-----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, TcVg42DDZxnkfyR6CBaOmb6YMde6PjJ8LMGbdGOUlVpg7mpDjDC6PgD3KD+NRGoe kjmhlDFoJ/ofGPl8pJoZfw== 0000889812-99-003565.txt : 19991201 0000889812-99-003565.hdr.sgml : 19991201 ACCESSION NUMBER: 0000889812-99-003565 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991016 FILED AS OF DATE: 19991130 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRAND UNION CO /DE/ CENTRAL INDEX KEY: 0000316236 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 221518276 STATE OF INCORPORATION: DE FISCAL YEAR END: 0403 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07824 FILM NUMBER: 99766416 BUSINESS ADDRESS: STREET 1: 201 WILLOWBROOK BLVD CITY: WAYNE STATE: NJ ZIP: 07470-0966 BUSINESS PHONE: 2018906000 MAIL ADDRESS: STREET 1: 201 WILLOWBROOK BLVD CITY: WAYNE STATE: NJ ZIP: 07470 FORMER COMPANY: FORMER CONFORMED NAME: SUCCESSOR TO GRAND UNION CO/VA/ DATE OF NAME CHANGE: 19600201 10-Q 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 16, 1999 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- --------------- Commission File Number 0-26602 THE GRAND UNION COMPANY (Exact name of registrant as specified in its charter) Delaware 22-1518276 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 201 Willowbrook Boulevard, Wayne, New Jersey 07470-0966 (Address of principal executive offices) (Zip Code) 973-890-6000 Registrant's telephone number, including area code Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. Yes X No -------- -------- Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No -------- -------- As of November 30, 1999, there were issued and outstanding 29,992,389 shares, par value $0.01 per share, of the Registrant's common stock. THE GRAND UNION COMPANY Form 10-Q For the 28 Weeks Ended October 16, 1999 INDEX PART I - FINANCIAL INFORMATION (Unaudited) Item 1. Financial Statements. Page No. Consolidated Statement of Operations - 12 Weeks Ended October 16, 1999 and 8 Weeks Ended October 10, 1998 (Successor Company) and 4 Weeks Ended August 15, 1998 (Predecessor Company) 3 Consolidated Statement of Operations - 28 Weeks Ended October 16, 1999 and 8 Weeks Ended October 10, 1998 (Successor Company) and 20 Weeks Ended August 15, 1998 (Predecessor Company) 4 Consolidated Balance Sheet - October 16, 1999 and April 3, 1999 5 Consolidated Statement of Cash Flows - 28 Weeks Ended October 16, 1999 and 8 Weeks Ended October 10, 1998 (Successor Company) and 20 Weeks Ended August 15, 1998 (Predecessor Company) 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk. 12 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. 13 All items which are not applicable or to which the answer is negative have been omitted from this report. -2- PART I - FINANCIAL INFORMATION Item 1. Financial Statements. THE GRAND UNION COMPANY CONSOLIDATED STATEMENT OF OPERATIONS (dollars in thousands, except per share data) (unaudited)
Predecessor Successor Company Company ---------------------------------- --------------- 12 Weeks 8 Weeks 4 Weeks Ended Ended Ended October 16, October 10, August 15, 1999 1998 1998 ---------------- ---------------- --------------- Sales $ 512,348 $ 342,471 $ 177,054 Cost of sales 355,949 239,657 124,207 ---------------- ---------------- --------------- Gross profit 156,399 102,814 52,847 Operating and administrative expenses 127,261 86,176 44,435 Depreciation and amortization 12,920 8,730 4,349 Amortization of excess reorganization value 30,428 20,242 8,026 Unusual items - 647 280 Interest expense, net 9,844 6,619 4,050 ---------------- ---------------- --------------- (Loss) before income taxes and extraordinary item (24,054) (19,600) (8,293) Income tax provision (benefit) 2,587 (176) - ---------------- ---------------- --------------- Net (loss) before extraordinary item (26,641) (19,424) (8,293) Extraordinary item - - 260,784 ---------------- ---------------- --------------- Net income (loss) applicable to common stock $ (26,641) $ (19,424) $ 252,491 ================ ================ =============== Basic and diluted net (loss) per common share $ (0.89) $ (0.65) ================ ================ Weighted average number of shares outstanding 29,994,564 30,000,000 ================ ================
See accompanying notes to consolidated financial statements (unaudited). -3- THE GRAND UNION COMPANY CONSOLIDATED STATEMENT OF OPERATIONS (dollars in thousands, except per share data) (unaudited)
Predecessor Successor Company Company ---------------------------------- --------------- 28 Weeks 8 Weeks 20 Weeks Ended Ended Ended October 16, October 10, August 15, 1999 1998 1998 ---------------- ---------------- --------------- Sales $ 1,199,616 $ 342,471 $ 868,962 Cost of sales 836,433 239,657 610,930 ---------------- ---------------- --------------- Gross profit 363,183 102,814 258,032 Operating and administrative expenses 300,558 86,176 221,647 Depreciation and amortization 29,149 8,730 22,117 Amortization of excess reorganization value 70,994 20,242 40,128 Unusual items - 647 4,789 Interest expense, net 22,645 6,619 36,509 ---------------- ---------------- --------------- (Loss) before income taxes and extraordinary item (60,163) (19,600) (67,158) Income tax provision (benefit) 4,258 (176) - ---------------- ---------------- --------------- Net (loss) before extraordinary item (64,421) (19,424) (67,158) Extraordinary item - - 259,045 ---------------- ---------------- --------------- Net income (loss) (64,421) (19,424) 191,887 Accrued dividends on preferred stock - - 2,305 ---------------- ---------------- --------------- Net income (loss) applicable to common stock $ (64,421) $ (19,424) $ 189,582 ================ ================ =============== Basic and diluted net (loss) per common share $ (2.15) $ (0.65) ================ ================ Weighted average number of shares outstanding 29,997,670 30,000,000 ================ ================
See accompanying notes to consolidated financial statements (unaudited). -4- THE GRAND UNION COMPANY CONSOLIDATED BALANCE SHEET (numbers in thousands, except par value) (unaudited)
October 16, April 3, 1999 1999 ------------------ ------------------ ASSETS Current assets: Cash and temporary investments $ 23,026 $ 57,414 Receivables 49,405 34,645 Inventories 163,983 152,217 Other current assets 10,613 7,644 ------------------ ------------------ Total current assets 247,027 251,920 Property, net 330,329 327,881 Excess reorganization value, net 243,426 314,420 Beneficial leases, net 60,099 66,547 Deferred income taxes, net 112,835 114,429 Other assets 14,206 14,053 ------------------ ------------------ Total assets $ 1,007,922 $ 1,089,250 ================== ================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ - $ - Current portion of obligations under capital leases 5,144 6,303 Accounts payable and accrued liabilities 158,522 171,999 ------------------ ------------------ Total current liabilities 163,666 178,302 Long-term debt 230,000 230,000 Obligations under capital leases 151,712 154,837 Adverse leases, net 71,540 74,322 Other noncurrent liabilities 147,808 144,172 ------------------ ------------------ Total liabilities 764,726 781,633 ------------------ ------------------ Commitments and contingencies Stockholders' equity: Common stock, $.01 par value; 60,000,000 shares authorized, 29,992,389 and 30,000,000 shares issued and outstanding at October 16, 1999 and April 3, 1999, respectively 300 300 Preferred stock, $1.00 par value; 10,000,000 shares authorized, no shares issued and outstanding - - Capital in excess of par value 384,800 384,800 Accumulated deficit (141,904) (77,483) ------------------ ------------------ Total stockholders' equity 243,196 307,617 ------------------ ------------------ Total liabilities and stockholders' equity $ 1,007,922 $ 1,089,250 ================== ==================
See accompanying notes to consolidated financial statements (unaudited). -5- THE GRAND UNION COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (numbers in thousands) (unaudited)
Predecessor Successor Company Company ---------------------------------- ---------------- 28 Weeks 8 Weeks 20 Weeks Ended Ended Ended October 16, October 10, August 15, 1999 1998 1998 ---------------- ---------------- ---------------- OPERATING ACTIVITIES: Net (loss) $ (64,421) $ (19,424) $ 191,887 Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities before reorganization items paid: Unusual items - 647 4,789 Extraordinary item - - (259,045) Depreciation and amortization 100,143 28,972 62,245 Pension and other non-cash items 4,417 1,460 3,957 Net deferred income tax 1,594 (176) - Noncash interest 850 244 626 Net changes in assets and liabilities: Receivables (14,760) (5,466) (1,506) Inventories (12,291) (17,766) (5,579) Other current assets (2,969) (89) (99) Other assets (1,689) (180) 29 Accounts payable and accrued liabilities (13,477) 9,583 22,347 Other noncurrent liabilities (258) (701) (517) ---------------- ---------------- ---------------- Net cash provided by (used for) operating activities before reorganization items paid (2,859) (2,896) 19,134 Reorganization items paid - (647) (9,102) ---------------- --------------- ---------------- Net cash provided by (used for) operating activities (2,859) (3,543) 10,032 ---------------- ---------------- ---------------- INVESTMENT ACTIVITIES: Capital expenditures (27,831) (1,387) (3,413) Disposals of property 62 122 49 ---------------- ---------------- ---------------- Net cash (used for) investment activities (27,769) (1,265) (3,364) ---------------- ---------------- ---------------- FINANCING ACTIVITIES: Proceeds from new term loan - - 230,000 Proceeds from DIP facility - - 108,000 Repayment of DIP facility - - (108,000) Financing fees - - (7,895) Repayment of old bank debt - - (182,122) Obligations under capital leases discharged (3,760) (1,176) (3,094) Net repayment of long-term debt - - (17,000) ---------------- ---------------- ---------------- Net cash provided by (used for) financing activities (3,760) (1,176) 19,889 ---------------- ---------------- ---------------- Net increase (decrease) in cash and temporary investments (34,388) (5,984) 26,557 Cash and temporary investments at beginning of period 57,414 71,302 44,745 ---------------- ---------------- ---------------- Cash and temporary investments at end of period $ 23,026 $ 65,318 $ 71,302 ================ ================ ================ Supplemental disclosure of cash flow information: Interest payments $ 21,772 $ 4,097 $ 21,358 Accrued dividends - - 2,305
See accompanying notes to consolidated financial statements (unaudited). -6- THE GRAND UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 - Basis of Presentation The accompanying interim consolidated financial statements of The Grand Union Company (the "Company") include the accounts of the Company and its subsidiaries, all of which are wholly owned. Upon emergence from its Chapter 11 proceedings on August 17, 1998 (the "Effective Date"), the Company adopted fresh-start reporting in accordance with American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting By Entities in Reorganization Under The Bankruptcy Code" ("Fresh-Start Reporting"). In connection with the adoption of Fresh-Start Reporting, a new entity has been deemed created for financial reporting purposes. The periods presented prior to the Effective Date have been designated "Predecessor Company" and the period subsequent to the Effective Date has been designated "Successor Company". For financial reporting purposes, the Company accounted for the consummation of its plan of reorganization under Chapter 11 of the Bankruptcy Code (the "Plan of Reorganization") effective August 15, 1998. In accordance with Fresh-Start Reporting, the Company valued its assets and liabilities at fair values and eliminated its accumulated deficit at the Effective Date. In the opinion of management, the consolidated financial statements include all adjustments, which consist only of normal recurring items, necessary for a fair presentation of operating results for the interim periods. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company's Annual Report on Form 10-K for the 53 weeks ended April 3, 1999 and the Company's Quarterly Report on Form 10-Q for the 16 weeks ended July 24, 1999. Operating results for the periods presented are not necessarily indicative of results for the full fiscal year. Certain reclassifications have been made to prior year amounts to conform to current period presentation. NOTE 2 - Reorganization On the Effective Date, the Company consummated the Plan of Reorganization pursuant to the August 5, 1998 Confirmation Order of the United States Bankruptcy Court for the District of New Jersey. Consummation of the Plan of Reorganization has resulted in a capital restructuring of the Company, whereby approximately $600 million in Old Senior Notes has been eliminated from the Company's balance sheet, reducing annual interest expense by approximately $72 million. Consummation of the Plan of Reorganization resulted in (i) the issuance of 30,000,000 shares of New Common Stock to the holders of the Company's Old Senior Notes; (ii) the issuance of New Series 1, Series 2 and Series 3 Warrants to the holders of the Company's Old Preferred Stock; (iii) the issuance of New Series 1 Warrants to holders of the Company's Old Common Stock; and (iv) cancellation of the Company's Old Senior Notes, Old Preferred Stock, Old Common Stock, Old Series 1 and Series 2 Warrants and Old Stock Options. On October 1, 1998, the Company's new common stock began trading on the NASDAQ National Market under the ticker symbol GUCO. Pursuant to the Plan of Reorganization, the number of outstanding shares of New Common Stock was reduced to 29,992,389 as of August 17, 1999, because of unreturned Old Senior Notes. On the Effective Date and in connection with the consummation of the Plan of Reorganization, the Company entered into a $300 million credit agreement (the "Credit Agreement") with UBS AG, Stamford Branch and Lehman Commercial Paper Inc. as agents for a syndicate of lenders, which is secured by substantially all of the assets of the Company and its subsidiaries and is guaranteed by the Company's subsidiaries. Some of the proceeds of the Credit Agreement were used to pay off the Company's obligation under its debtor-in-possession credit agreement (the "DIP Facility"), which had provided the Company operating liquidity during the Chapter 11 case. NOTE 3 - Income Taxes The Company recorded an income tax provision, representing federal and state income taxes, of $2.6 million during the Fiscal 2000 Second Quarter and a $0.2 million net income tax benefit for the Fiscal 1999 Second Quarter. The Company recorded an income tax provision of $4.3 million during the Fiscal 2000 Year to Date and a $0.2 million net income tax benefit for the Fiscal 1999 Year to Date. The tax benefit that related to the potential use of operating loss carryforwards was offset by a valuation allowance during the Fiscal 1999 First Quarter. -7- NOTE 4 - Net Loss Per Share The net loss per share is computed in accordance with SFAS No. 128, "Earnings Per Share." This statement requires that entities present, on the face of the income statement for all periods reflected, basic and diluted per share amounts. Basic earnings per share is computed using the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed using the weighted average number of common shares outstanding for the period adjusted for dilutive potential common shares. There were approximately 30 million weighted average shares outstanding for both basic and diluted earnings per share for the 28 Weeks Ended October 16, 1999. All potential common shares were excluded from the computation of the Company's diluted earnings per share because the effect would have been anti-dilutive. Net loss per share data is not meaningful for periods prior to August 15, 1998 due to the capital restructuring. NOTE 5 - Supply Agreement On September 24, 1999, the Company signed a term sheet extending its supply agreement with its primary supplier, C&S Wholesale Grocers, Inc., of Brattleboro, Vermont. The expiration date of the agreement was extended until September 24, 2014. -8- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. General: As discussed in Note 1 to the accompanying Consolidated Financial Statements of Grand Union, the Company emerged from its Chapter 11 proceedings effective August 17, 1998. For financial reporting purposes, the Company accounted for the consummation of the Plan effective August 15, 1998. In accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting By Entities in Reorganization Under The Bankruptcy Code", the Company has applied Fresh-Start Reporting as of the Effective Date which has resulted in significant changes to the valuation of certain of the Company's assets and liabilities, and to its stockholders' equity. In connection with the adoption of Fresh-Start Reporting, a new entity has been deemed created for financial reporting purposes. The periods prior to the Effective Date have been designated "Predecessor Company" and the period subsequent to the Effective Date has been designated "Successor Company". For purposes of the discussion of Results of Operations for the 12 and 28 weeks ended October 10, 1998, the results of the Predecessor Company and Successor Company have been combined. Results of Operations The following table sets forth certain statements of operations and other data (all dollars in millions).
12 Weeks Ended 28 Weeks Ended --------------------------------- --------------------------------- October 16, October 10, October 16, October 10, 1999 1998 1999 1998 --------------- ---------------- --------------- ---------------- Sales $ 512.3 $ 519.5 $ 1,199.6 $ 1,211.4 Gross profit 156.4 155.7 363.2 360.8 Operating and administrative expenses 127.3 130.6 300.6 307.8 Depreciation and amortization 12.9 13.1 29.1 30.8 Amortization of excess reorganization value 30.4 28.3 71.0 60.4 Unusual items - 0.9 - 5.4 Interest expense, net 9.8 10.7 22.6 43.1 Income tax provision (benefit) 2.6 (0.2) 4.3 (0.2) Net (loss) before extraordinary item (26.6) (27.7) (64.4) (86.6) Extraordinary item - 260.8 - 259.0 Net income (loss) (26.6) 233.1 (64.4) 172.5 Net income (loss) applicable to common stock (26.6) 233.1 (64.4) 170.2 Sales percentage increase (decrease) (1.4)% 0.1% (1.0)% (1.3)% Gross profit as a percentage of sales 30.5% 30.0% 30.3% 29.8% Operating and administrative expenses as a percentage of sales 24.8% 25.1% 25.1% 25.4%
Sales for the 12 weeks ended October 16, 1999 (the "Fiscal 2000 Second Quarter") decreased $7.2 million, or 1.4%, compared to the 12 week period ended October 10, 1998 (the "Fiscal 1999 Second Quarter"). Same store sales for the Fiscal 2000 Second Quarter decreased approximately 0.36%. The reduction in sales for the Fiscal 2000 Second Quarter primarily resulted from the moving of a major promotion, "Grand Can Sale," from the last two weeks at the end of the Fiscal 2000 Second Quarter to the beginning of the 12 weeks ended January 8, 2000 (the "Fiscal 2000 Third Quarter") and by the ongoing updating and remodeling of our existing store base. For the Fiscal 2000 Second Quarter, the Company opened one new store and closed four stores. Sales for the 28 weeks ended October 16, 1999 (the "Fiscal 2000 Year to Date") decreased $11.8 million, or 1.0%, compared to the 28 week period ended October 10, 1998 (the "Fiscal 1999 Year to Date"). Comparable store sales for the Fiscal 2000 Year to Date, adjusted for the prior year's Easter week, increased approximately 0.30%. Store updating and remodeling, a very competitive environment, and fewer stores were principally responsible for decreased sales for the Fiscal 2000 Year to Date. During the Fiscal 2000 Year to Date, the Company opened five stores (including four Hot Dot stores) and closed six stores. Gross profit, as a percentage of sales, increased to 30.5% for the Fiscal 2000 Second Quarter from 30.0% for the Fiscal 1999 Second Quarter. This is primarily the result of the ongoing benefits realized from the renegotiated or planned growth programs within our key categories, increased profitability from our store brands, specialty, gourmet and health food categories and improved product mix in newly remodeled or expanded stores. Gross profit, as a percentage of sales, increased to 30.3% for the Fiscal 2000 Year to Date from 29.8% for the Fiscal 1999 Year to Date. -9- Operating and administrative expenses, as a percentage of sales, decreased to 24.8% from 25.1% for the Fiscal 2000 Second Quarter as compared to the Fiscal 1999 Second Quarter as the Company continues to aggressively identify and take action on opportunities that reduce expenses in all areas of the business without affecting customer service. Operating and administrative expenses, as a percentage of sales, decreased to 25.1% from 25.4% for the Fiscal 2000 Year to Date as compared to the Fiscal 1999 Year to Date. Depreciation and amortization decreased in the Fiscal 2000 Second Quarter to $12.9 million compared to $13.1 million in the Fiscal 1999 Second Quarter and has decreased $1.7 million for the Fiscal 2000 Year to Date compared to the Fiscal 1999 Year to Date. This decrease is due primarily to assets which have been fully depreciated and the historical deferral of capital expenditures. Interest expense decreased to $9.8 million and $22.6 million for the Fiscal 2000 Second Quarter and the Fiscal 2000 Year to Date periods, respectively. This decrease primarily reflects the effect of the Company's reduced debt burden. The Company recorded Federal and State income tax provisions of $2.6 million during the Fiscal 2000 Second Quarter and a $4.3 million net income tax provision for the Fiscal 2000 Year to Date. The Company recorded an income tax benefit of $0.2 million for the Fiscal 1999 Second Quarter and Fiscal 1999 Year to Date. The tax benefit that related to the potential use of operating loss carryforwards was offset by a valuation allowance during the Fiscal 1999 First Quarter. -10- Liquidity and Capital Resources On the Effective Date and in connection with the consummation of the Plan of Reorganization, the Company entered into the Credit Agreement. The Credit Agreement is comprised of: (i) a $230 million Term Loan and (ii) a $70 million Revolving Credit Facility. The Term Loan and Revolving Credit Facility will mature on August 17, 2003. The proceeds of the Credit Agreement were used to refinance the obligations under the DIP Facility and supplemental term loan claims under the credit agreement that was in existence before the Chapter 11 case. The excess will be used for working capital and capital expenditures. Up to $50 million of the Revolving Credit Facility is available for the issuance of letters of credit. As of October 16, 1999, the Company had no borrowings and an aggregate of $31.4 million of letters of credit issued and outstanding under the Revolving Credit Facility. Cash interest payments totaled approximately $21.8 million for the Fiscal 2000 Year to Date and are expected to be approximately $48 million for the fiscal year ending April 1, 2000 ("Fiscal 2000"). Capital expenditures totaled $27.8 million for the Fiscal 2000 Year to Date and are expected to be approximately $100 million for Fiscal 2000, which will be funded through operations and the Revolving Credit Facility. 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 millennium. 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. The Company believes that virtually all critical systems and applications are Year 2000 ("Y2K") compliant. Testing is expected to continue beyond January 1, 2000. 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. Since the inception of the Task Force through October 16, 1999, the Company has expended approximately $3.5 million to address Y2K compliance issues. The Company estimates that it will incur additional expenses of $0.4 - 3.3 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. 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. -11- Special Note Concerning Forward-Looking Statements Except for historical information, some matters discussed herein may be considered "forward-looking statements" within the meaning of federal securities law. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, the competitive environment in which the Company operates, the ability of the Company to maintain and improve its gross sales and margins, the liquidity of the Company on a cash flow basis (including the Company's ability to comply with the financial covenants of its Credit Agreement and to fund the Company's capital expenditure program), the Company's ability to complete its capital expenditures on a timely basis, the success of operating initiatives, the viability of the Company's strategic plan, Y2K compliance issues, regional weather conditions, and the general economic conditions in the geographic areas in which the Company operates. For additional information about the Company and its operating and financial condition, please see the Company's most recent Annual Report on Form 10-K for the year ended April 3, 1999 and the Company's Quarterly Report on Form 10-Q for the 16 weeks ended July 24, 1999 as filed with the Securities and Exchange Commission. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Quantitative and Qualitative Disclosures about Market Risk represents the risk of loss that may impact the consolidated financial position, results of operations or cash flows of the Company due to adverse changes in financial rates. The Company is exposed to market risk in the area of interest rates. This exposure is directly related to its Term Loan and Revolving Credit borrowings under the Credit Agreement. Based on the present outlook for interest rates, the Company does not have a material exposure to market risk associated with the Term Loan and Revolving Credit borrowings. -12- PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit Number 27.1 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the 28 Weeks Ended October 16, 1999. -13- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE GRAND UNION COMPANY (Registrant) /s/ Jeffrey P. Freimark ----------------------- Jeffrey P. Freimark, Executive Vice President Chief Financial Officer Date: November 30, 1999 -14- EX-27.1 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated financial statements and is qualified in its entirety by reference to such financial statements. OTHER APR-01-2000 OCT-16-1999 23,026 0 49,405 0 163,983 247,027 917,577 527,149 1,007,922 163,666 0 0 0 300 242,896 1,007,922 1,199,616 1,199,616 836,433 836,433 400,701 0 22,645 (60,163) 4,258 (64,421) 0 0 0 (64,421) (2.15) (2.15)
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