<PAGE> 1
CONFORMED
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 June 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 August 3, 1994,
exclusive of 377,671 shares held as treasury shares.
1
<PAGE> 2
GROSSMAN'S INC.
FORM 10-Q
QUARTER ENDED JUNE 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
June 30, 1994, December 31, 1993 and June 30, 1993............. 3
Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 1994 and 1993....... 5
Consolidated Statements of Cash Flows
Six Months Ended June 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 16
ITEM 5. OTHER MATTERS............................................... 17
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>
JUNE 30, DECEMBER 31, JUNE 30,
1994 1993 1993
--------- ------------ --------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,168 $ 2,163 $ 3,871
Receivables, less allowance of
$3,730 in 1994, $5,212 at
December 31, 1993 and $3,124
at June 30, 1993 for doubtful
accounts 23,665 20,751 29,140
Inventories 146,600 121,820 176,319
Deferred income taxes - - 5,303
Other current assets 8,067 9,860 7,686
-------- -------- --------
Total current assets 183,500 154,594 222,319
PROPERTY, PLANT AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION OF $61,878
ON JUNE 30, 1994, $59,756 ON
DECEMBER 31, 1993 AND $62,832 ON
JUNE 30, 1993 125,877 130,164 146,113
DEFERRED INCOME TAXES - - 26,452
INVESTMENT IN AND ADVANCES TO
UNCONSOLIDATED AFFILIATE 1,955 486 136
OTHER ASSETS 2,191 2,204 587
-------- -------- --------
$313,523 $287,448 $395,607
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
3
<PAGE> 4
<TABLE>
GROSSMAN'S INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(Unaudited)
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 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 127,683 102,616 138,061
Accrued interest 545 2,174 1,591
Current portion of long-term debt and
capital lease obligations 16,830 14,978 7,959
-------- -------- ---------
Total current liabilities 145,058 119,768 168,611
REVOLVING TERM NOTE PAYABLE 32,668 23,238 -
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS 34,679 41,267 58,055
PENSION LIABILITY 15,398 15,199 -
OTHER LIABILITIES 14,539 15,608 10,194
-------- -------- ---------
Total liabilities 242,342 215,080 236,860
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) (63,476) (62,103) 3,754
Minimum pension liability (20,528) (20,528) -
Less shares in treasury, at cost -
378 in 1994,
458 at December 31, 1993 and
461 at June 30, 1993 (918) (1,114) (1,120)
--------- --------- ---------
Total Stockholders' Investment 71,181 72,368 158,747
--------- --------- ---------
Total Liabilities and Stockholders'
Investment $313,523 $287,448 $395,607
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
4
<PAGE> 5
<TABLE>
GROSSMAN'S INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------- ----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES $220,145 $253,105 $355,221 $394,667
COST OF SALES 165,105 186,879 266,570 289,409
--------- --------- --------- ---------
Gross Profit 55,040 66,226 88,651 105,258
OPERATING EXPENSES
Selling and administrative 42,826 50,797 80,161 97,699
Depreciation and amortization 3,213 3,442 6,370 6,462
Store preopening expense 440 239 632 630
--------- --------- --------- ---------
46,479 54,478 87,163 104,791
--------- --------- --------- ---------
OPERATING INCOME 8,561 11,748 1,488 467
OTHER EXPENSES (INCOME)
Interest expense 1,903 2,110 3,784 4,032
Other (595) 472 (852) 453
-------- --------- --------- ---------
1,308 2,582 2,932 4,485
EQUITY IN NET LOSS OF
UNCONSOLIDATED AFFILIATE 82 - 82 -
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 7,171 9,166 (1,526) (4,018)
PROVISION (CREDIT) FOR INCOME
TAXES 717 3,483 (153) (1,527)
--------- --------- --------- ---------
NET INCOME (LOSS) $ 6,454 $ 5,683 $ (1,373) $ (2,491)
========= ========= ========= =========
PER COMMON SHARE (PRIMARY
AND FULLY DILUTED)
Net income (loss) $0.25 $0.22 $(0.05) $(0.10)
========= ========= ========= =========
WEIGHTED AVERAGE SHARES AND
EQUIVALENT SHARES OUTSTANDING
Primary and Fully Diluted 26,134 26,121 25,743 25,645
========= ========= ========= =========
</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>
SIX MONTHS ENDED
JUNE 30,
------------------------
1994 1993
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (1,373) $ (2,491)
Adjustments to reconcile net income (loss) to
net cash used for operating activities:
Depreciation and amortization 6,370 6,462
Deferred income taxes - (1,527)
Net (gain) loss on disposals of property (252) (78)
Provision for losses on accounts receivable 805 527
(Increase) decrease in assets:
Receivables (3,719) (8,016)
Inventories (24,780) (53,089)
Investment in and advances to
unconsolidated affiliate (1,469) (486)
Other assets (683) (830)
Increase in accounts payable and accrued
liabilities and interest 21,229 41,538
--------- ---------
Total adjustments (2,499) (15,499)
NET CASH USED FOR OPERATING ACTIVITIES (3,872) (17,990)
INVESTING ACTIVITIES
Capital expenditures (2,639) (9,744)
Proceeds from disposals of property 5,128 205
--------- ---------
NET CASH PROVIDED BY (USED FOR) INVESTING
ACTIVITIES 2,489 (9,539)
FINANCING ACTIVITIES
Payments on long-term debt and capital lease
obligations (5,730) (18,822)
Financing additions 502 6,900
Net proceeds from revolving term notes payable 9,430 21,000
Issuance of common stock 186 215
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,388 9,293
Net increase (decrease) in cash and cash
equivalents 3,005 (18,236)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,163 22,107
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,168 $ 3,871
========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
6
<PAGE> 7
GROSSMAN'S INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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>
JUNE 30, DECEMBER 31, JUNE 30,
1994 1993 1993
-------- ------------ --------
<S> <C> <C> <C>
14% Debentures, due January 1, 1996 $16,201 $16,201 $21,334
Mortgage notes 20,431 22,638 23,180
Capital lease obligations 14,877 17,406 21,500
------- ------- -------
51,509 56,245 66,014
Less current portion 16,830 14,978 7,959
------- ------- -------
$34,679 $41,267 $58,055
======= ======= =======
</TABLE>
The Company's loan and security agreement with BankAmerica Business
Credit, Inc. provides for borrowings up to 50% of eligible receivables,
inventory and certain other assets (the "borrowing base"), up to a maximum
7
<PAGE> 8
NOTE 2 - LONG-TERM DEBT AND REVOLVING CREDIT AGREEMENT (CONTINUED)
- - ------------------------------------------------------------------
of $60 million, including letters of credit up to $15 million. At June
30, 1994, the borrowing base totalled $79.0 million, cash borrowings
totalled $32.7 million, outstanding letters of credit totalled $12.1
million and $15.2 million of the available line was unutilized. The
maximum cash borrowings under this agreement during the six months ended
June 30, 1994 were $39.1 million. The weighted average annual interest
rate on borrowings during the six months ended June 30, 1994 was 6.9%.
<TABLE>
NOTE 3 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
- - -------------------------------------------------
Accounts payable and accrued liabilities consist of the following (in
thousands):
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
1994 1993 1993
-------- ------------ --------
<S> <C> <C> <C>
Accounts payable $ 93,679 $ 60,607 $101,473
Accrued salaries, wages, commissions
and related taxes 6,725 8,155 7,999
Accrued income and franchise taxes 750 734 921
Accrued taxes other than income and
franchise 4,221 4,809 5,963
Accrued store closing costs 2,513 8,343 1,516
Accrued insurance 9,493 10,273 10,420
Other accrued liabilities 10,302 9,695 9,769
-------- -------- --------
$127,683 $102,616 $138,061
======== ======== ========
</TABLE>
NOTE 4 - EMPLOYEE STOCK OPTION PLANS
- - ------------------------------------
During the six months ended June 30, 1994, options for 253,500 shares of
the Company's Common Stock were granted under the 1986 Stock Option Plan
at a price of $3.44 per share, options for 80,750 shares were exercised at
a price of $2.31 per share, and options for 12,000 shares were cancelled
at prices ranging from $2.31 to $4.50 per share.
During the six months ended June 30, 1994, options for 13,800 shares of
the Company's Common Stock were granted under the 1993 Key Employee Stock
Option Plan at prices ranging from $2.75 to $4.00 per share, and options
for 23,400 shares were cancelled at prices ranging from $2.75 to $3.63 per
share.
NOTE 5 - 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.
8
<PAGE> 9
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
FINANCIAL CONDITION
- - -------------------
JUNE 30, 1994 COMPARED WITH DECEMBER 31, 1993
- - ---------------------------------------------
Financial condition at June 30, 1994 reflects the seasonal buildup of
inventory and a related increase in payables and borrowings under the
Company's revolving term note payable, investment in new business
ventures, ongoing disposals of closed store properties and long-term debt
reductions.
The second quarter of the year is a period which encompasses the
spring/summer selling season. As a result, inventory levels are
historically highest in the months of May and June. Inventory at June 30,
1994 totalled $146.6 million, a $24.8 million, or 20.3%, increase from
year end and a $29.7 million, or 16.9%, decrease as compared to June 30,
1993. The decrease in inventory from one year ago is principally due to
the closing of 22 Eastern Division stores in the fall of 1993. The
percentage increase from year end compares to a 43.1% increase for the
comparable period one year ago and declined due to fewer stores opening in
the first half of 1994 than in the first half of 1993. 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 seasonally by $33.0 million, related to both the inventory
increase and to timing of month end payments.
Working capital at June 30, 1994 was $38.4 million, an increase of $3.6
million from the prior year end amount. Working capital for the six month
period historically has declined as it did in the prior year, when a $13.0
million reduction occurred. In 1993, seasonal financing of inventory
purchases through revolving credit borrowings negatively impacted working
capital, as such borrowings were classified as current. In addition,
working capital in 1994 was not utilized at historical levels due to
reduced capital expenditures and reduced payments required on long-term
debt. The period of the year prior to the spring selling season has
historically included 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 and
will continue to be slowed. One new Contractors' Warehouse store was
opened in 1994 and one additional store is planned to open in the fourth
quarter. Capital expenditures for the six month period totalled $2.6
million in 1994, as compared to $9.7 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 $5.7 million for the
first six months of 1994, as compared to $18.8 million in 1993,
principally due to the $10.8 million January 1993 maturity of the
Company's Zero Coupon Notes. Higher debt payments are planned to be made
in the latter half of 1994, related to scheduled maturities and sales of
9
<PAGE> 10
FINANCIAL CONDITION
- - -------------------
JUNE 30, 1994 COMPARED WITH DECEMBER 31, 1993 (CONTINUED)
- - ---------------------------------------------------------
mortgaged closed store properties, resulting in an increase in the current
portion of long-term debt from $8.0 million one year ago to $16.8 million
at June 30, 1994.
The Company continues to market properties vacated as a result of closing
22 stores in 1993. One additional store was closed in early 1994. 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, three are under agreement to be sold later in 1994 and
four continue to be actively marketed. Proceeds from the disposal of
these surplus properties totalled $3.8 million during the first six months
of 1994. The Company's 35 acre headquarters site in Braintree,
Massachusetts remains under agreement to be sold to Kmart Corporation.
Consummation of the transaction is subject to the permitting process,
which is ongoing.
Reflected in the balance sheet at June 30, 1994 are two new ventures;
Project-Pro's, an 80% owned consolidated subsidiary, and Construcentro, a
50% owned unconsolidated joint venture. Approximately $2.0 million has
been invested in Construcentro, which opened its first store in May 1994
in Monterrey, Mexico, under the name Builder's Mart. The investment in
Construcentro has been accounted for under the equity method of
accounting.
The Company's loan and security agreement with BankAmerica Business
Credit, Inc. provides for borrowings up to 50% of eligible receivables,
inventory and certain other assets (the "borrowing base"), up to a maximum
of $60 million, including letters of credit up to $15 million. At June
30, 1994, the borrowing base totalled $79.0 million, cash borrowings
totalled $32.7 million, outstanding letters of credit totalled $12.1
million and $15.2 million of the available line was unutilized. The
Company expects to utilize a portion of this loan availability during the
second half of 1994. The Company believes that existing funds, funds
generated from operations, proceeds to be received from the sale of closed
store or other 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.
10
<PAGE> 11
RESULTS OF OPERATIONS
- - ---------------------
Six months ended June 30, 1994 compared with six months ended
- - -------------------------------------------------------------
June 30, 1993
- - -------------
The net loss of $1.4 million for the first six months of 1994 is an
improvement from the net loss of $2.5 million for the same period in 1993.
Before income taxes, the first half loss was reduced from $4.0 million in
1993 to $1.5 million in 1994. Sales and operating results for the six
month period ended June 30, 1994 were significantly reduced by the closing
of 22 stores in the latter part of 1993. Also impacting results was the
Company's start up of its 80% owned subsidiary, Project-Pro's.
<TABLE>
The following table shows comparative sales results by division during
each month and for the total quarter (dollars in millions):
<CAPTION>
Three Months Three Months Six Months
Ended March Ended June Ended June
-------------- -------------- --------------
1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ----
(S> <C> <C> <C> <C> <C> <C>
SALES
Grossman's Stores
Retail Sales $ 43.1 $ 53.0 $ 93.2 $121.5 $136.3 $174.5
Professional Sales 34.9 41.8 58.7 67.7 93.6 109.5
------ ------ ------ ------ ------ ------
Total Grossman's Stores 78.0 94.8 151.9 189.2 229.9 284.0
Mr. 2nd's Bargain Outlet
Stores 8.5 9.2 12.7 14.2 21.2 23.4
Contractors' Warehouse
Division 48.3 37.6 54.7 49.7 103.0 87.3
Project-Pro's 0.3 0.0 0.7 0.0 1.0 0.0
------ ------ ------ ------ ------ ------
Total Grossman's Inc. $135.1 $141.6 $220.1 $253.1 $355.1 $394.7
====== ====== ====== ====== ====== ======
% OF TOTAL SALES
Grossman's Stores
Retail Sales 31.9 % 37.4 % 42.3 % 47.9 % 38.3 % 44.3 %
Professional Sales 25.8 29.5 26.7 26.8 26.4 27.7
------ ------ ------ ------ ------ ------
Total Grossman's Stores 57.7 66.9 69.0 74.7 64.7 72.0
Mr. 2nd's Bargain Outlet
Stores 6.3 6.5 5.8 5.6 6.0 5.9
Contractors' Warehouse
Division 35.8 26.6 24.9 19.7 29.0 22.1
Project-Pro's 0.2 0.0 0.3 0.0 0.3 0.0
------ ------ ------ ------ ------ ------
Total Grossman's Inc. 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
====== ====== ====== ====== ====== ======
</TABLE>
11
<PAGE> 12
RESULTS OF OPERATIONS
- - ---------------------
<TABLE>
Six months ended June 30, 1994 compared with six months ended
- - -------------------------------------------------------------
June 30, 1993 (CONTINUED)
- - -------------------------
(TABLE CONTINUED)
<CAPTION>
Three Months Three Months Six Months
Ended March Ended June Ended June
-------------- -------------- --------------
1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SALES % INCREASE (DECREASE)
VERSUS PRIOR YEAR
Grossman's Stores
Retail Sales (18.7)% (27.5)% (23.2)% (9.2)% (21.9)% (15.7)%
Professional Sales (16.5) 14.8 (13.2) 14.9 (14.5) 14.9
------ ------ ------ ------ ------ ------
Total Grossman's Stores (17.7) (13.4) (19.6) (1.8) (19.0) (6.1)
Mr. 2nd's Bargain Outlet
Stores (7.6) (8.9) (10.7) 12.0 (9.5) 2.7
Contractors' Warehouse
Division 28.5 10.9 10.0 12.0 17.9 11.5
Project-Pro's NA NA NA NA NA NA
------ ------ ------ ------ ------ ------
Total Grossman's Inc. (4.6)% (7.8)% (13.0)% 1.3 % (10.0)% (2.2)%
====== ====== ====== ====== ====== ======
COMPARABLE STORE SALES %
INCREASE (DECREASE)
VERSUS PRIOR YEAR
Grossman's Stores
Retail Sales (3.4)% (26.4)% (8.1)% (8.0)% (6.6)% (14.5)%
Professional Sales 13.3 15.5 16.2 16.1 15.0 15.7
------ ------ ------ ------ ------ ------
Total Grossman's Stores 3.4 (12.4) 0.0 (0.6) 1.1 (4.9)
Mr. 2nd's Bargain Outlet
Stores (4.9) (18.6) 1.7 (8.0) (1.0) (12.3)
Contractors' Warehouse
Division 0.3 3.0 (9.2) 1.0 (5.0) 1.8
Project-Pro's NA NA NA NA NA NA
------ ------ ------ ------ ------ ------
Total Grossman's Inc. 1.9 % (9.3)% (2.0)% (0.7)% (0.6)% (4.0)%
====== ====== ====== ====== ====== ======
</TABLE>
12
<PAGE> 13
Six months ended June 30, 1994 compared with six months ended
- - -------------------------------------------------------------
June 30, 1993 (CONTINUED)
- - -------------------------
Total sales results reflect the 22 Eastern Division stores closed in late
1993 and Contractors' Warehouse store openings; one late in the first
quarter of 1993 and two late in the second quarter of 1993. One 1994
Contractors' Warehouse store opening occurred late in the second quarter,
minimally affecting sales results.
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 store sales increases in professional sales have offset a
decline in retail sales. Contractors' Warehouse comparable store sales
results reflect the 1993 division-wide promotional activities prior to and
concurrent with three store openings. Additionally, the slowing economy
in the Southern California market in which 8 of the division's 12 stores
operate negatively affected Contractors' Warehouse comparable store sales
in the 1994 second quarter.
Gross profit declined by $16.6 million as the result of the sales decline
and a decline in gross margin from 26.7% in 1993 to 25.0% in 1994. Margin
declines 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. Contractors' Warehouse stores sales were
29.0% of total sales in the first half of 1994, as compared to 22.1% for
the comparable period one year ago. Margin declines were also due to
competitive market conditions and volatile lumber prices. Economic and
competitive conditions caused lumber margins to be below historical
levels.
Savings within operating expenses virtually offset the decline in gross
profit for the six month period. Operating expenses declined by $17.6
million, or 16.8%, reflecting the reduced overhead as a result of closed
stores and additional Eastern Division staff reductions which occurred in
the latter periods of 1993. Within operating expenses, store preopening
expense related to Contractors' Warehouse store openings declined by $250
thousand due to fewer openings. Included in operating expenses in 1994
are $2.3 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. Exclusive of these expenses, total
operating expenses declined by 19.0%. Within operating expenses, selling
and administrative expenses declined as a percent of sales from 24.8% in
1993 to 22.6% in 1994, also reflective of the reduced overhead.
Interest expense declined from $4.0 million in 1993 to $3.8 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 an $82 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.
13
<PAGE> 14
Six months ended June 30, 1994 compared with six months ended
- - -------------------------------------------------------------
June 30, 1993 (CONTINUED)
- - -------------------------
For the six month period, the resultant loss before taxes improved from
$4.0 million in 1993 to $1.5 million in 1994, a 62.5% improvement.
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. Accordingly,
the interim period tax provisions for 1994 are based on the Company's
anticipated full year effective tax rate of 10%. This rate reflects a
provision for 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 June 30, 1994 compared with three months ended
- - ------------------------------------------------------------------
June 30, 1993
- - -------------
Net income for the second quarter of 1994 was $6.5 million versus $5.7
million for the same period in 1993, reflecting a $2.0 million decline in
income before income taxes, offset by a $2.8 million reduction in the
provision for income taxes.
Second quarter sales results are impacted by the 22 Eastern Division
stores closed in late 1993 and by two Contractors' Warehouse store
openings which occurred late in the 1993 second quarter. One 1994
Contractors' Warehouse store opening occurred late in the second quarter,
minimally affecting sales results.
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. Contractors' Warehouse comparable
store sales results reflect the 1993 division-wide promotional activities
prior to and concurrent with two 1993 store openings. Additionally, the
slowing economy in the Southern California market in which 8 of the
division's 12 stores operate negatively affected Contractors' Warehouse
comparable store sales in the 1994 second quarter.
Gross profit declined by $11.2 million as the result of the sales decline
and a decline in gross margin from 26.2% in 1993 to 25.0% in 1994. Margin
declines 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. Contractors' Warehouse stores sales were
24.9% of total sales in the second quarter of 1994, as compared to 19.7%
14
<PAGE> 15
Three months ended June 30, 1994 compared with three months ended
- - -----------------------------------------------------------------
June 30, 1993 (CONTINUED)
- - -------------------------
for the comparable period one year ago. Margin declines were also due to
competitive market conditions and volatile lumber prices. Economic and
competitive conditions caused lumber margins to be below historical
levels.
The decline in gross profit was not fully offset by savings within
operating expenses during the second quarter. Operating expenses declined
by $8.0 million, or 14.7%, reflecting the reduced overhead as a result of
closed stores and additional Eastern Division staff reductions which
occurred in the latter periods of 1993. Included in operating expenses in
the second quarter of 1994 are $1.4 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.
Exclusive of these expenses, total operating expenses declined by 17.3%.
Within operating expenses, selling and administrative expenses declined as
a percent of sales from 20.1% in 1993 to 19.5% in 1994, also reflective of
the reduced overhead.
Interest expense declined from $2.1 million in 1993 to $1.9 million in
1994, reflecting a reduction in average borrowings, offset in part by an
increase in the average interest rate. Reflected in the statement of
operations in 1994 in and $82 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.
For the three month period, income before taxes decreased from $9.2
million in 1993 to $7.2 million in 1994. The reduction in income tax rate
from 38% in 1993 to 10% in 1994, as previously discussed, resulted in a
13.6% improvement in net income, from $5.7 million in 1993 to $6.5 million
in 1994.
15
<PAGE> 16
PART II - OTHER INFORMATION
- - ---------------------------
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
(a) The date of the meeting and whether it was an annual
or special meeting:
Annual Meeting of Stockholders of Grossman's Inc.
was held on April 27, 1994.
(b) All nominees as directors were elected as set forth
in paragraph (c) below.
(c) A brief description of each matter voted upon at the
meeting and state the number of votes cast for, against
or withheld, as well as the number of abstentions and
broker nonvotes, as to each such matter, including a
separate tabulation with respect to each nominee for
office.
<TABLE>
The following matters were voted upon at the Annual Meeting
of Stockholders of Grossman's Inc.
(i) Election of Directors
<CAPTION>
Name For Withheld
<S> <C> <C>
Russell Cox 22,523,840 518,674
John R. Grey 22,505,102 537,412
Maurice Grossman 22,505,146 537,368
Leo Kahn 22,501,778 540,736
Sydney L. Katz 22,534,600 507,914
W. Wallace McDowell, Jr. 22,511,990 530,524
Stephen B. Oresman 22,522,200 520,314
Thomas R. Schwarz 22,534,672 507,842
Robert Swanson 22,526,290 516,224
Harold Tanner 22,537,090 505,424
Dr. Abraham Zaleznik 22,490,678 551,836
</TABLE>
An aggregate of 2,698,412 were not present at the meeting in
person or by proxy and were not voted on the election of
directors.
16
<PAGE> 17
<TABLE>
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS (CONTINUED)
(ii) Approval of Ernst & Young as independent auditors for
registrant for 1994
<CAPTION>
For Against Abstentions
<S> <C> <C>
22,877,164 66,382 98,968
</TABLE>
An aggregate of 2,698,412 were not present at the meeting in
person or by proxy and were not voted on the approval of Ernst
& Young as independent accountants.
(d) Not applicable.
ITEM 5. OTHER MATTERS
On June 14, 1994, Dr. Abraham Zaleznik resigned as a member
of the Board of Directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
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 June 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: August 3, 1994
18
<PAGE> 1
Exhibit 11(a)
- - -------------
Statement re computation of earnings per share.
18
<PAGE> 2
<TABLE>
EXHIBIT 11(a)
-------------
GROSSMAN'S INC.
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) for
primary and fully diluted
earnings per share $ 6,454 $ 5,683 $(1,373) $(2,491)
======== ======== ======== ========
Weighted average number
of shares outstanding 25,760 25,673 25,743 25,645
Net effect of dilutive
stock options 374 448 - -
-------- -------- -------- --------
Total weighted average
shares outstanding and
common stock equivalents
used in primary
calculation of earnings
per share 26,134 26,121 25,743 25,645
Additional dilution from
stock options - - - -
-------- -------- -------- --------
Total weighted average
shares outstanding and
common stock equivalents
used in fully diluted
calculation of earnings
per share 26,134 26,121 25,743 25,645
======== ======== ======== ========
Primary earnings (loss)
per share $0.25 $0.22 $(0.05) $(0.10)
======== ======== ======== ========
Fully diluted earnings
(loss) per share $0.25 $0.22 $(0.05) $(0.10)
======== ======== ======== ========
</TABLE>
20
