-----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, NnK/k2mNfQ3jLvcp00GQpwzRihDyylBXXeS9Ha8cku66JSjXSZzjHfV+KwbzDUbt tmJqQlRJoYq3k6+ZsAebOA== 0000889812-00-000917.txt : 20000223 0000889812-00-000917.hdr.sgml : 20000223 ACCESSION NUMBER: 0000889812-00-000917 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000108 FILED AS OF DATE: 20000222 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: 0403 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07824 FILM NUMBER: 550174 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 8, 2000 --------------- [ ] 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 Identification No.) incorporation or organization) 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 22, 2000, there were issued and outstanding 29,992,389 shares, par value $0.01 per share, of the Registrant's common stock. THE GRAND UNION COMPANY Form 10-Q For the 40 Weeks Ended January 8, 2000
INDEX PART I - FINANCIAL INFORMATION (Unaudited) Item 1. Financial Statements. Page No. -------- Consolidated Statement of Operations - 12 Weeks Ended January 8, 2000 and 12 Weeks Ended January 2, 1999 3 Consolidated Statement of Operations - 40 Weeks Ended January 8, 2000 and 20 Weeks Ended January 2, 1999 (Successor Company) and 20 Weeks Ended August 15, 1998 (Predecessor Company) 4 Consolidated Balance Sheet - January 8, 2000 and April 3, 1999 5 Consolidated Statement of Cash Flows - 40 Weeks Ended January 8, 2000 and 20 Weeks Ended January 2, 1999 (Successor Company) and 20 Weeks Ended August 15, 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 Item 3. Quantitative and Qualitative Disclosures About Market Risk. 12 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) 12 Weeks 12 Weeks Ended Ended January 8, January 2, 2000 1999 ---------- ---------- Sales $ 520,304 $ 527,666 Cost of sales 370,945 373,700 ---------- ---------- Gross profit 149,359 153,966 Operating and administrative expenses 128,025 126,105 Depreciation and amortization 18,966 12,735 Amortization of excess reorganization value 30,428 30,077 Unusual items - 341 Interest expense, net 10,503 10,169 ---------- ---------- (Loss) before income taxes and extraordinary item (38,563) (25,461) Income tax provision (benefit) (3,000) 1,228 ---------- ---------- Net (loss) before extraordinary item (35,563) (26,689) Extraordinary item - - ---------- ---------- Net (loss) applicable to common stock $ (35,563) $ (26,689) ========== ========== Basic and diluted net (loss) per common share $ (1.19) $ (0.89) ========== ========== Weighted average number of shares outstanding 29,992,389 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)
Predecessor Successor Company Company ------------------------ ---------- 40 Weeks 20 Weeks 20 Weeks Ended Ended Ended January 8, January 2, August 15, 2000 1999 1998 ---------- ---------- ---------- Sales $ 1,719,920 $ 870,137 $ 868,962 Cost of sales 1,207,378 613,357 610,930 ----------- ----------- ----------- Gross profit 512,542 256,780 258,032 Operating and administrative expenses 428,583 212,281 221,647 Depreciation and amortization 48,115 21,465 22,117 Amortization of excess reorganization value 101,422 50,319 40,128 Unusual items -- 988 4,789 Interest expense, net 33,148 16,788 36,509 ----------- ----------- ----------- (Loss) before income taxes and extraordinary item (98,726) (45,061) (67,158) Income tax provision 1,258 1,052 -- ----------- ----------- ----------- Net (loss) before extraordinary item (99,984) (46,113) (67,158) Extraordinary item -- -- 259,045 ----------- ----------- ----------- Net income (loss) (99,984) (46,113) 191,887 Accrued dividends on preferred stock -- -- 2,305 ----------- ----------- ----------- Net income (loss) applicable to common stock $ (99,984) $ (46,113) $ 189,582 =========== =========== =========== Basic and diluted net (loss) per common share $ (3.33) $ (1.54) =========== =========== Weighted average number of shares outstanding 29,996,086 30,000,000 =========== ===========
See accompanying notes to consolidated financial statements (unaudited). -4- THE GRAND UNION COMPANY CONSOLIDATED BALANCE SHEET (numbers in thousands, except par value) (unaudited)
January 8, April 3, 2000 1999 ------------ ------------- ASSETS Current assets: Cash and temporary investments $ 21,666 $ 57,414 Receivables 61,369 34,645 Inventories 155,150 152,217 Other current assets 6,617 7,644 ----------- ----------- Total current assets 244,802 251,920 Property, net 326,423 327,881 Excess reorganization value, net 212,997 314,420 Beneficial leases, net 56,995 66,547 Deferred income taxes, net 120,001 114,429 Other assets 12,981 14,053 ----------- ----------- Total assets $ 974,199 $ 1,089,250 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ -- $ -- Current portion of obligations under capital leases 5,005 6,303 Accounts payable and accrued liabilities 157,292 171,999 ----------- ----------- Total current liabilities 162,297 178,302 Long-term debt 234,000 230,000 Obligations under capital leases 150,604 154,837 Adverse leases, net 70,348 74,322 Other noncurrent liabilities 149,317 144,172 ----------- ----------- Total liabilities 766,566 781,633 ----------- ----------- Commitments and contingencies Stockholders' equity: Common stock, $.01 par value; 60,000,000 shares authorized, 29,992,389 and 30,000,000 shares issued and outstanding at January 8, 2000 and April 3, 1999, respectively 300 300 Preferred stock, $1.00 par value; 10,000,000 shares authorized, no shares issued and outstanding -- -- Capital in excess of par value 384,800 384,800 Accumulated deficit (177,467) (77,483) ----------- ----------- Total stockholders' equity 207,633 307,617 ----------- ----------- Total liabilities and stockholders' equity $ 974,199 $ 1,089,250 =========== ===========
See accompanying notes to consolidated financial statements (unaudited). -5- THE GRAND UNION COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (numbers in thousands) (unaudited)
Predecessor Successor Company Company ---------------------- ----------- 40 Weeks 20 Weeks 20 Weeks Ended Ended Ended January 8, January 2, August 15, 2000 1999 1998 ---------- ---------- ----------- OPERATING ACTIVITIES: Net income (loss) $ (99,984) $ (46,113) $ 191,887 Adjustments to reconcile net income (loss) to net cash provided by operating activities before reorganization items paid: Unusual items -- 988 4,789 Extraordinary item -- -- (259,045) Depreciation and amortization 149,537 71,784 62,245 Pension and other non-cash items 6,306 3,650 3,957 Net deferred income tax (5,572) 1,052 -- Non-cash interest 1,215 607 626 Gain on sale of property -- (1,889) -- Net changes in assets and liabilities: Receivables (26,724) (14,691) (1,506) Inventories (3,683) (24,309) (5,579) Other current assets 1,027 (104) (99) Other assets (1,110) 1,545 29 Accounts payable and accrued liabilities (14,707) 13,839 22,347 Other noncurrent liabilities (411) (2,278) (517) --------- --------- --------- Net cash provided by operating activities before reorganization items paid 5,894 4,081 19,134 Reorganization items paid -- (988) (9,102) --------- --------- --------- Net cash provided by operating activities 5,894 3,093 10,032 --------- --------- --------- INVESTMENT ACTIVITIES: Capital expenditures (40,708) (7,454) (3,413) Proceeds from sale of property -- 2,139 -- Disposals of property 73 150 49 --------- --------- --------- Net cash (used for) investment activities (40,635) (5,165) (3,364) --------- --------- --------- FINANCING ACTIVITIES: Proceeds from new term loan -- -- 230,000 Proceeds from Revolving Credit Facility 107,000 -- -- Proceeds from DIP Facility -- -- 108,000 Repayment of Revolving Credit Facility (103,000) -- -- Repayment of DIP Facility -- -- (108,000) Financing fees -- -- (7,895) Repayment of old bank debt -- -- (182,122) Obligations under capital leases discharged (5,007) (2,799) (3,094) Net repayment of long-term debt -- -- (17,000) --------- --------- --------- Net cash provided by (used for) financing activities (1,007) (2,799) 19,889 --------- --------- --------- Net increase (decrease) in cash and temporary investments (35,748) (4,871) 26,557 Cash and temporary investments at beginning of period 57,414 71,302 44,745 --------- --------- --------- Cash and temporary investments at end of period $ 21,666 $ 66,431 $ 71,302 ========= ========= ========= Supplemental disclosure of cash flow information: Interest payments $ 31,894 $ 13,669 $ 21,358 Accrued dividends -- -- 2,305 Taxes paid 4,840 -- --
See accompanying notes to consolidated financial statements (unaudited). -6- THE GRAND UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 - Change in Management and Board of Directors On December 17, 1999, the Board of Directors voted to expand the number of directors from eleven to fifteen and elected four new members: Neil A. Augustine, Michael Embler, Stephen M. Peck and Herbert E. Seif. On February 13, 2000, the Grand Union Company (the "Company") removed J. Wayne Harris from his position as Chief Executive Officer, Chairman of the Board, and a Director of the Company, effective immediately. In addition, Jack W. Partridge, Jr., resigned from his position as Vice Chairman, Chief Administrative Officer and a Director of Grand Union. The Company expects to record a charge, in an amount yet to be determined, in the 12 weeks ended April 1, 2000 (the "Fiscal 2000 Fourth Quarter") related to these matters. Gary M. Philbin, the Company's President and a member of the Board of Directors, was elected Chief Executive Officer to replace Harris, and Stephen M. Peck, a non-management director, became Chairman of the Board, replacing Harris in that role. Mr. Philbin had served as the Company's President and Chief Merchandising Officer since joining the Company in 1997. The Company promoted its Executive Vice President and Chief Financial Officer ("CFO"), Jeffrey P. Freimark, to succeed Mr. Partridge as Chief Administrative Officer. Mr. Freimark, who will continue as CFO, has also been elected to the Company's Board of Directors. Effective February 13, 2000, the Board voted to reduce the number of directors from fifteen to fourteen. For more information on the change in Management and Board of Directors, reference is made to Exhibit 99.1 to the Company's report on Form 8-K dated February 14, 2000. 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. Upon emergence from its Chapter 11 proceedings on August 17, 1998 (the "Effective Date"), 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 period presented prior to the Effective Date has been designated "Predecessor Company" and the periods subsequent to the Effective Date have been designated "Successor Company". For financial reporting purposes, the Company accounted for the consummation of its plan of reorganization under Chapter 11 of the Bankruptcy Code (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. In the opinion of management, the consolidated financial statements include all adjustments, which 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 53 weeks ended April 3, 1999 and the Company's Quarterly Reports on Form 10-Q for the 16 weeks ended July 24, 1999 and the 28 weeks ended October 16, 1999. Operating results for the periods presented are not necessarily indicative of results for the full fiscal year. Certain reclassifications have been made to prior period amounts to conform to current period presentation. NOTE 3 - Reorganization On the Effective Date, the Company consummated 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 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. On October 1, 1998, the Company's New Common Stock began trading on the NASDAQ National Market under the ticker symbol GUCO. Pursuant to the Plan of Reorganization, the number of outstanding shares of New Common Stock was reduced to 29,992,389 as of August 17, 1999, because of unreturned Old Senior Notes. -7- On the Effective Date and 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. 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. NOTE 4 - Impairment Losses In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of" ("SFAS 121"), the Company records impairments of long-lived assets, certain identifiable intangibles, and associated goodwill when there is evidence that events or changes in circumstances have made recovery of an asset's carrying value unlikely. In accordance with this statement, the Company performed an evaluation of its assets for impairment considering the present value of estimated net future operating cash flows. This review resulted in the Company recording an impairment loss of $7.1 million during the 12 weeks ended January 8, 2000 (the "Fiscal 2000 Third Quarter"), which was recorded through depreciation and amortization in order to write down certain impaired store assets. NOTE 5 - Income Taxes Income taxes for the interim period are based on the estimated effective tax rate expected to be applicable for the full fiscal year. The Company recorded an income tax benefit, representing federal and state income taxes, of $3.0 million during the Fiscal 2000 Third Quarter and a $1.2 million income tax provision for the 12 weeks ended January 2, 1999 (the "Fiscal 1999 Third Quarter"). The Company recorded an income tax provision of $1.3 million during the 40 weeks ended January 8, 2000 (the "Fiscal 2000 Year to Date") and a $1.1 million income tax provision for the 40 weeks ended January 2, 1999 (the "Fiscal 1999 Year to Date"). NOTE 6 - 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 approximately 30 million weighted average shares outstanding for both basic and diluted earnings per share for the Fiscal 2000 Year to Date. 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. NOTE 7 - Debt The components of the Company's debt are as follows (in thousands): January 8, April 3, 2000 1999 ------------ ------------ Bank Credit Agreements Term Loan $230,000 $230,000 Revolving Credit 4,000 - ------------ ------------ 234,000 230,000 Less: current maturities of long-term debt - - ------------ ------------ Long-term debt $234,000 $230,000 ============ ============ 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 17, 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 8, 2000, an aggregate of $30.6 million of letters of credit were issued and outstanding under the Credit Agreement. -8- NOTE 8 - Supply Agreement On September 24, 1999, the Company signed a term sheet extending its agreement with its primary supplier, C&S Wholesale Grocers, Inc., of Brattleboro, Vermont. The expiration date of the agreement is September 24, 2014. -9- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. General: As discussed in Note 2 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 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 period prior to the Effective Date has been designated "Predecessor Company" and the periods subsequent to the Effective Date have been designated "Successor Company". For purposes of the discussion of Results of Operations for the 12 and 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 statements of operations and other data (all dollars in millions).
12 Weeks Ended 40 Weeks Ended ---------------------- ---------------------- January 8, January 2, January 8, January 2, 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Sales $ 520.3 $ 527.7 $ 1,719.9 $ 1,739.1 Gross profit 149.4 154.0 512.5 514.8 Operating and administrative expenses 128.0 126.1 428.6 433.9 Depreciation and amortization 19.0 12.7 48.1 43.6 Amortization of excess reorganization value 30.4 30.1 101.4 90.4 Unusual items -- 0.3 -- 5.8 Interest expense, net 10.5 10.2 33.1 53.3 Income tax provision (benefit) (3.0) 1.2 1.3 1.1 Net (loss) before extraordinary item (35.6) (26.7) (100.0) (113.3) Extraordinary item -- -- -- 259.1 Net income (loss) (35.6) (26.7) (100.0) 145.8 Net income (loss) applicable to common stock (35.6) (26.7) (100.0) 143.5 Sales percentage (decrease) (1.4%) (1.2%) (1.1%) (1.3%) Gross profit as a percentage of sales 28.7% 29.2% 29.8% 29.6% Operating and administrative expenses as a percentage of sales 24.6% 23.9% 24.9% 25.0%
Sales for the 12 weeks ended January 8, 2000 (the "Fiscal 2000 Third Quarter") decreased $7.4 million, or 1.4%, compared to the 12 week period ended January 2, 1999 (the "Fiscal 1999 Third Quarter"). Comparable store sales for the Fiscal 2000 Third Quarter increased 0.41%. The reduction in sales is primarily due to competitive activity and effects related to implementation of the Company's capital expenditure plan. These include delays in new store openings and sales disruptions in stores undergoing significant remodeling. The Company opened 2 new stores and closed 2 stores during the Fiscal 2000 Third Quarter. Sales for the 40 weeks ended January 8, 2000 (the "Fiscal 2000 Year to Date") decreased $19.2 million or 1.1% when compared to the 40 weeks ended January 2, 1999 (the "Fiscal 1999 Year to Date"). Comparable store sales for the Fiscal 2000 Year to Date increased 0.34%, adjusted to exclude the prior year's Easter week. During the Fiscal 2000 Year to Date, the Company opened 9 new stores and closed 10 stores. Gross profit, as a percentage of sales, was 28.7% for the Fiscal 2000 Third Quarter, compared with 29.2% during the Fiscal 1999 Third Quarter. This is primarily due to increased promotional activity during the Fiscal 2000 Third Quarter holiday season. For the Fiscal 2000 Year to Date gross profit was 29.8%, compared to 29.6% for the Fiscal 1999 Year to Date. Operating and administrative expenses for the Fiscal 2000 Third Quarter were 24.6% of sales, compared with 23.9% for the Fiscal 1999 Third Quarter. Operating and administrative expenses for the Fiscal 2000 Year to Date were 24.9% of sales, compared with 25.0% for the Fiscal 1999 Year to Date. The Company continues to aggressively pursue opportunities for reducing expenses. -10- Depreciation and amortization increased in the Fiscal 2000 Third Quarter to $19.0 million compared to $12.7 million in the Fiscal 1999 Third Quarter primarily due to the impact of impairment losses on assets of $7.1 million. Depreciation and amortization increased to $48.1 million for the Fiscal 2000 Year to Date from $43.6 million for the Fiscal 1999 Year to Date. This increase is attributed to the impairment losses of $7.1 million recorded in the Fiscal 2000 Third Quarter reduced by the effect of fully depreciated assets and the historical deferral of capital expenditures. Interest expense increased to $10.5 million for the Fiscal 2000 Third Quarter from $10.2 million for the Fiscal 1999 Third Quarter primarily due to drawings on the Revolving Credit Facility. Interest expense decreased to $33.1 million for the Fiscal 2000 Year to Date from $53.3 million for the Fiscal 1999 Year to Date. This decrease primarily reflects the effect of the Company's reduced debt burden and a reduction in interest rates on the Term Loan and the Revolving Credit Facility. Income taxes for the interim period are based on the estimated effective tax rate expected to be applicable for the full fiscal year. The Company recorded a federal and state income tax benefit of $3.0 million during the Fiscal 2000 Third Quarter and a $1.3 million income tax provision for the Fiscal 2000 Year to Date. During the Fiscal 2000 Year to Date, the Company made income tax payments of $4.8 million. Liquidity and Capital Resources On the Effective Date and 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 17, 2003. The proceeds of the Credit Agreement were used to refinance the obligations under the DIP Facility and supplemental term loan claims under the credit agreement that was in existence before the Chapter 11 case. The excess will be used for working capital and capital expenditures. Up to $50 million of the Revolving Credit Facility is available for the issuance of letters of credit. As of January 8, 2000, the Company had net borrowings of $4 million and an aggregate of $30.6 million of letters of credit issued and outstanding under the Revolving Credit Facility. Cash interest payments totaled approximately $31.9 million for the Fiscal 2000 Year to Date and are expected to be approximately $42 million for the fiscal year ending April 1, 2000 ("Fiscal 2000"). Capital expenditures totaled $40.7 million for the Fiscal 2000 Year to Date and are expected to be approximately $70 million for Fiscal 2000, which will be funded through operations and the Revolving Credit Facility. Year 2000 Compliance Disclosure The Company experienced no disruption to operations that could have occurred as a result of the two-digit year change associated with the new millennium. Since the inception of the Year 2000 Task Force (a cross functional committee working in conjunction with the Company's Chief Information Officer, outside counsel, and Arthur Andersen), the Company has spent approximately $3.6 million addressing this issue. This includes $130,000 spent in the Fiscal 2000 Third Quarter. Impact of New Accounting Standards In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides guidance on the recognition, presentation and disclosure of revenue in financial statements. The Company is required to implement SAB 101 for the fiscal quarter ending July 22, 2000, however the Company intends to implement SAB 101 during the 12 weeks ended April 1, 2000 (the "Fiscal 2000 Fourth Quarter"). The Company is in the process of evaluating SAB 101 and has not yet determined the impact on the Company's consolidated financial statements. Special Note Concerning Forward-Looking Statements Except for historical information, some matters discussed herein may be considered "forward-looking statements" within the meaning of federal securities law. Such forward-looking statements are subject to risks, uncertainties and other factors that 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 ability of the Company to maintain and improve its gross sales and margins, the liquidity of the Company on a cash flow basis (including the Company's ability to comply with the financial covenants of its Credit Agreement and to fund the Company's capital expenditure program), the Company's ability to complete its capital -11- expenditures on a timely basis, the success of operating initiatives, the viability of the Company's strategic plan, Y2K compliance issues, regional weather conditions, and the general economic conditions in the geographic areas in which the Company operates. For additional information about the Company and its operating and financial condition, please see the Company's most recent Annual Report on Form 10-K for the year ended April 3, 1999 and the Company's Quarterly Report on Form 10-Q for the 16 weeks ended July 24, 1999 and the 28 weeks ended October 16, 1999, as filed with the Securities and Exchange Commission. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Quantitative and Qualitative Disclosures about Market Risk represents the risk of loss that may impact the consolidated financial position, results of operations or cash flows of the Company due to adverse changes in financial rates. The Company is exposed to market risk in the area of interest rates. This exposure is directly related to its Term Loan and Revolving Credit borrowings under the Credit Agreement. Based on the present outlook for interest rates, the Company does not have a material exposure to market risk associated with the Term Loan and Revolving Credit borrowings. -12- PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit Number 27 Financial Data Schedule (b) Reports on Form 8-K Relating to changes in Management and Board of Directors - dated February 14, 2000. -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 and Administrative Officer Date: February 22, 2000 -14- EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated financial statements and is qualified in its entirety by reference to such financial statements. 9-MOS APR-01-2000 JAN-08-2000 21,666 0 61,369 0 155,150 244,802 929,351 545,933 974,199 162,297 0 300 0 0 207,333 974,199 1,719,920 1,719,920 1,207,378 1,207,378 578,120 0 33,148 (98,726) 1,258 (99,984) 0 0 0 (99,984) (3.33) (3.33)
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