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 12, 1996
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)
201-890-6000
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(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 .
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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 .
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As of November 26, 1996, there were issued and outstanding 10,000,000
shares of the Registrant's common stock.
THE GRAND UNION COMPANY
INDEX
PART I - FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS.
Page No.
Consolidated Statement of Operations - 12 weeks ended
October 12, 1996 and October 14, 1995 3
Consolidated Statement of Operations - 28 weeks ended
October 12, 1996, 17 weeks ended October 14, 1995
(Successor Company) and 11 weeks ended
June 17, 1995 (Predecessor Company) 4
Consolidated Balance Sheet - October 12, 1996 and
March 30, 1996 5
Consolidated Statement of
Cash Flows - 28 weeks ended
October 12, 1996, 17 weeks ended October 14, 1995
(Successor Company) and 11 weeks ended
June 17, 1995 (Predecessor Company) 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 9
PART II - OTHER INFORMATION
ITEM 2. CHANGE IN SECURITIES. 12
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.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
THE GRAND UNION COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(unaudited)
12 Weeks Ended
-------------------------------------
October 12, October 14,
1996 1995
------------ --------------
Sales $ 533,412 $ 523,711
Cost of sales (371,254) (361,074)
------------ --------------
Gross profit 162,158 162,637
Operating and administrative
expenses (131,809) (129,932)
Depreciation and amortization (19,732) (17,002)
Amortization of excess
reorganization value (23,678) (24,717)
Unusual item - (4,500)
Interest expense, net (24,574) (22,433)
------------ --------------
Loss before income tax benefit (37,635) (35,947)
Income tax benefit 6,982 5,872
------------ --------------
Net loss (30,653) (30,075)
Accrued dividends on
preferred stock (243) -
------------ --------------
Net loss applicable to
common stock $ (30,896) $ (30,075)
------------ --------------
------------ --------------
Net loss per common share $ (3.09) $ (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)
Predecessor
Successor Company Company
-------------------------- -------------
28 Weeks 17 Weeks 11 Weeks
Ended Ended Ended
October 12, October 14, June 17,
1996 1995 1995
-------------- ------------ -----------
Sales $1,260,235 $ 756,374 $ 487,882
Cost of sales (876,178) (520,657) (344,041)
-------------- ------------ -----------
Gross profit 384,057 235,717 143,841
Operating and administrative expenses (312,687) (185,424) (117,544)
Depreciation and amortization (45,145) (23,957) (17,215)
Amortization of excess
reorganization value (55,250) (34,827) -
Unusual items - (4,500) (18,627)
Interest expense, net (contractual
interest of $43,360 for the 11 weeks
ended June 17, 1995) (56,861) (31,979) (19,791)
-------------- ------------ -----------
Loss before income tax benefit and
extraordinary gain on debt discharge (85,886) (44,970) (29,336)
Income tax benefit 11,421 5,372 -
-------------- ------------ -----------
Loss before extraordinary gain on
debt discharge (74,465) (39,598) (29,336)
Extraordinary gain on debt discharge - - 854,785
-------------- ------------ -----------
Net (loss) income (74,465) (39,598) 825,449
Accrued dividends on preferred stock (243) - -
-------------- ------------ -----------
Net (loss) income applicable to
common stock $ (74,708) $ (39,598) $ 825,449
-------------- ------------ -----------
-------------- ------------ -----------
Net loss per common share $ (7.47) $ (3.96)
-------------- ------------
-------------- ------------
See accompanying notes to consolidated financial statements (unaudited).
4
THE GRAND UNION COMPANY
CONSOLIDATED BALANCE SHEET
(dollars in thousands, except par value)
(unaudited)
October 12, March 30,
1996 1996
--------------- --------------
ASSETS
Current assets:
Cash and temporary investments $ 31,539 $ 39,425
Receivables 26,055 20,948
Inventories 138,072 133,506
Other current assets 13,551 13,709
--------------- --------------
Total current assets 209,217 207,588
Property, net 457,785 473,726
Excess reorganization value, net 382,422 437,672
Deferred tax asset 65,337 53,916
Other assets 11,808 12,304
--------------- --------------
$ 1,126,569 $ 1,185,206
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--------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of
long-term debt $ 1,461 $ 1,813
Current portion of obligations
under capital leases 7,669 7,080
Accounts payable and
accrued liabilities 150,716 170,010
--------------- --------------
Total current liabilities 159,846 178,903
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Long-term debt 737,652 738,067
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Obligations under capital leases 136,924 128,114
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Other noncurrent liabilities 94,468 95,978
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Redeemable Class A preferred
stock, $1.00 par value,
3,500,000 shares
authorized, 802,644 shares
issued and outstanding,
liquidation preference $40,243 40,243 -
--------------- --------------
Stockholders' equity:
Common stock, $1.00 par value,
30,000,000 shares authorized,
10,000,000 shares issued and
outstanding 10,000 10,000
Preferred stock, $1.00 par value,
10,000,000 shares authorized
less amount authorized as
Class A preferred stock,
no shares issued and outstanding - -
Capital in excess of par value 131,757 144,000
Accumulated deficit (184,321) (109,856)
--------------- --------------
Total stockholders' equity (42,564) 44,144
--------------- --------------
$ 1,126,569 $ 1,185,206
--------------- --------------
--------------- --------------
See accompanying notes to consolidated financial statements (unaudited).
5
THE GRAND UNION COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
Predecessor
Successor Company Company
------------------------- ------------
28 Weeks 17 Weeks 11 Weeks
Ended Ended Ended
October 12, October 14, June 17,
1996 1995 1995
------------ ----------- ------------
OPERATING ACTIVITIES:
Net (loss) income $ (74,465) $ (39,598) $ 825,449
Adjustments to reconcile net
(loss) income to net cash
provided by (used for) operating
activities before reorganization
items paid:
Depreciation and amortization 45,145 23,957 17,215
Amortization of excess
reorganization value 55,250 34,827 -
Deferred taxes (11,421) (4,947) -
LIFO charge 700 400 300
Noncash interest (102) 14,638 1,126
Extraordinary gain on
debt discharge - - (854,785)
Net changes in assets and
liabilities:
Receivables (5,107) (5,758) 1,769
Inventories (5,266) 11,062 12,646
Accounts payable and accrued
liabilities (17,525) (52,446) (34,928)
Other current assets 158 (734) 2,776
Other (2,183) (3,231) 4,493
----------- ----------- ------------
Net cash provided by (used for)
operating activities before
reorganization items paid (14,816) (21,830) (23,939)
Reorganization items paid (3,720) (12,108) (4,913)
----------- ----------- ------------
Net cash provided by (used for)
operating activities (18,536) (33,938) (28,852)
INVESTMENT ACTIVITIES: ----------- ----------- ------------
Capital expenditures (18,226) (13,975) (3,301)
Disposals of property 7,901 - 5,452
----------- ----------- ------------
Net cash (used for) provided by
investment activities (10,325) (13,975) 2,151
FINANCING ACTIVITIES: ----------- ----------- ------------
Net proceeds from sale of
preferred stock 28,000 - -
Obligations under capital
leases discharged (6,600) (2,407) (1,707)
Retirement of long-term debt (6,425) (356) (239)
Net proceeds from long-term debt 6,000 18,089 -
Proceeds from New Bank agreement - - 104,144
Payment of Old Bank debt - - (93,144)
Loan placement fees - - (3,125)
----------- ----------- ------------
Net cash provided by (used for)
financing activities 20,975 15,326 5,929
(Decrease) increase in cash and ----------- ----------- ------------
temporary investments (7,886) (32,587) (20,772)
Cash and temporary investments at
beginning of period 39,425 68,651 89,423
Cash and temporary investments at ----------- ----------- ------------
end of period $ 31,539 $ 36,064 $ 68,651
------------ ----------- ------------
------------ ----------- ------------
Supplemental disclosure of cash
flow information:
Interest payments $ 55,034 $ 8,652 $ 9,515
Capital lease obligations incurred 15,999 280 20,072
Accrued dividends on preferred stock 243 - -
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 (the "Company") include the accounts of the Company and its
subsidiaries, all of which are wholly-owned. These consolidated financial
statements as of and for the periods subsequent to June 17, 1995 were prepared
in accordance with the principles of fresh-start reporting contained within the
American Institute of Certified Public Accountants Statement of Position 90-7,
"Financial Reporting By Entities In Reorganization Under The Bankruptcy Code"
("Fresh-Start Reporting"). Therefore, in connection with the implementation of
Fresh-Start Reporting, a new entity was deemed created for financial reporting
purposes and, where applicable, the consolidated financial statements for the
"Successor Company" have been separately identified from those of the
"Predecessor Company". In the opinion of management, the consolidated
financial statements include all adjustments, which, except for fresh-start
adjustments, 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 March 30, 1996.
Operating results for the periods presented are not necessarily indicative of
the results for the full fiscal year.
NOTE 2 - ISSUANCE OF PREFERRED STOCK
On July 30, 1996, the Company entered into an agreement (the "Stock
Purchase Agreement") to sell $100 million of 8.5% convertible preferred stock,
$1.00 par value per share (the "Class A Preferred Stock") to an investment
group composed of Trefoil Capital Investors II, L. P., a Delaware limited
partnership, and GE Investment Private Placement Partners II, A Limited
Partnership, a Delaware limited partnership (collectively, the "Purchasers").
On September 17, 1996, the Company sold 800,000 shares of Class A Preferred
Stock to the Purchasers for aggregate proceeds of $40,000,000 (the "Principal
Closing"). Under the terms of the Stock Purchase Agreement, the Company will
sell to the Purchasers an additional 400,000 shares of Class A Preferred Stock
at a purchase price of $50 per share (the "Stated Value") on each of February
25, 1997, August 25, 1997 and February 25, 1998. Any or all of the additional
purchases may be accelerated by the Purchasers at their option. Each of the
additional purchases is subject to the satisfaction or waiver of certain closing
conditions as specified in the Stock Purchase Agreement.
Dividends are cumulative and payable quarterly at 8.5% of the Stated Value
per annum. Dividends are payable, at the option of the Company, in additional
shares of Class A Preferred Stock or common stock through the third anniversary
of the Principal Closing. From the third anniversary through the fifth
anniversary of the Principal Closing, dividends are payable in cash, unless the
terms of the Company's bank credit agreement or 12% senior note indenture
prohibit cash dividends, in which case dividends may be paid in Class A
Preferred Stock or common stock. After the fifth anniversary of the Principal
Closing, dividends are payable in cash. To the extent that any dividends on the
Class A Preferred Stock are paid in shares of common stock, the Company is
required to pay a premium in additional shares of common stock equal to 33 1/3%
of the number of shares of common stock that would otherwise be paid as the
dividend. On September 12, 1996, the Company declared a dividend on the Class A
Preferred Stock, payable in 2,644 shares of Class A Preferred Stock on September
30, 1996. The aggregate Stated Value of the dividend was $132,200.
Each share of Class A Preferred Stock is convertible at the option of the
holder, at any time, into 6.8966 shares of common stock. At October 12, 1996,
the 802,644 outstanding shares of Class A Preferred Stock were convertible into
an aggregate 5,535,515 shares of common stock.
The Company is required to redeem the Class A Preferred Stock no later than
June 1, 2005. Additionally, the Class A Preferred Stock may be redeemed at the
Company's option at $50 per share plus all accrued and unpaid dividends if the
volume-weighted average price of the Company's common stock over a 60-day period
exceeds $13.05 per share after September 17, 1998, or $14.50 per share after
September 17, 1999. After September 17, 2001, the Company's right to redeem
is not contingent on the price of the common stock and the redemption price is
approximately $51.60 per share plus all accrued and unpaid dividends, declining
ratably to $50 per share plus all accrued and unpaid dividends after September
17, 2004.
The Stock Purchase Agreement and the Certificate of Designation of
Preferred Stock, setting forth the powers, preferences, rights, qualifications,
limitations and restrictions of such class of preferred stock (the "Certificate
of Designation"), also contain provisions with respect to the rights of the
Purchasers to elect a specified number of directors, the number of disinterested
directors, voting rights and pre-emptive rights with respect to any sale by the
Company of shares of common stock or securities convertible
7
into, or exchangeable for, common stock. The liquidation preference of the
Class A Preferred Stock is equal to its Stated Value plus any accrued and unpaid
dividends.
The Class A Preferred Stock has been classified as Redeemable Class A
Preferred Stock in the accompanying Consolidated Balance Sheet. The dividend on
the Class A Preferred Stock and the accrued and unpaid dividends through October
12, 1996 have been accounted for by a charge against Capital in Excess of Par
Value and a corresponding increase in the value of the Class A Preferred Stock.
The Company has recorded, as a charge to Capital in Excess of Par Value,
expenses directly related to the sale of the Class A Preferred Stock totaling
$12,000,000. The expenses include transaction fees paid to Shamrock Capital
Advisors, Inc. and GE Investment Management Corporation of $2,000,000 each, fees
paid to Donaldson, Lufkin and Jenrette, the Company's financial advisor and a
related party, of approximately $5,200,000 and legal and other professional fees
and expenses of $2,800,000.
NOTE 3 - NET LOSS PER SHARE
The Company's outstanding warrants to purchase common stock and options to
purchase common stock under the Company's 1995 Non-Employee Director's Stock
Option Plan and 1995 Equity Incentive Plan are considered common stock
equivalents. The inclusion of these common stock equivalents in the Company's
primary earnings per share calculation would have been anti-dilutive for the
periods presented. Accordingly, only the weighted average number of common
shares, totaling 10,000,000, were included in the calculation.
The Company's Class A Preferred Stock is not deemed to be a common stock
equivalent. A fully diluted earnings per share calculation is not presented
because inclusion of the Class A Preferred Stock in the calculation would have
been anti-dilutive for the periods presented.
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.
NOTE 4 - SUBSEQUENT EVENT
On November 7, 1996, the shareholders approved the 1995 Non-Employee
Directors' Stock Option Plan and the 1995 Equity Incentive Plan. Additionally,
approval was given to an increase in the number of authorized shares of common
stock to 60,000,000 and a decrease in the par value to $.01. Also approved
were two amendments to the Company's certificate of incorporation, a fair price
amendment and an amendment to permit stockholder action by written consents.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL:
As discussed in Note 1, as of 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 applied Fresh-Start Reporting. In connection with the adoption of
Fresh-Start Reporting, a new entity was deemed created for financial reporting
purposes. 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 (all dollars in millions):
12 Weeks Ended 28 Weeks Ended
------------------------ -------------------------
October 12, October 14, October 12, October 14,
1996 1995 1996 1995
------------------------ -------------------------
Sales $ 533.4 $ 523.7 $ 1,260.2 $ 1,244.3
Gross profit 162.2 162.6 384.1 379.6
Operating and
administrative expenses (131.8) (129.9) (312.7) (303.0)
Depreciation and
amortization (19.7) (17.0) (45.1) (41.2)
Amortization of excess
reorganization value (23.7) (24.7) (55.3) (34.8)
Unusual items - (4.5) - (23.1)
Interest expense, net (24.6) (22.4) (56.9) (51.8)
Income tax benefit 7.0 5.8 11.4 5.4
Extraordinary gain on
debt discharge - - - 854.8
Net (loss) income (30.7) (30.1) (74.5) 785.9
LIFO provision (0.3) (0.3) (0.7) (0.7)
Sales percentage
increase (decrease) 1.9% (5.9%) 1.3% (4.6%)
Same store sales percentage
increase (decrease) 2.0 (2.8) 1.4 (1.1)
Gross profit as a
percentage of sales 30.4 31.1 30.5 30.5
Operating and administrative
expenses as a percentage
of sales 24.7 24.8 24.8 24.3
Sales for the 12 (the "second quarter") and 28 (the "year to date") weeks
ended October 12, 1996 increased $9.7 million, or 1.9%, and $16.0 million, or
1.3%, respectively, as compared to the 12 and 28 weeks ended October 14, 1995.
Same store sales (sales of stores which were operated during the comparable
periods of both fiscal years) increased 2.0% and 1.4% during the second quarter
and year to date, respectively, compared to the prior year. Same store sales
increases for the second quarter and year to date resulted from the continued
maturation of the Company's marketing and customer service programs, partially
offset by the negative impact of the wet, cool summer on its northern resort
stores. The Company opened one new store and one replacement store and closed
three stores during the 28 weeks ended October 12, 1996.
Gross profit, as a percentage of sales, decreased 0.7% to 30.4% in the
second quarter compared to the prior year as a result of the "More Lower
Prices" marketing program implemented last year and completed earlier this
year partially offset by the positive benefits from outsourcing warehouse
distribution. Gross profit, as a percentage of sales, was equal to last year
for the year to date period. In addition to the factors affecting the
second quarter comparison, the year to date comparison reflects the positive
benefit of the restoration of vendor promotional allowances and other vendor
support to normal levels this year from bankruptcy impacted levels
experienced in last year's first quarter.
Operating and administrative expenses, as a percentage of sales, decreased
0.1% to 24.7% for the second quarter and increased 0.5% to 24.8% for the year to
date. The decrease in operating expenses, as a percentage of sales, in the
second quarter resulted from decreases in store labor expense and a gain
from the sale of a store, offset by increased advertising expense. The
increase in operating expenses, as a percentage of sales, in the year to date
resulted from increased advertising expense and decreased gains on the sales
of stores, offset by decreased store labor expense. Store labor expense in
both the quarter and year to date, as a percentage of sales, reflected
savings in store average hourly pay from the store voluntary resignation
programs completed last year, in excess of the cost of increased store labor
hours in support of the Company's marketing and customer service programs.
Depreciation and amortization increased $2.7 million to $19.7 million for
the second quarter and $3.9 million to $45.1 million for the year to date
principally from increases in capitalized leases.
9
Interest expense increased $2.2 million to $24.6 million and $5.1 million
to $56.9 million for the second quarter and year to date periods, respectively,
compared with the same periods of the prior year. The second quarter increase
is principally a result of higher levels of capitalized leases in the current
year. In addition, the year to date increase was impacted by the finalization
of debt levels upon emergence from bankruptcy.
The Company recorded federal and state income tax benefits of $7.0 and
$11.4 million during the second quarter and year to date periods, respectively,
compared to $5.9 million and $5.4 million for the same periods last year.
The Company frequently utilizes a financial measure, EBITDA, in discussing
its operating results to normalize comparisons with companies of varying
capital structures. The Company arbitrarily defines EBITDA as earnings before
accrued preferred stock dividends, extraordinary gains or losses, income tax
benefits, interest expense, unusual items, depreciation and amortization, and
LIFO provision. The Company believes that EBITDA comparisons are useful for
investors but are not a substitute for operating data required by generally
accepted accounting principles. EBITDA, as defined by the Company, totaled
$30.6 million, 5.7% of sales, and $72.1 million, 5.7% of sales, for the second
quarter and year to date, respectively, compared to $33.0 million, 6.3% of
sales, and $77.3 million, 6.2% of sales, for the same periods last year. The
decreases are a result of the sales, gross profit and operating expense
variances discussed previously. During Fiscal 1996 and Fiscal 1997, the Company
has reduced costs through the outsourcing of distribution, the store
voluntary resignation incentive programs and reorganization of the Company's
organizational structure. These savings have been reinvested in price
repositioning and customer service programs which adversely affect gross
margin and operating expenses in periods in which they are made.
LIQUIDITY AND CAPITAL RESOURCES
On July 30, 1996, the Company entered into an agreement (the "Stock
Purchase Agreement") to sell $100 million of 8.5% convertible preferred stock,
$1.00 par value per share (the "Class A Preferred Stock") to an investment
group composed of Trefoil Capital Investors II, L. P., a Delaware limited
partnership, and GE Investment Private Placement Partners II, A Limited
Partnership, a Delaware limited partnership (collectively, the "Purchasers").
On September 17, 1996, the Company sold 800,000 shares of Class A Preferred
Stock to the Purchasers for an aggregate price of $40 million. The Company
incurred $12 million of expenses directly related to the sale of Class A
Preferred Stock, including one-time fees totaling approximately $9.2 million.
Under the terms of the Stock Purchase Agreement, the Company will sell to
the Purchasers an additional 400,000 shares of Class A Preferred Stock at a
purchase price of $50 per share (the "Stated Value") on each of February 25,
1997, August 25, 1997 and February 25, 1998. Any or all of the purchases
referred to in the preceding sentence may be accelerated by the Purchasers, with
or without the approval of the Company.
Proceeds from the sale of the Preferred Stock are being used to accelerate
Grand Union's capital spending program. The Company anticipates capital
spending, including capitalized leases other than real estate leases, of
approximately $250 million over the three year period ending March 1999.
The Company is and will continue to be highly leveraged. Interest payments
totaled approximately $55 million for the 28 weeks ended October 12, 1996 and
will be approximately $100 million for the full year. Capital expenditures,
including capitalized leases other than real estate leases, totaled
approximately $20 million for the 28 weeks ended October 12, 1996 and are
expected to total between $65 and $70 million for the full year. Fiscal 1997
capital expenditures will principally be dedicated to new and replacement
stores, remodels, store systems and maintenance capital. Through October 12,
1996, the Company had opened one new and one replacement store. By the end of
the fiscal year, the Company expects to open an additional replacement store and
complete ten M.A.S.T.E.R.S. ("Maximize All Space, Totally Expand the Right
Stuff") renovations. 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 proceeds
received from the sale of Class A Preferred Stock, operations, its Amended and
Restated Credit Agreement (the "New Bank Facility"), and, to a limited extent,
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 expanded capital expenditure program is dependent on its
operating performance.
10
Resources used to finance significant expenditures are as follows (in
millions):
28 Weeks Ended
----------------------------
October 12, October 14,
1996 1995
-------------- ------------
Resources used for:
Capital expenditures $ 18.2 $ 17.3
Debt and capital lease repayments 13.0 97.9
Operating activities, including cash and
temporary investments 10.7 9.4
Loan placement fees - 3.1
-------------- ------------
$ 41.9 $ 127.7
-------------- ------------
-------------- ------------
Financed by:
Net proceeds from sale of Class A
Preferred Stock $ 28.0 $ -
Property disposals 7.9 5.5
Net proceeds from long-term debt 6.0 -
Proceeds from New Bank Facility - 122.2
-------------- ------------
$ 41.9 $ 127.7
-------------- ------------
-------------- ------------
During the 28 weeks ended October 12, 1996, funds for capital expenditures,
debt repayments and operating activities were obtained from net proceeds from
the sale of Class A Preferred Stock, property disposals and borrowings under the
Company's bank agreement. During the 28 weeks ended October 14, 1995, funds for
debt and capital lease repayments, capital expenditures, operating activities
and loan placement fees were principally obtained from cash provided by the New
Bank Facility.
As of October 12, 1996, the Company had $33.0 million of borrowings and
approximately $44.4 million of letters of credit outstanding under its $100
million revolving credit facility.
As a result of the Stock Purchase Agreement, the Company sought and
obtained from its banks a waiver and amendment to its credit agreement. The
amendment was principally designed to allow the Company the flexibility to
utilize proceeds from the Stock Purchase Agreement to accelerate capital
spending. During the 28 weeks ended October 12, 1996, the Company was in
compliance with the covenants of its debt instruments, as amended.
With the exception of historical information, the matters discussed herein
are "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to
risks, uncertainties and other factors which could cause actual results to
differ materially from future results expressed or implied by such
forward-looking statements. Potential risks and uncertainties include, but are
not limited to, the competitive environment in which the Company operates, the
Company's ability to complete its capital expenditure program on a timely basis
and the general economic conditions in the geographic areas in which the Company
operates.
11
PART II - OTHER INFORMATION
ITEM 2. CHANGE IN SECURITIES
On September 17, 1996, the Company sold 800,000 shares of Class A
Convertible Preferred Stock ("Class A Preferred Stock") to Trefoil Capital
Investors II, L.P. and GE Investment Private Placement Partners II, A
Limited Partnership (the "Investors") for an aggregate cash consideration
of $40 million. With respect to this sale and expected future sales of an
additional $60 million of Preferred Stock, the Company paid transaction
fees of $2 million each to Shamrock Capital Advisors, Inc. and GE
Investment Management Incorporated, and a total transaction fee (including
a fairness fee) of $4,753,400 to Donaldson, Lufkin & Jenrette Securities
Corporation. The transaction is exempt from registration under Section
4(2) of the Securities Act of 1933, as a private offering. Neither the
Company nor any person acting on the Company's behalf offered to sell the
securities by any form of general solicitation or general advertising. The
Investors have represented that the shares were acquired for the purpose of
investment and not with a view to or for sale in connection with any
distribution thereof, and that each Investor is an "accredited investor"
within the meaning of Rule 501(a) under the Securities Act of 1933. The
shares carry a legend restricting transfer, and may not be resold without
registration under the Securities Act of 1933 or an exemption therefrom.
Each share of Class A Preferred Stock is convertible at the option of
the holder, at any time, into 6.8966 shares of Common Stock. If more than
one share is surrendered for conversion by the same holder at the same
time, the number of shares of Common Stock issuable to that holder shall be
computed based on the total number of shares of Class A Preferred Stock
surrendered, with either a cash payment or issuance of a full share of
Common Stock in lieu of any then remaining fractional share. Dividends
continue to accrue until the conversion date. As to any shares to be
redeemed, the conversion right terminates on the fifth business day
preceding the redemption date. The conversion ratio is subject to
adjustment if the Company subdivides, combines or reclassifies the
outstanding shares of Common Stock, pays a dividend on Common Stock, or
(subject to certain exceptions) issues shares of Common Stock, rights or
warrants at less than current market price. In the case of a capital
reorganization, reclassification of outstanding shares of Common Stock,
merger of the Company, or sale of all or substantially all the assets of
the Company, the Class A Preferred Stock is generally convertible into the
kind and amount of securities receivable by the holders of Common Stock, in
the same amount as if such Class A Preferred Stock had been converted to
Common Stock.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
EXHIBIT NUMBER
3.1 Amendment to the By-laws of The Grand Union Company, dated
September 12, 1996.
10.1 Form of Indemnification Agreement between the Company and J.
Costello, C. Miller, G. Moore and J.R. Stonesifer.
10.2 Third Amendment to the Amended and Restated Credit Agreement,
dated September 12, 1996.
10.3 First Supplemental Indenture to the Indenture dated as of June
15, 1995, between Grand Union, as Issuer, and IBJ Schroder Bank &
Trust Company, as Trustee for the 12% Senior Notes due September
1, 2004, dated September 9, 1996.
10.4 Certificate of Designation of Class A Convertible Preferred Stock
setting forth the Powers, Preferences, Rights, Qualifications,
Limitations and Restriction of such class of Preferred Stock.
10.5 Amended and Restated 1995 Equity Incentive Plan of The Grand
Union Company.
10.6 Amended and Restated 1995 Non-Employee Directors' Stock Option
Plan.
10.7 Management Agreement between The Grand Union Company and Shamrock
Capital Advisors, Inc., dated July 30, 1996.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
(1) Report on Form 8-K dated July 30, 1996 as filed with the Commission on
August 14, 1996.
(2) Report on Form 8-K dated September 17, 1996 as filed with the
Commission on October 1, 1996.
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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 26, 1996 /s/ KENNETH R. BAUM
----------------- ----------------------------------
Kenneth R. Baum
Senior Vice President, Chief
Financial Officer and Secretary
(Principal Financial Officer and
Principal Accounting Officer)
14