<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 14, 2000
----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to _____________________
Commission File Number 0-26602
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THE GRAND UNION COMPANY
(DEBTOR-IN-POSSESSION AS OF OCTOBER 3, 2000)
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 22-1518276
----------------------------------------------------------------- ---------------------------------------
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
201 Willowbrook Boulevard, Wayne, New Jersey 07470-0966
----------------------------------------------------------------- ---------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
973-890-6000
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Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days.
Yes X No
--------- --------
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
--------- --------
As of November 24, 2000, there were issued and outstanding 29,992,098 shares,
par value $0.01 per share, of the Registrant's common stock.
<PAGE>
THE GRAND UNION COMPANY
(DEBTOR-IN-POSSESSION)
Form 10-Q
For the 28 Weeks Ended October 14, 2000
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION (Unaudited)
Item 1. Financial Statements. Page No.
<S> <C>
Consolidated Statement of Operations - 12 weeks ended October 14, 2000 and October 16, 1999 3
Consolidated Statement of Operations - 28 weeks ended October 14, 2000 and October 16, 1999 4
Consolidated Balance Sheet - October 14, 2000 and April 1, 2000 5
Consolidated Statement of Cash Flows - 28 weeks ended October 14, 2000 and October 16, 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations. 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 14
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 15
</TABLE>
All items which are not applicable or to which the answer is negative have been
omitted from this report.
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
THE GRAND UNION COMPANY
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENT OF OPERATIONS
(numbers in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
12 Weeks 12 Weeks
Ended Ended
October 14, October 16,
2000 1999
------------ -----------
<S> <C> <C>
Sales $ 453,932 $ 512,348
Cost of sales 327,085 356,255
----------- -----------
Gross profit 126,847 156,093
Operating and administrative expenses 117,312 127,571
Depreciation and amortization 29,456 12,920
Amortization of excess reorganization value 141,998 30,428
Unusual items 4,452 -
Interest expense, net 12,451 9,844
----------- -----------
(Loss) before income taxes (178,822) (24,670)
Income tax provision - 2,587
----------- -----------
Net (loss) applicable to common stock $ (178,822) $ (27,257)
=========== ===========
Basic and diluted net (loss) per common share $ (5.96) $ (0.91)
=========== ===========
Weighted average number of shares outstanding 29,992,098 29,994,356
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
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<PAGE>
THE GRAND UNION COMPANY
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENT OF OPERATIONS
(numbers in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
28 Weeks 28 Weeks
Ended Ended
October 14, October 16,
2000 1999
----------- -----------
<S> <C> <C>
Sales $ 1,111,919 $ 1,199,616
Cost of sales 802,238 839,767
----------- -----------
Gross profit 309,681 359,849
Operating and administrative expenses 284,382 301,352
Depreciation and amortization 40,823 29,149
Amortization of excess reorganization value 182,569 70,994
Unusual items 4,943 -
Interest expense, net 27,475 22,645
----------- -----------
(Loss) before income taxes and cumulative effect of accounting change (230,511) (64,291)
Income tax provision - 4,258
----------- -----------
Net (loss) before cumulative effect of accounting change (230,511) (68,549)
Cumulative effect of accounting change, net - 3,525
----------- -----------
Net (loss) applicable to common stock $ (230,511) $ (72,074)
=========== ===========
Net (loss) before cumulative effect of accounting change per common
share $ (7.69) $ (2.28)
Cumulative effect of accounting change per common share - (0.12)
----------- -----------
Basic and diluted net (loss) per common share $ (7.69) $ (2.40)
=========== ===========
Weighted average number of shares outstanding 29,992,098 29,997,581
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
-4-
<PAGE>
THE GRAND UNION COMPANY
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEET
(numbers in thousands, except par value)
(unaudited)
<TABLE>
<CAPTION>
October 14, April 1,
2000 2000
----------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 24,673 $ 19,895
Receivables, net 24,955 43,865
Inventories 115,530 145,293
Other current assets 21,209 12,907
--------- ---------
Total current assets 186,367 221,960
Property, plant and equipment, net 332,278 324,719
Excess reorganization value, net - 182,569
Beneficial leases, net 43,802 52,779
Other assets 12,252 11,407
--------- ---------
Total assets $ 574,699 $ 793,434
========= =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Current maturities of long-term debt $ 1,000 $ -
Current portion of obligations under capital leases 4,491 4,544
Accounts payable and accrued liabilities 85,265 195,261
--------- ---------
Total current liabilities 90,756 199,805
Long-term debt - 234,000
Obligations under capital leases 145,227 143,229
Adverse leases, net 59,850 69,155
Other noncurrent liabilities 77,132 150,018
Liabilities subject to compromise 435,018 -
--------- ---------
Total liabilities 807,983 796,207
--------- ---------
Commitments and contingencies
Stockholders' (deficit):
Common stock, $0.01 par value; 60,000,000 shares authorized, 29,992,098 shares
issued and outstanding at October 14, 2000 and April 1, 2000 300 300
Preferred stock, $1.00 par value; 10,000,000 shares authorized, no
shares issued and outstanding at October 14, 2000 and April 1, 2000 - -
Capital in excess of par value 384,800 384,800
Accumulated deficit (618,384) (387,873)
--------- ---------
Total stockholders' (deficit) (233,284) (2,773)
--------- ---------
Total liabilities and stockholders' (deficit) $ 574,699 $ 793,434
========= =========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
-5-
<PAGE>
THE GRAND UNION COMPANY
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENT OF CASH FLOWS
(numbers in thousands)
(unaudited)
<TABLE>
<CAPTION>
28 Weeks 28 Weeks
Ended Ended
October 14, October 16,
2000 1999
----------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) $(230,511) $(72,074)
Adjustments to reconcile net (loss) to net cash (used for) operating
activities:
Depreciation and amortization 223,392 100,143
Unusual items 4,943 -
Net deferred income tax - 1,594
Cumulative effect of accounting change, net - 3,525
Pension and other non-cash items 3,550 4,417
Provision for uncollectible receivables 3,596 -
Non-cash interest 989 850
Gain on sale of property (12,240) -
Net changes in assets and liabilities:
Receivables 15,314 (14,760)
Inventories 28,738 (12,291)
Other current assets (8,370) (2,969)
Other assets (2,422) (1,689)
Accounts payable and accrued liabilities (28,183) (9,349)
Other noncurrent liabilities (2,833) (256)
--------- --------
Net cash (used for) operating activities (4,037) (2,859)
--------- --------
INVESTMENT ACTIVITIES:
Capital expenditures (32,186) (27,831)
Proceeds from sale of property 12,835 -
Disposals of property 700 62
--------- --------
Net cash (used for) investment activities (18,651) (27,769)
--------- --------
FINANCING ACTIVITIES:
Proceeds from 2000 DIP Facility 1,000 -
Proceeds from Revolving Credit Facility 197,204 -
Repayment of Revolving Credit Facility (167,052) -
Repayment of Term Loan (1,092) -
Obligations under capital leases discharged (2,594) (3,760)
--------- --------
Net cash provided by (used for) financing activities 27,466 (3,760)
--------- --------
Net (decrease) in cash and temporary investments 4,778 (34,388)
Cash and temporary investments at beginning of period 19,895 57,414
--------- --------
Cash and temporary investments at end of period $ 24,673 $ 23,026
========= ========
Supplemental disclosure of cash flow information:
Interest payments $ 27,019 $ 20,922
Capital lease obligations incurred 17,705 -
Taxes paid 25 2,340
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
-6-
<PAGE>
THE GRAND UNION COMPANY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - Management Plans and Subsequent Events
On October 30, 2000, The Grand Union Company (the "Company") entered into a
letter of intent providing for the purchase by C&S Wholesale Grocers, Inc.
("C&S") of substantially all of the Company's assets and business. On November
12, 2000 the Company entered into a definitive agreement ("Definitive Sale
Agreement") for the purchase by C&S of substantially all of the Company's assets
and business. Under the Definitive Sale Agreement, C&S, which is Grand Union's
principal supplier, will pay $301.8 million in cash upon closing of the
transaction, subject to various adjustments, including changes in inventory
values. Included in the assets to be acquired are 186 of Grand Union's 196
stores and the Company's distribution center in Montgomery, New York. C&S
intends to operate certain of these stores and to assign its right to purchase
certain other of these stores to other supermarket operators, including Stop and
Shop, Tops, Pathmark, Price Chopper, Shaws and Hannaford. The closing of the
transaction is subject to customary closing conditions, including governmental
antitrust approval and approval of the United States Bankruptcy Court for the
District of New Jersey (the "Court").
The Definitive Sale Agreement was subject to higher or better bids for
Grand Union's assets at the November 16, 2000 auction ("Auction") of the
Company's assets pursuant to Section 363 of the Bankruptcy Code. Grand Union had
the right to accept a higher or better bid which could have been received at the
Auction and terminate the C&S agreement, subject to the payment of a break-up
fee and certain expense reimbursement to C&S. The Company determined that, based
upon the results of the Auction, it would proceed with the Definitive Sale
Agreement. The Company also announced that as a result of the Auction: 1) it
entered into a definitive agreement ("Bleecker Street Agreement") to sell the
store and building owned in fee by the Company at 124-138 Bleecker Street in New
York City to New York University for approximately $24 million and 2) it entered
into an agreement to retain the Great American Group ("Great American
Agreement") to manage the sale of the inventory at nine stores at which Grand
Union is discontinuing operations.
On November 30, 2000, the Court held a hearing to consider the Definitive
Sale Agreement and the conduct of the Auction. The Court found that the Company
had met the good faith requirements of Section 363 of the Bankruptcy Code in
conducting its sale and Auction and also overruled an objection made by The
Great Atlantic & Pacific Tea Company ("A&P"), which had alleged that C&S had
unlawfully engaged in collusive bidding for the Company's assets and had
violated anti-trust statutes. Additionally the Court approved the Bleecker
Street Agreement and the Great American Agreement. The Court has scheduled a
hearing for Friday, December 8, 2000 to address landlord and other occupancy
issues relating to the Definitive Sale Agreement and to consider objections to
the assumption or rejection of other executory contracts to which the Company is
a party.
The Company intends to liquidate all of its remaining assets not covered by
the Definitive Sale Agreement, the Bleecker Street Agreement and the Great
American Agreement and will enter into additional agreements in order to do so.
Based upon the asset sale agreements entered into thus far and expressions of
interest received from other parties, Grand Union does not believe that any
distribution will be made to its shareholders or warrant holders following the
completion of the sale process or pursuant to a chapter 11 reorganization plan.
On November 22, 2000, Gary M. Philbin resigned from his position as
President, Chief Executive Officer and Director of the Company. Mr. Philbin's
position on the Board of Directors (the "Board") will not be filled and the size
of the Board has been reduced to six.
Effective November 22, 2000, Jeffrey P. Freimark was elected President and
Chief Executive Officer to replace Mr. Philbin. Mr. Freimark will continue to
serve as the Company's Chief Financial and Administrative Officer, Treasurer and
Director of the Company. In addition, Robert F. Smith was elected to the newly
created position of Executive Vice President and Chief Operating Officer. Mr.
Smith served as the Company's Corporate Vice President of Merchandising since
joining the Company in May 2000.
NOTE 2 - Proceedings Under Chapter 11 Of The Bankruptcy Code
On October 3, 2000, the Company and its three wholly-owned subsidiaries
(collectively with Grand Union, the "Company") each filed a voluntary petition
for reorganization under chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code"). The petitions were filed in the Court under case numbers
003-9613 through 003-9616 (the "Chapter 11 Cases"). The Chapter 11 Cases have
been procedurally consolidated for administrative purposes and were assigned
-7-
<PAGE>
to Judge Novalyn L. Winfield. The Company and its subsidiaries are currently
operating their businesses and managing their properties as
debtors-in-possession pursuant to the Bankruptcy Code.
Subsequent to the commencement of the Chapter 11 Cases, the Company sought
and obtained several orders from the Court which were intended to stabilize its
business and enable the Company to continue business operations as
debtors-in-possession. The most significant of these orders: (i) approved a $60
million debtor-in-possession loan agreement between the Company and Lehman
Commercial Paper Inc. ("LCPI"), one of the Company's existing lenders, as agent
for itself and any other lenders party thereto (the "2000 DIP Facility"); (ii)
approved the Company's interim supply agreement with C&S, and; (iii) authorized
payment of certain pre-petition wages, vacation pay and employee benefits and
reimbursement of employee business expenses.
The 2000 DIP Facility was entered into on October 3, 2000 and was
guaranteed by each of the Company's subsidiaries (the "Guarantors"). The 2000
DIP Facility provides the Company with a revolving line of credit for loans and
letters of credit in an aggregate amount up to $60 million outstanding at any
one time, including a sub-facility of $1.85 million for the issuance of letters
of credit. The Company will use amounts borrowed under the 2000 DIP Facility for
its ongoing working capital needs and for other general corporate purposes of
the Company and the Guarantors. The Company granted a security interest to LCPI
and the other lenders party to the 2000 DIP Facility in substantially all of the
Company's assets as security for its obligations under the 2000 DIP Facility.
On October 12, 2000, a statutory committee of unsecured creditors (the
"Creditors' Committee") was appointed by the Office of the United States Trustee
to represent the interests of the Company's unsecured creditors in the Chapter
11 Cases. The Creditors' Committee has the right to review and object to certain
business transactions and may participate in the formulation of the Company's
long-term business plan and a plan or plans of reorganization. The Company is
required to reimburse certain fees and expenses of the Creditors' Committee,
including those for attorneys and other professionals, to the extent allowed by
the Court.
NOTE 3 - Basis of Presentation
The accompanying interim consolidated financial statements of the Company
include the accounts of the Company and its subsidiaries, all of which are
wholly owned. In the opinion of management, the consolidated financial
statements include all adjustments, which consist only of normal recurring
items, necessary for a fair presentation of operating results for the interim
periods.
These consolidated financial statements should be read in conjunction with
the consolidated financial statements and related notes contained in the
Company's Annual Report on Form 10-K for the 52 weeks ended April 1, 2000 and
the Company's Quarterly Report on Form 10-Q for the 16 weeks ended July 22,
2000. Operating results for the periods presented are not necessarily indicative
of results for the full fiscal year.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 provides guidance on the recognition, presentation and disclosure
of revenue in financial statements. The Company adopted SAB 101 effective April
4, 1999.
Certain reclassifications have been made to prior year amounts to conform
to current period presentation.
NOTE 4 - Excess Reorganization Value
The Company periodically reviews the carrying amount of the excess
reorganization value. If events or changes in circumstances indicate that the
amount of the net assets may not be recoverable, based on information available
to the Company at that time, including current and projected cash flows, an
appropriate adjustment is charged to operations. As a result of recent
developments with the Company (see Notes 1 and 2) during the Fiscal 2001 Second
Quarter the Company charged approximately $111.6 million to amortization expense
to fully write off the unamortized excess reorganization value, which resulted
from its emergence from its 1998 Chapter 11 proceedings.
-8-
<PAGE>
NOTE 5 - Debt
The components of the Company's debt are as follows (in thousands):
<TABLE>
<CAPTION>
October 14, April 1,
2000 2000
----------------------------------
<S> <C> <C>
Bank Credit Agreements:
Term Loans $ - $ 230,000
Revolving Credit Facility - 4,000
2000 DIP Facility 1,000 -
--------------- -----------
1,000 234,000
Less: current maturities of long-term debt 1,000 -
--------------- -----------
Long-term debt $ - $ 234,000
=============== ===========
</TABLE>
On August 17, 1998, as a result of the consummation of the 1998 Plan of
Reorganization, the Company entered into the Credit Agreement. The Credit
Agreement was initially 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 was initially
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. The Term Loan
and Revolving Credit were due to mature on August 17, 2003, but have been
accelerated due to the Chapter 11 Cases filed on October 3, 2000. The proceeds
of the Credit Agreement have been used to refinance the obligations under the
1998 DIP Facility and supplemental term loan claims under the Old Credit
Agreement, and for the working capital needs of Grand Union and its
subsidiaries, including capital expenditures. Up to $50 million of Revolving
Credit was available for the issuance of letters of credit. Such letters of
credit have been issued primarily in connection with the Company's self
insurance for workers compensation, auto and general liability.
Effective June 30, 2000, the Company executed the third amendment to the
Credit Agreement (the "Third Amendment"), which, among other things, adjusted
certain of the financial covenants, adjusted applicable interest rates,
permitted the Company to retain a greater portion of the proceeds of asset sales
to a specified level and required the retention of professionals to assist in
the sale of the Company's assets. Because of certain mandatory prepayments
related to asset sales, the amount currently outstanding under the Term Loan is
approximately $229 million. For more information concerning the Third Amendment
to the Credit Facility, reference is made to Exhibit 10.7 to Grand Union's
report on Form 10-K dated June 30, 2000.
On October 3, 2000, in connection with the filing of the Chapter 11 Cases,
the Company entered into the 2000 DIP Facility with LCPI to provide secured
debtor-in-possession financing. The 2000 DIP Facility provides for borrowings
dependent upon the Company's level of inventory, real estate and claims from
certain vendors. The maximum borrowings under the 2000 DIP Facility include a
sub-facility of $1.85 million for the issuance of letters of credit. The 2000
DIP Facility grants a security interest in substantially all of the Company's
assets. The interest rate applicable to the 2000 DIP Facility is equal to 2%
above the greatest of (A) Citibank's prime or base rate, (B) 1% above the
certificate of deposit rate and (C) 0.50% over the Federal Funds Rate per annum,
in each case, subject to reduction, based on certain performance criteria.
The 2000 DIP Facility, as amended, contains certain restrictive covenants,
which, among other things, limit the Company's capital expenditures and
dividends and the ability of the Company to grant liens and incur additional
indebtedness. The 2000 DIP Facility will terminate upon the earlier of
consummation of a plan of reorganization in the Chapter 11 Cases, April 3, 2001
or the sale of substantially all of the Company's assets.
As of October 14, 2000, the Company had $1 million of borrowings
outstanding under the 2000 DIP Facility and had not utilized any of its
availability under the 2000 DIP Facility to issue letters of credit.
NOTE 6 - Amended Employment Agreements
Effective November 6, 2000 and as authorized by the Compensation Committee
of the Board of Directors and approved by the Bankruptcy Court on November 6,
2000, the Company has entered into Amended Employment Agreements ("Amended
Employment Agreements") with each of Gary M. Philbin, Jeffrey P. Freimark,
Manouchehr Moslemi, and Glenn J. Smith. For more information about the Amended
Employment Agreements, reference is made to Exhibits 10.3 - 10.6 hereto.
NOTE 7 - Sale Bonus Agreements
Effective November 6, 2000 and as authorized by the Compensation Committee
of the Board of Directors and approved by the Bankruptcy Court on November 6,
2000, the Company has entered into sale bonus agreements ("Sale Bonus
Agreements") with each of its nine (9) executive officers providing for the
payment of a sale bonus to each person,
-9-
<PAGE>
under specified conditions, in the event of a sale of the Company. For more
information about the Sale Bonus Agreements, reference is made to Exhibits 10.7
- 10.15 hereto.
NOTE 8 - Retention Agreements
Effective November 6, 2000 and as authorized by the Compensation Committee
of the Board of Directors and approved by the Bankruptcy Court on November 6,
2000, the Company has entered into retention agreements ("Retention Agreements")
with certain of its key associates, including each of its nine (9) executive
officers, providing for the payment of a retention bonus to each person under
specified conditions. For more information about the Retention Agreements,
reference is made to Exhibits 10.1 and 10.2 hereto.
NOTE 9 - Liabilities Subject to Compromise
Liabilities subject to compromise refer to liabilities incurred prior to
the commencement of the Chapter 11 Cases. These amounts represent management's
best estimate of known or potential claims to be resolved in connection with the
Chapter 11 Cases. Such claims remain subject to future adjustments based on
negotiations, actions of the Bankruptcy Court, further developments with respect
to disputed claims, or other events. Payment terms for these amounts, which are
considered long-term liabilities at this time, will be established as the
Chapter 11 Cases proceed.
As described in Note 2, since October 3, 2000, the Company has been
operating as a debtor-in-possession under Chapter 11 of the Bankruptcy Code and
has been subject to the jurisdiction and supervision of the Bankruptcy Court.
Liabilities subject to compromise refer to liabilities outstanding prior to the
commencement of the Chapter 11 Cases. In the Chapter 11 Cases, substantially all
liabilities of the Company as of the date of the filing of the petitions for
reorganization will be subject to settlement under a plan of reorganization. The
amount of liabilities subject to compromise as shown in the Company's
Consolidated Balance Sheet at October 14, 2000, may be subject to adjustment.
In the consolidated balance sheet of the Company, liabilities subject to
compromise consist of:
October 14,
2000
-----------
Long-term debt $ 263,060
Accounts payable and accrued liabilities 66,247
Postretirement health care and life insurance benefits 47,942
Restructure 16,139
General liability 15,443
Obligations under capital leases 10,863
Deferred income 10,286
Store and warehouse closure costs 3,969
Adverse leases 1,069
-------------
Liabilities subject to compromise $ 435,018
=============
The Company received approval from the Bankruptcy Court to pay or otherwise
honor certain of its prepetition obligations, including prepetition wages,
vacation pay, employee benefits and reimbursement of employee business expenses.
NOTE 10 - Restructuring Reserves
The following table is a summary of the changes in reserves relating to
senior management restructuring, staff reductions and store closure costs.
<TABLE>
<CAPTION>
Recognition of
Severance Store Closure
Benefits Costs Total
--------------- --------------- --------------
<S> <C> <C> <C>
Restructuring reserves at April 1, 2000 $ 5,529 $ 15,430 $ 20,959
Severance costs 1,712 - 1,712
Capital lease - 731 731
Cash expenditures (3,147) (945) (4,092)
------------- -------------- -------------
Sub-total $ 4,094 $ 15,216 $ 19,310
Less: amounts subject to compromise (2,902) (15,216) (18,118)
------------- -------------- -------------
Restructuring reserves at October 14, 2000 $ 1,192 $ - $ 1,192
============= ============== =============
</TABLE>
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<PAGE>
Severance costs consist of obligations to employees who were terminated or
were notified of termination under The Grand Union Company Severance Plan for
Exempt Personnel and The Grand Union Company Discretionary Severance Plan for
Non-Union Associates, both of which were adopted by the Board of Directors on
April 14, 1998 and have been amended effective October 2, 2000. The
restructuring reserves also include amounts to be paid under separation
agreements for two former senior executives.
Store closure costs relate to the cost of closing 19 stores. During the 12
weeks ended April 1, 2000 (the "Fiscal 2000 Fourth Quarter"), the Company made a
decision to close twelve poorly performing stores and not to renew an agreement
with the Penn Traffic Company for the continued leasing of seven other stores
that had operated under the Grand Union name for the previous ten years. During
the Fiscal 2001 Second Quarter, an adjustment to the store closure costs was
recorded for the write-off of capital leases relating to a closed store in North
Clarendon, Vermont.
NOTE 11 - Impairment Losses
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 $18.0 million
during the Fiscal 2001 Second Quarter, which was recorded through depreciation
and amortization in order to write down certain impaired store assets.
NOTE 12 - Unusual Items
The Company recorded a charge to operations in the 16 weeks ended July 22,
2000 of $491,000 in connection with legal and advisory fees associated with the
Third Amendment.
During the Fiscal 2001 Second Quarter, the Company announced and
implemented a reduction-in-force of approximately 170 positions primarily at its
Wayne, New Jersey corporate headquarters and an administrative office in Clifton
Park, New York. This reduction-in-force was estimated to result in annualized
savings of between $8 million - $12 million and the Company experienced certain
one-time charges in connection with the termination of employees effected by the
reduction-in-force. Accordingly, a charge of approximately $2.1 million was
recorded as an unusual item.
Additionally, during the Fiscal 2001 Second Quarter the Company incurred
one-time charges of $2.4 million for legal and advisory fees associated with the
Third Amendment and Chapter 11 Cases.
NOTE 13 - Income Taxes
Income taxes for the interim period are based on the estimated effective
tax rate expected to be applicable for the full fiscal year. The Company
recorded no income tax benefit during the Fiscal 2001 Second Quarter and the
Fiscal 2001 Year to Date. A tax benefit that would have been recorded due to the
potential use of operating loss carryforwards was fully offset by a valuation
allowance during the Fiscal 2001 Second Quarter and Fiscal 2001 Year to Date
periods. The Company recorded Federal and State provisions of $2.6 million
during the Fiscal 2000 Second Quarter and a $4.3 million net income tax
provision for the Fiscal 2000 Year to Date.
NOTE 14 - Net Loss Per Share
The net loss per share is computed in accordance with SFAS No. 128,
"Earnings Per Share." This statement requires that entities present, on the face
of the income statement for all periods reflected, 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 is
computed using the weighted average number of common shares outstanding for the
period adjusted for dilutive potential common shares. There were 29,992,098 and
29,994,356 weighted average shares outstanding for both basic and diluted
earnings per share for the 12 weeks ended October 14, 2000 and October 16, 1999,
respectively, and 29,992,098 and 29,997,581 weighted average shares outstanding
for both basic and diluted earnings per share for the 28 weeks ended October 14,
2000 and October 16, 1999, respectively. All potential common shares were
excluded from the computation of the Company's diluted earnings per share
because the effect would have been anti-dilutive.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
On October 3, 2000, the Company and its three subsidiaries each filed a
petition for reorganization under chapter 11 of title 11 of the Bankruptcy Code
(the "Chapter 11 Cases"). The Chapter 11 Cases have been procedurally
consolidated for administrative purposes. The Company and its subsidiaries are
currently operating their business and managing their properties as
debtors-in-possession pursuant to the Bankruptcy Code.
Results of Operations
The following table sets forth certain statements of operations and other
data (all dollars in millions).
<TABLE>
<CAPTION>
12 weeks ended 28 weeks ended
------------------------------------- -----------------------------------
October 14, October 16, October 14, October 16,
2000 1999 2000 1999
----------------- ------------------ -----------------------------------
<S> <C> <C> <C> <C>
Sales $ 453.9 $ 512.3 $ 1,111.9 $ 1,199.6
Gross profit 126.8 156.1 309.7 359.8
Operating and administrative expenses 117.3 127.6 284.4 301.4
Depreciation and amortization 29.4 12.9 40.8 29.1
Amortization of excess reorganization value 142.0 30.4 182.6 71.0
Unusual items 4.5 - 4.9 -
Interest expense, net 12.4 9.9 27.5 22.6
(Loss) before income taxes and cumulative effect
of accounting change (178.8) (24.7) (230.5) (64.3)
Income tax provision - 2.6 - 4.3
Net (loss) before cumulative effect of accounting
change (178.8) (27.3) (230.5) (68.6)
Cumulative effect of accounting change, net - - - 3.5
Net (loss) applicable to common stock (178.8) (27.3) (230.5) (72.1)
Sales percentage (decrease) (11.4%) (1.4%) (7.3%) (1.0%)
Gross profit as a percentage of sales 27.9% 30.5% 27.9% 30.0%
Operating and administrative expenses as a percentage
of sales 25.8% 24.9% 25.6% 25.1%
</TABLE>
Sales for the 12 weeks ended October 14, 2000 (the "Fiscal 2001 Second
Quarter") decreased $58.4 million, or 11.4%, compared to the 12 week period
ended October 16, 1999 (the "Fiscal 2000 Second Quarter"). Same store sales,
including replacement stores, decreased 6.27% during the Fiscal 2001 Second
Quarter as compared to the Fiscal 2000 Second Quarter. This decrease in same
store sales is primarily due to intensely competitive markets and the effects of
liquidity constraints leading up to the filing of the Chapter 11 Cases. During
the Fiscal 2001 Second Quarter, the Company closed four stores. During the
Fiscal 2000 Second Quarter, the Company opened one new store and closed four
stores. Sales for the 28 weeks ended October 14, 2000 (the "Fiscal 2001 Year to
Date") decreased $87.7 million, or 7.3%, compared to the 28 week period ended
October 16, 1999 (the "Fiscal 2000 Year to Date"). Comparable store sales for
the Fiscal 2001 Year to Date, decreased approximately 4.18%. During the Fiscal
2001 Year to Date, the Company opened two new and three replacement stores and
closed twenty-five stores.
Gross profit, as a percentage of sales, decreased to 27.9% for the Fiscal
2001 Second Quarter from 30.5% for the Fiscal 2000 Second Quarter. This is the
result of decreased advertising and promotional income and the continued
competitive marketplace in which the Company operates. Gross profit, as a
percentage of sales, decreased to 27.9% for the Fiscal 2001 Year to Date from
30.0% for the Fiscal 2000 Year to Date.
Operating and administrative expenses, as a percentage of sales, increased
to 25.8% from 24.9% for the Fiscal 2001 Second Quarter as compared to the Fiscal
2000 Second Quarter. This increase in the operating and administrative expenses
was mainly attributed to store labor and fringe benefits costs and occupancy
expenses, as well as a reduction in sales. Where possible, the Company has
identified and implemented actions designed to reduce expenses in all areas of
the business without affecting customer service. In this regard, on August 14,
2000, the Company implemented the reduction of 170 administrative positions. In
addition, the Fiscal 2001 Second Quarter operating and administrative expenses
include a $6.0 million net gain on the sale of the Company's Little Neck, NY and
Glenbrook, CT properties. Additionally, the Company received a partial payment
of $1.9 million from its insurance carrier in connection with an
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<PAGE>
alleged embezzlement by a former corporate vice president. Operating and
administrative expenses, as a percentage of sales, increased to 25.6% from 25.1%
for the Fiscal 2001 Year to Date as compared to the Fiscal 2000 Year to Date.
Depreciation and amortization increased in the Fiscal 2001 Second Quarter
to $29.4 million compared to $12.9 million in the Fiscal 2000 Second Quarter and
has increased $11.7 million for the Fiscal 2001 Year to Date compared to the
Fiscal 2000 Year to Date. This increase is due primarily to impairment losses of
$18.0 million recorded during the Fiscal 2001 Second Quarter, partially offset
by assets which have been fully depreciated.
Amortization of excess reorganization value increased in the Fiscal 2001
Second Quarter to $142.0 million compared to $30.4 million in the Fiscal 2000
Second Quarter and has increased $111.6 million for the Fiscal 2001 Year to Date
compared to the Fiscal 2000 Year to Date. The Company periodically reviews the
carrying amount of the excess reorganization value. If events or changes in
circumstances indicate that the amount of the net assets may not be recoverable,
based on information available to the Company at that time, including current
and projected cash flows, an appropriate adjustment is charged to operations. As
a result of recent developments with the Company (see Notes 1 and 2), during the
Fiscal 2001 Second Quarter the Company charged approximately $111.6 million to
amortization expense to write off the unamortized excess reorganization value,
which resulted from its emergence from its 1998 Chapter 11 proceedings.
The Company has incurred $4.5 million and $4.9 million in reorganization
items for the Fiscal 2001 Second Quarter and the Fiscal 2001 Year to Date
periods, respectively, consisting of $2.4 million of professional fees
associated with the Chapter 11 Cases and the Third Amendment and $2.1 million of
one-time charges recorded in connection with the August 14, 2000
reduction-in-force.
Interest expense increased to $12.4 million for the Fiscal 2001 Second
Quarter from $9.9 million for the Fiscal 2000 Second Quarter. For the Fiscal
2001 Year to Date, interest expense increased to $27.5 million from $22.6
million for the Fiscal 2000 Year to Date. This increase is primarily due to
increased borrowings under the Credit Facility.
Income taxes for the interim period are based on the estimated effective
tax rate expected to be applicable for the full fiscal year. The Company
recorded no income tax benefit during the Fiscal 2001 Second Quarter and the
Fiscal 2001 Year to Date. A tax benefit that would have been recorded due to the
potential use of operating loss carryforwards was fully offset by a valuation
allowance during the Fiscal 2001 Second Quarter and Fiscal 2001 Year to Date
periods. The Company recorded Federal and State provisions of $2.6 million
during the Fiscal 2000 Second Quarter and a $4.3 million net income tax
provision for the Fiscal 2000 Year to Date.
Liquidity and Capital Resources
On August 17, 1998 and in connection with the consummation of the 1998 Plan
of Reorganization, the Company entered into the Credit Agreement. The Credit
Agreement is comprised of: (i) a $230 million Term Loan and (ii) a $70 million
Revolving Credit Facility. The Term Loan and Revolving Credit Facility were to
mature on August 17, 2003, but have been accelerated due to the Chapter 11 Cases
filed on October 3, 2000. The proceeds of the Credit Agreement were used to
refinance the obligations under the debtor-in-possession credit agreement (the
"1998 DIP Facility") and supplemental term loan claims under the credit
agreement that were in existence before the 1998 Chapter 11 case and for working
capital and capital expenditures. Up to $50 million of the Revolving Credit
Facility was available for the issuance of letters of credit. As of October 14,
2000, the Company had net borrowings of $34.2 million and an aggregate of $35.5
million of letters of credit issued and outstanding under the Revolving Credit
Facility. The fair value of the long-term debt is based on the quoted market
prices. At October 14, 2000 and April 1, 2000, the approximate fair value of the
long-term debt was $145.2 million and $198.9 million, respectively. The filing
of the Chapter 11 Cases by the Company constitutes an automatic default under
the Credit Agreement.
Cash interest payments totaled approximately $27.0 million for the Fiscal
2001 Year to Date and are expected to be approximately $48 million for the
fiscal year ending March 31, 2001 ("Fiscal 2001"). Capital expenditures totaled
$32.2 million for the Fiscal 2001 Year to Date and are expected to be
approximately $35 million for Fiscal 2001.
On October 3, 2000, in connection with the filing of the Chapter 11 Cases,
the Company entered into the 2000 DIP Facility with LCPI to provide secured
debtor-in-possession financing. The 2000 DIP Facility provides for borrowings
dependent upon the Company's level of inventory, real estate and claims from
certain vendors. The maximum borrowings under the 2000 DIP Facility include a
sub-facility of $1.85 million for the issuance of letters of credit. The 2000
DIP Facility grants a security interest in substantially all of the Company's
assets. All obligations under the 2000 DIP Facility will be afforded
"super-priority" administrative expense status in the Chapter 11 Cases. The
interest rate applicable to the 2000 DIP Facility is equal to 2% above the
greatest of (A) Citibank's prime or base rate, (B) 1% above the certificate of
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<PAGE>
deposit rate and (C) 0.50% over the Federal Funds Rate per annum, in each case,
subject to reduction, based on certain performance criteria.
The 2000 DIP Facility, as amended, contains certain restrictive covenants,
which, among other things, limit the Company's capital expenditures and
dividends and the ability of the Company to grant liens and incur additional
indebtedness.
The 2000 DIP Facility will terminate upon the earlier of consummation of a
plan of reorganization in the Chapter 11 Cases, April 3, 2001 or the sale of
substantially all of the Company's assets.
As of October 14, 2000, the Company had $1 million of borrowings
outstanding under the 2000 DIP Facility and had not utilized any of its
availability under the 2000 DIP Facility to issue letters of credit.
Impact of New Accounting Standards
The FASB Emerging Issues Task Force (the "EITF"), issued a new accounting
pronouncement EITF Issue Number 00-14, "Accounting for Certain Sales Incentives"
("EITF 00-14"), which addresses the recognition, measurement and income
statement classification for certain sales incentives offered by companies in
the form of discounts, coupons or rebates. The implementation of this new
accounting pronouncement may require the Company to make certain
reclassifications between sales and cost of sales in the Company's Consolidated
Statement of Operations. The Company will implement EITF 00-14 in the fourth
quarter of the Company's current fiscal year. In accordance with such
implementation, the Company will also reclassify certain prior period financial
statement amounts for comparability purposes.
The Company is currently reviewing this pronouncement and has not yet
determined the impact on sales, cost of sales and same store sales results.
However, the Company believes that the implementation of EITF 00-14 will not
have an effect on the Company's reported EBITDA or net income (loss).
Special Note Concerning Forward-Looking Statements
Except for historical information, some matters discussed herein 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 successful consummation
of the Definitive Sale Agreement with C&S, 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,
adverse effects resulting from the commencement and prosecution of the Chapter
11 Cases, regional weather conditions, and the general economic conditions in
the geographic areas in which the Company operates. For additional information
about the Company and its operating and financial condition, please see the
Company's most recent Annual Report on Form 10-K for the year ended April 1,
2000 and the Company's Quarterly Report on Form 10-Q for the 16 weeks ended July
22, 2000 as filed with the Securities and Exchange Commission.
Item 3. 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 due to their variable interest rate pricing. Other
than the filing of the Chapter 11 Cases and events leading up to and relating to
such Chapter 11 Cases, there have been no material changes regarding the
Company's market risk position from the information provided in Item 7A.
Quantitative and Qualitative Disclosures About Market Risk in our Form 10-K
filed with the SEC on June 30, 2000.
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<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Number
10.1 Retention Bonus Agreement (effective and dated as of
November 6, 2000) between Grand Union and Gary M.
Philbin, Jeffrey P. Freimark, Manouchehr Moslemi, and
Glenn J. Smith.
10.2 Retention Bonus Agreement (effective and dated as of
November 6, 2000) between Grand Union and Timothy J.
Carnahan, Gary B. Duncan, James Santamarina, Richard D.
Skelly, and Robert F. Smith.
10.3 Amended Employment Agreement (effective and dated as of
November 6, 2000) between Grand Union and Gary M.
Philbin.
10.4 Amended Employment Agreement (effective and dated as of
November 6, 2000) between Grand Union and Jeffrey P.
Freimark.
10.5 Amended Employment Agreement (effective and dated as of
November 6, 2000) between Grand Union and Manouchehr
Moslemi.
10.6 Amended Employment Agreement (effective and dated as of
November 6, 2000) between Grand Union and Glenn J. Smith.
10.7 Sale Bonus Agreement (effective and dated as of November
6, 2000) between Grand Union and Gary M. Philbin.
10.8 Sale Bonus Agreement (effective and dated as of November
6, 2000) between Grand Union and Jeffrey P. Freimark.
10.9 Sale Bonus Agreement (effective and dated as of November
6, 2000) between Grand Union and Manouchehr Moslemi.
10.10 Sale Bonus Agreement (effective and dated as of November
6, 2000) between Grand Union and Glenn J. Smith.
10.11 Sale Bonus Agreement (effective and dated as of November
6, 2000) between Grand Union and Timothy J. Carnahan.
10.12 Sale Bonus Agreement (effective and dated as of November
6, 2000) between Grand Union and Gary B. Duncan.
10.13 Sale Bonus Agreement (effective and dated as of November
6, 2000) between Grand Union and James Santamarina.
10.14 Sale Bonus Agreement (effective and dated as of November
6, 2000) between Grand Union and Richard D. Skelly.
10.15 Sale Bonus Agreement (effective and dated as of November
6, 2000) between Grand Union and Robert F. Smith.
10.16 Revolving Credit and Guarantee Agreement, dated as of
October 3, 2000, by and among the Company, the several
lenders from time to time parties thereto, Lehman
Brothers Inc., as advisor and arranger and Lehman
Commercial Paper Inc., as administrative agent.
10.17 First Amendment to the Revolving Credit and Guarantee
Agreement dated as of October 5, 2000.
10.18 Second Amendment to the Revolving Credit and Guarantee
Agreement dated as of October 27, 2000.
10.19 Asset Sale Agreement, dated November 12, 2000, by and
among The Grand Union Company, C&S
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<PAGE>
Wholesale Grocers, Inc. and GU Markets LLC, incorporated
by reference to Exhibit 99.1 to Grand Union's Form 8-K
filed November 13, 2000.
10.20 Interim Supply Agreement between The Grand Union Company
and C&S Wholesale Grocers, Inc., dated as of October 3,
2000.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
1. Relating to the filing of a voluntary petition for relief under
Chapter 11 of Title 11 of the United States Code - as filed on
October 5, 2000.
2. Relating to the Company entering into a letter of intent with C&S
Wholesale Grocers, Inc., which provides for the purchase by C&S of
substantially all of the Company's assets and business for a
purchase price in excess of $300 million - as filed on November 1,
2000.
3. Relating to the Company entering into a definitive asset sale
agreement with C&S Wholesale Grocers, Inc., which provides for the
purchase by C&S of substantially all of the Company's assets and
business for a purchase price of $301.8 million - as filed
November 13, 2000.
4. Relating to management changes and the results of the Company's
auction pursuant to Section 363 of the Bankruptcy Code - as filed
November 28, 2000.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE GRAND UNION COMPANY
-----------------------
(Registrant)
/s/ Jeffrey P. Freimark
-----------------------
Jeffrey P. Freimark,
President and Chief Executive Officer,
Chief Financial and Administrative Officer
and Treasurer
Date: December 4, 2000
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