------- ------- ---------
1997 $ 1,726 $ 4,840 1998 3,957 4,266 1999 710 3,464 2000 538 2,380 2001 485 1,303 Thereafter 1,050 7,677 ------- -------
Total minimum lease payments $ 8,466 $ 23,930 =======
Less amounts representing interest 1,746 -------
Present value of net minimum lease payments $ 6,720 =======
Included in expenses for the years ended the last day of February 1994, 1995 and 1996 are approximately $9.1 million, $9.5 million and $7.7 million, respectively, of rental expense net of sublease rentals for operating leases.
The Company has arranged for up to $25.0 million in lease financing of which approximately $5.6 million was used as of the last day of February 1996.
(5) Accrued Expenses ----------------
Accrued expenses consist of the following (in thousands):
Last day of February ----------- 1995 1996 ---- ---- Accrued payroll $ 4,226 $ 3,565 Accrued vacation pay 2,504 2,462 Accrued taxes 1,043 1,022 Accrued employee stock ownership plan contribution 750 750 Other 2,822 3,805 ------- --------
Total accrued expenses $ 11,345 $ 11,604 ======== =======
(6) Other Current Liabilities -------------------------
Other current liabilities consist of the following (in thousands):
Last day of February ----------- 1995 1996 ---- ----
Workers' compensation $ 1,227 $ 991 Pension 10 1,100 Other 2,675 2,539 -------- -------
$ 3,912 $ 4,630 ======== ======= (7) Long-term Debt --------------
Long-term debt consists of the following (in thousands) (see note 16):
Last day of February ----------- 1995 1996 ---- ----
Capital lease obligations (9.5% and 9.3% weighted average interest rate, respectively) $ 7,455 $ 6,720 Senior subordinated debentures - 11% fixed, due May 1, 1997 112,581 - Senior subordinated debentures - 15% fixed, due May 1, 2007 - 115,000 First mortgage bonds, Series A - 11.45% fixed, due June 30, 2002, interest payments only to January 1, 1999 with principal amortization commencing July 1, 1999 150,000 140,000 First mortgage bonds, Series B - 11.5% fixed, due March 1, 2005, interest payments only to September 1, 2003 with a mandatory sinking fund payment of $88,125 on March 1, 2004 176,250 176,250 Mortgage notes payable - various interest rates ranging from 9.0% to 13.6% requiring monthly principal and interest payments with maturities ranging from 2004 to 2017 27,941 26,429 ------- ------- Total long-term debt 474,227 464,399 Less current maturities of long-term debt 31,315 2,732 ------- -------
Total long-term debt, less current maturities $ 442,912 $ 461,667 ======== ========
On July 2, 1987, the Company sold $300 million in first mortgage bonds. On March 9, 1993, the Company sold $176.25 million of the Company's 11.5% First Mortgage Bonds, Series B, due March 1, 2005. The Company used $150 million of the proceeds from the sale of the Series B bonds to purchase at par $150 million of outstanding first mortgage bonds. The remaining $150 million of such first mortgage bonds have been redesignated Series A First Mortgage Bonds (together with the Series B First Mortgage Bonds, the "First Mortgage Bonds). The remaining net proceeds of approximately $22.3 million were placed in escrow with the Mortgage Bond Trustee (note 3). The bonds are secured by mortgages or deeds of trust on 32 of the Company's facilities.
On June 30, 1995, the Company exchanged the 11% Senior Subordinated Debentures due 1997 for 15% Senior Subordinated Debentures due 2008, repurchased $10.0 million of its 11.45% Series A First Mortgage Bonds due 2002, and extended its existing credit agreement with its principal bank (note 15).
The available amount under the bank credit agreement was $21.2 million as of the last day of February 1996, of which $7.2 million of letters of credit were outstanding. No cash borrowings were outstanding.
The Company entered into an investment agreement in connection with the issuance of the First Mortgage Bonds which, like the bank credit agreement, requires the Company to meet certain affirmative and restrictive covenants. Significant restrictive items include, among others, limitations on additional indebtedness, liens, dividends, capital expenditures, asset dispositions, lease commitments and investments. Also, certain "pro forma debt service" ratios, net worth levels and senior debt to net worth ratios must be maintained. The Company was in compliance with the covenants.
As of the last day of February 1996, aggregate annual maturities of long-term debt are as follows (in thousands):
Year ended the last day of February -------------------
1997 $ 2,732 1998 5,310 1999 2,537 2000 32,635 2001 38,840 Thereafter 382,345 -------
$ 464,399 ========
(8) Employee Benefit Plans ----------------------
(a) Defined Benefit Pension Plans -----------------------------
The Company has defined benefit pension plans which cover substantially all employees other than union employees covered by union pension plans under collective bargaining agreements. Benefits under these plans are based on years of credited service and compensation during the years preceding retirement or on years of credited service and established monthly benefit levels.
Pension expense for all plans, including plans jointly administered by industry and union representatives totaled $1.4 million, $1.4 million and $1.7 million for years ended the last day of February 1994, 1995 and 1996, respectively. Actuarial valuations for defined benefit plans are performed as of the end of the plan year. The most recent actuarial valuations are as of the last day of February 1996.
The funded status of the Company's defined benefit pension plans and the accrued pension expense amounts recognized in the Company's consolidated financial statements, within other noncurrent liabilities, as of the last day of February 1995 and 1996 are as follows (in thousands):
Net periodic pension expense for the years ended the last day of February 1994, 1995 and 1996 includes the following components (in thousands):
Last day of February 1994 1995 1996 ---- ---- ----
Service cost - benefits earned during the period $ 1,013 $ 1,107 $ 1,165 Interest cost on projected benefit obligation 2,094 2,121 2,293 Actual return on plan assets (2,202) (2,554) (4,301) Net amortization and deferral (233) (143) 1,541 -------- -------- --------
Net periodic pension expense $ 672 $ 531 $ 698 ======== ======== ========
Actuarial assumptions used for determining pension liabilities were:
Last day of February 1994 1995 1996 ---- ---- ---- Discount rate for interest cost 8.0% 8.5% 8.0% Rate of increase in future compensation levels 4.0% 4.0% 4.0% Expected long-term rate of return on plan assets 10.5% 10.5% 10.5%
Plan assets are assigned to several investment management companies and are invested in various equity and fixed fund investments in accordance with the Company's investment policy.
(b) Employee Stock Ownership Plan -----------------------------
The Company established an employee stock ownership plan, effective March 1, 1987, which is intended to provide qualifying employees an equity interest in the Company, as well as potential retirement benefits. The trust established under the plan is designed to invest primarily in the Company's stock. Contributions by the Company, in the form of common or preferred stock of the Company, or cash, or a combination thereof, may be made to the trustee on behalf of eligible participants for each plan year as determined by the Company's Board of Directors. Participating employees with vested benefits, upon retirement or termination, have the option of retaining the stock or selling it back to the Company at its fair market value.
(c) Postretirement Benefits Other Than Pensions -------------------------------------------
In addition to providing retirement benefits, the Company provides certain health care and life insurance benefits for retired employees. These benefits are provided to substantially all employees other than certain union employees who have elected not to participate.
Effective March 1, 1993, the Company adopted Financial Accounting Standards Board Statement of Financial Accounting No. 106 (Statement 106), which required that the expected cost of providing such benefits be accrued over the years that the employee renders service, in a manner similar to the accounting for pension benefits. As permitted under Statement 106, the Company elected to recognize this change in accounting principle on the immediate recognition basis. The cumulative effect as of March 1, 1993 of adopting the standard resulted in a decrease in deferred taxes of approximately $1.5 million, an increase in accrued postretirement benefits of approximately $3.9 million, and a one-time non-cash charge to fiscal 1994 earnings of approximately $2.4 million.
The total of accumulated postretirement benefits obligation (APBO), which is an unfunded obligation, is as follows:
Last day of February 1994 1995 1996 ---- ---- ----
Retirees $ 2,339 $ 2,314 $ 2,375 Active employees 1,573 1,511 1,832 -------- -------- --------
Total APBO $ 3,912 $ 3,825 $ 4,207 ======== ======== ========
The components of net periodic postretirement expense for the year ended the last day of February are as follows (in thousands):
1994 1995 1996 ---- ---- ----
Service cost benefits earned in period $ 90 $ 104 $ 114 Interest cost on APBO 329 313 334 Amortization of unamortized prior service cost - (22) (22) ------- ------- ------- $ 419 $ 395 $ 426 ======= ======= =======
The discount rate used to determine the APBO and net periodic expense as of February 28, 1994 was 8.5%, as of February 28, 1995 was 9%, and as of February 29, 1996 was 8.5%.
For fiscal 1996, an 11.0% increase in the medical cost trend rate was assumed. This rate is projected to decrease incrementally to 5.5% after nine years. A 1% increase in the medical trend rate would increase the APBO by $.1 million and increase the net periodic expense by a negligible amount.
9. Common Stockholders' Equity ---------------------------
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 February 1996 follows:
Number of Shares Exercise Number of Shares Expiration Subject to Option Price Exercisable Date ----------------- ----- ----------- ----
89,656 $10.00 89,656 May 1998 100,000 $18.95 100,000 June 2000 30,000 $21.88 12,000 May 2003 30,000 $20.40 12,000 December 2003
No options had been exercised as of the last day of February 1996.
10. Preferred Stock ---------------
The Company has contributed shares of its Series A, variable rate, cumulative preferred stock to the Americold Employee Stock Ownership Plan (ESOP). The preferred stock is redeemable by participants of the plan (note 8). As of the last day of February 1995 and 1996, dividends not declared on the Company's cumulative preferred stock total approximately $496,000 and $477,000, respectively.
11. Income Taxes ------------
Effective March 1, 1993, the Company adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 109 (Statement 109) which required a change in the method of providing for income taxes. As permitted under Statement 109, the Company elected to recognize this change in accounting principle on the immediate recognition basis. The cumulative effects as of March 1, 1993 of adopting Statement 109 were an increase in net fixed assets of approximately $31.2 million (the amount of a previous write-down of assets under APB No. 16 as a result of the purchase of the Company in December 1986, net of subsequent depreciation), an increase in deferred income taxes of $93 million, and a one-time, non-cash charge of approximately $61.8 million in fiscal 1994.
The provision (benefit) for income taxes consists of the following (in thousands):
1994 1995 1996 ---- ---- ----
Federal: Current $ 500 $ 2,867 $ - Deferred (1,557) 1,494 (2,858) -------- -------- -------- (1,057) 4,361 (2,858) -------- -------- --------
State: Current 68 820 - Deferred (194) 46 (568) -------- -------- --------
$ (1,183) $ 5,227 $ (3,426) ======== ======== ========
Following is a reconciliation of the difference between income taxes computed at the federal statutory rate and the provision for income taxes (in thousands):
1994 1995 1996 ---- ---- ----
Computed income tax expense (benefit) at federal statutory rate $ (4,278) $ 3,777 $ (4,027) State and local income taxes, net of federal income tax benefits (418) 563 (369) Adjustment to deferred tax assets and liabilities for changes in enacted rates 2,627 - - Amortization of cost in excess of net assets acquired 886 887 970
-------- -------- --------
Provision (benefit) for income taxes $ (1,183) $ 5,227 $ (3,426) ======== ======== ========
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the related amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities as of the last day of February 1995 and 1996 are as follows (in thousands):
1995 1996 ---- ---- Deferred tax liabilities: Property, plant and equipment, due to differences in depreciation and prior accounting treatment $(113,457) $(110,574) Other, net (400) - -------- --------- Total deferred tax liabilities $(113,857) $(110,574) -------- --------
Deferred tax assets: Receivables, due to allowance for doubtful accounts 123 86 Employee compensation and other benefits 1,742 1,879 Capital leases, net 1,936 1,714 Postretirement benefits other than pensions, due to accrual for financial reporting purposes 1,500 1,650 Alternative minimum tax credit carryforwards 3,122 2,865 Other, net 656 1,659 --------- ---------
Total deferred tax assets 9,079 9,853 --------- ---------
Net deferred tax liability before valuation allowance (104,778) (100,721)
Deferred tax asset valuation allowance (1,320) (1,320) --------- ---------
Net deferred tax liability $(106,098) $(102,041) ========= =========
The valuation allowance for deferred tax assets as of March 1, 1994 was $1.3 million. The valuation allowance is required to reduce the amount of deferred tax assets to an amount which will more likely than not be realized.
At February 29, 1996, the Company has an alternate minimum tax credit carryforward of approximately $2.9 million available to offset future regular taxes in excess of future alternative minimum taxes.
12. Extraordinary Items -------------------
In conjunction with the fiscal year 1994 retirement of the $150 million of first mortgage bonds as discussed in note 7, unamortized issuance costs of approximately $3.0 million were written off, resulting in an extraordinary loss, net of taxes, of approximately $1.8 million.
In conjunction with the exchange of the senior subordinated debentures and the repurchase of the $10.0 million of first mortgage bonds in fiscal 1996, as discussed in note 15, 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.
13. Disclosures About The Fair Value of Financial Instruments ---------------------------------------------------------
Cash, Trade Receivables, Other Receivables, Accounts Payable and Accrued Expenses ------------------------------------------------------------
The carrying amount approximates fair value because of the short maturity of these instruments.
Long-Term Debt --------------
The fair values of each of the Company's long-term debt instruments are based on (a) the amount of future cash flows associated with each instrument discounted using the Company's current borrowing rate for similar debt instruments of comparable maturity or (b) in the case of the first mortgage bonds - Series B and senior subordinated debentures, market price (in thousands).
As of the last day of February 1996 ------------------ Estimated fair Carrying market amount value ------ ------
Senior subordinated debentures $115,000 $116,150 First mortgage bonds - Series A 140,000 140,000 First mortgage bonds - Series B 176,250 179,334 Mortgage notes payable 26,429 26,429 Limitations ----------- Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
14. Gain on Insurance Settlement ----------------------------
Gain on insurance settlement of approximately $17.0 million relates to the Company's settlement of its first party claims with its insurance carriers for business interruption, property damage and out-of-pocket expenses with respect to the December 1991 fire at the Company's Kansas City, Kansas warehouse facility. No previous income recognition was determinable until the Company had settled all of the lawsuits and claims related to the fire.
15. Plan of Reorganization Under Chapter 11 ---------------------------------------
On May 9, 1995, the Company filed a prepackaged plan of reorganization (the "Plan") under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Oregon (the "Court"). The principal purpose of the Plan was to reduce the Company's short-term cash requirements with respect to payments due on its subordinated indebtedness and to adjust certain restrictive financial covenants and certain other provisions contained in the Amended and Restated Investment Agreement, dated March 2, 1993, between the Company and Metropolitan Life Insurance Company ("MetLife"). On the filing date, the Plan had been approved by both of the classes of debtholders entitled to vote on the Plan.
On June 19, 1995, the Court approved the Company's Disclosure Statement dated April 14, 1995 and the Company's solicitation of votes to accept or reject the Plan, and confirmed the Plan. On June 30, 1995, the Plan became effective, pursuant to which:
(i) each holder of the Company's 11% Senior Subordinated Debentures due 1997 was entitled to receive a corresponding amount of new 15% Senior Subordinated Debentures due 2007, and an amount in cash equal to the accrued but unpaid interest on the old Senior Subordinated Debentures through June 29, 1995; and
(ii) the Company repurchased on June 30, 1995, $10.0 million of its 11.45% Series A First Mortgage Bonds due 2002 at par and paid an agreement modification fee of $2.25 million to MetLife in conjunction with amending the Amended and Restated Investment Agreement, dated March 2, 1993, between the Company and MetLife.
In addition, the Company has:
(a) Amended on June 30, 1995, the existing credit agreement with its primary bank, which provides an aggregate availability of $27.5 million, to be used for any combination of letters of credit (up to $10.0 million) and revolving cash borrowings, subject to borrowing base limitations. The new credit agreement is secured by the Company's trade receivables and, at the Company's option, mortgages on certain of the Company's warehouse properties.
(b) Rejected certain lease agreements relating to four warehouse facilities at Watsonville, Oakland and San Francisco, California; and Chicago, Illinois.
In November 1990, the American Institute of Certified Public Accountants issued Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" (SOP 90-7). Under SOP 90-7, the financial statements for periods including and subsequent to filing a Chapter 11 petition are structured to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the Company. Since the Company was in Chapter 11 proceedings for less than two months, and since the Plan did not differentiate between prepetition and post- petition liabilities and did not include any forgiveness of liabilities, the Company has elected not to follow the presentation proposed by SOP 90-7. The Company has expensed all professional fees and similar types of expenditures incurred through the last day of February 1996 directly relating to the Chapter 11 proceedings as "reorganization expenses." In late fiscal 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. The outcome of any damage claim resulting from the remaining lease rejection related to the Chicago warehouse facility cannot be predicted at this time, but the Company does not believe the resolution of such claim will be material.
16. Subsequent Events -----------------
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.
SCHEDULE II
AMERICOLD CORPORATION
Valuation and Qualifying Accounts
Years ended the last day of February 1994, 1995 and 1996
(In thousands)
AMERICOLD CORPORATION FORM 10-K
EXHIBIT INDEX
Exhibit Page - -------- ----
4.1 (1) Fourth Amendment dated March 14, 1996 to Stockholders' Agreement dated as of December 24, 1986, as amended on April 15, 1987, June 22, 1987 and May 20, 1990
10.1 (1) First Amendment to Americold Corporation Management Incentive Plan, amended as of April 24, 1996
(11) Statement re Computation of Per Share Earnings
(21) Subsidiary of the Registrant
(23) Consent of KPMG Peat Marwick LLP
(27) Financial Data Schedule
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION - ------------
Americold provides integrated logistics services for the frozen food industry consisting of warehousing and transportation management. These services are provided through the Company's network of 49 refrigerated warehouses and its refrigerated transportation management unit.
DEVELOPMENT OF TRANSPORTATION MANAGEMENT SERVICES - In recent quarters, the Company has experienced increased interest by customers in procuring transportation management services from the Company. In this regard, the Company entered into arrangements in the first half of fiscal 1996 pursuant to which it is providing such services to three subsidiaries of one large customer. Transportation management services provided to these three customers account for substantially all of the increase in the Company's transportation management revenues in fiscal 1996. 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 to support the distribution of frozen food products from a single provider.
The maintenance and continued growth of transportation management services revenues is dependent upon meeting customer expectations. Due to the complexity of implementing and coordinating several interrelated systems, the Company encountered start-up difficulties in achieving agreed-upon service levels with respect to the introduction of certain transportation management services for certain customers in the latter part of fiscal 1996. In light of remedial actions taken by the Company and based on discussions with such customers, the Company believes that it has overcome such difficulties. There can be no assurance, however, that the Company will not encounter difficulties in the future or that such difficulties, if encountered, would not adversely affect operating income or customer relationships. The Company believes, however, that its transportation management activities may lead to stronger customer relationships and increased revenues in the higher-margin warehousing business.
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 REFRIGERATED WAREHOUSE PROPERTIES - The Company continually evaluates the need for warehouse space and intends to pursue growth of its refrigerated warehouse business both by expanding its network of warehouses and by expanding existing facilities in response to customer requirements. Since August 1994 (mid-fiscal 1995), the Company has added approximately 15.1 million cubic feet of storage capacity in five locations. Two of such facilities became operational in fiscal 1995, and one in the second quarter and two in the third quarter of fiscal 1996. The increase, net of warehouse closures discussed below, represents a 1.4% increase in available warehouse space. The Company is currently working toward the development of several new warehouses which include the acquisition of 2.1 million cubic feet and the construction of 16.8 million cubic feet of new refrigerated warehouse space. The Company intends to finance such expansion primarily through lease financing pursuant to an existing commitment and from other financing sources. See " - Liquidity and Capital Resources - Capital Resources."
Since August 1994, the Company has reduced the amount of available refrigerated warehouse space by approximately 12 million cubic feet due to the sale of one property, termination of four operating leases in the Prepackaged Bankruptcy in the third quarter of fiscal 1996 and the non-renewal of three other operating leases. The Company expects that the effects of the closure or disposition of such non-strategic facilities will have a positive effect on future gross operating margin as a percentage of net sales.
PREPACKAGED BANKRUPTCY - During the first quarter of fiscal 1996, the Company solicited acceptance of the Plan in the Prepackaged Bankruptcy. The principal purpose of the Plan was to reduce the Company's short-term cash requirements with respect to payments due on its subordinated indebtedness by extending the maturity on such indebtedness from May 1997 to November 2007 and to adjust certain restrictive financial covenants and certain other provisions contained in an agreement with one of its principal lenders. Each holder of the Company's 11% Senior Subordinated Debentures due 1997 ("11% Debentures") received a corresponding amount of the Company's new 15% Senior Subordinated Debentures due 2007 ("15% Debentures") at par, plus accrued but unpaid interest. The Company received approval from the classes of debtholders entitled to vote on the Plan and, on May 9, 1995, filed the Plan as approved with the United States Bankruptcy Court for the District of Oregon. On June 19, 1995, the Court approved the Company's Plan, and on June 30, 1995, the Plan became effective. The Company was debtor-in-possession during the proceedings. See -"Liquidity and Capital Resources - Capital Resources - Effect of Prepackaged Bankruptcy."
For fiscal 1996, the Company incurred approximately $7.3 million in reorganization fees and expenses related to the Prepackaged Bankruptcy. In addition, the write-off of unamortized original issue discount and unamortized issuance costs related to the exchange of the 11% Debentures and the repurchase of $10.0 million in principal amount of the Company's 11.45% First Mortgage Bonds, Series A Bonds due 2002 ("Series A Bonds") in the Prepackaged Bankruptcy resulted in an extraordinary loss, net of taxes, of approximately $1.8 million in the same period.
OFFERING OF SENIOR SUBORDINATED NOTES - Subsequent to the end of fiscal 1996, 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 all of the 15% Debentures.
EFFECT OF THE ACQUISITION - In December 1986, Kelso, certain institutional investors and the Management Group purchased the Company. The Company's operating results and cash flow have been and will continue to be materially affected by the indebtedness incurred to finance the Acquisition. For fiscal 1995 and 1996, interest expense, principally related to debt incurred to finance the Acquisition, totaled $55.3 million and $56.6 million, respectively.
EFFECT OF KANSAS CITY FIRE - In December 1991 a fire began at the Company's Kansas City, Kansas underground warehouse, the Company's largest warehouse facility. Due to its underground location, the fire required an extended period to extinguish. As a result of the fire, the Company's warehousing activities in Kansas City have operated at a substantially reduced level due to loss of public storage and lease customers. Although a substantial portion of the Kansas City warehouse facility has been restored to its pre-fire condition, the Company is unable to predict its ability to return the facility to pre-fire operating volumes and profits. The Company settled its first party claims with its insurance carriers for business interruption losses, property damage and out-of-pocket expenses with respect to the fire and recognized in the third quarter of fiscal 1995 approximately $17.0 million as a gain on insurance settlement.
HISTORICAL INCOME STATEMENT INFORMATION - ---------------------------------------
The following table sets forth, for the fiscal years ended the last day of February 1994, 1995 and 1996, respectively, certain consolidated financial data for the Company, expressed as a percentage of net sales, and the percentage changes in the dollar amount as compared to the prior period.
RESULTS OF OPERATIONS - ---------------------
NET SALES - The Company's net sales increased 30.0% from $215.2 million for fiscal 1995 to $279.8 million for fiscal 1996, reflecting a substantial increase in transportation management sales as well as a 4.6% increase in warehousing sales.
Warehousing sales increased from $192.5 million for fiscal 1995 to $201.4 million for fiscal 1996, principally due to a 4.1% increase in storage revenue and a 7.8% increase in handling revenue. The increase in storage revenue is primarily due to price increases and changes in product mix, as storage volume remained stable at approximately 1.56 billion pounds stored on average per month in each of the two years.
The 7.8% increase in handling revenue resulted primarily from a 4.3% increase in volume of product handled, with the remaining increase due to price increases and changes in product mix. For fiscal 1995, 20.0 billion pounds of product were handled by the Company compared with 20.9 billion pounds during fiscal 1996.
Although the Company has previously disclosed a customer's intention to relocate by late fiscal 1997 a significant portion of the customer's storage volume from one of the Company's warehouses to a new warehouse to be constructed by a competitor closer to one of the customer's production facilities, the Company has been advised that the customer has reassessed such relocation. The customer has notified the Company that it intends to maintain its current levels of storage volume in the Company's warehouse through at least the first quarter of fiscal 1998. Also, the Company believes that the customer has not reached a final decision to relocate such business. The Company believes that if the final decision is made to relocate such business, the Company will be allowed to participate in proposals to provide warehousing services in such new location. If such storage volume is relocated, the Company believes that it will secure replacement business to recover a substantial portion of the gross operating margin represented by such storage volume, but there can be no assurance in this regard.
Transportation management sales increased 312.2% from $18.0 million for fiscal 1995 to $74.2 million for fiscal 1996, due to the outsourcing to the Company of significant additional transportation management responsibilities by three subsidiaries of Heinz.
Other non-logistics sales (quarry sales) decreased 11.0% from $4.7 million for fiscal 1995 to $4.2 million for fiscal 1996. The Company has terminated its previously disclosed discussions related to the possible sale of the quarry and is currently considering its options with respect to such operations.
Net sales increased 8.2% from fiscal 1994 to fiscal 1995. The increase in warehousing sales was primarily the result of increases in storage and handling revenue due to the increased storage of vegetables attributable to the strong vegetable harvest in the Midwest in fiscal 1995. Transportation management sales increased 42.9% in fiscal 1995 due to the start-up by one customer of a distribution program during the year.
COST OF SALES - Cost of sales increased 41.1% from $138.1 million for fiscal 1995 to $194.9 million for fiscal 1996. The increased volume of transportation management services, which required increases in transportation capacity purchased from carriers and the addition of new employees, resulted in an approximately $54.7 million increase in cost of sales. In addition, the cost of sales decreased as a result of warehouse additions and closures in the net amount of $1.5 million. See " - Introduction - Development of Refrigerated Warehouse Properties".
Cost of sales as a percentage of net sales increased from 64.2% for fiscal 1995 to 69.7% for fiscal 1996, as handling and transportation management sales, which each have high variable cost requirements, increased from 41.2% of net sales in the prior period to 53.8% in the more recent period.
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 its warehousing services. The Company believes, however, that its transportation management activities may lead to stronger customer relationships and increased revenues in the higher-margin warehousing business.
Cost of sales increased 9.4% from fiscal 1994 to fiscal 1995 as a result of the increased transportation management sales and increased handling volume at the Company's facilities in the more recent period.
SELLING AND ADMINISTRATIVE EXPENSES - Selling and administrative expenses increased 9.9% from $26.0 million for fiscal 1995 to $28.5 million for fiscal 1996. The increase primarily reflects an increase of approximately $1.4 million in salaries and related fringe benefits. Selling and administrative expenses as a percentage of net sales decreased from 12.1% in fiscal 1995 to 10.2% in fiscal 1996 due to the increase in transportation management sales which did not require a corresponding increase in selling and administrative expenses.
Selling and administrative expenses decreased 4.2% from $27.1 million for fiscal 1994 to $26.0 million for fiscal 1995. The decrease primarily reflects a decrease of approximately $0.5 million in professional fees in the more recent period.
GROSS OPERATING MARGIN - As a result of the increase in warehousing sales, along with the closures of the underperforming warehouse facilities and the increase in transportation management sales, gross operating margin increased 10.4% from $47.8 million for fiscal 1995 to $52.8 million for fiscal 1996.
Gross operating margin increased 11.3% from $43.0 million for fiscal 1994 to $47.8 million for fiscal 1995 as a result of the increased warehouse business.
INTEREST EXPENSE - Interest expense increased from $55.3 million for fiscal 1995 to $56.6 million for fiscal 1996 as a result of higher overall interest rates partially offset by slightly lower overall borrowings. The increase in interest rates resulted from the exchange in the Prepackaged Bankruptcy of the Company's 11% Debentures for the new 15% Debentures. Subsequent to the end of fiscal 1996, the Company refinanced the 15% Debentures. See "Introduction - Offering of Senior Subordinated Notes," above.
Interest expense decreased from $55.4 million in fiscal 1994 to $55.3 million for fiscal 1995 as a result of slightly lower average borrowings.
GAIN ON INSURANCE SETTLEMENT - The one-time gain in fiscal 1995 reflects the gain on insurance settlement of approximately $17.0 million related to the Company's settlement with its insurance carriers of its first party claims for business interruption losses, property damage and out-of-pocket expenses incurred with respect to the Kansas City fire.
REORGANIZATION EXPENSES - Reorganization expenses of approximately $7.3 million reflect the expenses incurred in fiscal 1996 for professional services related to the Prepackaged Bankruptcy including investment banking, accounting and legal fees.
INCOME (LOSS) - The Company's income before income taxes and extraordinary item for fiscal 1995 was $10.8 million, compared to a loss of $11.5 million for fiscal 1996. The decrease in income between the two periods is due to the approximately $7.3 million in fiscal 1996 of reorganization expenses incurred during fiscal 1996 and the recognition by the Company of an approximately $17.0 million gain in fiscal 1995 from the insurance settlement related to the Kansas City, Kansas fire. These two factors were offset in part by improved earnings from operations in fiscal 1996.
The Company's loss before income taxes, extraordinary item and cumulative effect of accounting changes for fiscal 1994 was $12.2 million compared to income of $10.8 million in fiscal 1995, primarily the result of the insurance settlement referred to above.
EXTRAORDINARY ITEM - In connection with the exchange of the Company's 11% Debentures for the 15% Debentures and the repurchase of the $10.0 million of Series A Bonds in the Prepackaged Bankruptcy, unamortized original issue discount of approximately $2.0 million and unamortized issuance costs of approximately $1.0 million were written off, resulting in an extraordinary loss, net of taxes, of approximately $1.8 million in fiscal 1996.
INFLATION - The Company's operations have not been, nor are they expected to be, materially affected by inflation or changing prices.
NEW ACCOUNTING STANDARDS - Effective March 1, 1993, the Company implemented Financial Accounting Standards Board Statement of Financial Accounting Standard No. 106, "Employer's Accounting for Postretirement Benefits Other Than Pensions", and Statement No. 109, "Accounting for Income Taxes."
The Company has not implemented the requirements of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," although it will be required to do so for fiscal years beginning March 1, 1996 and thereafter. SFAS No. 123 generally requires assessment of recoverability of an asset after events or circumstances that indicate an impairment to the asset and its future cash flows. Any impairment loss would be recognized as a one-time charge to earnings affecting results of operations, but would not affect the cash flow of the Company. At this time, the Company does not believe there will be an impairment loss to report.
The Company has not implemented the requirements of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), although it will be required to do so for fiscal years beginning March 1, 1996 and thereafter. 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 not implemented SFAS No. 123 nor has it determined whether to elect to continue using APB No. 25 and make the necessary SFAS No. 123 pro forma disclosures.
LIQUIDITY AND CAPITAL RESOURCES - -------------------------------
The Company believes it has sufficient liquidity and capital resources to meet its 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 to fund limited growth in warehouse investments. Anticipated growth in the volume of transportation management services is not expected to consume significant capital resources. Although the Company's internal resources for new warehouse acquisition or construction are limited, the Company has arranged for up to $25.0 million in lease financing for new warehouse facilities from a finance company (the "Lease Line"). See " - Capital Resources." The Company plans to finance its warehouse expansion program principally through lease financing, and the Company believes it has the ability to finance all of its fiscal 1997 expansion projects from the Lease Line, similar lease financing or mortgage 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 interim sources of financing.
LIQUIDITY - ---------
OPERATING CASH FLOW - Net cash flow from operating activities, representing cash provided from operations, is used to fund capital expenditures and meet debt service requirements. Operating cash flow reported for any one period is sensitive to the timing of the collection of receivables and the payment of payables.
Net cash flow from operating activities as reported in the Company's consolidated financial statements decreased from $12.7 million for fiscal 1995 to $12.6 million for fiscal 1996. The decrease is due to the reorganization fees and expenses associated with the Prepackaged Bankruptcy and changes in certain working capital items. The Company's operating cash flow would have been $19.9 million for fiscal 1996 without reorganization fees and expenses of $7.3 million. Funds provided from operations (gross operating margin plus depreciation, amortization and employee stock ownership plan expense) for fiscal 1994, 1995 and 1996 totaled $65.9 million, $71.6 million and $76.6 million, respectively. Interest expenses, net of amortization of original issue discount, totaled $54.2 million, $54.0 million and $56.2 million, respectively. As a result of increased taxable earnings and the reversal of deferred tax liabilities, the Company anticipates that cash tax payments will increase. See Note 11 of Notes to Consolidated Financial Statements as of the last day of February 1995 and 1996.
WORKING CAPITAL - The Company's working capital position at fiscal 1996 year end was $3.2 million. This position compares to a negative $14.9 million at fiscal 1995 year end. Working capital increased due to the effects of the Prepackaged Bankruptcy. Under the Plan, approximately $28.8 million of senior subordinated debt payments were postponed from May 1995 until fiscal 2008, which reduced the current portion of long-term debt. Partially offsetting this decrease in the current portion of long-term debt, as part of the reorganization proceedings, the Company repurchased for cash $10.0 million in principal amount of long-term Series A Bonds.
The Company's typical negative working capital position has not historically affected its ability to meet its cash operating needs. The Company, however, in fiscal 1995 experienced a shortfall in working capital necessary to make the fiscal 1995 and fiscal 1996 sinking fund payments required with respect to the 11% Debentures, leading to the Prepackaged Bankruptcy. See "Capital Resources - Effect of Prepackaged Bankruptcy" below.
CAPITAL RESOURCES - -----------------
The existing credit agreement ("Bank Credit Agreement") with the Company's principal bank provides an aggregate availability of $27.5 million, which may be used for any combination of letters of credit (not to exceed $10.0 million) and revolving cash borrowings for general working capital purposes, subject to borrowing base limitations. The borrowing base for both cash borrowings and letter of credit amounts equals 85% of eligible accounts receivable pledged to the bank plus, at the option of the Company, 70% of the value of all real property mortgaged to the bank, up to a maximum of $27.5 million. The Company has not mortgaged any properties under the Bank Credit Agreement. The Bank 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 Bank Credit Agreement also contains certain restrictive covenants, including financial covenants.
Based on eligible accounts receivable as of February 29, 1996, the Company had an available credit line of $21.2 million, of which $7.2 million was used for letters of credit, principally related to leasing commitments and workers' compensation reserves. No cash borrowings were outstanding.
The Lease Line, for which the financing company signed a commitment letter in November 1995, is available to finance, subject to meeting certain conditions, the construction or acquisition of new warehouses or the expansion of existing warehouses which are not pledged as collateral security for senior debt. The Company intends to finance several of the planned warehouse additions with the new Lease Line. The terms of each lease financing will be separately established. The Lease Line commitment expires December 31, 1996. The lease rate will be fixed at the time of funding each property, and will be based on a spread over seven- year Treasury Bills. The first funding of approximately $5.6 million closed in late fiscal 1996 with respect to the Company's recently completed Grand Island, Nebraska facility.
CAPITAL EXPENDITURES - Expenditures for property, plant and equipment for fiscal 1996 totaled $35.0 million, of which approximately $26.7 million related to warehouse expansions. Of the $26.7 million, all but approximately $.2 million of the expenditures were funded from sources other than net cash flow from operations. Two new warehouse facilities, in Pasco, Washington and Rochelle, Illinois, were funded with approximately $18.6 million of escrow funds established with the proceeds from the sale of the Company's 11.5% First Mortgage Bonds, Series B due 2005 and available under the indenture governing the Company's first mortgage bonds ("Bond Indenture"); and the Grand Island, Nebraska facility was funded from the Lease Line.
As a result of the expenditures described above, the Company has exhausted substantially all of the escrowed funds under the Bond Indenture, except for approximately $4.8 million from the insurance proceeds from the Kansas City fire. In late fiscal 1996, the Company submitted to the trustee under the Bond Indenture an accounting of restoration expenses incurred to date at the Kansas City warehouse facility. Based on such submission, the Company has requested that the $4.8 million be released to the Company.
The projects the Company is currently exploring for fiscal 1997 would require the expenditure of up to $37.4 million, of which $19.6 million is presently committed. The Company plans to finance its warehouse expansion program principally through lease financing, and the Company believes it has the ability to finance all of its fiscal 1997 expansion projects from the Lease Line, similar lease financing or mortgage financing. Certain capital expenditures originally planned for late fiscal 1996 will be deferred until early fiscal 1997, and certain capital expenditures originally planned for early fiscal 1997 are expected to be deferred until late fiscal 1997, resulting in corresponding delays in the realization of benefits from such investments.
Expenditures, including capital leases, for property, plant and equipment for fiscal years 1994, 1995 and 1996 totaled $9.9 million, $14.3 million and $35.0 million, respectively, as summarized in the following table:
Historical Capital Expenditures (In Millions)
EFFECT OF PREPACKAGED BANKRUPTCY - The Bankruptcy Court approved the Plan on June 19, 1995 and the Plan became effective on June 30, 1995. The Plan as approved provided, among other things, that each holder of the Company's then outstanding 11% Debentures was entitled to receive a corresponding amount of the Company's new 15% Debentures at par, plus accrued but unpaid interest; that the holders of the Company's senior debt were not adversely affected by the Prepackaged Bankruptcy; and that the prior investment agreement was superseded by the Second Amended and Restated Investment Agreement dated as of May 5, 1995 between the Company and Metropolitan Life Insurance Company.
The Company rejected in the Prepackaged Bankruptcy certain operating lease agreements relating to four warehouse facilities at Watsonville, Oakland and San Francisco, California; and Chicago, Illinois. Properties subject to the leases accounted for approximately $11.7 million of sales and a minimal amount of gross operating margin in fiscal 1995. In late fiscal 1996, the Company settled all lease rejection issues with the lessor of three of the facilities located in Watsonville, Oakland and San Francisco, California. Such settlement did not involve the payment of any damages by the Company. The outcome of any damage claim resulting from the remaining lease rejection of the Chicago warehouse facility cannot be predicted at this time, but the Company does not believe that the resolution of such claim will be material.
The Company believes that the effect of the Plan has been to improve the Company's financial position by postponing the maturity of its subordinated debt and increasing the likelihood that the Company will realize the benefits of its capital expenditures and the continuing expansion of its transportation management activities. The Company remains highly leveraged, however, and will continue to be subject to substantial principal and interest obligations with respect to its indebtedness.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements as of the last day of February 1995 and 1996 and related information listed below, are set forth on pages 54 through 82 of this report.
TITLE PAGE --------- ----
Independent Auditors' Report 53
Consolidated Balance Sheets as of the last day of February 1995 and 1996 54
Consolidated Statements of Operations for years ended the last day of February 1994, 1995 and 1996 56
Consolidated Statements of Common Stockholders' Deficit for years ended the last day 57 of February 1994, 1995 and 1996
Consolidated Statements of Cash Flows for years ended the last day of February 1994, 1995 and 1996 58
Notes to Consolidated Financial Statements as of the last day of February 1995 and 1996 60
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of Americold as of May 1, 1996 are as follows:
NAME AGE TITLE ---- --- -----
Ronald H. Dykehouse 54 Chairman of the Board, President and Chief Executive Officer
Joel M. Smith 52 Senior Vice President, Chief Financial Officer and Director
John P. LeNeveu 49 Executive Vice President, Operations and Sales
F. Stanley Sena 47 Executive Vice President, Transportation and Distribution Logistics
J. Roy Coxe 55 Senior Vice President, Logistics
Ronald A. Nickerson 59 Vice President, Operations
Lon V. Leneve 39 Vice President and Treasurer
Frank Edelstein 70 Director
George E. Matelich 39 Director
James C. Pigott 59 Director
William A. Marquard 75 Director
RONALD H. DYKEHOUSE was named President of Americold Corporation in May 1990 and Chairman of the Board and Chief Executive Officer in June 1990. From 1989 to 1990, Mr. Dykehouse was a private investor and consultant. From 1986 to 1989, he was Executive Vice President and Chairman of the Food and Distribution Groups of Amfac Inc., a diversified holding company. Mr. Dykehouse is a past director of the National Frozen Foods Association and past Chairman of the American Frozen Food Institute.
JOEL M. SMITH has been Senior Vice President and a director of the Company since December 1986. Mr. Smith has been the Chief Financial Officer of Americold since 1978 and a Vice President since 1984. In April 1996, Mr. Smith was elected a director of the IARW.
JOHN P. LENEVEU was named Executive Vice President, Operations and Sales of Americold in July 1995. From July 1991 to 1995, he was Senior Vice President, Operations and Sales. From 1988 to 1991, he was a management consultant with the Institute of Management Resources, an international management consulting company.
F. STANLEY SENA was named Executive Vice President, Transportation and Distribution Logistics of the Company in July 1995. From August 1991 to 1995, he was Senior Vice President, Administration and Technical Services of the Company. From 1986 to 1990, Mr. Sena was Vice President, Operations, Western Region, and from 1990 to 1991, Mr. Sena was Vice President, Operations of the Company. Since 1994, Mr. Sena has been a board member of the International Frozen Food Association.
J. ROY COXE was named Senior Vice President, Logistics, of Americold in December 1993. From 1991 to 1993, he was a management consultant with A. T. Kearney, Inc., an international management consulting company. Mr. Coxe was a vice president of Drake Sheahan Stewart Dougall and successors, a logistics and transportation consulting firm, from 1983 to 1991.
RONALD A. NICKERSON has been Vice President, Operations since 1990. From 1987 to 1990, Mr. Nickerson was Vice President, Operations, Eastern Region, of the Company.
LON V. LENEVE was named Vice President in September 1992 and has been Treasurer of Americold since July 1988. Mr. Leneve joined Americold in 1982 and was Controller from 1984 to 1988.
FRANK EDELSTEIN was elected a director of the Company in 1986. He is currently a consultant to both Kelso and the Gordon+Morris Group, Inc., an investment banking firm. Mr. Edelstein joined Kelso in 1987 and held the position of Vice President at Kelso until 1992. Mr. Edelstein is also a director of Ceradyne, Inc., IHOP Corporation and Arkansas Best Corporation.
GEORGE E. MATELICH has been a director of the Company since December 1986. Mr. Matelich joined Kelso in 1985 as an Associate, served as a Vice President of Kelso from 1986 to 1990 and is currently a Managing Director of Kelso.
JAMES C. PIGOTT was elected a director of Americold in June 1987. He is President of Pigott Enterprises, Inc., a private investment company. Mr. Pigott has been Chairman of the Board and Chief Executive Officer of Management Reports and Services, Inc., an accounting consulting firm since 1987. Mr. Pigott's other business activities include membership on the Board of Directors of PACCAR, Inc.
WILLIAM A. MARQUARD was elected a director of Americold in June 1987. Mr. Marquard is a director of Treadco, Inc., Mosler, Inc., Earle M. Jorgenson Holding Company, Inc., Earle M. Jorgenson Company, Arkansas Best Corporation and Best Holding Corporation. He is also a director of Kelso.
All directors hold office until the next annual meeting of shareholders of the Company or until their successors have been elected and qualified. The executive officers of the Company are chosen by the Board and serve at its discretion.
For their services on the Board of Directors of the Company, Messrs. Pigott, Marquard and Edelstein are paid $16,000 per year. Mr. Pigott receives $1,000 per year as Chairman of the Company's Audit Committee. Messrs. Pigott, Marquard and Edelstein also receive $600 per meeting attended. Directors who are also officers of the Company and Mr. Matelich do not receive additional compensation as directors of the Company. Directors are reimbursed for out-of-pocket expenses incurred in connection with attendance at meetings.
The Compensation Committee for fiscal 1996 consisted of Mr. Matelich, Mr. Marquard and Mr. Pigott. The Audit Committee for fiscal 1996 consisted of Mr. Matelich, Mr. Edelstein and Mr. Pigott.
On December 23, 1992, Kelso and its chief executive officer, without admitting or denying the findings contained therein, consented to an administrative order in respect of a Securities and Exchange Commission (the "Commission") inquiry relating to the 1990 acquisition of a portfolio company by a Kelso affiliate. The order found that Kelso's tender offer filing in connection with the acquisition did not comply fully with the Commission's tender offer reporting requirements, and required Kelso and the chief executive officer to comply with these requirements in the future.
STOCKHOLDERS' AGREEMENT - -----------------------
Certain of the Company's shareholders have agreed, pursuant to the Stockholders' Agreement dated as of December 24, 1986 (as amended, the "Stockholders' Agreement"), that prior to the occurrence of an initial public offering of at least 25% of the outstanding shares of common stock of the Company pursuant to an effective registration statement under the Securities Act, or December 24, 1996, whichever is earlier, sales of shares of common stock by a member of the Management Group are subject to a right of first refusal granted to the Company. See "Principal Shareholders."
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE - --------------------------
The following table sets forth information as to the compensation of the Chief Executive Officer and each of the other four most highly compensated executive officers of the Company as of the last day of February 1996 for services in all capacities to the Company for the years ended the last day of February 1994, 1995 and 1996.
_______________ [FN] Consists of the cost of relocation, the value of automobiles, and other miscellaneous fringe benefits. For fiscal years 1994, 1995 and 1996, the amounts did not exceed the lesser of $50,000 or 10% of the named executive officer's annual salary and bonus.
Mr. Coxe's employment commenced December 20, 1993.
AGGREGATED OPTION TABLE - -----------------------
The following table sets forth information as to the options held by the Chief Executive Officer and each of the other four most highly compensated executive officers of the Company through the end of fiscal 1996.
BENEFIT PLAN AND ARRANGEMENTS - -----------------------------
MANAGEMENT INCENTIVE PLAN - The Company has a Management Incentive Plan (the "MIP Plan") to provide additional compensation to participants, including executive officers, upon the achievement of certain financial objectives of the Company and individual personal objectives of the participants. The MIP Plan is administered by the Compensation Committee of the Board of Directors (the "Compensation Committee") and is applicable to management employees of Americold and, at the option of the President of the Company, other employees of Americold. The financial objective award is 50% of the total award and is based on attainment of actual operating results as compared to financial targets. The financial targets were established and approved by the Company based upon the annual business plan. The personal objective award is 50% of the total award and is based on attainment of both quantifiable and nonquantifiable goals established at the beginning of the MIP Plan year. Incentive compensation earned under the MIP Plan is computed as soon as possible after the close of the Company's fiscal year and payment is generally made following approval by the Board unless a deferred payment election has been filed with the Company in accordance with the terms of the Plan.
The Board of Directors authorized the payment of approximately $1.6 million in total fiscal 1996 awards pursuant to the MIP Plan. These awards were paid in May 1996. Incentive compensation earned by the Company's executive officers for the fiscal year ended the last day of February 1996 is included in the Bonus column in the above Summary Compensation Table.
In addition to the MIP Plan, between March 1, 1991 and February 28, 1994, the Company had a Stock Incentive Plan, a long-term incentive plan which was intended to provide additional financial incentives to key employees, including executive officers of the Company.
RETIREMENT PLAN - Americold has a noncontributory defined benefit retirement plan for salaried employees, including executive officers (the "Retirement Plan"). The Retirement Plan provides retirement benefits based on credited years of service and average monthly compensation for the highest five calendar years of the final 15 calendar years of employment or, if higher, the highest 60 consecutive months in the last 120 months of employment. A participant's retirement benefits vest after the participant has completed at least five years of Vesting Service.
The following table shows the approximate annual retirement benefits payable to employees for life from normal retirement date pursuant to the Retirement Plan before reduction for Social Security payments. The actual retirement benefit to employees is offset by Social Security benefits. Service credited under a retirement plan of the Company's former owners will be recognized by the Retirement Plan for purposes of determining the pension benefits payable under the Retirement Plan.
Estimated years of credited service to date under the Retirement Plan for the individuals named in the Summary Compensation Table are as follows: Mr. Dykehouse, 5 years; Mr. Smith, 17 years; Mr. LeNeveu, 4 years; Mr. Sena, 26 years; and Mr. Coxe, 2 years. Estimated years of credited service at normal retirement date (age 65) under the Retirement Plan for the individuals named in the Summary Compensation Table are as follows: Mr. Dykehouse, 16 years; Mr. Smith, 26 years; Mr. LeNeveu, 20 years; Mr. Sena, 45 years; and Mr. Coxe, 12 years.
Years of Service ------------------------------------- Average Annualized Compensation 20 30 40 50 - ------------------ -------- -------- -------- ------
$100,000 $ 30,000 $ 45,000 $ 60,000 $ 75,000 125,000 37,500 56,250 75,000 93,744 150,000 45,000 67,500 90,000 112,500 175,000 45,000 67,500 90,000 112,500 200,000 45,000 67,500 90,000 112,500 300,000 45,000 67,500 90,000 112,500
In addition to the above, certain individuals named in the Summary Compensation Table are entitled to a benefit calculated by using additional years of service credited under supplements to the Retirement Plan. Years of credited service under the supplements for the individuals named in the Summary Compensation Table as of the last day of February 1996 are as follows: Mr. Dykehouse, 0 years; Mr. Smith, 5 years; Mr. LeNeveu, 0 years; Mr. Sena, 0 years; and Mr. Coxe, 0 years. The annual amount to be received at normal retirement date pursuant to the supplements is estimated to be as follows: Mr. Dykehouse, $0 per annum; Mr. Smith, $5,906 per annum; Mr. LeNeveu, $0 per annum; Mr. Sena, $0 per annum; and Mr. Coxe, $0 per annum.
A participant's retirement benefits (excluding any incremental benefit earned under any supplement) under the Retirement Plan plus 50% of Social Security benefits may not exceed 60% of his compensation at retirement after 40 years of service, subject to maximum dollar limitations. See Note 8 of Notes to Consolidated Financial Statements as of the last day of February 1995 and 1996.
EMPLOYEE STOCK OWNERSHIP PLAN - Americold established, effective March 1, 1987, an Employee Stock Ownership Plan, as amended January 1, 1994 (the "ESOP"), in which all qualifying employees of the Company not covered by collective bargaining arrangements are able to participate. It is contemplated that contributions on an annual basis will not exceed 15% of the aggregate total compensation of any participating employee. The Company may contribute cash as well as or in lieu of its stock. The consent of the Company's Board of Directors is required to authorize any contribution by Americold to the ESOP. Contributions are allocated among participants based on the ratio of each participant's compensation to the total compensation of all such participants, subject to certain limitations. The ESOP is intended to provide retirement funds to participants in addition to present pension benefits.
Benefits under the ESOP vest based upon years of service as follows: 20% after three years of service, increased by 20% for each of the next four years with a maximum of 100% after seven years of service. A participant is 100% vested if employed by the Company on or after his 65th birthday, or if the participant incurs a total and permanent disability or dies while employed by the Company. The ESOP has the right to repurchase previously distributed shares from employees terminating their ESOP participation, using funds obtained through cash contributions by the Company. Participant forfeitures are allocated pro rata to remaining participants.
Participants are eligible for distribution of their capital accumulation in the ESOP at the normal retirement age of 65. The distribution will be made in whole shares of the Company's stock, cash or a combination of both, as determined by the Compensation Committee, provided the participant has not elected to be paid in stock.
Upon termination of the ESOP, the ESOP's trust will be maintained until the capital accumulations of all participants have been distributed.
Management anticipates recommending, and the Board of Directors approving, at the Annual Meeting of Shareholders in June 1996 a $750,000 ESOP contribution for fiscal 1996.
KEY EMPLOYEE STOCK OPTION PLAN - In 1987, Americold established a Key Employee Stock Option Plan (the "Option Plan"). The Option Plan permits the issuance of nonstatutory options to purchase up to 300,000 shares of common stock of the Company to directors, officers and other key employees of the Company. Of these, options to purchase up to 150,000 shares were reserved for issuance to the Management Group and options to purchase the remaining 150,000 shares are reserved for issuance to all eligible employees (including the Management Group) of the Company.
An individual exercising options under the Option Plan must become a party to the Stockholders' Agreement. The Option Plan is administered by the Compensation Committee. The Compensation Committee determines the recipients of options granted, the exercise price and the number of shares of common stock subject to each option. Options to purchase common stock are granted at a price not less than 85% of the fair market value on the day that the option is granted. The Board of Directors may amend the Option Plan from time to time. The maximum term of each stock option is ten years. Options become exercisable at such time or times as the Compensation Committee may determine at the time of grant.
If the outstanding shares of common stock are changed into or exchanged for a different number or kind of shares of the Company or other securities of the Company, by reason of any merger, consolidation, recapitalization, reclassification, stock split-up, stock dividend or combination of shares, the Compensation Committee shall make an appropriate and equitable adjustment in the number and kind of shares as to which the unexercised portion of the option shall be exercisable, to the extent that after such event the optionee's right to a proportionate interest in the Company shall be maintained as if the option had already been exercised and the option shares were subject to such change or exchange. Such adjustment shall be made without change in the total price applicable to the unexercised portion of the option and with a corresponding adjustment in the exercise price per option share. Any such adjustment made by the Compensation Committee shall be final and binding upon the Company, the optionee and all other interested persons.
In the event of (i) dissolution or liquidation of the Company, (ii) a merger in which the Company is not the surviving corporation or (iii) a share exchange pursuant to which the outstanding shares of common stock of the Company are acquired by another corporation, then either (a) the Compensation Committee, upon authorization of the Board, shall make an appropriate and equitable adjustment in the number and kinds of securities covered by outstanding options, and such options shall be expressly assumed by the successor corporation, if any; or (b) in lieu of such adjustment, the Board shall provide a 30-day period immediately prior to such an event during which each optionee shall have the right to exercise the optionee's outstanding options, in whole or in part, without regard to the time the options have been outstanding or the vesting schedule provided for in any option agreement entered into pursuant to the Option Plan and all options not exercised shall expire at the end of the 30-day period.
Information with regard to the grant of options as of the last day of February 1996 under the Plan follows:
Number of Shares Subject to Exercise Number of Shares Expiration Option Price Exercisable Date - ---------- ------- ----------- ----------
89,656 $10.00 89,656 May 1998 100,000 $18.95 100,000 June 2000 30,000 $21.88 12,000 May 2003 30,000 $20.40 12,000 December 2003
No options were exercised during fiscal 1996. See Note 9 of Notes to Consolidated Financial Statements as of the last day of February 1995 and 1996.
OTHER ARRANGEMENTS - In calendar 1995, the Board of Directors authorized employment agreements for certain executive officers of the Company.
On November 1, 1995, the Company entered into an employment agreement with Mr. Dykehouse. The agreement expires on December 16, 1998 and may be extended for one-year periods by mutual agreement. Pursuant to the agreement, Mr. Dykehouse agreed to serve as Chairman of the Board, President and Chief Executive Officer of the Company for a minimum base monthly salary of $25,000 and the right to participate in the MIP Plan (or any other senior management incentive program offered by the Company) and receive all customary employee benefits ("Benefits"). The agreement provides that if during the term of the agreement Mr. Dykehouse is terminated "without cause", as defined, the Company will pay his base compensation through December 16, 1998, employ him as a consultant at his base salary for 24 months beginning January 1, 1999 and provide to him all Benefits through the earlier of the date he obtains other employment and December 16, 2006. The Company is not required to make any such payments if the termination is "for cause," as defined. Among other termination provisions, the agreement provides that Mr. Dykehouse may terminate the agreement with 30 days' written notice if such termination is for "good reason" (as defined), and in such case, Mr. Dykehouse will receive the same treatment as if he were terminated "without cause." The employment agreement contains other customary terms and conditions.
On August 1, 1995, the Company entered into two-year employment agreements with Messrs. Smith, LeNeveu, Sena and Coxe. Each employee agreed to serve in the position and at the minimum base monthly salary as follows: Mr. Smith, Senior Vice President and Chief Financial Officer, $13,666.66; Mr. LeNeveu, Executive Vice President, $14,166.66; Mr. Sena, Executive Vice President, $13,666.67; and Mr. Coxe, Senior Vice President, Logistics, $12,500.00. The agreements provide, among other conditions, that if during the term of the employment agreement the employee is terminated "without cause," as defined, the Company will pay the employee any unpaid base compensation, any benefits accrued to the date of termination and, for 24 months, a monthly amount equal to the last monthly salary amount received. The Company is not required to make any such payment if the termination is "for cause," as defined. The employee may terminate employment upon 30 days' written notice, and the Company will pay such employee an amount equal to either 12 months' salary if such termination is without "good reason," as defined, or 24 months' salary if such termination is for "good reason." The employment agreements contain other customary terms and conditions.
Concurrently with the entering into of the employment agreements, Messrs. Dykehouse, Smith, LeNeveu, Sena and Coxe each also entered into a covenant not to compete and consulting and non-disclosure agreement with the Company. Under these agreements, each individual has agreed not to compete with the Company during the term of his employment with the Company, under the terms of an employment contract or otherwise. Mr. Dykehouse has agreed not to compete with the company for a period of 24 months following termination of employment or until October 31, 2000, whichever is earlier, while the other officers have agreed not to compete with the Company (1) for a 24-month period following termination of his employment or until July 31, 2000, whichever is earlier, if the termination is "for cause," as defined in the employment agreement, or (ii) for a 12-month period or until July 31, 2000, whichever is earlier, if the employee terminates employment with or without "good reason," as defined in the employment agreement. Subject to certain exceptions, each individual has further agreed to be available for employment as a consultant to the Company following termination of employment.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of common stock as of May 1, 1996 by (i) each person known by the Company to own more than five percent of its common stock, (ii) each director of the Company, (iii) each named executive officer, (iv) all directors and officers as a group and (v) the Management Group:
___________________ [FN] These persons are party to the Stockholders' Agreement which gives the Company a right of first refusal for shares of common stock sold by these parties prior to an initial public offering of at least 25% of the outstanding shares of common stock of the Company. See Part II, Item 10, "Directors and Executive Officers of the Registrant".
Messrs. Schuchert, Nickell, Matelich and Wall may be deemed to share beneficial ownership of shares owned of record by KIA III, KIA II, Kelso Equity and Kelso & Company (Kelso & Company owns 23,600 shares) by virtue of their status as the general partners of Kelso Partners III, L.P. (the general partner of KIA III), Kelso Partners II, L.P. (the general partner of KIA II), and Kelso Equity and the controlling stockholders and officers of Kelso & Company. Messrs. Schuchert, Nickell, Matelich and Wall share investment and voting powers with respect to securities owned by the foregoing entities. Messrs. Schuchert, Nickell, Matelich and Wall disclaim beneficial ownership of such securities (other than the 23,600 shares owned by Kelso & Company).
Includes the following numbers of shares of common stock that may be acquired within 60 days after May 1, 1996 through the exercise of stock options granted pursuant to the Company's Option Plan: 100,000 shares for Mr. Dykehouse; 8,278 shares for Mr. Smith; 18,000 shares for Mr. LeNeveu; 8,279 shares for Mr. Sena; 12,000 shares for Mr. Coxe; 157,595 for all directors and officers as a group; and 219,656 shares for the Management Group.
The shareholders of the Company listed above hold approximately 83% of the voting power of the Company's common stock and are able to elect all of the members of the Board of Directors and thereby control the Company.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Subsequent to the end of fiscal 1996, in consideration for certain assistance provided by Kelso in connection with the Prepackaged Bankruptcy and the issuance of the 12.875% Senior Subordinated Notes due 2008, the Company paid Kelso a financial advisory fee of $500,000. Mr. Matelich and Mr. Marquard, directors of the Company, are also directors of Kelso.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
1. FINANCIAL STATEMENTS PAGE -------------------- ----
Reference is made to Part II, Item 8 30 for the listing of the required financial statements filed with this report
2. FINANCIAL STATEMENT SCHEDULES -----------------------------
Schedule II - Valuation and Qualifying 82 Accounts for years ended the last day of February 1994, 1995 and 1996
All other schedules are omitted because they are not applicable, or are not required, or because the required information is included in the Company's consolidated financial statements as of the last day of February 1995 and 1996 or notes thereto.
3. EXHIBITS -------- (2) Plan of Reorganization, dated April 14, 1995 (filed as Exhibit (2) to the Form 10-K, dated May 30, 1995, for the fiscal year ended February 28, 1995, and incorporated herein by reference)
(3) Articles of Incorporation and Bylaws
(i) Second Restated Articles of Incorporation, as amended (filed as Exhibit (3)(i) to the Form 10-Q, dated July 14, 1995, for the quarter ended May 31, 1995, and incorporated herein by reference)
(ii) Restated Bylaws, as amended (filed as Exhibit (3)(ii) to the Form 10-K, dated May 30, 1995, for the fiscal year ended February 28, 1995, and incorporated herein by reference)
(4) Instruments defining the rights of security holders, including indentures
(i) Articles IV, V and VI of the Second Restated Articles of Incorporation as amended (see Exhibit (3)(i))
(ii) Articles I, II, V, VII and X of the Restated Bylaws as amended (see Exhibit (3)(ii))
(iii) Second Restated Stockholders' Agreement dated as of December 24, 1986, as amended as of April 15, 1987 and June 22, 1987 (filed as Exhibit (4)(iv) to the Form 10-K, dated May 27, 1988, for the fiscal year ended February 29, 1988, and incorporated herein by reference)
(iv) Third Amendment dated May 22, 1990 to Stockholders' Agreement dated as of December 24, 1986, as amended as of June 22, 1987 (filed as Exhibit (4) to the Form 10-Q dated July 12, 1990, for the quarter ended May 31, 1990, and incorporated herein by reference)
(v) Amended and Restated Indenture dated March 9, 1993, relating to the First Mortgage Bonds (filed as Exhibit (4)(vi) to the Registration Statement on Form S-1 (Registration No. 33- 53584) filed with the Commission on March 2, 1993, and incorporated herein by reference)
(vi) Stock Pledge Agreement dated as of February 28, 1989, between Registrant and The Connecticut National Bank (filed as Exhibit (19)(iii) to the Form 10-Q, dated October 14, 1992, for the quarter ended August 31, 1992, and incorporated herein by reference)
(vii) Stock Pledge Agreement dated as of February 28, 1989 between Registrant and United States National Bank of Oregon, acting as agent pursuant to Article IX of the Credit Agreement, as amended, dated as of April 30, 1987 (filed as Exhibit (19)(iv) to the Form 10-Q, dated October 14, 1992, for the quarter ended August 31, 1992, and incorporated herein by reference)
(viii) Form of Amended and Restated Security Agreement relating to the First Mortgage Bonds (filed as Exhibit (4)(xiv) to the Registration Statement on Form S-1 (Registration No. 33- 53584) filed with the Commission on March 2, 1993, and incorporated herein by reference)
(ix) Form of Series A Bond (included as part of Exhibit (4)(v))
(x) Form of Series B Bond (included as part of Exhibit (4)(v))
(xi) Form of Amended and Restated Cash Collateral Pledge Agreement relating to the First Mortgage Bonds (filed as Exhibit (4)(xix) to the Registration Statement on Form S-1 (Registration No. 33-53584) filed with the Commission on March 2, 1993, and incorporated herein by reference)
(xii) Form of Amended Stock Pledge Agreement relating to the First Mortgage Bonds (filed as Exhibit (4)(xx) to the Registration Statement on Form S-1 (Registration No. 33-53584) filed with the Commission on March 2, 1993, and incorporated herein by reference)
(xiii) Form of Amended Mortgage, Assignment of Rents and Security Agreement relating to the First Mortgage Bonds (filed as Exhibit (4)(xxi) to the Registration Statement on Form S-1 (Registration No. 33-53584) filed with the Commission on March 2, 1993, and incorporated herein by reference)
(xiv) First Supplemental Indenture relating to the First Mortgage Bonds (filed as Exhibit 4.1 to the Form 10-Q, dated July 14, 1995 for the quarter ended May 31, 1995, and incorporated herein by reference)
(xv) Indenture dated as of June 30, 1995 between Registrant and United States Trust Company of New York, as Trustee (filed as Exhibit 4.2 to the Form 10-Q, dated July 14, 1995 for the quarter ended May 31, 1995, and incorporated herein by reference)
(xvi) Second Amended and Restated Investment Agreement relating to the First Mortgage Bonds (filed as Exhibit 4.3 to the Form 10-Q, dated July 14, 1995 for the quarter ended May 31, 1995, and incorporated herein by reference)
(xvii) Form of 15% Senior Subordinated Debentures due 2007 (included as part of Exhibit 4(xv)
(xviii) Form of Indenture relating to the 12.875% Senior Subordinated Notes due 2008, between Registrant and Fleet Bank, as Trustee (filed as Exhibit (4)(xviii) to the Registration Statement on Form S-1 (Registration No. 333- 541) filed with the Commission on April 1, 1996, and incorporated herein by reference)
(xix) Form of 12.875% Senior Subordinated Notes due 2008 (included as part of Exhibit 4(xviii))
(xx) Fourth Amendment dated March 14, 1996 to Stockholders Agreement dated as of December 24, 1986, as amended on April 15, 1987, June 22, 1987 and May 22, 1990
(10) Material Contracts
(i) Americold Corporation Key Employee Stock Option Plan, as amended, effective July 12, 1988 (filed as Exhibit (4)(i) to the Form 10-Q dated October 14, 1988, for the quarter ended August 31, 1988, and incorporated herein by reference)
(ii) Form of Nonstatutory Stock Option Agreement, as amended, entered into between Registrant and certain employees pursuant to the Americold Corporation Key Employee Stock Option Plan (filed as Exhibit (4)(ii) to the Form 10-Q dated October 14, 1988, for the quarter ended August 31, 1988, and incorporated herein by reference)
(iii) Second Amended and Restated Investment Agreement relating to the First Mortgage Bonds (see Exhibit (4)(xvi))
(iv) Form of Amended and Restated Security Agreement relating to the First Mortgage Bonds (see Exhibit (4)(viii))
(v) Stock Pledge Agreement dated as of February 28, 1989, between Registrant and The Connecticut National Bank (see Exhibit (4)(vi))
(vi) Stock Pledge Agreement dated as of February 28, 1989, between Registrant and United States National Bank of Oregon, a national banking association, acting as agent pursuant to Article IX of the Credit Agreement, as amended, dated as of April 30, 1987 (see Exhibit (4)(vii))
(vii) Americold Corporation Management Incentive Plan (filed as Exhibit (10)(iii) to the Form 10-K, dated May 27, 1988, for the fiscal year ended February 29, 1988, and incorporated herein by reference)
(viii) Form of Indemnity Agreement entered into between the Company and each of its officers and directors (filed as Exhibit (4)(x) to Form 10-K dated May 29, 1992 for the fiscal year ended February 29, 1992, and incorporated herein by reference)
(ix) Second Restated Stockholders' Agreement, dated as of December 24, 1986, as amended as of June 22, 1987 (see Exhibit (4)(iii))
(x) Third Amendment dated May 22, 1990 to Stockholders' Agreement dated as of December 24, 1986, as amended as of June 22, 1987 (see Exhibit (4)(iv))
(xi) Amended and Restated Indenture relating to the First Mortgage Bonds (see Exhibit (4)(v))
(xii) Form of Amended and Restated Cash Collateral Pledge Agreement relating to the First Mortgage Bonds (see Exhibit (4)(xi))
(xiii) Form of Amended Stock Pledge Agreement relating to the First Mortgage Bonds (see Exhibit (4)(xii))
(xiv) Indemnification Agreement dated October 31, 1991 between the Company and The First Boston Corporation (included as Exhibit (10)(xx) to the Registration Statement on Form S-2 (Registration No. 33-41963) filed with the Commission on July 31, 1991 and incorporated herein by reference)
(xv) Master Lease Agreement dated February 28, 1989, between Registrant and Americold Services Corporation (filed as Exhibit (19)(vi) to the Form 10-Q, dated October 14, 1992, for the quarter ended August 31, 1992, and incorporated herein by reference)
(xvi) Americold Stock Incentive Plan effective March 1, 1991 (filed as Exhibit(10)(xviii) to the Form 10-K dated May 29, 1992 for the fiscal year ended February 29, 1992, and incorporated herein by reference)
(xvii) Americold Transportation Systems Purchase of Joint Venture Interest, effective November 1, 1991, between Registrant and Superior Transportation Systems, Inc. (filed as Exhibit (19)(vii) to the Form 10-Q, dated October 14, 1992, for the quarter ended August 31, 1992, and incorporated herein by reference)
(xviii) Lease dated May 15, 1992, between Registrant and Oregon Warehouse Partners, a Texas general partnership (lease agreement for Ontario, Oregon facility) (filed as Exhibit (19)(viii) to the Form 10-Q, dated October 14, 1992, for the quarter ended August 31, 1992, and incorporated herein by reference)
(xix) Form of First Amendment to Master Lease Agreement between Registrant and Americold Services Corporation (filed as Exhibit (10)(xxxi) to the Registration Statement on Form S-1 (Registration No. 33-53584) filed with the Commission on March 2, 1993, and incorporated hereby by reference)
(xx) Nonstatutory Stock Option Agreement dated May 19, 1993 between the Company and John P. LeNeveu (filed as Exhibit (10)(i) to the Form 10-Q, dated January 13, 1994 for the quarter ended November 30, 1993, and incorporated herein by reference)
(xxi) Nonstatutory Stock Option Agreement dated December 17, 1993 between the Company and J. Roy Coxe (filed as Exhibit 10 (xxvii) to the Form 10-K, dated May 26, 1994 for the fiscal year ended February 28, 1994, and incorporated herein by reference)
(xxii) Second Amended and Restated Credit Agreement between the Company and United States National Bank of Oregon dated June 19, 1995 (filed as Exhibit 10.1 to the Form 10-Q, dated July 14, 1995 for the quarter ended May 31, 1995, and incorporated herein by reference)
(xxiii) Employment Agreement dated November 1, 1995, between the Company and Ronald H. Dykehouse (filed as Exhibit 10.1 to the Form 10-Q dated January 16, 1996 for the quarter ended November 30, 1995, and incorporated herein by reference)
(xxiv) Form of Employment Agreement dated August 1, 1995, between the Company and certain named executive officers, and schedule thereto (filed as Exhibit 10.2 to the Form 10-Q dated January 16, 1996 for the quarter ended November 30, 1995, and incorporated herein by reference)
(xxv) Form of Covenant Not to Compete and Consulting and Non-Disclosure Agreement between the Company and certain named executive officers, and schedule thereto (filed as Exhibit 10.3 to the Form 10-Q dated January 16, 1996 for the quarter ended November 30, 1995, and incorporated herein by reference)
(xxvi) Fourth Amendment dated March 14, 1996 to Stockholders' Agreement dated as of December 24, 1986, as amended on April 15, 1987, June 22, 1987 and May 20, 1990 (see Exhibit (4)(xx))
(xxvii) First Amendment to Americold Corporation Management Incentive Plan, amended as of April 24, 1996
(11) Statement regarding computation of per share earnings
(21) Subsidiaries of the Registrant
(23) Consent of KPMG Peat Marwick LLP
(27) Financial Data Schedule
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AMERICOLD CORPORATION
By: /s/ Ronald H. Dykehouse By: /s/ Joel M. Smith Ronald H. Dykehouse Joel M. Smith Chairman of the Board, Senior Vice President and President and Chief Chief Financial Officer Executive Officer (Principal Financial Officer)
By: /s/ Thomas R. Ferreira Thomas R. Ferreira Corporate Controller (Principal Accounting Officer)
Dated: May 28, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Company and in the capacities and on the dates indicated.
/s/ Ronald H. Dykehouse - ------------------------------- May 28, 1996 Ronald H. Dykehouse, Director
/s/ Joel M. Smith - ------------------------------- May 28, 1996 Joel M. Smith, Director
- ------------------------------- May , 1996 Frank Edelstein, Director
/s/ George E. Matelich - ------------------------------- May 28, 1996 George E. Matelich, Director
/s/ James C. Pigott - ------------------------------- May 22, 1996 James C. Pigott, Director
/s/ William A. Marquard - ------------------------------- May 22, 1996 William A. Marquard, Director
Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act.
No proxy statement with respect to any annual or other meeting of security holders has been sent to security holders. The Company does not solicit proxies.
KPMG Peat Marwick LLP Telephone 503 221 6500 Suite 2000 Telefax 503 796 7650 1211 South West Fifth Avenue Portland, OR 97204
INDEPENDENT AUDITORS' REPORT ----------------------------
The Board of Directors and Stockholders Americold Corporation:
We have audited the consolidated balance sheets of Americold Corporation as of the last day of February 1995 and 1996, and the related consolidated statements of operations, common stockholders' deficit and cash flows for each of the years in the three-year period ended the last day of February 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Americold Corporation as of the last day of February 1995 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended the last day of February 1996, in conformity with generally accepted accounting principles.
As discussed in the notes to the consolidated financial statements, Americold Corporation adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" and No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" during the year ended the last day of February 1994.
/s/ KPMG Peat Marwick LLP
Portland, Oregon April 29, 1996
Member Firm of Klynveld Peat Marwick Goerdeler
AMERICOLD CORPORATION
Consolidated Balance Sheets
Last day of February 1995 and 1996
(In Thousands, Except Share Data)
See accompanying notes to consolidated financial statements.
AMERICOLD CORPORATION
Consolidated Statements of Operations
Years ended last day of February 1994, 1995 and 1996
(In Thousands, Except Per Share Data)
See accompanying notes to consolidated financial statements.
AMERICOLD CORPORATION
Consolidated Statements of Common Stockholders' Deficit
Years ended last day of February 1994, 1995 and 1996
(In Thousands, Except Share Data)
See accompanying notes to consolidated financial statements.
AMERICOLD CORPORATION
Consolidated Statements of Cash Flows
Years ended last day of February 1994, 1995 and 1996
(In Thousands)
AMERICOLD CORPORATION
Notes to Consolidated Financial Statements
Last day of February 1995 and 1996
(1) Summary of Significant Accounting Policies ------------------------------------------
Accounting policies and methods of their application that significantly affect the determination of financial position, cash flows and results of operations are as follows:
(a) Business Description --------------------
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 49 refrigerated warehouses and its refrigerated transportation management unit. The Company has a wholly-owned warehousing subsidiary, Americold Services Corporation.
In addition, the Company operates a limestone quarry. This business is not significant to the Company as a whole and is not required to be reported as a separate industry segment.
(b) Principles of Consolidation ---------------------------
The consolidated financial statements include the accounts of Americold Corporation and its wholly-owned subsidiary. All significant intercompany transactions, profits and balances have been eliminated.
(c) Property, Plant and Equipment -----------------------------
Property, plant and equipment are stated at cost. Depreciation is generally provided on the straight-line method over the estimated useful lives of the respective assets ranging from 3 to 45 years for financial reporting purposes and on accelerated methods for income tax purposes where possible. Property held under capital leases (at capitalized value) is amortized on the straight-line method over its estimated useful life, limited generally by the lease period. The amortization of the property held under capital leases is included with depreciation expense. Estimated remaining useful lives are reviewed periodically for reasonableness and any necessary change is generally effected at the beginning of the accounting period in which the revision is adopted.
Maintenance and repairs are expensed in the year incurred; major renewals and betterments of equipment and refrigeration facilities are capitalized and depreciated over the remaining life of the asset.
(d) Cost in Excess of Net Assets Acquired -------------------------------------
On December 24, 1986, all the outstanding capital stock of the Company was acquired by a private group consisting of affiliates of Kelso & Company, Inc., certain institutional investors and certain key employees and members of the Company's management. The acquisition of the Company was accounted for as a purchase. An allocation of the purchase price was made to the acquired assets and liabilities based on their estimated fair market values at the date of acquisition. The unallocated purchase price is the Company's estimate of goodwill associated with the acquisition and is being amortized using the straight-line method over a period of 40 years.
On March 1, 1990, the Company acquired the warehousing business of an unrelated third party. The goodwill associated with the acquisition was being amortized using the straight- line method over a period of 15 years. On October 1, 1995, the Company returned the warehousing business acquired to the seller. The Company expensed the remaining unamortized goodwill.
The Company assesses the recoverability of the goodwill by determining whether the amortization of the goodwill balance over its remaining useful life can be recovered through projected undiscounted future net income. The amount of goodwill impairment, if any, is measured based on projected discounted future net income using a discount rate reflecting the Company's current average cost of funds.
(e) Debt Issuance Costs -------------------
Debt issuance costs incurred are amortized over the term of the related debt.
(f) Income Taxes ------------
Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws.
(g) Management Estimates and Assumptions ------------------------------------
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(h) Revenue Recognition -------------------
The Company's revenues are primarily derived from services provided to customers in both handling and storing frozen products and from freight services. Handling and storage revenue is based primarily upon the total weight of frozen product received into and held in storage and is recognized as earned, not as billed. Differences between revenue earned and revenue billed are recorded as deferred revenue. Approximately 50% of the handling revenue is deferred until the customer's products are released. The freight services revenues and direct costs are recognized upon delivery of freight.
(i) Income (Loss) Per Share -----------------------
Income (loss) per common share is computed by dividing net income (loss) less preferred dividend requirements, by the weighted average of common shares outstanding.
(j) Major Customers ---------------
Consolidated net sales to H. J. Heinz Company and subsidiaries amounted to approximately $35.8 million, $45.5 million and $108.1 million in the years ended the last day of February 1994, 1995 and 1996, respectively. No other customer accounted for 10% or more of consolidated net sales.
(k) Cash and Cash Equivalents -------------------------
All highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. There were cash equivalents of $25.2 million and $15.4 million as of the last day of February 1995 and 1996, respectively.
(l) New Accounting Standard -----------------------
The Company has not implemented the requirements of Financial Accounting Standard Board Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed Of," although it will be required to do so for fiscal years beginning March 1, 1996 and thereafter. This statement generally requires assessment of recoverability of an asset after events or circumstances that indicate an impairment to the asset and its future cash flows. Any impairment loss would be recognized as a one-time charge to earnings affecting results of operations, but would not affect the cash flow of the Company. At this time, the Company does not believe there will be an impairment loss to report.
The Company has not implemented the requirements of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), although it will be required to do so for fiscal years beginning March 1, 1996 and thereafter. 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 not implemented SFAS No. 123 nor has it determined whether to elect to continue using APB No. 25 and make the necessary SFAS No. 123 pro forma disclosures.
(2) Net Property, Plant and Equipment ---------------------------------
Net property, plant and equipment consists of the following (in thousands):
Last day of February ----------- 1995 1996 ---- ----
Land $ 31,087 $ 31,911 Refrigerated facilities, buildings and land improvements 433,667 450,402 Machinery and equipment 59,300 67,661 ------- ------- 524,054 549,974
Less accumulated depreciation 156,806 174,123 ------- -------
Net property, plant and equipment $367,248 $375,851 ======= =======
(3) Other Noncurrent Assets -----------------------
Other noncurrent assets consist of the following (in thousands):
Last day of February ----------- 1995 1996 ---- ---- Restricted funds held by trustee (note 7) $ 20,669 $ 5,037 Real estate owned 300 300 Security deposits 393 261 Other 5,012 3,364 ------- -------
$ 26,374 $ 8,962 ======= =======
(4) Leases ------
Assets under capital leases are included in net property, plant and equipment and consist of the following (in thousands):
Last day of February ----------- 1995 1996 ---- ----
Land, refrigerated facilities, buildings and land improvements $ 7,140 $ 7,075 Machinery and equipment 4,249 4,635 ------- ------- 11,389 11,710 Less accumulated depreciation 3,575 4,108 ------- -------
$ 7,814 $ 7,602 ======= =======
Future minimum lease payments under noncancelable leases for years ended after the last day of February 1996 are as follows (in thousands):
Year ending the last Capital Operating day of February leases leases -------------------- ------- ---------
1997 $ 1,726 $ 4,840 1998 3,957 4,266 1999 710 3,464 2000 538 2,380 2001 485 1,303 Thereafter 1,050 7,677 ------- -------
Total minimum lease payments $ 8,466 $ 23,930 =======
Less amounts representing interest 1,746 -------
Present value of net minimum lease payments $ 6,720 =======
Included in expenses for the years ended the last day of February 1994, 1995 and 1996 are approximately $9.1 million, $9.5 million and $7.7 million, respectively, of rental expense net of sublease rentals for operating leases.
The Company has arranged for up to $25.0 million in lease financing of which approximately $5.6 million was used as of the last day of February 1996.
(5) Accrued Expenses ----------------
Accrued expenses consist of the following (in thousands):
Last day of February ----------- 1995 1996 ---- ---- Accrued payroll $ 4,226 $ 3,565 Accrued vacation pay 2,504 2,462 Accrued taxes 1,043 1,022 Accrued employee stock ownership plan contribution 750 750 Other 2,822 3,805 ------- --------
Total accrued expenses $ 11,345 $ 11,604 ======== =======
(6) Other Current Liabilities -------------------------
Other current liabilities consist of the following (in thousands):
Last day of February ----------- 1995 1996 ---- ----
Workers' compensation $ 1,227 $ 991 Pension 10 1,100 Other 2,675 2,539 -------- -------
$ 3,912 $ 4,630 ======== ======= (7) Long-term Debt --------------
Long-term debt consists of the following (in thousands) (see note 16):
Last day of February ----------- 1995 1996 ---- ----
Capital lease obligations (9.5% and 9.3% weighted average interest rate, respectively) $ 7,455 $ 6,720 Senior subordinated debentures - 11% fixed, due May 1, 1997 112,581 - Senior subordinated debentures - 15% fixed, due May 1, 2007 - 115,000 First mortgage bonds, Series A - 11.45% fixed, due June 30, 2002, interest payments only to January 1, 1999 with principal amortization commencing July 1, 1999 150,000 140,000 First mortgage bonds, Series B - 11.5% fixed, due March 1, 2005, interest payments only to September 1, 2003 with a mandatory sinking fund payment of $88,125 on March 1, 2004 176,250 176,250 Mortgage notes payable - various interest rates ranging from 9.0% to 13.6% requiring monthly principal and interest payments with maturities ranging from 2004 to 2017 27,941 26,429 ------- ------- Total long-term debt 474,227 464,399 Less current maturities of long-term debt 31,315 2,732 ------- -------
Total long-term debt, less current maturities $ 442,912 $ 461,667 ======== ========
On July 2, 1987, the Company sold $300 million in first mortgage bonds. On March 9, 1993, the Company sold $176.25 million of the Company's 11.5% First Mortgage Bonds, Series B, due March 1, 2005. The Company used $150 million of the proceeds from the sale of the Series B bonds to purchase at par $150 million of outstanding first mortgage bonds. The remaining $150 million of such first mortgage bonds have been redesignated Series A First Mortgage Bonds (together with the Series B First Mortgage Bonds, the "First Mortgage Bonds). The remaining net proceeds of approximately $22.3 million were placed in escrow with the Mortgage Bond Trustee (note 3). The bonds are secured by mortgages or deeds of trust on 32 of the Company's facilities.
On June 30, 1995, the Company exchanged the 11% Senior Subordinated Debentures due 1997 for 15% Senior Subordinated Debentures due 2008, repurchased $10.0 million of its 11.45% Series A First Mortgage Bonds due 2002, and extended its existing credit agreement with its principal bank (note 15).
The available amount under the bank credit agreement was $21.2 million as of the last day of February 1996, of which $7.2 million of letters of credit were outstanding. No cash borrowings were outstanding.
The Company entered into an investment agreement in connection with the issuance of the First Mortgage Bonds which, like the bank credit agreement, requires the Company to meet certain affirmative and restrictive covenants. Significant restrictive items include, among others, limitations on additional indebtedness, liens, dividends, capital expenditures, asset dispositions, lease commitments and investments. Also, certain "pro forma debt service" ratios, net worth levels and senior debt to net worth ratios must be maintained. The Company was in compliance with the covenants.
As of the last day of February 1996, aggregate annual maturities of long-term debt are as follows (in thousands):
Year ended the last day of February -------------------
1997 $ 2,732 1998 5,310 1999 2,537 2000 32,635 2001 38,840 Thereafter 382,345 -------
$ 464,399 ========
(8) Employee Benefit Plans ----------------------
(a) Defined Benefit Pension Plans -----------------------------
The Company has defined benefit pension plans which cover substantially all employees other than union employees covered by union pension plans under collective bargaining agreements. Benefits under these plans are based on years of credited service and compensation during the years preceding retirement or on years of credited service and established monthly benefit levels.
Pension expense for all plans, including plans jointly administered by industry and union representatives totaled $1.4 million, $1.4 million and $1.7 million for years ended the last day of February 1994, 1995 and 1996, respectively. Actuarial valuations for defined benefit plans are performed as of the end of the plan year. The most recent actuarial valuations are as of the last day of February 1996.
The funded status of the Company's defined benefit pension plans and the accrued pension expense amounts recognized in the Company's consolidated financial statements, within other noncurrent liabilities, as of the last day of February 1995 and 1996 are as follows (in thousands):
Net periodic pension expense for the years ended the last day of February 1994, 1995 and 1996 includes the following components (in thousands):
Last day of February 1994 1995 1996 ---- ---- ----
Service cost - benefits earned during the period $ 1,013 $ 1,107 $ 1,165 Interest cost on projected benefit obligation 2,094 2,121 2,293 Actual return on plan assets (2,202) (2,554) (4,301) Net amortization and deferral (233) (143) 1,541 -------- -------- --------
Net periodic pension expense $ 672 $ 531 $ 698 ======== ======== ========
Actuarial assumptions used for determining pension liabilities were:
Last day of February 1994 1995 1996 ---- ---- ---- Discount rate for interest cost 8.0% 8.5% 8.0% Rate of increase in future compensation levels 4.0% 4.0% 4.0% Expected long-term rate of return on plan assets 10.5% 10.5% 10.5%
Plan assets are assigned to several investment management companies and are invested in various equity and fixed fund investments in accordance with the Company's investment policy.
(b) Employee Stock Ownership Plan -----------------------------
The Company established an employee stock ownership plan, effective March 1, 1987, which is intended to provide qualifying employees an equity interest in the Company, as well as potential retirement benefits. The trust established under the plan is designed to invest primarily in the Company's stock. Contributions by the Company, in the form of common or preferred stock of the Company, or cash, or a combination thereof, may be made to the trustee on behalf of eligible participants for each plan year as determined by the Company's Board of Directors. Participating employees with vested benefits, upon retirement or termination, have the option of retaining the stock or selling it back to the Company at its fair market value.
(c) Postretirement Benefits Other Than Pensions -------------------------------------------
In addition to providing retirement benefits, the Company provides certain health care and life insurance benefits for retired employees. These benefits are provided to substantially all employees other than certain union employees who have elected not to participate.
Effective March 1, 1993, the Company adopted Financial Accounting Standards Board Statement of Financial Accounting No. 106 (Statement 106), which required that the expected cost of providing such benefits be accrued over the years that the employee renders service, in a manner similar to the accounting for pension benefits. As permitted under Statement 106, the Company elected to recognize this change in accounting principle on the immediate recognition basis. The cumulative effect as of March 1, 1993 of adopting the standard resulted in a decrease in deferred taxes of approximately $1.5 million, an increase in accrued postretirement benefits of approximately $3.9 million, and a one-time non-cash charge to fiscal 1994 earnings of approximately $2.4 million.
The total of accumulated postretirement benefits obligation (APBO), which is an unfunded obligation, is as follows:
Last day of February 1994 1995 1996 ---- ---- ----
Retirees $ 2,339 $ 2,314 $ 2,375 Active employees 1,573 1,511 1,832 -------- -------- --------
Total APBO $ 3,912 $ 3,825 $ 4,207 ======== ======== ========
The components of net periodic postretirement expense for the year ended the last day of February are as follows (in thousands):
1994 1995 1996 ---- ---- ----
Service cost benefits earned in period $ 90 $ 104 $ 114 Interest cost on APBO 329 313 334 Amortization of unamortized prior service cost - (22) (22) ------- ------- ------- $ 419 $ 395 $ 426 ======= ======= =======
The discount rate used to determine the APBO and net periodic expense as of February 28, 1994 was 8.5%, as of February 28, 1995 was 9%, and as of February 29, 1996 was 8.5%.
For fiscal 1996, an 11.0% increase in the medical cost trend rate was assumed. This rate is projected to decrease incrementally to 5.5% after nine years. A 1% increase in the medical trend rate would increase the APBO by $.1 million and increase the net periodic expense by a negligible amount.
9. Common Stockholders' Equity ---------------------------
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 February 1996 follows:
Number of Shares Exercise Number of Shares Expiration Subject to Option Price Exercisable Date ----------------- ----- ----------- ----
89,656 $10.00 89,656 May 1998 100,000 $18.95 100,000 June 2000 30,000 $21.88 12,000 May 2003 30,000 $20.40 12,000 December 2003
No options had been exercised as of the last day of February 1996.
10. Preferred Stock ---------------
The Company has contributed shares of its Series A, variable rate, cumulative preferred stock to the Americold Employee Stock Ownership Plan (ESOP). The preferred stock is redeemable by participants of the plan (note 8). As of the last day of February 1995 and 1996, dividends not declared on the Company's cumulative preferred stock total approximately $496,000 and $477,000, respectively.
11. Income Taxes ------------
Effective March 1, 1993, the Company adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 109 (Statement 109) which required a change in the method of providing for income taxes. As permitted under Statement 109, the Company elected to recognize this change in accounting principle on the immediate recognition basis. The cumulative effects as of March 1, 1993 of adopting Statement 109 were an increase in net fixed assets of approximately $31.2 million (the amount of a previous write-down of assets under APB No. 16 as a result of the purchase of the Company in December 1986, net of subsequent depreciation), an increase in deferred income taxes of $93 million, and a one-time, non-cash charge of approximately $61.8 million in fiscal 1994.
The provision (benefit) for income taxes consists of the following (in thousands):
1994 1995 1996 ---- ---- ----
Federal: Current $ 500 $ 2,867 $ - Deferred (1,557) 1,494 (2,858) -------- -------- -------- (1,057) 4,361 (2,858) -------- -------- --------
State: Current 68 820 - Deferred (194) 46 (568) -------- -------- --------
$ (1,183) $ 5,227 $ (3,426) ======== ======== ========
Following is a reconciliation of the difference between income taxes computed at the federal statutory rate and the provision for income taxes (in thousands):
1994 1995 1996 ---- ---- ----
Computed income tax expense (benefit) at federal statutory rate $ (4,278) $ 3,777 $ (4,027) State and local income taxes, net of federal income tax benefits (418) 563 (369) Adjustment to deferred tax assets and liabilities for changes in enacted rates 2,627 - - Amortization of cost in excess of net assets acquired 886 887 970
-------- -------- --------
Provision (benefit) for income taxes $ (1,183) $ 5,227 $ (3,426) ======== ======== ========
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the related amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities as of the last day of February 1995 and 1996 are as follows (in thousands):
1995 1996 ---- ---- Deferred tax liabilities: Property, plant and equipment, due to differences in depreciation and prior accounting treatment $(113,457) $(110,574) Other, net (400) - -------- --------- Total deferred tax liabilities $(113,857) $(110,574) -------- --------
Deferred tax assets: Receivables, due to allowance for doubtful accounts 123 86 Employee compensation and other benefits 1,742 1,879 Capital leases, net 1,936 1,714 Postretirement benefits other than pensions, due to accrual for financial reporting purposes 1,500 1,650 Alternative minimum tax credit carryforwards 3,122 2,865 Other, net 656 1,659 --------- ---------
Total deferred tax assets 9,079 9,853 --------- ---------
Net deferred tax liability before valuation allowance (104,778) (100,721)
Deferred tax asset valuation allowance (1,320) (1,320) --------- ---------
Net deferred tax liability $(106,098) $(102,041) ========= =========
The valuation allowance for deferred tax assets as of March 1, 1994 was $1.3 million. The valuation allowance is required to reduce the amount of deferred tax assets to an amount which will more likely than not be realized.
At February 29, 1996, the Company has an alternate minimum tax credit carryforward of approximately $2.9 million available to offset future regular taxes in excess of future alternative minimum taxes.
12. Extraordinary Items -------------------
In conjunction with the fiscal year 1994 retirement of the $150 million of first mortgage bonds as discussed in note 7, unamortized issuance costs of approximately $3.0 million were written off, resulting in an extraordinary loss, net of taxes, of approximately $1.8 million.
In conjunction with the exchange of the senior subordinated debentures and the repurchase of the $10.0 million of first mortgage bonds in fiscal 1996, as discussed in note 15, 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.
13. Disclosures About The Fair Value of Financial Instruments ---------------------------------------------------------
Cash, Trade Receivables, Other Receivables, Accounts Payable and Accrued Expenses ------------------------------------------------------------
The carrying amount approximates fair value because of the short maturity of these instruments.
Long-Term Debt --------------
The fair values of each of the Company's long-term debt instruments are based on (a) the amount of future cash flows associated with each instrument discounted using the Company's current borrowing rate for similar debt instruments of comparable maturity or (b) in the case of the first mortgage bonds - Series B and senior subordinated debentures, market price (in thousands).
As of the last day of February 1996 ------------------ Estimated fair Carrying market amount value ------ ------
Senior subordinated debentures $115,000 $116,150 First mortgage bonds - Series A 140,000 140,000 First mortgage bonds - Series B 176,250 179,334 Mortgage notes payable 26,429 26,429 Limitations ----------- Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
14. Gain on Insurance Settlement ----------------------------
Gain on insurance settlement of approximately $17.0 million relates to the Company's settlement of its first party claims with its insurance carriers for business interruption, property damage and out-of-pocket expenses with respect to the December 1991 fire at the Company's Kansas City, Kansas warehouse facility. No previous income recognition was determinable until the Company had settled all of the lawsuits and claims related to the fire.
15. Plan of Reorganization Under Chapter 11 ---------------------------------------
On May 9, 1995, the Company filed a prepackaged plan of reorganization (the "Plan") under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Oregon (the "Court"). The principal purpose of the Plan was to reduce the Company's short-term cash requirements with respect to payments due on its subordinated indebtedness and to adjust certain restrictive financial covenants and certain other provisions contained in the Amended and Restated Investment Agreement, dated March 2, 1993, between the Company and Metropolitan Life Insurance Company ("MetLife"). On the filing date, the Plan had been approved by both of the classes of debtholders entitled to vote on the Plan.
On June 19, 1995, the Court approved the Company's Disclosure Statement dated April 14, 1995 and the Company's solicitation of votes to accept or reject the Plan, and confirmed the Plan. On June 30, 1995, the Plan became effective, pursuant to which:
(i) each holder of the Company's 11% Senior Subordinated Debentures due 1997 was entitled to receive a corresponding amount of new 15% Senior Subordinated Debentures due 2007, and an amount in cash equal to the accrued but unpaid interest on the old Senior Subordinated Debentures through June 29, 1995; and
(ii) the Company repurchased on June 30, 1995, $10.0 million of its 11.45% Series A First Mortgage Bonds due 2002 at par and paid an agreement modification fee of $2.25 million to MetLife in conjunction with amending the Amended and Restated Investment Agreement, dated March 2, 1993, between the Company and MetLife.
In addition, the Company has:
(a) Amended on June 30, 1995, the existing credit agreement with its primary bank, which provides an aggregate availability of $27.5 million, to be used for any combination of letters of credit (up to $10.0 million) and revolving cash borrowings, subject to borrowing base limitations. The new credit agreement is secured by the Company's trade receivables and, at the Company's option, mortgages on certain of the Company's warehouse properties.
(b) Rejected certain lease agreements relating to four warehouse facilities at Watsonville, Oakland and San Francisco, California; and Chicago, Illinois.
In November 1990, the American Institute of Certified Public Accountants issued Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" (SOP 90-7). Under SOP 90-7, the financial statements for periods including and subsequent to filing a Chapter 11 petition are structured to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the Company. Since the Company was in Chapter 11 proceedings for less than two months, and since the Plan did not differentiate between prepetition and post- petition liabilities and did not include any forgiveness of liabilities, the Company has elected not to follow the presentation proposed by SOP 90-7. The Company has expensed all professional fees and similar types of expenditures incurred through the last day of February 1996 directly relating to the Chapter 11 proceedings as "reorganization expenses." In late fiscal 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. The outcome of any damage claim resulting from the remaining lease rejection related to the Chicago warehouse facility cannot be predicted at this time, but the Company does not believe the resolution of such claim will be material.
16. Subsequent Events -----------------
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.
SCHEDULE II
AMERICOLD CORPORATION
Valuation and Qualifying Accounts
Years ended the last day of February 1994, 1995 and 1996
(In thousands)
AMERICOLD CORPORATION FORM 10-K
EXHIBIT INDEX
Exhibit Page - -------- ----
4.1 (1) Fourth Amendment dated March 14, 1996 to Stockholders' Agreement dated as of December 24, 1986, as amended on April 15, 1987, June 22, 1987 and May 20, 1990
10.1 (1) First Amendment to Americold Corporation Management Incentive Plan, amended as of April 24, 1996
(11) Statement re Computation of Per Share Earnings
(21) Subsidiary of the Registrant
(23) Consent of KPMG Peat Marwick LLP
(27) Financial Data Schedule