<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended OCTOBER 14, 1995
----------------
Commission File Number 0-26602
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THE GRAND UNION COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 22 - 1518276
-------- ------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
201 Willowbrook Boulevard, Wayne, New Jersey 07470 - 0966
-------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
201-890-6000
------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
------- -------
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X . No .
------- -------
As of November 28, 1995, there were issued and outstanding 10,000,000
shares, par values $1.00 per share, of the Registrant's common stock.
1
<PAGE>
THE GRAND UNION COMPANY
INDEX
PART I - FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS. PAGE NO.
Consolidated Statement of Operations - 12 weeks ended
October 14, 1995 (Successor Company), and 12 weeks ended
October 15, 1994 (Predecessor Company) 3
Consolidated Statement of Operations - 17 weeks ended
October 14, 1995 (Successor Company), 11 weeks ended
June 17, 1995 and 28 weeks ended October 15, 1994
(Predecessor Company) 4
Consolidated Balance Sheet - October 14, 1995 (Successor
Company) and April 1, 1995 (Predecessor Company) 5
Consolidated Statement of Cash Flows - 17 weeks ended
October 14, 1995 (Successor Company), 11 weeks ended
June 17, 1995 and 28 weeks ended October 15, 1994
(Predecessor Company) 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. 10
PART II - OTHER INFORMATION
Item 6 - Exhibit 14
All items which are not applicable or to which the answer is negative have been
omitted from this report.
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
THE GRAND UNION COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
Successor Predecessor
Company Company
--------------- ---------------
12 Weeks 12 Weeks
Ended Ended
October 14, October 15,
1995 1994
--------------- ---------------
<S> <C> <C>
Sales $ 523,711 $556,663
Cost of sales (361,074) (385,767)
--------------- ---------------
Gross profit 162,637 170,896
Operating and administrative expenses (129,932) (132,391)
Depreciation and amortization (17,002) (20,758)
Amortization of excess reorganization value (24,717) -
Charges relating to voluntary resignation incentive plan (4,500) -
Interest expense (22,433) (47,212)
--------------- ---------------
Loss before income tax benefit (35,947) (29,465)
Income tax benefit 5,872 -
--------------- ---------------
Net loss (30,075) (29,465)
Accrued dividends on old preferred stock - (6,411)
--------------- ---------------
Net loss applicable to common stock ($30,075) ($35,876)
--------------- ---------------
--------------- ---------------
Net loss per common share ($3.01)
---------------
---------------
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
3
<PAGE>
THE GRAND UNION COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
Successor
Company Predecessor Company
-------------- ----------------------------
17 Weeks 11 Weeks 28 Weeks
Ended Ended Ended
October 14, June 17, October 15,
1995 1995 1994
-------------- ------------ -------------
<S> <C> <C> <C>
Sales $ 756,374 $487,882 $ 1,304,355
Cost of sales (520,657) (344,041) (902,643)
-------------- ------------ -------------
Gross profit 235,717 143,841 401,712
Operating and administrative expenses (185,424) (117,544) (303,360)
Depreciation and amortization (23,957) (17,215) (46,020)
Amortization of excess reorganization value (34,827) - -
Reorganization items - (18,627) -
Charges relating to voluntary resignation incentive plan (4,500) - -
Interest expense (contractual interest of $29,085 for the
11 weeks ended June 17, 1995) (31,979) (19,791) (106,779)
-------------- ------------ -------------
Loss before income taxes and extraordinary
gain on debt discharge (44,970) (29,336) (54,447)
Income tax benefit 5,372 - -
-------------- ------------ -------------
Loss before extraordinary gain on debt discharge (39,598) (29,336) (54,447)
Extraordinary gain on debt discharge - 854,785 -
-------------- ------------ -------------
Net (loss) income (39,598) 825,449 (54,447)
Accrued dividends on old preferred stock - - (11,704)
-------------- ------------ -------------
Net (loss) income applicable to common stock ($39,598) $825,449 ($66,151)
-------------- ------------ -------------
-------------- ------------ -------------
Net loss per common share ($3.96)
--------------
--------------
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
4
<PAGE>
THE GRAND UNION COMPANY
CONSOLIDATED BALANCE SHEET
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Successor Predecessor
Company Company
-------------- ------------
October 14, April 1,
1995 1995
-------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary investments $ 36,064 $ 89,423
Receivables 14,054 18,592
Inventories 172,416 189,467
Other current assets 14,566 16,787
-------------- ------------
Total current assets 237,100 314,269
Property, net 479,169 454,180
Goodwill, net - 545,451
Excess reorganization value, net 497,747 -
Deferred financing fees, net 2,975 44,069
Deferred tax asset 29,444 -
Other assets 11,907 36,787
-------------- ------------
$ 1,258,342 $ 1,394,756
-------------- ------------
-------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt $ 843 $ -
Current portion of obligations under capital leases 6,489 -
Accounts payable and accrued liabilities 177,073 174,126
-------------- ------------
Total current liabilities 184,405 174,126
-------------- ------------
Long-term debt 724,781 -
-------------- ------------
Obligations under capital leases 124,376 -
-------------- ------------
Other noncurrent liabilities 110,378 53,072
-------------- ------------
Liabilities subject to compromise - 1,817,698
-------------- ------------
Commitments and contingencies
Redeemable stock subject to compromise:
Old common stock - 9,407
Old preferred stock - 164,792
-------------- ------------
- 174,199
-------------- ------------
Stockholders' equity (deficit):
New Common Stock, $1.00 par value, 30,000,000 shares authorized,
10,000,000 shares issued and outstanding 10,000 -
New Preferred Stock, $1.00 par value, 10,000,000 shares authorized,
no shares issued and outstanding - -
Old common stock - 1
Old treasury stock - (156)
Capital in excess of par value 144,000 -
Accumulated deficit (39,598) (824,184)
-------------- ------------
Total stockholders' equity (deficit) 114,402 (824,339)
-------------- ------------
$ 1,258,342 $ 1,394,756
-------------- ------------
-------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
5
<PAGE>
THE GRAND UNION COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Successor
Company Predecessor Company
-------------- ----------------------------
17 Weeks 11 Weeks 28 Weeks
Ended Ended Ended
October 14, June 17, October 15,
1995 1995 1994
-------------- ------------ --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income ($39,598) $825,449 ($54,447)
Adjustments to reconcile net (loss) income to
net cash provided by (used for) operating
activities before reorganization items paid:
Depreciation and amortization 23,957 17,215 46,020
Amortization of excess reorganization value 34,827 - -
Deferred taxes (4,947) - -
Noncash interest 14,638 1,126 24,317
Extraordinary gain on debt discharge - (854,785) -
Net changes in assets and liabilities:
Receivables (5,758) 1,769 14,255
Inventories 11,462 12,946 4,034
Accounts payable and accrued liabilities (52,446) (34,928) (3,822)
Other current assets (734) 2,776 108
Other (3,231) 4,493 (5,315)
-------------- ------------ --------------
Net cash (used for) provided by operating
activities before reorganization items paid (21,830) (23,939) 25,150
Reorganization items paid (12,108) (4,913) -
-------------- ------------ --------------
Net cash (used for) provided by operating activities (33,938) (28,852) 25,150
-------------- ------------ --------------
INVESTMENT ACTIVITIES:
Capital expenditures (13,975) (3,301) (40,102)
Disposals of property - 5,452 2,016
-------------- ------------ --------------
Net cash (used for) provided by investment activities (13,975) 2,151 (38,086)
-------------- ------------ --------------
FINANCING ACTIVITIES:
Proceeds from New Bank agreement - 104,144 -
Net proceeds from long-term debt 18,089 - 9,000
Payment of Old Bank debt - (93,144) -
Obligations under capital leases discharged (2,407) (1,707) (4,461)
Loan placement fees - (3,125) -
Retirement of long-term debt (356) (239) (471)
-------------- ------------ --------------
Net cash provided by financing activities 15,326 5,929 4,068
-------------- ------------ --------------
Decrease in cash and temporary
investments (32,587) (20,772) (8,868)
Cash and temporary investments at beginning of
period 68,651 89,423 44,294
-------------- ------------ --------------
Cash and temporary investments at end of period $36,064 $68,651 $35,426
-------------- ------------ --------------
-------------- ------------ --------------
Supplemental disclosure of cash flow information:
Interest payments $8,652 $9,515 $77,036
Capital lease obligations incurred 280 20,072 23,806
Accrued dividends on old preferred stock - - 11,704
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
6
<PAGE>
THE GRAND UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - BASIS OF ACCOUNTING
The accompanying interim consolidated financial statements of The Grand
Union Company ("Grand Union" or the "Company") include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. In the opinion of
management, the consolidated financial statements include all adjustments,
which, except for fresh-start adjustments (see Note 3), consist only of normal
recurring adjustments necessary for a fair presentation of operating results for
the interim periods.
These consolidated financial statements should be read in conjunction with
the consolidated financial statements and related notes contained in the
Company's Annual Report on Form 10-K for the 52 weeks ended April 1, 1995.
Operating results for the periods presented are not necessarily indicative of
the results for the full fiscal year.
Certain amounts have been reclassified in the prior period financial
statements to conform to current year presentation.
NOTE 2 - REORGANIZATION
On January 25, 1995 (the "Filing Date"), as part of the implementation of
an agreement with the Company's bank lenders and with members of informal
committees of certain holders of Grand Union's long-term debt on the terms of a
restructuring of Grand Union's capital structure, Grand Union filed a voluntary
petition for relief under chapter 11 ("Chapter 11") of Title 11 of the United
States Code (the "Code") in the United States Bankruptcy Court for the District
of Delaware (the "Bankruptcy Court"). From the Filing Date through June 15, 1995
(the "Effective Date"), Grand Union operated as a debtor-in-possession under
Chapter 11 of the Code and was subject to the supervision of the Bankruptcy
Court in accordance with the Code.
On May 31, 1995, the Bankruptcy Court confirmed the Second Amended Chapter
11 Plan, dated April 19, 1995 (as confirmed, the "Plan"), and the Company
emerged from Chapter 11 on the Effective Date. One proceeding challenging the
order confirming the Plan is pending. The Company does not believe that this
proceeding will result in any modification or revocation of the order.
On the Effective Date, Grand Union adopted a restated certificate of
incorporation, the principal effects of which were to authorize 30,000,000
shares of new common stock (the "New Common Stock") (of which 10,000,000 shares
were issued under the Plan) and to prohibit the issuance of non-voting equity
securities. The Plan provided for full payment of all allowed administrative
expenses and all allowed general unsecured and priority claims. On the Effective
Date, obligations relating to the Company's existing bank credit agreement were
paid in full and the Company entered into an Amended and Restated Credit
Agreement (the "New Bank Facility") with its bank lending group which provides
for a five-year revolving credit facility of $100,000,000 and a seven-year term
loan facility of $104,144,371. The New Bank Facility is secured by a lien on
substantially all of the assets of Grand Union and its subsidiaries.
As of the Effective Date, two series of long-term debt having an aggregate
principal amount of $525,000,000 plus accrued interest (the "Senior Notes") were
deemed cancelled and each holder of Senior Notes became entitled to receive its
pro rata share of Grand Union's new 12% Senior Notes due 2004 (the "New Senior
Notes") having an aggregate principal amount of $595,475,922 issued pursuant to
the Plan. Subsequent to the Effective Date, the Company issued $595,421,000
aggregate principal amount of New Senior Notes and made cash payments of $54,922
for fractional shares to the holders of the Senior Notes. The New Senior Notes
accrue interest beginning on September 1, 1995. Accordingly, the New Senior
Notes have been discounted at 12% for the period from June 15, 1995 to September
1, 1995 and imputed interest was charged at 12% during that period. In addition,
the difference between such discounted value and the fair value of the New
Senior Notes at the Effective Date was recorded as a debt premium totaling
$5,779,000 which is being amortized over the life of the New Senior Notes.
As of the Effective Date, three other series of long-term debt having an
aggregate principal amount of $566,150,000 (the "Subordinated Notes") and the
old capital stock of Grand Union were deemed cancelled and each holder of
Subordinated Notes became entitled to receive its pro rata share of an aggregate
of 10,000,000 shares of New Common Stock issued pursuant to the Plan.
7
<PAGE>
The Plan also provided for the issuance of warrants to purchase an
aggregate of 900,000 shares of New Common Stock to holders of several other
series of long-term debt of its then parent company (the "Capital Notes")
pursuant to the terms of a settlement reached among the Company, its then direct
and indirect parent companies, the Official Committee of Unsecured Creditors of
its then parent company and certain holders of the Capital Notes. Such warrants
are comprised of 300,000 Series 1 Warrants to purchase shares of New Common
Stock at a purchase price of $30 per share and of 600,000 Series 2 Warrants to
purchase shares of New Common Stock at a purchase price of $42 per share. The
warrants expire on June 15, 2000.
The Plan made no provision for the holders of the remaining long-term debt,
Redeemable Preferred Stock, common shares or warrants to purchase common shares
of the Company's then indirect parent.
NOTE 3 - FRESH-START REPORTING
As of the Effective Date, the Company adopted fresh-start reporting in
accordance with American Institute of Certified Public Accountants Statement of
Position 90-7, "Financial Reporting By Entities in Reorganization Under The
Bankruptcy Code" ("Fresh-Start Reporting"). In connection with the adoption of
Fresh-Start Reporting, a new entity has been deemed created for financial
reporting purposes. The periods presented prior to the Effective Date have been
designated "Predecessor Company" and the periods subsequent to the Effective
Date have been designated "Successor Company". For financial reporting purposes,
the Company accounted for the consummation of the Plan effective June 17, 1995.
In accordance with Fresh-Start Reporting, the Company valued its assets and
liabilities at fair values and eliminated its retained earnings at the Effective
Date. The reorganization value of the Company was determined on the basis of the
trading value of the Company's New Common Stock for a representative number of
days subsequent to the Effective Date and the fair value of the Company's
obligations as of the Effective Date. The total reorganization value as of the
Effective Date was $1,334,000,000 which was $532,574,000 in excess of the
aggregate fair value of the Company's tangible and identified intangible assets.
Such excess is classified as "Excess reorganization value, net" in the
accompanying consolidated balance sheet and is being amortized on a straight-
line basis over a five-year period.
The components of reorganization items included in the consolidated
statement of operations are as follows (in thousands):
<TABLE>
<S> <C>
Fresh-Start Reporting
Establish excess reorganization value $532,574
Eliminate existing goodwill (540,434)
Revalue property, net 40,633
Establish deferred tax asset 24,497
Revalue pension assets and liabilities and postretirement obligations (23,653)
Record lease rejection liability (19,734)
Provide for warehouse closing (10,450)
Eliminate LIFO inventory reserve 7,757
Provide for other reorganization liabilities (5,400)
Record liability for fair value of interest rate protection agreement (3,500)
Other (1,905)
---------------
Total Fresh-Start 385
Professional fees incurred in connection with the reorganization (20,000)
Interest earned on accumulated cash resulting from the Chapter 11 proceedings 988
---------------
Total reorganization items ($18,627)
---------------
---------------
</TABLE>
During the 12 weeks ended October 14, 1995, the Company recorded
certain adjustments, which were not material, to liabilities assumed during
Fresh-Start Reporting, as reflected in the table above.
As a result of the debt restructuring, the Company recognized a gain on debt
discharge as follows (in thousands):
<TABLE>
<S> <C>
Elimination of Old Debt, deferred financing fees and accrued interest discharged $ 1,589,506
Issuance of New Senior Notes (580,721)
Issuance of New Common Stock (154,000)
----------------
Gain on debt discharge $854,785
----------------
----------------
</TABLE>
8
<PAGE>
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Term Assets to be Disposed of" ("SFAS No. 121"), which
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable intangibles to
be disposed of. As of the Effective Date, the Company adopted SFAS No. 121.
NOTE 4 - CHARGES RELATING TO VOLUNTARY RESIGNATION INCENTIVE PLAN
During the 12 weeks ended October 14, 1995, the Company established a
provision of $4.5 million for a voluntary resignation incentive program under
which certain classes of store employees accepted monetary incentive to
voluntarily resign from their positions.
NOTE 5 - INCOME TAXES
The Company recorded an income tax benefit of $5.8 million and $5.4
million for the 12 and 17 week periods ended October 14, 1995, respectively.
Operating loss carryforwards of the Predecessor Company have been offset by
taxable gains realized on the debt discharged in connection with the
Plan. There are no remaining operating loss or credit carryforwards of the
Predecessor Company and there was no change in the tax basis of the
Company's assets as of the Effective Date.
NOTE 6 - EARNINGS PER SHARE
Earnings per share for the 12 and 17 week periods ended October 14, 1995
has been calculated on the basis of 10,000,000 shares outstanding. Warrants are
excluded from the calculation because their inclusion would be anti-dilutive.
Earnings (loss) per common share data is not meaningful for periods prior to
June 17, 1995 due to the significant change in the capital structure of the
Company.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL:
As discussed in Note 2 to the accompanying Consolidated Financial
Statements of Grand Union, the Company emerged from its Chapter 11 proceedings
effective June 15, 1995. For financial reporting purposes, the Company accounted
for the consummation of the Plan effective June 17, 1995. In accordance with the
American Institute of Certified Public Accountants Statement of Position 90-7,
"Financial Reporting By Entities In Reorganization Under The Bankruptcy Code",
the Company has applied Fresh-Start Reporting as of the Effective Date which has
resulted in significant changes to the valuation of certain of the Company's
assets and liabilities, and to its stockholders' equity. In connection with the
adoption of Fresh-Start Reporting, a new entity has been deemed created for
financial reporting purposes. The periods prior to the Effective Date have been
designated "Predecessor Company" and the period subsequent to the Effective Date
has been designated "Successor Company". For purposes of the discussion of
Results of Operations for the 28 weeks ended October 14, 1995, the results of
the Predecessor Company and Successor Company have been combined.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data
reflecting the combination discussed above (in millions):
<TABLE>
<CAPTION>
12 Weeks Ended 28 Weeks Ended
------------------------ --------------------------
Oct. 14, Oct. 15, Oct. 14, Oct. 15,
1995 1994 1995 1994
------------------------ --------------------------
<S> <C> <C> <C> <C>
Sales $523.7 $556.7 $1,244.3 $1,304.4
Gross profit 162.6 170.9 379.6 401.7
Operating and administrative expenses 129.9 132.4 303.0 303.4
Depreciation and amortization 17.0 20.8 41.2 46.0
Amortization of excess reorganization value 24.7 - 34.8 -
Reorganization items - - 18.6 -
Charges relating to voluntary resignation incentive plan 4.5 - 4.5 -
Interest expense 22.4 47.2 51.8 106.8
Income tax benefit 5.8 - 5.4 -
Extraordinary gain on debt discharge - - 854.8 -
Net (loss) income (30.1) (29.5) 785.9 (54.4)
EBITDA 28.2 38.5 53.5 98.4
Adjusted EBITDA 33.0 38.7 77.3 98.9
LIFO provision 0.3 0.2 0.7 0.5
Sales percentage decrease 5.9% 0.6% 4.6% 1.3%
Gross profit as a percentage of sales 31.1 30.7 30.5 30.8
Operating and administrative
expenses as a percentage of sales 24.8 23.8 24.3 23.3
EBITDA as a percentage of sales 5.4 6.9 4.3 7.5
Adjusted EBITDA as a percentage of sales 6.3 7.0 6.2 7.6
</TABLE>
Sales for the 12 and 28 weeks ended October 14, 1995 decreased $33.0
million and $60.1 million, or 5.9% and 4.6%, as compared to the 12 and 28
week periods ended October 15, 1994, respectively. The sales decline for each
of the 12 and 28 week periods was comprised of 4.0% and 4.4% from the sale
or closure of 24 stores which were not replaced and 2.8% and 1.1% from
decreased same store sales offset by .9% and .9% from increases relating to
one incremental new store opened late last year. Same store sales
comparisons were negatively influenced by (a) strong promotional programs
during last year's second quarter and (b) the anniversary of three
replacement stores early in this year's second quarter which diminished the
incremental benefit previously experienced for those stores. Same store sales
comparisons were positively influenced by the marketing program implemented
in the Northern Region earlier this year. The Northern Region marketing
program, which includes both lower everyday prices and stronger sales
promotion programs, was begun on a limited basis last year and was fully
implemented on May 1, 1995. Additionally, this year's 28 week period was
favorably influenced by the timing of the pre-Easter holiday shopping period
which was included in this year's first quarter but not in last year's first
quarter.
10
<PAGE>
Gross profit, as a percentage of sales, was 31.1% and 30.5% for the 12
and 28 week periods ended October 14, 1995, compared to 30.7% and 30.8% for
the comparable periods of the prior year. Gross profit percentages were
impacted in the current 12 week period by the savings generated by the
conversion of the distribution of Northern Region merchandise from a Company
operated warehouse to a wholesaler, offset by reduced margins associated with
the Northern Region marketing program. In addition, gross profit was
negatively impacted during the 28 weeks ended October 14, 1995 by bankruptcy
related items including the Company's inability to be fully invested in
forward buy inventory throughout most of last year's fourth quarter, which
negatively impacted gross profit in the first quarter, and by lower vendor
promotional allowances in the early part of the first quarter. Both the 12
and 28 week periods this year benefited by proportionately greater sales of
higher margin produce products.
Operating and administrative expenses, as a percentage of sales, were 24.8%
and 24.3% for the 12 and 28 week periods ended October 14, 1995, compared to
23.8% and 23.3% for the comparable periods of the prior year. The increased
rate in both periods resulted from increases as a percentage of sales in (a)
labor and fringe costs, (b) advertising expense, principally to support the
Northern Region marketing program, (c) occupancy costs, and (d) wrapping supply
expense. During the latter part of the 12 weeks ended October 14, 1995, the
Company completed voluntary resignation incentive programs in both of its
operating regions which had a limited effect on store labor in the second
quarter, but will moderate store costs over the remainder of the year. The
current 28 week period reflected gains on sales of stores of $3.6 million
compared to gains of $1.8 million in the prior year's 28 week period.
Depreciation and amortization totaled $17.0 million and $41.2 million for
the 12 and 28 week periods ended October 14, 1995 compared to $20.8 million and
$46.0 million for the comparable periods of the prior year. The decrease
principally results from the absence of amortization of goodwill after the
Effective Date.
The excess reorganization value is being amortized over a five-year life.
During the 11 week period ended July 17, 1995, the Company recorded $18.6
million of reorganization expenses which includes professional fees, Fresh-Start
Reporting adjustments and interest income on accumulated cash resulting from the
Chapter 11 proceedings.
Interest expense totaled $22.4 million and $51.8 million for the 12 and 28
week periods ended October 14, 1995, compared with $47.2 million and $106.8
million for the comparable periods of the prior year. The decline in interest
is principally related to the cessation of interest accruals on a significant
portion of the Company's debt during the bankruptcy proceedings and the
decreased level of debt of the Successor Company.
The Company recorded an income tax benefit of $5.8 million and $5.4
million during the 12 and 28 weeks ended October 14, 1995, representing
federal and state income taxes. Operating loss carryforwards of the
Predecessor Company have been offset by taxable gains realized on the debt
discharged in connection with the Plan. There are no remaining operating
loss or credit carryforwards of the Predecessor Company and there was no
change in the tax basis of the Company's assets as of the Effective Date.
In connection with the Company's emergence from Chapter 11, the Company
recognized an extraordinary gain of $854.8 million related to the discharge of
debt.
EBITDA is defined as earnings before income tax benefit, interest
expense, extraordinary gain on debt discharge, depreciation and amortization.
Adjusted EBITDA is defined as EBITDA before LIFO provision, reorganization
items and charges relating to the voluntary resignation incentive plan. The
Company believes that both EBITDA and Adjusted EBITDA are useful supplemental
disclosures but recognizes that both EBITDA and Adjusted EBITDA are not
substitutes for earnings or cash flow data required by generally accepted
accounting principles.
EBITDA totaled $28.2 million, or 5.4% of sales, and $53.5 million, or
4.3% of sales, for the 12 and 28 week periods ended October 14, 1995, compared
to $38.5 million, or 6.9% of sales, and $98.4 million, or 7.5% of sales, for the
comparable periods of the prior year. Adjusted EBITDA totaled $33.0 million, or
6.3% of sales, and $77.3 million, or 6.2% of sales, for the 12 and 28 week
periods ended October 14, 1995, respectively, compared to $38.7 million, or
7.0% of sales, and $98.9 million, or 7.6% of sales, for the comparable period of
the prior year.
11
<PAGE>
The Company is currently considering several alternative product supply
arrangements for the distribution of merchandise for its New York Region
stores, including a proposal from C&S Wholesalers, Inc. who supplies
warehouse product to the Company's Northern Region stores. The Company is
also discussing alternative operating methods and cost considerations with
the unions who represent its New York Region warehouse and trucking employees.
LIQUIDITY AND CAPITAL RESOURCES
The following table combines the cash flows of the Predecessor Company
and the Successor Company for the 28 weeks ended October 14, 1995. Resources
used to finance significant expenditures for the 28 weeks ended October 14, 1995
and the 28 weeks ended October 15, 1994 are as follows:
<TABLE>
<CAPTION>
28 Weeks Ended
----------------------------------------
October 14, October 15,
1995 1994
---------------- ---------------
(in millions)
<S> <C> <C>
Resources used for:
Debt and capital lease repayments $ 97.9 $ 4.9
Capital expenditures 17.3 40.1
Operating activities, including cash and temporary investments 9.4 -
Loan placement fees 3.1 -
---------- -------
$127.7 $45.0
---------- -------
---------- -------
Financed by:
Proceeds from New Bank agreement $122.2 $ -
Property disposals 5.5 2.0
Operating activities, including cash and temporary investments - 34.0
Net proceeds from long-term debt - 9.0
---------- -------
$127.7 $45.0
---------- -------
---------- -------
</TABLE>
During the 28 weeks ended October 14, 1995, funds for debt and capital
lease repayments (primarily the repayment of obligations outstanding under the
Old Bank agreement), capital expenditures, operating activities and loan
placement fees were principally obtained from cash provided by the New Bank
Facility ($104.2 million from the New Term Loan and $18.0 million from the New
Revolver - see Note 2). During the 28 weeks ended October 15, 1994, funds for
capital expenditures and debt and capital lease repayments were principally
obtained from cash provided by operating activities and from $9 million borrowed
on the revolving credit facility.
On the Filing Date, as part of the implementation of an agreement with the
Company's bank lenders and with members of informal committees of certain
holders of Grand Union's long-term debt on the terms of a restructuring of Grand
Union's capital structure, Grand Union filed a voluntary petition for relief
under Chapter 11 of the Code in the Bankruptcy Court. From the Filing Date
through the Effective Date, Grand Union operated as a debtor-in-possession under
Chapter 11 of the Code and was subject to the supervision of the Bankruptcy
Court in accordance with the Code.
On May 31, 1995, the Bankruptcy Court confirmed the Plan, and the Company
emerged from Chapter 11 on the Effective Date. One proceeding challenging the
order confirming the Plan is pending. The Company does not believe that this
proceeding will result in any modification or revocation of the order.
On the Effective Date, Grand Union adopted a restated certificate of
incorporation, the principal effects of which were to authorize 30,000,000
shares of New Common Stock (of which 10,000,000 shares were issued under the
Plan) and to prohibit the issuance of non-voting equity securities. The Plan
provided for full payment of all allowed administrative expenses and all allowed
general unsecured and priority claims. On the Effective Date, obligations
relating to the Company's existing bank credit agreement were paid in full and
the Company entered into the New Bank Facility with its bank lending group which
provides for a five-year revolving credit facility of $100 million and a seven-
year term loan facility of $104.1 million. The New Bank Facility is secured by
a lien on substantially all of the assets of Grand Union and its subsidiaries.
12
<PAGE>
As of the Effective Date, the Senior Notes were deemed cancelled and each
holder of Senior Notes became entitled to receive its pro rata share of the New
Senior Notes having an aggregate principal amount of $595.5 million issued
pursuant to the Plan. Subsequent to the Effective Date, the Company issued
$595.4 million aggregate principal amount of New Senior Notes and made cash
payments of $54,922 for fractional shares to the holders of the Senior Notes.
The New Senior Notes accrue interest beginning on September 1, 1995.
Accordingly, the New Senior Notes have been discounted at 12% for the period
from June 15, 1995 to September 1, 1995 and imputed interest was charged at 12%
during that period. In addition, the difference between such discounted value
and the fair value of the New Senior Notes at the Effective Date has been
recorded as a debt premium totaling $5.8 million which amount will be amortized
over the life of the New Senior Notes.
As of the Effective Date, the Subordinated Notes and the old capital stock
of Grand Union were deemed cancelled and each holder of Subordinated Notes
became entitled to receive its pro rata share of an aggregate of 10,000,000
shares of New Common Stock issued pursuant to the Plan.
The Plan also provided for the issuance of warrants to purchase an
aggregate of 900,000 shares of New Common Stock to holders of the Capital Notes
pursuant to the terms of a settlement reached among the Company, its then direct
and indirect parent companies, the Official Committee of Unsecured Creditors of
its then parent company and certain holders of the Capital Notes. Such warrants
are comprised of 300,000 Series 1 Warrants to purchase shares of New Common
Stock at a purchase price of $30 per share and of 600,000 Series 2 Warrants to
purchase shares of New Common Stock at a purchase price of $42 per share. The
warrants expire on June 15, 2000.
The Plan made no provision for the holders of the remaining long-term debt,
Redeemable Preferred Stock, common shares or warrants to purchase common shares
of the Company's then indirect parent.
On September 29, 1995, the Company terminated a joint health and beauty
care and general merchandise buying arrangement with the Penn Traffic Company.
Under the termination agreement, the Company repurchased approximately $11
million of inventory located at the Montgomery warehouse which had previously
been owned by Penn Traffic. The termination of this agreement is not expected
to have a significant impact on the Company's results of operations or financial
position.
The Company continues to be highly leveraged. Interest payments during the
28 weeks ended October 14, 1995 totaled approximately $18 million and are
expected to total approximately $69 million for the current fiscal year
($100 million on an annualized basis). Capital expenditures, including
capitalized leases other than real estate leases, totaled approximately
$18 million for the 28 weeks ended October 14, 1995 and are expected to total
$45 to $50 million for the current fiscal year. Capital expenditures for the
current fiscal year will be related to new, enlarged or remodeled stores, store
systems and maintenance capital. Bankruptcy related obligations, principally
lease rejection liabilities, totaling $18 million (included in accounts
payable and accrued liabilities at October 14, 1995) are expected to be
paid during the remainder of the current fiscal year. There are no significant
scheduled debt principal repayments prior to June, 2000. The Company plans to
finance its working capital, interest expense and capital expenditure
requirements from operations, from its revolving credit facility and, to a
limited extent, from equipment leases or purchase money mortgages. The Company's
ability to fund the payment of interest and other obligations when due is
dependent on cash generated from its operations, net of cash capital
expenditures. The Company's ability to complete its planned capital
expenditure program is dependent on its operating performance.
As of October 14, 1995, the Company had $18.0 million of borrowings and
approximately $43.2 million of letters of credit outstanding under its $100.0
million revolving credit facility.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 6.
(a) Exhibit
EXHIBIT NUMBER
27.1 Financial Data Schedule.
There were no reports on Form 8-K during the period.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE GRAND UNION COMPANY
-----------------------
(Registrant)
Date: November 28, 1995
----------------- /s/ Kenneth R. Baum
-----------------------
Kenneth R. Baum
Senior Vice President, Chief
Financial Officer and Secretary
(Principal Financial Officer and
Principal Accounting Officer)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
INTERIM CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-30-1996
<PERIOD-START> JUL-23-1995
<PERIOD-END> OCT-14-1995
<CASH> 36,064
<SECURITIES> 0
<RECEIVABLES> 14,054
<ALLOWANCES> 0
<INVENTORY> 172,416
<CURRENT-ASSETS> 14,566
<PP&E> 809,978
<DEPRECIATION> 330,809
<TOTAL-ASSETS> 1,258,342
<CURRENT-LIABILITIES> 184,405
<BONDS> 849,157
<COMMON> 10,000
0
0
<OTHER-SE> 104,402
<TOTAL-LIABILITY-AND-EQUITY> 1,258,342
<SALES> 1,244,256
<TOTAL-REVENUES> 1,244,256
<CGS> 864,698
<TOTAL-COSTS> 864,698
<OTHER-EXPENSES> 402,094
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,770
<INCOME-PRETAX> (74,306)
<INCOME-TAX> (5,372)
<INCOME-CONTINUING> (68,934)
<DISCONTINUED> 0
<EXTRAORDINARY> 854,785
<CHANGES> 0
<NET-INCOME> 785,851
<EPS-PRIMARY> (3.96)
<EPS-DILUTED> 0
</TABLE>
