-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F76KTDt/eksNgUyiAZ3xwk+HMab4vXLe0JtxL+s95i+cODYF/fKqlDwG15hB3XHT +n42YyGNGJIoCzghWKtokA== 0000889812-99-000537.txt : 19990217 0000889812-99-000537.hdr.sgml : 19990217 ACCESSION NUMBER: 0000889812-99-000537 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990102 FILED AS OF DATE: 19990216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRAND UNION CO /DE/ CENTRAL INDEX KEY: 0000316236 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 221518276 STATE OF INCORPORATION: DE FISCAL YEAR END: 0328 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07824 FILM NUMBER: 99539843 BUSINESS ADDRESS: STREET 1: 201 WILLOWBROOK BLVD CITY: WAYNE STATE: NJ ZIP: 07470-0966 BUSINESS PHONE: 2018906000 MAIL ADDRESS: STREET 1: 201 WILLOWBROOK BLVD CITY: WAYNE STATE: NJ ZIP: 07470 FORMER COMPANY: FORMER CONFORMED NAME: SUCCESSOR TO GRAND UNION CO/VA/ DATE OF NAME CHANGE: 19600201 10-Q 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 2, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission File Number 0-26602 THE GRAND UNION COMPANY - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 22-1518276 -------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 201 Willowbrook Boulevard, Wayne, New Jersey 07470-0966 - -------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) 973-890-6000 ------------- Registrant's telephone number, including area code Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. Yes X No -------- ------- Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No -------- ------- As of February 16, 1999, there were issued and outstanding 30,000,000 shares, par value $0.01 per share, of the Registrant's common stock. - 1 - THE GRAND UNION COMPANY INDEX PART I - FINANCIAL INFORMATION (Unaudited)
Item 1. Financial Statements. Page No. Consolidated Statement of Operations - 12 weeks ended January 2, 1999 (Successor Company) and 12 weeks ended January 3, 1998 (Predecessor Company) 3 Consolidated Statement of Operations - 20 weeks ended January 2, 1999 (Successor Company), 20 weeks ended August 15, 1998 and 40 weeks ended January 3, 1998 (Predecessor Company) 4 Consolidated Balance Sheet - January 2, 1999 (Successor Company) and March 28, 1998 (Predecessor Company) 5 Consolidated Statement of Cash Flows - 20 weeks ended January 2, 1999 (Successor Company), 20 weeks ended August 15, 1998 and 40 weeks ended January 3, 1998 (Predecessor Company) 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 10 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. 13 - ------------------------------------------
All items which are not applicable or to which the answer is negative have been omitted from this report. - 2 - PART I - FINANCIAL INFORMATION Item 1. Financial Statements. THE GRAND UNION COMPANY CONSOLIDATED STATEMENT OF OPERATIONS (dollars in thousands, except per share data) (unaudited)
Successor Predecessor Company Company ------------ -------------- 12 Weeks 12 Weeks Ended Ended January 2, January 3, 1999 1998 ------------ -------------- Sales $ 527,666 $ 534,320 Cost of sales 373,700 378,115 ------------- -------------- Gross profit 153,966 156,205 Operating and administrative expenses 123,915 130,044 Depreciation and amortization 14,925 16,593 Amortization of excess reorganization value 30,077 24,077 Unusual items 341 3,665 Interest expense, net 10,169 27,654 ------------- -------------- (Loss) before income taxes (25,461) (45,828) Income tax provision 1,228 - ------------- -------------- Net (loss) (26,689) (45,828) Accrued dividends on preferred stock - (2,096) ------------- -------------- Net (loss) applicable to common stock $ (26,689) $ (47,924) ============= ============== Basic and diluted net (loss) per common share $ (0.89) ============= Weighted average number of shares outstanding 30,000,000 =============
See accompanying notes to consolidated financial statements (unaudited). - 3 - THE GRAND UNION COMPANY CONSOLIDATED STATEMENT OF OPERATIONS (dollars in thousands, except per share data) (unaudited)
Successor Company Predecessor Company --------------- ---------------------------------- 20 Weeks 20 Weeks 40 Weeks Ended Ended Ended January 2, August 15, January 3, 1999 1998 1998 --------------- ---------------- ---------------- Sales $ 870,137 $ 868,962 $ 1,761,214 Cost of sales 613,357 610,930 1,269,566 --------------- ---------------- ---------------- Gross profit 256,780 258,032 491,648 Operating and administrative expenses 208,631 217,683 442,369 Depreciation and amortization 25,115 26,081 61,369 Amortization of excess reorganization value 50,319 40,128 80,255 Unusual items 988 4,789 3,665 Interest expense, net 16,788 36,509 85,986 --------------- ---------------- ---------------- (Loss) before income taxes and extraordinary item (45,061) (67,158) (181,996) Income tax provision 1,052 - - --------------- ---------------- ---------------- Net (loss) before extraordinary item (46,113) (67,158) (181,996) Extraordinary item - 259,045 - --------------- ---------------- ---------------- Net income (loss) (46,113) 191,887 (181,996) Accrued dividends on preferred stock - 2,305 6,226 --------------- ---------------- ---------------- Net income (loss) applicable to common stock $ (46,113) $ 189,582 $ (188,222) =============== ================ ================ Basic and diluted net (loss) per common share $ (1.54) =============== Weighted average number of shares outstanding 30,000,000 ===============
See accompanying notes to consolidated financial statements (unaudited). - 4 - THE GRAND UNION COMPANY CONSOLIDATED BALANCE SHEET (dollars in thousands, except par value and liquidation preference data) (unaudited)
Successor Predecessor Company Company ----------------- ----------------- January 2, March 28, 1999 1998 ----------------- ----------------- ASSETS Current assets: Cash and temporary investments $ 66,431 $ 44,745 Receivables 37,258 21,378 Inventories 152,667 128,370 Other current assets 5,724 14,787 ----------------- ----------------- Total current assets 262,080 209,280 Property, net 327,464 389,637 Excess reorganization value, net 342,171 230,734 Beneficial leases, net 72,597 51,935 Deferred tax asset 113,944 - Other assets 13,234 23,049 ----------------- ----------------- $ 1,131,490 $ 904,635 ================= ================= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current maturities of long-term debt $ - $ 798,551 Current portion of obligations under capital leases 6,268 7,562 Accounts payable and accrued liabilities 185,588 189,439 ----------------- ----------------- Total current liabilities 191,856 995,552 Long-term debt 230,000 - Obligations under capital leases 148,720 153,425 Adverse leases, net 76,013 12,404 Other noncurrent liabilities 145,914 96,458 ----------------- ----------------- Total liabilities 792,503 1,257,839 ----------------- ----------------- Redeemable Class A Preferred Stock (Predecessor Company), $1.00 par 70,685 value, 3,500,000 shares authorized, 1,300,566 shares issued and outstanding, liquidation preference $70,685,000 at March 28, 1998 ----------------- ----------------- Redeemable Class B Preferred Stock (Predecessor Company), $1.00 par 42,746 value, 1,400,000 shares authorized, 800,000 shares issued and outstanding, liquidation preference $42,746,000 at March 28, 1998 ----------------- ----------------- Stockholders' equity (deficit): Common stock (Predecessor Company), $.01 par value; 60,000,000 shares 102 authorized, 10,202,018 shares issued and outstanding at March 28, 1998 Common stock (Successor Company), $.01 par value; 60,000,000 shares 300 authorized, 30,000,000 shares issued and outstanding at January 2, 1999 Preferred stock (Predecessor Company), $1.00 par value; 10,000,000 - shares authorized, less amount authorized as Class A and Class B preferred stock, no shares issued and outstanding Preferred stock (Successor Company), $1.00 par value; 10,000,000 shares - authorized, no shares issued and outstanding Capital in excess of par value 384,800 132,006 Accumulated deficit (46,113) (597,193) Accumulated other comprehensive income (loss) - (1,550) ----------------- ----------------- Total stockholders' equity (deficit) 338,987 (466,635) ================= ================= $ 1,131,490 $ 904,635 ================= =================
See accompanying notes to consolidated financial statements (unaudited). - 5 - THE GRAND UNION COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (dollars in thousands) (unaudited)
Successor Company Predecessor Company ------------------ --------------------------------------- 20 Weeks 20 Weeks 40 Weeks Ended Ended Ended January 2, August 15, January 3, 1999 1998 1998 ------------------ ------------------ ----------------- OPERATING ACTIVITIES: Net income (loss) $ (46,113) $ 191,887 $ (181,996) Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities before reorganization items paid: Unusual items 988 4,789 - Extraordinary items - (259,045) - Depreciation and amortization 75,434 66,209 141,624 Deferred taxes 1,052 - - Noncash interest 607 626 531 Gain on sale of property (1,889) - - Net changes in assets and liabilities: Receivables (14,691) (1,506) (8,870) Inventories (24,309) (5,586) (3,188) Other current assets (104) (99) (1,259) Other assets 1,545 29 - Accounts payable and accrued liabilities 13,839 22,347 17,634 Other noncurrent liabilities (2,278) (517) (7,550) ----------------- ----------------- ----------------- Net cash provided by (used for) operating activities before 4,081 19,134 (43,074) reorganization items paid Reorganization items paid (988) (9,102) (3,681) ----------------- ----------------- ----------------- Net cash provided by (used for) operating activities 3,093 10,032 (46,755) ----------------- ----------------- ----------------- INVESTMENT ACTIVITIES: Capital expenditures (7,454) (3,413) (35,465) Proceeds from sale of property 2,139 - - Disposals of property 150 49 5,863 ------------------ ------------------ ----------------- Net cash (used for) investment activities (5,165) (3,364) (29,602) ------------------ ------------------ ----------------- FINANCING ACTIVITIES: Net proceeds from sale of preferred stock - - 40,000 Proceeds from long-term debt - 230,000 77,978 Proceeds from DIP facility - 108,000 - Repayment of DIP facility - (108,000) - Financing fees - (7,895) (9,744) Repayment of old bank debt - (182,122) - Obligations under capital leases discharged (2,799) (3,094) (6,866) Net repayment of long-term debt - (17,000) (21,046) ------------------ ------------------ ----------------- Net cash provided by (used for) financing activities (2,799) 19,889 80,322 ------------------ ------------------ ----------------- Net increase (decrease) in cash and temporary investments (4,871) 26,557 3,965 Cash and temporary investments at beginning of period 71,302 44,745 34,119 ------------------ ------------------ ----------------- Cash and temporary investments at end of period $ 66,431 $ 71,302 $ 38,084 ================== ================== ================= Supplemental disclosure of cash flow information: Interest payments $ 14,276 $ 21,358 $ 64,245 Capital lease obligations incurred - - 20,835 Accrued dividends - 2,305 6,226 See accompanying notes to consolidated financial statements (unaudited). - 6 - THE GRAND UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 - Reorganization On August 17, 1998 (the "Effective Date"), The Grand Union Company (the "Company") consummated its plan of reorganization under Chapter 11 of the Bankruptcy Code (the "Plan of Reorganization") pursuant to the August 5, 1998 Confirmation Order of the United States Bankruptcy Court for the District of New Jersey. Consummation of the Plan of Reorganization has resulted in a capital restructuring of the Company, whereby approximately $600 million in Old Senior Notes has been eliminated from the Company's balance sheet, reducing annual interest expense by approximately $72 million. Consummation of the Plan of Reorganization has resulted in (i) the issuance of 30,000,000 shares of New Common Stock to the holders of the Company's Old Senior Notes; (ii) the issuance of New Series 1, Series 2 and Series 3 Warrants to the holders of the Company's Old Preferred Stock; (iii) the issuance of New Series 1 Warrants to holders of the Company's Old Common Stock; and (iv) cancellation of the Company's Old Senior Notes, Old Preferred Stock, Old Common Stock, Old Series 1 and Series 2 Warrants and Old Stock Options. As of October 1, 1998, the Company's new common stock began trading on the NASDAQ National Market under the ticker symbol GUCO. On August 17, 1998, in connection with the consummation of the Plan of Reorganization, the Company entered into a $300 million credit agreement (the "Credit Agreement") with UBS AG, Stamford Branch and Lehman Commercial Paper Inc. ("LCPI") as agents for a syndicate of lenders, which is secured by substantially all of the assets of the Company and its subsidiaries and is guaranteed by the Company's subsidiaries. Some of the proceeds of the Credit Agreement were used to pay off the Company's obligation under its debtor-in-possession credit agreement (the "DIP Facility"), which had provided the Company operating liquidity during the Chapter 11 case. Consummation of the Plan of Reorganization has resulted in the election of a new Board of Directors for the Company (the "Board"). Effective August 17, 1998, the Board is comprised of eleven members. The three management Directors are: J. Wayne Harris, Chairman and Chief Executive Officer; Jack W. Partridge Jr., Vice Chairman and Chief Administrative Officer, and Gary M. Philbin, President and Chief Merchandising Officer. The eight additional members of the Board are: Martin Bernstein, Thomas R. Cochill, Joseph Colonnetta, Jacob W. Doft, David M. Green, Joseph V. Lash, Anthony Petrillo and Scott Tepper. For more information about the Plan of Reorganization, reference is made to Exhibit 2.1 to Grand Union's report on Form 8-K dated August 19, 1998. For more information about the Credit Agreement, reference is made to Exhibit 10.6 of the Company's Quarterly Report on Form 10-Q for the 16 weeks ended July 18, 1998. For more information about members of the Board, reference is made to Exhibit 99.2 to Grand Union's report on Form 8-K dated August 19, 1998. NOTE 2 - Basis of Presentation The accompanying interim consolidated financial statements of the Company include the accounts of the Company and its subsidiaries, all of which are wholly owned. In the opinion of management, the consolidated financial statements include all adjustments which, except for Fresh-Start adjustments (see note 3), consist only of normal recurring items, necessary for a fair presentation of operating results for the interim periods. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company's Annual Report on Form 10-K for the 52 weeks ended March 28, 1998, the Company's Quarterly Report on Form 10-Q for the 16 weeks ended July 18, 1998, and Form 10-Q for the 28 weeks ended October 10, 1998, the Form 8-K dated May 27, 1998 and the Company's Disclosure Statement attached thereto as Exhibit 2.1. Operating results for the periods presented are not necessarily indicative of results for the full fiscal year. Certain reclassifications have been made to prior year amounts to conform to current period presentation. - 7 - NOTE 3 - Fresh-Start Reporting Upon emergence from its Chapter 11 proceedings, the Company adopted fresh-start reporting in accordance with American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting By Entities in Reorganization Under The Bankruptcy Code" ("Fresh-Start Reporting"). In connection with the adoption of Fresh-Start Reporting, a new entity has been deemed created for financial reporting purposes. The periods presented prior to the Effective Date have been designated "Predecessor Company" and the period subsequent to the Effective Date has been designated "Successor Company". For financial reporting purposes, the Company accounted for the consummation of the Plan of Reorganization effective August 15, 1998. In accordance with Fresh-Start Reporting, the Company valued its assets and liabilities at fair values and eliminated its accumulated deficit at the Effective Date. As of the Effective Date the reorganization value of the Company's common equity of approximately $385,100,000 was determined by the Company with the assistance of financial advisors in reliance upon various valuation methods, including discounted projected cash flows analyses, price/earnings ratios, and other applicable ratios and economic industry information relevant to the operations of the Company, and through negotiations with the various parties in interest. The total reorganization value as of the Effective Date was approximately $730,000,000, which was $392,494,000 in excess of the aggregate fair value of the Company's tangible and identified intangible assets. Such excess is classified as "Excess reorganization value, net" in the accompanying consolidated balance sheet and is being amortized on a straight-line basis over a three-year period. As a result of the consummation of the Plan of Reorganization, the Company recognized an extraordinary gain on debt discharge as follows (in thousands): Elimination of Old Debt, deferred financing fees and accrued interest $ 645,884 Issuance of New Common Stock (385,100) ------------- Extraordinary gain on debt discharge $ 260,784 ============= NOTE 4 - Income Taxes The Company recorded federal and state income tax provisions of $1.2 and $1.1 million during the 1999 third quarter and 1999 year to date periods, respectively. All operating loss and credit carryforwards of the Company have been offset by the cancellation of indebtedness income recorded in connection with the Plan of Reorganization. The tax basis of the Company's assets were reduced by $11.2 million, representing the Company's cancellation of indebtedness income in excess of its operating loss and credit carryforwards as of the Effective Date. The Company recorded no income tax provision or benefit during the 1998 third quarter and 1998 year to date. NOTE 5 - Unusual Items Unusual items recognized consist of $9.7 million in connection with legal, advisory and bank fees associated with the Plan of Reorganization and $3.9 million as a net gain resulting from the elimination of debt premiums. NOTE 6 - Extraordinary Items The Company recognized a net extraordinary gain of $260.8 million for the 12 weeks ended October 10, 1998 as a result of the discharge of debt in connection with the consummation of the Plan of Reorganization. An extraordinary expense of $1.7 million was recorded during the 16 weeks ended July 18, 1998 for the write-off of deferred financing costs associated with a term loan refinanced by the DIP facility. - 8 - NOTE 7 - Debt The components of the Company's debt are as follows (in thousands):
Successor Predecessor Company Company ------------------ ----------------- January 2, March 28, 1999 1998 ------------------ ----------------- Bank Credit Agreements Term Loans $ 230,000 $ 182,122 Revolving Credit Facility - 17,000 12% Senior Notes due September 1, 2004 (includes $4,008 of unamortized debt premium at March 28, 1998) - 599,429 ------------------ ----------------- 230,000 798,551 Less: current maturities of long-term debt - 798,551 ================== ================= Long-term debt $ 230,000 $ - ================== =================
In connection with the Chapter 11 filing, the Company entered into the DIP Facility, a $172,022,020 revolving credit agreement with Swiss Bank Corporation ("SBC") and LCPI, as agents for a syndicate of lenders. The DIP Facility included a $50 million letter of credit sub-facility. The DIP facility matured on August 17, 1998, the consummation date of the Plan of Reorganization. The proceeds of the DIP Facility were used (i) to finance the working capital needs of the Company and its subsidiaries in the ordinary course of business, (ii) to finance the payment of Chapter 11 expenses, (iii) for general corporate purposes and (iv) to refinance the revolving credit facility and term loan under the pre-Chapter 11 Credit Agreement (the "Old Credit Agreement") and to replace or backstop letters of credit outstanding under an existing credit agreement. The DIP Facility was secured by substantially all of the assets of Grand Union and its subsidiaries and was guaranteed by the Company's subsidiaries. On August 17, 1998, in connection with the consummation of the Plan of Reorganization, the Company entered into the Credit Agreement. The Credit Agreement is comprised of: (i) a $230 million term loan facility (the "Term Loan") and (ii) a $70 million revolving credit facility (the "Revolving Credit"). The Term Loan and Revolving Credit will mature on August 18, 2003. The proceeds of the Credit Agreement have been used to refinance the obligations under the DIP Facility and supplemental term loan claims under the Old Credit Agreement, and the excess portion will be used for the working capital needs of Grand Union and its subsidiaries, including capital expenditures. Up to $50 million of Revolving Credit will be available for the issuance of letters of credit. As of January 2, 1999, an aggregate of $34 million of letters of credit were issued and outstanding under the Credit Agreement. NOTE 8 - Net Loss Per Share The net loss per share is computed in accordance with SFAS No. 128, "Earnings Per Share." This statement requires that entities present, on the face of the income statement for all periods reflected, basic and diluted per share amounts. Basic earnings per share is computed using the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed using the weighted average number of common shares outstanding for the period adjusted for dilutive potential common shares. There were 30 million weighted average shares outstanding for both basic and diluted earnings per share for the 12 and 20 weeks ended January 2, 1999. All potential common shares were excluded from the computation of the Company's diluted earnings per share because the effect would have been anti-dilutive. Net loss per share data is not meaningful for periods prior to August 15, 1998 due to the capital restructuring. - 9 - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. General: As discussed in Note 1 to the accompanying Consolidated Financial Statements of Grand Union, the Company emerged from its Chapter 11 proceedings effective August 17, 1998. For financial reporting purposes, the Company accounted for the consummation of the Plan of Reorganization effective August 15, 1998. In accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting By Entities in Reorganization Under The Bankruptcy Code", the Company has applied Fresh-Start Reporting as of the Effective Date which has resulted in significant changes to the valuation of certain of the Company's assets and liabilities, and to its stockholders' equity. In connection with the adoption of Fresh-Start Reporting, a new entity has been deemed created for financial reporting purposes. The periods prior to the Effective Date have been designated "Predecessor Company" and the period subsequent to the Effective Date has been designated "Successor Company". For purposes of the discussion of Results of Operations for the 40 weeks ended January 2, 1999, the results of the Predecessor Company and Successor Company have been combined. Results of Operations The following table sets forth certain statement of operations and other data (all dollars in millions).
12 Weeks Ended 40 Weeks Ended ---------------------------------- --------------------------------- January 2, January 3, January 2, January 3, 1999 1998 1999 1998 ---------------- ---------------- ---------------- --------------- Sales $ 527.7 $ 534.3 $ 1,739.1 $ 1,761.2 Gross profit 154.0 156.2 514.8 491.6 Operating and administrative expenses 123.9 130.0 426.3 442.4 Depreciation and amortization 14.9 16.6 51.2 61.4 Amortization of excess reorganization value 30.1 24.1 90.4 80.3 Unusual item .3 3.7 5.8 3.7 Interest expense, net 10.2 27.7 53.3 86.0 Income tax provision 1.2 - 1.1 - Net (loss) before extraordinary item (26.7) (45.8) (113.3) (182.0) Extraordinary item - - 259.0 - Net income (loss) (26.7) (45.8) 145.8 (182.0) Net income (loss) applicable to common stock (26.7) (47.9) 143.5 (188.2) Sales percentage increase (decrease) (1.2%) (0.5%) (1.3%) (2.0%) Gross profit as a percentage of sales 29.2% 29.2% 29.6% 27.9% Operating and administrative expenses as a 23.5% 24.3% 24.5% 25.1% percentage of sales
Sales for the 12 weeks ended January 2, 1999 (the "1999 third quarter") decreased $6.6 million, or 1.2% as compared to the 12 weeks ended January 3, 1998 (the "1998 third quarter"). Comparable store sales, including replacement stores, decreased 0.93% during the 1999 third quarter. The Company continues to invest in marketing and promotional programs to drive sales and compete effectively. For the 1999 third quarter, the Company did not close any stores. Sales for the 40 weeks ended January 2, 1999 (the "1999 year to date") decreased $22.1 million or 1.3% as compared to the 40 weeks ended January 3, 1998 (the "1998 year to date"). Comparable store sales, including replacement stores, decreased 0.67% during the 1999 year to date. Adverse weather conditions, increased competition, and historic deferral of capital expenditures were primarily responsible for decreased sales for the 1999 year to date. For the 1999 year to date, the Company has opened one replacement store and closed two stores. - 10 - Gross profit, as a percentage of sales, was 29.2% in the 1999 and 1998 third quarters. The gross profit percentage increased to 29.6% for the 1999 year to date, compared to 27.9% for the 1998 year to date, primarily due to an increase in allowance and promotional income as well as new marketing initiatives. Operating and administrative expenses, as a percentage of sales, decreased to 23.5% from 24.3% for the 1999 third quarter compared to the 1998 third quarter. This reflects continued expense reduction in all areas of the business. Additionally, the Company recognized a $1.9 million gain on sale of property during the quarter. Operating and administrative expenses, as a percentage of sales, decreased to 24.5% for 1999 year to date, compared to 25.1% for the 1998 year to date. Depreciation and amortization decreased to $14.9 million from $16.6 million for the 1999 third quarter compared to the 1998 third quarter, and has decreased $10.2 million for the 1999 year to date, compared to the 1998 year to date. This decrease is mainly the result of impairment losses on assets recorded in the fiscal 1998 fourth quarter and the historical deferral of capital expenditures. Interest expense, net decreased to $10.2 million from $27.7 million for the 1999 third quarter compared to the 1998 third quarter, and has decreased to $53.3 million from $86.0 million for the 1999 year to date, compared to the 1998 year to date. The 1999 third quarter and year to date decrease is principally an effect of the Company's reduced debt burden as a result of the reorganization, favorable interest terms and the overall credit environment. The Company recorded federal and state income tax provisions of $1.2 million during the 1999 third quarter and $1.1 million provision for the 1999 year to date period. The Company recorded no income tax provision or benefit during the 1998 third quarter and 1998 year to date periods. Unusual items of $341,000 were recorded during the 1999 third quarter which consisted of fees associated with the Plan of Reorganization. The 1999 year to date period included expenses of $9.7 million in connection with legal, advisory and bank fees associated with the Plan of Reorganization and a net gain of $3.9 million resulting from the elimination of debt premiums. The Company recorded no extraordinary items during the 1999 third quarter. For the 1999 year to date period, the Company recognized an extraordinary gain of $260.8 million resulting from the discharge of debt in connection with the consummation of the Plan of Reorganization. In addition, the Company recorded an extraordinary item expense of $1.7 million, which is related to the write-off of deferred financing costs associated with a term loan refinanced by the DIP facility. The Company recognized no extraordinary gains or losses during the 1998 third quarter and year to date periods. Liquidity and Capital Resources On August 17, 1998, in connection with the consummation of the Plan of Reorganization, the Company entered into the Credit Agreement. The Credit Agreement is comprised of: (i) a $230 million Term Loan and (ii) a $70 million Revolving Credit Facility. The Term Loan and Revolving Credit Facility will mature on August 18, 2003. The proceeds of the Credit Agreement have been used to refinance the obligations under the DIP Facility and supplemental term loan claims under the Old Credit Agreement. The excess will be used for working capital and capital expenditures. Up to $50 million of the Revolving Credit Facility will be available for the issuance of letters of credit. As of January 2, 1999, an aggregate of $34 million of letters of credit were issued and outstanding under the Credit Agreement. Year 2000 Compliance Disclosure In May 1998, the Company established a Year 2000 Task Force (the "Task Force") to address the issues that may occur as a result of the two-digit year change associated with the new millenium. The Task Force consists of a chairman, plus three staff members. The Task Force works in conjunction with the Information Technology Department, the Company's newly appointed Chief Information Officer, outside information technology consultants, outside counsel and the Company's Executive Committee, which is comprised of all of the Company's executive officers. The Task Force believes it has identified all computer-based systems and applications, including embedded systems, used by the Company in its operations. The Task Force has categorized these systems and applications according to the end-user department within the Company, based upon how critical the function is to the Company's operations. The Task Force is determining and implementing the modifications or replacements necessary to achieve compliance; conducting tests to verify - 11 - that the modified systems are operational and compliant; and once completed, reinstating the compliant systems into the normal operations of the Company. The systems and applications with the greatest level of importance to the Company's operations are being assessed and modified or replaced first. Management believes that virtually all internally developed systems and applications are currently Year 2000 ("Y2K") compliant. The Company estimates that all critical systems and applications will be Y2K compliant by June 1, 1999. The Task Force is also examining the Company's relationships with certain key outside vendors and others with whom the Company has significant business relationships to determine, to the extent practical, the degree of such outside parties' Y2K compliance. The Task Force has distributed Y2K compliance questionnaires to vendors and suppliers who do business with the Company. Particular attention has been focused on C&S Wholesale Grocers, Inc., ("C&S"), which supplies the majority of inventory to the Company's stores. The Task Force, senior management, members of IT and outside counsel have met with C&S to understand their Y2K compliance efforts and have begun testing to assure such Y2K compliance. The Task Force has also begun testing procedures with vendors to determine Y2K compliance. Management is of the opinion that the Company's continued relationship with C&S is the only material vendor relationship that could significantly impact the Company's operations in the event of Y2K noncompliance and does not believe that any other particular third party's failure to be Y2K compliant would have a material adverse effect on the Company. The Task Force is in the process of finalizing and implementing a contingency plan to provide for viable alternatives to ensure that the Company's core business operations are able to continue in the event of Y2K-related systems failure. Management expects to have a comprehensive contingency plan established by June 1, 1999. Through January 2, 1999, the Company has expended approximately $2.5 million to address Y2K compliance issues. The Company estimates that it will incur additional expenses of $2.5-7.5 million, for a total of approximately $5-10 million, to address and resolve Y2K compliance issues, which includes the estimated costs of all modifications, testing and consultants' fees. Management believes that should the Company or C&S have a Y2K-related systems failure, the most significant impact would likely be the temporary inability, with respect to individual stores or a group of stores, to conduct operations due to a power failure, to distribute inventory in a timely fashion, to receive certain products from vendors or to electronically process customer sales at store level. The Company does not anticipate that any such temporary impact would be material to the Company's liquidity or the Company's results of operations. With the exception of historical information, some matters discussed herein, including, but not limited to, the Year 2000 Compliance Disclosure, are or contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, the competitive environment in which the Company operates, the general economic conditions in the geographic areas in which the Company operates, and the timely resolution of Year 2000 Compliance issues by the Company, its vendors and others with whom the Company has significant business relationships. For additional information about the Company and its operating and financial condition, please see the Company's most recent Form 10-K for the year ended March 28, 1998, the Company's Quarterly Report on Form 10-Q for the 16 weeks ended July 18, 1998, and Form 10-Q for the 28 weeks ended October 10, 1998, the Form 8-K dated May 27, 1998 and the Company's Disclosure Statement attached thereto as Exhibit 2.1. and other documents as filed with the SEC. - 12 - PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit Number 27.1 Financial Data Schedule, for the twenty weeks ended January 2, 1999. 27.2 Financial Data Schedule, for the twenty weeks ended August 15, 1998. (b) Reports on Form 8-K No reports on Form 8-K were filed during the 12 weeks ended January 2, 1999. - 13 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE GRAND UNION COMPANY ----------------------- (Registrant) /s/ Jeffrey P. Freimark ----------------------- Jeffrey P. Freimark, Executive Vice President Chief Financial Officer Date: February 16, 1999 EX-27.1 2 ARTICLE 5 FDS
5 This schedule contains summary financial information extracted from the company's interim consolidated financial statements and is qualified in its entirety by reference to such financial statements. OTHER APR-3-1999 JAN-2-1999 66,431 0 37,258 0 152,667 262,080 813,501 486,037 1,131,490 191,856 0 0 0 300 338,687 1,131,490 870,137 870,137 613,357 613,357 285,053 0 16,788 (45,061) 1,052 (46,113) 0 0 0 (46,113) (1.54) (1.54)
EX-27.2 3 ARTICLE 5 FDS
5 This schedule contains summary financial information extracted from the company's interim consolidated financial statements and is qualified in its entirety by reference to such financial statements. OTHER APR-3-1999 AUG-15-1998 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 868,962 868,962 610,930 610,930 288,681 0 36,509 (67,158) 0 (67,158) 0 259,045 0 191,887 0 0
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