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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended April 2, 1994
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Commission File Number 33-48282
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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 (I.R.S. Employer
of incorporation or organization) Identification No.)
201 Willowbrook Boulevard, Wayne, New Jersey 07470
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 201-890-6000
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Not Applicable Not Applicable
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Securities registered pursuant to Section 12(g) of the Act:
Not Applicable
- - -------------------------------------------------------------------------------
(Title of Class)
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of July 1, 1994, there were issued and outstanding 801.5 shares of the
Registrant's common stock. The common stock is not traded in a public market.
Documents incorporated by reference: None
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THE GRAND UNION COMPANY
PART I
ITEM 1. BUSINESS
GENERAL
Grand Union Holdings Corporation ("Holdings"), a Delaware corporation, and
Grand Union Capital Corporation ("Capital"), a Delaware corporation which is a
wholly owned subsidiary of Holdings, have no operations independent of those of
The Grand Union Company ("Grand Union" or the "Company"), a Delaware corporation
and a wholly owned subsidiary of Capital. Grand Union currently operates 254
supermarkets and food stores under the "Grand Union" name in seven states.
STORE FORMATS
Grand Union's store sizes and formats vary depending upon the demographics
and competitive conditions in each location, as well as the availability of real
estate. Grand Union supermarkets offer a wide selection of national brand and
private label products as well as high-quality produce, meat and general
merchandise. The majority of the Company's sales are generated from stores
which also contain a number of high margin specialty and service areas for such
goods as imported and domestic produce, salads, hot and cold prepared foods,
seafood and fresh-baked goods. Select stores feature in-store kitchens and
pharmacies. Liquor and wine departments are included where permitted by local
law. Grand Union's supermarkets range in size from 14,000 to 64,000 square feet
and newly constructed stores are typically in excess of 40,000 square feet.
MERCHANDISING STRATEGY
Grand Union's current merchandising strategy is premised upon the
following:
VALUE. The Company's strategy is to provide value to the customer by
offering competitive prices, offering a wide variety of advertised and
unadvertised specials, sponsoring special promotions and offering a wide
selection of private label products.
MERCHANDISE ASSORTMENT. Management believes that many consumers prefer
food stores that not only offer the wide variety of food and non-food items
carried by conventional supermarkets, but also sell an expanded assortment of
high-quality food items and produce. Accordingly, Grand Union continues to
upgrade existing departments with new selections and, where appropriate, has
added specialty departments, including full service butcher and seafood shops,
floral departments, delicatessens and bakeries. This merchandising strategy
provides consumers with a wider selection of better and more convenient foods,
while shifting the Company's sales mix toward higher margin products.
EFFICIENCIES OF DISTRIBUTION. Grand Union's distribution system has
contributed to its ability to efficiently pursue its strategy of offering the
consumer a wide assortment of quality products at competitive prices.
Strategically located distribution centers make it possible for Grand Union to
minimize in-store stockroom space, thereby increasing store selling space.
SELECTED DATA
The table below sets forth certain statistical information with respect to
Grand Union retail stores, excluding the stores formerly operated in the
Southern Region, for the periods indicated.
<TABLE>
<CAPTION>
52 Weeks Ended 53 Weeks Ended 52 Weeks Ended
March 28, 1992 April 3, 1993 April 2, 1994
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<S> <C> <C> <C>
Number of stores (at end of period) 251 250 254
Total selling square feet (in thousands) 4,213 4,276 4,532
Average gross square feet per store 23,439 23,922 24,966
Average sales per selling square foot per week $11.69 $11.23 $10.76
</TABLE>
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SUMMARY OF OPERATIONS
NORTHERN REGION
Grand Union currently operates 142 stores in its Northern Region including
40 stores in Vermont, 96 stores in upstate New York, five stores in New
Hampshire and a single store in Massachusetts. The Northern Region had sales of
approximately $1.1 billion for the 52 weeks ended April 2, 1994. The Company
believes it generally operates in excellent locations, having operated in 85% of
the markets it currently serves in the Northern Region for more than 25 years,
and in many communities for over 50 years.
In Vermont, Grand Union operates 40 stores throughout the state in
virtually every significant community. Grand Union has the preeminent market
share in the state, having more sales than all other chain-store operators
combined. The Company's strong position in Vermont allows it to achieve
significant economies in purchasing, distribution, advertising and field
supervision. Zoning and environmental regulations in the state have long
restricted commercial development (including supermarkets). Accordingly, the
competitive environment in Vermont evolves very slowly. Grand Union's
long-standing presence in Vermont was enhanced through the acquisition in 1990
of certain stores operated by P&C Foods, a division of The Penn Traffic Company
("Penn Traffic"). Grand Union has focused its capital expenditures in Vermont on
improving existing locations and replacing stores where possible. The largest
competitors to Grand Union in Vermont are Golub Corporation ("Price Chopper")
(11 stores), Hannaford Brothers, Inc. ("Hannaford") (six stores) and The Great
Atlantic & Pacific Tea Company, Inc. ("A&P") (three stores).
In upstate New York, Grand Union generally operates in small cities and
rural communities, where the Company estimates it typically has the leading
market share, and in the Albany, New York metropolitan area (the "Capital
District") where, according to Company estimates, it has the second largest
market share with 40 stores. Although generally not as restrictive as Vermont,
commercial development in the upstate New York market place has been and
continues to be constrained by zoning and environmental restrictions,
particularly in areas regulated by the Adirondack Park Commission. In the more
urban Capital District, where Price Chopper has the larger market share and
Hannaford operates nine stores, Grand Union's competitors have opened several
stores in the last two years. Victory Markets, Inc. (Great American) competes
against the Company in a number of communities in the Hudson and Mohawk River
Valleys.
In the Mid-Hudson Valley area of New York (16 stores), the Company
estimates that it has the leading market share. Principal competitors are Big V
Supermarkets Inc. (operating under the ShopRite name), Price Chopper and A&P.
A number of stores in the Northern Region (particularly in the Adirondack
area and Vermont) are in resort areas and generally experience significant
increases in sales in the summer months and in some cases during the winter ski
season.
NEW YORK REGION
Grand Union currently operates 112 stores in its New York Region. The New
York Region generated approximately $1.4 billion of sales for the 52 weeks ended
April 2, 1994. Grand Union's primary New York Region marketing area comprises
the more affluent suburban communities of central and northern New Jersey (45
stores), Westchester, Orange, Rockland, Dutchess and Putnam Counties in New York
(the "Lower Hudson Valley") (29 stores), Long Island (17 stores) and Fairfield
County, Connecticut (15 stores). The Company also has a limited presence in New
York City (four stores) and Pennsylvania (two stores).
Within its primary New York Region marketing areas, the Company generally
operates stores in mature, densely populated markets where it believes its
below-market long-term leases generally provide it with a significant cost
advantage over new supermarkets. These stores serve communities with
demographics particularly well-suited for store formats emphasizing specialty
departments. Accordingly, the sales mix in this region includes a larger
percentage of higher margin perishable department items than in the Northern
Region. In addition, the high population density as well as the geographic
concentration of stores in the region provide substantial opportunities to
achieve additional economies of scale, particularly in advertising and
distribution.
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Because the New York Region is a fragmented market with no single food
retailer having a dominant market share, competition is market specific. In New
Jersey, the Company competes primarily against Pathmark Stores, Inc.
("Pathmark"), A&P and various supermarkets supplied by the Wakefern ("ShopRite")
and Twin County ("Foodtown") cooperatives. In the Lower Hudson Valley, the
Company generally competes with A&P, Edwards Supermarkets, Inc. and ShopRite. On
Long Island, the Company's principal competitors are A&P/Waldbaums, Pathmark,
King Kullen Grocery Co., Inc. and Foodtown. Grand Union's main competitors in
Fairfield County, Connecticut are the Stop & Shop Company and A&P.
CAPITAL INVESTMENT
The Company's capital spending is primarily directed toward renovating and
upgrading the existing Grand Union store base and opening replacement stores and
incremental stores in existing marketing areas. Store renovations and
replacements have resulted in an upgrade of the Company's merchandise mix and an
improvement in store profitability with the expansion of specialty departments
offering high quality, higher margin products. Since the recapitalization (the
"Recapitalization") of Holdings and its subsidiaries which occurred on July 22,
1992 (see "Recent History -- The Recapitalization" below), the Company has
increased its rate of capital investment. Capital expenditures, including
capitalized leases, other than real estate leases for the fiscal year ending
April 2, 1994 were approximately $86 million.
DISTRIBUTION, SUPPLY AND MANAGEMENT INFORMATION SYSTEMS
DISTRIBUTION. Management believes that Grand Union's distribution system
enhances its ability to offer consistently fresh and high quality dairy
products, meats, baked goods, produce and frozen foods. Moreover, this system
enables Grand Union to take advantage of cost saving, volume purchase
opportunities.
Grand Union currently operates five distribution centers aggregating
approximately 2.1 million square feet. In addition, Grand Union utilizes a
frozen food distribution facility operated by a third party. Grand Union also
leases space in three additional storage facilities and, from time to time,
utilizes limited space in several other facilities.
The strategic location of the distribution centers makes it possible for
Grand Union to make frequent shipments to stores, which reduces the amount of
in-store stockroom space, thereby limiting nonproductive store inventories.
In September 1993, Grand Union entered into a program to consolidate the
purchasing and distribution of health and beauty care products and general
merchandise with Penn Traffic. Under this program, Grand Union purchases health
and beauty care products for both Grand Union and Penn Traffic, and Penn Traffic
purchases general merchandise for both Penn Traffic and Grand Union. Grand
Union's general merchandise warehouse in Montgomery, New York is used to store
and distribute general merchandise and health and beauty care products to Grand
Union stores and to certain of Penn Traffic's stores and wholesale customers.
Under the arrangement, Penn Traffic owns the inventory of general merchandise
and health and beauty care products located at the Montgomery warehouse and
shares the cost of operating the warehouse in an amount proportionate to Penn
Traffic's usage of the facility. Grand Union expects that this program will
improve the variety of general merchandise products offered to the consumer and
will reduce product procurement costs for general merchandise and health and
beauty care products.
MANAGEMENT INFORMATION SYSTEMS. Financial, distribution, purchasing and
operating system requirements are supported through a central computer system
located in Wayne, New Jersey. Grand Union currently utilizes scanning systems in
142 stores (representing approximately 73% of total sales) and intends to
continue to invest in scanning and other store systems in the future.
SUPPLIERS. Products sold, including private label products, are purchased
through a large group of unaffiliated suppliers. Grand Union is not dependent
upon any single supplier, and its grocery purchases are of a sufficient volume
to qualify for minimum price brackets for most products sold.
COMMISSARY. Grand Union operates a 20,000 square foot commissary located
in Newburgh, New York in which high quality cooked meat products, salads and
soups are prepared for sale in the Company's delicatessen departments.
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EMPLOYEES
As of April 2, 1994, Grand Union had approximately 17,000 employees, of
whom approximately 60% were employed on a part-time basis. Approximately 49% of
Grand Union's employees are covered by collective bargaining agreements
negotiated with 13 unions. Approximately 88% of the employees covered by these
collective bargaining agreements are employed in store locations and
approximately 12% are employed in distribution facilities. These contracts
expire at various times through May 1998.
On May 29, 1993, Grand Union settled a labor dispute with United Food and
Commercial Workers, Local 1262, which represents clerks working in 61 Grand
Union stores located in northern New Jersey and in Orange County, New York, and
Rockland County, New York. The expiration of Grand Union's contract on April 24,
1993, after an extension from the contract's original expiration date on April
10, 1993, resulted in work stoppages at some, and eventually all, of the 61
Grand Union stores involved during the period from May 7, 1993 through May 29,
1993, as well as work stoppages at 251 Foodtown, Pathmark and ShopRite stores
whose employees are covered by identical collective bargaining agreements. On
June 17, 1993, a new four year agreement with Local 1262 was ratified by the
approximately 3,600 members of Local 1262 employed by Grand Union and by the
approximately 23,000 members of Local 1262 employed by Foodtown, Pathmark and
ShopRite.
TRADE NAMES, SERVICE MARKS AND TRADEMARKS
Grand Union uses a variety of trade names, service marks and trademarks.
Except for Grand Union-R-, Grand Union does not believe any of such trade names,
service marks or trademarks is material to its business.
COMPETITION
The food retailing business is highly competitive. Grand Union competes
with numerous national, regional and local chains, convenience stores, stores
owned and operated and otherwise affiliated with large food wholesalers,
unaffiliated independent food stores, warehouse clubs, discount drugstore chains
and discount general merchandise chains. Some of Grand Union's competitors have
greater financial resources than the Company and could use those resources to
take steps which could adversely affect the Company's competitive position.
RECENT HISTORY
OCTOBER 1993 ACQUISITION
On October 18, 1993, Grand Union acquired five supermarket locations on
Long Island from Foodarama Supermarkets, Inc. ("Foodarama") for consideration of
approximately $16 million, plus the value of the inventory at the stores
(approximately $2 million). The total gross square footage of these five stores
is approximately 160,000 square feet. The acquisition was financed through the
application of a portion of the proceeds of the sale to institutional investors
of $50 million aggregate principal amount of 12 1/4% Senior Subordinated Notes
due 2002, Series A (the "Series A Notes") on October 18, 1993. Grand Union
plans to renovate and enlarge certain of the acquired store locations.
SALE OF THE SOUTHERN REGION
On March 29, 1993, Grand Union sold 48 of its 51 Southern Region stores to
A&P. The three Southern Region stores not sold to A&P were closed, and have
been subleased. Grand Union received net cash proceeds of approximately $25
million and was relieved of approximately $4.5 million of capital lease
obligations.
THE RECAPITALIZATION
On July 22, 1992, Holdings, Capital, a newly formed corporation, and Grand
Union completed the Recapitalization. In connection with the Recapitalization,
Grand Union entered into a new bank credit agreement (as amended from time to
time, the "Bank Credit Agreement") providing for a $210 million term loan
facility (the "Term Loan") and a $100 million revolving credit facility (the
"Revolving Credit Facility"). Additionally, Grand Union issued $350 million
principal amount of 11 1/4% Senior Notes due 2000 ( the "11 1/4% Senior Notes")
and $500 million principal amount of 12 1/4% Senior Subordinated Notes due 2002
(the "12 1/4% Senior Subordinated Notes"). The Recapitalization also included
the sale to institutional investors of $343 million principal amount of Capital
15% Series A Senior Zero Coupon Notes due 2004 (the "Senior Zero Coupon Notes"),
$745 million principal amount of Capital 16.5% Series A Senior Subordinated Zero
Coupon Notes due 2007 (the "Senior Subordinated Zero Coupon Notes") and warrants
to purchase at a nominal price shares representing approximately 19.9% of the
common stock of Holdings on a fully diluted basis for aggregate gross proceeds
of approximately $200 million. The
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Recapitalization also included the sale to institutional investors of
approximately 28.4% of the common stock of Holdings on a fully diluted basis for
approximately $25 million. The proceeds were used to retire substantially all of
the debt of Holdings, GU Acquisition Corporation ("GUAC"), a wholly owned
subsidiary of Holdings, and Grand Union as well as to repurchase the shares and
an option to purchase shares owned by Salomon Brothers Holding Company Inc
("SBHC"), certain warrants held by the parties to the Company's bank credit
agreements existing prior to the Recapitalization, and approximately 3.4% of
the common stock of Holdings held by Grand Union management.
At the time of the Recapitalization, GUAC and its wholly-owned subsidiary
Cavenham Holdings Inc., the former parent of Grand Union, were merged (the
"Merger") into Grand Union. After the consummation of the Merger, Grand Union
became a wholly owned subsidiary of Capital.
As of April 2, 1994, the ownership of Holdings on a fully diluted basis was
as follows:
GAC Holdings, Limited Partnership ("GAC Holdings")
(an affiliate of Miller Tabak Hirsch + Co., a
New York limited partnership ("MTH")) and its affiliates 38.9%
Grand Union management 12.7
Various institutional investors (including Warrants
to purchase at a nominal price approximately
19.9% of the common stock of Holdings on a fully
diluted basis) 48.4
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100.0%
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FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Grand Union has no significant foreign operations or export sales.
ITEM 2. PROPERTIES
Grand Union conducts its operations primarily in leased stores,
distribution centers and offices. The following table indicates the location
and number of stores as of April 2, 1994.
Number of
Locations Stores
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Northern:
Vermont 40
New York 96
New Hampshire 5
Massachusetts 1
New York:
New York 50
New Jersey 45
Connecticut 15
Pennsylvania 2
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Total 254
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As of April 2, 1994, Grand Union owns 15 and leases 239 of its store sites
pursuant to commercial leases. Management believes that none of such leases is
individually material to Grand Union. Most of these leases contain several
renewal options. Twenty store leases which do not contain renewal options will
expire over the next five years and management anticipates that it will be able
to renegotiate favorable lease terms for most of these locations, if so desired.
Grand Union currently operates five distribution centers which are leased
and a commissary, which is housed in a building owned by Grand Union on a
ground-leased site in Newburgh, New York. Grand Union owns a 66,160 square foot
site which is part of its Carlstadt, New Jersey Grocery Distribution Center and
a 101,000 square foot facility in Waverly, New York. Grand Union's leased
distribution centers each have approximately 30 years or more
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remaining on the respective leases including options. See Note 9 to the
Consolidated Financial Statements, Property Leases, for information on leases
and annual rents.
ITEM 3. LEGAL PROCEEDINGS
At the time of the acquisition of Grand Union by Holdings in July 1989,
Grand Union and P&C Foods (then a subsidiary and currently a division of Penn
Traffic, which is under common control with Grand Union) operated stores in some
of the same geographic areas in Vermont and upstate New York. In order to
satisfy the concerns of federal and state antitrust authorities arising
therefrom in connection with the acquisition of Grand Union by Holdings, prior
to consummation thereof (i) Grand Union, GUAC, MTH Holdings, Inc., a New York
corporation ("MTH Holdings") and an affiliate of Miller Tabak Hirsch + Co., a
New York limited partnership, and P&C Foods entered into an Assurance Pursuant
to 9 Vermont Statutes Annotated Section 2459 and an Agreement to Hold Separate
with the Attorney General of the State of Vermont and (ii) MTH Holdings and GUAC
entered into an Agreement Containing Consent Order (the "Order") with the Bureau
of Competition of the Federal Trade Commission ("FTC") and an Agreement to Hold
Separate with Salomon Inc and the FTC (collectively, the "FTC Agreements").
The FTC Agreements required the divestiture by MTH Holdings and/or Grand
Union (including in each case their respective subsidiaries and affiliates) of
sixteen stores located in Vermont and upstate New York. Such divestitures were
completed on July 30, 1990. Thirteen of the sixteen stores divested were P&C
Foods stores and three of the sixteen stores divested were Grand Union stores.
In a related transaction, Grand Union and P&C Foods entered into an operating
agreement (the "Operating Agreement"), pursuant to which Grand Union acquired
the right to operate P&C Foods' thirteen remaining stores in New England under
the Grand Union name until July 2000, for an average annual rent of
approximately $10.7 million with an option to extend the term of such operation
for an additional five years. Grand Union paid P&C Foods $7.5 million for an
option to purchase the stores at an amount defined in the Operating Agreement.
Pursuant to the terms of the Operating Agreement, the Recapitalization triggered
a $15 million prepayment obligation to P&C Foods.
The FTC Agreements also provide, among other things, that MTH Holdings and
Grand Union (including in each case their respective subsidiaries and
affiliates) shall not acquire, for a period of ten years, any retail grocery
stores in Vermont and certain specified counties in New York without the prior
approval of the FTC and (in the case of stores in Vermont) the Attorney General
of the State of Vermont.
Soil and ground-water contamination has been detected at a shopping center
owned by Grand Union which is located in Connecticut. The Company is
investigating whether such contamination was caused by improper disposal of
perchloroethylene wastes by a dry cleaner previously operating at this location
or by an off-site source. Grand Union has undertaken, under approval by the
Connecticut Department of Environmental Protection, a proposal for a remedial
investigation designed to identify the sources of such soil and ground-water
contamination and to determine the length, depth and breadth of the
contamination on and off-site. Sampling analyses for the ground-water at the
shopping center and for drinking water in private residences located in the
immediately surrounding area confirm that the source of the on-site
contamination, in part, is an off-site shopping center and a gasoline station
located nearby. In May 1993, a Remedial Action and Investigation Report was
submitted to the Connecticut Department of Environmental Protection on May 21,
1993. The Company is awaiting a response from the Connecticut Department of
Environmental Protection.
The Company's potential responsibility does not arise from any aspect of
its operation of a supermarket at the shopping center but from the actions of a
former tenant. Any contamination caused on-site by a source located off-site
would be the responsibility of another party. The Company believes that the
current intention of the Connecticut Department of Environmental Protection is
to seek reimbursement of past costs and clean up from some or all of these other
parties. The Company is unable to determine the amount of its potential
liability arising from the on-site contamination, but does not believe, based
upon the results of investigations made to date, that the amount of potential
liability is likely to be materially adverse to the Company's financial
condition. Management presently estimates, based upon investigations made by the
Company's environmental consultant to date, that such liability should not
exceed $2 million. Investigations are continuing, and there can be no assurance
that the amount of such liability will not exceed $2 million.
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Grand Union is involved in various legal proceedings arising out of its
business, none of which is expected to have a material effect upon its results
of operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the year covered by this Report on Form 10-K.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
MARKET INFORMATION
The common stock of Grand Union is not publicly traded. See Item 12.
Security Ownership of Certain Beneficial Owners and Management.
HOLDERS
The common stock of Grand Union is wholly owned by Capital.
DIVIDENDS
There have been no cash dividends declared or paid during the three fiscal
years ended April 2, 1994. The payment of dividends to holders of common stock
of the Registrant is restricted by various debt agreements of Holdings and its
subsidiaries.
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ITEM 6. SELECTED FINANCIAL DATA
The data for the 16 weeks ended July 22, 1989 reflects the historical basis
of GUAC prior to its acquisition by Holdings (predecessor basis). The data as of
March 31, 1990 and for the 36 weeks then ended, as of March 30, 1991 and March
28, 1992 and for the 52 week periods then ended, as of April 3, 1993 and for the
53 weeks then ended and as of April 2, 1994 and for the 52 weeks then ended are
derived from the consolidated financial statements of Holdings. This
information should be read in conjunction with the historical financial
statements of Holdings, including the notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
GUAC
(predecessor) Holdings (successor)
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16 Weeks 36 Weeks 52 Weeks 52 Weeks 53 Weeks 52 Weeks
Ended Ended Ended Ended Ended Ended
July 22, March 31, March 30, March 28, April 3, April 2,
1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ----
(dollars in millions except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Sales $903.0 $2,013.2 $2,996.6 $2,968.5 $2,834.0 $2,477.3
Gross profit 224.4 514.7 784.5 818.1 801.5 711.0
Operating and administrative expense 176.7 397.2 603.6 619.9 606.2 531.8
Depreciation and amortization 13.5 52.0 76.9 78.7 80.6 78.6
Charge relating to early retirement program -- -- -- -- -- 4.5
Loss on disposal of the Southern Region -- -- -- -- 198.0 --
Merger expense 13.9 4.1 -- -- -- --
Store closure expense 13.9 -- -- -- -- --
Recapitalization expense -- -- -- -- 3.5 --
Interest expense:
Debt 28.3 95.0 145.6 141.7 151.9 164.0
Capital lease obligations 2.8 7.1 11.0 12.3 13.2 15.0
Amortization of deferred financing fees 0.5 2.9 7.4 18.0 9.4 4.8
Loss before income taxes, extraordinary
charges and cumulative effect of accounting
change 25.3 43.6 60.0 52.5 261.2 87.6
Extraordinary charges -- -- -- -- 47.7 --
Cumulative effect of accounting change -- -- -- -- -- 30.3
Net loss 16.7 37.1 71.0 65.1 313.4 118.0
Net loss per share applicable to common stock -- 595.53 1,100.49 1,038.79 4,359.45 1,780.06
Ratio of earnings to fixed charges (1) -- -- -- -- -- --
Deficiency in earnings available to cover fixed
charges 25.3 43.6 60.0 52.5 261.2 87.6
BALANCE SHEET DATA:
Total assets (2) $1,566.5 $1,569.6 $1,536.8 $1,418.2 $1,394.2
Total debt and capital lease obligations (2) 1,180.0 1,223.8 1,251.1 1,402.5 1,532.2
Redeemable stock (2) 106.4 117.0 128.9 139.8 154.7
Nonredeemable stock and stockholders' deficit (2) 30.1 112.6 190.8 510.3 644.8
OPERATING AND OTHER DATA:
EBITDA (3) $49.6 $120.4 $185.8 $196.3 $196.7 $180.1
EBITDA as a percentage of sales 5.5% 6.0% 6.2% 6.6% 6.9% 7.3%
Capital expenditures(4) $15.7 $37.3 $34.3 $34.6 $66.2 $86.2
LIFO provision 1.9 2.8 4.9 (1.9) 1.4 0.9
Number of stores at the end of the year N/A 301 307 304 250 254
<FN>
(1) The ratio of earnings to fixed charges is computed by dividing (i) earnings
before income taxes, extraordinary charges, the cumulative effect of
accounting change and fixed charges by (ii) fixed charges. Fixed charges
consist of total interest expense plus the estimated interest component of
operating leases. No ratio is indicated where the ratio is less than one.
(2) Balance sheet data is not applicable at this date.
(3) Earnings before interest expense, depreciation, amortization, LIFO
provision, charge relating to early retirement program, store closure
expense, merger expense, recapitalization expense, loss on disposal of the
Southern Region, extraordinary charges, cumulative effect of accounting
change and income taxes.
(4) Includes capitalized leases other than real estate capitalized leases.
</TABLE>
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ITEM 7. 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.
<TABLE>
<CAPTION>
Pro Forma
52 Weeks 53 Weeks 53 Weeks 52 Weeks
Ended Ended Ended Ended
March 28, April 3, April 3, April 2,
1992 1993 1993 (a) 1994
---- ---- -------- ----
(dollars in millions)
<S> <C> <C> <C> <C>
Sales $2,968.5 $2,834.0 $2,562.8 $2,477.3
Gross profit 818.1 801.5 730.1 711.0
Operating and administrative expense 619.9 606.2 542.1 531.8
Depreciation and amortization 78.7 80.6 71.7 78.6
Charge relating to early retirement program -- -- -- 4.5
Loss on disposal of the Southern Region -- 198.0 -- --
Recapitalization expense -- 3.5 3.5 --
Interest expense 172.0 174.5 173.8 183.8
Income tax provision 12.5 4.5 4.5 --
Extraordinary charge -- 47.7 47.7 --
Cumulative effect of accounting change -- -- -- 30.3
Net loss 65.1 313.4 113.1 118.0
EBITDA 196.3 196.7 189.5 180.1
LIFO provision (income) (1.9) 1.4 1.4 .9
Sales percentage increase (decrease):
Including Southern Region in prior year (0.9)% (4.5)% N/A (12.6)%
Excluding Southern Region in prior year N/A N/A N/A (3.3)
Gross profit as a percentage of sales 27.6 28.3 28.5% 28.7
Operating and administrative expense as a percentage of sales 20.9 21.4 21.2 21.5
EBITDA as a percentage of sales 6.6 6.9 7.4 7.3
<FN>
(a) Pro Forma without the Southern Region.
</TABLE>
Comparison of results of operations for the 52 weeks ended April 2, 1994
("Fiscal 1994"), the 53 weeks ended April 3, 1993 ("Fiscal 1993") and the 52
weeks ended March 28, 1992 ("Fiscal 1992") are impacted by the extra week in
Fiscal 1993 and the inclusion of the operations of the Company's Southern Region
(sold on March 29, 1993) for 40 weeks in Fiscal 1993 and 52 weeks in Fiscal
1992. The analysis and discussion of Fiscal 1994 as compared to Fiscal 1993
presented below compares Fiscal 1994 operations with the pro forma operations
for Fiscal 1993, which has been prepared excluding the Southern Region. The
analysis and discussion of Fiscal 1993 as compared to Fiscal 1992 presented
below compares actual results for Fiscal 1993 (which includes the Southern
Region for 40 weeks) to Fiscal 1992 (which includes the Southern Region for 52
weeks).
Sales for Fiscal 1994 decreased $85.5 million or 3.3% as compared to Fiscal
1993 and decreased 1.6% after adjusting for the extra week in Fiscal 1993. The
sales decrease for Fiscal 1994 was attributable to continued unfavorable
economic conditions, particularly in the Northern Region, new competitive store
openings in the mid-Hudson Valley and Capital District areas of the Northern
Region and low food price inflation, partially offset by the favorable impact of
the acquisition of five supermarkets on Long Island (see Liquidity and Capital
Resources) and the Company's expanded capital expenditure program which began
after the recapitalization of Holdings in July 1992. Additionally, sales for
Fiscal 1994 were impacted by a 22 day work stoppage, which ultimately affected
sales in 61 Grand Union stores located in northern New Jersey and in Orange and
Rockland Counties, New York.
9
<PAGE>
Same store sales (sales of stores which were operated during the comparable
periods of the two fiscal years), influenced by the same factors mentioned
above, decreased 3.0% during Fiscal 1994 after adjusting for the 53rd week in
Fiscal 1993. Beginning in Fiscal 1994, the Company has revised its method of
calculating same store sales to include replacement stores. This method is used
by many supermarket chains for comparing relative sales performance. Same store
sales, excluding replacement stores and after adjusting for the 53rd week in
Fiscal 1993, decreased 4.0% during Fiscal 1994. Same store sales for the first,
second and third quarters of Fiscal 1994 were previously reported as decreases
of 5.6%, 4.2% and 3.8%, respectively. Including replacement stores, same store
sales decreased 4.8%, 3.3% and 2.7%, respectively. During Fiscal 1994, the
Company opened nine new stores (including the five acquired stores on Long
Island) and five replacement stores, enlarged or renovated 23 stores and closed
10 stores (including replaced stores).
Total selling square footage increased from 4.276 million as of April 3,
1993 to 4.532 million as of April 2, 1994 as a result of the Company's expanded
capital expenditure program and the acquisition of the five Long Island stores.
Average sales per selling square foot per week was $10.76 during Fiscal 1994 as
compared to $11.23 during Fiscal 1993. The decrease is partially attributable
to the same factors discussed above. Additionally, new and enlarged stores
include more specialty departments and devote a greater percentage of selling
space to general merchandise products, each of which typically produces lower
sales per square foot.
Sales for Fiscal 1993 decreased $134.5 million or 4.5% compared to Fiscal
1992. During Fiscal 1993 sales performance was affected by continued unfavorable
economic conditions, low food price inflation, the adverse summer weather
conditions experienced in the northeastern resort areas, the announcement made
in June 1992 that the Company was seeking offers to purchase its Southern Region
stores and the exclusion of the sales and operating results of the Southern
Region for the fourth quarter of Fiscal 1993. If the sales of the Southern
Region had also been excluded from the fourth quarter of Fiscal 1992, total
sales for Fiscal 1993 would have decreased 1.7% as compared to Fiscal 1992.
Same store sales (including replacement stores) for Fiscal 1993, excluding the
Southern Region, decreased 2.6% after adjusting for the 53rd week in Fiscal
1993, as compared to Fiscal 1992. During Fiscal 1993, the Company opened two new
and two replacement stores, enlarged or renovated 12 stores, closed seven stores
(including replaced stores) and sold or subleased 51 stores in connection with
the disposal of the Southern Region.
Total selling square footage in the Company's ongoing operations (not
including the 51 Southern Region stores) increased from 4.213 million as of
March 28, 1992 to 4.276 million as of April 3, 1993 as a result of the Company's
capital expenditure program in which two new and two replacement stores were
opened, 12 stores were enlarged or renovated and seven stores were closed.
Average sales per selling square foot per week was $11.23 during Fiscal 1993
compared to $11.69 during Fiscal 1992. This decrease is attributable to the
same factors that affected total sales in the ongoing operations: continued
unfavorable economic conditions, low food price inflation and the adverse summer
weather conditions experienced in the northeastern resort areas. Additionally,
new and enlarged stores include more service departments and devote a greater
percentage of selling space to general merchandise products, each of which
typically produces lower sales per square foot.
The increase in gross profit, as a percentage of sales, for Fiscal 1994
resulted from reduced grocery product procurement costs and a greater proportion
of higher margin produce and general merchandise sales, partially offset by
lower health and beauty care pricing for the entire year. As discussed in
Note 15 to the financial statements included elsewhere herein, gross profit was
reduced by $4.5 million in Fiscal 1994 due to the effect of promotional
allowance adjustments.
The increase in gross profit in Fiscal 1993, as a percentage of sales,
resulted primarily from increased promotional allowance income and a greater
proportion of higher margin produce and general merchandise sales, partially
offset by a reduction in health and beauty care pricing in certain trade areas
and a LIFO charge in Fiscal 1993 compared to a credit in Fiscal 1992.
The increase in operating and administrative expenses, as a percentage of
sales, in Fiscal 1994 resulted primarily from increases, as a percentage of
sales, in store labor and fringe benefits, occupancy expense and utilities
expense principally resulting from the decline in sales. In addition, the
reduced sales which resulted from the work stoppage which occurred in May 1993
had a negative impact on operating and administrative expense
10
<PAGE>
as a percentage of sales. The increase in operating and administrative expense
for Fiscal 1994 was partially offset by a $3.8 million credit to operating and
administrative expense resulting from a reduction of the Company's self
insurance reserves.
The increase in operating and administrative expense, as a percentage of
sales, in Fiscal 1993 resulted primarily from increases, as a percentage of
sales, in store labor and fringe benefits, store advertising and promotion and
store occupancy costs.
Depreciation and amortization was $78.6 million for the 52 weeks ended
April 2, 1994 compared to $71.7 million for the 53 weeks ended April 3, 1993.
The increase was attributable to the Company's expanded capital expenditure
program which began after the Recapitalization in July 1992.
During Fiscal 1994, the Company incurred a $4.5 million charge relating to
an early retirement plan offered to certain employees.
During Fiscal 1993, the Company recognized a loss of $198 million relating
to the disposal of the Southern Region. The loss is comprised of 1) write-off of
goodwill and beneficial leases of $106.4 million, 2) difference between proceeds
received and the book value of tangible assets of $37.3 million, 3) reserve for
remaining Southern Region real estate of $26.9 million, 4) employee termination
expenses of $9.8 million, 5) operating loss of the Southern Region subsequent to
the date the decision was made to sell the region of $7.0 million and 6) other
miscellaneous items of $10.6 million.
Interest expense increased $10.0 million in Fiscal 1994 and $2.5 million in
Fiscal 1993. The Fiscal 1994 increase was primarily due to the increased level
of debt outstanding, partially offset by the decrease in amortization of loan
placement fees. The Fiscal 1993 increase was primarily due to the extra week
included in Fiscal 1993 and the increased level of debt incurred as a result of
the Recapitalization in July 1992 (see "Liquidity and Capital Resources"),
partially offset by a decrease in the Company's average borrowing rate and the
decrease in amortization of loan placement fees.
There was no income tax provision for Fiscal 1994 as a result of the
Recapitalization. The income tax provision for Fiscal 1993 represents state
income taxes. The Company adopted Statement of Financial Accounting Standards
No. 109, "Accounting For Income Taxes" ("FAS No. 109"), during Fiscal 1993. The
adoption of FAS No. 109 had no effect on the Consolidated Statement of
Operations.
During Fiscal 1994, the Company recorded a $30.3 million charge as the
cumulative effect of an accounting change relating to the adoption of Statement
of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions". This charge represents the
portion of future retiree benefit costs related to service already rendered by
both active and retired employees up to the date of adoption.
During Fiscal 1993, Holdings recorded a $3.5 million charge relating to
expenses incurred in connection with the Recapitalization and extraordinary
charges totaling $47.7 million relating to the early retirement of debt.
EBITDA was $180.1 million or 7.3% of sales for the 52 weeks ended April 2,
1994, compared to $189.5 million or 7.4% of sales for the 53 weeks ended
April 3, 1993. The Company estimates that the 22 day work stoppage in May 1993
had the effect of reducing Fiscal 1994 EBITDA by approximately $8.0 million as a
result of lost sales, product losses and other costs associated with the work
stoppage.
In general, the Company has not experienced significant inflationary cost
increases during the periods covered by this report.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Resources used to finance significant expenditures for the three fiscal
years ended April 2, 1994 are reflected in the following table:
<TABLE>
<CAPTION>
52 Weeks 53 Weeks 52 Weeks
Ended Ended Ended
March 28, April 3, April 2,
1992 1993 1994
--------- -------- --------
(in millions)
<S> <C> <C> <C>
Resources used:
Capital expenditures $29.3 $58.1 $81.0
Debt repayment 66.5 1,358.4 8.7
Loan placement fees 5.3 63.6 1.8
Purchase of redeemable Class A common stock -- -- .2
Premiums on debt repayment -- 24.1 --
Prepayment under P&C Foods operating agreement -- 15.0 --
------ -------- -----
$101.1 $1,519.2 $91.7
------ -------- -----
------ -------- -----
Financed by:
Debt incurred $15.6 $1,443.4 $77.7
Operating activities, including cash and temporary cash investments 80.0 31.2 13.4
Property disposals 4.8 1.4 .6
Proceeds relating to the sale of the fixed assets of the Southern Region -- 25.0 --
Refunded insurance deposits 0.7 11.6 --
Capital contribution -- 5.0 --
Proceeds from issuance of warrants -- 1.2 --
Proceeds from the issuance of common stock -- 0.4 --
------ -------- -----
$101.1 $1,519.2 $91.7
------ -------- -----
------ -------- -----
</TABLE>
During Fiscal 1994, the cash requirements listed above were principally
obtained from borrowings and from cash provided by operating activities. The
borrowings included proceeds from the sale of $50 million principal amount of
Series A Notes and $25 million borrowed under the Revolving Credit Facility.
Debt repayment for Fiscal 1994 and Fiscal 1993, other than the debt refinanced
as part of the Recapitalization, consisted of scheduled repayments of capital
leases and various mortgages.
During Fiscal 1993, Holdings completed a Recapitalization, as discussed
below, which included the refinancing of substantially all of its debt and the
purchase of certain common stock and warrants to purchase common stock. As a
result of the Recapitalization, a prepayment of rent under the P&C Foods
Operating Agreement was required and certain cash insurance deposits were
refunded. Cash from operating activities during Fiscal 1993 compared to Fiscal
1992 decreased primarily due to the increase in cash interest expense during
Fiscal 1993 and an increase in net working capital investment for the Company's
ongoing operations.
In connection with the Recapitalization completed on July 22, 1992, Grand
Union entered into a new Bank Credit Agreement providing for a $210 million Term
Loan consisting of the A Term Loan and B Term Loan and a $100 million Revolving
Credit Facility. Additionally, Grand Union issued $350 million of 11 1/4%
Senior Notes and $500 million of 12 1/4% Senior Subordinated Notes. The
Recapitalization also included the sale to institutional investors of $343
million principal amount of Senior Zero Coupon Notes, $745 million principal
amount of Senior Subordinated Zero Coupon Notes and warrants to purchase at a
nominal price shares representing approximately 19.9% of the common stock of
Holdings on a fully diluted basis for aggregate gross proceeds of approximately
$200 million. The Recapitalization also included the sale to institutional
investors of approximately 28.4% of the common stock of Holdings on a fully
diluted basis for approximately $25 million. The proceeds were used to retire
substantially all of the debt of Holdings, GUAC and Grand Union as well as to
repurchase the shares and an option to purchase shares owned by SBHC, certain
warrants held by the parties to the Company's bank credit agreements existing
prior to the Recapitalization, and approximately 3.4% of the common stock of
Holdings held by Grand Union management.
12
<PAGE>
On March 29, 1993, Grand Union sold 48 of its 51 Southern Region stores to
A&P. The three Southern Region stores not sold to A&P were closed and
subsequently subleased. Grand Union received net cash proceeds of approximately
$25 million and was relieved of approximately $4.5 million of capital lease
obligations. The Company recognized a loss of $198 million on the disposal of
the Southern Region.
On January 28, 1993, Grand Union sold $175 million principal amount of 11
3/8% Senior Notes due 2000 (the "11 3/8% Senior Notes") in a private placement.
Net proceeds of the sale of the 11 3/8% Senior Notes were used to repay $142
million of indebtedness under the Term Loan and the remainder was used to repay
indebtedness under the Revolving Credit Facility. An additional $20.9 million
of the Term Loan was repaid from the proceeds of the sale of the Southern Region
on March 29, 1993. All of such repaid indebtedness under the Term Loan and
under the Revolving Credit Facility had been incurred in connection with the
Recapitalization.
At April 2, 1994, there was $25.0 million of borrowings outstanding under
the Company's $100 million revolving credit facility and $32.4 million was
available for additional borrowings or letters of credit. Maturities of long-
term debt during each of the next five fiscal years are approximately $.9
million, $1.0 million, $1.1 million, $45.5 million and $217.9 million,
respectively.
In May 1993, Grand Union experienced a work stoppage by United Food and
Commercial Workers, Local 1262, which ultimately affected 61 Grand Union stores
located in northern New Jersey and in Orange and Rockland Counties, New York.
The Company estimates that its Fiscal 1994 EBITDA was reduced by approximately
$8 million as a result of the work stoppage. On June 28, 1993, the Company and
the banks party to the bank credit agreement entered into an amendment which
provided that certain financial covenants for periods through April 2, 1994 were
calculated excluding the impact of costs, expenses and lost revenue of up to $8
million resulting from the May 1993 work stoppage. After giving effect to this
amendment, the Company was in compliance with the terms and restrictive
covenants of its debt obligations for Fiscal 1994.
On October 18, 1993, Grand Union acquired five supermarket locations on
Long Island from Foodarama for consideration of approximately $16.1 million,
plus the value of the inventory at the stores (approximately $2 million). The
total gross square footage of these five stores is approximately 160,000 square
feet. The acquisition was financed through the application of a portion of the
proceeds of the sale to institutional investors of the Series A Notes on October
18, 1993. Grand Union plans to renovate and enlarge certain of the acquired
store locations.
During Fiscal 1994, the Company opened nine new stores (including the five
acquired stores on Long Island) and five replacement stores, and completed the
remodeling of 23 stores. Capital expenditures for Fiscal 1994, including
capitalized leases other than real estate capitalized leases, were approximately
$86 million (including expenditures related to the acquisition). Capital
expenditures, including capitalized leases other than real estate capitalized
leases, for the year ending April 1, 1995 are expected to be approximately $70
million. Capital expenditures will be principally for new stores, replacement
stores, remodeled stores and expansions. The Company plans to finance capital
expenditures and scheduled debt repayments primarily through cash provided by
operations. The Company will finance a limited amount of capital expenditures
through purchase money mortgages and equipment leases.
GOODWILL
Management periodically reassesses the appropriateness of both the carrying
value and remaining life of goodwill, principally based on forecasts of
operating cash flow less significant anticipated cash requirements such as
capital expenditures and debt repayments. Additionally, the Company considers
other factors such as its anticipated ability to access capital markets in the
future. The recoverability of goodwill is at risk to the extent the Company is
unable to achieve its forecast assumptions regarding sales growth and operating
cash flow, or to the extent that the Company is unable to continue to access
capital markets. Management believes, at this time, that the goodwill carrying
value and useful life continue to be appropriate.
IMPACT OF NEW ACCOUNTING STANDARDS
In November 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("FAS No. 112"). This new statement is effective for
fiscal years beginning after December 15, 1993 and requires an accrual for
certain benefits paid to
13
<PAGE>
former or inactive employees after employment but before retirement. The
Company does not believe that the adoption of FAS No. 112 will have a material
impact on the Company's results of operations or financial position.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS:
Report of Independent Accountants F-1
Consolidated Statement of Operations for the 52 weeks
ended March 28, 1992, the 53 weeks ended April 3, 1993
and the 52 weeks ended April 2, 1994 F-2
Consolidated Balance Sheet at April 3, 1993 and April 2, 1994 F-3
Consolidated Statement of Cash Flows for the 52 weeks
ended March 28, 1992, the 53 weeks ended April 3, 1993
and the 52 weeks ended April 2, 1994 F-4
Notes to Consolidated Financial Statements F-5
FINANCIAL STATEMENT SCHEDULES:
For the three years ended April 2, 1994
Schedule II - Amounts Receivable From Related Parties and
Underwriters, Promoters and Employees Other Than Related Parties F-22
Schedule III - Condensed Financial Information of Registrant F-23
Schedule IV - Indebtedness to Related Parties - Noncurrent F-26
Schedule V - Property, Plant & Equipment F-27
Schedule VI - Accumulated Depreciation, Depletion & Amortization
of Property, Plant & Equipment F-28
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
The financial statements and related notes of Grand Union have not been
separately presented herein since such financial statements reflect the accounts
of Holdings pushed down to the accounts of Grand Union, and consequently are
substantially identical to the financial statements of Capital.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS:
The names, ages and present principal occupations of the directors and
executive officers of Grand Union are as set forth below.
NAME AGE POSITIONS
---- --- ---------
Gary D. Hirsch 44 Director and Chairman
Joseph J. McCaig 49 Director, President and Chief Executive
Officer
William A. Louttit 48 Director, Executive Vice President and
Chief Operating Officer
Robert Terrence Galvin 51 Director, Senior Vice President, Chief
Financial Officer, Secretary
Darrell W. Stine 56 Senior Vice President - New York Region
Martin A. Fox 41 Director, Vice President and Assistant
Secretary
Charles J. Barrett 54 Senior Vice President - Personnel
14
<PAGE>
MR. HIRSCH has been Chairman and a Director of Holdings since July 1989 and
was President and Treasurer of Holdings from July 1989 until May 1993. Mr.
Hirsch became Chairman and a Director of Capital in May 1992, was President of
Capital from May 1992 until May 1993 and Treasurer of Capital from July 1992
until May 1993. Mr. Hirsch became Chairman and a Director of Grand Union in July
1992. Mr. Hirsch has been a general partner of the managing partner of MTH
(broker-dealer) since March 1982 and Managing Director of MTH Holdings since
November 1983. Mr. Hirsch was elected a Director and Chairman of Penn Traffic in
1987.
MR. MCCAIG became Chief Executive Officer of Grand Union in July 1989 and
was appointed President, Chief Operating Officer and a Director of Grand Union
prior to 1983. Mr. McCaig has been employed by Grand Union for 30 years. Mr.
McCaig became a Director of Holdings in July 1989, a Director of Capital in July
1992, and a Director of Penn Traffic in September 1992. Mr. McCaig became
President of Holdings and Capital in May 1993.
MR. LOUTTIT has been Executive Vice President and Chief Operating Officer
of Grand Union since 1989 and has been a Director since 1981. He joined Grand
Union in 1964, serving in a variety of positions before being elected a
Corporate Vice President in 1980. He was named Executive Vice President in
charge of Merchandising in 1984 and was promoted to Chief Operating Officer in
1989.
MR. GALVIN was appointed Senior Vice President, Chief Financial Officer,
Secretary and a Director of Grand Union in 1986.
MR. STINE was elected a Senior Vice President of Grand Union in 1988. He
joined Grand Union in 1954 and was named a Corporate Vice President with
responsibility for the Company's New York Region in 1985.
MR. FOX became a Director, Vice President and Secretary of Capital in May
1992 and Treasurer of Capital in May 1993. Mr. Fox was appointed as Vice
President, Assistant Secretary and a Director of Grand Union and as Vice
President, Secretary and a Director of Holdings in July 1992. Mr. Fox became
Treasurer of Holdings in May 1993. Mr. Fox has been Executive Vice President of
MTH from March 1988 to the present. Mr. Fox became Vice Chairman - Finance and
a Director of Penn Traffic in February 1993 and Assistant Secretary in 1989. Mr.
Fox had been a Vice President of Penn Traffic since 1989.
MR. BARRETT has been Senior Vice President of Personnel of Grand Union
since 1989. He joined Grand Union in 1961, serving in a variety of functions
until being elected a Corporate Vice President in 1984.
Mr. Hirsch is Chairman and a Director, Mr. McCaig is President and a
Director and Mr. Fox is Vice President, Secretary, Treasurer and a Director of
Capital. Mr. Hirsch is Chairman and a Director, Mr. McCaig is President and a
Director, Mr. Fox is Vice President, Secretary, Treasurer and a Director, and
Claude J. Incaudo is a Director of Holdings. Mr. Incaudo (age 60) has been a
Director since 1988 and President and Chief Executive Officer of Penn Traffic
since February 1990. Mr. Incaudo has been the President of P&C Foods, a division
of Penn Traffic or its predecessors, since 1982. Mr. Incaudo joined P&C Foods in
1977 as Director of Store Operations and became Senior Vice President of Store
Operations in 1979.
Executive officers of each of Holdings, Capital and Grand Union are
appointed and serve at the discretion of the Board of Directors. Each director
of Holdings, Capital and Grand Union is elected for a period of one year and
serves until his successor is duly elected and qualified.
ITEM 11. EXECUTIVE COMPENSATION
See "Certain Transactions" for a description of the agreement pursuant to
which MTH provides financial consulting and business management services to
Holdings and to its subsidiaries. Mr. Hirsch is a general partner of the
managing partner of MTH and Mr. Fox is an executive officer of MTH.
The following table sets forth the compensation paid or accrued by Grand
Union to each of the six most highly-compensated executive officers of the
Company for services rendered to the Company in all capacities during the three
fiscal years ended April 2, 1994. Officers of Holdings and Capital are not
compensated for their services
15
<PAGE>
as such. The Company made no grants of stock options or stock appreciation
rights in Fiscal 1994 nor did the Company make any awards in Fiscal 1994 under
any long-term incentive plan.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Other Annual All Other
Fiscal Salary Bonus Compensation Compensation
Year ($) ($) ($) (1) ($) (2)
------ ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Joseph J. McCaig 1994 523,712 120,140 -- 30,109
Chief Executive Officer, 1993 518,077 133,707 -- 27,076
President and Director 1992 493,269 125,642 -- --
William A. Louttit 1994 349,731 65,943 -- 14,038
Executive Vice President, Chief 1993 345,385 85,932 -- 7,479
Operating Officer and Director 1992 328,846 76,736 -- --
Darrell W. Stine 1994 251,134 45,460 -- 14,535
Senior Vice President - 1993 248,336 63,334 -- 12,193
New York Region 1992 236,192 51,218 -- --
Robert J. Saba (3) 1994 226,903 72,511 -- 14,592
Senior Vice President - 1993 248,336 105,813 -- 14,334
Northern Region 1992 236,192 104,497 -- --
Robert Terrence Galvin 1994 245,635 46,676 -- 9,687
Senior Vice President, Chief Financial 1993 242,789 59,578 -- 8,551
Officer, Secretary and Director 1992 231,192 50,175 -- --
Brooke D. Lennon (4) 1994 186,000 35,130 -- 15,982
Senior Vice President - Merchandising 1993 169,177 41,398 -- 13,250
1992 159,158 39,579 -- --
<FN>
(1) No information is provided in the "Other Annual Compensation" column since
the aggregate amount of perquisites and other personal benefits in respect
of each of Fiscal 1994 and Fiscal 1993 is less than the lower of $50,000
and 10% of the total annual salary and bonus reported for each of the named
officers and no other compensation of the type required to be described in
the "Other Annual Compensation" column was paid in Fiscal 1994 or Fiscal
1993. Pursuant to Securities and Exchange Commission rules, disclosure of
"Other Annual Compensation" is required only for amounts earned in Fiscal
1994 and Fiscal 1993.
(2) "All Other Compensation" includes the following: (i) contributions to the
Company's Savings Plan under Section 401(k) made by the Company in Fiscal
1994 and Fiscal 1993, respectively, for each of the named executive
officers as follows: Mr. McCaig $2,964 and $1,928; Mr. Louttit $2,331 and
$0; Mr. Stine $2,313 and $2,136; Mr. Saba $2,278 and $2,157; Mr. Galvin
$2,470 and $2,128; and Mr. Lennon $2,106 and $2,359, and (ii) premium
payments for term life insurance made by the Company in Fiscal 1994 and
Fiscal 1993, respectively, for each of the named executive officers as
follows: Mr. McCaig $27,145 and $25,148; Mr. Louttit $11,707 and $7,479;
Mr. Stine $12,222 and $10,057; Mr. Saba $12,314 and $12,177; Mr. Galvin
$7,217 and $6,423; and Mr. Lennon $13,876 and $10,891. Pursuant to
Securities and Exchange Commission rules, disclosure of "All Other
Compensation" is required only for amounts earned in Fiscal 1994 and Fiscal
1993.
(3) Mr. Saba retired on February 1, 1994.
(4) Mr. Lennon held the position of Senior Vice President - Merchandising until
his death in June 1994.
</TABLE>
THE GRAND UNION COMPANY EMPLOYEES' RETIREMENT PLAN
Grand Union maintains and makes cash contributions to The Grand Union
Company Employees' Retirement Plan (the "Retirement Plan"), a qualified
retirement plan, for retirement benefits for its salaried and hourly non-union
employees, union employees not covered by other pension plans, and all its
officers. Under the Retirement Plan, a participant's benefit, paid in the form
of a single life annuity at age 65, is generally (a) 1.5% of his "highest annual
16
<PAGE>
compensation" multiplied by years of service not in excess of 35 minus (b) 1.5%
of primary social security benefit multiplied by years of service not in excess
of 35. Grand Union intends to amend the Retirement Plan to take into account
recently issued regulations regarding the integration of plan benefits with
social security, to limit the amount of compensation that can be taken into
account under the Retirement Plan to $200,000 per year and to incorporate other
nonsubstantive amendments. Grand Union anticipates that such amendments will not
have a material adverse effect on the financial condition of the Company.
However, the limit on compensation that can be taken into account under the
Retirement Plan could limit future benefit accruals under the Retirement Plan
and, consequently, could increase benefits payable under the Supplemental
Retirement Program for Key Executives discussed below.
The Code places certain limits on pension benefits which may be paid under
plans qualified under the Code. The current limit of such pension benefit is
$118,800 per annum.
SUPPLEMENTAL RETIREMENT PROGRAM FOR KEY EXECUTIVES
Grand Union maintains The Grand Union Company Supplemental Retirement
Program for Key Executives (the "Supplemental Plan"), a non-qualified pension
plan pursuant to which certain key employees of Grand Union and its affiliates
("Participants"), including Messrs. McCaig, Louttit, Stine, Saba and Galvin,
earn a pension in addition to the pension benefit to which they are entitled
under the Retirement Plan. The pension benefit under the Supplemental Plan is
calculated as an annual pension payable monthly (i) if the Participant is not
married on his retirement date, for the Participant's life, or (ii) if the
Participant is married on his retirement date, the same amount as described in
clause (i) for the duration of the Participant's life and thereafter 50% of such
amount for the duration of the life of the Participant's surviving spouse. The
amount of the annual pension payable upon retirement at age 62 or later is
determined as the "target benefit" minus the "plan offsets". The "target
benefit" is an annual pension equal to (i) for a Participant having at least 15
years of credited service under the Plan, 65% of the Participant's final year's
base salary, or (ii) for a Participant having less than 15 years of credited
service under the Plan, the product of 4-1/3% of the Participant's final year's
base salary multiplied by the Participant's number of years of credited service
under the Plan. "Plan offsets" for Participants retiring at age 62 or later are
equal to the sum of the Participant's (i) primary Social Security benefits
payable at the later of age 62 or the Participant's actual retirement age, (ii)
benefits under the Retirement Plan payable at the later of age 62 or the
Participant's actual retirement age in the form of a single life annuity, and
(iii) benefits, if any, payable from the qualified retirement plan(s) of the
Participant's previous employer(s). Participants may also retire early (i) at
or after attaining age 50 but prior to attaining age 55, with the consent of
Grand Union (the consent requirement is waived if the Participant becomes
disabled or is involuntarily terminated other than for cause), or (ii) at or
after age 55, without any requirement for consent by Grand Union. For
Participants who retire early, the "target benefit" is reduced by 5% per year
for each year the Participant is under age 62. Plan benefits are payable in an
actuarially determined single sum no later than 30 days following the
Participant's date of retirement or other termination of employment. In
general, no Plan benefits will be paid to a Participant whose employment with
Grand Union terminates prior to the Participant's attaining age 50.
In August 1993, in consideration of non-competition and confidentiality
agreements entered into by certain executives of Grand Union, including Messrs.
McCaig, Louttit, Stine, Saba and Galvin, Grand Union agreed to transfer to a
custodial account to be held by an independent custodian securities having a
value of approximately $4.45 million, which amount approximates the benefits
payable to the specified executives under the Supplemental Retirement Plan (plus
a reserve of $225,000 for claims and expenses of the custodian). Such
securities are to be transferred to the custodian over a four-year period,
except that in the event of a "change in control" of Grand Union (as defined in
the non-competition and confidentiality agreements), all such securities not
previously transferred to the custodian must be transferred to the custodian.
The securities are distributable to the specified executives only if Grand Union
enters bankruptcy while the executives are still in the employ of Grand Union,
and the value of any securities distributed to each executive reduces the amount
payable to the executive pursuant to the Supplemental Plan. If an executive
terminates his employment with Grand Union for any reason whatsoever prior to
that event, including his retirement or death, the securities held by the
custodian for his benefit are forfeited to Grand Union.
The table below shows, on a combined basis for the Supplemental Plan and
the Retirement Plan, the estimated annual benefit payable upon retirement to
specified compensation and years of service classifications up to the maximum of
15 years of service. The credited years of service under these Plans for Messrs.
McCaig, Louttit, Stine, Saba and Galvin are 20 years, 18 years, 26 years, 29
years and 8 years, respectively. The current compensation
17
<PAGE>
set forth in the Summary Compensation Table does not differ substantially from
covered compensation under these Plans. The retirement benefits shown are based
upon retirement at age 62 and the payment of a single-life annuity to the
employee. The benefits shown do not reflect any offset as a result of primary
Social Security benefits.
<TABLE>
<CAPTION>
Years of Service
Final Average ----------------------------------------
Compensation 5 10 15 or more
------------ ------- ------- -----------
<S> <C> <C> <C>
$100,000 $21,667 $43,333 $65,000
150,000 32,500 65,000 97,500
200,000 43,333 86,667 130,000
250,000 54,167 108,333 162,500
300,000 65,000 130,000 195,000
350,000 75,833 151,667 227,500
400,000 86,667 173,333 260,000
450,000 97,500 195,000 292,500
500,000 108,333 216,667 325,000
550,000 119,167 238,333 357,500
600,000 130,000 260,000 390,000
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of Grand Union, consisting of Messrs. Hirsch,
McCaig, Fox, Louttit and Galvin, has no separate compensation committee, and
compensation decisions are considered by the entire Board of Directors, subject
to final approval by the Board of Directors of Holdings. Mr. McCaig is President
and Chief Executive Officer of Grand Union, President and a director of Capital
and President and a director of Holdings, Mr. Louttit is Executive Vice
President and Chief Operating Officer of Grand Union and Mr. Galvin is Senior
Vice President, Chief Financial Officer and Secretary of Grand Union. Mr. McCaig
does not participate in deliberations of the Grand Union or Holdings Boards of
Directors regarding his own compensation as an executive officer of Grand Union,
and neither Mr. Louttit nor Mr. Galvin participates in deliberations of the
Grand Union Board of Directors regarding his own compensation.
Mr. Hirsch, who is Chairman and a director of Grand Union, Chairman and a
director of Capital and Chairman and a director of Holdings, is Chairman and a
director of Penn Traffic. Mr. Fox, who is a director, Vice President and
Assistant Secretary of Grand Union, a director, Vice President, Secretary and
Treasurer of Capital, and a director, Vice President, Secretary and Treasurer of
Holdings, is Vice Chairman - Finance and a director of Penn Traffic. Messrs.
Hirsch and Fox did not receive salaries from Penn Traffic and do not participate
in cash bonus plans of Penn Traffic, and receive no compensation in their
capacities as executive officers of Grand Union, Capital and Holdings. As
described below, Messrs. Hirsch and Fox receive compensation from MTH. Penn
Traffic has engaged MTH as a financial advisor and investment banker for a term
ending in January 1995. Mr. McCaig is a member of the Board of Directors of
Penn Traffic, for which he receives compensation of $10,000 per annum and
$1,000 per Board meeting attended. Mr. Incaudo, a director of Holdings, is a
director, President and Chief Executive Officer of Penn Traffic.
The directors and officers of Holdings and Capital, and the directors of
Grand Union, are not compensated for their services as such. Directors of
Holdings, Capital and Grand Union receive reimbursement of reasonable expenses
incidental to attendance at meetings of the Board of Directors and all
committees.
Messrs. Hirsch and Fox receive compensation from MTH. Mr. Hirsch is a
general partner of the managing partner of MTH, and Mr. Fox is Executive Vice
President of MTH. As described below, Grand Union has engaged MTH as a
financial advisor for a term ending in July 1997.
MTH has entered into a financial advisory agreement for a term ending in
July 1997 under which MTH provides certain financial consulting and business
management services to Holdings and its subsidiaries. During the period from
July 1989 through July 1992, MTH received an annual fee of $600,000 for its
services performed under this agreement. In connection with the
Recapitalization, the agreement was amended to provide for an annual fee of
18
<PAGE>
$900,000 after a reevaluation of the nature and extent of the services that have
been provided by MTH from the inception of the agreement.
In July 1992, Mr. McCaig became indebted to Holdings in the amount of
$227,676, equal to income taxes incurred by him as a result of receipt of
additional shares of Holdings common stock at the time of the Recapitalization.
Such indebtedness is evidenced by a promissory note with a maturity of seven
years, bearing no interest unless Mr. McCaig should leave the Company's employ,
and is secured by, and with recourse limited to, the shares received.
As compensation for his services in connection with the acquisition of the
Company by Holdings in 1989, Mr. Hirsch received an option to purchase shares of
Holdings common stock. In connection with the Recapitalization, Mr. Hirsch
transferred such option and a note payable to Holdings in the amount of
approximately $3.6 million to a disbursement escrow account established for the
purpose of effecting various transfers of interest in Holdings common stock (the
"Equity Escrow") in exchange for 8,229 shares of Holdings common stock. The note
payable to Holdings has a maturity of 10 years, provides for interest equal to
any cash dividends paid on the 8,229 shares of Holdings common stock and is
secured by, and with recourse limited to, the 8,229 shares of Holdings common
stock and any property (other than cash) distributed on or with respect to such
shares.
LIMITATION OF DIRECTORS' LIABILITIES
Section 102 of the Delaware General Corporation Law allows a corporation to
eliminate the personal liability of directors of a corporation to the
corporation or to any of its stockholders for monetary damages for a breach of
fiduciary duty as a director, except in the case where the director breached his
duty of loyalty, failed to act in good faith, engaged in intentional misconduct
or knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of the Delaware General Corporation Law or
obtained an improper personal benefit. Under Holdings' Certificate of
Incorporation, a director of Holdings shall not be liable to Holdings or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent such exemption from liability or limitation thereof is not
permitted under the General Corporation Law of Delaware.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of the date of this Report, 48,505 shares of Holdings voting Class A
Common Stock, par value $.01 per share, are outstanding. As of the date of this
Report, Warrants to purchase 18,750 shares of Holdings' Class A Common Stock at
an exercise price of $.01 per Warrant and 26,719 shares of non-voting Class B
Common Stock are also outstanding. The information in the table below presents
the beneficial ownership of (i) each person known by Holdings to own
beneficially more than five percent of the outstanding voting common stock of
Holdings, (ii) each director of Holdings and (iii) all directors and officers of
Holdings as a group.
There are 801.5 shares of common stock, $50,000 par value per share, of
Grand Union outstanding, all of which outstanding shares of common stock are
beneficially owned by Capital, and 1,000 shares of common stock, $1.00 par value
per share, of Capital are currently outstanding, all of which are beneficially
owned by Holdings. Holdings has sole voting and investment power with respect to
all shares of common stock of Capital and Capital has sole voting and investment
power with respect to all shares of common stock of Grand Union.
19
<PAGE>
<TABLE>
<CAPTION>
Number of Shares of
Common Stock Beneficially Percentage of Outstanding
Beneficial Owner Owned Shares of Common Stock (1)
- - -------------------------------------- ------------------------- --------------------------
<S> <C> <C>
GAC Holdings, Limited Partnership (2) 28,344 58.4%
331 Madison Avenue
New York, New York 10017
Gary D. Hirsch (2) 36,573 75.4
331 Madison Avenue
New York, New York 10017
Joseph J. McCaig 3,380 7.0
201 Willowbrook Boulevard
Wayne, New Jersey 07470
Martin A. Fox (2) -- --
331 Madison Avenue
New York, New York 10017
Claude J. Incaudo (2) -- --
1200 State Fair Boulevard
Syracuse, New York 13221
Fidelity Devonshire Trust: 8,728 15.2
Fidelity Equity-Income Fund
82 Devonshire Street, F7E
Boston, Massachusetts 02109
Fidelity Magellan Fund 8,728 15.2
82 Devonshire Street, F7E
Boston, Massachusetts 02109
Fidelity Puritan Trust: 8,105 14.3
Fidelity Puritan Fund
82 Devonshire Street, F7E
Boston, Massachusetts 02109
Fidelity Fixed-Income Trust: 3,088 6.0
Spartan High Income Fund
82 Devonshire Street, F7E
Boston, Massachusetts 02109
Nomura Securities International 4,844 9.1
2 World Financial Center, 22nd Floor
Building B
New York, New York 10281
All directors and officers of Holdings
as a group (4 persons) (2) 39,953 82.4
<FN>
(1) For purposes of the computation of percentages of common stock ownership of
Holdings presented in this table, a holder is deemed to beneficially own
all shares which may be acquired by such holder upon exercise of warrants
or conversion of shares of Class B Common Stock held by such holder which
warrants are exercisable or shares of Class B Common Stock are convertible
within 60 days, and such shares which may be acquired by such holder (but
no shares which may be acquired by any other holder upon exercise of
warrants or conversion of such shares of Class B Common Stock held by such
other holder) are deemed to be outstanding. If ownership were determined on
a fully diluted basis after giving effect to exercise of Warrants to
purchase 18,750 shares of Class A Common Stock and including 26,719 shares
of Class B Common Stock, percentages of common stock ownership would be as
follows: GAC Holdings 30.2%; Gary D. Hirsch 38.9%; Joseph J. McCaig 3.6%;
Fidelity Devonshire Trust: Fidelity Equity-Income Fund 9.3%; Fidelity
Magellan Fund 9.3%; Fidelity Puritan Trust: Fidelity Puritan Fund 8.6%;
Fidelity Fixed-Income Trust: Spartan High Income Fund 3.3%; Nomura
Securities International 5.2%; and all directors and officers of Holdings
as a group 42.4%.
</TABLE>
20
<PAGE>
<TABLE>
<C> <S>
(2) GAC Holdings Partners, Inc., a corporation controlled by MTH Holdings, is
the sole general partner of GAC Holdings. MTH and certain other investors,
including Mr. Hirsch, Mr. Fox, Mr. Incaudo and certain individuals
affiliated with MTH, and including Penn Traffic, of which Mr. Incaudo is
President and Chief Executive Officer, are limited partners of Grand
Acquisition Company, Limited Partnership, which is the sole limited partner
of GAC Holdings. Mr. Hirsch is a general partner of the managing partner of
MTH. MTH and Mr. Hirsch may be deemed to share voting and dispositive power
with respect to shares of common stock of Holdings owned by GAC Holdings
and may be deemed the beneficial owners of such shares.
</TABLE>
Various investment funds and other institutional investors for which
Fidelity Management & Research Company or affiliated entities ("FMR Co.") acts
as investment advisor, including Fidelity Devonshire Trust: Fidelity
Equity-Income Fund, Fidelity Magellan Fund, Fidelity Puritan Trust: Fidelity
Puritan Fund and Fidelity Fixed-Income Trust: Spartan High Income Fund, the
common stock holdings of which are set forth on the foregoing table, own shares
representing approximately 26.5% of the shares of common stock of Holdings on a
fully diluted basis, all of which shares are shares of Class B Common Stock (see
"Description of the Holdings Capital Stock-Class B Common Stock"). Various
investment funds and other institutional investors for which FMR Co. acts as
investment advisor, including the entities named in the preceding sentence, the
common stock holdings of which are set forth on the foregoing table, also
acquired Warrants to purchase for a nominal price approximately 10.2% of the
common stock of Holdings on a fully diluted basis in connection with purchases
of Senior Zero Coupon Notes and Senior Subordinated Zero Coupon Notes issued by
Capital as part of the Recapitalization.
THE MANAGEMENT SUBSCRIPTION AGREEMENTS
Pursuant to the terms of subscription agreements which were entered into
shortly before the closing of the acquisition of GUAC by Holdings (collectively,
the "Management Subscription Agreements"), between Holdings and the Management
Investors, the Management Investors purchased shares (the "Management Shares")
of common stock of Holdings representing (prior to the Recapitalization)
approximately 13.4% of the Holdings common stock on a fully diluted basis for
consideration of $1,000 per share in cash or the contribution of 1.45748 shares
of GUAC common stock for one share of Holdings common stock. The Management
Subscription Agreements were amended in connection with the Recapitalization.
Pursuant to the terms of the Management Subscription Agreements, as amended,
each Management Investor has agreed that, for a period of five years from the
date of consummation of the Recapitalization, no Management Investor will sell,
distribute, transfer, assign, pledge, hypothecate or otherwise dispose of or
encumber any of their Management Shares, except under the circumstances and on
the terms and conditions specified in the Management Subscription Agreements.
The Management Subscription Agreements, as amended, provide that the Management
Investors will have demand registration rights with respect to the Management
Shares after the earlier of (x) the sale of 20% or more of the then outstanding
shares of Holdings common stock in a registered public offering, (y) the fifth
anniversary of the date of the consummation of the Recapitalization or (z) the
occurrence of certain other events specified therein. The Management
Subscription Agreements, as amended, also provide that if a Management Investor
ceases to be employed by the Company under certain circumstances or, upon the
seventh anniversary of the date of the consummation of the Recapitalization, the
Management Investor will have the right to require Holdings to repurchase all of
such Management Investor's Management Shares at a price equal to the fair market
value of such Management Shares. Holdings would not be obligated to purchase any
Management Shares, however, if such a purchase would result in an event of
default under its preferred stock or under any of its indebtedness. In
connection with the Recapitalization, certain Management Investors received,
through the Equity Escrow, approximately 2,530 shares of Holdings common stock.
After giving effect to the receipt of such shares and to certain purchases and
sales of shares of Holdings common stock by members of management of Grand Union
in connection with the Recapitalization and in connection with the sale of the
Southern Region, the Management Investors own shares representing approximately
12.7% of the shares of Holdings common stock on a fully diluted basis.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Those members of the management of Grand Union who received additional
shares of Holdings common stock at the time of the Recapitalization (as
described under "The Management Subscription Agreements" above), became indebted
to Holdings in amounts (aggregating approximately $500,000 for all management
investors) equal to income taxes incurred by them as a result of receipt of such
shares. Such indebtedness is evidenced by individual promissory notes with a
maturity of seven years, bearing no interest unless the obligor should leave the
21
<PAGE>
Company's employ, and are secured by, and with recourse limited to, the shares
received. Among the management investors from whom Holdings holds such notes is
Mr. McCaig, who is indebted to Holdings in the amount of $227,676.
As compensation for his services in connection with the acquisition of GUAC
by Holdings, Mr. Hirsch received an option to purchase shares of Holdings common
stock. In connection with the Recapitalization, Mr. Hirsch transferred such
option and a note payable to Holdings in the amount of approximately $3.6
million to the Equity Escrow in exchange for 8,229 shares of Holdings common
stock. The note payable to Holdings has a maturity of 10 years, provides for
interest equal to any cash dividends paid on the 8,229 shares of Holdings common
stock and is secured by, and with recourse limited to, the 8,229 shares of
Holdings common stock and any property (other than cash) distributed on or with
respect to such shares.
MTH has entered into a financial advisory agreement for a term ending in
July 1997 under which MTH provides certain financial consulting and business
management services to Holdings and its subsidiaries. During the period from
July 1989 through July 1992, MTH received an annual fee of $600,000 for its
services performed under this agreement. In connection with the
Recapitalization, the agreement was amended to provide for an annual fee of
$900,000 after a reevaluation of the nature and extent of the services that have
been provided by MTH from the inception of the agreement.
At the time of the acquisition of GUAC by Holdings in July 1989, Grand
Union and P&C Foods, which is controlled by MTH, operated stores in some of the
same geographic areas in Vermont and upstate New York. In connection with the
acquisition, agreements were entered into with federal and state antitrust
authorities which required the divestiture of 16 Grand Union stores or P&C Foods
stores. The divestitures required by these agreements were completed on July 30,
1990. Thirteen of the sixteen stores divested were P&C Foods stores.
In a related transaction, on July 30, 1990, P&C Foods and Grand Union
entered into an operating agreement (the "Operating Agreement") pursuant to
which Grand Union acquired the right to operate P&C Foods' thirteen remaining
stores in New England under the Grand Union name until July 2000, with an option
to extend the term of such operation for an additional five years. P&C Foods
also granted Grand Union an option to purchase such stores. In connection with
these transactions, Grand Union agreed to pay P&C Foods a minimum annual fee
which will average $10.7 million per year during the ten-year lease term plus,
beginning with the year commencing July 31, 1992, additional contingent fees of
up to $700,000 per year based upon sales performance of the stores operated by
Grand Union. In addition, Grand Union paid P&C Foods $7.5 million for the option
to purchase the stores. Pursuant to the terms of the Operating Agreement, a $15
million prepayment of the annual fee was made to P&C Foods in connection with
the Recapitalization.
Pursuant to the terms of the Operating Agreement, in April 1992, Grand
Union purchased P&C Foods' White River Junction, Vermont warehouse for cash
consideration of approximately $5 million.
In September 1993, Grand Union entered into a program to consolidate the
purchasing and distribution of health and beauty care products and general
merchandise with Penn Traffic. Under this program, Grand Union procures health
and beauty care products for both Grand Union and Penn Traffic, and Penn Traffic
procures general merchandise for both Penn Traffic and Grand Union. Grand
Union's general merchandise warehouse in Montgomery, New York is used to store
and distribute general merchandise and health and beauty care products to Grand
Union stores and to certain of Penn Traffic's stores and wholesale customers.
Under the arrangement, Penn Traffic owns the inventory of general merchandise
and health and beauty care products located at the Montgomery warehouse and
shares the cost of operating the warehouse in an amount proportionate to Penn
Traffic's usage of the facility. Grand Union expects that this program will
improve the variety of general merchandise products offered to the consumer in
the Company's stores and will reduce product procurement costs for general
merchandise and health and beauty care products.
22
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT:
See Item 8.
REPORTS ON FORM 8-K
No reports on Form 8-K have been filed by the Registrant during the last
quarter of the period covered by this Report.
23
<PAGE>
EXHIBITS (REGULATION S-K ITEM 601)
Exhibit
Number Description of Document
- - ------- -----------------------
2.1 Stock Purchase Agreement dated as of April 8, 1989 among GU
Acquisition Corporation ("GUAC"), GND Holdings Corporation (which has
changed its name to Grand Union Holdings Corporation) ("Holdings")
and the stockholders of GUAC named therein, incorporated by reference
to Exhibit No. 2.1 to The Grand Union Company's Registration
Statement on Form S-1 (Registration No. 33-29707) (the "1989 Grand
Union Registration Statement").
3.1 Certificate of Incorporation of Grand Union, as amended ("Capital"),
incorporated by reference to Exhibit No. 3.1 to the Registration
Statement on Form S-1 of Grand Union, Grand Union Capital Corporation
("Capital") and Holdings (Registration No. 33-48282) (the "1992 Grand
Union Registration Statement").
3.2 By-laws of Grand Union, incorporated by reference to Exhibit No. 3.4
to the 1992 Grand Union Registration Statement.
3.2A Amendment to By-laws of Grand Union, incorporated by reference to
Exhibit No. 3.4A to the 1992 Grand Union Registration Statement.
4.1 Indenture dated as of October 18, 1993, among Grand Union, as Issuer,
Capital, as Guarantor and United States Trust Company of New York
("U.S. Trust"), as Trustee for the 12 1/4% Senior Subordinated Notes
Due 2002, Series A, including form of the 12 1/4% Senior Subordinated
Note Due 2002, incorporated by reference to Exhibit No. 4.1 to Grand
Union's Registration Statement on Form S-1 (Registration No. 33-
70956) ( the "October 1993 Grand Union Registration Statement").
4.2 Indenture dated as of January 28, 1993, among Grand Union, as Issuer,
Capital and Holdings, as Guarantors and First Trust of California,
National Association, as Trustee for the 11 3/8% Senior Notes Due
1999, including form of the 11 3/8% Senior Note Due 1999,
incorporated by reference to Exhibit No. 4.11 to The Grand Union
Company's Report on 10-Q dated February 2, 1993 (the "Grand Union
10-Q").
4.3 Indenture dated as of July 22, 1992, among Grand Union, Capital,
Holdings and First Trust National Association, as Trustee ("First
Trust") for the Grand Union 11 1/4% Senior Notes Due 2000, including
form of 11 1/4% Senior Note Due 2000, incorporated by reference to
Exhibit No. 4.1 to the Registration Statement on Form S-1 of Capital
and Holdings (Registration No. 33-50496) (the "Capital Registration
Statement").
4.4 Indenture dated as of July 22, 1992, among Grand Union, Capital,
Holdings and U.S. Trust, as Trustee for the Grand Union 12 1/4%
Senior Subordinated Notes Due 2002, including form of 12 1/4% Senior
Subordinated Note Due 2002, incorporated by reference to Exhibit No.
4.2 to the Capital Registration Statement.
4.5 Borrower Pledge Agreement dated as of July 22, 1992 made by Grand
Union to Bankers Trust Company ("Bankers Trust"), as Collateral
Agent, incorporated by reference to Exhibit No. 10.9 to the Capital
Registration Statement.
4.5A First Amendment dated as of January 28, 1993 to the Pledge Agreement
filed as Exhibit No. 4.5, incorporated by reference to Exhibit No.
4.13A to the Grand Union 10-Q.
4.6 Borrower Security Agreement dated as of July 22, 1992, between Grand
Union and Bankers Trust, as Collateral Agent, incorporated by
reference to Exhibit No. 10.12 to the Capital Registration Statement.
4.6A First Amendment dated as of January 28, 1993 to the Borrower Security
Agreement filed as Exhibit No. 4.6, incorporated by reference to
Exhibit No. 4.14A to the Grand Union 10-Q.
24
<PAGE>
Exhibit
Number Description of Document
- - ------- -----------------------
4.7 Indenture dated as of March 2, 1988 for GUAC 13% Senior Subordinated
Notes Due 1998, including form of the GUAC 13% Senior Subordinated
Note Due 1998, by and between GUAC and Manufacturers Hanover Trust
Company, as Trustee, incorporated by reference to Exhibit No. 4.1 to
GUAC's Registration Statement on Form S-1 (Registration No. 33-22398)
(the "GUAC Registration Statement").
4.7A Supplemental Indenture dated as of August 10, 1989 to the Indenture
filed as Exhibit No. 4.7, incorporated by reference to Exhibit No.
4.1A to the GUAC Registration Statement.
4.7B Supplemental Indenture dated as of December 19, 1990 to the Indenture
filed as Exhibit No. 4.7, incorporated by reference to Exhibit No.
4.1B to the GUAC Registration Statement.
4.7C Supplemental Indenture dated as of July 22, 1992 to the Indenture
filed as Exhibit No. 4.7, incorporated by reference to Exhibit
No. 4.7C to the Capital Registration Statement.
4.8 Registration Rights Agreement dated as of March 2, 1988 by and among
GUAC and the purchasers of the GUAC 13% Senior Subordinated Notes Due
1998 listed on the signature page thereof, incorporated by reference
to Exhibit No. 4.2 to the GUAC Registration Statement.
4.9 Note Purchase Agreement dated as of October 18, 1993, among Grand
Union, Capital and BT Securities Corporation incorporated by
reference to Exhibit No. 4.1 to the October 1993 Grand Union
Registration Statement.
4.10 Form of Note Purchase Agreement dated as of January 28, 1993, among
Grand Union, Capital, Holdings and the Purchasers named therein,
incorporated by reference to Exhibit No. 4.12 to the Grand Union
10-Q.
10.1 Form of Management Subscription Agreement entered into by and between
Holdings and each of certain members of management of Grand Union,
all dated as of July 14, 1989, providing, in the aggregate, for the
purchase of 12,358 shares of common stock of Holdings, incorporated
by reference to Exhibit No. 10.3 to 1989 Grand Union Registration
Statement.
10.1A Form of Amendment to Management Subscription Agreement entered into
by and between Holdings and each of certain members of management of
Grand Union, all dated as of July 22, 1992, incorporated by reference
to Exhibit No. 10.1A to the Capital Registration Statement.
10.2 Agreement to Hold Separate dated July 17, 1989 by and among MTH
Holdings Inc. ("MTH Holdings"), GUAC, Salomon Inc and the Federal
Trade Commission (the "FTC") entered into in the matter of MTH
Holdings and GUAC before the FTC, incorporated by reference to
Exhibit No. 10.5 to the 1989 Grand Union Registration Statement.
10.3 Agreement containing Consent Order among MTH Holdings, GUAC and the
FTC entered into in the matter of MTH Holdings and GUAC before the
FTC, incorporated by reference to Exhibit No. 10.6 to the 1989 Grand
Union Registration Statement.
25
<PAGE>
Exhibit
Number Description of Document
- - ------- -----------------------
10.4 Assurance dated July 6, 1989 pursuant to 9 Vermont Statutes Annotated
Section 2459 by and among MTH Holdings, P&C Food Markets, Inc. ("P&C
Foods"), GUAC and the Attorney General of the State of Vermont,
incorporated by reference to Exhibit No. 10.7 to the 1989 Grand Union
Registration Statement.
10.5 Asset Purchase Agreement, dated as of January 25, 1990, by and
between Grand Union and Price Chopper Operating Co. of Vermont, Inc.,
incorporated by reference to Exhibit No. 10.15 to Holdings
Registration Statement on Form S-1 (Registration No. 33-32879) (the
"Holdings Registration Statement").
10.6 Asset Purchase Agreement, dated as of February 9, 1990, by and
between Grand Union and Price Chopper Operating Co., Inc.,
incorporated by reference to Exhibit No. 10.49 to the GUAC
Registration Statement.
10.7 Agreement and Master Sublease dated as of July 30, 1990, by and
between Grand Union and P&C Foods, incorporated by reference to
Exhibit No. 10.18 to Holdings' Report on Form 10-Q dated July 21,
1990 (Commission File No. 33-29707).
10.8 Credit Agreement dated as of July 14, 1992, among Grand Union,
Capital, Holdings, the lending institutions party thereto, Bankers
Trust, as Agent, and Midlantic National Bank, as Co-Agent,
incorporated by reference to Exhibit No. 10.8 to the Capital
Registration Statement.
10.8A First Amendment dated as of January 15, 1993 to the Credit Agreement
filed as Exhibit No. 10.8, incorporated by reference to
Exhibit No. 10.32A to the Grand Union 10-Q.
10.8B Second Amendment dated as of January 16, 1993 to the Credit Agreement
filed as Exhibit No. 10.8, incorporated by reference to
Exhibit No. 10.32B to the Grand Union 10-Q.
10.8C Third Amendment dated as of April 1, 1993 to the Credit Agreement
filed as Exhibit No. 10.8, incorporated by reference to Exhibit
No. 10.8C to the Registration Statement on Form S-1 of Grand Union
and Capital (Registration No. 33-58438) (the "1993 Grand Union
Registration Statement").
10.8D Fourth Amendment dated as of June 28, 1993 to the Credit Agreement
filed as Exhibit No. 10.8, incorporated by reference to Holdings
Report on Form 10-K for the fiscal year ended April 3, 1993.
10.8E Fifth Amendment dated as of July 13, 1993 to the Credit Agreement
filed as Exhibit No. 10.8, incorporated by reference to Exhibit
No. 10.8E to the 1993 Grand Union Registration Statement.
10.8F Sixth Amendment dated as of September 8, 1993 to the Credit Agreement
filed as Exhibit 10.8 incorporated by reference to Exhibit No. 10.8F
to the October 1993 Grand Union Registration Statement.
10.9 Borrower Pledge Agreement dated as of July 22, 1992, made by Grand
Union to Bankers Trust, as Collateral Agent (included in Exhibit No.
4.5), incorporated by reference to Exhibit No. 10.9 to the Capital
Registration Statement.
10.9A First Amendment dated as of January 28, 1993 to the Borrower Pledge
Agreement filed as Exhibit No. 10.09, incorporated by reference to
Exhibit No. 4.13A to the Grand Union 10-Q.
10.10 Pledge Agreement, dated as of July 22, 1992, made by Holdings to
Bankers Trust, as Collateral Agent, incorporated by reference to
Exhibit No. 10.10 to the Capital Registration Statement.
10.10A First Amendment dated as of January 28, 1993 to the Pledge Agreement
filed as Exhibit No. 10.10, incorporated by reference to Exhibit
No. 10.35A to the Grand Union 10-Q.
10.11 Pledge Agreement, dated as of July 22, 1992, made by Capital to
Bankers Trust, as Collateral Agent, incorporated by reference to
Exhibit No. 10.11 to the Capital Registration Statement.
10.11A First Amendment dated as of January 28, 1993 to the Pledge Agreement
filed as Exhibit No. 10.11, incorporated by reference to Exhibit
No. 10.36A to the Grand Union 10-Q.
10.12 Borrower Security Agreement dated as of July 22, 1992, between Grand
Union and Bankers Trust, as Collateral Agent, incorporated by
reference to Exhibit No. 10.12 to the Capital Registration Statement.
10.12A First Amendment dated as of January 28, 1993 to the Borrower Security
Agreement filed as Exhibit No. 10.12, incorporated by reference to
Exhibit No. 4.14A to the Grand Union 10-Q.
10.13 Escrow Agreement dated as of July 22, 1992, between Holdings and
Bankers Trust, as Escrow Agent, incorporated by reference to Exhibit
No. 10.13 to the Capital Registration Statement.
26
<PAGE>
Exhibit
Number Description of Document
- - ------- -----------------------
10.14 Stock Purchase Agreement dated as of July 22, 1992, by and between
Holdings and the purchasers of Class B Common Stock of Holdings named
therein, incorporated by reference to Exhibit No. 10.14 to the
Capital Registration Statement.
10.15 Agreement dated as of July 22, 1992, by and among GAC Holdings
Limited Partnership ("GAC Holdings"), Holdings and Gary D. Hirsch,
incorporated by reference to Exhibit No. 10.15 to the Capital
Registration Statement.
10.16 Financial Advisory Agreement dated July 22, 1992, by and between
Grand Union and Miller Tabak Hirsch + Co., incorporated by reference
to Exhibit No. 10.16 to the Capital Registration Statement.
10.17 Equity Escrow Agreement dated as of July 22, 1992, by and among GAC
Holdings, Holdings, Salomon Brothers Holding Company Inc, and
Gary D. Hirsch and U.S. Trust, as Escrow Agent, incorporated by
reference to Exhibit No. 10.17 to the Capital Registration
Statement.
10.18 Asset Purchase Agreement dated as of February 4, 1993, between The
Great Atlantic & Pacific Tea Company, Inc. and Grand Union,
incorporated by reference to Exhibit No. 2.1 to The Grand Union
Company's Report on Form 8-K dated February 4, 1993.
10.19 Asset Purchase Agreement dated as of September 20, 1993 among
Foodarama Supermarkets, Inc., ShopRite of Malverne, Inc. and Grand
Union.
*10.20 Second Amendment and Restatement of The Grand Union Company
Supplemental Retirement Program for Key Executives adopted as of
April 1, 1993, incorporated by reference to Exhibit No. 10.20 to
Holdings' Report on Form 10-K dated July 1, 1994.
*10.21 Form of Non-Competition and Confidentiality Agreement entered into by
Grand Union and certain executives (including Messrs. McCaig,
Louttit, Saba, Stine, Galvin and Lennon) dated as of August 25, 1993,
incorporated by reference to Exhibit No. 10.21 to Holdings' Report on
Form 10-K dated July 1, 1994.
10.22 Custodian Agreement dated as of August 25, 1993 between Grand Union
and United States Trust Company of New York, incorporated by
reference to Exhibit No. 10.22 to Holdings' Report on Form 10-K dated
July 1, 1994.
21.1 Subsidiaries of Grand Union, incorporated by reference to Exhibit
No. 22.1 to the 1993 Grand Union Registration Statement.
- - -------------------
* Compensatory plan or arrangement.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE GRAND UNION COMPANY
(Registrant)
/s/ Martin A. Fox
--------------------------------------
Martin A. Fox
Vice President and Assistant Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Gary D. Hirsch Director and Chairman July 1, 1994
- - --------------------------
Gary D. Hirsch
/s/ Martin A. Fox Director, Vice President and July 1, 1994
- - -------------------------- Assistant Secretary
Martin A. Fox
/s/ Joseph J. McCaig Director, President and Chief July 1, 1994
- - -------------------------- Executive Officer (Principal
Joseph J. McCaig Executive Officer)
/s/ William A. Louttit Director, Executive Vice July 1, 1994
- - -------------------------- President and Chief
William A. Louttit Operating Officer
/s/ Robert Terrence Galvin Director, Senior Vice July 1, 1994
- - -------------------------- President, Chief Financial
Robert Terrence Galvin Officer and Secretary
(Principal Financial Officer)
/s/ Kenneth R. Baum Vice President and Controller July 1, 1994
- - -------------------------- (Principal Accounting Officer)
Kenneth R. Baum
28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Grand Union Holdings Corporation
In our opinion, the consolidated financial statements listed in the index
appearing under Item 8 on page 14 present fairly, in all material respects, the
financial position of Grand Union Holdings Corporation and its subsidiaries at
April 3, 1993 and April 2, 1994, and the results of their operations and their
cash flows for the 52 weeks ended March 28, 1992, the 53 weeks ended April 3,
1993 and the 52 weeks ended April 2, 1994, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As described in Note 1 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions", effective April 4,
1993 and Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes", effective March 29, 1992.
PRICE WATERHOUSE
New York, New York
June 1, 1994
F - 1
<PAGE>
GRAND UNION HOLDINGS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
52 Weeks 53 Weeks 52 Weeks
Ended Ended Ended
March 28, April 3, April 2,
1992 1993 1994
----------- ----------- -----------
(in thousands except share data)
<S> <C> <C> <C>
Sales $2,968,466 $2,833,987 $2,477,339
Cost of sales (2,150,338) (2,032,481) (1,766,303)
---------- ---------- ----------
Gross profit 818,128 801,506 711,036
Operating and administrative expenses (619,927) (606,178) (531,839)
Depreciation and amortization (78,721) (80,551) (78,577)
Charge relating to early retirement program -- -- (4,468)
Loss on disposal of the Southern Region -- (198,000) --
Recapitalization expense -- (3,516) --
Interest expense:
Debt:
Obligations requiring current cash interest (76,357) (107,644) (128,661)
Obligations requiring no current cash interest (65,325) (44,271) (35,354)
Capital lease obligations (12,301) (13,191) (14,951)
Amortization of deferred financing fees (18,018) (9,378) (4,831)
---------- ---------- ----------
Loss before income taxes, extraordinary charges and
cumulative effect of accounting change (52,521) (261,223) (87,645)
Income tax provision (12,532) (4,535) --
---------- ---------- ----------
Loss before extraordinary charges and cumulative effect
of accounting change (65,053) (265,758) (87,645)
Extraordinary charges relating to early extinguishment of debt -- (47,663) --
Cumulative effect of accounting change -- -- (30,308)
---------- ---------- ----------
Net loss (65,053) (313,421) (117,953)
Accrued preferred stock dividends (12,856) (14,623) (16,011)
---------- ---------- ----------
Net loss applicable to common stock $(77,909) $(328,044) $(133,964)
---------- ---------- ----------
---------- ---------- ----------
Weighted average number of common shares outstanding 75,000 75,249 75,258
---------- ---------- ----------
---------- ---------- ----------
Per Share Data:
Loss applicable to common stock before extraordinary
charges and cumulative effect of accounting change
(after accrued preferred stock dividends) $(1,038.79) $(3,726.05) $(1,377.34)
---------- ---------- ----------
---------- ---------- ----------
Extraordinary charges -- $(633.40) --
---------- ---------- ----------
---------- ---------- ----------
Cumulative effect of accounting change -- -- $(402.72)
---------- ---------- ----------
---------- ---------- ----------
Net loss applicable to common stock $(1,038.79) $(4,359.45) $(1,780.06)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F - 2
<PAGE>
GRAND UNION HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
April 3, 1993 April 2, 1994
------------- -------------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments $69,651 $44,294
Receivables 24,567 37,072
Inventories 235,222 206,063
Other current assets 16,141 17,444
---------- ----------
Total current assets 345,581 304,873
Property 360,179 400,554
Goodwill 567,500 563,276
Beneficial leases 39,039 33,074
Deferred financing fees 51,777 48,721
Other assets 54,089 43,726
---------- ----------
$1,418,165 $1,394,224
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt $466 $914
Current portion of obligations under capital leases 6,144 7,099
Accounts payable and accrued liabilities 283,032 238,225
---------- ----------
Total current liabilities 289,642 246,238
---------- ----------
Long-term debt 1,291,097 1,404,089
---------- ----------
Obligations under capital leases 104,791 120,140
---------- ----------
Other noncurrent liabilities 103,191 113,810
---------- ----------
Commitments and contingencies
Redeemable stock:
Class A common stock, $.01 par value 9,547 9,407
Preferred stock (liquidation preference $145,312,000 in aggregate) 130,240 145,312
---------- ----------
Total redeemable stock 139,787 154,719
---------- ----------
Nonredeemable common stock and stockholders' deficit:
Class A common stock, $.01 par value; authorized 473,281 shares; issued
and outstanding 48,669 and 48,505 shares (net of treasury shares) less
12,096 and 11,932 shares, respectively, shown as redeemable common stock 1 1
Class B common stock, $.01 par value; 26,719 authorized, issued and
outstanding -- --
Treasury stock; 164 shares of Class A common stock at cost -- (156)
Accumulated deficit (510,344) (644,617)
---------- ----------
Total nonredeemable common stock and stockholders' deficit (510,343) (644,772)
---------- ----------
$1,418,165 $1,394,224
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F - 3
<PAGE>
GRAND UNION HOLDINGS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
52 Weeks 53 Weeks 52 Weeks
Ended Ended Ended
March 28, April 3, April 2,
1992 1993 1994
----------- ----------- ----------
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(65,053) $(313,421) $(117,953)
Adjustments to reconcile net loss to net cash provided by
(used for) operating activities:
Extraordinary charges on early extinguishment of debt -- 47,663 --
Cumulative effect of accounting change -- -- 30,308
Write-off of goodwill and beneficial leases and loss on fixed
assets related to the disposal of the Southern Region -- 137,017 --
Depreciation and amortization 78,721 80,551 78,577
Charge relating to early retirement program -- -- 4,468
Noncash interest 65,325 44,271 35,354
Amortization of deferred financing fees 18,018 9,378 4,831
Receivables (4,333) (878) (12,505)
Inventories (13,833) (14,467) 29,159
Other current assets 768 (3,485) (1,303)
Accounts payable and accrued liabilities 13,606 27,160 (44,807)
Other (5,930) 13,393 (18,039)
----------- ----------- ----------
Net cash provided by (used for) operating activities 87,289 27,182 (11,910)
----------- ----------- ----------
INVESTMENT ACTIVITIES:
Capital expenditures (29,293) (58,089) (81,029)
Disposals of property 4,787 1,394 584
Proceeds relating to the sale of the fixed assets of the
Southern Region -- 25,000 --
Refunded insurance deposits 650 11,636 --
Prepayment under P&C Food Markets, Inc. operating agreement -- (15,000) --
----------- ----------- ----------
Net cash used for investment activities (23,856) (35,059) (80,445)
----------- ----------- ----------
FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt 15,660 1,443,421 77,661
Obligations under capital leases discharged (7,629) (9,644) (8,218)
Loan placement fees (5,310) (63,643) (1,775)
Retirement of long-term debt (58,852) (1,348,762) (514)
Purchase of redeemable Class A common stock -- -- (156)
Capital contribution -- 5,004 --
Proceeds from issuance of warrants -- 1,187 --
Proceeds from issuance of common stock -- 369 --
Premiums on debt retirement -- (24,086) --
----------- ----------- ----------
Net cash provided by (used for) financing activities (56,131) 3,846 66,998
----------- ----------- ----------
Increase (decrease) in cash and temporary cash investments 7,302 (4,031) (25,357)
Cash and temporary cash investments at beginning of year 66,380 73,682 69,651
----------- ----------- ----------
Cash and temporary cash investments at end of year $73,682 $69,651 $44,294
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F - 4
<PAGE>
GRAND UNION HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Grand Union Holdings Corporation ("Holdings" or the "Company"), a Delaware
corporation, and Grand Union Capital Corporation ("Capital"), a Delaware
corporation which is a wholly owned subsidiary of Holdings, are companies whose
principal asset is the capital stock of The Grand Union Company ("Grand Union"),
a Delaware corporation and a wholly owned subsidiary of Capital. Grand Union
operates retail food stores in seven northeastern states.
FISCAL YEAR.
The Company's fiscal year ends on the Saturday nearest the last day of
March.
PRINCIPLES OF CONSOLIDATION.
The consolidated financial statements include the accounts of Holdings and
its subsidiaries, all of which are wholly owned. Intercompany transactions
and balances have been eliminated.
TEMPORARY CASH INVESTMENTS.
For purposes of the Statement of Cash Flows, temporary cash investments
consist of short-term investments in highly liquid securities and cash
equivalents, with initial maturities of three months or less, including
certificates of deposit, banker's acceptances, commercial paper, repurchase
agreements and investments in direct obligations of the Government of the
United States of America.
INVENTORY VALUATION.
Grocery and general merchandise inventories are valued at the lower of
last-in, first-out ("LIFO") cost or market in order to more accurately match
costs and related revenues. At April 3, 1993 and April 2, 1994,
approximately $200,377,000 and $173,661,000, respectively, of grocery and
general merchandise inventories were valued using the LIFO method.
Replacement cost exceeded LIFO cost of these inventories by approximately
$5,799,000, $7,178,000 and $8,106,000 at March 28, 1992, April 3, 1993 and
April 2, 1994, respectively. During the current year, inventory levels were
reduced resulting in a liquidation of LIFO inventories carried at a value
lower than current cost. Net loss was decreased by approximately $1,160,000
as a result of this liquidation. Perishable inventories are valued at the
lower of average cost or market, which adequately provides for the matching
of costs and related revenues due to the rapid turnover of such inventories.
PROPERTY.
Buildings, fixtures and equipment and leasehold improvements are recorded at
cost and include interest on the funds borrowed to finance construction.
Depreciation and amortization of buildings, fixtures and equipment and
leasehold improvements is computed using the straight line method over
estimated useful lives ranging from three to forty years. Properties held
under capital leases are capitalized net of gains on sale leaseback
transactions and are amortized using the straight line method over the life
of each lease.
PRE-OPENING COSTS.
Store pre-opening costs are charged to expense as incurred.
GOODWILL.
Goodwill is amortized using the straight line method over a 40 year life.
Management periodically reassesses the appropriateness of both the carrying
value and remaining life of goodwill, principally based on forecasts of
operating cash flow less significant anticipated cash requirements such as
capital expenditures and debt repayments. Additionally, the Company
considers other factors such as its anticipated ability to access capital
markets in the future. At April 3, 1993 and April 2, 1994, accumulated
amortization was $57,723,000 and $73,779,000, respectively.
F - 5
<PAGE>
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BENEFICIAL LEASES.
Amortization of beneficial leases is computed using the straight line method
over the average lease life, which approximates ten years. At April 3, 1993
and April 2, 1994, accumulated amortization was $21,702,000 and $27,570,000,
respectively.
DEFERRED FINANCING FEES.
Financing fees are deferred and amortized over the expected life of the
related loan. At April 3, 1993 and April 2, 1994, accumulated amortization
was $3,780,000 and $8,610,000, respectively.
INCOME TAXES.
In the fiscal year ended April 3, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
No. 109"), retroactive to March 29, 1992. FAS No. 109 is an asset and
liability approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have
been recognized in the Company's financial statements or tax returns. In
estimating future tax consequences, FAS No. 109 generally considers all
expected future events other than enactments of changes in the tax law or
tax rates. The retroactive adoption of FAS No. 109 had no effect on the
Company's financial statements.
PENSION PLANS.
The Company maintains a noncontributory, trusteed pension plan covering
eligible employees and a supplemental nonqualified, nontrusteed plan for
certain executives. The Company's policy is to fund pension amounts which
satisfy the requirements of the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
POSTRETIREMENT BENEFITS.
Effective April 4, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions" ("FAS No. 106"), which requires the Company to
accrue the estimated cost of retiree benefit payments during the years each
employee provides services. The Company has elected to recognize the
cumulative effect of this obligation, an increase in accrued postretirement
benefit costs and in net loss of $30,308,000 ($402.03 per share), at April
4, 1993.
SELF INSURANCE.
Grand Union self insures workers' compensation, automobile liability,
general liability and non-union employee medical costs up to varying
deductible limits. Grand Union carries third party insurance in excess of
such limits. Reserves are provided for the estimated whole dollar settlement
value up to the deductible limits of all claims occurring during each policy
year.
STORE CLOSURE EXPENSE.
Estimated whole dollar net costs of holding and disposing of closed stores
are provided as of the date the store is closed.
FAIR VALUE OF FINANCIAL INSTRUMENTS.
The carrying amount of cash and temporary cash investments, receivables and
accounts payable and accrued liabilities approximates fair value. The fair
value of long-term debt and redeemable stock is based on quoted market
prices provided by an investment banking firm. The fair value of interest
rate swap agreements is the amount at which such agreements could be
settled, based on estimates from counterparties.
NET LOSS PER SHARE OF COMMON STOCK.
Net loss per share of common stock is based upon the weighted average number
of shares of common stock outstanding. Fully diluted net loss per share has
not been presented since the amounts are antidilutive.
F - 6
<PAGE>
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been made in the prior years' financial
statements to conform to classifications used in the current year.
NOTE 2 - ACQUISITION OF LONG ISLAND STORES
On October 18, 1993, Grand Union acquired five supermarket locations on Long
Island. The cost of the acquisition included cash consideration of
approximately $16,100,000 (of which approximately $6,000,000 was allocated to
property, equipment and leasehold improvements and approximately $10,100,000 was
allocated to goodwill) and approximately $2,200,000 for store inventory. The
goodwill is being amortized over 40 years. The acquisition was financed through
the application of a portion of the proceeds of the sale to institutional
investors of $50,000,000 principal amount of 12 1/4% Senior Subordinated Notes
Due 2002, Series A (the "Series A Senior Subordinated Notes") on October 18,
1993.
NOTE 3 - LOSS ON DISPOSAL OF THE SOUTHERN REGION
On March 29, 1993, Grand Union sold 48 of its 51 Southern Region stores to a
single buyer and closed and subleased the remaining three stores. The
transaction yielded total gross proceeds of approximately $43,000,000, excluding
the assumption of capital leases of approximately $4,500,000, of which
$25,000,000 related to fixed assets and $17,500,000 related to inventory.
The Company recognized a loss of $198,000,000 on the disposal of the
Southern Region. The loss is comprised of the following (in thousands):
<TABLE>
<S> <C>
Write-off of goodwill and beneficial leases $106,389
Difference between proceeds received and the book value of tangible assets 37,244
Reserve for remaining Southern Region real estate 26,948
Employee termination expenses 9,846
Operating loss of the Southern Region subsequent to the date the decision was made to
sell the region 6,971
Other 10,602
--------
$198,000
--------
--------
</TABLE>
The following unaudited pro forma summary represents the consolidated
results of the operations of the Company as though the disposal of the Southern
Region had taken place as of the beginning of the period presented (in
thousands except per share amount).
<TABLE>
<CAPTION>
53 Weeks
Ended
April 3, 1993
-------------
<S> <C>
Sales $2,562,796
Gross profit 730,146
Loss before income taxes and extraordinary charges (60,205)
Net loss applicable to common stock (127,026)
Net loss per share applicable to common stock (1,688.08)
</TABLE>
F - 7
<PAGE>
NOTE 4 - RECAPITALIZATION AND EXTRAORDINARY CHARGES
On July 22, 1992, Holdings, Capital, a newly formed corporation, and Grand
Union completed a recapitalization (the "Recapitalization"). In connection with
the Recapitalization, Holdings, through Capital and Grand Union, entered into a
new bank credit agreement (as amended from time to time, the "Bank Credit
Agreement") providing for a $210,000,000 term loan facility (the "Term Loan")
and a $100,000,000 revolving credit facility (the "Revolving Credit Facility"),
issued $350,000,000 principal amount of Grand Union 11.25% Senior Notes due 2000
(the "11.25% Senior Notes") and $500,000,000 principal amount of Grand Union
12.25% Senior Subordinated Notes due 2002 (the "12.25% Senior Subordinated
Notes"), and sold $343,000,000 principal amount of Capital 15.00% Senior Zero
Coupon Notes due 2004 (the "Senior Zero Coupon Notes") and $745,000,000
principal amount of Capital 16.50% Senior Subordinated Zero Coupon Notes due
2007 (the "Senior Subordinated Zero Coupon Notes"), together with warrants to
purchase at a nominal price approximately 19.9% of the common stock of Holdings
on a fully diluted basis, for aggregate gross proceeds of approximately
$200,000,000. The Recapitalization also included the sale to institutional
investors of approximately 28.4% of the common stock of Holdings on a fully
diluted basis for approximately $25,000,000. The proceeds were used to retire
substantially all of the debt of Holdings, GU Acquisition Corporation ("GUAC"),
a wholly owned subsidiary of Holdings, and Grand Union as well as to repurchase
the shares and option to purchase shares owned by Salomon Brothers Holding
Company Inc, certain warrants held by the parties to the term loan and revolving
credit facility existing prior to the Recapitalization and approximately 3.4%
of the common stock of Holdings held by Grand Union management.
At the time of the Recapitalization, GUAC and its wholly-owned subsidiary
Cavenham Holdings Inc., the former parent of Grand Union, were merged into Grand
Union and Grand Union became a wholly-owned subsidiary of Capital.
On January 28, 1993, Grand Union sold $175,000,000 principal amount of
11.375% Senior Notes due 2000 (the "11.375% Senior Notes") in a private
placement. Net proceeds of the sale of the 11.375% Senior Notes were used to
repay $142,000,000 of indebtedness under the Term Loan and the remainder was
used to repay indebtedness under the Revolving Credit Facility. An additional
$20,856,000 of the Term Loan was repaid from the proceeds of the sale of the
Southern Region on March 29, 1993. All of such repaid indebtedness under the
Term Loan and under the Revolving Credit Facility had been incurred in
connection with the Recapitalization.
During the 53 weeks ended April 3, 1993, the Company recorded $3,516,000
relating to expenses incurred in connection with the Recapitalization and
extraordinary charges of $47,663,000 relating to early retirement of debt. The
Company had an operating loss in the year ended April 3, 1993 and was in a net
operating loss carryforward position and, accordingly, no tax benefit was
recorded in connection with the extraordinary charges. The extraordinary
charges are comprised of the following (column in thousands):
<TABLE>
<S> <C>
Premiums paid in connection with the Recapitalization $24,086
Deferred financing fees written off in connection with the Recapitalization 16,407
Deferred financing fees written off in connection with the refinancing and prepayment of
$142,000,000 of the term loan 6,252
Deferred financing fees written off in connection with the prepayment of $20,856,000 of
the term loan resulting from the disposal of the Southern Region 918
-------
$47,663
-------
-------
</TABLE>
F - 8
<PAGE>
NOTE 5 - PROPERTY
Property, at cost, consists of the following:
<TABLE>
<CAPTION>
April 3, April 2,
1993 1994
-------- --------
(in thousands)
<S> <C> <C>
Property owned:
Land $18,875 $19,315
Buildings 51,165 53,686
Fixtures and equipment 207,508 248,230
Leasehold improvements 118,360 133,777
-------- --------
395,908 455,008
Less: accumulated depreciation and amortization 125,534 158,277
-------- --------
Property owned, net 270,374 296,731
-------- --------
Property held under capital leases:
Land and buildings 88,418 103,228
Equipment 12,831 16,905
-------- --------
101,249 120,133
Less: accumulated amortization 11,444 16,310
-------- --------
Property held under capital leases, net 89,805 103,823
-------- --------
Property $360,179 $400,554
-------- --------
-------- --------
</TABLE>
Depreciation and amortization of owned and leased property for the 52 weeks
ended March 28, 1992, the 53 weeks ended April 3, 1993 and the 52 weeks ended
April 2, 1994 was $49,853,000, $53,335,000 and $52,760,000, respectively.
NOTE 6 - RECEIVABLES AND ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Receivables at April 3, 1993 and April 2, 1994 are net of allowance for
doubtful accounts of $605,000 and $809,000, respectively.
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
April 3, April 2,
1993 1994
-------- --------
(in thousands)
<S> <C> <C>
Accounts and drafts payable $163,152 $136,707
Accrued liabilities:
Payroll 23,992 25,073
Interest 25,709 27,258
Self insurance 19,696 15,480
Southern Region disposal 16,284 4,334
Taxes other than income taxes 9,555 9,036
Store closure reserves 4,762 4,003
Other 19,882 16,334
-------- --------
$283,032 $238,225
-------- --------
-------- --------
</TABLE>
F - 9
<PAGE>
NOTE 7 - INCOME TAXES
The components of the income tax provision are as follows:
<TABLE>
<CAPTION>
52 Weeks 53 Weeks 52 Weeks
Ended Ended Ended
March 28, April 3, April 2,
1992 1993 1994
--------- -------- --------
(in thousands)
<S> <C> <C> <C>
Currently payable
State $10,973 $4,535 $ --
Federal -- -- --
-------- -------- --------
10,973 4,535 --
-------- -------- --------
Deferred, resulting from:
Store closure provision 1,455 (9,243) 5,816
Accrued insurance (183) (717) 2,267
Deferred financing (1,802) (320) 554
Deferred compensation (60) 1,258 (114)
Beneficial lease amortization (3,093) (2,488) (2,054)
Effect of change in rate on temporary differences -- -- (3,099)
Excess of book over tax depreciation (2,692) (14,240) (4,171)
Postretirement benefits other than pension -- -- (11,407)
Interest expense -- (7,341) (12,132)
Net operating loss (13,811) (27,884) (13,121)
Write-off of deferred tax debits 16,592 -- --
Other 5,153 (2,908) (451)
Deferred tax asset valuation allowance -- 63,883 37,912
-------- -------- --------
1,559 -- --
-------- -------- --------
Total income tax provision $12,532 $4,535 $ --
-------- -------- --------
-------- -------- --------
</TABLE>
The reconciliation of the income tax provision computed at the federal
statutory rate to the reported income tax provision is as follows:
<TABLE>
<CAPTION>
52 Weeks 53 Weeks 52 Weeks
Ended Ended Ended
March 28, April 3, April 2,
1992 1993 1994
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Benefit computed at federal statutory tax rate $(17,857) $(105,021) $(41,284)
(Increase) decrease in the benefit resulting from:
Write-off of goodwill and beneficial leases from the disposal of the
Southern Region -- 36,172 --
Effect of change in rate on temporary differences -- -- (3,099)
Amortization of goodwill 6,231 6,011 5,486
State and local taxes, net of federal tax benefit 7,242 2,738 --
Deferred tax asset valuation allowance -- 63,883 37,912
Limitation on recognition of deferred tax debits 16,592 -- --
Alternative minimum tax 503 -- --
Other (179) 752 985
-------- --------- --------
Total income tax provision $12,532 $4,535 $ --
-------- --------- --------
-------- --------- --------
</TABLE>
F - 10
<PAGE>
NOTE 7 - INCOME TAXES (CONTINUED)
As of April 2, 1994, the Company had a net operating loss carryforward of
approximately $290,268,000 for tax purposes expiring in the years 2002 through
2009. The Recapitalization resulted in an "ownership change" of the Company
within the meaning of Section 382 of the Internal Revenue Code of 1986, as
amended, as a consequence of which utilization of the existing net operating
loss carryforward in post-change periods will be limited.
NOTE 8 - DEBT
Debt of the respective companies consists of the following:
<TABLE>
<CAPTION>
April 3, 1993 April 2, 1994
------------- -------------
(in thousands)
<S> <C> <C>
GRAND UNION:
Bank Credit Agreement
Term Loan $39,144 $39,144
Revolving Credit Facility -- 25,000
11.25% Senior Notes 350,000 350,000
11.375% Senior Notes 175,000 175,000
Equipment mortgage notes 1,813 3,960
12.25% Senior Subordinated Notes 500,000 500,000
12.25% Senior Subordinated Notes, Series A -- 50,000
13% Senior Subordinated Notes 16,150 16,150
CAPITAL:
15% Senior Zero Coupon Notes 129,366 150,482
16.50% Senior Subordinated Zero Coupon Notes 74,569 88,116
HOLDINGS:
12% Junior Subordinated Notes 5,521 7,151
---------- ----------
1,291,563 1,405,003
Less: current maturities of long-term debt 466 914
---------- ----------
Long-term debt $1,291,097 $1,404,089
---------- ----------
---------- ----------
</TABLE>
The Term Loan and Revolving Credit Facility provide for interest at either a
floating rate of 2% and 1.5%, respectively, per annum above the prime rate, as
defined, or 3.5% and 3%, respectively, per annum above the LIBOR rate, as
defined, at the option of Grand Union. As of April 2, 1994, borrowings under
the Term Loan and the Revolving Credit Facility were at weighted interest rates
of 7.32% and 7.75%, respectively. The Term Loan requires quarterly payments of
approximately $9,786,000 from September 30, 1997 through June 30, 1998. In
addition, the Bank Credit Agreement provides for mandatory prepayments of the
Term Loan Facility or commitment reductions under the Revolving Credit Facility
based on certain asset sales outside the ordinary course of business of Grand
Union and its subsidiaries, the proceeds of certain debt and equity issuances
and a percentage of Excess Cash Flow (as defined).
The Revolving Credit Facility provides for borrowings or issued letters of
credit aggregating $100,000,000 through February 28, 1998. At April 2, 1994,
there were $25,000,000 of borrowings outstanding and $42,646,000 of letters of
credit issued under the Revolving Credit Facility. Grand Union is charged
commitment fees of 1/2 of 1% per annum on the average unused portion of the
Revolving Credit Facility.
The Bank Credit Agreement contains certain financial and other restrictive
covenants with respect to Grand Union relating to, among other things, minimum
financial performance and limitations on the incurrence of additional
indebtedness, asset sales, capital expenditures, prepayment of other
indebtedness and payment of dividends. In addition, in each fiscal year, there
is a clean-down period whereby for a 30 consecutive day period selected by Grand
Union, which commences on or after April 15 of each calendar year and terminates
on or before June 29 of such calendar year, there can be no outstanding
revolving loans in excess of $35,000,000.
F - 11
<PAGE>
NOTE 8 - DEBT (CONTINUED)
The 11.25% Senior Notes, due July 15, 2000, and the 12.25% Senior
Subordinated Notes and Series A Senior Subordinated Notes, both due July 15,
2002, require semi-annual interest payments each January 15 and July 15.
The 11.375% Senior Notes are due February 15, 1999 and require semi-annual
interest payments each February 15 and August 15.
The 13% Senior Subordinated Notes (the "13% Notes") are due March 1998 and
require semi-annual interest payments each March 31 and September 30.
Indebtedness under the Bank Credit Agreement, the 11.25% Senior Notes and
the 11.375% Senior Notes is guaranteed by Capital and by Holdings on a pari
passu basis and is secured by a pledge of substantially all of the assets of
Grand Union (other than leasehold interests and assets secured by permitted
liens). Capital's guarantee of the Bank Credit Agreement, the 11.25% Senior
Notes and the 11.375% Senior Notes is secured by a pledge of the common stock of
Grand Union and Holdings' guarantee of the Bank Credit Agreement, the 11.25%
Senior Notes and the 11.375% Senior Notes is secured by a pledge of the common
stock of Capital. Indebtedness under the Series A Senior Subordinated Notes is
guaranteed by Capital on a pari passu basis with Capital's guarantee of the
12.25% Senior Subordinated Notes. Capital's guarantee of the Series A Senior
Subordinated Notes is not secured.
Capital has outstanding $343,000,000 principal amount at maturity of Senior
Zero Coupon Notes due July 15, 2004. The original issue discount of
$226,855,000 is being amortized recognizing a yield to maturity of 15.71% per
annum. The carrying value represents the principal at maturity less the
unamortized discount. On July 15, 1999, cash interest will begin accruing and
is payable semi-annually on January 15 and July 15 at a rate of 15.00% on the
unpaid principal amount. The Senior Zero Coupon Notes were issued with
detachable warrants to purchase common stock of Holdings.
Capital has outstanding $745,000,000 principal amount at maturity of Senior
Subordinated Zero Coupon Notes, due January 15, 2007. The original issue
discount of $678,802,000 is being amortized recognizing a yield to maturity of
17.41% per annum. The carrying value represents the principal at maturity less
the unamortized discount. The Senior Subordinated Zero Coupon Notes were issued
with detachable warrants to purchase common stock of Holdings.
Interest on the 12% Junior Subordinated Notes (the "Junior Notes") is
compounded semi-annually each March 1 and September 1. Based upon current
restrictions, such interest is not payable until either maturity (March 1999) or
redemption of the Junior Notes.
At April 2, 1994, the fair value of long-term debt, including the current
maturities, of Grand Union, Capital and Holdings was approximately
$1,405,000,000.
In connection with the Bank Credit Agreement, Grand Union entered into an
interest rate protection agreement on $75,000,000 of its borrowings. The effect
of the interest rate protection agreement is to limit LIBOR to 6.5% and 7.0% on
$40,000,000 and $35,000,000 of borrowings, respectively, through April 1995.
Grand Union is exposed to credit loss in the event of nonperformance by the
other party to the interest rate protection agreement. Grand Union does not
anticipate nonperformance by the counterparty.
In addition Grand Union entered into an interest rate swap agreement which
converts $150,000,000 of fixed rate debt into variable rate debt. Under the
terms of this agreement Grand Union receives a fixed rate of 4.53% on
$150,000,000 and pays a floating rate based on three month LIBOR, as determined
in three month intervals. The floating rate at April 2, 1994 was 3.5%. The net
amount received or paid is included in interest expense. Grand Union is exposed
to credit loss in the event of nonperformance by the other party to the swap
agreement. Grand Union does not anticipate nonperformance by the counterparty.
F - 12
<PAGE>
NOTE 8 - DEBT (CONTINUED)
At April 2, 1994, the estimated fair value of the interest rate swap
agreement was a liability of approximately $1,821,000; this liability has not
been recorded on the books of the Company.
At April 2, 1994, the estimated fair value of the interest rate protection
agreement was an asset of approximately $42,000; this asset has not been
recorded on the books of the Company.
Maturities of long-term debt during each of the next five fiscal years are
approximately $914,000, $1,000,000, $1,100,000, $45,518,000 and $217,873,000,
respectively.
The Company was in compliance with the terms and restrictive covenants of
its debt obligations as of April 2, 1994 and for the 52 weeks then ended.
NOTE 9 - PROPERTY LEASES
The Company operates principally in leased stores, distribution facilities
and offices, and in most cases holds renewal options with varying terms. Many
of the leases contain clauses which provide for increased rentals based upon
increases in real estate taxes and lessors' operating expenses.
The following is a schedule by year of future minimum payments under capital
leases together with the present value of net minimum lease payments as of
April 2, 1994 (in thousands):
<TABLE>
<S> <C>
Years ended March:
1995 $22,734
1996 21,301
1997 19,845
1998 18,984
1999 18,190
Later years 191,058
--------
Total minimum lease payments 292,112
Less: estimated executory costs included in total minimum lease payments 847
--------
Net minimum lease payments 291,265
Less: portion representing interest 164,026
--------
Present value of net minimum lease payments 127,239
Less: current portion of capital lease obligations 7,099
--------
Capital lease obligations $120,140
--------
--------
</TABLE>
The minimum lease payments shown above do not include future minimum
sublease rental income of $991,000 under non-cancelable subleases or payments
for contingent rentals under certain store leases on the basis of sales in
excess of stipulated amounts.
Contingent rentals incurred on capital leases for the 52 weeks ended March
28, 1992, for the 53 weeks ended April 3, 1993 and for the 52 weeks ended April
2, 1994 were $423,000, $358,000 and $313,000, respectively.
F - 13
<PAGE>
NOTE 9 - PROPERTY LEASES (CONTINUED)
The following is a schedule by year of future minimum rental payments, less
minimum sublease rental income, under operating leases that have initial lease
terms in excess of one year as of April 2, 1994 (in thousands):
<TABLE>
<S> <C>
Years ended March:
1995 $28,331
1996 28,075
1997 26,626
1998 25,303
1999 23,637
Later years 136,547
--------
Total minimum payments 268,519
Less: sublease rental income 5,879
--------
Net minimum rentals $262,640
--------
--------
</TABLE>
Total rental expense for all operating leases is as follows:
<TABLE>
52 Weeks 53 Weeks 52 Weeks
Ended Ended Ended
March 28, April 3, April 2,
1992 1993 1994
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Minimum rentals $37,003 $34,764 $26,512
Contingent rentals 4,029 3,963 3,658
-------- -------- --------
$41,032 $38,727 $30,170
-------- -------- --------
-------- -------- --------
</TABLE>
As of April 2, 1994, the Company is contingently liable to third parties
arising from assignment of various leases, which resulted primarily from the
disposals of unprofitable operations during the mid 1980s. The average
remaining term of these leases is approximately three years, with varying rental
terms. The Company is exposed to credit loss in the event of nonperformance by
various assignees. The Company has not experienced and does not anticipate any
material nonperformance by these assignees.
F - 14
<PAGE>
NOTE 10 - REDEEMABLE STOCK AND NONREDEEMABLE COMMON STOCK AND STOCKHOLDERS'
DEFICIT
Changes in Redeemable Common Stock and Nonredeemable Common Stock and
Stockholders' Deficit were as follows:
<TABLE>
<CAPTION>
Nonredeemable Common Stock and
Stockholders' Deficit
------------------------------
Redeemable Additional
Common Common Paid-in-
Stock Stock Capital (Deficit)
---------- ------ ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Balance at March 30, 1991 $12,358 $1 $ -- $(112,644)
Net loss -- -- -- (65,053)
Pension adjustment -- -- -- (259)
Accrued preferred stock dividends -- -- -- (12,856)
-------- ------- ------- ---------
Balance at March 28, 1992 12,358 1 -- (190,812)
Net loss -- -- -- (313,421)
Capital contribution -- -- 5,004 --
Proceeds from the sale of warrants -- -- 1,187 --
Reclassification of redeemable common stock sold by
management to third parties (3,180) -- 3,180 --
Accrued preferred stock dividends -- -- (9,371) (5,252)
Notes receivable from management investors -- -- -- (501)
Pension adjustment -- -- -- (358)
Proceeds from sale of common stock to management
investors 369 -- -- --
-------- ------- ------- ---------
Balance at April 3, 1993 9,547 1 -- (510,344)
Net loss -- -- -- (117,953)
Accrued preferred stock dividends -- -- -- (16,011)
Pension adjustment -- -- -- (456)
Reclassification of redeemable common stock purchased
from management investors (140) -- -- 140
Payments of notes receivable from former management
investors -- -- -- 7
-------- ------- ------- ---------
Balance at April 2, 1994 $9,407 $1 $ - $(644,617)
-------- ------- ------- ---------
-------- ------- ------- ---------
</TABLE>
The redeemable common stock represents shares held by management investors,
which are redeemable under certain limited circumstances at the option of the
holder.
Prior to the Recapitalization, 75,000 shares of common stock of Holdings
were issued and outstanding and 17,500 shares of common stock of Holdings were
reserved for issuance pursuant to exercise of outstanding options and warrants.
The Recapitalization included the sale of shares of common stock and of
options and warrants to purchase common stock held by Salomon Brothers Holding
Company Inc, by the banks party to Grand Union's bank credit agreements which
were terminated in connection with the Recapitalization and by certain members
of management, as well as the purchase of shares of common stock and of warrants
to purchase shares of common stock by various investment funds and institutional
investors. Purchases and sales of Holdings common stock interests, including
options and warrants, in connection with the Recapitalization (the "Stock
Transactions") were made through a disbursement escrow account established for
the purpose of effecting various transfers of interests in Holdings common stock
(the "Equity Escrow"). Holdings issued 1,250 new warrants for proceeds of
approximately $1,187,000 in connection with the Recapitalization. The Stock
Transactions did not involve any payments by Grand Union or Holdings. Holdings
received a capital contribution from the Equity Escrow of approximately
$5,004,000
F - 15
<PAGE>
NOTE 10 - REDEEMABLE STOCK AND NONREDEEMABLE COMMON STOCK AND STOCKHOLDERS'
DEFICIT (CONTINUED)
as a result of the net transfer of interests. As part of the Stock
Transactions, the Company's Chairman transferred to the Equity Escrow an option,
granted in connection with the acquisition of Grand Union by Holdings in July
1989, and a note payable to Holdings in the amount of approximately $3,563,000
in exchange for 8,229 shares of Holdings common stock. The note payable to
Holdings has a maturity of 10 years, provides for interest equal to any cash
dividends paid on the 8,229 shares of Holdings common stock and is secured by,
and with recourse limited to, the 8,229 shares of Holdings common stock and any
property (other than cash) distributed on or with respect to such shares. The
note has been recorded as an offset to the attributed value of the common shares
issued.
At the time of the Recapitalization, Holdings issued 388 shares of common
stock to certain members of Grand Union management, for which Holdings received
cash proceeds of approximately $369,000. After giving effect to the Stock
Transactions and the sale of such 388 shares to management investors, there were
75,388 shares of common stock of Holdings outstanding (including 26,719 shares
of non-voting, Class B common stock) and 18,750 shares of common stock of
Holdings are reserved for issuance pursuant to exercise of outstanding warrants
which may be exercised, at a nominal price, at any time prior to July 23, 2007.
During the 52 weeks ended April 2, 1994, Holdings purchased 164 shares of
common stock from former management investors for approximately $156,000 (of
which $140,000 was carried as Redeemable Common Stock) and in related
transactions was repaid $7,000 to fully satisfy notes receivable from these
management investors.
Changes in Redeemable Preferred Stock were as follows:
<TABLE>
<CAPTION>
Redeemable Preferred Stock
--------------------------------------------------------
Series A Series B Series C
Preferred Preferred Preferred
Stock Stock Stock Total
---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Balance at March 30, 1991 $42,968 $7,903 $53,770 $104,641
Accrued preferred stock dividends 5,294 936 6,626 12,856
Preferred stock dividends -- (941) -- (941)
---------- ---------- ---------- ----------
Balance at March 28, 1992 48,262 7,898 60,396 116,556
Accrued preferred stock dividends 6,071 955 7,597 14,623
Preferred stock dividends - (939) -- (939)
---------- ---------- ---------- ----------
Balance at April 3, 1993 54,333 7,914 67,993 130,240
Accrued preferred stock dividends 6,697 936 8,378 16,011
Preferred stock dividends -- (939) -- (939)
---------- ---------- ---------- ----------
Balance at April 2, 1994 $61,030 $7,911 $76,371 $145,312
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The Company has outstanding at April 2, 1994 three classes of preferred
stock. The Series A cumulative exchangeable redeemable preferred stock ("Series
A preferred stock") has a $.01 par value; 500,000 shares authorized; and 351,745
shares issued and outstanding. The Series B cumulative redeemable convertible
preferred stock ("Series B preferred stock") has a $.01 par value; 500,000
shares authorized; and 78,256 shares issued and outstanding. The Series C
cumulative redeemable convertible preferred stock ("Series C preferred stock")
has a $.01 par value; 500,000 shares authorized; and 440,771 shares issued and
outstanding.
The Series A, Series B and Series C preferred stock each carry dividend
rates of 12% per annum. At the discretion of the Company cash dividends are
payable on the Series A, Series B and Series C preferred stock semi-annually
each March 1 and September 1; however, no cash dividends may be declared or paid
on the Series A, Series B or Series C preferred stock while the Bank Credit
Agreement is outstanding or if such declaration or payment would violate the
terms of indebtedness incurred to refinance the 13% Notes or the Bank Credit
Agreement. So long as cash dividends are prohibited, dividends on the Series B
preferred stock are payable in Junior Notes annually each March 1. Series B
preferred stock, and accrued and unpaid dividends thereon, may
F - 16
<PAGE>
NOTE 10 - REDEEMABLE STOCK AND NONREDEEMABLE COMMON STOCK AND STOCKHOLDERS'
DEFICIT (CONTINUED)
be converted at any time, at the holder's option, into shares of Series C
preferred stock. Series C preferred stock, and accrued and unpaid dividends
thereon, may be converted at any time, at the holder's option, into shares of
Series B preferred stock; or the Series C preferred shares may be converted at
any time, at the holder's option, into the same number of shares of Series B
preferred stock and the accrued and unpaid dividends on such stock into a
principal amount of Junior Notes. Holdings preferred stock has no voting rights
except as required by law and except that holders of each series have a class
vote as to any matter which would change the preferences, rights or powers of
such series and the vote of all series of preferred stock, voting together, is
required to issue any prior ranking preferred stock.
The dividend rate on the Series A, Series B and Series C preferred stock
increases from 12% to 20% as of July 14, 1996. The Company expects to redeem
the Series A, Series B and Series C preferred stock on or before the date of the
dividend step-up. Accordingly, accrued undeclared dividends have been recorded
at a rate of 12% as a reduction in additional paid-in-capital or as an increase
in stockholders' deficit, and as an increase in the respective preferred stock
carrying values.
Series A preferred stock may be exchanged into Junior Notes at the sole
option of the Company, in whole, or in part. Series A, Series B and Series C
preferred stock may be redeemed at any time at the option of the Company, in
whole, or in part. The redemption of Series A, Series B and Series C preferred
stock must be in pro rata amounts. Series A, Series B and Series C preferred
stock is redeemable at the holders' option under certain limited circumstances
relating to change of control and, accordingly, outstanding amounts of these
classes of preferred stock are shown as Redeemable stock in the accompanying
Consolidated Balance Sheet. The redemption price of Series A, Series B and
Series C preferred stock is one hundred dollars per share plus accrued and
unpaid dividends as of the date of redemption. The liquidation preference of
Series A, Series B and Series C preferred stock is one hundred dollars per share
plus accrued and unpaid dividends.
Upon the liquidation or dissolution of the Company the priority of amounts
payable to holders of preferred stock is as follows: (i) the amount of accrued
and unpaid dividends on the Series B preferred stock, and any outstanding
principal and accrued interest on Junior Notes; (ii) the amount of accrued and
unpaid dividends on the Series A and Series C preferred stock; (iii) one hundred
dollars per share for outstanding Series A and Series C preferred stock; and
(iv) one hundred dollars per share for outstanding Series B preferred stock.
At April 2, 1994, the fair value of Holdings' redeemable preferred stock was
approximately $98,378,000. The redeemable common stock of Holdings is neither
traded nor a quoted security and an estimate of fair value has not been
presented since it cannot be determined without incurring excessive costs.
F - 17
<PAGE>
NOTE 11 - PENSION PLANS
The Company's net periodic pension expense for the 52 weeks ended March 28,
1992, for the 53 weeks ended April 3, 1993 and for the 52 weeks ended April 2,
1994 was $1,661,000, $3,867,000 and $6,744,000, respectively, and included the
following components:
<TABLE>
<CAPTION>
52 Weeks 53 Weeks 52 Weeks
Ended Ended Ended
March 28, April 3, April 2,
1992 1993 1994
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Service cost - benefits earned during the period $5,627 $5,629 $5,212
Interest costs on projected benefit obligations 13,161 13,726 13,742
Return on plan assets (19,165) (21,504) (9,068)
Net amortization and deferral 2,038 4,337 (7,610)
Charge relating to early retirement program -- -- 4,468
Curtailment loss -- 1,679 --
-------- -------- --------
Net periodic pension expense $1,661 $3,867 $6,744
-------- -------- --------
-------- -------- --------
</TABLE>
As a result of the disposal of the Southern Region and an early retirement
program offered to certain employees, a net curtailment loss of approximately
$1,679,000 was incurred for the 53 weeks ended April 3, 1993. During the 52
weeks ended April 2, 1994, the Company incurred a charge of $4,468,000 relating
to an early retirement program offered to certain employees.
The actuarial present value of benefit obligations and the funded status of
the Company's qualified pension plan as of April 3, 1993 and April 2, 1994 are
as follows:
<TABLE>
<CAPTION>
April 3, April 2,
1993 1994
-------- --------
(in thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $156,921 $160,910
Nonvested benefits 4,160 4,503
--------- ---------
Total benefits $161,081 $165,413
--------- ---------
--------- ---------
Projected benefit obligations $(181,021) $(177,518)
Plan assets, primarily stocks and bonds, at fair value 196,259 181,337
--------- ---------
Funded status 15,238 3,819
Unrecognized net loss 13,579 18,299
Unrecognized prior service cost 1,032 1,736
--------- ---------
Pension asset $29,849 $23,854
--------- ---------
--------- ---------
</TABLE>
F - 18
<PAGE>
NOTE 11 - PENSION PLANS (CONTINUED)
The actuarial present value of benefit obligations of the Company's
unqualified and unfunded pension plan as of April 3, 1993 and April 2, 1994 is
as follows:
<TABLE>
<CAPTION>
April 3, April 2,
1993 1994
-------- --------
(in thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $5,654 $5,739
Nonvested benefits 180 624
------- -------
Total benefits $5,834 $6,363
------- -------
------- -------
Projected benefit obligations $(6,432) $(7,110)
Unrecognized net loss 1,595 2,033
Unrecognized prior service cost -- (32)
Adjustment required to recognize minimum liability (997) (1,254)
------- -------
Pension obligation $(5,834) $(6,363)
------- -------
------- -------
</TABLE>
The pension asset and pension obligation are included in Other assets and
Other liabilities, respectively, in the accompanying Consolidated Balance Sheet.
Significant actuarial assumptions used in all Company sponsored plans were
as follows:
<TABLE>
<CAPTION>
52 Weeks 53 Weeks 52 Weeks
Ended Ended Ended
March 28, April 3, April 2,
1992 1993 1994
----------- ----------- -----------
<S> <C> <C> <C>
Discount rates 8.0% - 8.8% 8.0% - 8.8% 7.0% - 8.0%
Rates of increase in future compensation 4.7% - 5.3% 4.9% - 5.3% 3.9% - 4.3%
Long-term rate of return on plan assets 9.8% 9.5% 9.5%
</TABLE>
NOTE 12 - POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company provides certain health care and life insurance benefits for
substantially all of its full-time non-union employees and union employee
groups. The Company's union employee groups are participants in multi-employer
plans which require monthly contributions and which are not subject to the
provisions of Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" ("FAS No. 106"). In
the fiscal years ended March 28, 1992 and April 3, 1993, the Company recognized
$2,110,000 and $2,329,000, respectively, as an expense for postretirement health
care and life insurance benefits for its non-union employees, as claims were
paid (pay-as-you-go basis). The Company's postretirement plans currently are
not funded. Additionally, at April 3, 1993, in connection with the disposition
of the Southern Region, Grand Union provided approximately $2,920,000 relating
to anticipated postretirement health care and life insurance benefits of
Southern Region employees.
Effective April 4, 1993, the Company adopted FAS No. 106, which requires the
Company to accrue the estimated cost of retiree benefit payments during the
years each employee provides services. The Company recognized the cumulative
effect of this obligation, an increase in accrued postretirement benefit costs
of $30,308,000 and a decrease in net earnings of $30,308,000 ($402.03 per
share), at April 4, 1993.
F - 19
<PAGE>
NOTE 12 - POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS (CONTINUED)
The unfunded accumulated postretirement benefit obligation consists of the
following at April 4, 1993, including amounts provided at April 3, 1993 in
connection with the disposition of the Southern Region, and April 2, 1994:
<TABLE>
<CAPTION>
April 4,
1993
(date of April 2,
adoption) 1994
--------- --------
(in thousands)
<S> <C> <C>
Retirees $18,129 $17,050
Fully eligible active plan participants 5,807 2,411
Other active plan participants 9,292 15,645
Unrecognized net loss -- (1,412)
--------- --------
$33,228 $33,694
--------- --------
--------- --------
</TABLE>
Net postretirement benefit cost for the 52 weeks ended April 2, 1994
consisted of the following components (in thousands):
<TABLE>
<S> <C>
Service cost - benefits earned during the period $728
Interest cost on accumulated postretirement benefit obligation 2,571
-------
$3,299
-------
-------
</TABLE>
The assumed health care trend cost rate used in measuring the accumulated
postretirement obligation as of April 4, 1993 was 15% for associates pre-age 65
and ranges from 12% to 15% for associates post-age 65 for 1993 decreasing each
successive year by 1% until the respective trend rates reach 6.5% after which
the trend rate remains constant. As of April 2, 1994, the rate used in
measuring the accumulated postretirement obligation was 14% for associates pre-
age 65 and 11% for associates post-age 65, decreasing each successive year by 1%
until the respective trend rates reach 5% after which the trend rate remains
constant. An increase of 1% in the assumed health care cost trend rate for each
year would increase the accumulated postretirement benefit obligation and the
net postretirement health care cost by approximately $800,000 and $100,000,
respectively.
Prior to January 1, 1994, Grand Union provided medical benefits which were,
in part, dependent upon the health care cost rate. Effective January 1, 1994,
Grand Union modified its postretirement health care benefits to provide benefits
for all future retirees based on a service related flat dollar premium
allowance. Accordingly, the health care trend rate will not be a significant
factor in determining Grand Union's liability for future retirees under its
postretirement health care arrangements. The modification to the plan did not
have a material effect on the accumulated postretirement benefit obligation.
The assumed discount rate used in determining the accumulated postretirement
benefit obligation was 8% and 7.5% at April 4, 1993 and April 2, 1994,
respectively, and the interest cost component of the net periodic cost was 8%.
NOTE 13 - RELATED PARTY TRANSACTIONS
The Company is party to a financial advisory agreement with Miller Tabak
Hirsch + Co. ("MTH") under which MTH provides certain financial consulting and
business management services to the Company through July 1997. During the 52
weeks ended March 28, 1992, the 53 weeks ended April 3, 1993 and the 52 weeks
ended April 2, 1994 the Company paid $600,000, $825,000 and $900,000,
respectively, to MTH.
F - 20
<PAGE>
NOTE 13 - RELATED PARTY TRANSACTIONS (CONTINUED)
In conjunction with the Recapitalization, Holdings, through Grand Union,
made a $15,000,000 prepayment as called for under an agreement (the "Operating
Agreement") between Grand Union and P&C Food Markets ("P&C Foods"), an
affiliated company controlled by MTH, whereby Grand Union in July 1990 acquired
the right to operate 13 P&C Foods' stores in New England under the Grand Union
name until July 2000 for an average annual rent of approximately $10,700,000,
with an option to extend the term of such operation for an additional five
years. The prepayment results in a reduction of rent payments over the
remaining life of the lease. In July 1990, P&C Foods also granted Grand Union
an option (the "P&C Foods Purchase Option"), at a cost of $7,500,000, to
purchase such stores at an amount defined in the Operating Agreement which
approximates fair market value.
During the year ended April 2, 1994, Grand Union entered into a program to
consolidate the purchasing and distribution of health and beauty care products
and general merchandise with Penn Traffic. Under this program, Grand Union
purchases health and beauty care ("HBC") products for both Grand Union and Penn
Traffic, and Penn Traffic purchases general merchandise ("GM") products for both
Penn Traffic and Grand Union. Grand Union's general merchandise warehouse in
Montgomery, New York is used to store and distribute HBC and GM products to
Grand Union stores and to certain of Penn Traffic's stores and wholesale
customers. Under the arrangement, Penn Traffic owns the inventory of GM and HBC
products located at the Montgomery warehouse and shares the cost of operating
the warehouse in an amount proportionate to Penn Traffic's usage of the
facility. In connection with this agreement, Penn Traffic purchased all of the
HBC and GM inventories previously owned by Grand Union for approximately
$12,821,000. During the year ended April 2, 1994, Grand Union purchased from
vendors approximately $75,262,000 of HBC products under the agreement which
amounts are reimbursable to Grand Union by Penn Traffic. Additionally, Grand
Union purchased approximately $48,163,000 from Penn Traffic's inventory of HBC
and GM products at cost. At April 2, 1994, Grand Union has recorded a net
receivable of approximately $5,014,000 related to this agreement.
NOTE 14 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
52 Weeks 53 Weeks 52 Weeks
Ended Ended Ended
March 28, April 3, April 2,
1992 1993 1994
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Cash paid for interest $89,457 $115,612 $142,501
Cash paid for income taxes 8,969 3,380 --
Capital lease obligations incurred 11,810 22,146 24,522
Accrued dividends on preferred stock 12,856 14,623 16,011
Issuance of Junior Notes 941 939 939
</TABLE>
F - 21
<PAGE>
NOTE 15 - QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
53 WEEKS ENDED APRIL 3, 1993:
1st (a) 2nd 3rd 4th (b)
---------- ---------- ---------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Sales $907,970 $660,947 $660,830 $604,240
Gross profit 253,800 187,243 183,176 177,287
Loss on disposal of the Southern Region -- -- -- (198,000)
Loss before income taxes and extraordinary charges (16,680) (15,113) (13,880) (215,550)
Extraordinary charges -- (40,493) -- (7,170)
Net loss (20,843) (55,975) (13,880) (222,723)
Accrued preferred stock dividends (4,253) (3,275) (3,369) (3,726)
Net loss applicable to common stock (25,096) (59,250) (17,249) (226,449)
Net loss per share applicable to common stock (334.61) (785.93) (228.80) (3,009.33)
52 WEEKS ENDED APRIL 2, 1994:
1st (a) 2nd 3rd 4th
---------- ---------- ---------- ----------
(in thousands, except per share data)
Sales $761,098 $559,769 $583,492 $572,980
Gross profit 215,102 159,614 171,145 165,175
Charge relating to early retirement program -- -- -- (4,468)
Loss before income taxes and cumulative effect of
accounting change (28,457) (16,546) (16,933) (25,709)
Cumulative effect of accounting change (30,308) -- -- --
Net loss (58,765) (16,546) (16,933) (25,709)
Accrued preferred stock dividends (4,743) (3,667) (3,760) (3,841)
Net loss applicable to common stock (63,508) (20,213) (20,693) (29,550)
Net loss per share applicable to common stock (843.20) (268.65) (275.09) (392.83)
<FN>
(a) Represents 16 weeks, all other quarters except footnote (b) are 12 weeks.
(b) Represents 13 weeks.
</TABLE>
Grand Union regularly records as reductions to cost of goods sold, and
correspondingly deducts from payments to vendors, promotional allowances offered
by vendors. During the 52 weeks ended April 2, 1994, Grand Union recognized
that its level of repayments of vendor allowances was greater than that
customarily experienced by it. Beginning in the second quarter of the year
ended April 2, 1994, Grand Union modified its procedures relating to the
recording and deduction of promotional allowances. These changes are expected
to improve the consistency of inter-period income recognition by reducing
required adjustments to previously deducted amounts. As a result of these
changes, the Company estimates that it experienced increases in net loss of
approximately $4,200,000 during the 12 weeks ended October 16, 1993, $1,400,000
during the 12 weeks ended January 8, 1994 and $600,000 during the 12 weeks ended
April 2, 1994. Grand Union estimates that the impact of promotional allowance
adjustments was to decrease net loss during the 16 weeks ended July 24, 1993 by
$1,700,000. Accordingly, the estimated impact for the 52 weeks ended April 2,
1994 was an increase in net loss of approximately $4,500,000. The impact of
promotional allowance adjustments was not material to prior years. Grand Union
believes that such impact will be minimal for periods subsequent to April 2,
1994.
During the 12 weeks ended October 16, 1993, Grand Union recorded a
$3,800,000 credit to operating and administrative expense resulting from a
reduction in the Company's estimate of its required level of self insurance
reserves.
F - 22
<PAGE>
FINANCIAL STATEMENTS SCHEDULES
GRAND UNION HOLDINGS CORPORATION
SCHEDULE II- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN
RELATED PARTIES
FOR THE YEARS ENDED MARCH 28, 1992, APRIL 3, 1993 AND APRIL 2, 1994
<TABLE>
<CAPTION>
Balance at
Balance at End of
Beginning Year
Name of Debtor of Year Additions Deductions Noncurrent
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Year Ended March 28, 1992
Joseph J. McCaig, President $ - $ - $ - $ -
Year Ended April 3, 1993
Joseph J. McCaig, President $ - $227,676 $ - $227,676
Year Ended April 2, 1994
Joseph J. McCaig, President $227,676 $ - $ - $227,676
</TABLE>
F - 23
<PAGE>
GRAND UNION HOLDINGS CORPORATION
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
52 Weeks 53 Weeks 52 Weeks
Ended Ended Ended
March 28, April 3, April 2,
1992 1993 1994
-------- -------- --------
(in thousands except per share data)
<S> <C> <C> <C>
Administrative expense $(15) $ -- $(10)
Equity income (loss) of subsidiary before extraordinary charges and
cumulative effect of accounting change 5,832 (237,777) (86,944)
Recapitalization expense -- (3,516) --
Interest expense:
Debt (65,120) (22,674) (691)
Amortization of deferred financing fees (5,718) (1,789) --
---------- ---------- ----------
Loss before income taxes, extraordinary charges and cumulative
effect of accounting change (65,021) (265,756) (87,645)
Income tax provision (32) (2) --
---------- ---------- ----------
Loss before extraordinary charge and cumulative effect of
accounting change (65,053) (265,758) (87,645)
Extraordinary charge relating to early extinguishment of debt
of subsidiary -- (38,827) --
Extraordinary charges relating to early extinguishment of debt -- (8,836) --
Cumulative effect of accounting change of subsidiary -- -- (30,308)
---------- ---------- ----------
Net loss (65,053) (313,421) (117,953)
Accrued preferred stock dividends (12,856) (14,623) (16,011)
---------- ---------- ----------
Net loss applicable to common stock $(77,909) $(328,044) $(133,964)
---------- ---------- ----------
---------- ---------- ----------
Weighted average number of common shares outstanding 75,000 75,249 75,258
---------- ---------- ----------
---------- ---------- ----------
Per Share Data:
Loss applicable to common stock before extraordinary charge
and cumulative effect of accounting change
(after accrued preferred stock dividends) $(1,038.79) $(3,726.05) $(1,377.34)
---------- ---------- ----------
---------- ---------- ----------
Extraordinary charge -- $(633.40) --
---------- ---------- ----------
---------- ---------- ----------
Cumulative effect of accounting change -- -- $(402.72)
---------- ---------- ----------
---------- ---------- ----------
Net loss applicable to common stock $(1,038.79) $(4,359.45) $(1,780.06)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F - 24
<PAGE>
GRAND UNION HOLDINGS CORPORATION
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET
<TABLE>
<CAPTION>
April 3, April 2,
1993 1994
-------- --------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments $611 $183
Receivables -- 269
-------- --------
Total current assets $611 $452
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Long-term debt $5,521 $7,151
-------- --------
Accumulated losses of subsidiary in excess of investment 365,646 483,354
-------- --------
Commitments and contingencies
Redeemable stock:
Common stock, $.01 par value 9,547 9,407
Preferred stock (liquidation preference $145,312,000 in aggregate) 130,240 145,312
-------- --------
Total redeemable stock 139,787 154,719
-------- --------
Nonredeemable common stock and stockholders' deficit:
Class A common stock, $.01 par value; authorized 473,281 shares; issued
and outstanding 48,669 and 48,505 shares (net of treasury shares) less
12,096 and 11,932 shares, respectively, shown as redeemable common stock 1 1
Class B common stock, $.01 par value; 26,719 shares authorized, issued and
outstanding -- --
Treasury stock; 164 shares of Class A common stock at cost -- (156)
Accumulated deficit (510,344) (644,617)
-------- --------
Total nonredeemable common stock and stockholders' deficit (510,343) (644,772)
-------- --------
$611 $452
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F - 25
<PAGE>
GRAND UNION HOLDINGS CORPORATION
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
52 Weeks 53 Weeks 52 Weeks
Ended Ended Ended
March 28, April 3, April 2,
1992 1993 1994
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(65,053) $(313,421) $(117,953)
Adjustments to reconcile net loss to net cash provided by
(used for) operating activities:
Cumulative effect of accounting change of subsidiary -- -- 30,308
Extraordinary charge of subsidiary -- 38,827 --
Extraordinary charge on early extinguishment of debt -- 8,836 --
Noncash interest 65,325 22,678 691
Equity in (income) loss of subsidiary (5,832) 237,777 86,944
Amortization of deferred financing fees 5,718 1,789 --
Receivables (111) 111 (269)
Accrued liabilities (177) -- --
Other 29 (1,873) 7
-------- --------- ---------
Net cash used for operating activities (101) (5,276) (272)
-------- --------- ---------
FINANCING ACTIVITIES:
Dividend from subsidiary -- 498,925 --
Capital contribution -- 5,004 --
Proceeds from issuance of warrants -- 1,187 --
Proceeds from issuance of common stock -- 369 --
Retirement of long-term debt (10) (500,000) --
Purchase of redeemable Class A common stock -- -- (156)
-------- --------- ---------
Net cash provided by (used for) financing activities (10) 5,485 (156)
-------- --------- ---------
Increase (decrease) in cash and temporary cash investments (111) 209 (428)
Cash and temporary cash investments at beginning of year 513 402 611
-------- --------- ---------
Cash and temporary cash investments at end of year $402 $611 $183
-------- --------- ---------
-------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
GRAND UNION HOLDINGS CORPORATION
SCHEDULE IV - INDEBTEDNESS TO
RELATED PARTIES - NONCURRENT
FOR THE YEARS ENDED MARCH 28, 1992, APRIL 3, 1993 AND APRIL 2, 1994
<TABLE>
<CAPTION>
Balance at
Beginning Balance at
Name of Debtor of Year Additions Deductions End of Year
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Year Ended March 28, 1992
Salomon Brothers Holding Company Inc $155,962 $17,298 $ 5,435 $167,825
Year Ended April 3, 1993
Salomon Brothers Holding Company Inc $167,825 $22,765 $190,590 $ --
Year Ended April 2, 1994
Salomon Brothers Holding Company Inc $ -- $ -- $ -- $ --
</TABLE>
F - 27
<PAGE>
GRAND UNION HOLDINGS CORPORATION
SCHEDULE V - PROPERTY, PLANT & EQUIPMENT
FOR THE YEARS ENDED MARCH 28, 1992, APRIL 3, 1993 AND APRIL 2, 1994
<TABLE>
<CAPTION>
Balance at
Beginning Additions Balance at
Classification of Year at Cost Retirements Other End of Year
- - -------------- ---------- --------- ----------- ----- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Year Ended March 28, 1992
Property owned:
Land $19,508 $26 $(752) $1,149* $19,931
Buildings 42,355 1,015 (2,370) 4,072* 45,072
Fixtures and equipment 209,142 21,541 (2,511) -- 228,172
Leasehold improvements 108,294 6,711 (2,360) -- 112,645
-------- ------- ------- ------- --------
Property owned $379,299 $29,293 $(7,993) $5,221 $405,820
-------- ------- ------- ------- --------
-------- ------- ------- ------- --------
Property leased:
Land and buildings $103,613 $6,539 $(169) $(5,221)* $104,762
Equipment 2,273 5,271 -- -- 7,544
-------- ------- ------- ------- --------
Property leased $105,886 $11,810 $(169) $(5,221) $112,306
-------- ------- ------- ------- --------
-------- ------- ------- ------- --------
Year Ended April 3, 1993
Property owned:
Land $19,931 $250 $(1,306) $ -- $18,875
Buildings 45,072 12,644 (6,551) -- 51,165
Fixtures and equipment 228,172 29,540 (50,204) -- 207,508
Leasehold improvements 112,645 15,654 (9,939) -- 118,360
-------- ------- ------- ------- --------
Property owned $405,820 $58,088 $(68,000) $ -- $395,908
-------- ------- ------- ------- --------
-------- ------- ------- ------- --------
Property leased:
Land and buildings $104,762 $14,038 $(30,382) $ -- $88,418
Equipment 7,544 8,108 (2,821) -- 12,831
-------- ------- ------- ------- --------
Property owned $112,306 $22,146 $(33,203) $ -- $101,249
-------- ------- ------- ------- --------
-------- ------- ------- ------- --------
Year Ended April 2, 1994
Property owned:
Land $18,875 $1,110 $(670) $ -- $19,315
Buildings 51,165 4,426 (1,905) -- 53,686
Fixtures and equipment 207,508 42,340 (1,618) -- 248,230
Leasehold improvements 118,360 21,321 (5,904) -- 133,777
-------- ------- ------- ------- --------
Property owned $395,908 $69,197 $(10,097) $ -- $455,008
-------- ------- ------- ------- --------
-------- ------- ------- ------- --------
Property leased:
Land and buildings $88,418 $19,311 $(4,501) $ -- $103,228
Equipment 12,831 5,211 (1,137) -- 16,905
-------- ------- ------- ------- --------
Property owned $101,249 $24,522 $(5,638) $ -- $120,133
-------- ------- ------- ------- --------
-------- ------- ------- ------- --------
<FN>
* Represents the buyout of a capital lease obligation.
</TABLE>
F - 28
<PAGE>
GRAND UNION HOLDINGS CORPORATION
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION & AMORTIZATION
OF PROPERTY, PLANT & EQUIPMENT
FOR THE YEARS ENDED MARCH 28, 1992, APRIL 3, 1993 AND APRIL 2, 1994
<TABLE>
<CAPTION>
Balance at
Beginning Balance at
Classification of Year Additions Retirements Other End of Year
- - -------------- ---------- --------- ----------- ----- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Year Ended March 28, 1992
Property owned:
Buildings $2,393 $1,409 $(169) $1,091* $4,724
Fixtures and equipment 50,069 29,966 (2,045) -- 77,990
Leasehold improvements 18,128 10,791 (992) -- 27,927
-------- ------- ------- ------- --------
Property owned $70,590 $42,166 $(3,206) $1,091 $110,641
-------- ------- ------- ------- --------
-------- ------- ------- ------- --------
Property leased:
Buildings $10,403 $6,544 $(169) $(1,091)* $15,687
Equipment 671 1,143 -- -- 1,814
-------- ------- ------- ------- --------
Property leased $11,074 $7,687 $(169) $(1,091) $17,501
-------- ------- ------- ------- --------
-------- ------- ------- ------- --------
Year Ended April 3, 1993
Property owned:
Buildings $4,724 $1,684 $(501) $ -- $5,907
Fixtures and equipment 77,990 31,849 (23,808) -- 86,031
Leasehold improvements 27,927 10,687 (5,018) -- 33,596
-------- ------- ------- ------- --------
Property owned $110,641 $44,220 $(29,327) $ -- $125,534
-------- ------- ------- ------- --------
-------- ------- ------- ------- --------
Property leased:
Buildings $15,687 $8,170 $(12,670) $ -- $11,187
Equipment 1,814 945 (2,502) -- 257
-------- ------- ------- ------- --------
Property leased $17,501 $9,115 $(15,172) $ -- $11,444
-------- ------- ------- ------- --------
-------- ------- ------- ------- --------
Year Ended April 2, 1994
Property owned:
Buildings $5,907 $3,162 $(249) $ -- $8,820
Fixtures and equipment 86,031 29,565 (6,626) -- 108,970
Leasehold improvements 33,596 10,138 (3,247) -- 40,487
-------- ------- ------- ------- --------
Property owned $125,534 $42,865 $(10,122) $ -- $158,277
-------- ------- ------- ------- --------
-------- ------- ------- ------- --------
Property leased:
Buildings $11,187 $6,282 $(3,892) $ -- $13,577
Equipment 257 3,613 (1,137) -- 2,733
-------- ------- ------- ------- --------
Property leased $11,444 $9,895 $(5,029) $ -- $16,310
-------- ------- ------- ------- --------
-------- ------- ------- ------- --------
<FN>
* Represents the buyout of a capital lease obligation.
</TABLE>
F - 29
