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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended April 3, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-26602
THE GRAND UNION COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 22-1518276
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
201 Willowbrook Boulevard, Wayne, New Jersey 07470-0966
- -------------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 973-890-6000
-----------------------
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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None
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Securities registered pursuant
to Section 12 (g) of the Act: Common Stock, Par Value $0.01
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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
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. [ ]
[Cover page 1 of 2]
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The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of June 25, 1999 is approximately $322,306,500, based upon the
closing sales price of the Common Stock on the Nasdaq National Market on such
date. For the purpose of this calculation, all members of the Board of
Directors are presumed to be affiliates.
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 June 25, 1999 there were issued and outstanding 30,000,000 shares, par
value $0.01 per share, of the registrant's Common Stock.
Documents Incorporated by Reference: The Proxy Statement for the 1999 Annual
Meeting of Stockholders has been incorporated by reference partially in Part
III hereof.
[Cover page 2 of 2]
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THE GRAND UNION COMPANY
FORM 10-K
For the Year Ended April 3, 1999
INDEX
Part I PAGE
Item 1. Business......................................................... 1
Item 2. Properties....................................................... 5
Item 3. Legal Proceedings................................................ 5
Item 4. Submission of Matters to a Vote of Security Holders.............. 6
Part II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters............................................ 6
Item 6. Selected Consolidated Financial Data............................. 7
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 7
Item 7A. Quantitative and Qualitative Disclosure About Market Risk........ 11
Item 8. Financial Statements and Supplementary Data...................... 12
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure....................................... 12
Part III
Item 10. Directors and Executive Officers of the Registrant............... 12
Item 11. Executive Compensation........................................... 12
Item 12. Security Ownership of Certain Beneficial Owners and Management... 12
Item 13. Certain Relationships and Related Transactions................... 12
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.. 12
Signatures................................................................. 16
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Other than historical information, statements in this report may be deemed
to be forward-looking statements within the meaning of the federal securities
laws. Actual results and the timing of certain events could differ materially
from those projected in the forward-looking statements due to a number of
factors, including those set forth in this report. See "Special Note Concerning
Forward-Looking Statements" in Part II of this report.
PART I
Item 1. Business
General
The Grand Union Company, a Delaware corporation ("Grand Union" or the
"Company"), is engaged in the retail food business. Grand Union operated 217
stores in six northeastern states averaging approximately 27,500 gross square
feet per store as of April 3, 1999. The Company's Common Stock has been listed
on the Nasdaq National Market under the ticker symbol "GUCO" since October 1,
1998.
As a result of the implementation of several key strategic
initiatives since 1997, Grand Union has been able to stabilize and
improve its operations in the critical areas of sales, margins,
promotional income and expense levels. These initiatives included a
complete restaffing of senior management, organizational restructuring
measures and reconfiguration of the Company into three geographic
operating areas. Grand Union is continuing its pursuit of these
strategic initiatives, identifying additional areas for operating and
administrative expense reduction, implementing technological efficiency
and pursuing new marketing and merchandising activities, all of which
are designed to enhance the Company's image as a high-quality,
price-conscious operator in the northeastern retail food industry.
Strategic Initiatives
In recent years, results in the supermarket industry have been impacted by
slow population growth, increasing competitive activity, and changing consumer
shopping and eating patterns. These factors, and others, are projected to lead
to essentially flat real supermarket sales growth over the next several years.
Grand Union is in the process of implementing various strategies to meet
its long-term goals for improving financial performance. The Company will
continue to focus on the requirements and preferences of "Today's Customer".
This strategy includes identifying and understanding the ongoing changes in
consumer trends, thereby allowing consumer preferences to be the drivers of
change in Grand Union's offerings of services and products. The Company
continues to develop and evaluate new retailing strategies that will respond to
its customers' needs. In addition, Grand Union has determined that to maximize
profitability, it should (i) expand and renovate its existing store base,
including the development of new stores and the remodeling of existing units;
(ii) implement a program for maximizing advertising and promotion allowance
revenues from the Company's suppliers; and (iii) perform ongoing evaluations,
including modifying store locations as required.
Prior to the Company's 1998 Reorganization under Chapter 11 of the
Bankruptcy Code (the "1998 Reorganization"), the Company had an overleveraged
balance sheet and insufficient resources to consistently fund capital
expenditures adequately. On August 17, 1998 (the "Effective Date"), Grand Union
consummated the 1998 Reorganization pursuant to the August 5, 1998 Confirmation
Order of the United States Bankruptcy Court for the District of New Jersey. As a
result of the 1998 Reorganization, the Company has substantially improved its
liquidity by significantly reducing its debt and the attendant reduction in
interest expense and entered into a $300 million credit agreement (see "The 1998
Reorganization" below). This substantial reduction of debt and the availability
of new funds has enabled Grand Union to organize and commence a capital
expenditure program that is expected to enhance the operations, profitability
and competitiveness of the Company.
EACH OF THE FOREGOING STRATEGIC INITIATIVES ARE FORWARD-LOOKING AND INVOLVE
RISKS AND UNCERTAINTIES. THERE CAN BE NO ASSURANCE THAT ANY OF THE STRATEGIC
INITIATIVES WILL IMPROVE THE FINANCIAL PERFORMANCE OF THE COMPANY.
Store Formats and Locations; Competition
Grand Union's store sizes and formats vary depending upon the demographics,
competitive conditions and real estate availability in each location in which it
operates. The Company's supermarkets offer a wide selection of national brand
and private label grocery and general merchandise products as well as
high-quality perishables and service departments. The majority of Grand Union's
sales are generated from stores which include high-margin specialty and service
departments. Selected locations feature in-store cafes and pharmacies. Liquor,
beer and wine departments are included
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in many locations, subject to the limitations of state and local laws. Grand
Union's supermarkets range in size from 7,000 to 64,000 gross square feet.
During the fiscal year ended April 3, 1999 ("Fiscal 1999"), the Company
introduced a new store format geared to a specific marketing area. "Hot Dot"
stores, which feature a limited assortment format (low-price, limited in-store
services and low overhead), were opened in four converted existing Northern
Division locations. The Company has plans to introduce other new formats in
the fiscal year ending April 1, 2000 ("Fiscal 2000").
Grand Union operates 219 stores in six states, including 121 in New York,
40 in Vermont, 41 in New Jersey, 12 in Connecticut, 3 in New Hampshire and 2 in
Pennsylvania as of June 25, 1999. This includes 8 Hot Dot stores in previously
existing locations.
The food retailing business is highly competitive, including numerous
national, regional and local supermarket chains. Grand Union also competes with
convenience stores, units owned and operated or otherwise affiliated with large
food wholesalers, unaffiliated independent food stores, warehouse/merchandise
clubs, discount drugstore chains and discount general merchandise chains. Some
of the Company's competitors may have greater financial resources than Grand
Union has and could use those resources to take steps which would adversely
affect the Company's competitive position.
In upstate New York, Grand Union generally operates in small cities and
rural communities. The Company's main competitors are Price Chopper and
Hannaford. Commercial development in areas north of Albany, New York is
typically limited and constrained by zoning and environmental restrictions,
particularly in areas regulated by the Adirondack Park Commission. In the more
urban Albany area, Price Chopper and Hannaford have each opened a number of new
stores in the last five years, which are generally larger than the Company's
stores.
In the Mid-Hudson Valley area of New York, the Company's principal
competitors are ShopRite, Price Chopper, Hannaford and A&P. Continuing weak
economic conditions in the Mid-Hudson Valley have constrained business in recent
years. In addition, the Company's results in this region have been adversely
affected by recent store openings by competitors.
In Vermont, Grand Union's principal competitors are Price Chopper and
Hannaford. Grand Union maintains the largest market share in Vermont. Zoning and
environmental regulations in the state restrict commercial development,
including the development of supermarkets which might be competitors of the
Company.
A number of the Company's stores in upstate New York and Vermont are in
resort areas. These generally experience significant increases in sales in the
summer months and in some cases during the winter ski season.
The Company's stores in metropolitan New York, Connecticut and New Jersey
serve densely populated communities with demographics particularly well suited
for store formats emphasizing specialty and service departments. Accordingly,
the sales mix in these stores includes a larger percentage of higher margin
perishable items. In addition, the high population density as well as the
geographic concentration of stores provide substantial economy of scale
opportunities. Some of the Company's stores in those areas experience increased
sales during the summer months.
In New Jersey, the Company competes primarily against A&P, Pathmark,
Edwards, ShopRite, Edwards and various other supermarkets.
In Westchester, Orange, Rockland, Dutchess and Putnam Counties in New York,
the Company generally competes with A&P, Edwards and ShopRite.
On Long Island, the Company's principal competitors include A&P, Waldbaums
(division of A&P), Pathmark, ShopRite, Edwards and King Kullen.
Grand Union's main competitors in Fairfield County, Connecticut include
Stop & Shop and A&P.
Distribution and Supply
The majority of Grand Union's merchandise is distributed to Grand Union
stores by C&S Wholesale Grocers, Inc. ("C&S") pursuant to supply and
distribution agreements. Under the agreements, C&S supplies grocery products
from its own warehouses, and health and beauty care and general merchandise
products from Grand Union's
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Montgomery, New York warehouse. Grand Union also contracts with a third party
for frozen food distribution. Management believes that Grand Union's existing
agreements with C&S enhance the Company's ability to offer consistently fresh
and high-quality products to its customers at favorable prices. Grand Union
operates a 20,000 square foot commissary located in Newburgh, New York, in
which high quality cooked meat products, salads, salad ingredients and soups
are prepared for sale in the delicatessen departments of the Company's stores.
Selected Data
The table below sets forth certain statistical information with respect to
Grand Union retail stores for the past three years.
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1999 1998 1997
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<S> <C> <C> <C>
Number of stores (at end of year) 217 222 226
Total selling square feet at end of year (in thousands) 4,293 4,353 4,312
Average sales per selling square foot per week $10.05 $10.07 $10.28
</TABLE>
Capital Investment
The Company's capital investment program is directed towards renovating and
upgrading existing Grand Union stores and opening new and replacement stores in
current marketing areas. As referenced above, in certain areas the Company is
investing capital on newly developed alternate formats geared toward particular
locations and demographics. Cash capital expenditures for the 33 weeks ended
April 3, 1999, the 20 weeks ended August 15, 1998, and the fiscal year ended
March 28, 1998 ("Fiscal 1998") were approximately $20.9 million, $3.4 million,
and $39.7 million, respectively, excluding capital lease additions of $7.6
million, $0, and $21.7 million, respectively. See Item 6 for information
concerning the methodology utilized to report the Company's operating results
before and after the 1998 Reorganization.
Information Technology
Financial, purchasing and operating system requirements are supported
through a central computer system located in Wayne, New Jersey. As of April 3,
1999, Grand Union utilized scanning systems in 187 stores (representing
approximately 95% of total sales) and intends to continue investing in scanning
and other store systems in the future where economically justified. See Item 7
for a discussion of Year 2000 compliance.
Employees
As of April 3, 1999, Grand Union had approximately 13,000 employees, of
whom approximately 70% were employed on a part-time basis. Approximately 55% of
Grand Union's employees are covered by 12 collective bargaining agreements with
various local unions.
In March 1999, the Company entered into a new labor agreement with United
Food and Commercial Workers Local 1262 covering approximately 1,700 clerks in 32
of the Company's stores in Westchester, Putnam and Dutchess counties in New
York. That agreement expires in May 2003. Additionally, in December 1998 the
Company reached an agreement with UFCW Local 174 covering approximately 20 meat
department employees in two New York City stores. The Local 174 agreement
expires in December 2002. In December 1998, the Company reached an agreement
with UFCW Local 464A, covering approximately 1,000 meat, seafood, deli and Taste
Place employees at 54 locations in the Southern Division. The Local 464A
agreement expires April 19, 2003. In December 1998, the Company reached an
agreement with Teamsters Local 445 on terms for a wage reopener covering
approximately 80 warehouse employees at the Company's Montgomery distribution
warehouse. The Local 445 agreement expires December 4, 1999. In February 1999,
the Company reached an agreement with the Bakery Confectionary & Tobacco Workers
Union Local 3 on terms for a new collective bargaining agreement covering
approximately 50 bakery employees working at 13 stores in Long Island, New York.
The Local 3 Agreement expires January 25, 2003. The Company's other labor
agreements expire between October 1999 and July 2002.
As of April 3, 1999, all employees covered by collective bargaining
agreements were employed at store locations and in the Company's Montgomery, New
York warehouse.
The Company believes that its relationship with its employees is generally
satisfactory.
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Trade Names, Service Marks and Trademarks
Grand Union owns and actively uses over 20 trade names, service marks and
trademarks (collectively, "Marks"). Among these Marks are "Grand
Union"(Registered), the symbol of a red dot, "Grand Classics"(Registered), "Big
Gold Top"(Registered), "The Best Take Out Restaurant in Town"(Registered),
"Grand Premium"(Registered), "Taste Place"(Registered), "Holland
Hall"(Registered) and "Red Dot Special"(Registered), all of which are
significant to the Company's business. The Company also has common law rights
in, has filed for, or intends to file for various other Marks.
Financial Information About Foreign and Domestic Operations and Export Sales
Grand Union has no foreign operations or export sales.
Recent History
The 1998 Reorganization
In February, 1998, due to a lack of sufficient liquidity, increasing
competition, consolidation, and falling margins, Grand Union determined that its
financial resources would be insufficient to satisfy the interest payment due
and payable on its Old Senior Notes. As a result, Grand Union did not make the
March 2, 1998 interest payment to holders of the Old Senior Notes. The failure
to make such interest payment constituted a default under the Indenture
governing the Old Senior Notes and a cross-default under the Old Credit
Agreement.
Accordingly, the Company commenced negotiations with the secured banks
under the Old Credit Agreement regarding obtaining necessary waivers to avoid
the consequences of an event of default and to facilitate the negotiation of a
consensual plan of reorganization with an unofficial committee of holders of the
Old Senior Notes (the "Unofficial Noteholder Committee"). Negotiations between
Grand Union and the Unofficial Noteholder Committee continued, and on March 30,
1998, the parties reached an agreement in principle on the terms of a
restructuring to be effectuated pursuant to a plan of reorganization (the "Plan
of Reorganization") under chapter 11, Title 11 of the United States Code, as
amended ("Chapter 11"). On May 14, 1998, Grand Union, the Unofficial Noteholder
Committee and the holders of the Grand Union's Old Preferred Stock reached an
agreement in principle regarding the proposed treatment of the Old Preferred
Stock.
Pursuant to a Disclosure Statement, dated May 22, 1998 (the "Disclosure
Statement"), Grand Union commenced a prepetition solicitation of votes by the
holders of Old Senior Notes and Old Preferred Stock to accept or reject the Plan
of Reorganization. That solicitation resulted in the acceptance of the Plan of
Reorganization. On June 24, 1998, the Company filed a voluntary petition for
relief (the "Filing") under Chapter 11 with the United States Bankruptcy Court
for the District of New Jersey (the "Bankruptcy Court").
On the Effective Date, Grand Union consummated its Plan of Reorganization
pursuant to the August 5, 1998 Confirmation Order of the Bankruptcy Court.
Consummation of the Plan of Reorganization has resulted in a capital
restructuring of the Company, whereby approximately $600 million in debt under
the Old Senior Notes has been eliminated from the Company's balance sheet,
reducing annual interest expense by approximately $72 million.
Consummation of the Plan of Reorganization resulted in (i) the issuance of
30,000,000 shares of New Common Stock to the holders of the Company's Old Senior
Notes; (ii) the issuance of New Series 1, Series 2 and Series 3 Warrants to the
holders of the Company's Old Preferred Stock; (iii) the issuance of New Series 1
Warrants to holders of the Company's Old Common Stock; and (iv) cancellation of
the Company's Old Senior Notes, Old Preferred Stock, Old Common Stock, Old
Series 1 and Series 2 Warrants and Old Stock Options. As of October 1, 1998, the
Company's New Common Stock began trading on the Nasdaq National Market under the
ticker symbol GUCO.
On the Effective Date and in connection with the consummation of the Plan
of Reorganization, the Company entered into a $300 million credit agreement (the
"Credit Agreement") with UBS AG, Stamford Branch and Lehman Commercial Paper
Inc. ("LCPI") as agents for a syndicate of lenders. The Credit Agreement is
secured by substantially all of the assets of the Company and its subsidiaries
and is guaranteed by the Company's subsidiaries. Some of the proceeds of the
Credit Agreement were used to pay off the Company's obligations under its
debtor-in-possession credit agreement (the "DIP Facility"), which had provided
the Company operating liquidity during the Chapter 11 case. During the Chapter
11 case, all trade claims were paid in the ordinary course.
Consummation of the Plan of Reorganization also resulted in the election
of a new Board of Directors for the Company (the "Board"). Effective August 17,
1998, the Board is comprised of eleven members. The three management
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Directors are: J. Wayne Harris, Chairman and Chief Executive Officer; Jack W.
Partridge Jr., Vice Chairman and Chief Administrative Officer; and Gary M.
Philbin, President and Chief Merchandising Officer. The eight outside directors
on the Board are: Martin Bernstein, Thomas R. Cochill, Joseph Colonnetta,
Jacob W. Doft, David M. Green, Joseph V. Lash, Anthony Petrillo and Scott
Tepper.
The 1995 Restructuring
On January 25, 1995, in connection with a capital restructuring plan
reached with its bank lenders and with members of informal committees of certain
holders of Grand Union notes, Grand Union filed a voluntary petition for relief
under Chapter 11 in the United States Bankruptcy Court for the District of
Delaware. The bankruptcy court confirmed on May 31, 1995 the Second Amended
Chapter 11 Plan of The Grand Union Company, dated as of April 19, 1995, and
Grand Union emerged from Chapter 11 on June 15, 1995. The 1995 Restructuring
plan provided for: 1) payment in full of all trade claims; 2) payment in full of
obligations under a credit agreement and the execution of a subsequent credit
agreement (the "Old Credit Agreement"); 3) cancellation of obligations under
Senior Notes due in 1999 and Senior Notes due in 2000 in exchange for nearly
$600 million in new senior debt (the "Old Senior Notes"); 4) cancellation of
obligations under three series of Senior Subordinated Notes due in 2002, 2002
and 1998, respectively, in exchange for an aggregate of 10,000,000 shares of
Common Stock (the "Old Common Stock"); 5) the issuance of warrants (the "Old
Warrants") to holders of Senior Zero Coupon Notes due in 2004 and 2007; and 6)
cancellation of preferred stock, common stock and warrants then existing.
Item 2. Properties
Grand Union conducts its operations primarily in leased stores and offices.
The following table indicates the location and number of stores in operation as
of April 3, 1999.
Number of
Locations Stores
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New York 120
New Jersey 41
Vermont 38
Connecticut 13
New Hampshire 3
Pennsylvania 2
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Total 217
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As of April 3, 1999, Grand Union owned 13 and leased 204 of its store sites
pursuant to commercial leases. Management believes no store lease is
individually material to Grand Union. Most store leases contain several renewal
options. Twenty-three store leases do not contain renewal options and seventeen
will expire over the next five years and six thereafter. Management anticipates
that it will be able to renegotiate favorable lease terms for most of these
locations, if so desired.
Grand Union currently operates one distribution center in Montgomery, New
York, which is leased, and a commissary, which is housed in a building owned by
the Company on a ground-leased site in Newburgh, New York. Grand Union's lease
on its distribution center has 30 years remaining, including options. On May 20,
1998, the Company sold a 101,000 square foot warehouse in Waverly, New York,
which had been vacant. In January 1999, the Company sold its assets and
discontinued operations at a printing shop it operated in Atlanta, Georgia.
Item 3. Legal Proceedings
Chapter 11 Proceedings. Reference is made to "Item 1 - Business - Recent
History" for information regarding the Company's Chapter 11 proceedings.
Environmental - Connecticut. Soil and ground water contamination has been
detected at a shopping center owned by Grand Union, which is located in
Connecticut. The Company believes such contamination was caused primarily by the
use, storage, and/or improper disposal of solvents, in particular,
perchloroethylene by dry cleaning operations previously conducted at this
location and from off-site sources. The Company notified the Connecticut
Department of Environmental Protection ("CTDEP") upon its initial discovery of
contamination in 1992. At that time, the Company conducted a remedial
investigation designed to identify the sources of such soil and ground-water
contamination and delineate the extent of the contamination on-site and to
assess potential off-site impacts. This investigation has confirmed that the
source of the on-site contamination is, in part, an off-site shopping center and
a gasoline station located nearby. The Company is
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proceeding with the investigation of the contamination and formulation of a
remedial plan. The Company anticipates entering into CTDEP's voluntary cleanup
program.
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 migrating on-site from an off-site source is
the responsibility of another party. The Company is assessing the feasibility of
seeking reimbursement of past costs and clean-up costs 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 $720,000. Investigations are continuing, and there can be no assurance
that the amount of such liability will not exceed $720,000.
FTC Order. At the time of an acquisition of Grand Union in July 1989, Grand
Union and P&C Foods, then a subsidiary and currently a division of Penn Traffic,
operated stores in some of the same geographic areas in Vermont and upstate New
York. In order to satisfy the concerns of federal antitrust authorities arising
therefrom in connection with the acquisition, prior to consummation thereof, MTH
Holdings, Inc. ("MTH Holdings"), which indirectly controlled Grand Union and
Penn Traffic, an affiliate of Miller Tabak Hirsch & Co., a New York Limited
Partnership, and Grand Union entered into an Agreement to Hold Separate with
Salomon Inc. and the Federal Trade Commission ("FTC") and an Agreement
Containing Consent Order (the "Order") with the FTC, which Order was
subsequently modified on February 16, 1996 (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 $10,700,000 with an option to extend the term of such operation
for an additional five years. Grand Union paid P&C Foods $7,500,000 for an
option, exercisable in July 1999, to purchase the stores at an amount defined in
the Operating Agreement.
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
notification to, and concurrence of, the FTC.
Other Proceedings. The Company is also subject to certain other legal
proceedings and claims arising in connection with its business. It is
management's opinion that the ultimate resolution of such legal proceedings and
claims will not have a material adverse effect on the Company's consolidated
results of operations or its financial position.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's stockholders during
the fourth quarter of Fiscal 1999.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholders'
Matters
The Common Stock of the Company is traded on the Nasdaq National Market
under the symbol "GUCO." At the close of business on June 25, 1999, there were
30,000,000 shares of Common Stock, $0.01 par value outstanding and entitled to
vote. As of June 25, 1999, there were approximately 2,100 stockholders of record
of the Common Stock.
The quarterly market value of the Company's stock is discussed in Note 16
to the Consolidated Financial Statements.
No cash dividends were declared or paid during each of the three fiscal
years ended April 3, 1999. Payment of dividends to holders of Common Stock is
restricted by the Credit Facility.
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Item 6. Selected Financial Data
The Company accounted for the consummation of the Plan of Reorganization
effective August 15, 1998 for financial reporting purposes. 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 adopted 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 period prior to the 1995 Restructuring has
been designated "Old Company," the period prior to the Effective Date has been
designated "Predecessor Company" and the period subsequent to the Effective Date
has been designated "Successor Company." All information is derived from the
consolidated financial statements of the Company. This information should be
read in conjunction with the historical financial statements of the Company,
including the notes thereto, included elsewhere herein. All dollars are in
millions, except per share data.
<TABLE>
<CAPTION>
Successor
Company Predecessor Company Old Company
--------- --------------------------------------------- --------------------
33 Weeks 20 Weeks 52 Weeks 52 Weeks 41 Weeks 11 Weeks 52 Weeks
Ended Ended Ended Ended Ended Ended Ended
April 3, August 15, March 28, March 29, March 30, June 17, April 1,
1999 1998(**) 1998 1997 1996 1995(**) 1995
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Sales $ 1,417.3 $ 869.0 $ 2,266.8 $ 2,312.7 $ 1,819.9 $ 487.9 $ 2,391.7
Gross profit 421.6 258.0 639.5 705.7 569.9 143.8 708.3
Operating and administrative expenses 349.8 217.7 574.8 586.2 454.6 117.8 573.2
Depreciation and amortization 120.6 66.2 197.3 184.8 142.9 16.9 85.5
Unusual items 1.0 4.8 6.3 9.8 22.0 18.6 27.4
Interest expense, net 27.2 36.5 113.8 105.8 79.2 19.8 182.0
Loss before income taxes and extraordinary
items (76.9) (67.2) (252.6) (180.8) (128.8) (29.3) (159.8)
Income tax (provision) benefit (0.6) - (51.4) (2.5) 18.9 - -
Extraordinary items - 259.1 - - - 854.8 -
Net income (loss) (77.5) 191.9 (304.0) (183.4) (109.9) 825.5 (159.8)
Net income (loss) applicable to common stock (77.5) 189.6 (312.4) (185.4) - - -
Basic and diluted net (loss) per common share(*) (2.6) - - - - - -
Deficiency in earnings available to
cover fixed charges (76.9) (67.2) (252.6) (180.8) (128.8) (29.3) (159.8)
Balance Sheet Data:
Total assets 1,089.3 - 904.6 1,071.8 1,178.2 - 1,394.8
Total debt and capital lease obligations 391.1 - 959.5 888.4 875.1 - 1,614.9
Redeemable stock - - 113.4 65.0 - - 174.2
Nonredeemable stock and stockholders' equity
(deficit) 307.6 - (466.6) (153.2) 44.1 - (824.3)
Operating and Other Data:
Capital expenditures $ 20.9 $ 3.4 $ 39.7 $ 55.1 $ 43.0 $ 3.0 $ 70.8
Number of stores at year end 217 N/A 222 226 229 N/A 231
</TABLE>
(*) Basic and diluted net (loss) per share information is not meaningful for
the period prior to the Effective Date due to the significant changes in
the capital structure of the Company and cancellation of the Old Common
Stock and Old Preferred Stock.
(**) Balance sheet data is not applicable at this date.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
As discussed in Note 1 to the accompanying Consolidated Financial
Statements of Grand Union, the Company emerged from its Chapter 11 proceedings
effective August 17, 1998. For financial reporting purposes, the Company
accounted for the consummation of the Plan of Reorganization effective August
15, 1998. 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 adopted 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
period prior to the Effective Date has been designated "Predecessor Company" and
the period subsequent to the Effective Date has been designated "Successor
Company." For purposes of the discussion of
7
<PAGE>
Results of Operations and Liquidity and Capital Resources for the 53 weeks
ended April 3, 1999, the results of the Predecessor Company and Successor
Company have been combined.
Results of Operations
The following table sets forth certain statements of operations and other
data (all dollars in millions).
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Sales $ 2,286.3 $ 2,266.8 $ 2,312.7
Gross profit 679.6 639.5 705.7
Operating and administrative expenses 567.4 574.8 586.2
Depreciation and amortization 65.5 92.9 82.2
Amortization of excess reorganization value 121.3 104.3 102.6
Unusual items 5.8 6.3 9.8
Interest expense, net 63.7 113.8 105.8
Income tax provision 0.6 51.4 2.5
Net (loss) before extraordinary item (144.6) (304.0) (183.4)
Extraordinary item 259.1 - -
Net income (loss) 114.4 (304.0) (183.4)
Net income (loss) applicable to common stock 112.1 (312.4) (185.4)
Sales percentage increase (decrease) 0.9% (2.0%) 0.2%
Gross profit as a percentage of sales 29.7% 28.2% 30.5%
Operating and administrative expenses as a
percentage of sales 24.8% 25.4% 25.3%
Number of weeks 53 52 52
</TABLE>
Sales for Fiscal 1999 increased $19.5 million or 0.9% compared to Fiscal
1998. Same store sales (sales of stores which were operated during the
comparable periods of both fiscal years) decreased 0.35% in Fiscal 1999 compared
to Fiscal 1998. Same store sales results, by quarter for Fiscal 1999, beginning
with the first quarter, were (1.4)%, 0.6%, (0.9)% and 0.7%. During Fiscal 1999,
the Company opened two replacement stores and closed eleven stores, four of
which reopened as Hot Dot stores (four others will reopen as Hot Dot stores in
Fiscal 2000). The Company invested in marketing and promotional programs to
drive sales and compete effectively as competitors opened new locations and
remodeled stores at a more aggressive rate than the Company. Sales for Fiscal
1998 decreased $45.9 million or 2.0% compared to the fiscal year ended March 29,
1997 ("Fiscal 1997"). Same store sales decreased 0.9% in Fiscal 1998 compared to
Fiscal 1997. Same store sales changes, by quarter for Fiscal 1998, beginning
with the first quarter, were (1.8)%, (1.6)%, 0.8% and (0.8)% versus the prior
year. The new marketing strategies favorably affected sales in the second half
of Fiscal 1998 and to some extent mitigated competitor marketing programs.
During Fiscal 1998, the Company opened two new stores and two replacement
stores, and closed eight stores.
Gross profit as a percentage of sales increased to 29.7% in Fiscal 1999
from 28.2% in Fiscal 1998. This is primarily due to an increase in allowance and
promotional income, which was the result of new marketing initiatives instituted
by management. Gross profit as a percentage of sales was 28.2% in Fiscal 1998
compared to 30.5% in Fiscal 1997. The decline was primarily the result of
reduced advertising and promotional income, instability in margin rates and the
negative effects of the announced Plan of Reorganization in the first half of
the fiscal year. Margins stabilized in the second half primarily as a result of
new management strategies partially mitigating the negative effects of the
announced Plan of Reorganization.
Operating and administrative expenses as a percentage of sales were 24.8%
during Fiscal 1999 compared to 25.4% during Fiscal 1998. The decline is
primarily the result of the ongoing cost reduction initiatives instituted by
management. Operating and administrative expenses as a percentage of sales were
25.4% during Fiscal 1998 compared to 25.3% during Fiscal 1997.
Depreciation and amortization of $65.5 million in Fiscal 1999 was $27.4
million lower than the prior year's $92.9 million. The decrease resulted from
the impact of the application of SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," impairment
losses on assets of $7.8 million and $25.0 million recorded in the Fiscal 1999
and Fiscal 1998 fourth quarters, respectively, and the historical deferral of
capital expenditures. The increase in depreciation and amortization expense
during Fiscal 1998 as compared
8
<PAGE>
to Fiscal 1997 was largely attributable to the application of SFAS No. 121,
whereby $25.0 million of impairment losses were recorded to reduce the
estimated fair value of certain store assets.
Unusual items of $5.8 million in Fiscal 1999 compares to the $6.3 million
recorded during Fiscal 1998. The Company recorded $9.6 million in connection
with legal, advisory and bank fees associated with the Plan of Reorganization
and $3.8 million as a net gain resulting from the elimination of debt premiums.
Unusual items recorded in Fiscal 1998 consisted of $2.7 million in connection
with professional fees associated with the Plan of Reorganization, a $3.0
million charge to supplement a reserve set at the end of Fiscal 1997 for the
reorganization of the Company during Fiscal 1998 and additional charges of $0.7
million for legal costs to supplement a reserve created as a result of the
Company's Chapter 11 filing in calendar year 1995.
Interest expense was $63.7 million in Fiscal 1999 compared to $113.8
million in Fiscal 1998. The decrease is principally due to the Company's reduced
debt burden, favorable interest terms and the overall credit environment.
Interest expense was $113.8 million in Fiscal 1998 compared to $105.8 million in
the prior year. This expense includes the accrual for the March 2, 1998 interest
payment on the Old Senior Notes that was not paid.
The income tax provision was $0.6 million in Fiscal 1999 compared to $51.4
million in Fiscal 1998. The provision represents federal and state income taxes.
The income tax provision for Fiscal 1998 was $51.4 million compared to a
provision of $2.5 million in Fiscal 1997. The income tax provision for Fiscal
1998 represents the establishment of a valuation allowance for the Company's
remaining deferred tax asset relating to temporary differences. The effective
tax rate varies from the statutory rate due to differences between income for
financial reporting and tax reporting purposes that result primarily from the
amortization of excess reorganization value.
Extraordinary items of $259.1 million consisted of a $260.8 million gain
resulting from the discharge of debt in connection with the consummation of the
1998 Plan of Reorganization and a $1.7 million expense related to the write-off
of deferred financing costs associated with a term loan that was refinanced by
the DIP Facility. The Company recognized no extraordinary gains or losses during
Fiscal 1998 or Fiscal 1997.
Liquidity and Capital Resources
The Company's Credit Agreement is comprised of: (i) a $230 million term
loan facility (the "Term Loan") and (ii) a $70 million revolving credit facility
(the "Revolving Credit"). The Credit Agreement is secured by substantially all
of the assets of Grand Union and its subsidiaries, and is guaranteed by its
subsidiaries. The interest rate applicable to the Term Loan and Revolving Credit
is equal to, at the Company's election, either (i) 2% above the highest of (A)
Citibank's prime or base rate, (B) 0.50% over the Federal Funds Rate per annum,
and (C) 1% above the certificate of deposit rate, or (ii) LIBOR plus 3%, in each
case, subject to reduction, based on certain performance criteria. At April 3,
1999, borrowings under the Term Loan were at a weighted interest rate of 8.0%.
The Term Loan and Revolving Credit will mature on August 17, 2003. The proceeds
of the Credit Agreement have been used to refinance the obligations under the
DIP Facility and supplemental term loan claims under the Old Credit Agreement,
and the excess portion will be used for the working capital needs of Grand Union
and its subsidiaries, including capital expenditures. Up to $50 million of
Revolving Credit will be available for the issuance of letters of credit. As of
April 3, 1999, an aggregate of $34 million of letters of credit were issued and
outstanding.
9
<PAGE>
Significant expenditures and resources used to fund such items for the
three fiscal years ended April 3, 1999 are reflected in the following table (in
millions):
Fiscal Fiscal Fiscal
1999 1998 1997
------ ------ -------
Resources used:
Debt and capital lease repayments $314.4 $ 27.8 $ 18.5
Capital expenditures 24.4 39.7 55.1
Financing fees 7.9 9.8 --
Operating activities -- 36.1 --
------ ------ -------
$346.7 $113.4 $ 73.6
====== ====== =======
Financed by:
Net proceeds from sale of preferred stock $ -- $ 40.0 $ 51.0
Net proceeds from long-term debt 230.0 78.0 9.0
Proceeds from DIP Facility 108.0 -- --
Property disposals and sales 7.2 5.9 8.0
Operating activities 14.1 -- 0.4
------ ------ -------
$359.3 $123.9 $ 68.4
====== ====== =======
Year 2000 Compliance Disclosure
In May 1998, the Company established a Year 2000 Task Force (the "Task
Force") to address the issues that may occur as a result of the two-digit year
change associated with the new millenium. The Task Force consists of a chairman,
plus three staff members. The Task Force works in conjunction with the
Information Technology Department ("IT"), the Company's Chief Information
Officer, outside information technology and process consultants, outside
counsel, and the Company's Executive Committee, which is comprised of all of the
Company's executive officers. The Task Force believes it has identified all
computer-based systems and applications, including embedded systems, used by the
Company in its operations. The Task Force has categorized these systems and
applications according to the end-user department within the Company, based upon
how critical the function is to the Company's operations. The Task Force has
implemented the modifications or replacements necessary to achieve compliance;
conducted tests to verify that the modified systems are operational and
compliant; and once completed, reinstated the compliant systems into the normal
operations of the Company. The systems and applications with the greatest level
of importance to the Company's operations were assessed and modified or replaced
in priority order. Management estimates that virtually all internally developed
systems and applications are currently Year 2000 ("Y2K") compatible. The Company
believes that virtually all critical systems and applications are Y2K compliant
as of June 30, 1999.
The Task Force also examined the Company's relationships with certain key
outside vendors and others with whom the Company has significant business
relationships to determine, to the extent practical, the degree of such outside
parties' Y2K compliance. The Task Force distributed Y2K compliance
questionnaires to vendors and suppliers who do business with the Company and has
analyzed the responses. Particular attention has been focused on C&S, which
supplies the majority of inventory for resale to the Company's stores. The Task
Force, senior management, members of IT and outside counsel have met with C&S to
understand their Y2K compliance efforts and continue monitoring their progress.
The Task Force has contracted testing procedures with vendors to determine Y2K
compliance. Management is of the opinion that the Company's continued
relationship with C&S is the only material vendor relationship that could
significantly impact the Company's operations in the event of Y2K noncompliance
and does not believe that any other particular third party's failure to be Y2K
compliant would have a material adverse effect on the Company.
The Task Force has established and implemented a Y2K contingency plan,
which includes possible Y2K events and provides for viable alternatives to
ensure that the Company's core business operations are able to continue in the
event of a Y2K-related business interruption. This plan sets forth alternatives
related to product procurement, system failures, utility outages and
infrastructure. Additionally, secondary processes and procedures have been
developed in the event that these issues arise.
Through April 3, 1999, the Company has expended approximately $2.9 million
to address Y2K compliance issues. The Company estimates that it will incur
additional expenses of $1.0 - 3.9 million, for a total of approximately $3.9 -
6.8 million, to address and resolve Y2K compliance issues, which includes the
estimated costs of all modifications, testing and consultants' fees.
10
<PAGE>
Management believes that should the Company or C&S have a Y2K-related
systems failure, the most significant impact would likely be the temporary
inability, with respect to individual stores or a group of stores, to conduct
operations due to a power failure, to distribute inventory in a timely fashion,
to receive certain products from vendors or to electronically process customer
sales at store level. The Company does not anticipate that any such temporary
impact would be material to the Company's liquidity or the Company's results of
operations.
Future Outlook
As a result of the 1998 Reorganization, the Company has the ability to
aggressively pursue opportunities. Prior to the 1998 Reorganization, the Company
had insufficient resources to appropriately fund capital expenditures. The
significant reduction in debt, and the attendant reduction in interest expense,
effectuated by the 1998 Reorganization, together with the proceeds of the Credit
Agreement, has provided the Company with substantially improved liquidity. This
substantial reduction of debt and the availability of new funds has enabled the
Company to develop and begin to execute a capital expenditure program that will
enhance the operations, profitability and competitiveness of the Company. The
marketing strategies that the management team began to institute in the second
half of Fiscal 1998 will continue. The Company has determined that to maximize
profitability, it should (i) expand its existing store base, including the
development of new stores and the remodeling of existing units; (ii) implement a
program for maximizing advertising and promotion allowance revenues from the
Company's suppliers; and (iii) perform ongoing evaluation and, when appropriate,
close or modify store locations that are not adequately contributing. The
Company remains committed to building its sales base in existing stores. The
objective of reducing operating costs in both the stores and administration will
continue in conjunction with the focus on improving store conditions and
customer service.
Total capital expenditure commitments are projected to be in excess of $100
million in Fiscal 2000. Included are approximately 53 separate projects,
consisting of ten new or replacement stores, eight store conversions, three
expanded stores, fourteen major remodels and eighteen remodels to enhance
existing locations. During Fiscal 2000, this program will be subject to
continuing change and review as needed. The ten new stores in this program,
including store replacements, will add approximately 410,000 square feet, or 7%
to the Company's existing store base in Fiscal 2000. A number of projects
scheduled to start in Fiscal 2000 will be completed in Fiscal 2001. The
Fiscal 2000 capital development program is expected to be financed by internally
generated funds and the Credit Agreement.
Special Note Concerning Forward-Looking Statements
Except for historical information, statements by the Company under the
caption "Future Outlook" and elsewhere in this report 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
that 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 ability of the Company to maintain and improve
its gross sales and margins, the liquidity of the Company on a cash flow basis
(including the Company's ability to comply with the financial covenants of its
Credit Agreement and to fund the Company's capital expenditure program), the
Company's ability to complete its capital expenditures on a timely basis, the
success of operating initiatives, the viability of the Company's strategic plan,
Y2K compliance issues, regional weather conditions, and the general economic
conditions in the geographic areas in which the Company operates.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and Qualitative Disclosures about Market Risk represents the
risk of loss that may impact the consolidated financial position, results of
operations or cash flows of the Company due to adverse changes in financial
rates. The Company is exposed to market risk in the area of interest rates. This
exposure is directly related to its Term Loan and Revolving Credit borrowings
under the Credit Agreement. The Company does not have any material exposure to
market risk associated with the Term Loan and Revolving Credit borrowings.
11
<PAGE>
Item 8. Financial Statements and Supplementary Data
The Financial Statements and Supplementary Data listed below are included
in this report on the page indicated.
Index to Financial Statements:
Document PAGE
REPORTS OF INDEPENDENT ACCOUNTANTS F-1
Consolidated Statement of Operations for the 33 Weeks Ended April 3,
1999 (Successor Company) and the 20 Weeks Ended August 15, 1998
and the 52 Weeks Ended March 28, 1998 and March 29, 1997
(Predecessor Company) F-3
Consolidated Balance Sheet at April 3, 1999 and March 28, 1998 F-4
Consolidated Statement of Cash Flows for the 33 Weeks Ended April 3,
1999 (Successor Company) and the 20 Weeks Ended August 15, 1998
and the 52 Weeks Ended March 28, 1998 and March 29, 1997
(Predecessor Company) F-5
Notes to Consolidated Financial Statements F-6
All other schedules are omitted either because they are not applicable or
the required information is disclosed in the consolidated financial statements
or notes thereto.
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
Information required by Part III, Item 10, will be included in the
Company's Proxy Statement relating to the Company's annual meeting of
stockholders to be held on August 19, 1999, and is incorporated herein by
reference.
Item 11. Executive Compensation
Information required by Part III, Item 11, will be included in the
Company's Proxy Statement relating to the Company's annual meeting of
stockholders to be held on August 19, 1999, and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required by Part III, Item 12, will be included in the
Company's Proxy Statement relating to the Company's annual meeting of
stockholders to be held on August 19, 1999, and is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
Information required by Part III, Item 13, will be included in the
Company's Proxy Statement relating to the Company's annual meeting of
stockholders to be held on August 19, 1999, and is incorporated herein by
reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Report On Form 8-K
The following documents are filed as a part of this report:
(a) Financial statements
12
<PAGE>
All financial statements as set forth under Item 8.
(b) Reports on Form 8-K
1. Relating to the Adoption of a Stockholder Rights Plan - filed on April
29, 1999.
(c) Exhibits
Exhibit
Number Description of Document
------ -----------------------
2.1 Second Amended Chapter 11 Plan of Reorganization of The Grand
Union Company ("Grand Union"), filed with the United States
Bankruptcy Court, District of Delaware, on April 19, 1995,
incorporated by reference to Exhibit T3E1 to Grand Union's Form
T-3 dated May 8, 1995.
2.2 Findings of Fact, Conclusions of Law and Order Confirming the
Second Amended Plan of Reorganization proposed by Grand Union,
dated May 31, 1995, incorporated by reference to Exhibit 2.2 to
Grand Union's Annual Report on Form 10-K for the fiscal year ended
April 1, 1995 ("Fiscal 1995").
2.3 Minute Order Clarifying Findings of Fact, Conclusions of Law and
Order Confirming Second Amended Plan of Reorganization proposed by
Grand Union, dated June 14, 1995, incorporated by reference to
Exhibit 2.3 to Grand Union's Annual Report on Form 10-K for Fiscal
1995.
2.4 Chapter 11 Plan of Reorganization filed with the United States
Bankruptcy Court, District of New Jersey, on June 24, 1998,
incorporated by reference to Exhibit 1 to Exhibit 2.1 to Grand
Union's Current Report on Form 8-K filed May 28, 1998.
3.1 Certificate of Incorporation of Grand Union, as restated through
September 10, 1998, incorporated by reference to Exhibit 3.1 to
Grand Union's Quarterly Report on Form 10-Q for the period ended
October 10, 1998.
3.2 Amended and Restated By-Laws of The Grand Union Company, as
amended and effective August 17, 1998, incorporated by reference
to Exhibit 3.1 to Grand Union's Quarterly Report on Form 10-Q for
the period ended July 18, 1998.
3.3 Rights Agreement dated as of April 29, 1999 between The Grand
Union Company and American Stock Transfer & Trust Co., as Rights
Agent, including the Form of Rights Certificate and Form of
Certificate of Designations for Series A Junior Preferred Stock,
incorporated by reference to Grand Union's Current Report on Form
8-K filed on April 29, 1999.
4.1 Form of Common Stock Certificate of Grand Union, incorporated
by reference to Exhibit 4.1 to Grand Union's Quarterly Report
on Form 10-Q for the period ended October 10, 1998.
4.2 Form of Warrant Agreement, dated August 17, 1998, between Grand
Union and American Stock Transfer & Trust Company, as Warrant
Agent, incorporated by reference to Exhibit A to Exhibit 1 to
Exhibit 2.1 to Grand Union's Current Report on Form 8-K filed May
28, 1998.
10.1 Agreement to Hold Separate dated July 17, 1989, by and among MTH
Holdings Inc. ("MTH Holdings"), GU Acquisition Corporation
("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 Grand
Union's Registration Statement on Form S-1 (Registration No.
33-29707) (the "1989 Grand Union Registration Statement").
10.2 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.
13
<PAGE>
Exhibit
Number Description of Document
------ -----------------------
10.3 Credit Agreement, dated as of August 17, 1998, by and among the
Company, the several lenders from time to time party, thereto
Warburg Dillon Read, LLC, as Co-Advisor and Co-Arranger, UBS AG,
Stamford Branch, as Syndication Agent, Lehman Brothers Inc., as
Co-Advisor and Co-Arranger, and Lehman Commercial Paper Inc., as
Administrative Agent and Collateral Agent, incorporated by
reference to Exhibit 10.1 to Grand Union's Current Report on Form
8-K filed August 17, 1998.
10.4 Guarantee and Collateral Agreement dated as of August 17, 1998, by
the Company and its subsidiaries for the benefit of Lehman
Commercial Paper, Inc., as Collateral Agent, incorporated by
reference to Exhibit 10.2 to Grand Union's Current Report on Form
8-K filed August 17, 1998.
10.5 Waiver and First Amendment to the Credit Agreement dated as of
November 6, 1998.
10.6 Second Amendment to the Credit Agreement dated as of February 24,
1999.
10.7 Supply and Distribution Agreement between Grand Union and C&S
Wholesalers, dated June 15, 1995, incorporated by reference to
Exhibit 10.3 to Grand Union's Quarterly Report on Form 10-Q/A for
the period ended January 6, 1996.
10.8 First Amendment to the Supply and Distribution Agreement between
Grand Union and C&S Wholesalers, dated June 15, 1995, incorporated
by reference to Exhibit 10.4 to Grand Union's Quarterly Report on
Form 10-Q/A for the period ended January 6, 1996.
10.9 Supply and Distribution Agreement between Grand Union and C&S
Wholesalers, dated January 2, 1996, incorporated by reference to
Exhibit 10.5 to Grand Union's Quarterly Report on Form 10-Q/A for
the period ended January 6, 1996.
10.10 Agreement with C&S Wholesalers Inc. dated January 21, 1996,
incorporated by reference to Exhibit 10.28 to Grand Union's Annual
Report on Form 10-K/A for Fiscal 1997.
10.11 Fourth Amendment and Restatement of The Grand Union Company
Supplemental Retirement Program for Key Executives effective as of
November 20, 1997, incorporated by reference to Exhibit 10.16 to
Grand Union's Annual Report on Form 10-K for Fiscal 1998.
10.12 The Grand Union Company Discretionary Severance Plan for Non-Union
Associates effective April 14, 1998, incorporated by reference to
Exhibit 10.17 to Grand Union's Annual Report on Form 10-K for
Fiscal 1998.
10.13 The Grand Union Company Severance Plan for Exempt Personnel
effective April 14, 1998, incorporated by reference to Exhibit
10.18 to Grand Union's Annual Report on Form 10-K for Fiscal 1998.
10.14 The Grand Union Company 1995 Equity Incentive Plan, as amended,
incorporated by reference to Exhibit 6 to Grand Union's Disclosure
Statement filed as Exhibit 2.1 to Grand Union's Form 8-K filed May
28, 1998.
10.15 The Grand Union Company 1995 Non-Employee Directors Stock Option
Plan, incorporated by reference to Exhibit 10.2 to Grand Union's
Quarterly Report on Form 10-Q for the period ended January 6,
1996.
10.16 First Amendment to the 1995 Non-Employee Directors' Stock Option
Plan of Grand Union, incorporated by reference to Exhibit 10.6 to
Grand Union's Quarterly Report on Form 10-Q for the period ended
July 20, 1996.
14
<PAGE>
Exhibit
Number Description of Document
------ -----------------------
10.17 Form of Indemnification Agreement between the Company and Jeffrey
P. Freimark (dated March 3, 1997), Donald C. Vaillancourt (dated
June 5, 1997), Glenn J. Smith (dated August 7, 1997), J. Wayne
Harris (dated August 11, 1997), Gary M. Philbin (dated October 3,
1997), Javier Ramirez, Vice President Tax and Assistant Secretary
(dated October 30, 1997), Jack W. Partridge (dated January 5,
1998), Manny Moslemi (dated August 6, 1998), Martin Bernstein
(dated August 17, 1998), Thomas Cochill (dated August 17, 1998),
Joseph Colonnetta (dated August 17, 1998), Jacob Doft (dated August
17, 1998), David Green (dated August 17, 1998), Joseph Lash (dated
August 17, 1998), Anthony Petrillo (dated August 17, 1998), Scott
Tepper (dated August 17, 1998) and Gary Duncan (dated January 11,
1999) incorporated by reference to Exhibit 10.26 to Grand Union's
Annual Report on Form 10-K for Fiscal 1998.
10.18 Employment Agreement (effective August 17, 1998 and dated as of
August 13, 1998) between Grand Union and J. Wayne Harris,
incorporated by reference to Exhibit 10.2 to Grand Union's
Quarterly Report on Form 10-Q for the period ended July 18, 1998.
10.19 Employment Agreement (effective August 17, 1998 and dated as of
August 13, 1998) between Grand Union and Jack W. Partridge, Jr.,
incorporated by reference to Exhibit 10.3 to Grand Union's
Quarterly Report on Form 10-Q for the period ended July 18, 1998.
10.20 Employment Agreement (effective August 17, 1998 and dated as of
August 13, 1998) between Grand Union and Gary M. Philbin,
incorporated by reference to Exhibit 10.4 to Grand Union's
Quarterly Report on Form 10-Q for the period ended July 18, 1998.
10.21 Employment Agreement (effective August 17, 1998 and dated as of
August 13, 1998) between Grand Union and Jeffrey P. Freimark
incorporated by reference to Exhibit 10.5 to Grand Union's
Quarterly Report on Form 10-Q for the period ended July 18, 1998.
21.1 Subsidiaries of Grand Union.
27.1 Financial Data Schedule, for the 33 weeks ended April 3, 1999.
27.2 Financial Data Schedule, for the 20 weeks ended August 15, 1998.
15
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 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)
Date: July 2, 1999 /s/ Jeffrey P. Freimark
----------------------------------------------------
Jeffrey P. Freimark
Executive Vice President and Chief Financial Officer
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/ J. Wayne Harris Director, Chairman, and Chief July 2, 1999
- -------------------------- Executive Officer
J. Wayne Harris
(Principal Executive Officer)
/s/ Jack W. Partridge, Jr. Director, Vice Chairman and July 2, 1999
- -------------------------- Chief Administrative Officer
Jack W. Partridge, Jr.
/s/ Gary M. Philbin Director, President and Chief July 2, 1999
- -------------------------- Merchandising Officer
Gary M. Philbin
/s/ Jeffrey P. Freimark Executive Vice President and July 2, 1999
- -------------------------- Chief Financial Officer
Jeffrey P. Freimark (Principal Financial and
Accounting Officer)
/s/ Martin Bernstein Director July 2, 1999
- --------------------------
Martin Bernstein
/s/ Thomas R. Cochill Director July 2, 1999
- --------------------------
Thomas R. Cochill
/s/ Joseph Colonnetta Director July 2, 1999
- --------------------------
Joseph Colonnetta
/s/ Jacob W. Doft Director July 2, 1999
- --------------------------
Jacob W. Doft
/s/ David M. Green Director July 2, 1999
- --------------------------
David M. Green
/s/ Joseph V. Lash Director July 2, 1999
- --------------------------
Joseph V. Lash
/s/ Anthony Petrillo Director July 2, 1999
- --------------------------
Anthony Petrillo
/s/ Scott Tepper Director July 2, 1999
- --------------------------
Scott Tepper
16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
(Post-Emergence)
To the Stockholders and the Board of Directors of
The Grand Union Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and cash flows present fairly, in all
material respects, the financial position of The Grand Union Company and its
subsidiaries (the "Company") at April 3, 1999, and the results of their
operations and their cash flows for the 33 weeks ended April 3, 1999, 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 audit. We conducted our audit 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 audit provides a reasonable basis for the opinion expressed
above.
As discussed in Notes 1 and 3 to the consolidated financial statements, on June
24, 1998, the Company filed a voluntary petition for relief, under Chapter 11 of
Title 11 of the United States Code ("Chapter 11"), with the United States
Bankruptcy Court for the District of New Jersey. The Company's 1998 Plan of
Reorganization, as amended, became effective on August 17, 1998 and the Company
emerged from Chapter 11. In connection with its emergence from Chapter 11, the
Company adopted Fresh-Start Reporting as of August 15, 1998.
PricewaterhouseCoopers LLP
Florham Park, New Jersey
May 17, 1999
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
(Pre-Emergence)
To the Stockholders and the Board of Directors of
The Grand Union Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and cash flows present fairly, in all
material respects, the financial position of The Grand Union Company and its
subsidiaries (the "Company") at March 28, 1998, and the results of their
operations and their cash flows for the 20 weeks ended August 15, 1998 and 52
weeks ended March 28, 1998 and March 29, 1997, 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 discussed in Notes 1 and 3 to the consolidated financial statements, on June
24, 1998, the Company filed a voluntary petition for relief, under Chapter 11 of
Title 11 of the United States Code ("Chapter 11"), with the United States
Bankruptcy Court for the District of New Jersey. The Company's 1998 Plan of
Reorganization, as amended, became effective on August 17, 1998 and the Company
emerged from Chapter 11. In connection with its emergence from Chapter 11, the
Company adopted Fresh-Start Reporting as of August 15, 1998.
PricewaterhouseCoopers LLP
Florham Park, New Jersey
May 17, 1999
F-2
<PAGE>
THE GRAND UNION COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Successor
Company Predecessor Company
------------ --------------------------------------------
33 Weeks 20 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended
April 3, August 15, March 28, March 29,
1999 1998 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 1,417,293 $ 868,962 $ 2,266,770 $ 2,312,673
Cost of sales 995,724 610,930 1,627,233 1,606,926
------------ ------------ ------------ ------------
Gross profit 421,569 258,032 639,537 705,747
Operating and administrative expenses 349,758 217,683 574,770 586,189
Depreciation and amortization 39,445 26,081 92,922 82,159
Amortization of excess reorganization value 81,146 40,128 104,332 102,607
Unusual items 988 4,789 6,333 9,800
Interest expense, net 27,148 36,509 113,770 105,823
------------ ------------ ------------ ------------
(Loss) before income taxes and extraordinary item (76,916) (67,158) (252,590) (180,831)
Income tax provision 567 -- 51,393 2,523
------------ ------------ ------------ ------------
Net (loss) before extraordinary item (77,483) (67,158) (303,983) (183,354)
Extraordinary item -- 259,045 -- --
------------ ------------ ------------ ------------
Net income (loss) (77,483) 191,887 (303,983) (183,354)
Accrued dividends on preferred stock -- 2,305 8,431 2,000
------------ ------------ ------------ ------------
Net income (loss) applicable to common stock $ (77,483) $ 189,582 $ (312,414) $ (185,354)
============ ============ ============ ============
Basic and diluted net (loss) per common share $ (2.58)
============
Weighted average number of shares outstanding 30,000,000
============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
THE GRAND UNION COMPANY
CONSOLIDATED BALANCE SHEET
(dollars in thousands, except par value and liquidation preference data)
<TABLE>
<CAPTION>
Successor Predecessor
Company Company
----------- -----------
April 3, March 28,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary investments $ 57,414 $ 44,745
Receivables 34,645 21,378
Inventories 152,217 128,370
Other current assets 7,644 14,787
----------- -----------
Total current assets 251,920 209,280
Property, net 327,881 389,637
Excess reorganization value, net 314,420 230,734
Beneficial leases, net 66,547 51,935
Deferred tax asset 114,429 --
Other assets 14,053 23,049
=========== ===========
Total assets $ 1,089,250 $ 904,635
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt $ -- $ 798,551
Current portion of obligations under capital leases 6,303 7,562
Accounts payable and accrued liabilities 171,999 189,439
----------- -----------
Total current liabilities 178,302 995,552
Long-term debt 230,000 --
Obligations under capital leases 154,837 153,425
Adverse leases, net 74,322 12,404
Other noncurrent liabilities 144,172 96,458
----------- -----------
Total liabilities 781,633 1,257,839
----------- -----------
Commitments and contingencies
Redeemable Class A Preferred Stock (Predecessor Company), $1.00 par value,
3,500,000 shares authorized, 1,300,566 shares issued and outstanding,
liquidation preference $70,685,000 at March 28, 1998 70,685
----------- -----------
Redeemable Class B Preferred Stock (Predecessor Company), $1.00 par value,
1,400,000 shares authorized, 800,000 shares issued and outstanding,
liquidation preference $42,746,000 at March 28, 1998 42,746
----------- -----------
Stockholders' equity (deficit):
Common stock (Predecessor Company), $.01 par value; 60,000,000 shares
authorized, 10,202,018 shares issued and outstanding at March 28, 1998 102
Common stock (Successor Company), $.01 par value; 60,000,000 shares
authorized, 30,000,000 shares issued and outstanding at April 3, 1999 300
Preferred stock (Predecessor Company), $1.00 par value; 10,000,000 shares
authorized, less amount authorized as Class A and Class B preferred stock, no
shares issued and outstanding --
Preferred stock (Successor Company), $1.00 par value; 10,000,000 shares
authorized, no shares issued and outstanding --
Capital in excess of par value 384,800 132,006
Accumulated deficit (77,483) (597,193)
Accumulated other comprehensive (loss) -- (1,550)
----------- -----------
Total stockholders' equity (deficit) 307,617 (466,635)
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 1,089,250 $ 904,635
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
THE GRAND UNION COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Successor
Company Predecessor Company
---------- -----------------------------------
33 Weeks 20 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended
April 3, August 15, March 28, March 29,
1999 1998 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (77,483) $ 191,887 $(303,983) $(183,354)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities before
reorganization items paid:
Unusual items 988 4,789 -- --
Extraordinary item -- (259,045) -- --
Depreciation and amortization 120,591 66,209 197,254 184,766
Deferred taxes 567 -- 51,393 2,523
Noncash interest 972 626 907 (188)
Gain on sale of property (1,889) -- -- --
Net changes in assets and liabilities:
Receivables (12,077) (1,506) 7,588 2,973
Inventories (23,858) (5,586) 3,039 2,097
Other current assets (2,023) (99) (461) (617)
Other assets (86) 29 (1,878) 166
Accounts payable and accrued liabilities (751) 22,347 15,582 (2,783)
Other noncurrent liabilities 132 (517) (1,882) 267
--------- --------- --------- ---------
Net cash provided by (used for) operating activities before
reorganization items paid 5,083 19,134 (32,441) 5,850
Reorganization items paid (988) (9,102) (3,681) (5,484)
--------- --------- --------- ---------
Net cash provided by (used for) operating activities 4,095 10,032 (36,122) 366
--------- --------- --------- ---------
INVESTMENT ACTIVITIES:
Capital expenditures (20,943) (3,413) (39,727) (55,147)
Proceeds from sale of property 4,639 -- -- --
Disposals of property 2,519 49 5,897 8,011
--------- --------- --------- ---------
Net cash (used for) investment activities (13,785) (3,364) (33,830) (47,136)
--------- --------- --------- ---------
FINANCING ACTIVITIES:
Net proceeds from sale of preferred stock -- -- 40,000 51,000
Net proceeds from sale of common stock -- -- 258 --
Proceeds from debt -- 230,000 77,978 9,000
Proceeds from DIP facility -- 108,000 -- --
Repayment of DIP facility -- (108,000) -- --
Financing fees -- (7,895) (9,842) --
Repayment of old bank debt -- (182,122) -- --
Obligations under capital leases discharged (4,198) (3,094) (8,770) (10,543)
Net repayment of long-term debt -- (17,000) (19,046) (7,993)
--------- --------- --------- ---------
Net cash provided by (used for) financing activities (4,198) 19,889 80,578 41,464
--------- --------- --------- ---------
Net increase (decrease) in cash and temporary investments (13,888) 26,557 10,626 (5,306)
Cash and temporary investments at beginning of period 71,302 44,745 34,119 39,425
--------- --------- --------- ---------
Cash and temporary investments at end of period $ 57,414 $ 71,302 $ 44,745 $ 34,119
========= ========= ========= =========
Supplemental disclosure of cash flow information:
Interest payments $ 24,738 $ 21,358 $ 77,658 $ 105,045
Capital lease obligations incurred 7,550 -- 21,654 23,452
Accrued dividends -- 2,305 8,431 2,000
Decrease in common stock par value -- -- -- 9,900
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
THE GRAND UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - 1998 Reorganization
On August 17, 1998 (the "Effective Date"), The Grand Union Company ("Grand
Union" or the "Company") consummated its plan of reorganization under Chapter 11
of the Bankruptcy Code (the "1998 Reorganization") pursuant to the August 5,
1998 Confirmation Order of the United States Bankruptcy Court for the District
of New Jersey. Consummation of the 1998 Reorganization has resulted in a capital
restructuring of the Company, whereby approximately $600 million in Old Senior
Notes at an annual interest rate of 12% has been eliminated from the Company's
balance sheet.
Consummation of the 1998 Reorganization has resulted in (i) the issuance of
30,000,000 shares of New Common Stock to the holders of the Company's Old Senior
Notes; (ii) the issuance of New Series 1, Series 2 and Series 3 Warrants to the
holders of the Company's Old Preferred Stock; (iii) the issuance of New Series 1
Warrants to holders of the Company's Old Common Stock; and (iv) cancellation of
the Company's Old Senior Notes, Old Preferred Stock, Old Common Stock, Old
Series 1 and Series 2 Warrants and Old Stock Options. As of October 1, 1998, the
Company's New Common Stock began trading on the Nasdaq National Market under the
ticker symbol GUCO.
On the Effective Date, in connection with the consummation of the 1998
Reorganization, the Company entered into a $300 million credit agreement (the
"Credit Agreement") with UBS AG, Stamford Branch and Lehman Commercial Paper
Inc. ("LCPI") as agents for a syndicate of lenders, which is secured by
substantially all of the assets of the Company and its subsidiaries and is
guaranteed by the Company's subsidiaries. Some of the proceeds of the Credit
Agreement were used to pay off the Company's obligation under its
debtor-in-possession credit agreement (the "DIP Facility"), which had provided
the Company operating liquidity during the Chapter 11 case.
Consummation of the 1998 Reorganization has resulted in the election of a
new Board of Directors for the Company (the "Board"). Effective August 17,
1998, the Board is comprised of eleven members. The three management Directors
are: J. Wayne Harris, Chairman and Chief Executive Officer; Jack W. Partridge
Jr., Vice Chairman and Chief Administrative Officer, and Gary M. Philbin,
President and Chief Merchandising Officer. The eight additional members of the
Board are: Martin Bernstein, Thomas R. Cochill, Joseph Colonnetta, Jacob W.
Doft, David M. Green, Joseph V. Lash, Anthony Petrillo and Scott Tepper.
NOTE 2 - Basis of Presentation and Summary of Significant Accounting Policies
The Company is a regional food retailer, currently operating stores in six
northeastern states. The Company has been publicly owned since June 15, 1995.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. Intercompany transactions
and balances have been eliminated in consolidation.
Fiscal Year
The Company's fiscal year ends on the Saturday nearest the last day of
March. The year ended April 3, 1999 ("Fiscal 1999") was comprised of 53 weeks.
The years ended March 28, 1998 ("Fiscal 1998") and March 29, 1997 ("Fiscal
1997") were each comprised of 52 weeks. Fiscal 1999 includes the 20 weeks prior
to the Effective Date which have been designated "Predecessor Company" and the
33 weeks subsequent to the Effective Date which have been designated "Successor
Company."
F-6
<PAGE>
Temporary Cash Investments
The Company considers all liquid investments with original maturities of
three months or less to be cash equivalents.
Inventories
Grocery and general merchandise inventories are all valued at the lower of
last-in, first-out ("LIFO") cost or market. At April 3, 1999 and March 28, 1998
approximately $137,217,000 and $112,411,000, respectively, of grocery and
general merchandise inventories were valued using the LIFO method. Replacement
cost exceeded LIFO cost of these inventories by approximately $626,000 and
$3,783,000 at April 3, 1999 and March 28, 1998, respectively. 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. As of the Effective Date, the Company eliminated
its LIFO reserve in conjunction with the implementation of Fresh-Start
Reporting.
Property and Depreciation
Land, 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 are 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 the asset or the
life of the lease, as appropriate. As of the Effective Date, the Company
revalued its property and changed the depreciable lives of certain assets in
conjunction with the implementation of Fresh-Start Reporting.
Excess Reorganization Value
Excess Reorganization Value, established in connection with Fresh-Start
Reporting, is being amortized on a straight-line basis over three years. In
accordance with Fresh-Start Reporting, the Predecessor Company's remaining
Excess Reorganization Value was eliminated as of the Effective Date. Accumulated
amortization was $81,146,000 and $290,925,000 at April 3, 1999 and March 28,
1998, respectively.
Beneficial Leases
Amortization of beneficial leases is computed using the straight-line basis
over the lease life. As of the Effective Date, the Company revalued its
beneficial lease assets in conjunction with the implementation of Fresh-Start
Reporting. At April 3, 1999 and March 28, 1998, accumulated amortization was
$11,050,000 and $43,218,000.
Amortization of Debt Premium
The Company amortizes premiums in connection with the issuance of long-term
debt over the life of the respective issue.
Deferred Financing Fees
Financing fees are deferred and amortized over the term of the related
loan. At April 3, 1999 and March 28, 1998, accumulated amortization was $972,000
and $2,342,000, respectively.
Income Taxes
Deferred income taxes are recognized for tax consequences of "temporary
differences" by applying enacted statutory tax rates, applicable to future
years, to differences between the financial reporting and the tax basis of
existing assets and liabilities. Valuation allowances are recorded to the extent
that it is more likely than not that future tax benefits will not be realized.
Retirement 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"). The Company also maintains a savings plan for all non-union employees
in which those eligible may contribute up to a total of 14% of their
F-7
<PAGE>
salary; the allowable percentage of pre-and post-tax contributions vary
depending upon the earnings of a particular employee. The Company provides a
match of 25% on the dollar up to the first 4% of employee contributions.
Postretirement Benefits Other than Pensions
The Company accrues the estimated cost of retiree benefit payments, other
than pension, during the years each employee provides services.
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic value
method under which compensation cost is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of grant over the
exercise price of the option granted. Compensation cost for stock options, if
any, is recognized ratably over the vesting period. The Company provides
additional pro forma disclosures as required under Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation."
Self Insurance
The Company self-insures certain workers' compensation, automobile
liability, general liability and non-union employee medical costs to varying
deductible limits, and with the exception of medical costs, carries third party
insurance in excess of such limits. Reserves are provided for the estimated
settlement value up to the deductible limit of all claims incurred during each
policy year. As of the Effective Date, the Company revalued its self insurance
liabilities in conjunction with the implementation of Fresh-Start Reporting. At
April 3, 1999 and March 28, 1998, the total self insurance reserve was
$52,412,000 and $42,794,000, respectively, which consists of $44,005,000 and
$30,567,000 in other noncurrent liabilities included in the accompanying
consolidated balance sheet.
Adverse Leases
Amortization of adverse leases is computed using the straight-line basis
over the lease life. As of the Effective Date, the Company revalued its adverse
lease liabilities in conjunction with the implementation of Fresh-Start
Reporting. At April 3, 1999 and March 28, 1998, accumulated amortization was
$3,188,000 and $3,059,000, respectively.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense for the 33
weeks ended April 3, 1999, the 20 weeks ended August 15, 1998, Fiscal 1998, and
Fiscal 1997 were $15,647,000, $10,834,000, $33,216,000, and $37,481,000,
respectively.
Store Closure Expense
Estimated net costs of holding and disposing of closed stores are provided
as of the later of the date the decision is made to close the store or the date
such costs are reasonably estimable.
Pre-opening Costs
Store pre-opening costs are charged to expense at the date the store opens.
Fair Value of Financial Instruments
The carrying amounts for the Company's cash, temporary cash investments,
receivables, accounts payable, accrued liabilities and debt approximate fair
value.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues, costs and expenses during the
reporting period. Actual results could differ from those estimates. Areas of
significant estimates include self-insurance reserves, realization of deferred
tax assets, retirement benefit reserves, recoverability of long-lived assets,
restructuring and other reserves.
F-8
<PAGE>
Net Loss Per Share
Net loss per share is computed in accordance with SFAS No. 128, "Earnings
Per Share" ("SFAS No. 128"), which is effective for interim and year end periods
ending after December 15, 1997. This statement requires that entities present,
on the face of the income statement for all periods presented, basic and diluted
per share amounts. Basic earnings per share is computed using the weighted
average number of common shares outstanding for the period. Diluted earnings per
share considers the impact of any dilutive stock options or warrants outstanding
(potential common shares). For the 33 weeks ended April 3, 1999, potentially
dilutive shares totaling 8,021,120 have been excluded from the computation of
the Company's diluted earnings per share because the effect would have been
anti-dilutive. Net loss per share data is not meaningful for periods prior to
August 15, 1998 due to the 1998 Reorganization. The Company adopted SFAS No. 128
in the third quarter of Fiscal 1998.
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the Fiscal 1999 presentation.
NOTE 3 - Fresh-Start Reporting
Upon emergence from its Chapter 11 proceedings in connection with the 1998
Reorganization, 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 period presented prior to the Effective Date has been designated
"Predecessor Company" and the period subsequent to the Effective Date has been
designated "Successor Company". For financial reporting purposes, the Company
accounted for the consummation of the Plan of Reorganization effective August
15, 1998. In accordance with Fresh-Start Reporting, the Company valued its
assets and liabilities at fair values and eliminated its accumulated deficit at
the Effective Date.
As of the Effective Date the reorganization value of the Company's common
equity of approximately $385,100,000 was determined by the Company with the
assistance of financial advisors in reliance upon various valuation methods,
including discounted projected cash flows analyses, price/earnings ratios, and
other applicable ratios and economic industry information relevant to the
operations of the Company, and through negotiations with the various parties in
interest. The total reorganization value as of the Effective Date was
approximately $730,000,000, which was $395,566,000 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 three-year period.
As a result of the consummation of the Plan of Reorganization, the Company
recognized an extraordinary gain on debt discharge as follows (in thousands):
Elimination of Old Debt, deferred financing
fees and accrued interest $ 645,884
Issuance of New Common Stock (385,100)
------------
Extraordinary gain on debt discharge $ 260,784
============
NOTE 4 - Unusual Items
Unusual items included in the consolidated statement of operations consist
of the following (in thousands):
Successor
Company Predecessor Company
-------- -----------------------------------
33 Weeks 20 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended
April 3, August 15 , March 28, March 29,
1999 1998 1998 1997
------ ------ ------ ------
1998 Reorganization items $ 988 $4,789 $2,668 $ --
Charges relating to severance -- -- 3,000 7,800
Inventory valuation reserve -- -- -- 2,000
1995 Restructuring items -- -- 665 --
------ ------ ------ ------
Total unusual items $ 988 $4,789 $6,333 $9,800
====== ====== ====== ======
F-9
<PAGE>
During the 33 weeks ended April 3, 1999 and the 20 weeks ended August 15,
1998, the Company recorded $988,000 and $8,602,000, respectively, in connection
with legal, advisory and bank fees associated with the Plan of Reorganization
and $3,813,000 as a net gain during the 20 weeks ended August 15, 1998 resulting
from the elimination of debt premiums.
The Company recorded $2,668,000 of unusual charges during the fourth
quarter of Fiscal 1998 in connection with professional fees associated with the
planned prepackaged restructuring. Additionally, the Company recorded $3,665,000
of unusual charges during the third quarter of Fiscal 1998. This charge included
a $3,000,000 supplement for a reserve set at fiscal year end 1997 for the
reorganization of the Company during Fiscal 1998 and additional charges of
$665,000 for legal costs to supplement a reserve created as a result of the
Company's Chapter 11 filing in calendar year 1995.
During the fourth quarter of Fiscal 1997, the Company recorded $9,800,000
of unusual charges including $7,800,000 of severance and $2,000,000 of an
inventory valuation reserve.
NOTE 5 - Property
Property, at cost, consists of the following (in thousands):
Successor Predecessor
Company Company
-------- --------
April 3, March 28,
1999 1998
-------- --------
Property owned:
Land $ 16,841 $ 18,055
Buildings 66,782 80,676
Fixtures and equipment 394,667 385,701
Leasehold improvements 166,444 208,040
-------- --------
644,734 692,472
Less: accumulated depreciation and amortization 432,818 415,112
-------- --------
Property owned, net 211,916 277,360
-------- --------
Property held under capital leases:
Land and buildings 163,968 157,720
Equipment 11,858 19,492
-------- --------
175,826 177,212
Less: accumulated amortization 59,861 64,935
-------- --------
Property held under capital leases, net 115,965 112,277
-------- --------
Property $327,881 $389,637
======== ========
Depreciation and amortization of owned and leased property for the 33 weeks
ended April 3, 1999, 20 weeks ended August 15, 1998, Fiscal 1998, and Fiscal
1997 were $32,685,000, $17,612,000, $78,554,000, and $64,256,000, respectively.
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company
records impairments of long-lived assets, certain identifiable intangibles, and
associated goodwill when there is evidence that events or changes in
circumstances have made recovery of an asset's carrying value unlikely. In
accordance with this statement, the Company performed an evaluation of its
assets for impairment considering the present value of estimated net future
operating cash flows. This review resulted in the Company recording an
impairment loss of $7,752,000 and $25,020,000 for April 3, 1999 and March 28,
1998, respectively, which was recorded through depreciation in order to write
down certain impaired store assets.
F-10
<PAGE>
NOTE 6 - Receivables and Accounts Payable and Accrued Liabilities
Receivables at April 3, 1999 and March 28, 1998 are net of allowances for
doubtful accounts of $4,987,000 and $5,542,000, respectively.
Accounts payable and accrued liabilities consist of the following (in
thousands):
Successor Predecessor
Company Company
-------- --------
April 3, March 28,
1999 1998
-------- --------
Accounts payable $ 77,542 $ 73,135
Accrued liabilities:
Payroll 27,246 22,513
Interest 4,060 44,832
Insurance 14,014 15,076
Other 49,137 33,883
-------- --------
Total accounts payable and accrued liabilities $171,999 $189,439
======== ========
NOTE 7 - Income Taxes
The components of the deferred income tax provision are as follows (in
thousands):
Successor
Company Predecessor Company
------- ----------------------------------
33 Weeks 20 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended
April 3, August 15, March 28, March 29,
1999 1998 1998 1997
------- ------- ------- -------
Federal $ 440 $ -- $43,872 $ 2,154
State 127 -- 7,521 369
------- ------- ------- -------
Income tax provision $ 567 $ -- $51,393 $ 2,523
======= ======= ======= =======
The reconciliation of the income tax (benefit) computed at the federal
statutory rate to the reported income tax provision is as follows (in
thousands):
<TABLE>
<CAPTION>
Successor
Company Predecessor Company
--------- ---------------------------------------
33 Weeks 20 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended
April 3, August 15, March 28, March 29,
1999 1998 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(Benefit) computed at federal statutory tax rate $ (26,920) $ (24,114) $ (88,407) $ (63,291)
(Increase) decrease in the benefit resulting from:
Amortization of excess reorganization value 28,401 14,045 36,257 35,429
State and local taxes, net of federal tax benefit 83 (1,434) (9,039) (5,242)
Deferred tax asset valuation allowance -- 9,800 114,587 29,841
Write-down of unrealizable deferred tax asset -- -- -- 8,500
Other (997) 1,703 (2,005) (2,714)
--------- --------- --------- ---------
Income tax provision $ 567 $ -- $ 51,393 $ 2,523
========= ========= ========= =========
</TABLE>
F-11
<PAGE>
The components of the net deferred tax asset are as follows (in thousands):
Successor Predecessor
Company Company
--------- ---------
April 3, March 28,
1999 1998
--------- ---------
Deferred tax assets:
Non-cash interest $ -- $ 1,922
Insurance reserve 24,414 18,922
Pension 19,180 6,784
Postretirement benefit liability 18,063 14,887
Depreciable assets 33,375 8,459
Other miscellaneous reserves 27,289 21,088
Net operating loss carryforward -- 77,052
--------- ---------
Total deferred tax assets 122,321 149,114
--------- ---------
Deferred tax liabilities:
LIFO Reserve 7,892 4,686
--------- ---------
Total deferred tax liabilities 7,892 4,686
--------- ---------
Net deferred tax asset before valuation allowance 114,429 144,428
Valuation allowance -- (144,428)
========= =========
Net deferred tax asset $ 114,429 $ --
========= =========
The Company recorded a provision for income tax of $567,000 for the 33
weeks ended April 3, 1999, representing federal and state income taxes. The
Company recorded no income tax benefit relating to net operating losses
generated during both Fiscal 1998 and the 20 weeks ended August 15, 1998, as
they were offset by a valuation allowance.
During the fourth quarter of Fiscal 1997, the Company determined that the
likelihood of realizing its entire deferred tax asset had diminished as a result
of the application of Internal Revenue Code Section 382 as well as other
long-term financial prospects. Section 382, which was triggered by the sale of
Class A Preferred Stock of the Predecessor Company, limits the amount of future
annual net operating loss carryforwards which may be utilized subsequent to a
change in control. Consequently, during the fourth quarter of Fiscal 1997, the
Company wrote off $8,500,000 of its deferred tax asset that related to net
operating loss carryforwards expected to expire due to Section 382 limitations
and established a valuation allowance to fully reserve for the portion of its
deferred tax asset related to its remaining net operating loss carryforwards.
During the fourth quarter of Fiscal 1998, the Company established a valuation
allowance for its remaining deferred tax asset relating to temporary
differences.
All credit and operating loss carryforwards of the Company have been offset
by the discharge of indebtedness income recorded in connection with the Plan of
Reorganization. In addition, the tax basis of the Company's assets will be
reduced by $33.4 million, representing the Company's discharge of indebtedness
income in excess of its operating loss and credit carryforwards as of April 3,
1999. As a result of the Company's adoption of Fresh-Start Reporting on the
Effective Date, a net deferred tax asset of $114 million was recorded relating
to temporary differences that more likely than not will result in future tax
benefits.
F-12
<PAGE>
NOTE 8 - DEBT
The components of the Company's debt are as follows (in thousands):
<TABLE>
<CAPTION>
Successor Predecessor
Company Company
-------- --------
April 3, March 28,
1999 1998
-------- --------
<S> <C> <C>
Bank Credit Agreements:
Term Loans $230,000 $182,122
Revolving Credit Facility -- 17,000
12% Senior Notes due September 1, 2004 (includes $4,008
of unamortized debt premium at March 28, 1998) -- 599,429
-------- --------
230,000 798,551
Less: current maturities of long-term debt -- 798,551
======== ========
Long-term debt $230,000 $ --
======== ========
</TABLE>
In connection with the Chapter 11 filing in the 1998 Reorganization, the
Company entered into the DIP Facility, a $172,022,020 revolving credit agreement
with Swiss Bank Corporation ("SBC") and LCPI, as agents for a syndicate of
lenders. The DIP Facility included a $50 million letter of credit sub-facility.
The DIP facility matured on August 17, 1998, the consummation date of the Plan
of Reorganization.
The proceeds of the DIP Facility were used (i) to finance the working
capital needs of the Company and its subsidiaries in the ordinary course of
business, (ii) to finance the payment of Chapter 11 expenses, (iii) for general
corporate purposes and (iv) to refinance the revolving credit facility and term
loan under the pre-Chapter 11 Credit Agreement (the "Old Credit Agreement") and
to replace or backstop letters of credit outstanding under an existing credit
agreement. The DIP Facility was secured by substantially all of the assets of
Grand Union and its subsidiaries and was guaranteed by the Company's
subsidiaries.
On August 17, 1998, as a result of the consummation of the Plan of
Reorganization, the Company entered into the Credit Agreement. The Credit
Agreement is comprised of: (i) a $230 million term loan facility (the "Term
Loan") and (ii) a $70 million revolving credit facility (the "Revolving
Credit"). The Credit Agreement is secured by substantially all of the assets of
Grand Union and its subsidiaries, and is guaranteed by its subsidiaries. The
interest rate applicable to the Term Loan and Revolving Credit is equal to, at
the Company's election, either (i) 2% above the highest of (A) Citibank's prime
or base rate, (B) 0.50% over the Federal Funds Rate per annum and (C) 1% above
the certificate of deposit rate, or (ii) LIBOR plus 3%, in each case, subject to
reduction, based on certain performance criteria. At April 3, 1999, borrowings
under the Term Loan were at a weighted interest rate of 8.00%. The Term Loan and
Revolving Credit will mature on August 17, 2003. The proceeds of the Credit
Agreement have been used to refinance the obligations under the DIP Facility and
supplemental term loan claims under the Old Credit Agreement, and the excess
portion will be used for the working capital needs of Grand Union and its
subsidiaries, including capital expenditures. Up to $50 million of Revolving
Credit will be available for the issuance of letters of credit. As of April 3,
1999, an aggregate of $34 million of letters of credit were issued and
outstanding. Such letters of credit have been issued primarily in connection
with the Company's self insurance for workers compensation, auto and general
liability.
F-13
<PAGE>
NOTE 9 - PROPERTY LEASES
The Company principally operates in leased stores and offices, in most
cases holding renewal options with varying terms. Many of the leases contain
clauses, which provide for additional rentals based upon increases in real
estate taxes, lessors' operating expenses and lessee's sales levels.
Future minimum payments under capital and non-cancelable operating leases,
net of minimum sublease income, as of April 3, 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
Capital Operating
--------- ---------
<S> <C> <C>
Fiscal
2000 $ 26,460 $ 35,725
2001 24,447 27,670
2002 23,325 23,030
2003 24,591 21,355
2004 25,987 18,513
Later years 285,815 127,093
--------- ---------
Total minimum lease payments 410,625 253,386
Less: estimated executory costs included in total minimum lease payments (107) --
Less: sublease rental income (2,278) (21,549)
--------- ---------
Net minimum lease payments 408,240 $ 231,837
=========
Less: portion representing interest (249,378)
---------
Present value of net minimum lease payments 158,862
Less: current portion of obligations under capital leases (6,303)
---------
Non-current portion of obligations under capital leases
(net of sublease rental income) $ 152,559
=========
</TABLE>
Contingent rentals incurred on capital leases for the 33 weeks ended April
3, 1999, the 20 weeks ended August 15, 1998, Fiscal 1998, and Fiscal 1997 were
$37,000, $24,000, $81,000, and $106,000, respectively.
The rental expense for all operating leases was $30,397,000, $18,887,000,
$48,262,000 and $45,847,000 during the 33 weeks ended April 3, 1999, the 20
weeks ended August 15, 1998, Fiscal 1998, and Fiscal 1997, respectively.
Contingent rental expense included in total rental expense was $1,494,000,
$981,000, $2,538,000, and $2,870,000 during the 33 weeks ended April 3, 1999,
the 20 weeks ended August 15, 1998, Fiscal 1998, and Fiscal 1997, respectively.
F-14
<PAGE>
NOTE 10 - STOCKHOLDERS' EQUITY (DEFICIT) AND REDEEMABLE PREFERRED STOCK
Changes in Stockholders' Equity (Deficit) and Redeemable Preferred Stock
were as follows (in thousands):
<TABLE>
<CAPTION>
Stockholders' Equity (Deficit)
Redeemable Redeemable --------------------------------------------------------------
Class A Class B Capital in Total
Preferred Preferred Common Preferred Excess of Accumulated Stockholders'
Stock Stock Stock Stock Par Value (Deficit) Equity
--------- --------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Predecessor Company
Balance at March 30, 1996 $ -- $ -- $ 10,000 $ -- $ 144,000 $(109,856) $ 44,144
Preferred stock issuance charges -- -- -- -- (12,000) -- (12,000)
Decrease in Common Stock par value -- -- (9,900) -- 9,900 -- --
Issuance of Class A Preferred Stock 63,000 -- -- -- -- -- --
Accrued preferred stock dividends 2,000 -- -- -- (2,000) -- (2,000)
Net loss for the 52 weeks ended
March 29, 1997 -- -- -- -- -- (183,354) (183,354)
--------- --------- --------- ---------- --------- --------- ---------
Balance at March 29, 1997 65,000 -- 100 -- 139,900 (293,210) (153,210)
Issuance of Common Stock -- -- 2 -- 256 -- 258
Issuance of Class B Preferred Stock -- 40,000 -- -- -- -- --
Accrued Class A Preferred Stock
dividends 5,685 -- -- -- (5,685) -- (5,685)
Accrued Class B Preferred Stock
dividends -- 2,746 -- -- (2,746) -- (2,746)
Additional minimum pension -- -- -- -- -- (1,550) (1,550)
liability
Other -- -- -- -- 281 -- 281
Net loss for the 52 weeks ended
March 28, 1998 -- -- -- -- -- (303,983) (303,983)
--------- --------- --------- ---------- --------- --------- ---------
Balance at March 28, 1998 70,685 42,746 102 -- 132,006 (598,743) (466,635)
Net income for the 20 weeks ended
August 15, 1998 -- -- -- -- -- 191,887 191,887
Extinguishment of Stockholders'
Equity in connection with
reorganization (70,685) (42,746) (102) -- (132,006) 406,856 274,748
--------- --------- --------- ---------- --------- --------- ---------
Balance at August 15, 1998 $ -- $ -- $ -- $ -- $ -- $ -- $ --
========= ========= ========= ========== ========= ========= =========
<CAPTION>
Stockholders' Equity
----------------------------------------------------------------
Capital in Total
Common Preferred Excess of Accumulated Stockholders'
Stock Stock Par Value (Deficit) Equity
--------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Successor Company
Balance at August 15, 1998 $ -- $ -- $ -- $ -- $ --
Issuance of Common Stock 300 -- 384,800 -- 385,100
Net loss for the 33 weeks ended
April 3, 1999 -- -- -- (77,483) (77,483)
--------- ---------- --------- --------- ---------
Balance at April 3, 1999 $ 300 $ -- $ 384,800 $ (77,483) $ 307,617
========= ========== ========= ========= =========
</TABLE>
F-15
<PAGE>
NOTE 11 - Pension Plans
The components of the net periodic pension expense for the Company's
defined benefit pension plans are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1999 1998 1997
----------------- ------------------ ------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 6,211 $ 4,492 $ 4,351
Interest costs on projected benefit obligations 13,150 12,700 12,700
Expected return on plan assets (12,610) (12,589) (13,439)
Net amortization and deferral 340 171 137
----------------- ------------------ ------------------
Net periodic pension expense $ 7,091 $ 4,774 $ 3,749
================= ================== ==================
</TABLE>
The Company has not segregated the respective Successor and Predecessor
Company pension expense for Fiscal 1999 because it is impractical to do so.
The actuarial present value of benefit obligations and the funded status of
the Company's pension plans are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year 1999 Fiscal Year 1998
-------------------------------------------- ------------------------------------------
Qualified Qualified
Retirement Supplemental Retirement Supplemental
Plan Plan Total Plan Plan Total
------------- ------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Change in Benefits Obligation
Benefit obligation at beginning of year $ 194,482 $ 7,789 $ 202,271 $ 186,207 $ 5,364 $ 191,571
Service cost 5,794 417 6,211 4,458 34 4,492
Interest cost 12,634 516 13,150 12,346 354 12,700
Plan participants' contributions - - - - - -
Amendments - - - - - -
Settlement - - - - (811) (811)
Actuarial loss (gain) 16,222 (1,557) 14,665 10,593 3,315 13,908
Benefits paid (15,506) (458) (15,964) (19,122) (467) (19,589)
------------- ------------- -------------- ------------ ------------ ------------
Benefit obligations at end of year $ 213,626 $ 6,707 $ 220,333 $ 194,482 $ 7,789 $ 202,271
============= ============= ============== ============ ============ ============
Change in Plan Assets
Fair value of plan assets at beginning of $ 192,386 $ - $ 192,386 $ 169,706 $ - $ 169,706
year
Actual return on plan assets 9,817 - 9,817 41,802 - 41,802
Employer contributions - 458 458 - 1,278 1,278
Plan participants' contributions - - - - - -
Settlement - - - - (811) (811)
Benefits paid (15,506) (458) (15,964) (19,122) (467) (19,589)
------------- ------------- -------------- ------------ ------------ ------------
Fair value of plan assets at end of year $ 186,697 $ - $ 186,697 $ 192,386 $ - $ 192,386
============= ============= ============== ============ ============ ============
Funded status $ (26,929) $ (6,707) $ (33,636) $ (2,096) $ (7,789) $ (9,885)
Unrecognized net actuarial loss (gain) (7,934) (1,834) (9,768) (9,946) 1,911 (8,035)
Unrecognized prior service cost - - - - 2,925 2,925
------------- ------------- -------------- ------------ ------------ ------------
Prepaid (accrued) pension cost $ (34,863) $ (8,541) $ (43,404) $ (12,042) $ (2,953) $ (14,995)
============= ============= ============== ============ ============ ============
Amounts recognized in the consolidated
statement of operations:
Prepaid benefit cost $ (34,863) $ (8,541) $ (43,404) $ (12,042) $ (2,953) $ (14,995)
Accrued benefit liability - - - - (4,475) (4,475)
Intangible asset - - - - 2,925 2,925
Accumulated other comprehensive income - - - - 1,550 1,550
------------- ------------- -------------- ------------ ------------ ------------
Prepaid (accrued) pension cost $ (34,863) $ (8,541) $ (43,404) $ (12,042) $ (2,953) $ (14,995)
============= ============= ============== ============ ============ ============
</TABLE>
F-16
<PAGE>
Weighted average assumptions used in all Company sponsored plans were as
follows:
<TABLE>
<CAPTION>
Fiscal 1999 Fiscal 1998 Fiscal 1997
---------------------------- ---------------------------- ----------------------------
Qualified Qualified Qualified
Retirement Supplemental Retirement Supplemental Retirement Supplemental
Plan Plan Plan Plan Plan Plan
------------- ------------ ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 6.25% 6.25% 6.75% 6.75% 7.25% 7.25%
Rates of increase in future compensation 4.50% 4.50% 4.50% 4.50% 4.50% 4.50%
Expected return on plan assets 8.25% N/A 8.25 N/A 8.75% N/A
</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 postretirement plans currently are not funded. 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
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions."
Net postretirement benefit cost consisted of the following (in thousands):
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1999 1998 1997
----------------- ---------------- -----------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 854 $ 720 $ 728
Interest cost on accumulated postretirement benefit
obligation 2,883 2,690 2,668
Net amortization and deferral 162 - -
----------------- ---------------- -----------------
Net postretirement benefit expense $ 3,899 $ 3,410 $ 3,396
================= ================ =================
</TABLE>
The Company has not segregated the respective Successor and Predecessor
Company postretirement benefit expense for Fiscal 1999 because it is impractical
to do so.
F-17
<PAGE>
The unfunded accrued postretirement benefit cost consists of the following
(in thousands):
<TABLE>
<CAPTION>
April 3, March 28,
1999 1998
--------------- -----------------
Change in Benefit Obligation
<S> <C> <C>
Benefit obligation at beginning of year $ 44,642 $ 38,331
Service cost 854 720
Interest cost 2,883 2,690
Plan participants' contributions 500 454
Amendments - -
Actuarial loss (gain) 1,499 4,876
Benefits paid (2,708) (2,429)
--------------- -----------------
Benefit obligations at end of year $ 47,670 $ 44,642
=============== =================
Change in Plan Assets
Fair value of plan assets at beginning of year $ - $ -
Actual return on plan assets - -
Employer contributions 2,208 1,975
Plan participants' contributions 500 454
Benefits paid (2,708) (2,429)
--------------- -----------------
Fair value of plan assets at end of year $ - $ -
=============== =================
Funded status $ (47,670) $ (44,643)
Unrecognized actuarial loss 1,971 7,851
Unrecognized prior year service cost - -
---------------- ---------------
Accrued postretirement benefit cost $ (45,699) $ (36,792)
================ ===============
Effect of a one-percentage-point increase in the assumed
health care cost trend rates:
1. Change in service cost plus interest cost component $ 13 $ 15
2. Change in accumulated postretirement benefit obligation 202 226
Effect of a one-percentage-point increase in the assumed
health care cost trend rates:
1. Change in service cost plus interest cost component $ (12) $ (14)
2. Change in accumulated postretirement benefit obligation (197) (218)
Weighted Average Assumptions At Year End
Discount rate 6.25% 6.75%
Expected return on plan assets N/A N/A
Gross health care cost trend rates*
(a) Pre 65 initial/ultimate 9.0%/4.5% 10.0%/4.5%
(b) Post 65 initial/ultimate 6.0%/4.5% 7.0%/4.5%
</TABLE>
* Initial trend rate assumed for applicable year grading down 1.0% per year
to ultimate rate. Trend rates do not affect liabilities for retirements
occurring on or after January 1, 1994.
The Company provides 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.
F-18
<PAGE>
NOTE 13 - Equity Compensation Plans
The Company grants options for common stock under two plans - The Grand
Union Company 1995 Equity Incentive Plan, as amended ("EIP") and The Grand Union
Company 1995 Non-Employee Directors' Stock Option Plan, as amended ("NEDSOP").
In connection with the 1998 Reorganization, the EIP was amended to adjust: 1)
the aggregate number of shares issuable from 6,000,000 shares to 3,250,000 of
the Company's Common Stock; and 2) the aggregate number of shares that may be
issued to any individual participant to 3,000,000 from 2,000,000. The NEDSOP,
which provides for the issuance of options to purchase up to 100,000 shares of
the Company's Common Stock, remained unchanged. Both plans are administered by a
committee of the Board of Directors. Options under both plans expire ten years
from the grant date, unless otherwise provided in a particular grant. As a
result of the 1998 Reorganization, all then existing options under both plans
were cancelled effective August 17, 1998.
The following tables summarize information about options outstanding for
both stock option plans:
<TABLE>
<CAPTION>
Successor Company Predecessor Company
----------------------- ------------------------------------------------------------------------
33 Weeks Ended 20 Weeks Ended 52 Weeks Ended 52 Weeks Ended
April 3, 1999 August 15, 1998 March 28, 1998 March 29, 1997
----------------------- ------------------------ -----------------------------------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Exercise Exercise Exercise Exercise
Employees' Plan Shares Price Shares Price Shares Price Shares Price
----------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year - $ - 4,232,781 $ 2.271 226,280 $ 6.365 210,680 $ 6.625
Granted 2,408,192 11.583 - - 4,133,800 2.146 20,000 3.688
Exercised - - - - (5,325) 1.844 - -
Cancelled or expired - - (4,232,781) 2.271 (121,974) 5.658 (4,400) 6.625
----------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
Outstanding at
end of year 2,408,192 $ 11.583 - $ - 4,232,781 $ 2.271 226,280 $ 6.365
=========== ========== ========== =========== ========== ========== ========== ==========
Options exercisable
at year-end 61,225 $ 12.320 - $ - 2,983,981 $ 1.972 206,280 $ 6.625
=========== ========== ========== =========== ========== ========== ========== ==========
Available for issuance under the
plan 841,808 - 1,767,219 673,720
Weighted average contractual life
(years) 4.081 - 9.386 6.348
Range of exercise prices $8.500 - $1.375 $3.688
to $13.438 to $6.625 to $6.625
<CAPTION>
Successor Company Predecessor Company
----------------------- ------------------------------------------------------------------------
33 Weeks Ended 20 Weeks Ended 52 Weeks Ended 52 Weeks Ended
April 3, 1999 August 15, 1998 March 28, 1998 March 29, 1997
----------------------- ------------------------ -----------------------------------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Exercise Exercise Exercise Exercise
Directors' Plan Shares Price Shares Price Shares Price Shares Price
----------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
Outstanding at
beginning of year - $ - 68,500 $ 4.472 51,000 $ 5.941 25,000 $ 5.750
Granted 40,000 8.759 - - 27,000 2.208 26,000 6.125
Exercised - - - - - - - -
Cancelled or expired - - (68,500) 4.472 (9,500) 5.928 - -
----------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
Outstanding at
End of year 40,000 $ 8.759 - $ - 68,500 $ 4.472 51,000 $ 5.941
=========== ========== ========== =========== ========== ========== ========== ==========
Options exercisable
At year-end 13,328 $ 8.759 - $ - 34,336 $ 5.907 51,000 $ 6.625
=========== ========== ========== =========== ========== ========== ========== ==========
Available for issuance under the
plan 60,000 - 31,500 49,000
Weighted average contractual life
(years) 9.447 - 7.577 8.365
Range of exercise prices $8.759 - $2.156 $5.750
to $6.125 to $6.125
</TABLE>
The options issued under these plans will expire if not exercised at
specific dates ranging from August, 2002 to January, 2009 for the EIP and
September 10, 2008 for the NEDSOP.
F-19
<PAGE>
The Company follows Accounting Principles Board Opinion 25, "Accounting for
Stock Issued to Employees," to account for its EIP and NEDSOP. No compensation
cost is recognized because the option exercise price is equal to the market
price of the underlying stock on the date of grant.
An alternative method of accounting for stock options is SFAS No. 123.
Under SFAS 123, employee stock options are valued at grant date using the
Black-Scholes valuation model and compensation cost is recognized ratably over
the vesting period. Had compensation cost for the Company's stock option and
employee plans been determined based on the Black-Scholes value at the grant
dates for awards as prescribed by SFAS 123, net income and basic and diluted net
(loss) per common share would have been changed to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
Successor Company Predecessor Company
------------------ -------------------------------------------------------
33 weeks ended 20 weeks ended 52 weeks ended 52 weeks ended
April 3, 1999 August 15, 1998 March 28, 1998 March 29, 1997
------------------ ----------------- ------------------ -----------------
Net Income (Loss)
<S> <C> <C> <C> <C>
As reported $ (77,483) $ 189,582 $ (312,414) $ (185,354)
Pro forma (77,847) N/A N/A N/A
Basic and diluted net (loss) per common share (*)
As reported (*) $ (2.58) N/A N/A N/A
Pro forma (*) (2.59) N/A N/A N/A
</TABLE>
(*) Basic and diluted net (loss) per common share and market price
information is not meaningful for the period prior to the Effective Date due to
the significant change in the capital structure of the Company.
The weighted average Black-Scholes value of options granted under the stock
option plans during Fiscal Year 1999 was $4.32. This value was estimated using
an expected life of 4.4 years, no dividends, volatility of 33.80%, and a
risk-free interest rate of 4.98%.
NOTE 14 - Related Party Transactions
In connection with a stock purchase agreement relating to the issuance of
the Old Preferred Stock, the Company entered into a management services
agreement (the "Services Agreement") with Shamrock Capital Advisors, Inc.
("SCA"). The Company paid $39,000, $552,000 and $300,000 for Fiscal 1999,
Fiscal 1998 and Fiscal 1997, respectively, under the Services Agreement. The
Service Agreement expires by its terms in September 1999, however, it was
canceled and no further payments will be made to SCA pursuant to the Plan of
Reorganization. An agreement was also made in connection with the sale of the
Class A Convertible Preferred Stock with Roger E. Stangeland, Chairman of the
Board, wherewith he personally purchased an additional 60,000 shares of the
same preferred stock for an aggregate price of $3,000,000.
During Fiscal 1997, in connection with the stock purchase agreement, the
Company paid transaction fees to SCA, the investment managers for Trefoil
Capital Advisors II, L.P., and GE Investment Management Corporation of
$2,000,000 each, and the Company paid Donaldson, Lufkin and Jenrette ("DLJ"), a
managing director of which served on the Company's Board of Directors,
approximately $5,200,000 for advisory services, fairness opinion, and other
miscellaneous expenses.
NOTE 15 - Contingency Matters and Commitments
The Company is subject to certain legal proceedings and claims arising in
connection with its business. It is management's opinion that the ultimate
resolution of such legal proceedings and claims will not have a material adverse
effect on the Company's consolidated results of operations or its financial
position.
F-20
<PAGE>
NOTE 16 - Quarterly Financial Information (unaudited)
(in thousands, except loss per share and market price)
<TABLE>
<CAPTION>
Predecessor Company Successor Company
--------------------------------------------------------------------------------------
1st 2nd 3rd 4th
----------------- ---------------------------------- ---------------- ---------------
16 Weeks 4 Weeks 8 Weeks 12 Weeks 13 weeks
Ended Ended Ended Ended Ended
July 18, August 15, October 10, January 2, April 3,
Fiscal 1999: 1998 1998 1998 1999 1999
- ----------- ----------------- ---------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Sales $ 691,908 $ 177,054 $ 342,471 $ 527,666 $ 547,156
Gross profit 205,185 52,847 102,814 153,966 164,789
Unusual items 4,509 280 647 341 -
(Loss) before income taxes and extraordinary
item (58,865) (8,293) (19,600) (25,461) (31,855)
Net income (loss) (60,604) 252,491 (19,424) (26,689) (31,370)
Net income (loss) applicable to common stock (62,909) 252,491 (19,424) (26,689) (31,370)
Basic and diluted net (loss) per common
share (*) (0.65) (0.89) (1.05)
Market Price - high (*) 9 1/2 13 14
Market Price - low (*) 7 1/2 7 1/2 11
<CAPTION>
Predecessor Company
--------------------------------------------------------------------
1st 2nd 3rd 4th
---------------------------------- ---------------------------------
16 Weeks 12 Weeks 12 Weeks 12 weeks
Ended Ended Ended Ended
July 19, October 11, January 3, March 28,
Fiscal 1998: 1997 1997 1998 1998
- ------------ ---------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C>
Sales $ 707,983 $ 518,910 $ 534,320 $ 505,556
Gross profit 189,469 148,664 156,205 145,199
Unusual items - - (3,665) (2,668)
(Loss) before income taxes (79,242) (56,926) (45,828) (70,594)
Net (loss) (79,242) (56,926) (45,828) (121,987)
Net (loss) applicable to common stock (81,299) (59,000) (47,924) (124,192)
</TABLE>
(*) Basic and diluted net (loss) per common share and market price information
is not meaningful for the period prior to the Effective Date due to the
significant change in the capital structure of the Company. Common Stock of
the Successor Company began trading on the Nasdaq National Market on
October 1, 1998.
F-21
<PAGE>
WAIVER AND AMENDMENT
WAIVER AND AMENDMENT, dated as of November 6, 1998 (this
"Waiver and Amendment"), under the Credit Agreement, dated as of August 17, 1998
(as heretofore amended, supplemented or otherwise modified, the "Credit
Agreement"), among The Grand Union Company (the "Company"), Warburg Dillon Read
LLC, UBS AG, Stamford Branch, Lehman Brothers Inc. and Lehman Commercial Paper
Inc. (collectively, the "Agents") and each of the financial institutions from
time to time party thereto (the "Lenders").
WITNESSETH:
WHEREAS, the Company, the Lenders and the Agents are parties
to the Credit Agreement;
WHEREAS, the Company has requested that the Lenders amend
Section 6.1(c) of the Credit Agreement (Financial Statements) as set forth
below;
WHEREAS, the Company has requested that the Lenders waive the
Company's compliance with Sections 6.1(b) and (c) of the Credit Agreement
(Financial Statements) with respect to the provision of those financial
statements that are required to be provided to the Agents and the Lenders
through November 30, 1998;
WHEREAS, the Company has requested that the Lenders waive the
Company's compliance with Section 7.6 of the Credit Agreement (Limitation on
Restricted Payments) to permit the Company to issue dividends as set forth below
in connection with the Company's shareholders' rights plan; and
WHEREAS, the Lenders are willing to waive such compliance, but
only upon the terms and conditions of this Waiver and Amendment;
NOW THEREFORE, in consideration of the premises and for other
good and valuable consideration the receipt of which is hereby acknowledged, the
Company, the Lenders and the Agents hereby agree as follows:
1. Defined Terms. Capitalized terms not otherwise defined
herein shall have their respective meanings set forth in the Credit Agreement.
2. Amendment to Section 6.1(c) (Financial Statements).
Effective as of the date hereof, Section 6.1(c) of the Credit Agreement is
hereby amended by deleting the phrase "but in any event not later than 45 days
after the end of each month occurring during each fiscal year of the Borrower
(other than the third, sixth, ninth and twelfth such month), the unaudited
consolidated balance sheets of the Borrower and its Subsidiaries as at the end
of such month and the related unaudited consolidated financial statements of
income and of cash flows for such month and the portion of the fiscal year
through the end of such month" and inserting in lieu therefore the following:
<PAGE>
2
"but in any event not later than 45 days after the end of
each reporting period (of which the Borrower has 13 during each fiscal
year) occurring during the fiscal year of the Borrower (other than
those periods which correspond to the end of the Borrower's quarterly
periods), the unaudited consolidated balance sheets of the Borrower and
its Subsidiaries as at the end of such period and the related unaudited
consolidated financial statements of income and of cash flows for such
period and the portion of the fiscal year through the end of such
period".
3. Limited Waiver Under Sections 6.1(b) and (c) (Financial
Statements). The Lenders hereby waive compliance by the Company with Sections
6.1(b) and (c) of the Credit Agreement solely with respect to the provision of
those consolidated balance sheets and related consolidated statements of cash
flows that are required to be provided to the Agents and the Lenders through
November 30, 1998.
4. Limited Waiver Under Section 7.6 (Limitation on Restricted
Payments). The Lenders hereby waive compliance by the Company with Section 7.6
of the Credit Agreement solely with respect to the issuance of dividends by the
Company to holders of the Company's common stock which dividends shall consist
solely of rights to acquire preferred stock in connection with the adoption of
the Company's shareholders' rights plan.
5. Representations and Warranties; No Default. After giving
effect to this Waiver and Amendment, the Company hereby represents and warrants
that all of the representations and warranties contained in the Credit Agreement
are true and correct in all material respects as of the date hereof (unless
stated to relate to a specific earlier date, in which case, such representations
and warranties shall be true and correct in all material respects as of such
earlier date) and that no Default or Event of Default has occurred and is
continuing.
6. Conditions to Effectiveness of this Waiver and Amendment.
This Waiver and Amendment shall become effective upon receipt by the Agents of
counterparts hereof duly executed by the Required Lenders and the Company.
7. Miscellaneous. (a) Except as expressly set forth in this
Waiver and Amendment, the Credit Agreement is and shall continue to be in full
force and effect in accordance with its terms, and this Waiver and Amendment
shall not constitute the Lenders' consent or indicate their willingness to
consent to any other amendment, modification or waiver of the Credit Agreement
or the other Loan Documents.
(b) This Waiver and Amendment may be executed by the parties
hereto on one or more counterparts, and all of such counterparts shall be deemed
to constitute one and the same instrument. This Waiver and Amendment may be
delivered by facsimile transmission of the relevant signature pages hereof.
(c) This Waiver and Amendment shall be governed by, and
construed and interpreted in accordance with, the laws of the State of New York.
<PAGE>
3
IN WITNESS WHEREOF, the parties hereto have caused this Waiver
and Amendment to be executed and delivered by their duly authorized officers as
of the date first above written.
THE GRAND UNION COMPANY
By: /s/ Francis E. Nicastro
______________________________________
Name:
Title:
WARBURG DILLON READ LLC
By: /s/ Michael R. Grayer
_____________________________________
Name:
Title:
By: /s/ David W. Barth
______________________________________
Name:
Title:
UBS AG, STAMFORD BRANCH
By: /s/ Michael R. Grayer
______________________________________
Name:
Title:
By: /s/ Michael Y. Leder
______________________________________
Name:
Title:
<PAGE>
4
LEHMAN BROTHERS INC.
By: /s/ William J. Gallagher
______________________________________
Name:
Title:
LEHMAN COMMERCIAL PAPER INC.
By: /s/ William J. Gallagher
______________________________________
Name:
Title:
FIRST UNION NATIONAL BANK
By: /s/ Caryn M. Chittenden
______________________________________
Name:
Title:
GOLDMAN SACHS CREDIT PARTNERS L.P.
By: /s/ illegible
______________________________________
Name:
Title:
AG CAPITAL FUNDING PARTNERS, L.P.
By: /s/ Jeffrey H. Aronson
______________________________________
Name:
Title:
<PAGE>
5
ML CBO IV (CAYMAN) LTD.
by HIGHLAND CAPITAL MANAGEMENT
L.P. as Collateral Agent
By: /s/ James Dondero
______________________________________
Name:
Title:
CANADIAN IMPERIAL BANK OF COMMERCE
By:
______________________________________
Name:
Title:
KZH-CNC CORPORATION
By: /s/ Virginia Conway
______________________________________
Name:
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO,
by MERRILL LYNCH ASSET MANAGEMENT, L.P.,
as investment advisor
By: /s/ Paul Travers
______________________________________
Name:
Title:
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
By: /s/ Paul Travers
______________________________________
Name:
Title:
<PAGE>
6
QUANTUM HIGH YIELD
By: /s/ illegible
______________________________________
Name:
Title:
QUANTUM PARTNERS LDC
By: /s/ Mark Sonnino
______________________________________
Name:
Title:
QUOTA FUND N.V.
By: /s/ Mark Sonnino
______________________________________
Name:
Title:
TORONTO DOMINION (NEW YORK), INC.
By:______________________________________
Name:
Title:
<PAGE>
7
ML CLO XX PILGRIM AMERICA (CAYMAN) LTD.
(as assignee) by PILGRIM AMERICA
INVESTMENTS, INC., as its Investment Manager
By: /s/ Michel Prince
______________________________________
Name:
Title:
PILGRIM AMERICA HIGH INCOME INVESTMENTS, LTD.
(as assignee) by PILGRIM AMERICA
INVESTMENTS, INC., as its Investment Manager
By: /s/ Michel Prince
______________________________________
Name:
Title:
<PAGE>
8
Agreed and Accepted:
GRAND UNION STORES, INC. OF VERMONT
GRAND UNION STORES OF NEW HAMPSHIRE, INC.
MERCHANDISING SERVICES, INC.
SPECIALTY MERCHANDISING SERVICES, INC.
By: /s/ Francis E. Nicastro
______________________________________
Name:
Title:
<PAGE>
SECOND AMENDMENT
SECOND AMENDMENT, dated as of February 24, 1999 (this
"Amendment"), under the Credit Agreement, dated as of August 17, 1998 (as
heretofore amended, supplemented or otherwise modified, the "Credit Agreement"),
among The Grand Union Company (the "Company"), Warburg Dillon Read LLC, UBS AG,
Stamford Branch, Lehman Brothers Inc. and Lehman Commercial Paper Inc.
(collectively, the "Agents") and each of the financial institutions from time to
time party thereto (the "Lenders").
WITNESSETH:
WHEREAS, the Company, the Lenders and the Agents are parties
to the Credit Agreement;
WHEREAS, the Company has requested that the Lenders amend
Section 7.7 of the Credit Agreement (Limitations on Capital Expenditures) as set
forth below; and
WHEREAS, the Lenders are willing to so amend the Agreement,
but only upon the terms and conditions of this Amendment;
NOW THEREFORE, in consideration of the premises and for other
good and valuable consideration the receipt of which is hereby acknowledged, the
Company, the Lenders and the Agents hereby agree as follows:
1. Defined Terms. Capitalized terms not otherwise defined
herein shall have their respective meanings set forth in the Credit Agreement.
2. Amendment to Section 7.7 (Limitations on Capital
Expenditures). Effective as of the date hereof, Section 7.7 of the Credit
Agreement is hereby amended by inserting at the end of clause (a)(i) the
following: "except that up to $30,000,000 of the amount not expended in fiscal
year 1999 may be carried over for expenditure in fiscal year 2000".
3. Representations and Warranties. After giving effect to this
Amendment, the Company hereby represents and warrants that all of the
representations and warranties contained in the Credit Agreement are true and
correct in all material respects as of the date hereof (unless stated to relate
to a specific earlier date, in which case, such representations and warranties
shall be true and correct in all material respects as of such earlier date).
4. Conditions to Effectiveness of this Amendment. This
Amendment shall become effective upon receipt by the Agents of counterparts
hereof duly executed by the Required Lenders and the Company.
5. Miscellaneous. (a) Except as expressly set forth in this
Amendment, the Credit Agreement is and shall continue to be in full force and
effect in accordance with its terms, and this Amendment shall not constitute the
Lenders' consent or indicate their willingness to
<PAGE>
2
consent to any other amendment, modification or waiver of the Credit Agreement
or the other Loan Documents.
(b) This Amendment may be executed by the parties hereto on
one or more counterparts, and all of such counterparts shall be deemed to
constitute one and the same instrument. This Amendment may be delivered by
facsimile transmission of the relevant signature pages hereof.
(c) This Amendment shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York.
<PAGE>
3
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered by their duly authorized officers as of
the date first above written.
THE GRAND UNION COMPANY
By: /s/ Francis E. Nicastro
______________________________________
Name:
Title:
WARBURG DILLON READ LLC
By: /s/ Michael Y. Leder
______________________________________
Name:
Title:
By: /s/ Warren M. Eckstein
______________________________________
Name:
Title:
UBS AG, STAMFORD BRANCH
By: /s/ Michael Y. Leder
______________________________________
Name:
Title:
By: /s/ Gary D. Riddell
______________________________________
Name:
Title:
<PAGE>
4
LEHMAN BROTHERS INC.
By: /s/ William J. Gallagher
______________________________________
Name:
Title:
LEHMAN COMMERCIAL PAPER INC.
By: /s/ Michael E. O'Brien
______________________________________
Name:
Title:
FIRST UNION NATIONAL BANK
By: /s/ Caryn Crittenden
______________________________________
Name:
Title:
GOLDMAN SACHS CREDIT PARTNERS L.P.
By:
______________________________________
Name:
Title:
<PAGE>
5
ML CBO IV (CAYMAN) LTD.
by HIGHLAND CAPITAL MANAGEMENT
L.P. as Collateral Agent
By: /s/ James Dondero
______________________________________
Name:
Title:
CANADIAN IMPERIAL BANK OF COMMERCE
By: /s/ Karen Volk
______________________________________
Name:
Title:
KZH CNC LLC
By: /s/ Virginia Conway
______________________________________
Name:
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO,
by MERRILL LYNCH ASSET MANAGEMENT, L.P.,
as investment advisor
By: /s/ George D. Pelose
______________________________________
Name:
Title:
<PAGE>
6
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By: /s/ George D. Pelose
______________________________________
Name:
Title:
QUANTUM PARTNERS LDC
By: /s/ Mark Sonnino
______________________________________
Name:
Title:
QUOTA FUND N.V.
By: /s/ Mark Sonnino
______________________________________
Name:
Title:
TORONTO DOMINION (NEW YORK), INC.
By:
______________________________________
Name:
Title:
<PAGE>
7
ML CLO XX PILGRIM AMERICA (CAYMAN) LTD.
(as assignee) by PILGRIM INVESTMENTS,
INC., as its investment manager
By: /s/ Michel Prince
______________________________________
Name:
Title:
PILGRIM AMERICA HIGH INCOME INVESTMENTS,
LTD. (as assignee) by PILGRIM
INVESTMENTS, INC., as its investment
manager
By: /s/ Michel Prince
______________________________________
Name:
Title:
<PAGE>
8
SYNDICATED LOAN FUNDING TRUST by LEHMAN
COMMERCIAL PAPER INC., as asset manager
By: /s/ Michael E. O'Brien
______________________________________
Name:
Title:
<PAGE>
9
ELC (CAYMAN) LTD.
By: /s/ Thomas M. Finke
______________________________________
Name:
Title:
CHASE SECURITIES INC., as agent for
THE CHASE MANHATTAN BANK
By:
______________________________________
Name:
Title:
SENIOR HIGH INCOME PORTFOLIO INC.
By: /s/ George D. Pelose
______________________________________
Name:
Title:
<PAGE>
10
KZH HIGHLAND-2 LLC
By: /s/ Shari Finkelstein
______________________________________
Name:
Title:
<PAGE>
11
Agreed and Accepted:
GRAND UNION STORES, INC. OF VERMONT
GRAND UNION STORES OF NEW HAMPSHIRE, INC.
MERCHANDISING SERVICES, INC.
SPECIALTY MERCHANDISING SERVICES, INC.
By: /s/ Francis E. Nicastro
______________________________________
Name:
Title:
<PAGE>
The Grand Union Company
Subsidiary Listing
Name State of Incorporation
- ---- ----------------------
Grand Union Stores of New Hampshire, Inc. New Hampshire
Grand Union Stores, Inc., of Vermont Vermont
Specialty Merchandising Services, Inc. Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements for the 33 weeks ended April 3, 1999, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> APR-03-1999
<PERIOD-END> APR-03-1999
<CASH> 57,414
<SECURITIES> 0
<RECEIVABLES> 34,645
<ALLOWANCES> 0
<INVENTORY> 152,217
<CURRENT-ASSETS> 251,920
<PP&E> 820,560
<DEPRECIATION> 492,679
<TOTAL-ASSETS> 1,089,250
<CURRENT-LIABILITIES> 178,302
<BONDS> 0
0
0
<COMMON> 300
<OTHER-SE> 307,317
<TOTAL-LIABILITY-AND-EQUITY> 1,089,250
<SALES> 1,417,293
<TOTAL-REVENUES> 1,417,293
<CGS> 995,724
<TOTAL-COSTS> 995,724
<OTHER-EXPENSES> 471,337
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,148
<INCOME-PRETAX> (76,916)
<INCOME-TAX> 567
<INCOME-CONTINUING> (77,483)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (77,483)
<EPS-BASIC> (2.58)
<EPS-DILUTED> (2.58)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements for the 20 weeks ended August 15, 1998, and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> APR-03-1999
<PERIOD-END> AUG-15-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 868,962
<TOTAL-REVENUES> 868,962
<CGS> 610,930
<TOTAL-COSTS> 610,930
<OTHER-EXPENSES> 288,681
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,509
<INCOME-PRETAX> (67,158)
<INCOME-TAX> 0
<INCOME-CONTINUING> (67,158)
<DISCONTINUED> 0
<EXTRAORDINARY> 259,045
<CHANGES> 0
<NET-INCOME> 191,887
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
