-----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, SRw1Nn2PEHMB8smmeMpfBCMYCwa2Ew9AcqLqOhMXrzqnvWafa4WWVIg1HtvpUprV MjGYQCf8FJq3YqqpmIvIsA== 0000889812-99-002047.txt : 19990705 0000889812-99-002047.hdr.sgml : 19990705 ACCESSION NUMBER: 0000889812-99-002047 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990403 FILED AS OF DATE: 19990702 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-K SEC ACT: SEC FILE NUMBER: 001-07824 FILM NUMBER: 99658415 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-K 1 ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended April 3, 1999 OR [ ] 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) Registrant's telephone number, including area code 973-890-6000 ----------------------- Securities registered pursuant to Section 12 (b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- None ------------------- ----------------------------------------- Securities registered pursuant to Section 12 (g) of the Act: Common Stock, Par Value $0.01 ----------------------------------------- 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] [Cover page 1 of 2] The aggregate market value of the voting stock held by nonaffiliates of the registrant as of June 25, 1999 is approximately $322,306,500, based upon the closing sales price of the Common Stock on the Nasdaq National Market on such date. For the purpose of this calculation, all members of the Board of Directors are presumed to be affiliates. 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 June 25, 1999 there were issued and outstanding 30,000,000 shares, par value $0.01 per share, of the registrant's Common Stock. Documents Incorporated by Reference: The Proxy Statement for the 1999 Annual Meeting of Stockholders has been incorporated by reference partially in Part III hereof. [Cover page 2 of 2] THE GRAND UNION COMPANY FORM 10-K For the Year Ended April 3, 1999 INDEX Part I PAGE Item 1. Business......................................................... 1 Item 2. Properties....................................................... 5 Item 3. Legal Proceedings................................................ 5 Item 4. Submission of Matters to a Vote of Security Holders.............. 6 Part II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters............................................ 6 Item 6. Selected Consolidated Financial Data............................. 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................... 7 Item 7A. Quantitative and Qualitative Disclosure About Market Risk........ 11 Item 8. Financial Statements and Supplementary Data...................... 12 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................................... 12 Part III Item 10. Directors and Executive Officers of the Registrant............... 12 Item 11. Executive Compensation........................................... 12 Item 12. Security Ownership of Certain Beneficial Owners and Management... 12 Item 13. Certain Relationships and Related Transactions................... 12 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.. 12 Signatures................................................................. 16 i Other than historical information, statements in this report may be deemed to be forward-looking statements within the meaning of the federal securities laws. Actual results and the timing of certain events could differ materially from those projected in the forward-looking statements due to a number of factors, including those set forth in this report. See "Special Note Concerning Forward-Looking Statements" in Part II of this report. PART I Item 1. Business General The Grand Union Company, a Delaware corporation ("Grand Union" or the "Company"), is engaged in the retail food business. Grand Union operated 217 stores in six northeastern states averaging approximately 27,500 gross square feet per store as of April 3, 1999. The Company's Common Stock has been listed on the Nasdaq National Market under the ticker symbol "GUCO" since October 1, 1998. As a result of the implementation of several key strategic initiatives since 1997, Grand Union has been able to stabilize and improve its operations in the critical areas of sales, margins, promotional income and expense levels. These initiatives included a complete restaffing of senior management, organizational restructuring measures and reconfiguration of the Company into three geographic operating areas. Grand Union is continuing its pursuit of these strategic initiatives, identifying additional areas for operating and administrative expense reduction, implementing technological efficiency and pursuing new marketing and merchandising activities, all of which are designed to enhance the Company's image as a high-quality, price-conscious operator in the northeastern retail food industry. Strategic Initiatives In recent years, results in the supermarket industry have been impacted by slow population growth, increasing competitive activity, and changing consumer shopping and eating patterns. These factors, and others, are projected to lead to essentially flat real supermarket sales growth over the next several years. Grand Union is in the process of implementing various strategies to meet its long-term goals for improving financial performance. The Company will continue to focus on the requirements and preferences of "Today's Customer". This strategy includes identifying and understanding the ongoing changes in consumer trends, thereby allowing consumer preferences to be the drivers of change in Grand Union's offerings of services and products. The Company continues to develop and evaluate new retailing strategies that will respond to its customers' needs. In addition, Grand Union has determined that to maximize profitability, it should (i) expand and renovate its existing store base, including the development of new stores and the remodeling of existing units; (ii) implement a program for maximizing advertising and promotion allowance revenues from the Company's suppliers; and (iii) perform ongoing evaluations, including modifying store locations as required. Prior to the Company's 1998 Reorganization under Chapter 11 of the Bankruptcy Code (the "1998 Reorganization"), the Company had an overleveraged balance sheet and insufficient resources to consistently fund capital expenditures adequately. On August 17, 1998 (the "Effective Date"), Grand Union consummated the 1998 Reorganization pursuant to the August 5, 1998 Confirmation Order of the United States Bankruptcy Court for the District of New Jersey. As a result of the 1998 Reorganization, the Company has substantially improved its liquidity by significantly reducing its debt and the attendant reduction in interest expense and entered into a $300 million credit agreement (see "The 1998 Reorganization" below). This substantial reduction of debt and the availability of new funds has enabled Grand Union to organize and commence a capital expenditure program that is expected to enhance the operations, profitability and competitiveness of the Company. EACH OF THE FOREGOING STRATEGIC INITIATIVES ARE FORWARD-LOOKING AND INVOLVE RISKS AND UNCERTAINTIES. THERE CAN BE NO ASSURANCE THAT ANY OF THE STRATEGIC INITIATIVES WILL IMPROVE THE FINANCIAL PERFORMANCE OF THE COMPANY. Store Formats and Locations; Competition Grand Union's store sizes and formats vary depending upon the demographics, competitive conditions and real estate availability in each location in which it operates. The Company's supermarkets offer a wide selection of national brand and private label grocery and general merchandise products as well as high-quality perishables and service departments. The majority of Grand Union's sales are generated from stores which include high-margin specialty and service departments. Selected locations feature in-store cafes and pharmacies. Liquor, beer and wine departments are included 1 in many locations, subject to the limitations of state and local laws. Grand Union's supermarkets range in size from 7,000 to 64,000 gross square feet. During the fiscal year ended April 3, 1999 ("Fiscal 1999"), the Company introduced a new store format geared to a specific marketing area. "Hot Dot" stores, which feature a limited assortment format (low-price, limited in-store services and low overhead), were opened in four converted existing Northern Division locations. The Company has plans to introduce other new formats in the fiscal year ending April 1, 2000 ("Fiscal 2000"). Grand Union operates 219 stores in six states, including 121 in New York, 40 in Vermont, 41 in New Jersey, 12 in Connecticut, 3 in New Hampshire and 2 in Pennsylvania as of June 25, 1999. This includes 8 Hot Dot stores in previously existing locations. The food retailing business is highly competitive, including numerous national, regional and local supermarket chains. Grand Union also competes with convenience stores, units owned and operated or otherwise affiliated with large food wholesalers, unaffiliated independent food stores, warehouse/merchandise clubs, discount drugstore chains and discount general merchandise chains. Some of the Company's competitors may have greater financial resources than Grand Union has and could use those resources to take steps which would adversely affect the Company's competitive position. In upstate New York, Grand Union generally operates in small cities and rural communities. The Company's main competitors are Price Chopper and Hannaford. Commercial development in areas north of Albany, New York is typically limited and constrained by zoning and environmental restrictions, particularly in areas regulated by the Adirondack Park Commission. In the more urban Albany area, Price Chopper and Hannaford have each opened a number of new stores in the last five years, which are generally larger than the Company's stores. In the Mid-Hudson Valley area of New York, the Company's principal competitors are ShopRite, Price Chopper, Hannaford and A&P. Continuing weak economic conditions in the Mid-Hudson Valley have constrained business in recent years. In addition, the Company's results in this region have been adversely affected by recent store openings by competitors. In Vermont, Grand Union's principal competitors are Price Chopper and Hannaford. Grand Union maintains the largest market share in Vermont. Zoning and environmental regulations in the state restrict commercial development, including the development of supermarkets which might be competitors of the Company. A number of the Company's stores in upstate New York and Vermont are in resort areas. These generally experience significant increases in sales in the summer months and in some cases during the winter ski season. The Company's stores in metropolitan New York, Connecticut and New Jersey serve densely populated communities with demographics particularly well suited for store formats emphasizing specialty and service departments. Accordingly, the sales mix in these stores includes a larger percentage of higher margin perishable items. In addition, the high population density as well as the geographic concentration of stores provide substantial economy of scale opportunities. Some of the Company's stores in those areas experience increased sales during the summer months. In New Jersey, the Company competes primarily against A&P, Pathmark, Edwards, ShopRite, Edwards and various other supermarkets. In Westchester, Orange, Rockland, Dutchess and Putnam Counties in New York, the Company generally competes with A&P, Edwards and ShopRite. On Long Island, the Company's principal competitors include A&P, Waldbaums (division of A&P), Pathmark, ShopRite, Edwards and King Kullen. Grand Union's main competitors in Fairfield County, Connecticut include Stop & Shop and A&P. Distribution and Supply The majority of Grand Union's merchandise is distributed to Grand Union stores by C&S Wholesale Grocers, Inc. ("C&S") pursuant to supply and distribution agreements. Under the agreements, C&S supplies grocery products from its own warehouses, and health and beauty care and general merchandise products from Grand Union's 2 Montgomery, New York warehouse. Grand Union also contracts with a third party for frozen food distribution. Management believes that Grand Union's existing agreements with C&S enhance the Company's ability to offer consistently fresh and high-quality products to its customers at favorable prices. Grand Union operates a 20,000 square foot commissary located in Newburgh, New York, in which high quality cooked meat products, salads, salad ingredients and soups are prepared for sale in the delicatessen departments of the Company's stores. Selected Data The table below sets forth certain statistical information with respect to Grand Union retail stores for the past three years.
Fiscal Fiscal Fiscal 1999 1998 1997 ------ ------ ------ Number of stores (at end of year) 217 222 226 Total selling square feet at end of year (in thousands) 4,293 4,353 4,312 Average sales per selling square foot per week $10.05 $10.07 $10.28
Capital Investment The Company's capital investment program is directed towards renovating and upgrading existing Grand Union stores and opening new and replacement stores in current marketing areas. As referenced above, in certain areas the Company is investing capital on newly developed alternate formats geared toward particular locations and demographics. Cash capital expenditures for the 33 weeks ended April 3, 1999, the 20 weeks ended August 15, 1998, and the fiscal year ended March 28, 1998 ("Fiscal 1998") were approximately $20.9 million, $3.4 million, and $39.7 million, respectively, excluding capital lease additions of $7.6 million, $0, and $21.7 million, respectively. See Item 6 for information concerning the methodology utilized to report the Company's operating results before and after the 1998 Reorganization. Information Technology Financial, purchasing and operating system requirements are supported through a central computer system located in Wayne, New Jersey. As of April 3, 1999, Grand Union utilized scanning systems in 187 stores (representing approximately 95% of total sales) and intends to continue investing in scanning and other store systems in the future where economically justified. See Item 7 for a discussion of Year 2000 compliance. Employees As of April 3, 1999, Grand Union had approximately 13,000 employees, of whom approximately 70% were employed on a part-time basis. Approximately 55% of Grand Union's employees are covered by 12 collective bargaining agreements with various local unions. In March 1999, the Company entered into a new labor agreement with United Food and Commercial Workers Local 1262 covering approximately 1,700 clerks in 32 of the Company's stores in Westchester, Putnam and Dutchess counties in New York. That agreement expires in May 2003. Additionally, in December 1998 the Company reached an agreement with UFCW Local 174 covering approximately 20 meat department employees in two New York City stores. The Local 174 agreement expires in December 2002. In December 1998, the Company reached an agreement with UFCW Local 464A, covering approximately 1,000 meat, seafood, deli and Taste Place employees at 54 locations in the Southern Division. The Local 464A agreement expires April 19, 2003. In December 1998, the Company reached an agreement with Teamsters Local 445 on terms for a wage reopener covering approximately 80 warehouse employees at the Company's Montgomery distribution warehouse. The Local 445 agreement expires December 4, 1999. In February 1999, the Company reached an agreement with the Bakery Confectionary & Tobacco Workers Union Local 3 on terms for a new collective bargaining agreement covering approximately 50 bakery employees working at 13 stores in Long Island, New York. The Local 3 Agreement expires January 25, 2003. The Company's other labor agreements expire between October 1999 and July 2002. As of April 3, 1999, all employees covered by collective bargaining agreements were employed at store locations and in the Company's Montgomery, New York warehouse. The Company believes that its relationship with its employees is generally satisfactory. 3 Trade Names, Service Marks and Trademarks Grand Union owns and actively uses over 20 trade names, service marks and trademarks (collectively, "Marks"). Among these Marks are "Grand Union"(Registered), the symbol of a red dot, "Grand Classics"(Registered), "Big Gold Top"(Registered), "The Best Take Out Restaurant in Town"(Registered), "Grand Premium"(Registered), "Taste Place"(Registered), "Holland Hall"(Registered) and "Red Dot Special"(Registered), all of which are significant to the Company's business. The Company also has common law rights in, has filed for, or intends to file for various other Marks. Financial Information About Foreign and Domestic Operations and Export Sales Grand Union has no foreign operations or export sales. Recent History The 1998 Reorganization In February, 1998, due to a lack of sufficient liquidity, increasing competition, consolidation, and falling margins, Grand Union determined that its financial resources would be insufficient to satisfy the interest payment due and payable on its Old Senior Notes. As a result, Grand Union did not make the March 2, 1998 interest payment to holders of the Old Senior Notes. The failure to make such interest payment constituted a default under the Indenture governing the Old Senior Notes and a cross-default under the Old Credit Agreement. Accordingly, the Company commenced negotiations with the secured banks under the Old Credit Agreement regarding obtaining necessary waivers to avoid the consequences of an event of default and to facilitate the negotiation of a consensual plan of reorganization with an unofficial committee of holders of the Old Senior Notes (the "Unofficial Noteholder Committee"). Negotiations between Grand Union and the Unofficial Noteholder Committee continued, and on March 30, 1998, the parties reached an agreement in principle on the terms of a restructuring to be effectuated pursuant to a plan of reorganization (the "Plan of Reorganization") under chapter 11, Title 11 of the United States Code, as amended ("Chapter 11"). On May 14, 1998, Grand Union, the Unofficial Noteholder Committee and the holders of the Grand Union's Old Preferred Stock reached an agreement in principle regarding the proposed treatment of the Old Preferred Stock. Pursuant to a Disclosure Statement, dated May 22, 1998 (the "Disclosure Statement"), Grand Union commenced a prepetition solicitation of votes by the holders of Old Senior Notes and Old Preferred Stock to accept or reject the Plan of Reorganization. That solicitation resulted in the acceptance of the Plan of Reorganization. On June 24, 1998, the Company filed a voluntary petition for relief (the "Filing") under Chapter 11 with the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"). On the Effective Date, Grand Union consummated its Plan of Reorganization pursuant to the August 5, 1998 Confirmation Order of the Bankruptcy Court. Consummation of the Plan of Reorganization has resulted in a capital restructuring of the Company, whereby approximately $600 million in debt under the 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. As of October 1, 1998, the Company's New Common Stock began trading on the Nasdaq National Market under the ticker symbol GUCO. 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. ("LCPI") as agents for a syndicate of lenders. The Credit Agreement 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 obligations under its debtor-in-possession credit agreement (the "DIP Facility"), which had provided the Company operating liquidity during the Chapter 11 case. During the Chapter 11 case, all trade claims were paid in the ordinary course. Consummation of the Plan of Reorganization also 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 4 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 outside directors on the Board are: Martin Bernstein, Thomas R. Cochill, Joseph Colonnetta, Jacob W. Doft, David M. Green, Joseph V. Lash, Anthony Petrillo and Scott Tepper. The 1995 Restructuring On January 25, 1995, in connection with a capital restructuring plan reached with its bank lenders and with members of informal committees of certain holders of Grand Union notes, Grand Union filed a voluntary petition for relief under Chapter 11 in the United States Bankruptcy Court for the District of Delaware. The bankruptcy court confirmed on May 31, 1995 the Second Amended Chapter 11 Plan of The Grand Union Company, dated as of April 19, 1995, and Grand Union emerged from Chapter 11 on June 15, 1995. The 1995 Restructuring plan provided for: 1) payment in full of all trade claims; 2) payment in full of obligations under a credit agreement and the execution of a subsequent credit agreement (the "Old Credit Agreement"); 3) cancellation of obligations under Senior Notes due in 1999 and Senior Notes due in 2000 in exchange for nearly $600 million in new senior debt (the "Old Senior Notes"); 4) cancellation of obligations under three series of Senior Subordinated Notes due in 2002, 2002 and 1998, respectively, in exchange for an aggregate of 10,000,000 shares of Common Stock (the "Old Common Stock"); 5) the issuance of warrants (the "Old Warrants") to holders of Senior Zero Coupon Notes due in 2004 and 2007; and 6) cancellation of preferred stock, common stock and warrants then existing. Item 2. Properties Grand Union conducts its operations primarily in leased stores and offices. The following table indicates the location and number of stores in operation as of April 3, 1999. Number of Locations Stores --------- -------- New York 120 New Jersey 41 Vermont 38 Connecticut 13 New Hampshire 3 Pennsylvania 2 --- Total 217 --- As of April 3, 1999, Grand Union owned 13 and leased 204 of its store sites pursuant to commercial leases. Management believes no store lease is individually material to Grand Union. Most store leases contain several renewal options. Twenty-three store leases do not contain renewal options and seventeen will expire over the next five years and six thereafter. Management anticipates that it will be able to renegotiate favorable lease terms for most of these locations, if so desired. Grand Union currently operates one distribution center in Montgomery, New York, which is leased, and a commissary, which is housed in a building owned by the Company on a ground-leased site in Newburgh, New York. Grand Union's lease on its distribution center has 30 years remaining, including options. On May 20, 1998, the Company sold a 101,000 square foot warehouse in Waverly, New York, which had been vacant. In January 1999, the Company sold its assets and discontinued operations at a printing shop it operated in Atlanta, Georgia. Item 3. Legal Proceedings Chapter 11 Proceedings. Reference is made to "Item 1 - Business - Recent History" for information regarding the Company's Chapter 11 proceedings. Environmental - Connecticut. Soil and ground water contamination has been detected at a shopping center owned by Grand Union, which is located in Connecticut. The Company believes such contamination was caused primarily by the use, storage, and/or improper disposal of solvents, in particular, perchloroethylene by dry cleaning operations previously conducted at this location and from off-site sources. The Company notified the Connecticut Department of Environmental Protection ("CTDEP") upon its initial discovery of contamination in 1992. At that time, the Company conducted a remedial investigation designed to identify the sources of such soil and ground-water contamination and delineate the extent of the contamination on-site and to assess potential off-site impacts. This investigation has confirmed that the source of the on-site contamination is, in part, an off-site shopping center and a gasoline station located nearby. The Company is 5 proceeding with the investigation of the contamination and formulation of a remedial plan. The Company anticipates entering into CTDEP's voluntary cleanup program. The Company's potential responsibility does not arise from any aspect of its operation of a supermarket at the shopping center, but from the actions of a former tenant. Any contamination migrating on-site from an off-site source is the responsibility of another party. The Company is assessing the feasibility of seeking reimbursement of past costs and clean-up costs from some or all of these other parties. The Company is unable to determine the amount of its potential liability arising from the on-site contamination, but does not believe, based upon the results of investigations made to date, that the amount of potential liability is likely to be materially adverse to the Company's financial condition. Management presently estimates, based upon investigations made by the Company's environmental consultant to date, that such liability should not exceed $720,000. Investigations are continuing, and there can be no assurance that the amount of such liability will not exceed $720,000. FTC Order. At the time of an acquisition of Grand Union in July 1989, Grand Union and P&C Foods, then a subsidiary and currently a division of Penn Traffic, operated stores in some of the same geographic areas in Vermont and upstate New York. In order to satisfy the concerns of federal antitrust authorities arising therefrom in connection with the acquisition, prior to consummation thereof, MTH Holdings, Inc. ("MTH Holdings"), which indirectly controlled Grand Union and Penn Traffic, an affiliate of Miller Tabak Hirsch & Co., a New York Limited Partnership, and Grand Union entered into an Agreement to Hold Separate with Salomon Inc. and the Federal Trade Commission ("FTC") and an Agreement Containing Consent Order (the "Order") with the FTC, which Order was subsequently modified on February 16, 1996 (collectively, the "FTC Agreements"). The FTC Agreements required the divestiture by MTH Holdings and/or Grand Union (including in each case their respective subsidiaries and affiliates) of sixteen stores located in Vermont and upstate New York. Such divestitures were completed on July 30, 1990. Thirteen of the sixteen stores divested were P&C Foods stores and three of the sixteen stores divested were Grand Union stores. In a related transaction, Grand Union and P&C Foods entered into an operating agreement (the "Operating Agreement"), pursuant to which Grand Union acquired the right to operate P&C Foods' thirteen remaining stores in New England under the Grand Union name until July 2000, for an average annual rent of approximately $10,700,000 with an option to extend the term of such operation for an additional five years. Grand Union paid P&C Foods $7,500,000 for an option, exercisable in July 1999, to purchase the stores at an amount defined in the Operating Agreement. The FTC Agreements also provide, among other things, that MTH Holdings and Grand Union (including in each case their respective subsidiaries and affiliates) shall not acquire, for a period of ten years, any retail grocery stores in Vermont and certain specified counties in New York without the prior notification to, and concurrence of, the FTC. Other Proceedings. The Company is also subject to certain other legal proceedings and claims arising in connection with its business. It is management's opinion that the ultimate resolution of such legal proceedings and claims will not have a material adverse effect on the Company's consolidated results of operations or its financial position. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of the Company's stockholders during the fourth quarter of Fiscal 1999. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholders' Matters The Common Stock of the Company is traded on the Nasdaq National Market under the symbol "GUCO." At the close of business on June 25, 1999, there were 30,000,000 shares of Common Stock, $0.01 par value outstanding and entitled to vote. As of June 25, 1999, there were approximately 2,100 stockholders of record of the Common Stock. The quarterly market value of the Company's stock is discussed in Note 16 to the Consolidated Financial Statements. No cash dividends were declared or paid during each of the three fiscal years ended April 3, 1999. Payment of dividends to holders of Common Stock is restricted by the Credit Facility. 6 Item 6. Selected Financial Data The Company accounted for the consummation of the Plan of Reorganization effective August 15, 1998 for financial reporting purposes. 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 adopted 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 1995 Restructuring has been designated "Old Company," the period prior to the Effective Date has been designated "Predecessor Company" and the period subsequent to the Effective Date has been designated "Successor Company." All information is derived from the consolidated financial statements of the Company. This information should be read in conjunction with the historical financial statements of the Company, including the notes thereto, included elsewhere herein. All dollars are in millions, except per share data.
Successor Company Predecessor Company Old Company --------- --------------------------------------------- -------------------- 33 Weeks 20 Weeks 52 Weeks 52 Weeks 41 Weeks 11 Weeks 52 Weeks Ended Ended Ended Ended Ended Ended Ended April 3, August 15, March 28, March 29, March 30, June 17, April 1, 1999 1998(**) 1998 1997 1996 1995(**) 1995 --------- --------- --------- --------- --------- --------- --------- Statement of Operations Data: Sales $ 1,417.3 $ 869.0 $ 2,266.8 $ 2,312.7 $ 1,819.9 $ 487.9 $ 2,391.7 Gross profit 421.6 258.0 639.5 705.7 569.9 143.8 708.3 Operating and administrative expenses 349.8 217.7 574.8 586.2 454.6 117.8 573.2 Depreciation and amortization 120.6 66.2 197.3 184.8 142.9 16.9 85.5 Unusual items 1.0 4.8 6.3 9.8 22.0 18.6 27.4 Interest expense, net 27.2 36.5 113.8 105.8 79.2 19.8 182.0 Loss before income taxes and extraordinary items (76.9) (67.2) (252.6) (180.8) (128.8) (29.3) (159.8) Income tax (provision) benefit (0.6) - (51.4) (2.5) 18.9 - - Extraordinary items - 259.1 - - - 854.8 - Net income (loss) (77.5) 191.9 (304.0) (183.4) (109.9) 825.5 (159.8) Net income (loss) applicable to common stock (77.5) 189.6 (312.4) (185.4) - - - Basic and diluted net (loss) per common share(*) (2.6) - - - - - - Deficiency in earnings available to cover fixed charges (76.9) (67.2) (252.6) (180.8) (128.8) (29.3) (159.8) Balance Sheet Data: Total assets 1,089.3 - 904.6 1,071.8 1,178.2 - 1,394.8 Total debt and capital lease obligations 391.1 - 959.5 888.4 875.1 - 1,614.9 Redeemable stock - - 113.4 65.0 - - 174.2 Nonredeemable stock and stockholders' equity (deficit) 307.6 - (466.6) (153.2) 44.1 - (824.3) Operating and Other Data: Capital expenditures $ 20.9 $ 3.4 $ 39.7 $ 55.1 $ 43.0 $ 3.0 $ 70.8 Number of stores at year end 217 N/A 222 226 229 N/A 231
(*) Basic and diluted net (loss) per share information is not meaningful for the period prior to the Effective Date due to the significant changes in the capital structure of the Company and cancellation of the Old Common Stock and Old Preferred Stock. (**) Balance sheet data is not applicable at this date. Item 7. 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 adopted 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 period subsequent to the Effective Date has been designated "Successor Company." For purposes of the discussion of 7 Results of Operations and Liquidity and Capital Resources for the 53 weeks ended April 3, 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).
Fiscal Fiscal Fiscal 1999 1998 1997 ---------- ---------- ---------- Sales $ 2,286.3 $ 2,266.8 $ 2,312.7 Gross profit 679.6 639.5 705.7 Operating and administrative expenses 567.4 574.8 586.2 Depreciation and amortization 65.5 92.9 82.2 Amortization of excess reorganization value 121.3 104.3 102.6 Unusual items 5.8 6.3 9.8 Interest expense, net 63.7 113.8 105.8 Income tax provision 0.6 51.4 2.5 Net (loss) before extraordinary item (144.6) (304.0) (183.4) Extraordinary item 259.1 - - Net income (loss) 114.4 (304.0) (183.4) Net income (loss) applicable to common stock 112.1 (312.4) (185.4) Sales percentage increase (decrease) 0.9% (2.0%) 0.2% Gross profit as a percentage of sales 29.7% 28.2% 30.5% Operating and administrative expenses as a percentage of sales 24.8% 25.4% 25.3% Number of weeks 53 52 52
Sales for Fiscal 1999 increased $19.5 million or 0.9% compared to Fiscal 1998. Same store sales (sales of stores which were operated during the comparable periods of both fiscal years) decreased 0.35% in Fiscal 1999 compared to Fiscal 1998. Same store sales results, by quarter for Fiscal 1999, beginning with the first quarter, were (1.4)%, 0.6%, (0.9)% and 0.7%. During Fiscal 1999, the Company opened two replacement stores and closed eleven stores, four of which reopened as Hot Dot stores (four others will reopen as Hot Dot stores in Fiscal 2000). The Company invested in marketing and promotional programs to drive sales and compete effectively as competitors opened new locations and remodeled stores at a more aggressive rate than the Company. Sales for Fiscal 1998 decreased $45.9 million or 2.0% compared to the fiscal year ended March 29, 1997 ("Fiscal 1997"). Same store sales decreased 0.9% in Fiscal 1998 compared to Fiscal 1997. Same store sales changes, by quarter for Fiscal 1998, beginning with the first quarter, were (1.8)%, (1.6)%, 0.8% and (0.8)% versus the prior year. The new marketing strategies favorably affected sales in the second half of Fiscal 1998 and to some extent mitigated competitor marketing programs. During Fiscal 1998, the Company opened two new stores and two replacement stores, and closed eight stores. Gross profit as a percentage of sales increased to 29.7% in Fiscal 1999 from 28.2% in Fiscal 1998. This is primarily due to an increase in allowance and promotional income, which was the result of new marketing initiatives instituted by management. Gross profit as a percentage of sales was 28.2% in Fiscal 1998 compared to 30.5% in Fiscal 1997. The decline was primarily the result of reduced advertising and promotional income, instability in margin rates and the negative effects of the announced Plan of Reorganization in the first half of the fiscal year. Margins stabilized in the second half primarily as a result of new management strategies partially mitigating the negative effects of the announced Plan of Reorganization. Operating and administrative expenses as a percentage of sales were 24.8% during Fiscal 1999 compared to 25.4% during Fiscal 1998. The decline is primarily the result of the ongoing cost reduction initiatives instituted by management. Operating and administrative expenses as a percentage of sales were 25.4% during Fiscal 1998 compared to 25.3% during Fiscal 1997. Depreciation and amortization of $65.5 million in Fiscal 1999 was $27.4 million lower than the prior year's $92.9 million. The decrease resulted from the impact of the application of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," impairment losses on assets of $7.8 million and $25.0 million recorded in the Fiscal 1999 and Fiscal 1998 fourth quarters, respectively, and the historical deferral of capital expenditures. The increase in depreciation and amortization expense during Fiscal 1998 as compared 8 to Fiscal 1997 was largely attributable to the application of SFAS No. 121, whereby $25.0 million of impairment losses were recorded to reduce the estimated fair value of certain store assets. Unusual items of $5.8 million in Fiscal 1999 compares to the $6.3 million recorded during Fiscal 1998. The Company recorded $9.6 million in connection with legal, advisory and bank fees associated with the Plan of Reorganization and $3.8 million as a net gain resulting from the elimination of debt premiums. Unusual items recorded in Fiscal 1998 consisted of $2.7 million in connection with professional fees associated with the Plan of Reorganization, a $3.0 million charge to supplement a reserve set at the end of Fiscal 1997 for the reorganization of the Company during Fiscal 1998 and additional charges of $0.7 million for legal costs to supplement a reserve created as a result of the Company's Chapter 11 filing in calendar year 1995. Interest expense was $63.7 million in Fiscal 1999 compared to $113.8 million in Fiscal 1998. The decrease is principally due to the Company's reduced debt burden, favorable interest terms and the overall credit environment. Interest expense was $113.8 million in Fiscal 1998 compared to $105.8 million in the prior year. This expense includes the accrual for the March 2, 1998 interest payment on the Old Senior Notes that was not paid. The income tax provision was $0.6 million in Fiscal 1999 compared to $51.4 million in Fiscal 1998. The provision represents federal and state income taxes. The income tax provision for Fiscal 1998 was $51.4 million compared to a provision of $2.5 million in Fiscal 1997. The income tax provision for Fiscal 1998 represents the establishment of a valuation allowance for the Company's remaining deferred tax asset relating to temporary differences. The effective tax rate varies from the statutory rate due to differences between income for financial reporting and tax reporting purposes that result primarily from the amortization of excess reorganization value. Extraordinary items of $259.1 million consisted of a $260.8 million gain resulting from the discharge of debt in connection with the consummation of the 1998 Plan of Reorganization and a $1.7 million expense related to the write-off of deferred financing costs associated with a term loan that was refinanced by the DIP Facility. The Company recognized no extraordinary gains or losses during Fiscal 1998 or Fiscal 1997. Liquidity and Capital Resources The Company's 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 Credit Agreement is secured by substantially all of the assets of Grand Union and its subsidiaries, and is guaranteed by its subsidiaries. The interest rate applicable to the Term Loan and Revolving Credit is equal to, at the Company's election, either (i) 2% above the highest of (A) Citibank's prime or base rate, (B) 0.50% over the Federal Funds Rate per annum, and (C) 1% above the certificate of deposit rate, or (ii) LIBOR plus 3%, in each case, subject to reduction, based on certain performance criteria. At April 3, 1999, borrowings under the Term Loan were at a weighted interest rate of 8.0%. 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 April 3, 1999, an aggregate of $34 million of letters of credit were issued and outstanding. 9 Significant expenditures and resources used to fund such items for the three fiscal years ended April 3, 1999 are reflected in the following table (in millions): Fiscal Fiscal Fiscal 1999 1998 1997 ------ ------ ------- Resources used: Debt and capital lease repayments $314.4 $ 27.8 $ 18.5 Capital expenditures 24.4 39.7 55.1 Financing fees 7.9 9.8 -- Operating activities -- 36.1 -- ------ ------ ------- $346.7 $113.4 $ 73.6 ====== ====== ======= Financed by: Net proceeds from sale of preferred stock $ -- $ 40.0 $ 51.0 Net proceeds from long-term debt 230.0 78.0 9.0 Proceeds from DIP Facility 108.0 -- -- Property disposals and sales 7.2 5.9 8.0 Operating activities 14.1 -- 0.4 ------ ------ ------- $359.3 $123.9 $ 68.4 ====== ====== ======= 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 ("IT"), the Company's Chief Information Officer, outside information technology and process 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 has implemented the modifications or replacements necessary to achieve compliance; conducted tests to verify that the modified systems are operational and compliant; and once completed, reinstated 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 were assessed and modified or replaced in priority order. Management estimates that virtually all internally developed systems and applications are currently Year 2000 ("Y2K") compatible. The Company believes that virtually all critical systems and applications are Y2K compliant as of June 30, 1999. The Task Force also examined 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 distributed Y2K compliance questionnaires to vendors and suppliers who do business with the Company and has analyzed the responses. Particular attention has been focused on C&S, which supplies the majority of inventory for resale 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 continue monitoring their progress. The Task Force has contracted 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 has established and implemented a Y2K contingency plan, which includes possible Y2K events and provides for viable alternatives to ensure that the Company's core business operations are able to continue in the event of a Y2K-related business interruption. This plan sets forth alternatives related to product procurement, system failures, utility outages and infrastructure. Additionally, secondary processes and procedures have been developed in the event that these issues arise. Through April 3, 1999, the Company has expended approximately $2.9 million to address Y2K compliance issues. The Company estimates that it will incur additional expenses of $1.0 - 3.9 million, for a total of approximately $3.9 - 6.8 million, to address and resolve Y2K compliance issues, which includes the estimated costs of all modifications, testing and consultants' fees. 10 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. Future Outlook As a result of the 1998 Reorganization, the Company has the ability to aggressively pursue opportunities. Prior to the 1998 Reorganization, the Company had insufficient resources to appropriately fund capital expenditures. The significant reduction in debt, and the attendant reduction in interest expense, effectuated by the 1998 Reorganization, together with the proceeds of the Credit Agreement, has provided the Company with substantially improved liquidity. This substantial reduction of debt and the availability of new funds has enabled the Company to develop and begin to execute a capital expenditure program that will enhance the operations, profitability and competitiveness of the Company. The marketing strategies that the management team began to institute in the second half of Fiscal 1998 will continue. The Company has determined that to maximize profitability, it should (i) expand its existing store base, including the development of new stores and the remodeling of existing units; (ii) implement a program for maximizing advertising and promotion allowance revenues from the Company's suppliers; and (iii) perform ongoing evaluation and, when appropriate, close or modify store locations that are not adequately contributing. The Company remains committed to building its sales base in existing stores. The objective of reducing operating costs in both the stores and administration will continue in conjunction with the focus on improving store conditions and customer service. Total capital expenditure commitments are projected to be in excess of $100 million in Fiscal 2000. Included are approximately 53 separate projects, consisting of ten new or replacement stores, eight store conversions, three expanded stores, fourteen major remodels and eighteen remodels to enhance existing locations. During Fiscal 2000, this program will be subject to continuing change and review as needed. The ten new stores in this program, including store replacements, will add approximately 410,000 square feet, or 7% to the Company's existing store base in Fiscal 2000. A number of projects scheduled to start in Fiscal 2000 will be completed in Fiscal 2001. The Fiscal 2000 capital development program is expected to be financed by internally generated funds and the Credit Agreement. Special Note Concerning Forward-Looking Statements Except for historical information, statements by the Company under the caption "Future Outlook" and elsewhere in this report 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 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. Item 7A. 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. The Company does not have any material exposure to market risk associated with the Term Loan and Revolving Credit borrowings. 11 Item 8. Financial Statements and Supplementary Data The Financial Statements and Supplementary Data listed below are included in this report on the page indicated. Index to Financial Statements: Document PAGE REPORTS OF INDEPENDENT ACCOUNTANTS F-1 Consolidated Statement of Operations for the 33 Weeks Ended April 3, 1999 (Successor Company) and the 20 Weeks Ended August 15, 1998 and the 52 Weeks Ended March 28, 1998 and March 29, 1997 (Predecessor Company) F-3 Consolidated Balance Sheet at April 3, 1999 and March 28, 1998 F-4 Consolidated Statement of Cash Flows for the 33 Weeks Ended April 3, 1999 (Successor Company) and the 20 Weeks Ended August 15, 1998 and the 52 Weeks Ended March 28, 1998 and March 29, 1997 (Predecessor Company) F-5 Notes to Consolidated Financial Statements F-6 All other schedules are omitted either because they are not applicable or the required information is disclosed in the consolidated financial statements or notes thereto. 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 Information required by Part III, Item 10, will be included in the Company's Proxy Statement relating to the Company's annual meeting of stockholders to be held on August 19, 1999, and is incorporated herein by reference. Item 11. Executive Compensation Information required by Part III, Item 11, will be included in the Company's Proxy Statement relating to the Company's annual meeting of stockholders to be held on August 19, 1999, and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management Information required by Part III, Item 12, will be included in the Company's Proxy Statement relating to the Company's annual meeting of stockholders to be held on August 19, 1999, and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions Information required by Part III, Item 13, will be included in the Company's Proxy Statement relating to the Company's annual meeting of stockholders to be held on August 19, 1999, and is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules and Report On Form 8-K The following documents are filed as a part of this report: (a) Financial statements 12 All financial statements as set forth under Item 8. (b) Reports on Form 8-K 1. Relating to the Adoption of a Stockholder Rights Plan - filed on April 29, 1999. (c) Exhibits Exhibit Number Description of Document ------ ----------------------- 2.1 Second Amended Chapter 11 Plan of Reorganization of The Grand Union Company ("Grand Union"), filed with the United States Bankruptcy Court, District of Delaware, on April 19, 1995, incorporated by reference to Exhibit T3E1 to Grand Union's Form T-3 dated May 8, 1995. 2.2 Findings of Fact, Conclusions of Law and Order Confirming the Second Amended Plan of Reorganization proposed by Grand Union, dated May 31, 1995, incorporated by reference to Exhibit 2.2 to Grand Union's Annual Report on Form 10-K for the fiscal year ended April 1, 1995 ("Fiscal 1995"). 2.3 Minute Order Clarifying Findings of Fact, Conclusions of Law and Order Confirming Second Amended Plan of Reorganization proposed by Grand Union, dated June 14, 1995, incorporated by reference to Exhibit 2.3 to Grand Union's Annual Report on Form 10-K for Fiscal 1995. 2.4 Chapter 11 Plan of Reorganization filed with the United States Bankruptcy Court, District of New Jersey, on June 24, 1998, incorporated by reference to Exhibit 1 to Exhibit 2.1 to Grand Union's Current Report on Form 8-K filed May 28, 1998. 3.1 Certificate of Incorporation of Grand Union, as restated through September 10, 1998, incorporated by reference to Exhibit 3.1 to Grand Union's Quarterly Report on Form 10-Q for the period ended October 10, 1998. 3.2 Amended and Restated By-Laws of The Grand Union Company, as amended and effective August 17, 1998, incorporated by reference to Exhibit 3.1 to Grand Union's Quarterly Report on Form 10-Q for the period ended July 18, 1998. 3.3 Rights Agreement dated as of April 29, 1999 between The Grand Union Company and American Stock Transfer & Trust Co., as Rights Agent, including the Form of Rights Certificate and Form of Certificate of Designations for Series A Junior Preferred Stock, incorporated by reference to Grand Union's Current Report on Form 8-K filed on April 29, 1999. 4.1 Form of Common Stock Certificate of Grand Union, incorporated by reference to Exhibit 4.1 to Grand Union's Quarterly Report on Form 10-Q for the period ended October 10, 1998. 4.2 Form of Warrant Agreement, dated August 17, 1998, between Grand Union and American Stock Transfer & Trust Company, as Warrant Agent, incorporated by reference to Exhibit A to Exhibit 1 to Exhibit 2.1 to Grand Union's Current Report on Form 8-K filed May 28, 1998. 10.1 Agreement to Hold Separate dated July 17, 1989, by and among MTH Holdings Inc. ("MTH Holdings"), GU Acquisition Corporation ("GUAC"), Salomon Inc. and the Federal Trade Commission (the "FTC") entered into in the matter of MTH Holdings and GUAC before the FTC, incorporated by reference to Exhibit No. 10.5 to Grand Union's Registration Statement on Form S-1 (Registration No. 33-29707) (the "1989 Grand Union Registration Statement"). 10.2 Agreement containing Consent Order among MTH Holdings, GUAC and the FTC entered into in the matter of MTH Holdings and GUAC before the FTC, incorporated by reference to Exhibit No. 10.6 to the 1989 Grand Union Registration Statement. 13 Exhibit Number Description of Document ------ ----------------------- 10.3 Credit Agreement, dated as of August 17, 1998, by and among the Company, the several lenders from time to time party, thereto Warburg Dillon Read, LLC, as Co-Advisor and Co-Arranger, UBS AG, Stamford Branch, as Syndication Agent, Lehman Brothers Inc., as Co-Advisor and Co-Arranger, and Lehman Commercial Paper Inc., as Administrative Agent and Collateral Agent, incorporated by reference to Exhibit 10.1 to Grand Union's Current Report on Form 8-K filed August 17, 1998. 10.4 Guarantee and Collateral Agreement dated as of August 17, 1998, by the Company and its subsidiaries for the benefit of Lehman Commercial Paper, Inc., as Collateral Agent, incorporated by reference to Exhibit 10.2 to Grand Union's Current Report on Form 8-K filed August 17, 1998. 10.5 Waiver and First Amendment to the Credit Agreement dated as of November 6, 1998. 10.6 Second Amendment to the Credit Agreement dated as of February 24, 1999. 10.7 Supply and Distribution Agreement between Grand Union and C&S Wholesalers, dated June 15, 1995, incorporated by reference to Exhibit 10.3 to Grand Union's Quarterly Report on Form 10-Q/A for the period ended January 6, 1996. 10.8 First Amendment to the Supply and Distribution Agreement between Grand Union and C&S Wholesalers, dated June 15, 1995, incorporated by reference to Exhibit 10.4 to Grand Union's Quarterly Report on Form 10-Q/A for the period ended January 6, 1996. 10.9 Supply and Distribution Agreement between Grand Union and C&S Wholesalers, dated January 2, 1996, incorporated by reference to Exhibit 10.5 to Grand Union's Quarterly Report on Form 10-Q/A for the period ended January 6, 1996. 10.10 Agreement with C&S Wholesalers Inc. dated January 21, 1996, incorporated by reference to Exhibit 10.28 to Grand Union's Annual Report on Form 10-K/A for Fiscal 1997. 10.11 Fourth Amendment and Restatement of The Grand Union Company Supplemental Retirement Program for Key Executives effective as of November 20, 1997, incorporated by reference to Exhibit 10.16 to Grand Union's Annual Report on Form 10-K for Fiscal 1998. 10.12 The Grand Union Company Discretionary Severance Plan for Non-Union Associates effective April 14, 1998, incorporated by reference to Exhibit 10.17 to Grand Union's Annual Report on Form 10-K for Fiscal 1998. 10.13 The Grand Union Company Severance Plan for Exempt Personnel effective April 14, 1998, incorporated by reference to Exhibit 10.18 to Grand Union's Annual Report on Form 10-K for Fiscal 1998. 10.14 The Grand Union Company 1995 Equity Incentive Plan, as amended, incorporated by reference to Exhibit 6 to Grand Union's Disclosure Statement filed as Exhibit 2.1 to Grand Union's Form 8-K filed May 28, 1998. 10.15 The Grand Union Company 1995 Non-Employee Directors Stock Option Plan, incorporated by reference to Exhibit 10.2 to Grand Union's Quarterly Report on Form 10-Q for the period ended January 6, 1996. 10.16 First Amendment to the 1995 Non-Employee Directors' Stock Option Plan of Grand Union, incorporated by reference to Exhibit 10.6 to Grand Union's Quarterly Report on Form 10-Q for the period ended July 20, 1996. 14 Exhibit Number Description of Document ------ ----------------------- 10.17 Form of Indemnification Agreement between the Company and Jeffrey P. Freimark (dated March 3, 1997), Donald C. Vaillancourt (dated June 5, 1997), Glenn J. Smith (dated August 7, 1997), J. Wayne Harris (dated August 11, 1997), Gary M. Philbin (dated October 3, 1997), Javier Ramirez, Vice President Tax and Assistant Secretary (dated October 30, 1997), Jack W. Partridge (dated January 5, 1998), Manny Moslemi (dated August 6, 1998), Martin Bernstein (dated August 17, 1998), Thomas Cochill (dated August 17, 1998), Joseph Colonnetta (dated August 17, 1998), Jacob Doft (dated August 17, 1998), David Green (dated August 17, 1998), Joseph Lash (dated August 17, 1998), Anthony Petrillo (dated August 17, 1998), Scott Tepper (dated August 17, 1998) and Gary Duncan (dated January 11, 1999) incorporated by reference to Exhibit 10.26 to Grand Union's Annual Report on Form 10-K for Fiscal 1998. 10.18 Employment Agreement (effective August 17, 1998 and dated as of August 13, 1998) between Grand Union and J. Wayne Harris, incorporated by reference to Exhibit 10.2 to Grand Union's Quarterly Report on Form 10-Q for the period ended July 18, 1998. 10.19 Employment Agreement (effective August 17, 1998 and dated as of August 13, 1998) between Grand Union and Jack W. Partridge, Jr., incorporated by reference to Exhibit 10.3 to Grand Union's Quarterly Report on Form 10-Q for the period ended July 18, 1998. 10.20 Employment Agreement (effective August 17, 1998 and dated as of August 13, 1998) between Grand Union and Gary M. Philbin, incorporated by reference to Exhibit 10.4 to Grand Union's Quarterly Report on Form 10-Q for the period ended July 18, 1998. 10.21 Employment Agreement (effective August 17, 1998 and dated as of August 13, 1998) between Grand Union and Jeffrey P. Freimark incorporated by reference to Exhibit 10.5 to Grand Union's Quarterly Report on Form 10-Q for the period ended July 18, 1998. 21.1 Subsidiaries of Grand Union. 27.1 Financial Data Schedule, for the 33 weeks ended April 3, 1999. 27.2 Financial Data Schedule, for the 20 weeks ended August 15, 1998. 15 Signatures Pursuant to the requirements of Section 13 or 15(d) 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) Date: July 2, 1999 /s/ Jeffrey P. Freimark ---------------------------------------------------- Jeffrey P. Freimark Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ J. Wayne Harris Director, Chairman, and Chief July 2, 1999 - -------------------------- Executive Officer J. Wayne Harris (Principal Executive Officer) /s/ Jack W. Partridge, Jr. Director, Vice Chairman and July 2, 1999 - -------------------------- Chief Administrative Officer Jack W. Partridge, Jr. /s/ Gary M. Philbin Director, President and Chief July 2, 1999 - -------------------------- Merchandising Officer Gary M. Philbin /s/ Jeffrey P. Freimark Executive Vice President and July 2, 1999 - -------------------------- Chief Financial Officer Jeffrey P. Freimark (Principal Financial and Accounting Officer) /s/ Martin Bernstein Director July 2, 1999 - -------------------------- Martin Bernstein /s/ Thomas R. Cochill Director July 2, 1999 - -------------------------- Thomas R. Cochill /s/ Joseph Colonnetta Director July 2, 1999 - -------------------------- Joseph Colonnetta /s/ Jacob W. Doft Director July 2, 1999 - -------------------------- Jacob W. Doft /s/ David M. Green Director July 2, 1999 - -------------------------- David M. Green /s/ Joseph V. Lash Director July 2, 1999 - -------------------------- Joseph V. Lash /s/ Anthony Petrillo Director July 2, 1999 - -------------------------- Anthony Petrillo /s/ Scott Tepper Director July 2, 1999 - -------------------------- Scott Tepper 16 REPORT OF INDEPENDENT ACCOUNTANTS (Post-Emergence) To the Stockholders and the Board of Directors of The Grand Union Company In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations and cash flows present fairly, in all material respects, the financial position of The Grand Union Company and its subsidiaries (the "Company") at April 3, 1999, and the results of their operations and their cash flows for the 33 weeks ended April 3, 1999, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. As discussed in Notes 1 and 3 to the consolidated financial statements, on June 24, 1998, the Company filed a voluntary petition for relief, under Chapter 11 of Title 11 of the United States Code ("Chapter 11"), with the United States Bankruptcy Court for the District of New Jersey. The Company's 1998 Plan of Reorganization, as amended, became effective on August 17, 1998 and the Company emerged from Chapter 11. In connection with its emergence from Chapter 11, the Company adopted Fresh-Start Reporting as of August 15, 1998. PricewaterhouseCoopers LLP Florham Park, New Jersey May 17, 1999 F-1 REPORT OF INDEPENDENT ACCOUNTANTS (Pre-Emergence) To the Stockholders and the Board of Directors of The Grand Union Company In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations and cash flows present fairly, in all material respects, the financial position of The Grand Union Company and its subsidiaries (the "Company") at March 28, 1998, and the results of their operations and their cash flows for the 20 weeks ended August 15, 1998 and 52 weeks ended March 28, 1998 and March 29, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Notes 1 and 3 to the consolidated financial statements, on June 24, 1998, the Company filed a voluntary petition for relief, under Chapter 11 of Title 11 of the United States Code ("Chapter 11"), with the United States Bankruptcy Court for the District of New Jersey. The Company's 1998 Plan of Reorganization, as amended, became effective on August 17, 1998 and the Company emerged from Chapter 11. In connection with its emergence from Chapter 11, the Company adopted Fresh-Start Reporting as of August 15, 1998. PricewaterhouseCoopers LLP Florham Park, New Jersey May 17, 1999 F-2 THE GRAND UNION COMPANY CONSOLIDATED STATEMENT OF OPERATIONS (dollars in thousands, except per share data)
Successor Company Predecessor Company ------------ -------------------------------------------- 33 Weeks 20 Weeks 52 Weeks 52 Weeks Ended Ended Ended Ended April 3, August 15, March 28, March 29, 1999 1998 1998 1997 ------------ ------------ ------------ ------------ Sales $ 1,417,293 $ 868,962 $ 2,266,770 $ 2,312,673 Cost of sales 995,724 610,930 1,627,233 1,606,926 ------------ ------------ ------------ ------------ Gross profit 421,569 258,032 639,537 705,747 Operating and administrative expenses 349,758 217,683 574,770 586,189 Depreciation and amortization 39,445 26,081 92,922 82,159 Amortization of excess reorganization value 81,146 40,128 104,332 102,607 Unusual items 988 4,789 6,333 9,800 Interest expense, net 27,148 36,509 113,770 105,823 ------------ ------------ ------------ ------------ (Loss) before income taxes and extraordinary item (76,916) (67,158) (252,590) (180,831) Income tax provision 567 -- 51,393 2,523 ------------ ------------ ------------ ------------ Net (loss) before extraordinary item (77,483) (67,158) (303,983) (183,354) Extraordinary item -- 259,045 -- -- ------------ ------------ ------------ ------------ Net income (loss) (77,483) 191,887 (303,983) (183,354) Accrued dividends on preferred stock -- 2,305 8,431 2,000 ------------ ------------ ------------ ------------ Net income (loss) applicable to common stock $ (77,483) $ 189,582 $ (312,414) $ (185,354) ============ ============ ============ ============ Basic and diluted net (loss) per common share $ (2.58) ============ Weighted average number of shares outstanding 30,000,000 ============
See accompanying notes to consolidated financial statements. F-3 THE GRAND UNION COMPANY CONSOLIDATED BALANCE SHEET (dollars in thousands, except par value and liquidation preference data)
Successor Predecessor Company Company ----------- ----------- April 3, March 28, 1999 1998 ----------- ----------- ASSETS Current assets: Cash and temporary investments $ 57,414 $ 44,745 Receivables 34,645 21,378 Inventories 152,217 128,370 Other current assets 7,644 14,787 ----------- ----------- Total current assets 251,920 209,280 Property, net 327,881 389,637 Excess reorganization value, net 314,420 230,734 Beneficial leases, net 66,547 51,935 Deferred tax asset 114,429 -- Other assets 14,053 23,049 =========== =========== Total assets $ 1,089,250 $ 904,635 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current maturities of long-term debt $ -- $ 798,551 Current portion of obligations under capital leases 6,303 7,562 Accounts payable and accrued liabilities 171,999 189,439 ----------- ----------- Total current liabilities 178,302 995,552 Long-term debt 230,000 -- Obligations under capital leases 154,837 153,425 Adverse leases, net 74,322 12,404 Other noncurrent liabilities 144,172 96,458 ----------- ----------- Total liabilities 781,633 1,257,839 ----------- ----------- Commitments and contingencies Redeemable Class A Preferred Stock (Predecessor Company), $1.00 par value, 3,500,000 shares authorized, 1,300,566 shares issued and outstanding, liquidation preference $70,685,000 at March 28, 1998 70,685 ----------- ----------- Redeemable Class B Preferred Stock (Predecessor Company), $1.00 par value, 1,400,000 shares authorized, 800,000 shares issued and outstanding, liquidation preference $42,746,000 at March 28, 1998 42,746 ----------- ----------- Stockholders' equity (deficit): Common stock (Predecessor Company), $.01 par value; 60,000,000 shares authorized, 10,202,018 shares issued and outstanding at March 28, 1998 102 Common stock (Successor Company), $.01 par value; 60,000,000 shares authorized, 30,000,000 shares issued and outstanding at April 3, 1999 300 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 (77,483) (597,193) Accumulated other comprehensive (loss) -- (1,550) ----------- ----------- Total stockholders' equity (deficit) 307,617 (466,635) ----------- ----------- Total liabilities and stockholders' equity (deficit) $ 1,089,250 $ 904,635 =========== ===========
See accompanying notes to consolidated financial statements. F-4 THE GRAND UNION COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (dollars in thousands)
Successor Company Predecessor Company ---------- ----------------------------------- 33 Weeks 20 Weeks 52 Weeks 52 Weeks Ended Ended Ended Ended April 3, August 15, March 28, March 29, 1999 1998 1998 1997 --------- --------- --------- --------- OPERATING ACTIVITIES: Net income (loss) $ (77,483) $ 191,887 $(303,983) $(183,354) 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 item -- (259,045) -- -- Depreciation and amortization 120,591 66,209 197,254 184,766 Deferred taxes 567 -- 51,393 2,523 Noncash interest 972 626 907 (188) Gain on sale of property (1,889) -- -- -- Net changes in assets and liabilities: Receivables (12,077) (1,506) 7,588 2,973 Inventories (23,858) (5,586) 3,039 2,097 Other current assets (2,023) (99) (461) (617) Other assets (86) 29 (1,878) 166 Accounts payable and accrued liabilities (751) 22,347 15,582 (2,783) Other noncurrent liabilities 132 (517) (1,882) 267 --------- --------- --------- --------- Net cash provided by (used for) operating activities before reorganization items paid 5,083 19,134 (32,441) 5,850 Reorganization items paid (988) (9,102) (3,681) (5,484) --------- --------- --------- --------- Net cash provided by (used for) operating activities 4,095 10,032 (36,122) 366 --------- --------- --------- --------- INVESTMENT ACTIVITIES: Capital expenditures (20,943) (3,413) (39,727) (55,147) Proceeds from sale of property 4,639 -- -- -- Disposals of property 2,519 49 5,897 8,011 --------- --------- --------- --------- Net cash (used for) investment activities (13,785) (3,364) (33,830) (47,136) --------- --------- --------- --------- FINANCING ACTIVITIES: Net proceeds from sale of preferred stock -- -- 40,000 51,000 Net proceeds from sale of common stock -- -- 258 -- Proceeds from debt -- 230,000 77,978 9,000 Proceeds from DIP facility -- 108,000 -- -- Repayment of DIP facility -- (108,000) -- -- Financing fees -- (7,895) (9,842) -- Repayment of old bank debt -- (182,122) -- -- Obligations under capital leases discharged (4,198) (3,094) (8,770) (10,543) Net repayment of long-term debt -- (17,000) (19,046) (7,993) --------- --------- --------- --------- Net cash provided by (used for) financing activities (4,198) 19,889 80,578 41,464 --------- --------- --------- --------- Net increase (decrease) in cash and temporary investments (13,888) 26,557 10,626 (5,306) Cash and temporary investments at beginning of period 71,302 44,745 34,119 39,425 --------- --------- --------- --------- Cash and temporary investments at end of period $ 57,414 $ 71,302 $ 44,745 $ 34,119 ========= ========= ========= ========= Supplemental disclosure of cash flow information: Interest payments $ 24,738 $ 21,358 $ 77,658 $ 105,045 Capital lease obligations incurred 7,550 -- 21,654 23,452 Accrued dividends -- 2,305 8,431 2,000 Decrease in common stock par value -- -- -- 9,900
See accompanying notes to consolidated financial statements. F-5 THE GRAND UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - 1998 Reorganization On August 17, 1998 (the "Effective Date"), The Grand Union Company ("Grand Union" or the "Company") consummated its plan of reorganization under Chapter 11 of the Bankruptcy Code (the "1998 Reorganization") pursuant to the August 5, 1998 Confirmation Order of the United States Bankruptcy Court for the District of New Jersey. Consummation of the 1998 Reorganization has resulted in a capital restructuring of the Company, whereby approximately $600 million in Old Senior Notes at an annual interest rate of 12% has been eliminated from the Company's balance sheet. Consummation of the 1998 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 the Effective Date, in connection with the consummation of the 1998 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 1998 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. NOTE 2 - Basis of Presentation and Summary of Significant Accounting Policies The Company is a regional food retailer, currently operating stores in six northeastern states. The Company has been publicly owned since June 15, 1995. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. Intercompany transactions and balances have been eliminated in consolidation. Fiscal Year The Company's fiscal year ends on the Saturday nearest the last day of March. The year ended April 3, 1999 ("Fiscal 1999") was comprised of 53 weeks. The years ended March 28, 1998 ("Fiscal 1998") and March 29, 1997 ("Fiscal 1997") were each comprised of 52 weeks. Fiscal 1999 includes the 20 weeks prior to the Effective Date which have been designated "Predecessor Company" and the 33 weeks subsequent to the Effective Date which have been designated "Successor Company." F-6 Temporary Cash Investments The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. Inventories Grocery and general merchandise inventories are all valued at the lower of last-in, first-out ("LIFO") cost or market. At April 3, 1999 and March 28, 1998 approximately $137,217,000 and $112,411,000, respectively, of grocery and general merchandise inventories were valued using the LIFO method. Replacement cost exceeded LIFO cost of these inventories by approximately $626,000 and $3,783,000 at April 3, 1999 and March 28, 1998, respectively. Perishable inventories are valued at the lower of average cost or market, which adequately provides for the matching of costs and related revenues due to the rapid turnover of such inventories. As of the Effective Date, the Company eliminated its LIFO reserve in conjunction with the implementation of Fresh-Start Reporting. Property and Depreciation Land, buildings, fixtures and equipment and leasehold improvements are recorded at cost and include interest on the funds borrowed to finance construction. Depreciation and amortization of buildings, fixtures and equipment and leasehold improvements are computed using the straight-line method over estimated useful lives ranging from three to forty years. Properties held under capital leases are capitalized net of gains on sale-leaseback transactions and are amortized using the straight-line method over the life of the asset or the life of the lease, as appropriate. As of the Effective Date, the Company revalued its property and changed the depreciable lives of certain assets in conjunction with the implementation of Fresh-Start Reporting. Excess Reorganization Value Excess Reorganization Value, established in connection with Fresh-Start Reporting, is being amortized on a straight-line basis over three years. In accordance with Fresh-Start Reporting, the Predecessor Company's remaining Excess Reorganization Value was eliminated as of the Effective Date. Accumulated amortization was $81,146,000 and $290,925,000 at April 3, 1999 and March 28, 1998, respectively. Beneficial Leases Amortization of beneficial leases is computed using the straight-line basis over the lease life. As of the Effective Date, the Company revalued its beneficial lease assets in conjunction with the implementation of Fresh-Start Reporting. At April 3, 1999 and March 28, 1998, accumulated amortization was $11,050,000 and $43,218,000. Amortization of Debt Premium The Company amortizes premiums in connection with the issuance of long-term debt over the life of the respective issue. Deferred Financing Fees Financing fees are deferred and amortized over the term of the related loan. At April 3, 1999 and March 28, 1998, accumulated amortization was $972,000 and $2,342,000, respectively. Income Taxes Deferred income taxes are recognized for tax consequences of "temporary differences" by applying enacted statutory tax rates, applicable to future years, to differences between the financial reporting and the tax basis of existing assets and liabilities. Valuation allowances are recorded to the extent that it is more likely than not that future tax benefits will not be realized. Retirement Plans The Company maintains a noncontributory, trusteed pension plan covering eligible employees and a supplemental nonqualified, nontrusteed plan for certain executives. The Company's policy is to fund pension amounts, which satisfy the requirements of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The Company also maintains a savings plan for all non-union employees in which those eligible may contribute up to a total of 14% of their F-7 salary; the allowable percentage of pre-and post-tax contributions vary depending upon the earnings of a particular employee. The Company provides a match of 25% on the dollar up to the first 4% of employee contributions. Postretirement Benefits Other than Pensions The Company accrues the estimated cost of retiree benefit payments, other than pension, during the years each employee provides services. Stock-Based Compensation The Company accounts for stock-based compensation using the intrinsic value method under which compensation cost is measured as the excess, if any, of the quoted market price of the Company's stock at the date of grant over the exercise price of the option granted. Compensation cost for stock options, if any, is recognized ratably over the vesting period. The Company provides additional pro forma disclosures as required under Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." Self Insurance The Company self-insures certain workers' compensation, automobile liability, general liability and non-union employee medical costs to varying deductible limits, and with the exception of medical costs, carries third party insurance in excess of such limits. Reserves are provided for the estimated settlement value up to the deductible limit of all claims incurred during each policy year. As of the Effective Date, the Company revalued its self insurance liabilities in conjunction with the implementation of Fresh-Start Reporting. At April 3, 1999 and March 28, 1998, the total self insurance reserve was $52,412,000 and $42,794,000, respectively, which consists of $44,005,000 and $30,567,000 in other noncurrent liabilities included in the accompanying consolidated balance sheet. Adverse Leases Amortization of adverse leases is computed using the straight-line basis over the lease life. As of the Effective Date, the Company revalued its adverse lease liabilities in conjunction with the implementation of Fresh-Start Reporting. At April 3, 1999 and March 28, 1998, accumulated amortization was $3,188,000 and $3,059,000, respectively. Advertising Costs Advertising costs are expensed as incurred. Advertising expense for the 33 weeks ended April 3, 1999, the 20 weeks ended August 15, 1998, Fiscal 1998, and Fiscal 1997 were $15,647,000, $10,834,000, $33,216,000, and $37,481,000, respectively. Store Closure Expense Estimated net costs of holding and disposing of closed stores are provided as of the later of the date the decision is made to close the store or the date such costs are reasonably estimable. Pre-opening Costs Store pre-opening costs are charged to expense at the date the store opens. Fair Value of Financial Instruments The carrying amounts for the Company's cash, temporary cash investments, receivables, accounts payable, accrued liabilities and debt approximate fair value. Use of Estimates 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 the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, costs and expenses during the reporting period. Actual results could differ from those estimates. Areas of significant estimates include self-insurance reserves, realization of deferred tax assets, retirement benefit reserves, recoverability of long-lived assets, restructuring and other reserves. F-8 Net Loss Per Share Net loss per share is computed in accordance with SFAS No. 128, "Earnings Per Share" ("SFAS No. 128"), which is effective for interim and year end periods ending after December 15, 1997. This statement requires that entities present, on the face of the income statement for all periods presented, 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 considers the impact of any dilutive stock options or warrants outstanding (potential common shares). For the 33 weeks ended April 3, 1999, potentially dilutive shares totaling 8,021,120 have been 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 1998 Reorganization. The Company adopted SFAS No. 128 in the third quarter of Fiscal 1998. Reclassifications Certain reclassifications have been made to the prior years' consolidated financial statements to conform to the Fiscal 1999 presentation. NOTE 3 - Fresh-Start Reporting Upon emergence from its Chapter 11 proceedings in connection with the 1998 Reorganization, 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 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 $395,566,000 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 - Unusual Items Unusual items included in the consolidated statement of operations consist of the following (in thousands): Successor Company Predecessor Company -------- ----------------------------------- 33 Weeks 20 Weeks 52 Weeks 52 Weeks Ended Ended Ended Ended April 3, August 15 , March 28, March 29, 1999 1998 1998 1997 ------ ------ ------ ------ 1998 Reorganization items $ 988 $4,789 $2,668 $ -- Charges relating to severance -- -- 3,000 7,800 Inventory valuation reserve -- -- -- 2,000 1995 Restructuring items -- -- 665 -- ------ ------ ------ ------ Total unusual items $ 988 $4,789 $6,333 $9,800 ====== ====== ====== ====== F-9 During the 33 weeks ended April 3, 1999 and the 20 weeks ended August 15, 1998, the Company recorded $988,000 and $8,602,000, respectively, in connection with legal, advisory and bank fees associated with the Plan of Reorganization and $3,813,000 as a net gain during the 20 weeks ended August 15, 1998 resulting from the elimination of debt premiums. The Company recorded $2,668,000 of unusual charges during the fourth quarter of Fiscal 1998 in connection with professional fees associated with the planned prepackaged restructuring. Additionally, the Company recorded $3,665,000 of unusual charges during the third quarter of Fiscal 1998. This charge included a $3,000,000 supplement for a reserve set at fiscal year end 1997 for the reorganization of the Company during Fiscal 1998 and additional charges of $665,000 for legal costs to supplement a reserve created as a result of the Company's Chapter 11 filing in calendar year 1995. During the fourth quarter of Fiscal 1997, the Company recorded $9,800,000 of unusual charges including $7,800,000 of severance and $2,000,000 of an inventory valuation reserve. NOTE 5 - Property Property, at cost, consists of the following (in thousands): Successor Predecessor Company Company -------- -------- April 3, March 28, 1999 1998 -------- -------- Property owned: Land $ 16,841 $ 18,055 Buildings 66,782 80,676 Fixtures and equipment 394,667 385,701 Leasehold improvements 166,444 208,040 -------- -------- 644,734 692,472 Less: accumulated depreciation and amortization 432,818 415,112 -------- -------- Property owned, net 211,916 277,360 -------- -------- Property held under capital leases: Land and buildings 163,968 157,720 Equipment 11,858 19,492 -------- -------- 175,826 177,212 Less: accumulated amortization 59,861 64,935 -------- -------- Property held under capital leases, net 115,965 112,277 -------- -------- Property $327,881 $389,637 ======== ======== Depreciation and amortization of owned and leased property for the 33 weeks ended April 3, 1999, 20 weeks ended August 15, 1998, Fiscal 1998, and Fiscal 1997 were $32,685,000, $17,612,000, $78,554,000, and $64,256,000, respectively. In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," 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 $7,752,000 and $25,020,000 for April 3, 1999 and March 28, 1998, respectively, which was recorded through depreciation in order to write down certain impaired store assets. F-10 NOTE 6 - Receivables and Accounts Payable and Accrued Liabilities Receivables at April 3, 1999 and March 28, 1998 are net of allowances for doubtful accounts of $4,987,000 and $5,542,000, respectively. Accounts payable and accrued liabilities consist of the following (in thousands): Successor Predecessor Company Company -------- -------- April 3, March 28, 1999 1998 -------- -------- Accounts payable $ 77,542 $ 73,135 Accrued liabilities: Payroll 27,246 22,513 Interest 4,060 44,832 Insurance 14,014 15,076 Other 49,137 33,883 -------- -------- Total accounts payable and accrued liabilities $171,999 $189,439 ======== ======== NOTE 7 - Income Taxes The components of the deferred income tax provision are as follows (in thousands): Successor Company Predecessor Company ------- ---------------------------------- 33 Weeks 20 Weeks 52 Weeks 52 Weeks Ended Ended Ended Ended April 3, August 15, March 28, March 29, 1999 1998 1998 1997 ------- ------- ------- ------- Federal $ 440 $ -- $43,872 $ 2,154 State 127 -- 7,521 369 ------- ------- ------- ------- Income tax provision $ 567 $ -- $51,393 $ 2,523 ======= ======= ======= ======= The reconciliation of the income tax (benefit) computed at the federal statutory rate to the reported income tax provision is as follows (in thousands):
Successor Company Predecessor Company --------- --------------------------------------- 33 Weeks 20 Weeks 52 Weeks 52 Weeks Ended Ended Ended Ended April 3, August 15, March 28, March 29, 1999 1998 1998 1997 --------- --------- --------- --------- (Benefit) computed at federal statutory tax rate $ (26,920) $ (24,114) $ (88,407) $ (63,291) (Increase) decrease in the benefit resulting from: Amortization of excess reorganization value 28,401 14,045 36,257 35,429 State and local taxes, net of federal tax benefit 83 (1,434) (9,039) (5,242) Deferred tax asset valuation allowance -- 9,800 114,587 29,841 Write-down of unrealizable deferred tax asset -- -- -- 8,500 Other (997) 1,703 (2,005) (2,714) --------- --------- --------- --------- Income tax provision $ 567 $ -- $ 51,393 $ 2,523 ========= ========= ========= =========
F-11 The components of the net deferred tax asset are as follows (in thousands): Successor Predecessor Company Company --------- --------- April 3, March 28, 1999 1998 --------- --------- Deferred tax assets: Non-cash interest $ -- $ 1,922 Insurance reserve 24,414 18,922 Pension 19,180 6,784 Postretirement benefit liability 18,063 14,887 Depreciable assets 33,375 8,459 Other miscellaneous reserves 27,289 21,088 Net operating loss carryforward -- 77,052 --------- --------- Total deferred tax assets 122,321 149,114 --------- --------- Deferred tax liabilities: LIFO Reserve 7,892 4,686 --------- --------- Total deferred tax liabilities 7,892 4,686 --------- --------- Net deferred tax asset before valuation allowance 114,429 144,428 Valuation allowance -- (144,428) ========= ========= Net deferred tax asset $ 114,429 $ -- ========= ========= The Company recorded a provision for income tax of $567,000 for the 33 weeks ended April 3, 1999, representing federal and state income taxes. The Company recorded no income tax benefit relating to net operating losses generated during both Fiscal 1998 and the 20 weeks ended August 15, 1998, as they were offset by a valuation allowance. During the fourth quarter of Fiscal 1997, the Company determined that the likelihood of realizing its entire deferred tax asset had diminished as a result of the application of Internal Revenue Code Section 382 as well as other long-term financial prospects. Section 382, which was triggered by the sale of Class A Preferred Stock of the Predecessor Company, limits the amount of future annual net operating loss carryforwards which may be utilized subsequent to a change in control. Consequently, during the fourth quarter of Fiscal 1997, the Company wrote off $8,500,000 of its deferred tax asset that related to net operating loss carryforwards expected to expire due to Section 382 limitations and established a valuation allowance to fully reserve for the portion of its deferred tax asset related to its remaining net operating loss carryforwards. During the fourth quarter of Fiscal 1998, the Company established a valuation allowance for its remaining deferred tax asset relating to temporary differences. All credit and operating loss carryforwards of the Company have been offset by the discharge of indebtedness income recorded in connection with the Plan of Reorganization. In addition, the tax basis of the Company's assets will be reduced by $33.4 million, representing the Company's discharge of indebtedness income in excess of its operating loss and credit carryforwards as of April 3, 1999. As a result of the Company's adoption of Fresh-Start Reporting on the Effective Date, a net deferred tax asset of $114 million was recorded relating to temporary differences that more likely than not will result in future tax benefits. F-12 NOTE 8 - DEBT The components of the Company's debt are as follows (in thousands):
Successor Predecessor Company Company -------- -------- April 3, 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 in the 1998 Reorganization, 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, as a result of 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 Credit Agreement is secured by substantially all of the assets of Grand Union and its subsidiaries, and is guaranteed by its subsidiaries. The interest rate applicable to the Term Loan and Revolving Credit is equal to, at the Company's election, either (i) 2% above the highest of (A) Citibank's prime or base rate, (B) 0.50% over the Federal Funds Rate per annum and (C) 1% above the certificate of deposit rate, or (ii) LIBOR plus 3%, in each case, subject to reduction, based on certain performance criteria. At April 3, 1999, borrowings under the Term Loan were at a weighted interest rate of 8.00%. 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 April 3, 1999, an aggregate of $34 million of letters of credit were issued and outstanding. Such letters of credit have been issued primarily in connection with the Company's self insurance for workers compensation, auto and general liability. F-13 NOTE 9 - PROPERTY LEASES The Company principally operates in leased stores and offices, in most cases holding renewal options with varying terms. Many of the leases contain clauses, which provide for additional rentals based upon increases in real estate taxes, lessors' operating expenses and lessee's sales levels. Future minimum payments under capital and non-cancelable operating leases, net of minimum sublease income, as of April 3, 1999 are as follows (in thousands):
Capital Operating --------- --------- Fiscal 2000 $ 26,460 $ 35,725 2001 24,447 27,670 2002 23,325 23,030 2003 24,591 21,355 2004 25,987 18,513 Later years 285,815 127,093 --------- --------- Total minimum lease payments 410,625 253,386 Less: estimated executory costs included in total minimum lease payments (107) -- Less: sublease rental income (2,278) (21,549) --------- --------- Net minimum lease payments 408,240 $ 231,837 ========= Less: portion representing interest (249,378) --------- Present value of net minimum lease payments 158,862 Less: current portion of obligations under capital leases (6,303) --------- Non-current portion of obligations under capital leases (net of sublease rental income) $ 152,559 =========
Contingent rentals incurred on capital leases for the 33 weeks ended April 3, 1999, the 20 weeks ended August 15, 1998, Fiscal 1998, and Fiscal 1997 were $37,000, $24,000, $81,000, and $106,000, respectively. The rental expense for all operating leases was $30,397,000, $18,887,000, $48,262,000 and $45,847,000 during the 33 weeks ended April 3, 1999, the 20 weeks ended August 15, 1998, Fiscal 1998, and Fiscal 1997, respectively. Contingent rental expense included in total rental expense was $1,494,000, $981,000, $2,538,000, and $2,870,000 during the 33 weeks ended April 3, 1999, the 20 weeks ended August 15, 1998, Fiscal 1998, and Fiscal 1997, respectively. F-14 NOTE 10 - STOCKHOLDERS' EQUITY (DEFICIT) AND REDEEMABLE PREFERRED STOCK Changes in Stockholders' Equity (Deficit) and Redeemable Preferred Stock were as follows (in thousands):
Stockholders' Equity (Deficit) Redeemable Redeemable -------------------------------------------------------------- Class A Class B Capital in Total Preferred Preferred Common Preferred Excess of Accumulated Stockholders' Stock Stock Stock Stock Par Value (Deficit) Equity --------- --------- --------- ---------- --------- --------- --------- Predecessor Company Balance at March 30, 1996 $ -- $ -- $ 10,000 $ -- $ 144,000 $(109,856) $ 44,144 Preferred stock issuance charges -- -- -- -- (12,000) -- (12,000) Decrease in Common Stock par value -- -- (9,900) -- 9,900 -- -- Issuance of Class A Preferred Stock 63,000 -- -- -- -- -- -- Accrued preferred stock dividends 2,000 -- -- -- (2,000) -- (2,000) Net loss for the 52 weeks ended March 29, 1997 -- -- -- -- -- (183,354) (183,354) --------- --------- --------- ---------- --------- --------- --------- Balance at March 29, 1997 65,000 -- 100 -- 139,900 (293,210) (153,210) Issuance of Common Stock -- -- 2 -- 256 -- 258 Issuance of Class B Preferred Stock -- 40,000 -- -- -- -- -- Accrued Class A Preferred Stock dividends 5,685 -- -- -- (5,685) -- (5,685) Accrued Class B Preferred Stock dividends -- 2,746 -- -- (2,746) -- (2,746) Additional minimum pension -- -- -- -- -- (1,550) (1,550) liability Other -- -- -- -- 281 -- 281 Net loss for the 52 weeks ended March 28, 1998 -- -- -- -- -- (303,983) (303,983) --------- --------- --------- ---------- --------- --------- --------- Balance at March 28, 1998 70,685 42,746 102 -- 132,006 (598,743) (466,635) Net income for the 20 weeks ended August 15, 1998 -- -- -- -- -- 191,887 191,887 Extinguishment of Stockholders' Equity in connection with reorganization (70,685) (42,746) (102) -- (132,006) 406,856 274,748 --------- --------- --------- ---------- --------- --------- --------- Balance at August 15, 1998 $ -- $ -- $ -- $ -- $ -- $ -- $ -- ========= ========= ========= ========== ========= ========= ========= Stockholders' Equity ---------------------------------------------------------------- Capital in Total Common Preferred Excess of Accumulated Stockholders' Stock Stock Par Value (Deficit) Equity --------- ---------- --------- --------- --------- Successor Company Balance at August 15, 1998 $ -- $ -- $ -- $ -- $ -- Issuance of Common Stock 300 -- 384,800 -- 385,100 Net loss for the 33 weeks ended April 3, 1999 -- -- -- (77,483) (77,483) --------- ---------- --------- --------- --------- Balance at April 3, 1999 $ 300 $ -- $ 384,800 $ (77,483) $ 307,617 ========= ========== ========= ========= =========
F-15 NOTE 11 - Pension Plans The components of the net periodic pension expense for the Company's defined benefit pension plans are as follows (in thousands):
Fiscal Fiscal Fiscal 1999 1998 1997 ----------------- ------------------ ------------------ Service cost - benefits earned during the period $ 6,211 $ 4,492 $ 4,351 Interest costs on projected benefit obligations 13,150 12,700 12,700 Expected return on plan assets (12,610) (12,589) (13,439) Net amortization and deferral 340 171 137 ----------------- ------------------ ------------------ Net periodic pension expense $ 7,091 $ 4,774 $ 3,749 ================= ================== ==================
The Company has not segregated the respective Successor and Predecessor Company pension expense for Fiscal 1999 because it is impractical to do so. The actuarial present value of benefit obligations and the funded status of the Company's pension plans are as follows (in thousands):
Fiscal Year 1999 Fiscal Year 1998 -------------------------------------------- ------------------------------------------ Qualified Qualified Retirement Supplemental Retirement Supplemental Plan Plan Total Plan Plan Total ------------- ------------- -------------- ------------ ------------ ------------ Change in Benefits Obligation Benefit obligation at beginning of year $ 194,482 $ 7,789 $ 202,271 $ 186,207 $ 5,364 $ 191,571 Service cost 5,794 417 6,211 4,458 34 4,492 Interest cost 12,634 516 13,150 12,346 354 12,700 Plan participants' contributions - - - - - - Amendments - - - - - - Settlement - - - - (811) (811) Actuarial loss (gain) 16,222 (1,557) 14,665 10,593 3,315 13,908 Benefits paid (15,506) (458) (15,964) (19,122) (467) (19,589) ------------- ------------- -------------- ------------ ------------ ------------ Benefit obligations at end of year $ 213,626 $ 6,707 $ 220,333 $ 194,482 $ 7,789 $ 202,271 ============= ============= ============== ============ ============ ============ Change in Plan Assets Fair value of plan assets at beginning of $ 192,386 $ - $ 192,386 $ 169,706 $ - $ 169,706 year Actual return on plan assets 9,817 - 9,817 41,802 - 41,802 Employer contributions - 458 458 - 1,278 1,278 Plan participants' contributions - - - - - - Settlement - - - - (811) (811) Benefits paid (15,506) (458) (15,964) (19,122) (467) (19,589) ------------- ------------- -------------- ------------ ------------ ------------ Fair value of plan assets at end of year $ 186,697 $ - $ 186,697 $ 192,386 $ - $ 192,386 ============= ============= ============== ============ ============ ============ Funded status $ (26,929) $ (6,707) $ (33,636) $ (2,096) $ (7,789) $ (9,885) Unrecognized net actuarial loss (gain) (7,934) (1,834) (9,768) (9,946) 1,911 (8,035) Unrecognized prior service cost - - - - 2,925 2,925 ------------- ------------- -------------- ------------ ------------ ------------ Prepaid (accrued) pension cost $ (34,863) $ (8,541) $ (43,404) $ (12,042) $ (2,953) $ (14,995) ============= ============= ============== ============ ============ ============ Amounts recognized in the consolidated statement of operations: Prepaid benefit cost $ (34,863) $ (8,541) $ (43,404) $ (12,042) $ (2,953) $ (14,995) Accrued benefit liability - - - - (4,475) (4,475) Intangible asset - - - - 2,925 2,925 Accumulated other comprehensive income - - - - 1,550 1,550 ------------- ------------- -------------- ------------ ------------ ------------ Prepaid (accrued) pension cost $ (34,863) $ (8,541) $ (43,404) $ (12,042) $ (2,953) $ (14,995) ============= ============= ============== ============ ============ ============
F-16 Weighted average assumptions used in all Company sponsored plans were as follows:
Fiscal 1999 Fiscal 1998 Fiscal 1997 ---------------------------- ---------------------------- ---------------------------- Qualified Qualified Qualified Retirement Supplemental Retirement Supplemental Retirement Supplemental Plan Plan Plan Plan Plan Plan ------------- ------------ ------------ -------------- ------------ -------------- Discount rate 6.25% 6.25% 6.75% 6.75% 7.25% 7.25% Rates of increase in future compensation 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% Expected return on plan assets 8.25% N/A 8.25 N/A 8.75% N/A
NOTE 12 - Postretirement Health Care and Life Insurance Benefits The Company provides certain health care and life insurance benefits for substantially all of its full-time non-union employees and union employee groups. The Company's postretirement plans currently are not funded. The Company's union employee groups are participants in multi-employer plans, which require monthly contributions and which are not subject to the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." Net postretirement benefit cost consisted of the following (in thousands):
Fiscal Fiscal Fiscal 1999 1998 1997 ----------------- ---------------- ----------------- Service cost - benefits earned during the period $ 854 $ 720 $ 728 Interest cost on accumulated postretirement benefit obligation 2,883 2,690 2,668 Net amortization and deferral 162 - - ----------------- ---------------- ----------------- Net postretirement benefit expense $ 3,899 $ 3,410 $ 3,396 ================= ================ =================
The Company has not segregated the respective Successor and Predecessor Company postretirement benefit expense for Fiscal 1999 because it is impractical to do so. F-17 The unfunded accrued postretirement benefit cost consists of the following (in thousands):
April 3, March 28, 1999 1998 --------------- ----------------- Change in Benefit Obligation Benefit obligation at beginning of year $ 44,642 $ 38,331 Service cost 854 720 Interest cost 2,883 2,690 Plan participants' contributions 500 454 Amendments - - Actuarial loss (gain) 1,499 4,876 Benefits paid (2,708) (2,429) --------------- ----------------- Benefit obligations at end of year $ 47,670 $ 44,642 =============== ================= Change in Plan Assets Fair value of plan assets at beginning of year $ - $ - Actual return on plan assets - - Employer contributions 2,208 1,975 Plan participants' contributions 500 454 Benefits paid (2,708) (2,429) --------------- ----------------- Fair value of plan assets at end of year $ - $ - =============== ================= Funded status $ (47,670) $ (44,643) Unrecognized actuarial loss 1,971 7,851 Unrecognized prior year service cost - - ---------------- --------------- Accrued postretirement benefit cost $ (45,699) $ (36,792) ================ =============== Effect of a one-percentage-point increase in the assumed health care cost trend rates: 1. Change in service cost plus interest cost component $ 13 $ 15 2. Change in accumulated postretirement benefit obligation 202 226 Effect of a one-percentage-point increase in the assumed health care cost trend rates: 1. Change in service cost plus interest cost component $ (12) $ (14) 2. Change in accumulated postretirement benefit obligation (197) (218) Weighted Average Assumptions At Year End Discount rate 6.25% 6.75% Expected return on plan assets N/A N/A Gross health care cost trend rates* (a) Pre 65 initial/ultimate 9.0%/4.5% 10.0%/4.5% (b) Post 65 initial/ultimate 6.0%/4.5% 7.0%/4.5%
* Initial trend rate assumed for applicable year grading down 1.0% per year to ultimate rate. Trend rates do not affect liabilities for retirements occurring on or after January 1, 1994. The Company provides benefits for all future retirees based on a service related flat dollar premium allowance. Accordingly, the health care trend rate will not be a significant factor in determining Grand Union's liability for future retirees under its postretirement health care arrangements. F-18 NOTE 13 - Equity Compensation Plans The Company grants options for common stock under two plans - The Grand Union Company 1995 Equity Incentive Plan, as amended ("EIP") and The Grand Union Company 1995 Non-Employee Directors' Stock Option Plan, as amended ("NEDSOP"). In connection with the 1998 Reorganization, the EIP was amended to adjust: 1) the aggregate number of shares issuable from 6,000,000 shares to 3,250,000 of the Company's Common Stock; and 2) the aggregate number of shares that may be issued to any individual participant to 3,000,000 from 2,000,000. The NEDSOP, which provides for the issuance of options to purchase up to 100,000 shares of the Company's Common Stock, remained unchanged. Both plans are administered by a committee of the Board of Directors. Options under both plans expire ten years from the grant date, unless otherwise provided in a particular grant. As a result of the 1998 Reorganization, all then existing options under both plans were cancelled effective August 17, 1998. The following tables summarize information about options outstanding for both stock option plans:
Successor Company Predecessor Company ----------------------- ------------------------------------------------------------------------ 33 Weeks Ended 20 Weeks Ended 52 Weeks Ended 52 Weeks Ended April 3, 1999 August 15, 1998 March 28, 1998 March 29, 1997 ----------------------- ------------------------ ----------------------------------------------- Weighted Weighted Weighted Weighted Average Average Average Average Exercise Exercise Exercise Exercise Employees' Plan Shares Price Shares Price Shares Price Shares Price ----------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- Outstanding at beginning of year - $ - 4,232,781 $ 2.271 226,280 $ 6.365 210,680 $ 6.625 Granted 2,408,192 11.583 - - 4,133,800 2.146 20,000 3.688 Exercised - - - - (5,325) 1.844 - - Cancelled or expired - - (4,232,781) 2.271 (121,974) 5.658 (4,400) 6.625 ----------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- Outstanding at end of year 2,408,192 $ 11.583 - $ - 4,232,781 $ 2.271 226,280 $ 6.365 =========== ========== ========== =========== ========== ========== ========== ========== Options exercisable at year-end 61,225 $ 12.320 - $ - 2,983,981 $ 1.972 206,280 $ 6.625 =========== ========== ========== =========== ========== ========== ========== ========== Available for issuance under the plan 841,808 - 1,767,219 673,720 Weighted average contractual life (years) 4.081 - 9.386 6.348 Range of exercise prices $8.500 - $1.375 $3.688 to $13.438 to $6.625 to $6.625 Successor Company Predecessor Company ----------------------- ------------------------------------------------------------------------ 33 Weeks Ended 20 Weeks Ended 52 Weeks Ended 52 Weeks Ended April 3, 1999 August 15, 1998 March 28, 1998 March 29, 1997 ----------------------- ------------------------ ----------------------------------------------- Weighted Weighted Weighted Weighted Average Average Average Average Exercise Exercise Exercise Exercise Directors' Plan Shares Price Shares Price Shares Price Shares Price ----------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- Outstanding at beginning of year - $ - 68,500 $ 4.472 51,000 $ 5.941 25,000 $ 5.750 Granted 40,000 8.759 - - 27,000 2.208 26,000 6.125 Exercised - - - - - - - - Cancelled or expired - - (68,500) 4.472 (9,500) 5.928 - - ----------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- Outstanding at End of year 40,000 $ 8.759 - $ - 68,500 $ 4.472 51,000 $ 5.941 =========== ========== ========== =========== ========== ========== ========== ========== Options exercisable At year-end 13,328 $ 8.759 - $ - 34,336 $ 5.907 51,000 $ 6.625 =========== ========== ========== =========== ========== ========== ========== ========== Available for issuance under the plan 60,000 - 31,500 49,000 Weighted average contractual life (years) 9.447 - 7.577 8.365 Range of exercise prices $8.759 - $2.156 $5.750 to $6.125 to $6.125
The options issued under these plans will expire if not exercised at specific dates ranging from August, 2002 to January, 2009 for the EIP and September 10, 2008 for the NEDSOP. F-19 The Company follows Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees," to account for its EIP and NEDSOP. No compensation cost is recognized because the option exercise price is equal to the market price of the underlying stock on the date of grant. An alternative method of accounting for stock options is SFAS No. 123. Under SFAS 123, employee stock options are valued at grant date using the Black-Scholes valuation model and compensation cost is recognized ratably over the vesting period. Had compensation cost for the Company's stock option and employee plans been determined based on the Black-Scholes value at the grant dates for awards as prescribed by SFAS 123, net income and basic and diluted net (loss) per common share would have been changed to the pro forma amounts indicated below:
Successor Company Predecessor Company ------------------ ------------------------------------------------------- 33 weeks ended 20 weeks ended 52 weeks ended 52 weeks ended April 3, 1999 August 15, 1998 March 28, 1998 March 29, 1997 ------------------ ----------------- ------------------ ----------------- Net Income (Loss) As reported $ (77,483) $ 189,582 $ (312,414) $ (185,354) Pro forma (77,847) N/A N/A N/A Basic and diluted net (loss) per common share (*) As reported (*) $ (2.58) N/A N/A N/A Pro forma (*) (2.59) N/A N/A N/A
(*) Basic and diluted net (loss) per common share and market price information is not meaningful for the period prior to the Effective Date due to the significant change in the capital structure of the Company. The weighted average Black-Scholes value of options granted under the stock option plans during Fiscal Year 1999 was $4.32. This value was estimated using an expected life of 4.4 years, no dividends, volatility of 33.80%, and a risk-free interest rate of 4.98%. NOTE 14 - Related Party Transactions In connection with a stock purchase agreement relating to the issuance of the Old Preferred Stock, the Company entered into a management services agreement (the "Services Agreement") with Shamrock Capital Advisors, Inc. ("SCA"). The Company paid $39,000, $552,000 and $300,000 for Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively, under the Services Agreement. The Service Agreement expires by its terms in September 1999, however, it was canceled and no further payments will be made to SCA pursuant to the Plan of Reorganization. An agreement was also made in connection with the sale of the Class A Convertible Preferred Stock with Roger E. Stangeland, Chairman of the Board, wherewith he personally purchased an additional 60,000 shares of the same preferred stock for an aggregate price of $3,000,000. During Fiscal 1997, in connection with the stock purchase agreement, the Company paid transaction fees to SCA, the investment managers for Trefoil Capital Advisors II, L.P., and GE Investment Management Corporation of $2,000,000 each, and the Company paid Donaldson, Lufkin and Jenrette ("DLJ"), a managing director of which served on the Company's Board of Directors, approximately $5,200,000 for advisory services, fairness opinion, and other miscellaneous expenses. NOTE 15 - Contingency Matters and Commitments The Company is subject to certain legal proceedings and claims arising in connection with its business. It is management's opinion that the ultimate resolution of such legal proceedings and claims will not have a material adverse effect on the Company's consolidated results of operations or its financial position. F-20 NOTE 16 - Quarterly Financial Information (unaudited) (in thousands, except loss per share and market price)
Predecessor Company Successor Company -------------------------------------------------------------------------------------- 1st 2nd 3rd 4th ----------------- ---------------------------------- ---------------- --------------- 16 Weeks 4 Weeks 8 Weeks 12 Weeks 13 weeks Ended Ended Ended Ended Ended July 18, August 15, October 10, January 2, April 3, Fiscal 1999: 1998 1998 1998 1999 1999 - ----------- ----------------- ---------------- --------------- -------------- ---------------- Sales $ 691,908 $ 177,054 $ 342,471 $ 527,666 $ 547,156 Gross profit 205,185 52,847 102,814 153,966 164,789 Unusual items 4,509 280 647 341 - (Loss) before income taxes and extraordinary item (58,865) (8,293) (19,600) (25,461) (31,855) Net income (loss) (60,604) 252,491 (19,424) (26,689) (31,370) Net income (loss) applicable to common stock (62,909) 252,491 (19,424) (26,689) (31,370) Basic and diluted net (loss) per common share (*) (0.65) (0.89) (1.05) Market Price - high (*) 9 1/2 13 14 Market Price - low (*) 7 1/2 7 1/2 11 Predecessor Company -------------------------------------------------------------------- 1st 2nd 3rd 4th ---------------------------------- --------------------------------- 16 Weeks 12 Weeks 12 Weeks 12 weeks Ended Ended Ended Ended July 19, October 11, January 3, March 28, Fiscal 1998: 1997 1997 1998 1998 - ------------ ---------------- --------------- -------------- ---------------- Sales $ 707,983 $ 518,910 $ 534,320 $ 505,556 Gross profit 189,469 148,664 156,205 145,199 Unusual items - - (3,665) (2,668) (Loss) before income taxes (79,242) (56,926) (45,828) (70,594) Net (loss) (79,242) (56,926) (45,828) (121,987) Net (loss) applicable to common stock (81,299) (59,000) (47,924) (124,192)
(*) Basic and diluted net (loss) per common share and market price information is not meaningful for the period prior to the Effective Date due to the significant change in the capital structure of the Company. Common Stock of the Successor Company began trading on the Nasdaq National Market on October 1, 1998. F-21 EX-10.5 2 WAIVER AND AMENDMENT WAIVER AND AMENDMENT WAIVER AND AMENDMENT, dated as of November 6, 1998 (this "Waiver and Amendment"), under the Credit Agreement, dated as of August 17, 1998 (as heretofore amended, supplemented or otherwise modified, the "Credit Agreement"), among The Grand Union Company (the "Company"), Warburg Dillon Read LLC, UBS AG, Stamford Branch, Lehman Brothers Inc. and Lehman Commercial Paper Inc. (collectively, the "Agents") and each of the financial institutions from time to time party thereto (the "Lenders"). WITNESSETH: WHEREAS, the Company, the Lenders and the Agents are parties to the Credit Agreement; WHEREAS, the Company has requested that the Lenders amend Section 6.1(c) of the Credit Agreement (Financial Statements) as set forth below; WHEREAS, the Company has requested that the Lenders waive the Company's compliance with Sections 6.1(b) and (c) of the Credit Agreement (Financial Statements) with respect to the provision of those financial statements that are required to be provided to the Agents and the Lenders through November 30, 1998; WHEREAS, the Company has requested that the Lenders waive the Company's compliance with Section 7.6 of the Credit Agreement (Limitation on Restricted Payments) to permit the Company to issue dividends as set forth below in connection with the Company's shareholders' rights plan; and WHEREAS, the Lenders are willing to waive such compliance, but only upon the terms and conditions of this Waiver and Amendment; NOW THEREFORE, in consideration of the premises and for other good and valuable consideration the receipt of which is hereby acknowledged, the Company, the Lenders and the Agents hereby agree as follows: 1. Defined Terms. Capitalized terms not otherwise defined herein shall have their respective meanings set forth in the Credit Agreement. 2. Amendment to Section 6.1(c) (Financial Statements). Effective as of the date hereof, Section 6.1(c) of the Credit Agreement is hereby amended by deleting the phrase "but in any event not later than 45 days after the end of each month occurring during each fiscal year of the Borrower (other than the third, sixth, ninth and twelfth such month), the unaudited consolidated balance sheets of the Borrower and its Subsidiaries as at the end of such month and the related unaudited consolidated financial statements of income and of cash flows for such month and the portion of the fiscal year through the end of such month" and inserting in lieu therefore the following: 2 "but in any event not later than 45 days after the end of each reporting period (of which the Borrower has 13 during each fiscal year) occurring during the fiscal year of the Borrower (other than those periods which correspond to the end of the Borrower's quarterly periods), the unaudited consolidated balance sheets of the Borrower and its Subsidiaries as at the end of such period and the related unaudited consolidated financial statements of income and of cash flows for such period and the portion of the fiscal year through the end of such period". 3. Limited Waiver Under Sections 6.1(b) and (c) (Financial Statements). The Lenders hereby waive compliance by the Company with Sections 6.1(b) and (c) of the Credit Agreement solely with respect to the provision of those consolidated balance sheets and related consolidated statements of cash flows that are required to be provided to the Agents and the Lenders through November 30, 1998. 4. Limited Waiver Under Section 7.6 (Limitation on Restricted Payments). The Lenders hereby waive compliance by the Company with Section 7.6 of the Credit Agreement solely with respect to the issuance of dividends by the Company to holders of the Company's common stock which dividends shall consist solely of rights to acquire preferred stock in connection with the adoption of the Company's shareholders' rights plan. 5. Representations and Warranties; No Default. After giving effect to this Waiver and Amendment, the Company hereby represents and warrants that all of the representations and warranties contained in the Credit Agreement are true and correct in all material respects as of the date hereof (unless stated to relate to a specific earlier date, in which case, such representations and warranties shall be true and correct in all material respects as of such earlier date) and that no Default or Event of Default has occurred and is continuing. 6. Conditions to Effectiveness of this Waiver and Amendment. This Waiver and Amendment shall become effective upon receipt by the Agents of counterparts hereof duly executed by the Required Lenders and the Company. 7. Miscellaneous. (a) Except as expressly set forth in this Waiver and Amendment, the Credit Agreement is and shall continue to be in full force and effect in accordance with its terms, and this Waiver and Amendment shall not constitute the Lenders' consent or indicate their willingness to consent to any other amendment, modification or waiver of the Credit Agreement or the other Loan Documents. (b) This Waiver and Amendment may be executed by the parties hereto on one or more counterparts, and all of such counterparts shall be deemed to constitute one and the same instrument. This Waiver and Amendment may be delivered by facsimile transmission of the relevant signature pages hereof. (c) This Waiver and Amendment shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. 3 IN WITNESS WHEREOF, the parties hereto have caused this Waiver and Amendment to be executed and delivered by their duly authorized officers as of the date first above written. THE GRAND UNION COMPANY By: /s/ Francis E. Nicastro ______________________________________ Name: Title: WARBURG DILLON READ LLC By: /s/ Michael R. Grayer _____________________________________ Name: Title: By: /s/ David W. Barth ______________________________________ Name: Title: UBS AG, STAMFORD BRANCH By: /s/ Michael R. Grayer ______________________________________ Name: Title: By: /s/ Michael Y. Leder ______________________________________ Name: Title: 4 LEHMAN BROTHERS INC. By: /s/ William J. Gallagher ______________________________________ Name: Title: LEHMAN COMMERCIAL PAPER INC. By: /s/ William J. Gallagher ______________________________________ Name: Title: FIRST UNION NATIONAL BANK By: /s/ Caryn M. Chittenden ______________________________________ Name: Title: GOLDMAN SACHS CREDIT PARTNERS L.P. By: /s/ illegible ______________________________________ Name: Title: AG CAPITAL FUNDING PARTNERS, L.P. By: /s/ Jeffrey H. Aronson ______________________________________ Name: Title: 5 ML CBO IV (CAYMAN) LTD. by HIGHLAND CAPITAL MANAGEMENT L.P. as Collateral Agent By: /s/ James Dondero ______________________________________ Name: Title: CANADIAN IMPERIAL BANK OF COMMERCE By: ______________________________________ Name: Title: KZH-CNC CORPORATION By: /s/ Virginia Conway ______________________________________ Name: Title: MERRILL LYNCH PRIME RATE PORTFOLIO, by MERRILL LYNCH ASSET MANAGEMENT, L.P., as investment advisor By: /s/ Paul Travers ______________________________________ Name: Title: MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By: /s/ Paul Travers ______________________________________ Name: Title: 6 QUANTUM HIGH YIELD By: /s/ illegible ______________________________________ Name: Title: QUANTUM PARTNERS LDC By: /s/ Mark Sonnino ______________________________________ Name: Title: QUOTA FUND N.V. By: /s/ Mark Sonnino ______________________________________ Name: Title: TORONTO DOMINION (NEW YORK), INC. By:______________________________________ Name: Title: 7 ML CLO XX PILGRIM AMERICA (CAYMAN) LTD. (as assignee) by PILGRIM AMERICA INVESTMENTS, INC., as its Investment Manager By: /s/ Michel Prince ______________________________________ Name: Title: PILGRIM AMERICA HIGH INCOME INVESTMENTS, LTD. (as assignee) by PILGRIM AMERICA INVESTMENTS, INC., as its Investment Manager By: /s/ Michel Prince ______________________________________ Name: Title: 8 Agreed and Accepted: GRAND UNION STORES, INC. OF VERMONT GRAND UNION STORES OF NEW HAMPSHIRE, INC. MERCHANDISING SERVICES, INC. SPECIALTY MERCHANDISING SERVICES, INC. By: /s/ Francis E. Nicastro ______________________________________ Name: Title: EX-10.6 3 SECOND AMENDMENT SECOND AMENDMENT SECOND AMENDMENT, dated as of February 24, 1999 (this "Amendment"), under the Credit Agreement, dated as of August 17, 1998 (as heretofore amended, supplemented or otherwise modified, the "Credit Agreement"), among The Grand Union Company (the "Company"), Warburg Dillon Read LLC, UBS AG, Stamford Branch, Lehman Brothers Inc. and Lehman Commercial Paper Inc. (collectively, the "Agents") and each of the financial institutions from time to time party thereto (the "Lenders"). WITNESSETH: WHEREAS, the Company, the Lenders and the Agents are parties to the Credit Agreement; WHEREAS, the Company has requested that the Lenders amend Section 7.7 of the Credit Agreement (Limitations on Capital Expenditures) as set forth below; and WHEREAS, the Lenders are willing to so amend the Agreement, but only upon the terms and conditions of this Amendment; NOW THEREFORE, in consideration of the premises and for other good and valuable consideration the receipt of which is hereby acknowledged, the Company, the Lenders and the Agents hereby agree as follows: 1. Defined Terms. Capitalized terms not otherwise defined herein shall have their respective meanings set forth in the Credit Agreement. 2. Amendment to Section 7.7 (Limitations on Capital Expenditures). Effective as of the date hereof, Section 7.7 of the Credit Agreement is hereby amended by inserting at the end of clause (a)(i) the following: "except that up to $30,000,000 of the amount not expended in fiscal year 1999 may be carried over for expenditure in fiscal year 2000". 3. Representations and Warranties. After giving effect to this Amendment, the Company hereby represents and warrants that all of the representations and warranties contained in the Credit Agreement are true and correct in all material respects as of the date hereof (unless stated to relate to a specific earlier date, in which case, such representations and warranties shall be true and correct in all material respects as of such earlier date). 4. Conditions to Effectiveness of this Amendment. This Amendment shall become effective upon receipt by the Agents of counterparts hereof duly executed by the Required Lenders and the Company. 5. Miscellaneous. (a) Except as expressly set forth in this Amendment, the Credit Agreement is and shall continue to be in full force and effect in accordance with its terms, and this Amendment shall not constitute the Lenders' consent or indicate their willingness to 2 consent to any other amendment, modification or waiver of the Credit Agreement or the other Loan Documents. (b) This Amendment may be executed by the parties hereto on one or more counterparts, and all of such counterparts shall be deemed to constitute one and the same instrument. This Amendment may be delivered by facsimile transmission of the relevant signature pages hereof. (c) This Amendment shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their duly authorized officers as of the date first above written. THE GRAND UNION COMPANY By: /s/ Francis E. Nicastro ______________________________________ Name: Title: WARBURG DILLON READ LLC By: /s/ Michael Y. Leder ______________________________________ Name: Title: By: /s/ Warren M. Eckstein ______________________________________ Name: Title: UBS AG, STAMFORD BRANCH By: /s/ Michael Y. Leder ______________________________________ Name: Title: By: /s/ Gary D. Riddell ______________________________________ Name: Title: 4 LEHMAN BROTHERS INC. By: /s/ William J. Gallagher ______________________________________ Name: Title: LEHMAN COMMERCIAL PAPER INC. By: /s/ Michael E. O'Brien ______________________________________ Name: Title: FIRST UNION NATIONAL BANK By: /s/ Caryn Crittenden ______________________________________ Name: Title: GOLDMAN SACHS CREDIT PARTNERS L.P. By: ______________________________________ Name: Title: 5 ML CBO IV (CAYMAN) LTD. by HIGHLAND CAPITAL MANAGEMENT L.P. as Collateral Agent By: /s/ James Dondero ______________________________________ Name: Title: CANADIAN IMPERIAL BANK OF COMMERCE By: /s/ Karen Volk ______________________________________ Name: Title: KZH CNC LLC By: /s/ Virginia Conway ______________________________________ Name: Title: MERRILL LYNCH PRIME RATE PORTFOLIO, by MERRILL LYNCH ASSET MANAGEMENT, L.P., as investment advisor By: /s/ George D. Pelose ______________________________________ Name: Title: 6 MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By: /s/ George D. Pelose ______________________________________ Name: Title: QUANTUM PARTNERS LDC By: /s/ Mark Sonnino ______________________________________ Name: Title: QUOTA FUND N.V. By: /s/ Mark Sonnino ______________________________________ Name: Title: TORONTO DOMINION (NEW YORK), INC. By: ______________________________________ Name: Title: 7 ML CLO XX PILGRIM AMERICA (CAYMAN) LTD. (as assignee) by PILGRIM INVESTMENTS, INC., as its investment manager By: /s/ Michel Prince ______________________________________ Name: Title: PILGRIM AMERICA HIGH INCOME INVESTMENTS, LTD. (as assignee) by PILGRIM INVESTMENTS, INC., as its investment manager By: /s/ Michel Prince ______________________________________ Name: Title: 8 SYNDICATED LOAN FUNDING TRUST by LEHMAN COMMERCIAL PAPER INC., as asset manager By: /s/ Michael E. O'Brien ______________________________________ Name: Title: 9 ELC (CAYMAN) LTD. By: /s/ Thomas M. Finke ______________________________________ Name: Title: CHASE SECURITIES INC., as agent for THE CHASE MANHATTAN BANK By: ______________________________________ Name: Title: SENIOR HIGH INCOME PORTFOLIO INC. By: /s/ George D. Pelose ______________________________________ Name: Title: 10 KZH HIGHLAND-2 LLC By: /s/ Shari Finkelstein ______________________________________ Name: Title: 11 Agreed and Accepted: GRAND UNION STORES, INC. OF VERMONT GRAND UNION STORES OF NEW HAMPSHIRE, INC. MERCHANDISING SERVICES, INC. SPECIALTY MERCHANDISING SERVICES, INC. By: /s/ Francis E. Nicastro ______________________________________ Name: Title: EX-21.1 4 SUBSIDIARY LISTING The Grand Union Company Subsidiary Listing Name State of Incorporation - ---- ---------------------- Grand Union Stores of New Hampshire, Inc. New Hampshire Grand Union Stores, Inc., of Vermont Vermont Specialty Merchandising Services, Inc. Delaware EX-27.1 5 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated financial statements for the 33 weeks ended April 3, 1999, and is qualified in its entirety by reference to such financial statements. OTHER APR-03-1999 APR-03-1999 57,414 0 34,645 0 152,217 251,920 820,560 492,679 1,089,250 178,302 0 0 0 300 307,317 1,089,250 1,417,293 1,417,293 995,724 995,724 471,337 0 27,148 (76,916) 567 (77,483) 0 0 0 (77,483) (2.58) (2.58)
EX-27.2 6 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated financial statements for the 20 weeks ended August 15, 1998, and is qualified in its entirety by reference to such financial statements. OTHER APR-03-1999 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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