<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 March 31, 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 May 2, 1994, exclusive
of 377,671 shares held as treasury shares.
<PAGE> 2
GROSSMAN'S INC.
FORM 10-Q
Quarter Ended March 31, 1994
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Part I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
GROSSMAN'S INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1994, December 31, 1993 and March 31, 1993............. 3
Consolidated Statements of Operations
Three Months Ended March 31, 1994 and 1993....................... 5
Consolidated Statements of Cash Flows
Three Months Ended March 31, 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.............................. 13
SIGNATURES............................................................ 14
</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>
March 31, December 31, March 31,
1994 1993 1993
--------- ------------ ---------
<S> <C> <C> <C>
ASSETS
- - - ------
CURRENT ASSETS
Cash and cash equivalents $ 2,009 $ 2,163 $ 2,856
Receivables, less allowance of
$4,734 in 1994, $5,212 at
December 31, 1993 and $4,439
at March 31, 1993 for doubtful
accounts 14,932 20,751 18,214
Inventories 134,538 121,820 162,599
Deferred income taxes - - 6,230
Other current assets 9,492 9,860 6,515
------- ------- -------
Total current assets 160,971 154,594 196,414
PROPERTY, PLANT AND EQUIPMENT,
net of accumulated depreciation
of $60,866 in 1994, $59,756 at
December 31, 1993 and $60,799
at March 31, 1993 126,309 130,164 137,682
DEFERRED INCOME TAXES - - 28,905
OTHER ASSETS 3,655 2,690 560
-------- -------- --------
Total Assets $290,935 $287,448 $363,561
======== ======== ========
</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>
March 31, December 31, March 31,
1994 1993 1993
--------- ------------ ---------
<S> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Revolving term note payable $ - $ - $ 31,000
Accounts payable and accrued
liabilities 106,179 102,616 107,258
Accrued interest 1,322 2,174 1,072
Current portion of long-term debt
and capital lease obligations 18,515 14,978 6,582
------- ------- -------
Total current liabilities 126,016 119,768 145,912
REVOLVING TERM NOTE PAYABLE 33,043 23,238 -
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS 36,496 41,267 54,323
PENSION LIABILITY 15,480 15,199 -
OTHER LIABILITIES 15,173 15,608 10,293
------- ------- -------
Total liabilities 226,208 215,080 210,528
STOCKHOLDERS' INVESTMENT
Common stock, $.01 par value:
Shares authorized - 50,000
Shares issued - 26,137 in 1994 and
and 1993 261 261 261
Additional paid-in-capital 155,842 155,852 155,850
Retained earnings (accumulated
deficit) (69,930) (62,103) (1,929)
Minimum pension liability (20,528) (20,528) -
Less shares in treasury, at cost -
378 in 1994,
458 at December 31, 1993, and
473 at March 31, 1993 (918) (1,114) (1,149)
-------- -------- --------
Total stockholders' investment 64,727 72,368 153,033
-------- -------- --------
Total Liabilities and
Stockholders' Investment $290,935 $287,448 $363,561
========= ========= =========
</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 Ended
March 31,
------------------------
1994 1993
---- ----
<S> <C> <C>
SALES $135,076 $141,562
COST OF SALES 98,473 102,530
-------- --------
Gross Profit 36,603 39,032
OPERATING EXPENSES
Selling and administrative 40,519 46,902
Depreciation and amortization 3,157 3,020
Store preopening expense - 391
-------- --------
43,676 50,313
-------- --------
OPERATING INCOME (LOSS) (7,073) (11,281)
OTHER EXPENSES (INCOME)
Interest expense 1,881 1,922
Other (257) (19)
-------- --------
1,624 1,903
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES (8,697) (13,184)
PROVISION (CREDIT) FOR INCOME TAXES (870) (5,010)
-------- --------
NET INCOME (LOSS) $ (7,827) $ (8,174)
======== ========
PER COMMON SHARE (PRIMARY AND FULLY DILUTED)
Net income (loss) $ (0.30) $ (0.32)
======== ========
WEIGHTED AVERAGE SHARES AND EQUIVALENT
SHARES OUTSTANDING 25,725 25,617
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
5
<PAGE> 6
<TABLE>
GROSSMAN'S INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
------------------------
1994 1993
---- ----
<S> <C> <C>
Operating Activities:
Net loss $ (7,827) $ (8,174)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 3,157 3,020
Deferred income taxes - (4,907)
Net gain on disposals of property (38) (39)
Provision for losses on account receivable 389 535
(Increase) decrease in assets:
Receivables 5,430 2,902
Inventories (12,718) (39,369)
Other assets 234 18
Increase in accounts payable and accrued
and other liabilities 2,557 10,315
-------- --------
Total adjustments (989) (27,525)
-------- --------
Net cash used for operating activities (8,816) (35,699)
Investing activities:
Proceeds from sales of property 1,483 77
Capital expenditures (1,027) (3,720)
-------- --------
Net cash provided by (used for) investing
activities 456 (3,643)
Financing activities:
Payments on long-term debt and capital lease
obligations (1,958) (17,243)
Financing additions 95 6,150
Net borrowings from revolving term notes
payable 9,883 31,000
Issuance of common stock 186 184
-------- --------
Net cash provided by financing activities 8,206 20,091
Net decrease in cash and cash equivalents (154) (19,251)
Cash and cash equivalents at beginning of period 2,163 22,107
-------- --------
Cash and cash equivalents at end of period $ 2,009 $ 2,856
======== ========
</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
March 31, 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 consolidated 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 Grossman's Inc. and its wholly-owned subsidiaries (the "Company") after
elimination of 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 years have
been reclassified to conform to the current year presentation. 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>
March 31, December 31, March 31,
1994 1993 1993
---------- ------------ ---------
<S> <C> <C> <C>
14% Debentures, due January 1, 1996 $16,201 $16,201 $21,334
Mortgage notes 22,388 22,638 22,727
Capital lease obligations 16,422 17,406 16,844
------- ------- -------
55,011 56,245 60,905
Less current portion 18,515 14,978 6,582
------- ------- -------
$36,496 $41,267 $54,323
======= ======= =======
</TABLE>
7
<PAGE> 8
Note 2 - Long-Term Debt and Revolving Credit Agreement (Continued)
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 March 31, 1994, cash borrowings under this agreement
totalled $33.0 million and outstanding letters of credit totalled $12.4
million. The maximum borrowings under this agreement during the three months
ended March 31, 1994 were $39.1 million. The weighted average annual interest
rate on borrowings during the three months ended March 31, 1994 was 6.9%.
<TABLE>
Note 3 - Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following (in
thousands):
<CAPTION>
March 31, December 31, March 31,
1994 1993 1993
--------- ------------ ---------
<S> <C> <C> <C>
Accounts payable $ 74,317 $ 60,607 $ 70,429
Accrued salaries, wages, commissions
and related taxes 5,901 8,155 8,267
Accrued income and franchise taxes 16 734 1,496
Accrued taxes other than income and
franchise 2,965 4,809 2,924
Accrued store closing costs 2,847 8,343 1,662
Accrued insurance 10,173 10,273 10,297
Other accrued liabilities 9,960 9,695 12,183
-------- -------- --------
$106,179 $102,616 $107,258
======== ======== ========
</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.
8
<PAGE> 9
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
March 31, 1994 compared with December 31, 1993
The first quarter is one in which the Company prepares for the start of the
spring selling season. Financial condition at March 31, 1994 reflects the
seasonal buildup of inventory, a related increase in payables and term note
financing, and the seasonal operating loss.
Working capital of $35.0 million at March 31, 1994 is approximately equal to
the prior year end amount. Inventory at March 31, 1994 totalled $134.5
million, a $12.7 million, or 10.4% increase, from year end. This percentage
increase is lower than increases for the same period in recent years. The
first quarter historically has been a period of new store openings and store
remodelings, particularly in the Eastern Division, which resulted in a first
quarter inventory increase. Based upon disappointing 1993 operating results,
growth and repositioning of additional stores were curtailed in the 1994 first
quarter and will continue to be slowed. Two new stores in the Contractors'
Warehouse Division are planned in 1994. Contributing to more efficient
inventory management is the Eastern Division's automated, integrated
replenishment system. Virtually all lines of merchandise are now being
automatically replenished. The increase in inventory was financed by a $13.7
million increase in accounts payable, and other seasonal requirements were
supplemented by a $9.8 million increase in borrowings under the Company's
revolving term note.
Capital expenditures of $1 million were made principally in support of
point-of-sale register systems, an integral component of Eastern Division's
integrated, automated replenishment system, which are now used to process
approximately 80% of the division's sales.
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 early 1994, four are under agreement to be sold later in 1994 and five
continue to be actively marketed. As sales proceeds are received, liquidity
will improve.
9
<PAGE> 10
RESULTS OF OPERATIONS
Three months ended March 31, 1994 compared with three months ended March 31,
1993
The Company's first quarter historically has been a period of low sales
activity with resultant operating losses, as fewer do-it-yourself home
improvement projects and construction activities in the Company's markets are
undertaken during the winter months. First quarter sales have historically
been less than 20% of full year sales.
The following table shows comparative sales results by division during each
month and for the total quarter.
10
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<TABLE>
Three months ended March 31, 1994 compared with three months ended March 31,
1993 (Continued)
<CAPTION>
Three Months
Ended March
----------------
1994 1993
---- ----
<S> <C> <C>
Sales
Grossman's Stores
Retail Sales $ 43.4 $ 53.0
------ ------
Professional Sales 34.9 41.8
Total Grossman's Stores 78.3 94.8
Mr. 2nd's Bargain Outlet Stores 8.5 9.2
Contractors' Warehouse Division 48.3 37.6
------ ------
Total $135.1 $141.6
====== ======
% of Total Sales
Grossman's Stores
Retail Sales 32.1% 37.4%
Professional Sales 25.8 29.5
------ ------
Total Grossman's Stores 57.9 66.9
Mr. 2nd's Bargain Outlet Stores 6.3 6.5
Contractors' Warehouse Division 35.8 26.6
------ ------
Total 100.0% 100.0%
======= =======
Sales % Increase (Decrease)
Versus Prior Year
Grossman's Stores
Retail Sales (18.7)% (27.5)%
Professional Sales (16.5) 14.8
------ ------
Total Grossman's Stores (17.7) (13.4)
Mr. 2nd's Bargain Outlet Stores (7.6) (8.9)
Contractors' Warehouse Division (28.5) 10.9
------ ------
Total (4.6)% (7.8)%
====== ======
Comparable Store Sales %
Increase (Decrease)
Versus Prior Year
Grossman's Stores
Retail Sales (3.4)% (26.4)%
Professional Sales 13.3 15.5
------ ------
Total Grossman's Stores 3.4 (12.4)
Mr. 2nd's Bargain Outlet Stores (4.9) (18.6)
Contractors' Warehouse Division 0.3 3.0
------ ------
Total 1.9 % (9.3)%
====== ======
</TABLE>
11
<PAGE> 12
Sales and operating results in the three months ended March 31, 1994 were
significantly impacted by the closing of 22 stores in the latter part of 1993.
Sales in the first quarter of 1994 include the results of three new
Contractors' Warehouse stores, one which opened late in the 1993 first quarter
and two which opened in June 1993.
Comparable store sales results are indicative of the Company's two principal
operating strategies; to strengthen the appeal of Grossman's stores to target
customers - contractors, remodelers and serious do-it-yourselfers - and to
grow the Contractors' Warehouse concept. Contractors' Warehouse comparable
store sales results were negatively impacted by division-wide promotional
activities in March 1993 prior to and concurrent with store openings. The
growth in Contracts' Warehouse stores as a percent of total sales, from 26.6%
in the first quarter of 1993 to 35.8% for the same period in 1994, is not
necessarily indicative of future quarters. Due to a difference in markets,
Contractors' Warehouse stores are significantly less subject to seasonality
than Eastern Division stores.
Gross profit declined by $2.4 million as the result of the sales decline and a
decline in gross margin from 27.6% in 1993 to 27.1% in 1994. Margin declines
continue to occur as the result of a sales increase 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. 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.
Operating expenses declined by $6.6 million, or 13.1%, 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, selling and administrative expenses declined as a percent of sales
from 33.1% in 1993 to 30.0% in 1994, also reflective of the reduced overhead.
These declines may not be indicative of future quarters as seasonality
significantly impacts first quarter Eastern Division operations, while
Contractors' Warehouse stores are significantly less subject to seasonality.
As the result of expense savings in excess of the gross profit decline, the
loss before taxes for the first quarter improved by 34.0%, from $13.2 million
in 1993 to $8.7 million in 1994. The Company's estimated tax rate in 1994 is
10% as compared to 38% in 1993. 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 based on
statutory tax rates and did not include any 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.
12
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PART II - OTHER INFORMATION
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 March 31, 1994.
13
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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: May 9, 1994
14
<PAGE> 1
Exhibit 11a
Statement re computation of earnings per share.
15
<PAGE> 2
<TABLE>
EXHIBIT 11(a)
GROSSMAN'S INC.
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1994 1993
---- ----
<S> <C> <C>
Net income (loss) for primary and
fully diluted earnings per share $(7,827) $(8,174)
======= =======
Weighted average number of shares
outstanding 25,725 25,617
Net effect of dilutive stock options - -
------- -------
Total weighted average shares
outstanding and common stock
equivalents used in primary
calculation of earnings per share 25,725 25,617
Additional dilution from stock
options - -
------- -------
Total weighted average shares
outstanding and common stock
equivalents used in fully diluted
calculation of earnings per share 25,725 25,617
======= =======
Primary earnings (loss) per share $ (0.30) $ (0.32)
======= =======
Fully diluted earnings (loss) per share $ (0.30) $ (0.32)
======= =======
</TABLE>
16
