<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________
Commission file number 1-542
GROSSMAN'S INC.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-0524830
- ----------------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
in corporation or organization) Identification No.)
200 Union Street
Braintree, Massachusetts 02184
- ----------------------------------------- --------------------------
(Address of principal executive offices) (Zip Code)
(617) 848-0100
- -----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
- -----------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock - $.01 Par Value - 25,759,696 shares as of November 9, 1994,
exclusive of 377,671 shares held as treasury shares.
1
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GROSSMAN'S INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1994
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I. FINANCIAL INFORMATION
- -----------------------------
ITEM 1. FINANCIAL STATEMENTS
GROSSMAN'S INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1994, December 31, 1993 and September 30, 1993.... 3
Consolidated Statements of Operations
Three Months and Nine Months Ended September 30, 1994 and 1993.. 5
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1994 and 1993................... 6
Notes to Unaudited Interim Consolidated Financial Statements..... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 9
PART II. OTHER INFORMATION
- --------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 17
SIGNATURES.......................................................... 18
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
- -----------------------------
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
GROSSMAN'S INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(Unaudited)
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1994 1993 1993
------------ ------------ -------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 949 $ 2,163 $ 10,638
Receivables, less allowance of
$3,875 at September 30, 1994,
$5,212 at December 31, 1993
and $3,954 at September 30,
1993 for doubtful accounts 32,323 20,751 27,186
Inventories 130,491 121,820 142,655
Other current assets 7,986 9,860 9,208
-------- -------- --------
Total current assets 171,749 154,594 189,687
PROPERTY, PLANT AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION OF $63,648
ON SEPTEMBER 30, 1994, $59,756 ON
DECEMBER 31, 1993 AND $65,664 ON
SEPTEMBER 30, 1993 121,439 130,164 142,234
INVESTMENT IN AND ADVANCES TO
UNCONSOLIDATED AFFILIATE 2,148 486 -
OTHER ASSETS 2,278 2,204 791
-------- -------- --------
$297,614 $287,448 $332,712
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
3
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<TABLE>
GROSSMAN'S INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(Unaudited)
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1994 1993 1993
------------- ------------ -------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
CURRENT LIABILITIES
Revolving term note payable $ - $ - $ 21,000
Accounts payable and accrued
liabilities 112,234 102,616 136,226
Accrued interest 948 2,174 1,114
Current portion of long-term
debt and capital lease
obligations 16,681 14,978 7,700
-------- -------- ---------
Total current liabilities 129,863 119,768 166,040
REVOLVING TERM NOTE PAYABLE 31,468 23,238 -
LONG-TERM DEBT AND CAPITAL
LEASE OBLIGATIONS 33,265 41,267 57,620
PENSION LIABILITY 14,766 15,199 -
OTHER LIABILITIES 16,566 15,608 15,915
-------- -------- ---------
Total liabilities 225,928 215,080 239,575
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT
Common stock, $.01 par value,
Shares authorized - 50,000
Shares issued - 26,137 in
1994 and 1993 261 261 261
Additional paid-in-capital 155,842 155,852 155,852
Retained earnings (accumulated
deficit) (62,971) (62,103) (61,866)
Minimum pension liability (20,528) (20,528) -
Less shares in treasury, at cost -
378 in 1994,
458 at December 31, 1993 and
458 at September 30, 1993 (918) (1,114) (1,110)
--------- --------- ---------
Total Stockholders' Investment 71,686 72,368 93,137
--------- --------- ---------
Total Liabilities and
Stockholders' Investment $297,614 $287,448 $332,712
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
4
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<TABLE>
GROSSMAN'S INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES $226,111 $247,671 $581,332 $642,338
COST OF SALES 171,194 189,099 437,864 478,508
--------- --------- --------- ---------
Gross Profit 54,917 58,572 143,468 163,830
OPERATING EXPENSES
Selling and administrative 43,060 52,053 123,121 149,752
Depreciation and amortization 3,214 3,617 9,584 10,079
Store closing expense 6,500 34,263 6,500 34,263
Store preopening expense 103 - 735 630
--------- --------- --------- ---------
52,877 89,933 139,940 194,724
--------- --------- --------- ---------
OPERATING INCOME (LOSS) 2,040 (31,361) 3,528 (30,894)
OTHER EXPENSES (INCOME)
Interest expense 1,837 2,233 5,621 6,265
Other (514) 271 (1,366) 724
-------- --------- --------- ---------
1,323 2,504 4,255 6,989
EQUITY IN NET LOSS OF
UNCONSOLIDATED AFFILIATE 156 - 238 -
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 561 (33,865) (965) (37,883)
PROVISION (CREDIT) FOR INCOME
TAXES 56 31,755 (97) 30,228
--------- --------- --------- ---------
NET INCOME (LOSS) $ 505 $(65,620) $ (868) $(68,111)
========= ========= ========= =========
PER COMMON SHARE (PRIMARY
AND FULLY DILUTED)
Net income (loss) $0.02 $(2.56) $(0.03) $(2.65)
========= ========= ========= =========
WEIGHTED AVERAGE SHARES AND
EQUIVALENT SHARES OUTSTANDING
Primary 25,823 25,677 25,748 25,655
========= ========= ========= =========
Fully Diluted 25,899 25,677 25,748 25,655
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
5
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<TABLE>
GROSSMAN'S INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share data)
(Unaudited)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1994 1993
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (868) $(68,111)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization 9,584 10,079
Store closing expense 6,500 34,263
Deferred income taxes 30,228
Net gain on disposals of property (353) (159)
Provision for losses on accounts receivable 935 1,597
(Increase) decrease in assets:
Receivables (6,285) (7,500)
Inventories (8,671) (31,345)
Investment in and advances to
unconsolidated affiliate (1,662) -
Other assets 150 (2,906)
Increase in accounts payable and accrued
liabilities and interest 785 27,653
--------- ---------
Total adjustments 983 61,910
NET CASH PROVIDED BY (USED FOR) OPERATING
ACTIVITIES 115 (6,201)
INVESTING ACTIVITIES
Capital expenditures (4,023) (13,003)
Proceeds from disposals of property 1,378 286
--------- ---------
NET CASH USED FOR INVESTING ACTIVITIES (2,645) (12,717)
FINANCING ACTIVITIES
Payments on long-term debt and capital lease
obligations (7,522) (20,711)
Financing additions 422 6,935
Net proceeds from revolving term notes payable 8,230 21,000
Issuance of common stock 186 225
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,316 7,449
Net decrease in cash and cash equivalents (1,214) (11,469)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,163 22,107
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 949 $ 10,638
========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
6
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GROSSMAN'S INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The accompanying Unaudited Interim Consolidated Financial Statements have
been prepared in conformity with generally accepted accounting principles
applied on a consistent basis and, in the opinion of management, include
all adjustments, consisting of normal recurring accruals, necessary for a
fair presentation of the results for the interim periods. The results of
operations for the interim periods are not necessarily indicative of
results to be expected for the year.
These interim financial statements should be read in conjunction with the
consolidated financial statements and related notes contained in the
Annual Report on Form 10-K of Grossman's Inc. for the year ended
December 31, 1993. The balance sheet as of December 31, 1993 has been
derived from the audited financial statements as of that date.
The Unaudited Interim Consolidated Financial Statements include the
accounts of the Company and its wholly-owned subsidiaries after
elimination of significant intercompany balances and transactions.
The Company's fiscal year end is December 31. The Company records
activity in quarterly accounting periods of equal length, ending on the
last Saturday of each quarter. The differences in amounts presented and
those which would have been presented using actual quarter end dates are
not material.
Certain amounts in the consolidated financial statements for prior periods
have been reclassified to conform to the current period classification.
Such reclassifications had no effect on previously reported results of
operations.
<TABLE>
NOTE 2 - LONG-TERM DEBT AND REVOLVING CREDIT AGREEMENT
- ------------------------------------------------------
Long-term debt consists of the following (in thousands):
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1994 1993 1993
------------- ------------ -------------
<S> <C> <C> <C>
14% Debentures, due
January 1, 1996 $16,201 $16,201 $21,334
Mortgage notes 20,612 22,638 22,912
Capital lease obligations 13,133 17,406 21,074
------- ------- -------
49,946 56,245 65,320
Less current portion 16,681 14,978 7,700
------- ------- -------
$33,265 $41,267 $57,620
======= ======= =======
</TABLE>
The Company's loan and security agreement with BankAmerica Business
Credit, Inc. provides for borrowings up to 50% of eligible receivables,
7
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NOTE 2 - LONG-TERM DEBT AND REVOLVING CREDIT AGREEMENT (CONTINUED)
- ------------------------------------------------------------------
inventory and certain other assets (the "borrowing base"), up to a maximum
of $60 million, including letters of credit up to $15 million. At
September 30, 1994, the borrowing base totalled $60.0 million, cash
borrowings totalled $31.5 million, outstanding letters of credit totalled
$9.3 million and $19.2 million of the available line was unutilized. The
maximum cash borrowings under this agreement during the nine months ended
September 30, 1994 were $39.3 million. The weighted average annual
interest rate on borrowings during the nine months ended September 30,
1994 was 7.1%.
<TABLE>
NOTE 3 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
- -------------------------------------------------
Accounts payable and accrued liabilities consist of the following (in
thousands):
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1994 1993 1993
------------- ------------ -------------
<S> <C> <C> <C>
Accounts payable $ 76,071 $ 60,607 $ 85,130
Accrued salaries, wages,
commissions and related taxes 5,892 8,155 7,910
Accrued income and franchise
taxes 1,040 734 786
Accrued taxes other than income
and franchise 4,024 4,809 7,165
Accrued store closing costs 6,711 8,343 12,834
Accrued insurance 8,728 10,273 11,284
Other accrued liabilities 9,768 9,695 11,117
-------- -------- --------
$112,234 $102,616 $136,226
======== ======== ========
</TABLE>
NOTE 4 - INCOME TAXES
- ---------------------
In September 1993, the Company established a valuation allowance to fully
offset deferred tax assets previously established to reflect the future
tax benefit of net operating loss carryforwards. Income tax provisions
and credits in 1993, prior to the valuation allowance, reflected taxes at
statutory rates. Income taxes in 1994 reflect taxes at statutory rates
adjusted for the utilization of net operating loss carryforwards.
NOTE 5 - SALE OF PROPERTY
- -------------------------
In the third quarter of 1993, the Company announced the sale of its 35
acre headquarters site in Braintree, Massachusetts to Kmart Corporation,
subject to the resolution of certain contingencies, with financial
reporting of the sale being deferred until such contingencies are
resolved. On November 2, 1994, Kmart received site plan approval subject
to a statutory waiting period. The Company will account for the
transaction upon the closing, which is expected to occur in the first half
of 1995.
8
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
FINANCIAL CONDITION
- -------------------
SEPTEMBER 30, 1994 COMPARED WITH DECEMBER 31, 1993
- --------------------------------------------------
Financial condition at September 30, 1994 reflects the seasonality of the
Company's business, investment in new business ventures, ongoing disposals
of closed store properties and long-term debt reductions. In the third
quarter the Company reviewed all Eastern Division stores to identify
capital which could be redeployed to growth initiatives expected to
generate more attractive long-term returns. These initiatives include the
aggressive Midwest expansion of the Company's Contractors' Warehouse
concept and the continued repositioning of Eastern Division stores to
enhance their appeal to target customers. Consideration was given to past
and future expectations of individual store and market operating
performance, as well as the estimated real estate value of each location.
Following this review, at quarter end the Company announced the closing of
15 stores; nine owned and six leased. A $6.5 million pre-tax charge was
accrued, related to closing costs, lease expenses, inventory writedowns
and other expenses, less the expected net recovery of property, plant and
equipment. The process of closing the stores will be completed during the
fourth quarter of 1994 and proceeds from the inventory liquidation will be
used to reduce accounts payable and borrowings under the revolving credit
agreement.
Other significant ongoing events expected to impact future liquidity are
as follows:
- - In the third quarter of 1993, the Company announced the sale of its 35
acre headquarters site in Braintree, Massachusetts to Kmart
Corporation, subject to the resolution of certain contingencies, with
financial reporting of the sale being deferred until such contingencies
are resolved. On November 2, 1994, Kmart received site plan approval
subject to a statutory waiting period. The Company will account for
the transaction upon the closing, which is expected to occur in the
first half of 1995. The Braintree property is unencumbered by mortgage
or other debt.
- - One property included in the 15 closed stores described above, the
Wellesley, Massachusetts store, was sold as of September 30, 1994. The
accompanying balance sheet includes a receivable for the sale proceeds,
which were received in early October 1994. The Company is actively
marketing the remaining owned properties.
9
<PAGE> 10
- - The Company also continues to actively market properties vacated as a
result of previously closing 23 stores. Of the twelve owned properties
within this group, one was sold in late 1993, two were sold in the
first quarter of 1994, two were sold in the second quarter of 1994, one
was sold in October 1994 and three are under agreement to be sold.
Proceeds from the disposal of these surplus properties totalled $4.0
million during the first nine months of 1994.
- - At September 30, 1994, book values of properties expected to be sold
totalling $5.8 million have been reclassified to other current assets,
and related debt totalling $10.3 million has been classified as
current.
Inventory at September 30, 1994 totalled $130.5 million, a seasonal $8.7
million, or 7.1%, increase from year end and a $12.2 million, or 8.5%,
decrease from one year ago. The decrease in inventory from one year ago
is principally due to the closing of 23 Eastern Division stores. The
Eastern Division's automated, integrated replenishment system, with
virtually all lines of merchandise now being automatically replenished,
has contributed to more efficient inventory management in 1994. Accounts
payable increased seasonably by $9.6 million, related to the inventory
increase. Included in the September 30, 1994 inventory is approximately
$7.0 million sold in October 1994 in conjunction with the store closings.
Working capital at September 30, 1994 was $41.9 million, an increase of
$7.1 million from the prior year end amount and an increase of $18.2
million from one year ago. In 1993, seasonal financing of inventory
purchases through credit borrowings negatively impacted working capital,
as such borrowings were classified as current. In addition, in 1994 there
were reduced levels of capital expenditures and reduced payments on
long-term debt.
The period of the year prior to the spring selling season has
historically been a period of new store openings and store remodelings,
particularly in the Eastern Division. Based upon 1993 operating results,
growth and repositioning of additional stores were curtailed in 1994. One
new Contractors' Warehouse store was opened in 1994 and one additional
store is planned to open in the first quarter of 1995. Capital
expenditures for the nine month period totalled $4.0 million in 1994, as
compared to $13.0 million in 1993, with $1.5 million related to
Project-Pro's, the Company's 80% owned subsidiary which began operations
in 1994, and the remainder principally related to the Contractors'
Warehouse store opening and point-of-sale register systems in the Eastern
Division. These register systems are an integral component of the
division's integrated, automated replenishment system, which is now used
to process approximately 80% of the division's sales. Payments on
long-term debt and capital lease obligations totalled $7.5 million for the
first nine months of 1994, as compared to $20.7 million in 1993,
principally due to the $10.8 million January 1993 maturity of the
Company's Zero Coupon Notes.
Reflected in the balance sheet at September 30, 1994 are two new ventures;
Project-Pro's, an 80% owned consolidated subsidiary, and Construcentro, a
50% owned unconsolidated joint venture. Project-Pro's opened its first
three home-improvement showrooms and began operations during 1994.
Approximately $2.1 million has been invested in Construcentro, which
10
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opened its first store in May 1994 in Monterrey, Mexico, under
Builder's Mart. The investment in Construcentro has been accounted for
using the equity method of accounting.
The Company's loan and security agreement with BankAmerica Business
Credit, Inc. provides for borrowings up to $60 million, including
letters of credit up to $15 million. At September 30, 1994, cash
borrowings under this agreement totalled $31.5 million and outstanding
letters of credit totalled $9.3 million, with resultant loan availability
of $19.2 million. The Company expects to continue to utilize a portion of
this loan throughout the fourth quarter of 1994. At September 30, 1994,
the Company believes it is in compliance with all covenants, financial or
otherwise, contained in its various loan agreements. The Company believes
that existing funds, funds generated from operations, proceeds to be
received from the sale of properties and funds available under the loan
and security agreement will be sufficient to satisfy debt service
requirements, to pay other liabilities in the normal course of business
and to finance planned capital expenditures throughout the remainder of
1994.
11
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RESULTS OF OPERATIONS
Nine months ended September 30, 1994 compared with nine months ended
September 30, 1993
- --------------------------------------------------------------
A net loss of $868 thousand resulted in the first nine months of 1994 as
compared to a net loss of $68.1 million in the same period in 1993, with
non-recurring items occurring in each year. The 1994 results include a
$6.5 million provision for the closing of 15 Eastern Division stores. The
1993 results include a $34.3 million provision for the closing of 22
Eastern Division stores and a non-cash adjustment to the provision for
income taxes of $31.8 million to record a valuation allowance against
previously recorded deferred tax assets. Excluding these non-recurring
items, operating income for the first nine months of 1994 improved by $6.6
million and pre-tax income improved by $9.1 million. Negatively impacting
the 1994 results was the Company's start up of its 80% owned subsidiary,
Project-Pro's.
<TABLE>
The following table shows comparative sales results by store type during
the first six months, the third quarter and for the nine month period:
<CAPTION>
Six Months Three Months Nine Months
Ended June Ended September Ended September
-------------- --------------- ---------------
1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SALES (in thousands)
Grossman's Stores
Retail Sales $136.3 $174.5 $ 91.5 $110.8 $227.8 $285.2
Professional Sales 93.6 109.5 63.0 68.8 156.6 178.2
------ ------ ------ ------ ------ ------
Total Grossman's Stores 229.9 284.0 154.5 179.6 384.4 463.4
Mr. 2nd's Bargain Outlet
Stores 21.2 23.4 11.7 12.3 32.9 35.7
Contractors' Warehouse
Division 103.0 87.3 58.8 55.8 161.9 143.2
Project-Pro's 1.0 0.0 1.1 0.0 2.1 0.0
------ ------ ------ ------ ------ ------
Total Grossman's Inc. $355.1 $394.7 $226.1 $247.7 $581.3 $642.3
====== ====== ====== ====== ====== ======
% OF TOTAL SALES
Grossman's Stores
Retail Sales 38.3 % 44.3 % 40.4 % 44.7 % 39.2 % 44.4 %
Professional Sales 26.4 27.7 27.9 27.8 26.9 27.7
------ ------ ------ ------ ------ ------
Total Grossman's Stores 64.7 72.0 68.3 72.5 66.1 72.1
Mr. 2nd's Bargain Outlet
Stores 6.0 5.9 5.2 5.0 5.7 5.6
Contractors' Warehouse
Division 29.0 22.1 26.0 22.5 27.8 22.3
Project-Pro's 0.3 0.0 0.5 0.0 0.4 0.0
------ ------ ------ ------ ------ ------
Total Grossman's Inc. 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
====== ====== ====== ====== ====== ======
</TABLE>
12
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RESULTS OF OPERATIONS
- ---------------------
<TABLE>
Nine months ended September 30, 1994 compared with nine months ended
- --------------------------------------------------------------------
September 30, 1993 (CONTINUED)
- ------------------------------
(TABLE CONTINUED)
<CAPTION>
Six Months Three Months Nine Months
Ended June Ended September Ended September
-------------- --------------- ---------------
1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SALES % INCREASE (DECREASE)
VERSUS PRIOR YEAR
Grossman's Stores
Retail Sales (21.9)% (15.7)% (17.4)% (12.6)% (20.1)% (14.5)%
Professional Sales (14.5) 14.9 (8.4) 8.5 (12.1) 12.4
------ ------ ------ ------ ------ ------
Total Grossman's Stores (19.0) (6.1) (14.0) (5.6) (17.0) (5.9)
Mr. 2nd's Bargain Outlet
Stores (9.5) 2.7 (4.9) 0.8 (7.9) 2.0
Contractors' Warehouse
Division 17.9 11.5 5.4 28.6 13.0 17.6
Project-Pro's NA NA NA NA NA NA
------ ------ ------ ------ ------ ------
Total Grossman's Inc. (10.0)% (2.2)% (8.7)% 0.8 % (9.5)% (1.0)%
====== ====== ====== ====== ====== ======
COMPARABLE STORE SALES %
INCREASE (DECREASE)
VERSUS PRIOR YEAR
Grossman's Stores
Retail Sales (6.6)% (14.5)% (4.0)% (10.8)% (5.6)% (13.1)%
Professional Sales 15.0 15.7 19.3 10.1 16.8 13.8
------ ------ ------ ------ ------ ------
Total Grossman's Stores 1.1 (4.9) 4.3 (3.8) 2.4 (4.4)
Mr. 2nd's Bargain Outlet
Stores (1.0) (12.3) 10.4 (19.4) 2.9 (14.3)
Contractors' Warehouse
Division (5.0) 1.8 (2.7) 0.7 (5.1) 1.4
Project-Pro's NA NA NA NA NA NA
------ ------ ------ ------ ------ ------
Total Grossman's Inc. (0.6)% (4.0)% 2.8 % (3.8)% 0.5 % (3.8)%
====== ====== ====== ====== ====== ======
</TABLE>
Total sales results are impacted by the 23 Eastern Division stores
closed and by Contractors' Warehouse store openings; one late in the first
quarter of 1993, two late in the second quarter of 1993 and one late in
the second quarter of 1994.
13
<PAGE> 14
Within Grossman's stores, comparable store sales results are indicative of
the Company's strategy to strengthen the appeal of stores to target
customers - contractors, remodelers and serious do-it-yourselfers.
Comparable stores sales increases in professional sales have offset a
decline in retail sales, which have been impacted by increasingly
competitive conditions. In the third quarter of 1994, the 19.3% comparable
store sales increase in Eastern Division professional sales exceeded the
increase of 15.0% for the first six months of 1994. Contractors' Warehouse
comparable store sales results were negatively impacted by division-wide
promotional activities in March and June 1993 prior to and concurrent with
the three store openings. Also negatively impacting Contractors' Warehouse
comparable store sales in 1994 is the slowing economy in the Southern
California market in which 8 of the division's 12 stores operate.
Gross profit declined by $20.4 million as the result of the sales
decline and a decline in gross margin from 25.5% in 1993 to 24.7% in 1994.
A gross margin decline for the first six months, from 26.7% in 1993 to
25.0% in 1994, was offset in part by a third quarter increase from 23.6%
in 1993 to 24.3% in 1994. A third quarter increase in professional sales
margins offset a slight decline in retail margin. The third quarter
margin improvement reflects ongoing efforts to improve margins on products
sold to the growing professional sales base. Margin pressure will
continue to occur as the result of sales increases to professional
customers, who receive discounts from normal retail pricing, and as
additional Contractors' Warehouse stores are opened. Contractors'
Warehouse stores operate at higher per store sales volume with lower gross
margins and lower expenses. Competitive market conditions and volatile
lumber prices have also impacted margins.
Selling and administrative expenses declined by $26.6 million, or 17.8%,
for the nine month period, reflecting reduced overhead as a result of
closed stores and additional Eastern Division staff reductions which
occurred in the latter periods of 1993. As a percent of sales, selling
and administrative expenses declined from 23.3% in 1993 to 21.2% in 1994.
At the end of the third quarter in both 1993 and 1994, non-recurring
charges for store closings were recorded to cover costs related to leases,
severance and outplacement expenses, inventory writedowns, other expenses
and the net unrecoverable amount of property, plant and equipment. In
1993, the Company closed 23 Eastern Division stores and $34.3 million
provision was recorded and in 1994 15 Eastern Division stores were closed
and a $6.5 million provision was recorded. In the nine months ended
September 30, 1993 and 1994, sales from stores now closed represented
22.2% and 8.8%, respectively, of total sales.
Included in operating expenses in 1994 are $3.8 million of expenses
related to the development and start-up of Project-Pro's, the Company's
80% owned subsidiary, which opened its first three project centers in
1994. Store preopening expense, related to Contractors' Warehouse store
openings, declined by $800 thousand due to fewer openings. Store
preopening expense will continue throughout the fourth quarter of 1994, in
preparation for the first quarter opening of a Contractors' Warehouse
store in Indianapolis, Indiana.
14
<PAGE> 15
Interest expense declined from $6.3 million in 1993 to $5.6 million in
1994, reflecting a reduction in average borrowings, offset in part by an
increase in the average interest rate incurred. Reflected in the
statement of operations in 1994 is a $238 thousand dollar net loss on the
operations of Construcentro, the Company's 50% unconsolidated joint
venture, which opened its first store, located in Monterrey, Mexico,
during the 1994 second quarter.
Prior to September 1993, the Company had recognized deferred tax assets
for the tax benefits it expected to realize from its available net
operating loss carryforwards. As a result, the interim periods had only
reflected a non-cash tax provision or benefit from the previously
recognized net operating losses. In the third quarter of 1993, based on
unanticipated operating losses and a reassessment of future expectations,
the Company established a valuation allowance to reduce the carrying value
of the deferred tax assets to zero. Tax credits recorded earlier in 1993
were also reversed, resulting in a provision for income taxes for the nine
months ended September 30, 1993 of $30.2 million. In 1994, the interim
period tax provisions or credits are based on the Company's anticipated
full year effective tax rate of 10%. This rate reflects taxes at
statutory rates, reduced by the tax benefit anticipated from utilization
of a portion of the Company's available net operating loss carryforwards.
Three months ended September 30, 1994 compared with three months ended
September 30, 1993
- -----------------------------------------------------------------
Net income of $505 thousand resulted in the third quarter of 1994
as compared to a net loss of $65.6 million in the same period in 1993.
Non-recurring items occurred in each year. The 1994 results include a
$6.5 million provision for the closing of 15 Eastern Division stores. The
1993 results include a $34.3 million provision for the closing of 23
Eastern Division stores and a non-cash adjustment to the provision for
income taxes of $31.8 million to record a valuation allowance against
previously recorded deferred tax assets. Excluding these non-recurring
items, operating income for the third quarter of 1994 improved by $5.6
million and pre-tax income improved by $6.7 million. Negatively impacting
the 1994 results was the Company's start up of its 80% owned subsidiary,
Project-Pro's.
Third quarter sales results are impacted by the 23 Eastern Division
stores closed and by Contractors' Warehouse store openings; one late in
the first quarter of 1993, two late in the second quarter of 1993 and one
late in the second quarter of 1994.
Within Grossman's stores, comparable store sales results are indicative of
the Company's strategy to strengthen the appeal of stores to target
customers - contractors, remodelers and serious do-it-yourselfers.
Comparable stores sales increases in professional sales have offset a
decline in retail sales, which have been impacted by increasingly
competitive conditions. In the third quarter of 1994, the 19.3% comparable
store sales increase in Eastern Division professional sales compared to a
10.1% increase for the same period in the prior year. Negatively impacting
Contractors' Warehouse comparable store sales in 1994 is the slowing economy
in the Southern California market in which 8 of the division's 12 stores
operate.
15
<PAGE> 16
Gross profit declined by $3.7 million as the result of the sales
decline, offset in part by an increase in gross margin from 23.6% in 1993
to 24.3% in 1994. During the third quarter, an improvement in
professional sales margins offset a slight decline in retail margin. This
margin improvement reflects ongoing efforts to improve margins on products
sold to the growing professional sales base.
Selling and administrative expenses declined by $9.0 million, or 17.3%,
reflecting reduced overhead as a result of closed stores and additional
Eastern Division staff reductions which occurred in the latter periods of
1993. As a percent of sales, selling and administrative expenses declined
from 21.0% in 1993 to 19.0% in 1994.
At the end of the third quarter in both 1993 and 1994, non-recurring
charges for store closings were recorded to cover costs related to leases,
severance and outplacement expenses, inventory writedowns, other
anticipated expenses and the net unrecoverable amount of property, plant
and equipment. In 1993, the Company closed 23 Eastern Division stores and
$34.3 million was provided and in 1994 15 Eastern Division stores were
closed and a $6.5 million provision was recorded. The reduced level of
store closing expense from 1993 to 1994 reflects fewer closings, lower
estimated future lease costs and real estate values.
Included in operating expenses in the third quarter of 1994 are $1.6
million of expenses related to the development and start-up of Project-
Pro's, the Company's 80% owned subsidiary, which opened its first three
project centers in 1994.
Interest expense declined from $2.2 million in 1993 to $1.8 million in
1994, reflecting a reduction in average borrowings, offset in part by an
increase in the average interest rate incurred. Reflected in the
statement of operations in 1994 is a $156 thousand dollar net loss on the
operations of Construcentro, the Company's 50% unconsolidated joint
venture, which opened its first store, located in Monterrey, Mexico,
during the 1994 second quarter.
Prior to September 1993, the Company had recognized deferred tax assets
for the tax benefits it expected to realize from its available net
operating loss carryforwards. As a result, the interim periods had only
reflected a non-cash tax provision or benefit from the previously
recognized net operating losses. In the third quarter of 1993, based on
unanticipated operating losses and a reassessment of future expectations,
the Company established a valuation allowance to reduce the carrying value
of the deferred tax assets to zero. Tax credits recorded earlier in 1993
were also reversed, resulting in a provision for income taxes for the nine
months ended September 30, 1993 of $30.2 million. In 1994, the interim
period tax provisions or credits are based on the Company's anticipated
full year effective tax rate of 10%. This rate reflects taxes at
statutory rates, reduced by the tax benefit anticipated from utilization
of a portion of the Company's available net operating loss carryforwards.
16
<PAGE> 17
PART II - OTHER INFORMATION
- ---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
4(n)-1 Second Amendment, dated October 30, 1994, to
Term Loan and Security Agreement between
Grossman's Inc. and Sanwa Business Credit
Corporation, dated October 15, 1991, filed
herewith.
10(iii)(h)-1 Amendment No. 1, dated September 26, 1994, to
Amended and Restated Employment Agreement dated
as of July 1, 1991, between Grossman's Inc. and
Sydney L. Katz, filed herewith.
10(iii)(k)-1 Amendment No. 1, dated September 26, 1994, to
Amended and Restated Employment Agreement dated
as of July 1, 1991, between Grossman's Inc. and
Robert L. Flowers, filed herewith.
10(iii)(l)-1 Amendment No. 1, dated September 26, 1994, to
Amended and Restated Employment Agreement dated
as of July 1, 1991, between Grossman's Inc. and
Richard E. Kent, filed herewith.
11(a) Statement re computation of earnings per share,
filed herewith.
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the
three months ended September 30, 1994.
17
<PAGE> 18
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.
GROSSMAN'S INC.
Company
by /s/ Sydney L. Katz
--------------------------------------
Sydney L. Katz
Executive Vice President -
Chief Financial Officer and Treasurer
(Principal Financial Officer)
DATE: November 9, 1994
18
<PAGE> 1
c:\wp51\jbg\grossman.2nd October 28, 1994
SECOND AMENDMENT TO TERM LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO TERM LOAN AND SECURITY AGREEMENT
(this "Amendment") is made as of this 30th day of October, 1994, by and
between GROSSMAN'S INC., a Delaware corporation ("Borrower"), and SANWA
BUSINESS CREDIT CORPORATION, a Delaware corporation ("Lender").
BACKGROUND
A. Borrower and Lender are parties to a Term Loan and Security
Agreement dated October 15, 1991, as amended by a First Amendment (the
"First Amendment") to Term Loan and Security Agreement dated as of December
14, 1993 (including all exhibits and riders thereto and as supplemented and
amended from time to time referred to herein as the "Loan Agreement").
B. In December, 1993 Borrower closed and ceased to operate its
Danvers, Massachusetts store and as a consequence, pursuant to Section 3.8
of the Loan Agreement, Borrower either had to (i) immediately prepay the
outstanding principal balance of the Term Note plus all accrued interest or
(ii) subject to the approval of Lender, substitute as Collateral another of
its properties having a minimum appraised value equal to at least Four
Million Seven Hundred Fifty Thousand and No/100 Dollars ($4,750,000.00).
Borrower was unable to substitute suitable Collateral or prepay the
outstanding balance of this Note.
C. At the request of Borrower, pursuant to the terms of the First
Amendment, Lender agreed to waive the requirement that Borrower immediately
prepay the outstanding principal balance of the Note and agreed to waive
certain defaults that were created by the Danvers closing and certain other
store closings.
D. The maturity date of the Term Note was reset to October 31,
1994 pursuant to the First Amendment and the Note Modification Agreement
executed by Borrower and delivered to Lender pursuant to such First Amendment.
Borrower has advised Lender that it is unable to pay the Term Loan in full
on the October 31, 1994 maturity date and has requested Lender to extend the
maturity date.
E. Lender has considered Borrower's request and is amenable to
such request provided that Borrower executes this Amendment and complies with
all of the terms and conditions contained therein.
NOW, THEREFORE, in consideration of the premises set forth above and
the mutual covenants and promises contained in this Amendment, Borrower and
Lender agree as follows:
1. Amendment to Loan Agreement. Effective as of the date hereof
and subject to the conditions set forth in Paragraph 4, Lender and Borrower
agree to amend the Loan Agreement as follows:
(a) Section 1.1 Terms Defined. Clause (g) of Section 1.1 of the
Loan Agreement containing the definition of the term "Restricted Investment"
is amended to read as follows:
"(g) investments as of the date hereof by the
Borrower in any of its Subsidiaries existing on the date
hereof and additional investments therein not to exceed
$7,500,000 in the aggregate;"
(b) Section 2.2 Repayment of Term Loan; Interest Payments.
Section 2.2(a) of the Loan Agreement is amended in full to read as follows:
<PAGE> 2
"(a) Payments of principal and inter
shall be made in installments as follows:
(i) An installment of principal only in the amount of One
Million Dollars ($1,000,000.00) payable on October 31, 1994;
(ii) An installment of Ninety Three Thousand Seven Hundred and
Fifty and No/100 Dollars ($93,750.00) plus interest on the
principal balance of the Term Loan then remaining unpaid,
calculated at the Original Interest Rate as set forth in
Section 2.4 below, payable on January 15, 1995; and
(iii) A final installment in an amount equal to the sum of the
then outstanding principal amount of the Term Loan and all
accrued and unpaid interest thereon calculated at the Original
Interest Rate, payable on or before January 31, 1995, or if
earlier, on the date Borrower has the right to receive the
proceeds from the sale of its Danvers, Massachusetts store or
the date Borrower closes or ceases to occupy one or both of
the other Collateral Locations.
(c) Section 2.3 Prepayments. No Prepayment Fee shall be due and
payable pursuant to Section 2.3 of the Loan Agreement if payment of the Term
Loan is made as provided in Section 2.2 of the Loan Agreement, as amended.
Article 7 Financial Covenants. Article 7 of the Loan Agreement is
amended in full to read as follows:
"Borrower covenants and agrees that as at the end of each
month after the date hereof (as provided below) and so long as any
of the Obligations of Borrower to Lender under this Agreement exist or
this Agreement remains in effect, unless otherwise consented to by
Lender in writing:
7.1 Minimum Interest Coverage. The Borrower shall not permit the
ratio (the "Interest Coverage Ratio) of (a) Adjusted Net Earnings from
Operations for any period specified below plus interest expense of the
Borrower and its Subsidiaries for such period and provision for income taxes
of the Borrower and its Subsidiaries for such period plus depreciation and
amortization expense of the Borrower and its Subsidiaries for such period
to (b) interest expense of the Borrower and its Subsidiaries for such period
to be less than the ration set forth opposite any such period:
<TABLE>
<CAPTION>
Period Ratio
<S> <C>
Fourth fiscal quarter of 1994 Fiscal Year 2.2/1
</TABLE>
7.2 Adjusted Tangible Net Worth. The Borrower shall not permit
Adjusted Tangible Net Worth to be less than the following amount on the date
indicated below or at any time during the following period:
<TABLE>
<CAPTION>
Period or Date Amount
<S> <C>
Fourth fiscal quarter of 1994 Fiscal Year
(other than the last day of such quarter) $88,200,000
Last day of fourth fiscal
quarter of 1994 Fiscal Year and thereafter $87,100,000
</TABLE>
<PAGE> 3
2. Fees.
(a) The "Accelerating Charge" as defined and provided for in
Paragraph 2(b) of the First Amendment shall be fixed at $15,000.00 per
month, for each month that the Term Loan remains unpaid, payable on the 15th
day of each month it is due, with the next $15,000.00 Accelerating Charge
payment due on November 15, 1994.
(b) Borrower agrees to pay all fees and expenses of Lender in
connection with the preparation of this Amendment and all other documents
related thereto, including without limitation all attorneys' fees and
expenses (including any title or search fees and recordation taxes) incurred
in connection with the negotiation and preparation of this Amendment and all
other documents related thereto.
3. Appraisals. Pursuant to Section 3.6 of the Loan Agreement,
after the occurrence of an Event of Default, Borrower shall, at the request
of Lender, provide Lender at Borrower's expense with appraisals or updates
thereof of any or all of the Collateral from an appraiser reasonably
satisfactory to the Lender. Lender did not require Borrower to provide
Lender with appraisals prior to granting certain waivers to Borrower in
connection with the First Amendment; provided, however, Borrower agrees that
Lender may require Borrower to provide Lender with appraisals pursuant to
Section 3.6 of the Loan Agreement at any time after the occurrence of an
Event of Default or before agreeing to (i) any waiver of any covenant or
agreement contained in the Loan Agreement or (ii) the extension of a
maturity date of the Term Note, either of which will be in Lender's sole
discretion.
4. Effectiveness of Amendment. This Amendment shall become
effective and be deemed effective as of the date hereof provided that on or
before such date, Lender shall have received (a)(i) three (3) copies of this
Amendment executed by Borrower, (ii) one (1) copy of the Second Note
Modification Agreement executed by Borrower in the form attached to this
Amendment as Exhibit A, and (iii) a Certificate of the Secretary of Borrower
certifying Resolutions adopted by the Executive Committee of the Board of
Directors of Borrower authorizing the transactions and documentation and
documents entered into in connection with this Amendment.
5. To induce Lender to amend the Loan Agreement, Borrower
represents and warrants to Lender that:
(a) Compliance with Loan Agreement. On the date hereof, Borrower
is in compliance with all of the terms and provisions set forth in the Loan
Agreement (as modified by this Amendment) and no Event of Default specified
in Section 10.1 of the Loan Agreement, nor any event which, upon notice or
lapse of time or both, would constitute such an Event of Default, has
occurred.
(b) Representations and Warranties. On the date hereof, the
representations and warranties set forth in Article 4 of the Loan Agreement
(as modified by this Amendment) are true and correct with the same effect
as though such representations and warranties had been made on the date
hereof, except to the extent that such representations and warranties
expressly relate to an earlier date.
(c) Corporate Authority of Borrower. Borrower has the full power
and authority to enter into this Amendment, to make the borrowings under the
Loan Agreement as amended by this Amendment, and to incur and perform the
obligations provided for under the Loan Agreement and this Amendment, all
of which have been duly authorized by all proper and necessary corporate
action. No consent or approval of shareholders or of any public authority
<PAGE> 4
or regulatory body is required as a condition to the validity or
enforceability of this Amendment.
(d) Amendment as Binding Agreement. This Amendment constitutes
the valid and legally binding obligations of Borrower, fully enforceable against
Borrower in accordance with its terms.
(e) No Conflicting Agreements. The execution and performance by
Borrower of this Amendment and the borrowings by Borrower under the Loan
Agreement, as amended, will not (i) violate any provision of law, any order
of any court or other agency of government, or the Charter or By-Laws of
Borrower, or (ii) violate any indenture, contract, agreement or other
instrument to which Borrower is a party, or by which its property is bound,
or be in conflict with, result in a breach of or constitute (with due notice
and/or lapse of time) a default under, any such indenture, contract,
agreement or other instrument or result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever upon any of the
property or assets of Borrower.
6. Effect Upon Loan Agreement.
(a) Except as specifically set forth in Paragraph 1,
(i) the Loan Agreement shall remain in full force and effect and is hereby
ratified and confirmed; (ii) the rights and obligations of the parties set
forth in the Loan Agreement and the Term Note remain unchanged; and (iii) the
execution, delivery and performance of this Amendment shall not operate as
a waiver of any right, power or remedy of the Lender under the Loan
Agreement, and shall not constitute a waiver of any provision of the Loan
Agreement.
(b) Borrower and Lender hereby agree that this Amendment shall not
be construed as an agreement to substitute a new obligation or to extinguish
the obligations under the Loan Agreement and shall not constitute a novation
of the obligations of Borrower under the Loan Agreement or the Term Note.
7. Capitalized Terms. The capitalized terms used in this
Amendment shall have the same meanings ascribed to them in the Loan Agreement
unless otherwise defined herein.
8. Governing Law. This Amendment has been delivered and shall
be deemed to have been made at Chicago, Illinois and shall be interpreted, and
the rights and liabilities of the parties hereto determined, in accordance
with the internal laws (as opposed to the conflicts of law provisions) of
the State of Illinois.
9. Section Titles. The section title contained in this
Amendment are and shall be without substance, meaning or content of any kind
whatsoever and are not a part of the agreement between the parties.
10. Counterparts. This Amendment may be executed in any number
of counterparts, each of which, when so executed and delivered, shall be an
original, but such counterparts shall together constitute but one and the
same Amendment.
<PAGE> 5
IN WITNESS WHEREOF, the parties to this Agreement, have executed it
as of the day and year set forth above.
BORROWER:
GROSSMAN'S INC.
By:_______________________________
Arthur S. Ryan, Vice President
LENDER:
SANWA BUSINESS CREDIT CORPORATION
By:_______________________________
Peter Skavla, Vice President
<PAGE> 1
AMENDMENT NO. 1
TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amendment No. 1 (the "Amendment") to the Amended and
Restated Employment Agreement dated as of July 1, 1991 (the
"Employment Agreement") is made and entered into as of this 26th
day of September, 1994, by and between Grossman's Inc., a
Delaware corporation ("Employer"), and Sydney L. Katz
("Employee").
WHEREAS, Employee and Employer entered into the Employment
Agreement providing for the employment of Employee by Employer;
and
WHEREAS, Employee and Employer desire to amend the
Employment Agreement as set forth herein;
NOW THEREFORE, in consideration of the foregoing and the
mutual agreements herein contained, Employee and Employer hereby
agree to amend the Employment Agreement as follows, effective as
of September 26, 1994:
1. Amendment of Section 2. Section 2 of the Employment
Agreement is hereby amended by deleting "$239,807" in the first
sentence and replacing it with "$335,000".
2. Amendment of Section 4(d). The second sentence of
Section 4(d) of the Employment Agreement is hereby amended to
read in its entirety as follows:
"Employee shall have the right to terminate his
employment under this Agreement at any time within one
year following a Change of Control upon 45 days'
written notice to Employer."
3. Amendment of Section 5. Section 5(b) of the Employment
Agreement is hereby amended to read in its entirety as set forth
below, and the following subsection (d) is hereby added to
Section 5 of the Employment Agreement:
"(b) Termination following a Change in Control. Upon
termination of the employment of Employee within twelve
months after a Change of Control (i) by Employer or (ii) by
Employee pursuant to Section 4(d) hereof, Employee shall be
entitled to receive an amount equal to 300% of his most
recent twelve months' salary, payable in a lump sum on the
date of termination of employment. Upon termination of the
employment of Employee by Employer for any reason other than
those specified in Section 4(a) hereof, at any time
following the twelve-month anniversary of the Change of
<PAGE> 2
Control and prior to twenty-four months thereafter Employee
shall be entitled to receive an amount equal to 200% of his
Base Salary, payable in a lump sum on the date of
termination of employment."
* * *
(d) Continuing Medical Benefits. Upon termination of the
employment of the Employee by Employer or by Employee
pursuant to Section 4(d) hereof, for any reason other than
those specified in Section 4(a) hereof, Employee shall be
entitled, at his election, to continue to be covered by the
same or substantially equivalent group life, accident or
casualty, hospitalization or medical plans as he was covered
by immediately prior to the Change of Control; provided,
that Employee shall pay monthly premiums for such coverage
to Employer in an amount equal to the average gross premium
per employee (or equivalent cost) borne by Employer for such
plan(s).
4. Amendment of Section 11. Section 11 of the Employment
Agreement is hereby amended and restated to read in its entirety
as follows:
"Miscellaneous. This Employment Agreement shall
be governed by and construed in accordance with the
laws of The Commonwealth of Massachusetts. This
Employment Agreement embodies the entire agreement of
the parties with respect to the subject matter hereof
and supersedes all prior agreements and understandings,
including the Existing Employment Agreement, as of the
effective date hereof. It is the intent of Employer
that Employee not be required to incur any expenses
associated with the enforcement of his rights under
this Employment Agreement by legal action or
arbitration proceeding because the cost and expense
thereof would substantially detract from the benefits
intended to be extended to Employee hereunder.
Accordingly, if Employee determines in good faith that
Employer has failed to comply with any of its
obligations under this Employment Agreement, or if
Employer or any other person takes any action to
declare this Employment Agreement void or
unenforceable, or institutes any legal action or
arbitration proceeding designed to deny Employee, or to
recover from him, the benefits intended to be provided
hereunder, Employee may, at Employer's expense, retain
counsel of his choice to represent Employee in
connection with any and all actions and proceedings,
whether by or against Employer or any director,
officer, stockholder or other person affiliated with
Employer. Employer shall pay or cause to be paid and
<PAGE> 3
shall be solely responsible for any and all attorney's and
related fees and expenses incurred by Employee as a result
of Employer's failure to perform under this Employment
Agreement."
5. Defined Terms. Unless otherwise defined herein,
capitalized terms used herein have the respective meanings
ascribed thereto in the Employment Agreement.
6. Limited Effect. This Amendment shall be limited solely
to the matters expressly set forth herein, and, except as
expressly amended hereby, all of the provisions of the Employment
Agreement are and shall continue to be in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment
as of the date first above written.
GROSSMAN'S INC.
By____________________________
Thomas R. Schwarz
Chairman of the Board
_____________________________
Sydney L. Katz
<PAGE> 1
AMENDMENT NO. 1
TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amendment No. 1 (the "Amendment") to the Amended and
Restated Employment Agreement dated as of July 1, 1991 (the
"Agreement") is made and entered into as of this 26th day of
September, 1994 by and between Grossman's, Inc., a Delaware
corporation ("Employer"), and Robert L. Flowers ("Employee").
WHEREAS, Employee and Employer entered into the Agreement
providing for the employment of Employee by Employer; and
WHEREAS, Employee and Employer desire to amend the Agreement
as set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the
mutual agreements herein contained, Employee and Employer hereby
agree to amend the Agreement as follows, effective as of
September 26, 1994:
1. Amendment of Section 5(b). Section 5(b) of the
Agreement is hereby amended by adding the following at the end
thereof:
"In the event of such a termination pursuant to
Section 4(d) hereof within one year following a Change
of Control, Employee shall be entitled, at his
election, to continue to be covered by the same or
substantially equivalent group life, accident or
casualty, hospitalization or medical plans as he was
covered by immediately prior to the Change of Control;
provided, that Employee shall pay monthly premiums for
such coverage to Employer in an amount equal to the
average gross premium per employee (or equivalent cost)
borne by Employer for such plan(s)."
2. Amendment of Section 11. Section 11 of the Agreement
is hereby amended and restated to read in its entirety as
follows:
"Miscellaneous. This Agreement shall be governed
by and construed in accordance with the laws of The
Commonwealth of Massachusetts. This Agreement embodies
the entire agreement of the parties with respect to the
subject matter hereof and supersedes all prior
agreements and understandings, including the Existing
Employment Agreement, as of the effective date hereof.
It is the intent of Employer that Employee not be
<PAGE> 2
required to incur any expenses associated with the
enforcement of his rights under this Agreement by legal
action or arbitration proceeding because the cost and
expense thereof would substantially detract from the
benefits intended to be extended to Employee hereunder.
Accordingly, if Employee determines in good faith that
Employer has failed to comply with any of its obligations
under this Agreement, or if Employer or any other person
takes any action to declare this Agreement void or
unenforceable, or institutes any legal action or arbitration
proceeding designed to deny Employee, or to recover from
him, the benefits intended to be provided hereunder,
Employee may, at Employer's expense, retain counsel of his
choice to represent Employee in connection with any and all
actions and proceedings, whether by or against Employer or
any director, officer, stockholder or other person
affiliated with Employer. Employer shall pay or cause to be
paid and shall be solely responsible for any and all
attorney's and related fees and expenses incurred by
Employee as a result of Employer's failure to perform under
this Agreement."
3. Defined Terms. Unless otherwise defined herein,
capitalized terms used herein have the respective meanings
ascribed thereto in the Agreement.
4. Limited Effect. This Amendment shall be limited solely
to the matters expressly set forth herein, and, except as
expressly amended hereby, all of the provisions of the Agreement
are and shall continue to be in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment
as of the date first above written.
GROSSMAN'S, INC.
By:________________________________
Thomas R. Schwarz
Chairman of the Board
________________________________
Robert L. Flowers
<PAGE> 1
AMENDMENT NO. 1
TO
AMENDED AND RESTATED AGREEMENT
This Amendment No. 1 (the "Amendment") to the Amended and
Restated Agreement dated as of July 1, 1991 (the "Agreement") is
made and entered into as of this 26th day of September, 1994 by
and between Grossman's, Inc., a Delaware corporation
("Employer"), and Richard E. Kent ("Employee").
WHEREAS, Employee and Employer entered into the Agreement
providing for the employment of Employee by Employer; and
WHEREAS, Employee and Employer desire to amend the Agreement
as set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the
mutual agreements herein contained, Employee and Employer hereby
agree to amend the Agreement as follows, effective as of
September 26, 1994:
1. Amendment of Section 5(b). Section 5(b) of the
Agreement is hereby amended by adding the following at the end
thereof:
"In the event of such a termination pursuant to
Section 4(d) hereof within one year following a Change
of Control, Employee shall be entitled, at his
election, to continue to be covered by the same or
substantially equivalent group life, accident or
casualty, hospitalization or medical plans as he was
covered by immediately prior to the Change of Control;
provided, that Employee shall pay monthly premiums for
such coverage to Employer in an amount equal to the
average gross premium per employee (or equivalent cost)
borne by Employer for such plan(s)."
2. Amendment of Section 11. Section 11 of the Agreement
is hereby amended and restated to read in its entirety as
follows:
"Miscellaneous. This Agreement shall be governed
by and construed in accordance with the laws of The
Commonwealth of Massachusetts. This Agreement embodies
the entire agreement of the parties with respect to the
subject matter hereof and supersedes all prior
agreements and understandings, including the Existing
Employment Agreement, as of the effective date hereof.
It is the intent of Employer that Employee not be
<PAGE> 2
required to incur any expenses associated with the
enforcement of his rights under this Agreement by legal
action or arbitration proceeding because the cost and
expense thereof would substantially detract from the
benefits intended to be extended to Employee hereunder.
Accordingly, if Employee determines in good faith that
Employer has failed to comply with any of its obligations
under this Agreement, or if Employer or any other person
takes any action to declare this Agreement void or
unenforceable, or institutes any legal action or arbitration
proceeding designed to deny Employee, or to recover from
him, the benefits intended to be provided hereunder,
Employee may, at Employer's expense, retain counsel of his
choice to represent Employee in connection with any and all
actions and proceedings, whether by or against Employer or
any director, officer, stockholder or other person
affiliated with Employer. Employer shall pay or cause to be
paid and shall be solely responsible for any and all
attorney's and related fees and expenses incurred by
Employee as a result of Employer's failure to perform under
this Agreement."
3. Defined Terms. Unless otherwise defined herein,
capitalized terms used herein have the respective meanings
ascribed thereto in the Agreement.
4. Limited Effect. This Amendment shall be limited solely
to the matters expressly set forth herein, and, except as
expressly amended hereby, all of the provisions of the Agreement
are and shall continue to be in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment
as of the date first above written.
GROSSMAN'S, INC.
By:________________________________
Thomas R. Schwarz
Chairman of the Board
________________________________
Richard E. Kent
EXHIBIT 11(a)
-------------
<TABLE>
GROSSMAN'S INC.
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) for
primary and fully diluted
earnings per share $ 505 $(65,620) $ (868) $(68,111)
======== ========= ========= =========
Weighted average number
of shares outstanding 25,759 25,677 25,748 25,655
Net effect of dilutive
stock options 64 - - -
--------- --------- --------- ---------
Total weighted average
shares outstanding and
common stock equivalents
used in primary
calculation of earnings
per share 25,823 25,677 25,748 25,655
Additional dilution from
stock options 76 - - -
-------- --------- --------- ---------
Total weighted average
shares outstanding and
common stock equivalents
used in fully diluted
calculation of earnings
per share 25,899 25,677 25,748 25,655
======== ========= ========= =========
Primary earnings (loss)
per share $0.02 $(2.56) $(0.03) $(2.65)
======== ========= ========= =========
Fully diluted earnings
(loss) per share $0.02 $(2.56) $(0.03) $(2.65)
======== ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 949
<SECURITIES> 0
<RECEIVABLES> 36,198
<ALLOWANCES> 3,875
<INVENTORY> 130,491
<CURRENT-ASSETS> 171,749
<PP&E> 185,087
<DEPRECIATION> 63,648
<TOTAL-ASSETS> 297,614
<CURRENT-LIABILITIES> 129,863
<BONDS> 64,733
<COMMON> 261
0
0
<OTHER-SE> 71,425
<TOTAL-LIABILITY-AND-EQUITY> 297,614
<SALES> 581,332
<TOTAL-REVENUES> 581,332
<CGS> 437,864
<TOTAL-COSTS> 437,864
<OTHER-EXPENSES> 139,940
<LOSS-PROVISION> 935
<INTEREST-EXPENSE> 5,621
<INCOME-PRETAX> (965)
<INCOME-TAX> (97)
<INCOME-CONTINUING> (868)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (868)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
