-----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, UJkCVJ3Ldvfb1l9DkjOBEDn6lJAQMIukpb8x7XPV4EZmJwbOAsThGhbIYfsFLo6e DKwTY9eWlXIQnLFF8YkdYQ== 0000912057-95-010492.txt : 19951130 0000912057-95-010492.hdr.sgml : 19951130 ACCESSION NUMBER: 0000912057-95-010492 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951014 FILED AS OF DATE: 19951128 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRAND UNION CO /DE/ CENTRAL INDEX KEY: 0000316236 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 251518276 STATE OF INCORPORATION: DE FISCAL YEAR END: 0325 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07824 FILM NUMBER: 95596874 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 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended OCTOBER 14, 1995 ---------------- 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 incorporation (I.R.S. Employer or organization) Identification No.) 201 Willowbrook Boulevard, Wayne, New Jersey 07470 - 0966 -------------------------------------------- ------------ (Address of principal executive offices) (Zip Code) 201-890-6000 ------------ (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 filing 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 28, 1995, there were issued and outstanding 10,000,000 shares, par values $1.00 per share, of the Registrant's common stock. 1 THE GRAND UNION COMPANY INDEX PART I - FINANCIAL INFORMATION (UNAUDITED) ITEM 1. FINANCIAL STATEMENTS. PAGE NO. Consolidated Statement of Operations - 12 weeks ended October 14, 1995 (Successor Company), and 12 weeks ended October 15, 1994 (Predecessor Company) 3 Consolidated Statement of Operations - 17 weeks ended October 14, 1995 (Successor Company), 11 weeks ended June 17, 1995 and 28 weeks ended October 15, 1994 (Predecessor Company) 4 Consolidated Balance Sheet - October 14, 1995 (Successor Company) and April 1, 1995 (Predecessor Company) 5 Consolidated Statement of Cash Flows - 17 weeks ended October 14, 1995 (Successor Company), 11 weeks ended June 17, 1995 and 28 weeks ended October 15, 1994 (Predecessor Company) 6 Notes to Consolidated Financial Statements 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 10 PART II - OTHER INFORMATION Item 6 - Exhibit 14 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 (in thousands except per share data) (unaudited)
Successor Predecessor Company Company --------------- --------------- 12 Weeks 12 Weeks Ended Ended October 14, October 15, 1995 1994 --------------- --------------- Sales $ 523,711 $556,663 Cost of sales (361,074) (385,767) --------------- --------------- Gross profit 162,637 170,896 Operating and administrative expenses (129,932) (132,391) Depreciation and amortization (17,002) (20,758) Amortization of excess reorganization value (24,717) - Charges relating to voluntary resignation incentive plan (4,500) - Interest expense (22,433) (47,212) --------------- --------------- Loss before income tax benefit (35,947) (29,465) Income tax benefit 5,872 - --------------- --------------- Net loss (30,075) (29,465) Accrued dividends on old preferred stock - (6,411) --------------- --------------- Net loss applicable to common stock ($30,075) ($35,876) --------------- --------------- --------------- --------------- Net loss per common share ($3.01) --------------- ---------------
See accompanying notes to consolidated financial statements (unaudited). 3 THE GRAND UNION COMPANY CONSOLIDATED STATEMENT OF OPERATIONS (in thousands except per share data) (unaudited)
Successor Company Predecessor Company -------------- ---------------------------- 17 Weeks 11 Weeks 28 Weeks Ended Ended Ended October 14, June 17, October 15, 1995 1995 1994 -------------- ------------ ------------- Sales $ 756,374 $487,882 $ 1,304,355 Cost of sales (520,657) (344,041) (902,643) -------------- ------------ ------------- Gross profit 235,717 143,841 401,712 Operating and administrative expenses (185,424) (117,544) (303,360) Depreciation and amortization (23,957) (17,215) (46,020) Amortization of excess reorganization value (34,827) - - Reorganization items - (18,627) - Charges relating to voluntary resignation incentive plan (4,500) - - Interest expense (contractual interest of $29,085 for the 11 weeks ended June 17, 1995) (31,979) (19,791) (106,779) -------------- ------------ ------------- Loss before income taxes and extraordinary gain on debt discharge (44,970) (29,336) (54,447) Income tax benefit 5,372 - - -------------- ------------ ------------- Loss before extraordinary gain on debt discharge (39,598) (29,336) (54,447) Extraordinary gain on debt discharge - 854,785 - -------------- ------------ ------------- Net (loss) income (39,598) 825,449 (54,447) Accrued dividends on old preferred stock - - (11,704) -------------- ------------ ------------- Net (loss) income applicable to common stock ($39,598) $825,449 ($66,151) -------------- ------------ ------------- -------------- ------------ ------------- Net loss per common share ($3.96) -------------- --------------
See accompanying notes to consolidated financial statements (unaudited). 4 THE GRAND UNION COMPANY CONSOLIDATED BALANCE SHEET (in thousands) (unaudited)
Successor Predecessor Company Company -------------- ------------ October 14, April 1, 1995 1995 -------------- ------------ ASSETS Current assets: Cash and temporary investments $ 36,064 $ 89,423 Receivables 14,054 18,592 Inventories 172,416 189,467 Other current assets 14,566 16,787 -------------- ------------ Total current assets 237,100 314,269 Property, net 479,169 454,180 Goodwill, net - 545,451 Excess reorganization value, net 497,747 - Deferred financing fees, net 2,975 44,069 Deferred tax asset 29,444 - Other assets 11,907 36,787 -------------- ------------ $ 1,258,342 $ 1,394,756 -------------- ------------ -------------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current maturities of long-term debt $ 843 $ - Current portion of obligations under capital leases 6,489 - Accounts payable and accrued liabilities 177,073 174,126 -------------- ------------ Total current liabilities 184,405 174,126 -------------- ------------ Long-term debt 724,781 - -------------- ------------ Obligations under capital leases 124,376 - -------------- ------------ Other noncurrent liabilities 110,378 53,072 -------------- ------------ Liabilities subject to compromise - 1,817,698 -------------- ------------ Commitments and contingencies Redeemable stock subject to compromise: Old common stock - 9,407 Old preferred stock - 164,792 -------------- ------------ - 174,199 -------------- ------------ Stockholders' equity (deficit): New Common Stock, $1.00 par value, 30,000,000 shares authorized, 10,000,000 shares issued and outstanding 10,000 - New Preferred Stock, $1.00 par value, 10,000,000 shares authorized, no shares issued and outstanding - - Old common stock - 1 Old treasury stock - (156) Capital in excess of par value 144,000 - Accumulated deficit (39,598) (824,184) -------------- ------------ Total stockholders' equity (deficit) 114,402 (824,339) -------------- ------------ $ 1,258,342 $ 1,394,756 -------------- ------------ -------------- ------------
See accompanying notes to consolidated financial statements (unaudited). 5 THE GRAND UNION COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) (unaudited)
Successor Company Predecessor Company -------------- ---------------------------- 17 Weeks 11 Weeks 28 Weeks Ended Ended Ended October 14, June 17, October 15, 1995 1995 1994 -------------- ------------ -------------- OPERATING ACTIVITIES: Net (loss) income ($39,598) $825,449 ($54,447) Adjustments to reconcile net (loss) income to net cash provided by (used for) operating activities before reorganization items paid: Depreciation and amortization 23,957 17,215 46,020 Amortization of excess reorganization value 34,827 - - Deferred taxes (4,947) - - Noncash interest 14,638 1,126 24,317 Extraordinary gain on debt discharge - (854,785) - Net changes in assets and liabilities: Receivables (5,758) 1,769 14,255 Inventories 11,462 12,946 4,034 Accounts payable and accrued liabilities (52,446) (34,928) (3,822) Other current assets (734) 2,776 108 Other (3,231) 4,493 (5,315) -------------- ------------ -------------- Net cash (used for) provided by operating activities before reorganization items paid (21,830) (23,939) 25,150 Reorganization items paid (12,108) (4,913) - -------------- ------------ -------------- Net cash (used for) provided by operating activities (33,938) (28,852) 25,150 -------------- ------------ -------------- INVESTMENT ACTIVITIES: Capital expenditures (13,975) (3,301) (40,102) Disposals of property - 5,452 2,016 -------------- ------------ -------------- Net cash (used for) provided by investment activities (13,975) 2,151 (38,086) -------------- ------------ -------------- FINANCING ACTIVITIES: Proceeds from New Bank agreement - 104,144 - Net proceeds from long-term debt 18,089 - 9,000 Payment of Old Bank debt - (93,144) - Obligations under capital leases discharged (2,407) (1,707) (4,461) Loan placement fees - (3,125) - Retirement of long-term debt (356) (239) (471) -------------- ------------ -------------- Net cash provided by financing activities 15,326 5,929 4,068 -------------- ------------ -------------- Decrease in cash and temporary investments (32,587) (20,772) (8,868) Cash and temporary investments at beginning of period 68,651 89,423 44,294 -------------- ------------ -------------- Cash and temporary investments at end of period $36,064 $68,651 $35,426 -------------- ------------ -------------- -------------- ------------ -------------- Supplemental disclosure of cash flow information: Interest payments $8,652 $9,515 $77,036 Capital lease obligations incurred 280 20,072 23,806 Accrued dividends on old preferred stock - - 11,704
See accompanying notes to consolidated financial statements (unaudited). 6 THE GRAND UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 - BASIS OF ACCOUNTING The accompanying interim consolidated financial statements of The Grand Union Company ("Grand Union" or the "Company") include the accounts of the Company and its subsidiaries, all of which are wholly-owned. In the opinion of management, the consolidated financial statements include all adjustments, which, except for fresh-start adjustments (see Note 3), consist only of normal recurring adjustments necessary for a fair presentation of operating results for the interim periods. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company's Annual Report on Form 10-K for the 52 weeks ended April 1, 1995. Operating results for the periods presented are not necessarily indicative of the results for the full fiscal year. Certain amounts have been reclassified in the prior period financial statements to conform to current year presentation. NOTE 2 - REORGANIZATION On January 25, 1995 (the "Filing Date"), as part of the implementation of an agreement with the Company's bank lenders and with members of informal committees of certain holders of Grand Union's long-term debt on the terms of a restructuring of Grand Union's capital structure, Grand Union filed a voluntary petition for relief under chapter 11 ("Chapter 11") of Title 11 of the United States Code (the "Code") in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). From the Filing Date through June 15, 1995 (the "Effective Date"), Grand Union operated as a debtor-in-possession under Chapter 11 of the Code and was subject to the supervision of the Bankruptcy Court in accordance with the Code. On May 31, 1995, the Bankruptcy Court confirmed the Second Amended Chapter 11 Plan, dated April 19, 1995 (as confirmed, the "Plan"), and the Company emerged from Chapter 11 on the Effective Date. One proceeding challenging the order confirming the Plan is pending. The Company does not believe that this proceeding will result in any modification or revocation of the order. On the Effective Date, Grand Union adopted a restated certificate of incorporation, the principal effects of which were to authorize 30,000,000 shares of new common stock (the "New Common Stock") (of which 10,000,000 shares were issued under the Plan) and to prohibit the issuance of non-voting equity securities. The Plan provided for full payment of all allowed administrative expenses and all allowed general unsecured and priority claims. On the Effective Date, obligations relating to the Company's existing bank credit agreement were paid in full and the Company entered into an Amended and Restated Credit Agreement (the "New Bank Facility") with its bank lending group which provides for a five-year revolving credit facility of $100,000,000 and a seven-year term loan facility of $104,144,371. The New Bank Facility is secured by a lien on substantially all of the assets of Grand Union and its subsidiaries. As of the Effective Date, two series of long-term debt having an aggregate principal amount of $525,000,000 plus accrued interest (the "Senior Notes") were deemed cancelled and each holder of Senior Notes became entitled to receive its pro rata share of Grand Union's new 12% Senior Notes due 2004 (the "New Senior Notes") having an aggregate principal amount of $595,475,922 issued pursuant to the Plan. Subsequent to the Effective Date, the Company issued $595,421,000 aggregate principal amount of New Senior Notes and made cash payments of $54,922 for fractional shares to the holders of the Senior Notes. The New Senior Notes accrue interest beginning on September 1, 1995. Accordingly, the New Senior Notes have been discounted at 12% for the period from June 15, 1995 to September 1, 1995 and imputed interest was charged at 12% during that period. In addition, the difference between such discounted value and the fair value of the New Senior Notes at the Effective Date was recorded as a debt premium totaling $5,779,000 which is being amortized over the life of the New Senior Notes. As of the Effective Date, three other series of long-term debt having an aggregate principal amount of $566,150,000 (the "Subordinated Notes") and the old capital stock of Grand Union were deemed cancelled and each holder of Subordinated Notes became entitled to receive its pro rata share of an aggregate of 10,000,000 shares of New Common Stock issued pursuant to the Plan. 7 The Plan also provided for the issuance of warrants to purchase an aggregate of 900,000 shares of New Common Stock to holders of several other series of long-term debt of its then parent company (the "Capital Notes") pursuant to the terms of a settlement reached among the Company, its then direct and indirect parent companies, the Official Committee of Unsecured Creditors of its then parent company and certain holders of the Capital Notes. Such warrants are comprised of 300,000 Series 1 Warrants to purchase shares of New Common Stock at a purchase price of $30 per share and of 600,000 Series 2 Warrants to purchase shares of New Common Stock at a purchase price of $42 per share. The warrants expire on June 15, 2000. The Plan made no provision for the holders of the remaining long-term debt, Redeemable Preferred Stock, common shares or warrants to purchase common shares of the Company's then indirect parent. NOTE 3 - FRESH-START REPORTING As of 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 periods subsequent to the Effective Date have been designated "Successor Company". For financial reporting purposes, the Company accounted for the consummation of the Plan effective June 17, 1995. In accordance with Fresh-Start Reporting, the Company valued its assets and liabilities at fair values and eliminated its retained earnings at the Effective Date. The reorganization value of the Company was determined on the basis of the trading value of the Company's New Common Stock for a representative number of days subsequent to the Effective Date and the fair value of the Company's obligations as of the Effective Date. The total reorganization value as of the Effective Date was $1,334,000,000 which was $532,574,000 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 five-year period. The components of reorganization items included in the consolidated statement of operations are as follows (in thousands): Fresh-Start Reporting Establish excess reorganization value $532,574 Eliminate existing goodwill (540,434) Revalue property, net 40,633 Establish deferred tax asset 24,497 Revalue pension assets and liabilities and postretirement obligations (23,653) Record lease rejection liability (19,734) Provide for warehouse closing (10,450) Eliminate LIFO inventory reserve 7,757 Provide for other reorganization liabilities (5,400) Record liability for fair value of interest rate protection agreement (3,500) Other (1,905) --------------- Total Fresh-Start 385 Professional fees incurred in connection with the reorganization (20,000) Interest earned on accumulated cash resulting from the Chapter 11 proceedings 988 --------------- Total reorganization items ($18,627) --------------- ---------------
During the 12 weeks ended October 14, 1995, the Company recorded certain adjustments, which were not material, to liabilities assumed during Fresh-Start Reporting, as reflected in the table above. As a result of the debt restructuring, the Company recognized a gain on debt discharge as follows (in thousands): Elimination of Old Debt, deferred financing fees and accrued interest discharged $ 1,589,506 Issuance of New Senior Notes (580,721) Issuance of New Common Stock (154,000) ---------------- Gain on debt discharge $854,785 ---------------- ----------------
8 In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Term Assets to be Disposed of" ("SFAS No. 121"), which establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. As of the Effective Date, the Company adopted SFAS No. 121. NOTE 4 - CHARGES RELATING TO VOLUNTARY RESIGNATION INCENTIVE PLAN During the 12 weeks ended October 14, 1995, the Company established a provision of $4.5 million for a voluntary resignation incentive program under which certain classes of store employees accepted monetary incentive to voluntarily resign from their positions. NOTE 5 - INCOME TAXES The Company recorded an income tax benefit of $5.8 million and $5.4 million for the 12 and 17 week periods ended October 14, 1995, respectively. Operating loss carryforwards of the Predecessor Company have been offset by taxable gains realized on the debt discharged in connection with the Plan. There are no remaining operating loss or credit carryforwards of the Predecessor Company and there was no change in the tax basis of the Company's assets as of the Effective Date. NOTE 6 - EARNINGS PER SHARE Earnings per share for the 12 and 17 week periods ended October 14, 1995 has been calculated on the basis of 10,000,000 shares outstanding. Warrants are excluded from the calculation because their inclusion would be anti-dilutive. Earnings (loss) per common share data is not meaningful for periods prior to June 17, 1995 due to the significant change in the capital structure of the Company. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL: As discussed in Note 2 to the accompanying Consolidated Financial Statements of Grand Union, the Company emerged from its Chapter 11 proceedings effective June 15, 1995. For financial reporting purposes, the Company accounted for the consummation of the Plan effective June 17, 1995. 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 28 weeks ended October 14, 1995, the results of the Predecessor Company and Successor Company have been combined. RESULTS OF OPERATIONS The following table sets forth certain statement of operations data reflecting the combination discussed above (in millions):
12 Weeks Ended 28 Weeks Ended ------------------------ -------------------------- Oct. 14, Oct. 15, Oct. 14, Oct. 15, 1995 1994 1995 1994 ------------------------ -------------------------- Sales $523.7 $556.7 $1,244.3 $1,304.4 Gross profit 162.6 170.9 379.6 401.7 Operating and administrative expenses 129.9 132.4 303.0 303.4 Depreciation and amortization 17.0 20.8 41.2 46.0 Amortization of excess reorganization value 24.7 - 34.8 - Reorganization items - - 18.6 - Charges relating to voluntary resignation incentive plan 4.5 - 4.5 - Interest expense 22.4 47.2 51.8 106.8 Income tax benefit 5.8 - 5.4 - Extraordinary gain on debt discharge - - 854.8 - Net (loss) income (30.1) (29.5) 785.9 (54.4) EBITDA 28.2 38.5 53.5 98.4 Adjusted EBITDA 33.0 38.7 77.3 98.9 LIFO provision 0.3 0.2 0.7 0.5 Sales percentage decrease 5.9% 0.6% 4.6% 1.3% Gross profit as a percentage of sales 31.1 30.7 30.5 30.8 Operating and administrative expenses as a percentage of sales 24.8 23.8 24.3 23.3 EBITDA as a percentage of sales 5.4 6.9 4.3 7.5 Adjusted EBITDA as a percentage of sales 6.3 7.0 6.2 7.6
Sales for the 12 and 28 weeks ended October 14, 1995 decreased $33.0 million and $60.1 million, or 5.9% and 4.6%, as compared to the 12 and 28 week periods ended October 15, 1994, respectively. The sales decline for each of the 12 and 28 week periods was comprised of 4.0% and 4.4% from the sale or closure of 24 stores which were not replaced and 2.8% and 1.1% from decreased same store sales offset by .9% and .9% from increases relating to one incremental new store opened late last year. Same store sales comparisons were negatively influenced by (a) strong promotional programs during last year's second quarter and (b) the anniversary of three replacement stores early in this year's second quarter which diminished the incremental benefit previously experienced for those stores. Same store sales comparisons were positively influenced by the marketing program implemented in the Northern Region earlier this year. The Northern Region marketing program, which includes both lower everyday prices and stronger sales promotion programs, was begun on a limited basis last year and was fully implemented on May 1, 1995. Additionally, this year's 28 week period was favorably influenced by the timing of the pre-Easter holiday shopping period which was included in this year's first quarter but not in last year's first quarter. 10 Gross profit, as a percentage of sales, was 31.1% and 30.5% for the 12 and 28 week periods ended October 14, 1995, compared to 30.7% and 30.8% for the comparable periods of the prior year. Gross profit percentages were impacted in the current 12 week period by the savings generated by the conversion of the distribution of Northern Region merchandise from a Company operated warehouse to a wholesaler, offset by reduced margins associated with the Northern Region marketing program. In addition, gross profit was negatively impacted during the 28 weeks ended October 14, 1995 by bankruptcy related items including the Company's inability to be fully invested in forward buy inventory throughout most of last year's fourth quarter, which negatively impacted gross profit in the first quarter, and by lower vendor promotional allowances in the early part of the first quarter. Both the 12 and 28 week periods this year benefited by proportionately greater sales of higher margin produce products. Operating and administrative expenses, as a percentage of sales, were 24.8% and 24.3% for the 12 and 28 week periods ended October 14, 1995, compared to 23.8% and 23.3% for the comparable periods of the prior year. The increased rate in both periods resulted from increases as a percentage of sales in (a) labor and fringe costs, (b) advertising expense, principally to support the Northern Region marketing program, (c) occupancy costs, and (d) wrapping supply expense. During the latter part of the 12 weeks ended October 14, 1995, the Company completed voluntary resignation incentive programs in both of its operating regions which had a limited effect on store labor in the second quarter, but will moderate store costs over the remainder of the year. The current 28 week period reflected gains on sales of stores of $3.6 million compared to gains of $1.8 million in the prior year's 28 week period. Depreciation and amortization totaled $17.0 million and $41.2 million for the 12 and 28 week periods ended October 14, 1995 compared to $20.8 million and $46.0 million for the comparable periods of the prior year. The decrease principally results from the absence of amortization of goodwill after the Effective Date. The excess reorganization value is being amortized over a five-year life. During the 11 week period ended July 17, 1995, the Company recorded $18.6 million of reorganization expenses which includes professional fees, Fresh-Start Reporting adjustments and interest income on accumulated cash resulting from the Chapter 11 proceedings. Interest expense totaled $22.4 million and $51.8 million for the 12 and 28 week periods ended October 14, 1995, compared with $47.2 million and $106.8 million for the comparable periods of the prior year. The decline in interest is principally related to the cessation of interest accruals on a significant portion of the Company's debt during the bankruptcy proceedings and the decreased level of debt of the Successor Company. The Company recorded an income tax benefit of $5.8 million and $5.4 million during the 12 and 28 weeks ended October 14, 1995, representing federal and state income taxes. Operating loss carryforwards of the Predecessor Company have been offset by taxable gains realized on the debt discharged in connection with the Plan. There are no remaining operating loss or credit carryforwards of the Predecessor Company and there was no change in the tax basis of the Company's assets as of the Effective Date. In connection with the Company's emergence from Chapter 11, the Company recognized an extraordinary gain of $854.8 million related to the discharge of debt. EBITDA is defined as earnings before income tax benefit, interest expense, extraordinary gain on debt discharge, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before LIFO provision, reorganization items and charges relating to the voluntary resignation incentive plan. The Company believes that both EBITDA and Adjusted EBITDA are useful supplemental disclosures but recognizes that both EBITDA and Adjusted EBITDA are not substitutes for earnings or cash flow data required by generally accepted accounting principles. EBITDA totaled $28.2 million, or 5.4% of sales, and $53.5 million, or 4.3% of sales, for the 12 and 28 week periods ended October 14, 1995, compared to $38.5 million, or 6.9% of sales, and $98.4 million, or 7.5% of sales, for the comparable periods of the prior year. Adjusted EBITDA totaled $33.0 million, or 6.3% of sales, and $77.3 million, or 6.2% of sales, for the 12 and 28 week periods ended October 14, 1995, respectively, compared to $38.7 million, or 7.0% of sales, and $98.9 million, or 7.6% of sales, for the comparable period of the prior year. 11 The Company is currently considering several alternative product supply arrangements for the distribution of merchandise for its New York Region stores, including a proposal from C&S Wholesalers, Inc. who supplies warehouse product to the Company's Northern Region stores. The Company is also discussing alternative operating methods and cost considerations with the unions who represent its New York Region warehouse and trucking employees. LIQUIDITY AND CAPITAL RESOURCES The following table combines the cash flows of the Predecessor Company and the Successor Company for the 28 weeks ended October 14, 1995. Resources used to finance significant expenditures for the 28 weeks ended October 14, 1995 and the 28 weeks ended October 15, 1994 are as follows:
28 Weeks Ended ---------------------------------------- October 14, October 15, 1995 1994 ---------------- --------------- (in millions) Resources used for: Debt and capital lease repayments $ 97.9 $ 4.9 Capital expenditures 17.3 40.1 Operating activities, including cash and temporary investments 9.4 - Loan placement fees 3.1 - ---------- ------- $127.7 $45.0 ---------- ------- ---------- ------- Financed by: Proceeds from New Bank agreement $122.2 $ - Property disposals 5.5 2.0 Operating activities, including cash and temporary investments - 34.0 Net proceeds from long-term debt - 9.0 ---------- ------- $127.7 $45.0 ---------- ------- ---------- -------
During the 28 weeks ended October 14, 1995, funds for debt and capital lease repayments (primarily the repayment of obligations outstanding under the Old Bank agreement), capital expenditures, operating activities and loan placement fees were principally obtained from cash provided by the New Bank Facility ($104.2 million from the New Term Loan and $18.0 million from the New Revolver - see Note 2). During the 28 weeks ended October 15, 1994, funds for capital expenditures and debt and capital lease repayments were principally obtained from cash provided by operating activities and from $9 million borrowed on the revolving credit facility. On the Filing Date, as part of the implementation of an agreement with the Company's bank lenders and with members of informal committees of certain holders of Grand Union's long-term debt on the terms of a restructuring of Grand Union's capital structure, Grand Union filed a voluntary petition for relief under Chapter 11 of the Code in the Bankruptcy Court. From the Filing Date through the Effective Date, Grand Union operated as a debtor-in-possession under Chapter 11 of the Code and was subject to the supervision of the Bankruptcy Court in accordance with the Code. On May 31, 1995, the Bankruptcy Court confirmed the Plan, and the Company emerged from Chapter 11 on the Effective Date. One proceeding challenging the order confirming the Plan is pending. The Company does not believe that this proceeding will result in any modification or revocation of the order. On the Effective Date, Grand Union adopted a restated certificate of incorporation, the principal effects of which were to authorize 30,000,000 shares of New Common Stock (of which 10,000,000 shares were issued under the Plan) and to prohibit the issuance of non-voting equity securities. The Plan provided for full payment of all allowed administrative expenses and all allowed general unsecured and priority claims. On the Effective Date, obligations relating to the Company's existing bank credit agreement were paid in full and the Company entered into the New Bank Facility with its bank lending group which provides for a five-year revolving credit facility of $100 million and a seven- year term loan facility of $104.1 million. The New Bank Facility is secured by a lien on substantially all of the assets of Grand Union and its subsidiaries. 12 As of the Effective Date, the Senior Notes were deemed cancelled and each holder of Senior Notes became entitled to receive its pro rata share of the New Senior Notes having an aggregate principal amount of $595.5 million issued pursuant to the Plan. Subsequent to the Effective Date, the Company issued $595.4 million aggregate principal amount of New Senior Notes and made cash payments of $54,922 for fractional shares to the holders of the Senior Notes. The New Senior Notes accrue interest beginning on September 1, 1995. Accordingly, the New Senior Notes have been discounted at 12% for the period from June 15, 1995 to September 1, 1995 and imputed interest was charged at 12% during that period. In addition, the difference between such discounted value and the fair value of the New Senior Notes at the Effective Date has been recorded as a debt premium totaling $5.8 million which amount will be amortized over the life of the New Senior Notes. As of the Effective Date, the Subordinated Notes and the old capital stock of Grand Union were deemed cancelled and each holder of Subordinated Notes became entitled to receive its pro rata share of an aggregate of 10,000,000 shares of New Common Stock issued pursuant to the Plan. The Plan also provided for the issuance of warrants to purchase an aggregate of 900,000 shares of New Common Stock to holders of the Capital Notes pursuant to the terms of a settlement reached among the Company, its then direct and indirect parent companies, the Official Committee of Unsecured Creditors of its then parent company and certain holders of the Capital Notes. Such warrants are comprised of 300,000 Series 1 Warrants to purchase shares of New Common Stock at a purchase price of $30 per share and of 600,000 Series 2 Warrants to purchase shares of New Common Stock at a purchase price of $42 per share. The warrants expire on June 15, 2000. The Plan made no provision for the holders of the remaining long-term debt, Redeemable Preferred Stock, common shares or warrants to purchase common shares of the Company's then indirect parent. On September 29, 1995, the Company terminated a joint health and beauty care and general merchandise buying arrangement with the Penn Traffic Company. Under the termination agreement, the Company repurchased approximately $11 million of inventory located at the Montgomery warehouse which had previously been owned by Penn Traffic. The termination of this agreement is not expected to have a significant impact on the Company's results of operations or financial position. The Company continues to be highly leveraged. Interest payments during the 28 weeks ended October 14, 1995 totaled approximately $18 million and are expected to total approximately $69 million for the current fiscal year ($100 million on an annualized basis). Capital expenditures, including capitalized leases other than real estate leases, totaled approximately $18 million for the 28 weeks ended October 14, 1995 and are expected to total $45 to $50 million for the current fiscal year. Capital expenditures for the current fiscal year will be related to new, enlarged or remodeled stores, store systems and maintenance capital. Bankruptcy related obligations, principally lease rejection liabilities, totaling $18 million (included in accounts payable and accrued liabilities at October 14, 1995) are expected to be paid during the remainder of the current fiscal year. There are no significant scheduled debt principal repayments prior to June, 2000. The Company plans to finance its working capital, interest expense and capital expenditure requirements from operations, from its revolving credit facility and, to a limited extent, from equipment leases or purchase money mortgages. The Company's ability to fund the payment of interest and other obligations when due is dependent on cash generated from its operations, net of cash capital expenditures. The Company's ability to complete its planned capital expenditure program is dependent on its operating performance. As of October 14, 1995, the Company had $18.0 million of borrowings and approximately $43.2 million of letters of credit outstanding under its $100.0 million revolving credit facility. 13 PART II - OTHER INFORMATION ITEM 6. (a) Exhibit EXHIBIT NUMBER 27.1 Financial Data Schedule. There were no reports on Form 8-K during the period. 14 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) Date: November 28, 1995 ----------------- /s/ Kenneth R. Baum ----------------------- Kenneth R. Baum Senior Vice President, Chief Financial Officer and Secretary (Principal Financial Officer and Principal Accounting Officer) 15 EX-27 2 EX-27
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S INTERIM CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 OTHER MAR-30-1996 JUL-23-1995 OCT-14-1995 36,064 0 14,054 0 172,416 14,566 809,978 330,809 1,258,342 184,405 849,157 10,000 0 0 104,402 1,258,342 1,244,256 1,244,256 864,698 864,698 402,094 0 51,770 (74,306) (5,372) (68,934) 0 854,785 0 785,851 (3.96) 0
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