FORM 1O-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 July 19, 1997
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Commission File Number 0-26602
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THE GRAND UNION COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 22 - 1518276
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
201 Willowbrook Boulevard, Wayne, New Jersey 07470 - 0966
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(Address of principal executive offices) (Zip Code)
973-890-6000
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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 | |
- -
As of August 29, 1997, there were issued and outstanding 10,000,000
shares, par value $0.01 per share, 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 - 16 weeks ended July 19, 1997
and July 20, 1996 3
Consolidated Balance Sheet - July 19, 1997 and March 29, 1997 4
Consolidated Statement of Cash Flows - 16 weeks ended July 19, 1997
and July 20, 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. 8
PART II - OTHER INFORMATION
Item 5. Other Information. 11
Item 6. Exhibits and Report on Form 8-K. 11
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)
16 Weeks Ended
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July 19, July 20,
1997 1996
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Sales $ 707,983 $ 726,823
Cost of sales (518,514) (504,924)
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Gross profit 189,469 221,899
Operating and administrative expenses (179,822) (180,878)
Depreciation and amortization (24,467) (25,413)
Amortization of excess reorganization value (32,102) (31,572)
Interest expense, net (32,320) (32,287)
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Loss before income taxes (79,242) (48,251)
Income tax benefit (provision) -- 4,439
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Net loss (79,242) (43,812)
Accrued dividends on preferred stock (2,057) --
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Net loss applicable to common stock $ (81,299) $ (43,812)
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Net loss per common share $ (8.13) $ (4.38)
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See accompanying notes to consolidated financial statements (unaudited).
3
THE GRAND UNION COMPANY
CONSOLIDATED BALANCE SHEET
(dollars in thousands, except per share data)
(unaudited)
July 19, March 29,
1997 1997
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ASSETS
Current assets:
Cash and temporary investments $ 33,073 $ 34,119
Receivables 8,206 17,975
Inventories 134,253 131,409
Other current assets 12,030 14,326
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Total current assets 187,562 197,829
Property, net 422,325 411,911
Excess reorganization value, net 302,963 335,065
Deferred tax asset 51,393 51,393
Beneficial leases, net 48,600 52,266
Other assets 10,851 12,375
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$ 1,023,694 $ 1,060,839
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt $ -- $ 46
Current portion of obligations under
capital leases 7,568 8,045
Accounts payable and accrued liabilities 175,630 164,549
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Total current liabilities 183,198 172,640
Long-term debt 732,012 740,207
Obligations under capital leases 144,792 140,058
Other noncurrent liabilities 91,144 96,144
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Total liabilities 1,151,146 1,149,049
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Redeemable Class A Preferred Stock,
$1.00 par value, 3,500,000 shares
authorized, 1,300,566 shares issued
and outstanding, liquidation preference
$66,702 and $65,000, respectively 66,702 65,000
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Redeemable Class B Preferred Stock,
$1.00 par value, 1,400,000 shares
authorized, 800,000 shares issued and
outstanding, liquidation preference $40,355 40,355 --
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Stockholders' deficit:
Common stock, $.01 par value, 60,000,000
shares authorized, 10,000,000 shares
issued and outstanding 100 100
Preferred stock, $1.00 par value,
10,000,000 shares authorized, less amounts
authorized as Class A and Class B preferred
stock, no shares issued and outstanding -- --
Capital in excess of par value 137,843 139,900
Accumulated deficit (372,452) (293,210)
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Total stockholders' deficit (234,509) (153,210)
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$ 1,023,694 $ 1,060,839
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See accompanying notes to consolidated financial statements (unaudited).
4
THE GRAND UNION COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
(unaudited)
16 Weeks Ended
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July 19, July 20,
1997 1996
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OPERATING ACTIVITIES:
Net loss $(79,242) $(43,812)
Adjustments to reconcile net loss to
net cash provided by (used for) operating
activities before reorganization items paid:
Depreciation and amortization 56,569 56,985
Deferred taxes -- (4,439)
Noncash interest (58) --
Net changes in assets and liabilities:
Receivables 9,769 (10,980)
Inventories (2,844) (1,408)
Other current assets 2,296 50
Accounts payable and accrued liabilities 12,468 10,025
Other (4,678) 888
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Net cash provided by (used for) operating
activities before reorganization items paid (5,720) 7,309
Reorganization items paid (2,799) (2,511)
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Net cash provided by (used for) operating
activities (8,519) 4,798
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INVESTMENT ACTIVITIES:
Capital expenditures (21,623) (14,535)
Disposals of property 42 421
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Net cash (used for) provided by investment
activities (21,581) (14,114)
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FINANCING ACTIVITIES:
Net proceeds from sale of preferred stock 40,000 --
Net proceeds from long-term debt -- 6,000
Obligations under capital leases discharged (2,900) (2,607)
Retirement of long-term debt (8,046) (237)
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Net cash provided by (used for) financing
activities 29,054 3,156
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(Decrease) increase in cash and temporary
investments (1,046) (6,160)
Cash and temporary investments at beginning of
period 34,119 39,425
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Cash and temporary investments at end of period $ 33,073 $ 33,265
======== ========
Supplemental disclosure of cash flow information:
Interest payments $ 11,165 $ 11,189
Capital lease obligations incurred 7,157 11,182
Accrued dividends on preferred stock 2,057 --
See accompanying notes to consolidated financial statements (unaudited).
5
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. In the opinion of management, the
consolidated financial statements include all adjustments, which 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 29, 1997.
Operating results for the periods presented are not necessarily indicative of
the results for the full fiscal year.
Certain items reported on the Consolidated Statement of Cash Flows have
been reclassified from the presentation of last year for comparative purposes.
NOTE 2 - Issuance of Preferred Stock
On June 12, 1997, under an acceleration of the terms of the July 30, 1996
Stock Purchase Agreement, the Company sold to 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"), 800,000 shares of 8.5% Class A Convertible
Preferred Stock, $1.00 par value (the "Class A Preferred Stock") at a purchase
price of $50 per share (the "Stated Value"). These shares of Class A Preferred
Stock were immediately converted to 800,000 shares of 8.5% Class B Convertible
Preferred Stock, $1.00 par value (the "Class B Preferred Stock"). The Class B
Preferred Stock ranks pari passu with Class A Preferred Stock and has
substantially the same terms as the Class A Preferred Stock, with the exception
of the conversion price.
Each share of the Class A Preferred Stock is convertible at the option of
the holder, at any time, into 6.8966 shares of Common Stock. At July 19, 1997,
the 1,300,566 outstanding shares of Class A Preferred Stock were convertible
into an aggregate of 8,969,483 shares of Common Stock. Each share of Class B
Preferred Stock is convertible at the option of the holder, at any time, into
20.8333 shares of Common Stock. This conversion price is to be reset to a
conversion price based upon a 20% premium to the average trading price of
Common Stock during a twenty-day period following the earlier of: (i) three days
after the release of the January 3, 1998 quarterly results, or (ii) February 20,
1998. At July 19, 1997, the 800,000 outstanding shares of Class B Preferred
Stock were convertible into an aggregate of 16,666,640 shares of Common Stock.
The Class A Preferred Stock and Class B Preferred Stock have been
classified as redeemable Class A Preferred Stock and Class B Preferred Stock in
the accompanying Consolidated Balance Sheet. On March 31, 1997, the Company paid
dividends on the Class A Preferred Stock through the issuance of 20,866 shares
of Class A Preferred Stock, with an aggregate Stated Value of $1,043,300. The
Company elected to suspend the declaration of a dividend payable June 30, 1997.
The dividends on the Class A Preferred Stock and the Class B Preferred Stock and
the accrued and unpaid dividends through July 19, 1997 have been accounted for
bv a charge against Capital in Excess of Par Value and a corresponding increase
in the carrying amounts of the Class A Preferred Stock and Class B Preferred
Stock.
NOTE 3 - Net Loss Per Share
The Company's outstanding warrants 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 net loss per share
calculation would have been anti-dilutive for the periods presented.
Accordingly, only the weighted average number of common shares outstanding,
totaling l0,000,000, were included in the calculation.
The Company's Class A Preferred Stock and Class B Preferred Stock are not
deemed to be common stock equivalents. A fully diluted net loss per share
calculation is not presented because inclusion of the Class A Preferred Stock
and Class B Preferred Stock in the calculation would have been anti-dilutive for
the periods presented.
NOTE 4 - 0ptions Grant
On August 1, 1997, the Board of Directors of Grand Union elected a new
Chairman of the Board and Chief Executive Officer of the Company. In connection
with such appointment, the Company granted options to purchase up to 1,250,000
shares of the Company's Common Stock, pursuant to the 1995 Equity Incentive
Plan, subject to stockholder approval. The exercise price for the options ranges
from $l.375 to $4.375 per share. The options expire in August 2007, although
their expiration may be accelerated by certain events.
6
NOTE 5 - Technical Default
As of the end of the 1998 first quarter, the Company was in technical
default of certain covenants of its Amended and Restated Credit Agreement (the
"Bank Facility"); however, effective July 25, 31, and August 7, 14, 21, and 28,
1997, a group of lenders and the Company executed limited waivers for purposes
of providing the Company with limited liquidity to operate, without remedying
any default.
NOTE 6 - Amendment to Bank Facility
Effective August 29, 1997, the Company concluded an amendment to its Bank
Facility to eliminate the existing technical default and to relax covenants that
relate to the Company's performance in the future, thereby providing the Company
access to the Revolving Credit Facility without the use of a waiver. The
amendment will also provide for a new term loan facility of approximately $78
million, part of the proceeds of which will be used to make the $36 million
interest payment due on September 2, 1997 on the Company's 12% Senior Notes. The
amount available to the Company under the Revolving Credit Facility shall be
reduced to approximately $67 million. The additional funds made available to the
Company through the amendment and the restatement of the Company's existing Bank
Facility raise the Company's total secured credit facility to $250 million.
NOTE 7 - Related Party Transactions
Mr. Ying, a Director of the Company from June 1995 to August 1997, was a
managing director of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ")
from January 1993 to June 1997. DLJ has acted as financial advisor to the
Company, and received compensation from the Company for such services.
In May 1997, the Company entered into an agreement with DLJ to advise a
Committee of Independent Directors (the "Committee") in respect to the Company's
Stock Purchase Agreement. As compensation for services provided to the Committee
related to the June 1997 Acceleration and Exchange Agreement, the Company paid
DLJ $500,000.
In August 1997, the Company entered into an agreement with DLJ to advise
the Company in respect to its Amended and Restated Credit Agreement. As
compensation for services provided to the Company related to the amendment to
its Bank Facility, the Company paid DLJ approximately $2,900,000.
7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
The following table sets forth certain statement of operations data
(dollars in millions).
16 Weeks Ended
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July 19, July 20,
1997 1996
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Sales $ 708.0 $ 726.8
Gross profit 189.5 221.9
LIFO provision 0.4 0.4
Operating and administrative expenses 179.8 180.9
Depreciation and amortization 24.5 25.4
Amortization of excess reorganization value 32.1 31.6
Interest expense, net 32.3 32.3
Income tax benefit (provision) -- 4.4
Net (loss) income (79.2) (43.8)
Sales percentage (decrease) increase (2.6)% 0.9%
Gross profit as a percentage of sales 26.8 30.5
Operating and administrative
expenses as a percentage of sales 25.4 24.9
Sales for the 16 weeks ended July 19, 1997 (the "1998 first quarter")
decreased $18.8 million, or 2.6%, compared to the 16 week period ended July 20,
1996 (the "1997 first quarter"). Comparable store sales, including replacements,
decreased 1.8%, principally as a result of increased competition and the timing
of Easter (Easter fell within the 1997 first quarter, but outside the 1998 first
quarter), offset by the positive impact of marketing and customer service
programs. During the 1998 first quarter, the Company opened two replacement
stores and closed three stores.
Gross profit as a percentage of sales, was 26.8% for the 1998 first
quarter, compared to 30.5% for the 1997 first quarter. The gross profit
percentage decrease is attributable principally to reduced allowance income, and
promotional pricing activity, as well as other factors.
Operating and administrative expenses, as a percentage of sales, were
25.4% for the 1998 first quarter, compared to 24.9% for the 1997 first quarter.
The increase in the operating and administrative expense rate resulted
principally from expenditures in store labor and advertising to support elements
of the Company's strategic marketing program, as well as a reduction in sales.
Compared to last year, 1998 first quarter operating and administrative expenses
decreased $1.1 million.
Depreciation and amortization totaled $24.5 million for the 1998 first
quarter, compared to $25.4 million for the 1997 first quarter. The decrease
results from a reduction in the Company's capital spending program in 1997 and
1998, as well as select store disposals.
Interest expense totaled $32.3 million for the 1998 and the 1997 first
quarters.
The Company recorded no net income tax benefit or provision during the
1998 first quarter because a tax benefit related to the potential use of
operating loss carryforwards was offset by a valuation allowance.
Liquidity and Capital Resources
On June 12, 1997, under an acceleration of the terms of the Stock Purchase
Agreement, the Company sold to an investment group comprised of the Purchasers
800,000 shares of Class A Preferred Stock. These shares were immediately
converted from Class A Preferred Stock to an equivalent number of shares of
Class B Preferred Stock. This issuance of the preferred stock amounts to an
aggregate investment of $40 million.
8
The Company continues to be highly leveraged. Cash interest payments
totaled approximately $11 million for the 1998 first quarter and will be
approximately $113 million for the fiscal year ending March 28, 1998 ("Fiscal
1998"). Capital expenditures, including capitalized leases other than real
estate leases, totaled approximately $22 million for the 1998 first quarter and
are expected to total between $33 and $38 million for the full year. Fiscal 1998
capital expenditures will principally be dedicated to new and replacement
stores, remodels, store systems, and equipment capital. During the 1998 first
quarter, the Company opened two replacement stores, and completed one
enlargement and four M.A.S.T.E.R.S. ("Maximize All Space, Totally Expand the
Right Stuff") renovations.
Resources used to finance significant expenditures for the 1998 first
quarter and 1997 first quarter are as follows (in millions):
16 Weeks Ended
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July 19, July 20,
1997 1996
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Resources used for:
Capital expenditures $ 21.6 $ 14.5
Debt and capital lease repayments 10.9 2.9
Operating activities, including cash and
temporary investments 7.5 --
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$ 40.0 $ 17.4
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Financed by:
Operating activities, including cash and temporary
investments $ -- $ 11.0
Net proceeds from sale of preferred stock 40.0 --
Net proceeds from long-term debt -- 6.0
Property disposals -- 0.4
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$ 40.0 $ 17.4
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The Company plans to finance its working capital, interest expense and
capital expenditure requirements from proceeds received from the sale of
convertible preferred stock, operations, its Amended and Restated Credit
Agreement (the "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 principally on cash generated from
its operations, net of cash capital expenditures. The Company's ability to
complete its capital expenditure program is dependent on its operating
performance. There are no significant scheduled debt principal repayments prior
to June 2000.
During the 1998 first quarter, funds for capital expenditures, debt and
capital lease repayments, and operating activities were principally obtained
from the sale of preferred stock. During the 1997 first quarter, funds for
capital expenditures and debt and capital lease repayments were principally
obtained from operations and borrowings under the revolving credit facility.
As of July 19, 1997, the Company had $28 million of borrowings and
approximately $44 million of letters of credit outstanding under its $100
million revolving credit facility.
As of the end of the 1998 first quarter, the Company was in technical
default of certain covenants of its Bank Facility; however, effective July 25,
31, and August 7, 14, 21, and 28, 1997, a group of lenders and the Company
executed limited waivers for purposes of providing the Company with limited
liquidity to operate, without remedying any default.
The Company remains constrained for cash, with the $40 million investment
in June 1997 having been used to fund operating losses, capital expenditures,
and the repayment of debt and capital leases.
Effective August 29, 1997, the Company concluded an amendment to the Bank
Facility to eliminate the existing technical default and to relax covenants that
relate to the Company's performance in the future, thereby providing the Company
access to the Revolving Credit Facility without the use of a waiver. The
amendment will also provide for a new term loan facility of approximately $78
million, part of the proceeds of which will be used to make the $36 million
interest payment due on September 2, 1997 on the Company's l2% Senior Notes. The
amount available under the Revolving Credit Facility shall be reduced to
approximately $67 million. The additional funds made available to the Company
through the amendment and the restatement of the Company's existing Bank
Facility raise the Company's total secured credit facility to a total of $250
million. Improvement in the Company's liquidity is dependent on the Company's
operating performance.
9
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, 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 Form 10-K for the year
ended March 29, 1997, as filed with the SEC.
10
PART II - OTHER INFORMATION
Item 5. Other Information.
On July 25, 1997, the Company filed a Proxy with the SEC relating to an
annual meeting of stockholders, containing the information required by Part III
of Form 10-K for its fiscal year ended March 29, 1997. The annual meeting was
originally scheduled to be held on September 25, 1997, but has been postponed.
Three directors of the Company, David Y. Ying, Daniel E. Josephs, and William G.
Kagler, have resigned. The Proxy that was filed with the Securities and Exchange
Commission is being revised to reflect these events. The Proxy was never mailed
to stockholders.
The Company has been advised by the NASDAQ National Market that it does
not meet certain requirements for continued listing thereon. A hearing on the
Company's continued listing has been scheduled for September 4, 1997.
Item 6. Exhibits and Report on Form 8-K.
(a) Exhibits
Exhibit Number
10.1 Employment Agreement between The Grand Union Company and J.
Wayne Harris dated August 1, 1997.
27.1 Financial Data Schedule.
(b) Report on Form 8-K dated June 12, 1997 as filed with the Commission on
June 17, 1997.
11
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 August 29, 1997 /s/ Jeffrey P. Freimark
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Jeffrey P. Freimark
Executive Vice President-Chief Financial and
Administrative Officer
12