<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 January 4, 1997
Commission File Number 0-26602
THE GRAND UNION COMPANY
(Exact name of registrant as specified in its charter)
Delaware 22 - 1518276
-------- ------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
201 Willowbrook Boulevard, Wayne,
New Jersey 07470 - 0966
--------------------------------- ------------
(Address of principal executive offices) (Zip Code)
201-890-6000
------------
(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 February 18, 1997, there were issued and outstanding 10,000,000
shares of the Registrant's common stock.
1
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THE GRAND UNION COMPANY
INDEX
PART I - FINANCIAL INFORMATION (Unaudited)
Item 1. Financial Statements.
<TABLE>
<CAPTION>
Page No.
<S> <C>
Consolidated Statement of Operations - 12 weeks ended January 4, 1997 and January 6, 1996 3
Consolidated Statement of Operations - 40 weeks ended January 4, 1997, 29 weeks ended January 6, 1996
(Successor Company) and 11 weeks ended June 17, 1995 (Predecessor Company) 4
Consolidated Balance Sheet - January 4, 1997 and March 30, 1996 5
Consolidated Statement of Cash Flows - 40 weeks ended January 4, 1997, 29 weeks ended January 6, 1996
(Successor Company) and 11 weeks ended June 17, 1995 (Predecessor Company) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations. 9
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders. 12
Item 6. Exhibits. 13
</TABLE>
All items which are not applicable or to which the answer is negative have been
omitted from this report.
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
THE GRAND UNION COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(unaudited)
12 Weeks Ended
-------------------------
January 4, January 6,
1997 1996
---------- ----------
Sales $ 537,151 $ 543,617
Cost of sales (372,816) (376,754)
----------- ----------
Gross profit 164,335 166,863
Operating and administrative expenses (138,373) (136,035)
Depreciation and amortization (16,257) (16,547)
Amortization of excess reorganization value (23,678) (24,578)
Unusual item - (15,000)
Interest expense, net (24,391) (23,537)
----------- ----------
Loss before income tax benefit (38,364) (48,834)
Income tax benefit 6,687 7,840
----------- ----------
Net loss (31,677) (40,994)
Accrued dividends on preferred stock (788) -
----------- ----------
Net loss applicable to common stock $ (32,465) $ (40,994)
----------- ----------
----------- ----------
Net loss per common share $ (3.25) $ (4.10)
----------- ----------
----------- ----------
See accompanying notes to consolidated financial statements (unaudited).
3
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THE GRAND UNION COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Predecessor
Successor Company Company
--------------------------- -----------
40 Weeks 29 Weeks 11 Weeks
Ended Ended Ended
January 4, January 6, June 17,
1997 1996 1995
----------- ---------- ---------
<S> <C> <C> <C>
Sales $ 1,797,386 $1,299,991 $ 487,882
Cost of sales (1,248,994) (897,411) (344,041)
---------- ---------- ---------
Gross profit 548,392 402,580 143,841
Operating and administrative expenses (451,060) (321,459) (117,544)
Depreciation and amortization (61,402) (40,504) (17,215)
Amortization of excess reorganization value (78,928) (59,405) --
Unusual items -- (19,500) (18,627)
Interest expense, net (contractual interest of $43,360
for the 11 weeks ended June 17, 1995) (81,252) (55,516) (19,791)
----------- ---------- ---------
Loss before income tax benefit and extraordinary gain
on debt discharge (124,250) (93,804) (29,336)
Income tax benefit 18,108 13,212 --
----------- ---------- ---------
Loss before extraordinary gain on debt discharge (106,142) (80,592) (29,336)
Extraordinary gain on debt discharge -- -- 854,785
----------- ---------- ---------
Net (loss) income (106,142) (80,592) 825,449
Accrued dividends on preferred stock (1,031) -- --
----------- ---------- ---------
Net (loss) income applicable to common stock $(107,173) $(80,592) $825,449
----------- ---------- ---------
----------- ---------- ---------
Net loss per common share $ (10.72) $ (8.06)
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
4
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THE GRAND UNION COMPANY
CONSOLIDATED BALANCE SHEET
(dollars in thousands, except par value)
(unaudited)
<TABLE>
<CAPTION>
January 4, March 30,
1997 1996
---------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary investments $ 36,091 $ 39,425
Receivables 33,189 20,948
Inventories 139,104 133,506
Other current assets 13,988 13,709
---------- ---------
Total current assets 222,372 207,588
Property, net 456,643 473,726
Excess reorganization value, net 358,744 437,672
Deferred tax asset 72,024 53,916
Other assets 12,692 12,304
---------- ---------
$1,122,475 $1,185,206
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Current maturities of long-term debt $ 212 $ 1,813
Current portion of obligations under capital leases 7,747 7,080
Accounts payable and accrued liabilities 178,598 170,010
---------- ---------
Total current liabilities 186,557 178,903
---------- ---------
Long-term debt 740,485 738,067
---------- ---------
Obligations under capital leases 135,771 128,114
---------- ---------
Other noncurrent liabilities 93,660 95,978
---------- ---------
Redeemable Class A preferred stock, $1.00 par value, 3,500,000 shares
authorized, 819,700 shares issued and outstanding, liquidation preference
$41,031 41,031 -
---------- ---------
Stockholders' (deficit) equity:
Common stock, $.01 and $1.00 par value at January 4, 1997 and March 30, 1996,
respectively, 60,000,000 shares authorized, 10,000,000 shares issued and
outstanding 100 10,000
Preferred stock, $1.00 par value, 10,000,000 shares authorized less amount
authorized as Class A preferred stock, no shares issued and outstanding - -
Capital in excess of par value 140,869 144,000
Accumulated deficit (215,998) (109,856)
---------- ---------
Total stockholders' (deficit) equity (75,029) 44,144
---------- ---------
$ 1,122,475 $ 1,185,206
---------- ---------
---------- ---------
</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>
Predecessor
Successor Company Company
------------------------- -----------
40 Weeks 29 Weeks 11 Weeks
Ended Ended Ended
January 4, January 6, June 17,
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income $(106,142) $(80,592) $825,449
Adjustments to reconcile net (loss) income to net cash provided by
(used for) operating activities before reorganization items paid:
Depreciation and amortization 61,402 40,504 17,215
Amortization of excess reorganization value 78,928 59,405 -
Deferred taxes (18,108) (12,787) -
LIFO charge 1,000 1,000 300
Noncash interest (145) 14,595 1,126
Extraordinary gain on debt discharge - - (854,785)
Net changes in assets and liabilities:
Receivables (12,241) (10,865) 1,769
Inventories (6,598) 10,489 12,646
Accounts payable and accrued liabilities 10,357 (17,720) (34,928)
Other current assets (279) (1,102) 2,776
Other (4,399) (3,176) 4,493
---------- ---------- ---------
Net cash provided by (used for) operating
activities before reorganization items paid 3,775 (249) (23,939)
Reorganization items paid (4,492) (19,609) (4,913)
---------- ---------- ---------
Net cash used for operating activities (717) (19,858) (28,852)
---------- ---------- ---------
INVESTMENT ACTIVITIES:
Capital expenditures (31,430) (27,304) (3,301)
Disposals of property 7,942 - 5,452
---------- ---------- ---------
Net cash (used for) provided by investment activities (23,488) (27,304) 2,151
---------- ---------- ---------
FINANCING ACTIVITIES:
Net proceeds from sale of preferred stock 28,000 - -
Obligations under capital leases discharged (8,434) (4,155) (1,707)
Retirement of long-term debt (7,695) (585) (239)
Net proceeds from long-term debt 9,000 18,089 -
Proceeds from New Bank agreement - - 104,144
Payment of Old Bank debt - - (93,144)
Loan placement fees - - (3,125)
---------- ---------- ---------
Net cash provided by financing activities 20,871 13,349 5,929
---------- ---------- ---------
Decrease in cash and temporary investments (3,334) (33,813) (20,772)
Cash and temporary investments at beginning of period 39,425 68,651 89,423
---------- ---------- ---------
Cash and temporary investments at end of period $ 36,091 $ 34,838 $ 68,651
---------- ---------- ---------
---------- ---------- ---------
Supplemental disclosure of cash flow information:
Interest payments $ 62,705 $ 15,169 $ 9,515
Capital lease obligations incurred 16,758 1,168 20,072
Accrued dividends on preferred stock 1,031 - -
Decrease in common stock par value 9,900 - -
</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 (the "Company") include the accounts of the Company and its
subsidiaries, all of which are wholly-owned. These consolidated financial
statements as of and for the periods subsequent to June 17, 1995 were
prepared in accordance with the principles of fresh-start reporting contained
within the American Institute of Certified Public Accountants Statement of
Position 90-7, "Financial Reporting By Entities In Reorganization Under The
Bankruptcy Code" ("Fresh-Start Reporting"). Therefore, in connection with
the implementation of Fresh-Start Reporting, a new entity was deemed created
for financial reporting purposes and, where applicable, the consolidated
financial statements for the "Successor Company" have been separately
identified from those of the "Predecessor Company". In the opinion of
management, the consolidated financial statements include all adjustments,
which, except for fresh-start adjustments, consist only of normal recurring
adjustments necessary for a fair presentation of operating results for the
interim periods.
These consolidated financial statements should be read in conjunction
with the consolidated financial statements and related notes contained in the
Company's Annual Report on Form 10-K for the 52 weeks ended March 30, 1996.
Operating results for the periods presented are not necessarily indicative of
the results for the full fiscal year.
NOTE 2 - Issuance of Preferred Stock
On July 30, 1996, the Company entered into an agreement (the "Stock
Purchase Agreement") to sell $100 million of 8.5% convertible preferred
stock, $1.00 par value per share, (the "Class A Preferred Stock") to an
investment group composed of Trefoil Capital Investors II, L. P., a Delaware
limited partnership, and GE Investment Private Placement Partners II, A
Limited Partnership, a Delaware limited partnership (collectively, the
"Purchasers").
On September 17, 1996, the Company sold 800,000 shares of Class A
Preferred Stock to the Purchasers for aggregate proceeds of $40,000,000 (the
"Principal Closing"). Under the terms of the Stock Purchase Agreement, the
Company will sell to the Purchasers an additional 400,000 shares of Class A
Preferred Stock at a purchase price of $50 per share (the "Stated Value") on
each of February 25, 1997, August 25, 1997 and February 25, 1998. Any or all
of the additional purchases may be accelerated by the Purchasers at their
option. Each of the additional purchases is subject to the satisfaction or
waiver of certain closing conditions as specified in the Stock Purchase
Agreement.
Dividends are cumulative and payable quarterly at 8.5% of the Stated
Value per annum. Dividends are payable, at the option of the Company, in
additional shares of Class A Preferred Stock or common stock through the
third anniversary of the Principal Closing. From the third anniversary
through the fifth anniversary of the Principal Closing, dividends are payable
in cash, unless the terms of the Company's bank credit agreement or 12%
senior note indenture prohibit cash dividends, in which case dividends may be
paid in Class A Preferred Stock or common stock. After the fifth anniversary
of the Principal Closing, dividends are payable in cash. To the extent that
any dividends on the Class A Preferred Stock are paid in shares of common
stock, the Company is required to pay a premium in additional shares of
common stock equal to 33 1/3% of the number of shares of common stock that
would otherwise be paid as the dividend. On December 31, 1996 and September
30, 1996, the Company paid dividends on the Class A Preferred Stock through
the issuance of 17,056 and 2,644 shares, respectively, of Class A Preferred
Stock. The aggregate Stated Value of the dividends at December 31, 1996 and
September 30, 1996 was $852,800 and $132,200, respectively.
Each share of Class A Preferred Stock is convertible at the option of
the holder, at any time, into 6.8966 shares of common stock. At January 4,
1997, the 819,700 outstanding shares of Class A Preferred Stock were
convertible into an aggregate 5,653,143 shares of common stock.
The Company is required to redeem the Class A Preferred Stock no later
than June 1, 2005. Additionally, the Class A Preferred Stock may be redeemed
at the Company's option at $50 per share plus all accrued and unpaid
dividends if the volume-weighted average price of the Company's common stock
over a 60-day period exceeds $13.05 per share after September 17, 1998,
or $14.50 per share after September 17, 1999. After September 17, 2001, the
Company's right to redeem is not contingent on the
7
<PAGE>
price of the common stock and the redemption price is approximately $51.60
per share plus all accrued and unpaid dividends, declining ratably to $50 per
share plus all accrued and unpaid dividends after September 17, 2004.
The Stock Purchase Agreement and the Certificate of Designation of
Preferred Stock, setting forth the powers, preferences, rights,
qualifications, limitations and restrictions of such class of preferred stock
(the "Certificate of Designation"), also contain provisions with respect to
the rights of the Purchasers to elect a specified number of directors, the
number of disinterested directors, voting rights and pre-emptive rights with
respect to any sale by the Company of shares of common stock or securities
convertible into, or exchangeable for, common stock. The liquidation
preference of the Class A Preferred Stock is equal to its Stated Value plus
any accrued and unpaid dividends.
The Class A Preferred Stock has been classified as Redeemable Class A
Preferred Stock in the accompanying Consolidated Balance Sheet. The
dividends on the Class A Preferred Stock and the accrued and unpaid dividends
through January 4, 1997 have been accounted for by a charge against Capital
in Excess of Par Value and a corresponding increase in the value of the Class
A Preferred Stock.
The Company has recorded, as a charge to Capital in Excess of Par Value,
costs directly related to the sale of the Class A Preferred Stock totaling
$12,000,000. The costs include transaction fees paid to Shamrock Capital
Advisors, Inc. and GE Investment Management Corporation of $2,000,000 each,
fees paid to Donaldson, Lufkin and Jenrette, the Company's financial advisor
and a related party, of approximately $5,200,000 and legal and other
professional fees and expenses of $2,800,000.
NOTE 3 - Net Loss Per Share
The Company's outstanding warrants to purchase common stock and options
to purchase common stock under the Company's 1995 Non-Employee Director's
Stock Option Plan and 1995 Equity Incentive Plan are considered common stock
equivalents. The inclusion of these common stock equivalents in the
Company's primary earnings per share calculation would have been
anti-dilutive for the periods presented. Accordingly, only the weighted
average number of common shares outstanding, totaling 10,000,000, were
included in the calculation.
The Company's Class A Preferred Stock is not deemed to be a common stock
equivalent. A fully diluted earnings per share calculation is not presented
because inclusion of the Class A Preferred Stock in the calculation would
have been anti-dilutive for the periods presented.
Earnings (loss) per common share data is not meaningful for periods
prior to June 17, 1995 due to the significant change in the capital structure
of the Company.
NOTE 4 - Annual Meeting of Stockholders
On November 7, 1996, the Company held its annual meeting of stockholders
and the shareholders approved the 1995 Non-Employee Directors' Stock Option
Plan and the 1995 Equity Incentive Plan. Additionally, approval was given to
an increase in the number of authorized shares of common stock to 60,000,000
and a decrease in the par value to $.01. Also approved were two amendments
to the Company's certificate of incorporation, a fair price amendment and an
amendment to permit stockholder action by written consents.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General:
As discussed in Note 1, as of June 17, 1995, in accordance with the
American Institute of Certified Public Accountants Statement of Position
90-7, "Financial Reporting By Entities In Reorganization Under The Bankruptcy
Code", the Company applied Fresh-Start Reporting. In connection with the
adoption of Fresh-Start Reporting, a new entity was deemed created for
financial reporting purposes. For purposes of the discussion of Results of
Operations for the 40 weeks ended January 6, 1996, the results of the
Predecessor Company and Successor Company have been combined.
Results of Operations
The following table sets forth certain statement of operations data
reflecting the combination discussed above (all dollars in millions):
<TABLE>
<CAPTION>
12 Weeks Ended 40 Weeks Ended
--------------------- ----------------------
January 4, January 6, January 4, January 6,
1997 1996 1997 1996
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $ 537.2 $ 543.6 $1,797.4 $1,787.9
Gross profit 164.3 166.9 548.4 546.4
Operating and administrative expenses (138.4) (136.0) (451.1) (439.0)
Depreciation and amortization (16.3) (16.5) (61.4) (57.7)
Amortization of excess reorganization value (23.7) (24.6) (78.9) (59.4)
Unusual items -- (15.0) -- (38.1)
Interest expense, net (24.4) (23.5) (81.3) (75.3)
Income tax benefit 6.7 7.8 18.1 13.2
Extraordinary gain on debt discharge -- -- -- 854.8
Net (loss) income (31.7) (41.0) (106.1) 744.9
LIFO provision (0.3) (0.3) (1.0) (1.0)
Sales percentage (decrease) increase (1.2%) (3.5%) 0.5% (4.3%)
Same store sales percentage (decrease) increase (0.8) (1.3) 0.8 (1.2)
Gross profit as a percentage of sales 30.6 30.7 30.5 30.6
Operating and administrative
expenses as a percentage of sales 25.8 25.0 25.1 24.6
</TABLE>
Sales for the 12 (the "third quarter") weeks ended January 4, 1997
decreased $6.5 million, or 1.2%, as compared to the 12 weeks ended January 6,
1996. Same store sales (sales of stores which were operated during the
comparable periods of both fiscal years) decreased 0.8% during the third
quarter as compared to the prior year's third quarter. Same store sales
decreases for the third quarter were largely attributable to a shorter than
normal holiday season this year coupled with no snow this year versus the
sales benefit of four snow storms last year. Sales for the 40 weeks ended
January 4, 1997 increased $9.5 million, or 0.5%, as compared to the 40 weeks
ended January 6, 1996. Same store sales increased 0.8% during the year to
date as compared to last year's 40 week period. Same store sales increases
for the year to date resulted primarily from the continued maturation of the
Company's marketing and customer service programs and the effect of the
Company's capital expenditure program offset by those factors affecting the
third quarter comparison.
Gross profit, as a percentage of sales, decreased 0.1% for both the
third quarter and year to date compared to the prior year's comparable
periods. Factors negatively affecting third quarter gross profit, compared to
the prior year, include the "More Lower Prices" marketing program implemented
at the beginning of the fiscal year in the majority of the Company's
metropolitan New York area stores and higher levels of promotional spending
partially offset by the positive benefits from outsourcing warehousing and
distribution. In addition to the factors affecting the third quarter
comparison, the year to date comparison reflects
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the positive benefit of the restoration of vendor promotional
allowances and other vendor support to normal levels compared to bankruptcy -
impacted levels experienced in last year's first quarter.
Operating and administrative expenses, as a percentage of sales,
increased 0.8% to 25.8% and 0.5% to 25.1% for the third quarter and year to
date, respectively. The increase in operating expenses, as a percentage of
sales, in both the third quarter and year to date periods primarily resulted
from increased store advertising and promotional activity and store labor
levels to properly launch and support the key elements of the Company's
strategic plan. In addition, gains on sales of stores in the first half of
this year were lower than the comparable period of the prior year.
Depreciation and amortization decreased $0.2 million to $16.3 million
for the third quarter and increased $3.7 million to $61.4 million for the
year to date. The year to date increase is principally from increases in
capital spending and capitalized leases.
Interest expense increased $0.9 million to $24.4 million and $6.0
million to $81.3 million for the third quarter and year to date periods,
respectively, compared with the same periods of the prior year. The third
quarter increase is principally a result of higher levels of capitalized
leases in the current year. The year to date increase was impacted by the
finalization of debt levels upon emergence from bankruptcy.
The Company recorded federal and state income tax benefits of $6.7 and
$18.1 million during the third quarter and year to date periods,
respectively, compared to $7.8 million and $13.2 million for the same
periods last year.
The Company frequently utilizes a financial measure, EBITDA, in
discussing its operating results to normalize comparisons with companies of
varying capital structures. The Company arbitrarily defines EBITDA as
earnings before accrued preferred stock dividends, extraordinary gains or
losses, income tax benefits, interest expense, unusual items, depreciation
and amortization and LIFO provision. The Company believes that EBITDA
comparisons are useful for investors but are not a substitute for operating
data required by generally accepted accounting principles. EBITDA, as
defined by the Company, totaled $26.3 million, 4.9% of sales, and $98.3
million, 5.5% of sales, for the third quarter and year to date, respectively,
compared to $31.1 million, 5.7% of sales, and $108.4 million, 6.1% of sales,
for the same periods last year. The decreases are a result of the sales,
gross profit and operating expense variances discussed previously. During
Fiscal 1996 and Fiscal 1997, the Company has reduced costs through the
outsourcing of distribution, store voluntary resignation incentive programs
and reorganization of the Company's organizational structure. These savings
have been reinvested in price repositioning and customer service programs
which adversely affect gross margin and operating expenses in periods in
which they are made.
Liquidity and Capital Resources
On July 30, 1996, the Company entered into an agreement (the "Stock
Purchase Agreement") to sell $100 million of 8.5% convertible preferred
stock, $1.00 par value per share (the "Class A Preferred Stock") to an
investment group composed of Trefoil Capital Investors II, L. P., a Delaware
limited partnership, and GE Investment Private Placement Partners II, A
Limited Partnership, a Delaware limited partnership (collectively, the
"Purchasers").
On September 17, 1996, the Company sold 800,000 shares of Class A
Preferred Stock to the Purchasers for an aggregate price of $40 million. The
Company incurred $12 million of costs directly related to the sale of Class A
Preferred Stock, including one-time fees totaling approximately $9.2 million.
Under the terms of the Stock Purchase Agreement, the Company will sell
to the Purchasers an additional 400,000 shares of Class A Preferred Stock at
a purchase price of $50 per share (the "Stated Value") on each of February
25, 1997, August 25, 1997 and February 25, 1998. Any or all of the purchases
referred to in the preceding sentence may be accelerated by the Purchasers,
with or without the approval of the Company.
The Company is and will continue to be highly leveraged. Interest
payments totaled approximately $63 million for the 40 weeks ended January 4,
1997 and will be approximately $110 million for the full year. Capital
expenditures, including capitalized leases other than real estate leases,
totaled approximately $34 million for the 40 weeks ended January 4, 1997 and
are expected to total between $55 and $60 million for the full year. Fiscal
1997 capital expenditures will principally be dedicated to remodels, new and
replacement stores, store systems and maintenance capital. Through January
4, 1997, the Company had opened one new
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and two replacement stores. By the end of April, the Company expects to have
completed ten M.A.S.T.E.R.S. ("Maximize All Space, Totally Expand the Right
Stuff") renovations since the beginning of the second half of the 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 proceeds received from the
sale of Class A Preferred Stock, operations, its Amended and Restated Credit
Agreement (the "New Bank Facility") and, to a limited extent, equipment
leases or purchase money mortgages. The Company's ability to fund the
payment of interest and other obligations when due is primarily dependent on
cash generated from its operations, net of cash capital expenditures. The
Company's ability to complete its expanded capital expenditure program is
dependent on its operating performance.
Resources used to finance significant expenditures are as follows (in
millions):
<TABLE>
<CAPTION>
40 Weeks Ended
-----------------------
January 4, January 6,
1997 1996
--------- ----------
<S> <C> <C>
Resources used for:
Capital expenditures $ 31.4 $ 30.6
Debt and capital lease repayments 16.1 99.8
Loan placement fees -- 3.1
------ ------
$ 47.5 $133.5
------ ------
------ ------
Financed by:
Net proceeds from sale of Class A Preferred Stock $ 28.0 $ --
Net proceeds from long-term debt 9.0 --
Property disposals 7.9 5.5
Operating activities, including cash and temporary investments 2.6 5.8
Proceeds from New Bank Facility -- 122.2
------ ------
$ 47.5 $133.5
------ ------
------ ------
</TABLE>
During the 40 weeks ended January 4, 1997, funds for capital
expenditures and debt and capital lease repayments were obtained from net
proceeds from the sale of Class A Preferred Stock, borrowings under the
Company's bank agreement, property disposals and operating activities.
During the 40 weeks ended January 6, 1996, funds for debt and capital lease
repayments and capital expenditures and loan placement fees were principally
obtained from cash provided by the New Bank Facility.
As of January 4, 1997, the Company had $36.0 million of borrowings and
approximately $44.4 million of letters of credit outstanding under its $100
million revolving credit facility.
The Company and its bank lenders amended the term loan and revolving
credit agreements effective at the end of the third quarter. The amendment
reduces the minimum levels of EBITDA required for both the third quarter and
the fiscal year and correspondingly reduces the EBITDA to cash interest
coverage requirement over the same time frame. The Company's ability to meet
its future debt covenants is dependent on the results of future operations.
The Company is currently in compliance with these amended debt agreements.
Accounts receivable increased $12.2 million since the end of the prior
fiscal year primarily due to increased landlord construction receivables in
support of the Company's capital program.
Certain statements by the Company may be considered "forward-looking
statements" within the meaning of federal securities law. Such
forward-looking statements are subject to risks, uncertainties and other
factors which could cause actual results to differ materially from future
results expressed or implied by such forward-looking statements. Potential
risks and uncertainties include, but are not limited to, the competitive
environment in which the Company operates, the Company's ability to complete
its capital expenditures on a timely basis, the success of operating
initiatives, regional weather conditions and the general economic conditions
in the geographic areas in which the Company operates.
11
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's first regular annual meeting of stockholders since
emergence from bankruptcy was held on November 7, 1996.
(a) Votes cast in favor of and withheld from voting with respect to the
election of each nominee for director were as follows:
Director Votes For Votes Withheld
-------- --------- --------------
Roger E. Stangeland 13,824,047 42,207
Joseph J. McCaig 13,824,401 41,853
James J. Costello 13,823,947 42,307
Daniel E. Josephs 13,824,047 42,207
William G. Kagler 13,824,047 42,207
Clifford A. Miller 13,824,047 42,207
Geoffrey T. Moore 13,824,401 41,853
J. Richard Stonesifer 13,824,301 41,953
David Y. Ying 13,824,401 41,853
(b) The 1995 Non-Employee Directors' Stock Option Plan and the issuance
of up to one hundred thousand (100,000) shares of Common Stock pursuant to
that plan was approved, with 11,865,827 votes in favor, 158,285 votes
against, 36,403 in abstention and 1,805,739 broker non-votes.
(c) The 1995 Equity Incentive Plan and the issuance of up to nine
hundred thousand (900,000) shares of Common Stock pursuant to that plan was
approved, with 10,703,529 votes in favor, 1,296,111 votes against, 38,595
votes in abstention and 1,828,019 broker non-votes.
(d) The amendment of the Company's Certificate of Incorporation to
increase the number of shares of authorized Common Stock to sixty million
(60,000,000) and to reduce the par value to $.01 per share was approved, with
13,582,864 votes in favor, 126,858 votes against, 46,493 votes in abstention
and 110,039 broker non-votes. Common shares were voted 8,065,584 in favor,
126,858 against, 46,493 in abstention and 110,039 broker non-votes.
(e) The amendment of the Company's Certificate of Incorporation to
provide holders of the Company's Common Stock with price protection in
connection with certain business combination transactions (the "Fair Price"
amendment) was approved, with 11,629,493 votes in favor, 384,065 votes
against, 35,051 votes in abstention and 1,817,645 broker non-votes. Common
shares were voted 6,112,213 in favor, 384,065 against, 35,051 in abstention
and 1,817,645 broker non-votes.
(f) The amendment of the Company's Certificate of Incorporation to
permit stockholder action by written consent was approved, with 11,896,093
votes in favor, 101,789 votes against, 40,348 votes in abstention and
1,828,024 broker non-votes. Common shares were voted 6,378,813 in favor,
101,789 against, 40,348 in abstention and 1,828,024 broker non-votes.
(g) The appointment of Price Waterhouse LLP as independent accountants
of the Company for the fiscal year ending March 29, 1997 was ratified, with
13,792,665 votes in favor, 47,480 votes against and 26,109 votes in
abstention.
12
<PAGE>
Item 6. Exhibits
Exhibit Number
--------------
10.1 Fourth Amendment to the Amended and Restated Credit
Agreement dated January 13, 1997.
27.1 Financial Data Schedule.
13
<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: February 18, 1997 /s/ Joseph J. McCaig
--------------------
Joseph J. McCaig
Director, President,
and Chief Executive Officer
Date: February 18, 1997 /s/ John M. Needham
-------------------
John M. Needham
Vice President and Controller
(Chief Accounting Officer)
14
<PAGE>
FOURTH AMENDMENT
TO THE
AMENDED AND RESTATED CREDIT AGREEMENT
FOURTH AMENDMENT dated as of January 13, 1997 (this "Amendment") to
the AMENDED AND RESTATED CREDIT AGREEMENT dated as of June 15, 1995 (as modified
by the Waiver and First Amendment thereto dated as of February 16, 1996, the
Second Amendment thereto dated as of May 10, 1996 and the Third Amendment
thereto dated as of September 11, 1996, the "Credit Agreement"), each among THE
GRAND UNION COMPANY, a Delaware corporation (the "Borrower"), the institutions
from time to time party thereto as lenders (the "Banks") and BANKERS TRUST
COMPANY, as agent (the "Agent"). Capitalized terms used herein and not defined
herein shall have the respective meanings set forth for such terms in the Credit
Agreement.
W I T N E S S E T H :
WHEREAS, the Borrower has requested that the EBITDA and interest
coverage covenants in the Credit Agreement for the respective fiscal quarters of
the Borrower ending January 1997 and March 1997 be amended; and
WHEREAS, subject to and upon the terms and conditions hereinafter set
forth and in the Credit Agreement as amended hereby, the Banks party hereto are
agreeable to the foregoing;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. AMENDMENTS. The Credit Agreement is hereby amended effective
as of January 3, 1997 as follows:
<PAGE>
(a) Section 8.9 of the Credit Agreement is amended by (i) replacing
the amount "135,000,000" set forth opposite "January 1997" in the table
contained in such Section with the amount "130,000,000"; and (ii) replacing the
amount "140,000,000" set forth opposite "March 1997" in the table contained in
such Section with the amount "130,000,000".
(b) Section 8.11 of the Credit Agreement is amended by (i) replacing
the month "January 1997" in the first row of the table contained in such Section
with the month "October 1996"; (ii) replacing the month "March 1997" in the
second row of the table contained in such Section with the month "July 1997";
and (iii) inserting the following as a new second row of the table contained in
such Section:
"Fiscal Quarter ending in
January 1997 and Fiscal
Quarter ending in March 1997 1.22:1".
2. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents
and warrants to the Agent and each Bank that:
(a) after giving effect this Amendment, no Default or Event of
Default has occurred and is continuing on and as of the date hereof; and
(b) the representations and warranties of the Borrower and the
other Credit Parties contained in the Credit Agreement and the other Credit
Documents are true and correct on and as of the date hereof as if made on and as
of the date hereof after giving effect to the amendments contemplated hereby,
except to the extent such representations and warranties expressly relate to a
different specific date.
2
<PAGE>
3. EFFECTIVENESS. This Amendment shall become effective as of the
date specified in Section 1 hereof when:
(a) the Agent shall have executed and delivered a counterpart of
this Amendment and received duly executed counterparts of this Amendment from
the Borrower, each Subsidiary of the Borrower that is a party to any Credit
Document and as many of the Banks as shall be necessary to comprise the
"Required Banks" or the "Required Class Creditors", as the case may be; and
(b) the Borrower shall have paid to the Agent for the account of
the applicable Lenders the fee described in Section 4 hereof.
4. AMENDMENT FEE. The Borrower shall pay to the Agent, in
immediately available funds, for the account of each Bank that executes and
delivers a signature page to this Amendment on or prior to January 13, 1997,
an amendment fee equal to 12.5 basis points on the sum of (a) such Bank's
Revolving Loan Commitment, and (b) the aggregate outstanding principal amount
of Term Loans held by such Bank.
5. STATUS OF CREDIT DOCUMENTS. (a) This Amendment is limited
solely for the purposes and to the extent expressly set forth herein, and,
except as expressly modified hereby, (i) the terms, provisions and conditions of
the Credit Documents, (ii) the terms and provisions of the Further Assurances
Agreement dated as of June 15, 1995, as modified in writing prior to the date
hereof, between the Borrower and the Agent, and (iii) the Liens granted under
the Credit Documents shall continue in full force and effect and are hereby
ratified and confirmed in all respects.
3
<PAGE>
(a) No amendment made to the Credit Agreement pursuant to this
Amendment shall relieve the Borrower from complying with any other term or
provision of the Credit Agreement as amended hereby.
6. COUNTERPARTS. This Amendment may be executed and delivered in
any number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument. A
complete set of counterparts shall be lodged with the Borrower and the Agent.
7. GOVERNING LAW. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH, AND SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their respective
duly authorized officers to execute and deliver this Fourth Amendment to the
Amended and Restated Credit Agreement as of the date first above written.
THE GRAND UNION COMPANY
By: /s/ Francis E. Nicastro
-----------------------
Name: Francis E. Nicastro
Title: Vice President and
Treasurer
BANKERS TRUST COMPANY,
Individually and as Agent
By: /s/ Mary Kay Coyle
------------------
Name: Mary Kay Coyle
Title: Managing Director
BANKAMERICA BUSINESS CREDIT, INC.
By: /s/ Richard Levenson
--------------------
Name: Richard Levenson
Title: VP
BANK POLSKA KASA OPIEKI, SA
By: /s/ William A. Shea
-------------------
Name: William A. Shea
Title: Vice President
Senior Lending Officer
5
<PAGE>
COMPAGNIE FINANCIERE DE CIC ET
DE L'UNION EUROPEENNE
By: /s/ Sean Mounier
----------------
Name: Sean Mounier
Title: First Vice President
By: /s/ Brian O'Leary
-----------------
Name: Brian O'Leary
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Timothy M. Barns
---------------------
Name: Timothy M. Barns
Title: Division Executive
FLEET CAPITAL CORPORATION
By: /s/ Eric Rubin
--------------
Name: Eric Rubin
Title: Vice President
HELLER FINANCIAL, INC.
By: /s/ Salvatore Salzilla
----------------------
Name: Salvatore Salzilla
Title: AVP
6
<PAGE>
LEHMAN COMMERCIAL PAPER INC.
By: /s/ Michele Swansen
-------------------
Name: Michele Swansen
Title: Authorized Signatory
SWISS BANKING CORPORATION,
LONDON BRANCH
By: /s/ J. Cullinane
----------------
Name: J. Cullinane
Title: Director
Attorney-in-fact
By: /s/ James Duplessie
-------------------
Name: James Duplessie
Title: Executive Director
Distressed Debt
Attorney-in-fact
PROTECTIVE LIFE INSURANCE CO.
By: /s/ James Dondero
-----------------
Name: James Dondero
Title: Authorized Signatory
QUANTUM PARTNERS LDC
By: /s/ Mark Sonnino
----------------
Name: Mark Sonnino
Title: Attorney-in-fact
SENIOR DEBT PORTFOLIO
By: Boston Management and Research,
as Investment Advisor
By: /s/ James L. O'Connor
---------------------
Name: James L. O'Connor
Title: Treasurer
7
<PAGE>
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ Perry Vavoules
------------------
Name: Perry Vavoules
Title: Senior Vice President
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
By: /s/ Kathleen A. Zarn
--------------------
Name: Kathleen A. Zarn
Title: Vice President
The foregoing Fourth Amendment to the Amended and Restated Credit
Agreement is hereby consented and agreed to, and the Liens and guaranties under
the Credit Documents are hereby confirmed, by:
MERCHANDISING SERVICES, INC.
GRAND UNION STORES, INC. OF VERMONT
GRAND UNION STORES OF NEW HAMPSHIRE, INC.
SPECIALTY MERCHANDISING SERVICES, INC.
By: /s/ Francis E. Nicastro
-----------------------
Name: Francis E. Nicastro
Title: Vice President and Treasurer
of each of the above listed
entities
8
<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-29-1997
<PERIOD-START> MAR-31-1996
<PERIOD-END> JAN-04-1997
<CASH> 36,091
<SECURITIES> 0
<RECEIVABLES> 33,189
<ALLOWANCES> 0
<INVENTORY> 139,104
<CURRENT-ASSETS> 222,372
<PP&E> 885,215
<DEPRECIATION> 428,572
<TOTAL-ASSETS> 1,122,475
<CURRENT-LIABILITIES> 186,557
<BONDS> 600,209
41,031
0
<COMMON> 100
<OTHER-SE> (75,029)
<TOTAL-LIABILITY-AND-EQUITY> 1,122,475
<SALES> 1,797,386
<TOTAL-REVENUES> 1,797,386
<CGS> 1,248,994
<TOTAL-COSTS> 1,248,994
<OTHER-EXPENSES> 591,390
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 81,252
<INCOME-PRETAX> (124,250)
<INCOME-TAX> (18,108)
<INCOME-CONTINUING> (106,142)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (107,173)
<EPS-PRIMARY> (10.72)
<EPS-DILUTED> 0
</TABLE>
