<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 (Fee Required).
For the fiscal year ended December 31, 1995
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required).
For the transition period from_________________ to __________________
Commission File Number 1-542
GROSSMAN'S INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 38-0524830
- ---------------------------------------- --------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
45 DAN ROAD, CANTON, MASSACHUSETTS 02021
- ---------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
(617) 830-4000
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Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EXCHANGE
ON WHICH REGISTERED TITLE OF CLASS
------------------- --------------
<S> <C>
The Nasdaq Stock Market Common Stock, par value $0.01 per share
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 27, 1996 was $46,471,919.
The number of shares of the registrant's class of Common Stock ($.01 par
value) outstanding on March 27, 1996 was 26,089,498, exclusive of 42,849 shares
held as treasury shares.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's definitive Proxy Statement for its 1996 Annual Meeting of
Stockholders, to be filed with the Commission not later than 120 days after the
end of the fiscal year covered hereby, is incorporated by reference into Part
III of this Form 10-K to the extent set forth herein.
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<PAGE> 2
PART I
ITEM 1. BUSINESS
(a) General Development of Business
Grossman's Inc. (the "Company") was first incorporated in Michigan in 1919
as E.S. Evans and Co., Inc., then was reincorporated in Delaware in 1923. In
1931 the Company's name was changed to Evans Products Company. In 1986, in
conjunction with the reorganization of the Company described herein, the Company
adopted the name Grossman's Inc.
On March 11, 1985, Evans Products Company ("Evans") and certain of its
subsidiaries filed voluntary petitions for relief under Chapter 11 of the
Federal Bankruptcy Code in the United States Bankruptcy Court for the Southern
District of Florida. On November 19, 1986, the Company emerged from the Chapter
11 proceedings. Under a court approved Reorganization Plan, the following
transactions took place in 1986. Substantially all of Evans' assets, other than
those of the retail building materials business conducted by Evans' wholly-owned
subsidiary, Grossman's Inc. ("Old Grossman's"), were transferred to Evans Asset
Holding Company and a trust, each beneficially owned by the lenders to Evans and
one of its subsidiaries for the purpose of liquidating such assets. Evans and
its filing subsidiaries (including Old Grossman's) were discharged from
substantially all of their pre-Chapter 11 petition indebtedness. All of Evans'
outstanding shares of common stock and preferred stock were cancelled. Old
Grossman's was then merged into Evans, which adopted the name Grossman's Inc.
(the "Company"), and the Company distributed to its creditors or to a trust or
reserve for unpaid and unliquidated claims, $60,000,000 of its 13% Debentures,
which matured in 1991, $73,000,000 of its 14% Debentures due January 1, 1996,
$105,200,000 face value of its Zero Coupon Notes, which matured and the final
installment paid in January 1993, and 20,000,000 shares of its Common Stock (of
which 1,859,852 shares were sold by the trust and the Company in a private
placement in December 1986).
On July 31, 1987, the Company completed a public offering of 11,000,000
shares of its Common Stock. Of the shares offered, 6,131,347 shares were sold by
the Company, with the net proceeds of $45,092,000 used to purchase outstanding
13% and 14% Debentures. The remaining 4,868,653 shares sold in the offering were
sold by stockholders.
On August 25, 1989, the Company sold its Northwest Division, consisting of
28 retail building materials stores located in California, to GNW Partners,
L.P., a California limited partnership. Certain of the former management
employees of the Northwest Division were partners in GNW. On September 12, 1989,
the Company sold the assets and business of its Moore's Division to Harcros
Lumber & Building Supplies Inc., an indirect wholly-owned subsidiary of
Harrisons & Crosfield plc of London, England. The Moore's Division consisted of
59 retail building materials stores and yards located in Maryland, North
Carolina, Ohio, Pennsylvania, Tennessee, Texas, Virginia and West Virginia. Net
proceeds from the 1989 sales of the Moore's and Northwest Divisions totalled
$105.7 million. Such proceeds were principally used for the retirement of
long-term debt.
In the respective fourth quarters of 1993, 1994 and 1995, the Company
closed 22, 18 and 11 stores in the East. On March 28, 1996, the Company
announced the closing of the remaining 60 Grossman's stores, located in eight
Northeastern states. The closing of these 60 stores was in conjunction with a
series of financing transactions to provide improved liquidity, principally for
the expansion of the Contractors' Warehouse and Mr. 2nd's Bargain Outlet
divisions.
(b) Financial Information About Industry Segments
The Company's operations during the last three years have been entirely in
the retail building materials industry.
2
<PAGE> 3
(c) Narrative Description of Business
Following the closing of its Grossman's stores in March 1996, the Company
operates 39 stores, under the names "Contractors' Warehouse" and "Mr. 2nd's
Bargain Outlet", as listed in Item 2 below.
The Company has a 50% interest in a Mexican joint venture, which operates
one store in Monterrey, Mexico under the name "Builder's Mart".
The following are descriptions of each ongoing operation:
CONTRACTORS' WAREHOUSE
The 15 Contractors' Warehouse stores operate in California, Nevada, Ohio
and Indiana. Stores range in size from 70,000 to 110,000 square feet on
approximately seven acres. In addition, all stores have large drive-thru lumber
yards, well-stocked with varieties, sizes and quantities of lumber and building
materials. Drive-thru lumber yards are typically one half of the store size and
are designed for ease in locating and loading products. Focused on the needs of
remodelers, independent contractors, homebuilders and other building
professionals, Contractors' Warehouse provides competitive pricing and the
convenience of one-stop shopping for these customers. The Company extends credit
on open account to qualified contractors.
Contractors' Warehouse stores operate on the basis of in-depth knowledge
about the requirements of local customers. The result is a merchandise mix
selectively focused on the lumber, materials, products and supplies that satisfy
professional customers in the quantities they need.
Contractors' Warehouse appeals to its target market by providing
specialized services that add value. Contractor services include special order
showrooms, computer estimating services, development of material lists and
prices from blueprints, quick bid job quotes, professional tool rental,
specialized delivery services and early opening hours. Architectural services
are also available at some locations. As a service to home builders and other
contractors, trained sales personnel specializing in contractor sales call upon
contractors on the job site.
MR. 2ND'S BARGAIN OUTLET
These specialty stores, which first opened in 1971, operate at 24 locations
in Massachusetts, New York, and Rhode Island. Mr. 2nd's Bargain Outlet stores
offer close-outs, seconds and over-stocks in a wide range of building materials
and building-related merchandise.
A Mr. 2nd's Bargain Outlet store typically consists of approximately 20,000
square feet located on a two-acre site. These no-frills, low overhead stores
offer steep discount pricing on an everyday basis, communicated to customers
through print advertising.
Mr. 2nd's Bargain Outlet stores are self-service stores which sell building
materials and other building related merchandise, including a selection of
reconditioned appliances. Many of Mr. 2nd's Bargain Outlet customers are repeat
customers aware that these stores often carry non-repeat merchandise in limited
quantities.
The market niche for Mr. 2nd's Bargain Outlet stores is do-it-yourself
customers who are looking for a cost-effective alternative to traditional home
improvement centers.
INTERNATIONAL OPERATIONS
Construcentro is a 50% owned joint venture with a Mexican partner,
operating under the name Builder's Mart. Modeled on the Contractors' Warehouse
format and tailored to the specific needs of its local customers and
marketplace, the first Builder's Mart opened in Monterrey, Mexico in 1994.
Market research indicates that building professionals would be attracted to
a store that could offer convenience, selection and competitive pricing. The
demand for housing in Mexico has been strong and thus provides the potential for
future growth opportunities. Additional stores in Mexican markets have been
deferred, awaiting stabilization of the Mexican economy.
3
<PAGE> 4
Working with potential partners, the Company is exploring joint venture and
licensing arrangements to expand the Contractors' Warehouse concept into
additional international markets. Grossman's would provide business know how,
systems, software, and personnel training and participates in future growth and
revenues.
SALES MIX
<TABLE>
The Company's sales mix by product category, as a percentage of total
sales, is shown in the following table. Pro forma 1995 percentages exclude
Grossman's stores, which were all closed subsequent to 1995 year end:
<CAPTION>
YEAR ENDED DECEMBER 31,
PRO FORMA ----------------------------------------
1995 1995 1994 1993 1992 1991
--------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Wood building materials.................... 24% 30 % 28 % 28 % 27 % 25 %
Non-wood building materials................ 14 15 15 14 13 13
Millwork, doors and windows................ 21 19 16 16 17 17
Paint, decorator products, panelling, floor
coverings and ceilings................... 8 9 10 10 11 12
Kitchen, bath and plumbing products........ 17 13 13 13 13 14
Hardware, electrical supplies and tools.... 16 13 14 15 15 15
Seasonal items............................. -- 1 4 4 4 4
--- --- --- --- --- ---
100% 100 % 100 % 100 % 100 % 100 %
=== === === === === ===
</TABLE>
CUSTOMERS
<TABLE>
The following table shows the percentage of total sales by type of customer
within each of the Company's divisions:
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1995 1994 1993 1992 1991
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Grossman's Stores
Retail Sales..................................... 28.4% 38.2% 42.9% 49.8% 59.2%
Professional Sales............................... 26.0 27.5 27.9 25.4 18.9
----- ----- ----- ----- -----
Total Grossman's Stores....................... 54.4 65.7 70.8 75.2 78.1
Mr. 2nd's Bargain Outlet Stores.................... 7.2 5.8 5.5 5.4 5.3
----- ----- ----- ----- -----
Total Eastern Division............................. 61.6 71.5 76.3 80.6 83.4
Contractors' Warehouse Division.................... 38.4 28.5 23.7 19.4 16.6
----- ----- ----- ----- -----
Total.............................................. 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
The Company's business is spread among thousands of customers and is not
dependent upon any limited number of customers.
PROMOTION
With the exception of catalogs provided to customers, which describe
stores, services, prices and products, Contractors' Warehouse advertising is
principally for new store grand openings. Catalogs establish prices for
designated periods of time, e.g. 60 days, and provide customers with a valuable
tool in the preparation of job quotes.
Mr. 2nd's Bargain Outlet stores generally advertise weekly in full page
color newspaper advertisements. These advertisements appear consistently in
weekly sections of newspapers familiar to customers, allowing customers to
quickly view sale prices and products.
4
<PAGE> 5
SUPPLIERS
The Company purchases its merchandise from several thousand manufacturers
and suppliers. No single supplier accounted for more than 7.5% of total
purchases in 1995, or purchases within any individual division. Alternative
sources of supply are generally available for most major product categories,
except for certain brand name products. Contractual arrangements with suppliers
are generally limited to individual purchase orders.
The Company stocks inventory at levels designed to meet both the recurring
and seasonal needs of its customers. Inventory levels are highest during the
increased sales activity periods of the second and third quarters. The Company
has separate automated, integrated replenishment systems in each division, used
to maintain in-stock position on all inventory items and allow for inventory
management.
The Company receives merchandise directly from manufacturers or through
distributors. Bulk materials are ordered in full railcar or truckload
quantities. Shipments are made directly to Contractors' Warehouse stores.
Shipments to Mr. 2nd's Bargain Outlet stores are made both directly to stores
and through a distribution center or redistribution locations for ultimate
distribution to stores.
COMPETITION
The Company competes with national building materials and home center
chains and with regional or local firms. In addition, certain general
merchandise chains are significant retail merchandisers of home improvement
products. In California, the Company primarily competes with retail building
material warehouses.
SEASONALITY
Historically, the Company has recorded its highest sales level in the
second and third quarters. The first quarter has traditionally been a period of
low sales activity with resultant operating losses for most of the stores, as
fewer home improvement projects in the Company's markets are undertaken during
winter months.
EMPLOYEES
At December 31, 1995, the Company employed approximately 3,400 people,
including 1,200 part-time employees. Upon completion of the closing of the
Grossman's stores, as previously described, the work force will total
approximately 1,800 employees, including 600 part-time employees.
TRADE NAMES
The Company has no material patents, trademarks, licenses, franchises, or
concessions.
5
<PAGE> 6
<TABLE>
EXECUTIVE OFFICERS OF THE COMPANY
<CAPTION>
YEARS
OF
NAME AGE POSITION SERVICE(1)
---- --- -------- ----------
<S> <C> <C> <C>
Sydney L. Katz................ 54 President and Chief Executive Officer 13
David T. Krawczyk............. 39 Executive Vice President -- 23
President of Contractors' Warehouse Division
Michael J. Shea............... 46 Executive Vice President and Chief Financial Officer 1
Richard E. Kent............... 67 Vice President, Secretary and General Counsel 24
Arthur S. Ryan................ 51 Vice President and Treasurer 9
Steven L. Shapiro............. 38 Vice President -- Controller 10
<FN>
- ---------------
(1) Years of service represent total years with the Company and its
predecessors.
</TABLE>
SYDNEY L. KATZ President and Chief Executive Officer
Mr. Katz has been President and Chief Executive Officer since December 1, 1994,
before which he had been Executive Vice President, Chief Financial Officer and
Treasurer since November 19, 1986. Mr. Katz was Executive Vice President and
Chief Financial Officer of Old Grossman's from October 1983 to November 1986.
Mr. Katz has been a director since February 1, 1994. Prior to October 1983, he
was Senior Vice President and Chief Financial Officer of the Retail Group of
W.R. Grace & Co. Mr. Katz held a number of financial positions with W.R. Grace &
Co. from 1968 to 1983. From 1963 to 1968 he was employed in public accounting as
a Certified Public Accountant.
DAVID T. KRAWCZYK Executive Vice President--
President of Contractors' Warehouse
Division
Mr. Krawczyk was elected Executive Vice President -- President of Contractors'
Warehouse Division in April 1993. Prior to that time he served as an executive
of the Contractors' Warehouse Division and in other administrative capacities of
the division for more than five years, except for a four month period in 1992
when he was engaged in his own business. Mr. Krawczyk began his employment with
the Company in 1973.
MICHAEL J. SHEA Executive Vice President and Chief
Financial Officer
Mr. Shea has been Executive Vice President and Chief Financial Officer since
September 5, 1995. Prior to that date he was Executive Vice President and Chief
Financial Officer of Legal Seafoods Inc. of Boston and from 1978 to 1994 held
positions at Ocean Spray Cranberries, Inc., the latest being Vice President of
Logistics. Prior to such time, he was employed as a Certified Public Accountant
with Deloitte & Touche.
RICHARD E. KENT Vice President, Secretary and General
Counsel
Mr. Kent has been Vice President, Secretary and General Counsel since November
19, 1986. He was in the private practice of law in Portland, Oregon from May
1984 to November 19, 1986 and prior to May 1984 was Vice President, Secretary
and General Counsel of Evans for more than five years. Mr. Kent serves as a
director and Vice Chairman of Epigen, Inc.
ARTHUR S. RYAN Vice President and Treasurer
Mr. Ryan has been Vice President and Treasurer since December 1994. Prior to
such date, he was a Vice President since 1988. He began his employment with
Grossman's in 1987. Prior to such time, he was employed by Thermo Electron
Corporation, Honeywell Information Systems, Inc. and General Electric.
STEVEN L. SHAPIRO Vice President -- Controller
Mr. Shapiro has been Controller since May 3, 1993 and Vice President since
September 1995. Prior to such date he was Assistant Controller since August 11,
1986. Mr. Shapiro was employed as a Certified Public Accountant with Arthur
Andersen & Co. from September 1979 to August 1986.
6
<PAGE> 7
ITEM 2. PROPERTIES
See Item 1 (c) Narrative Description of Business for descriptions of the
Company's store sizes and markets.
The Company's 39 stores operate under the names Contractors' Warehouse and
Mr. 2nd's Bargain Outlet, and are located in cities and towns in seven states,
as follows:
<TABLE>
OPERATING PROPERTIES
CONTRACTORS' WAREHOUSE
<CAPTION>
CALIFORNIA INDIANA OHIO
- ---------- ------- ----
<S> <C> <C>
Carson Fort Wayne Cincinnati
Colton Indianapolis Columbus
La Habra Dayton
Long Beach
Montebello NEVADA
North Hollywood ------
Pomona Reno
Sacramento
Ventura
</TABLE>
<TABLE>
MR. 2ND'S BARGAIN OUTLET
<CAPTION>
MASSACHUSETTS NEW YORK RHODE ISLAND
- ------------- -------- ------------
<S> <C> <C>
Braintree Brighton Central Falls
Brighton Buffalo Warwick
Fitchburg Cheektowaga Woonsocket
Framingham East Dewitt
Malden North Syracuse
Marshfield Renssalaer
Peabody Rochester
Walpole Schenectady
Waltham Tonawanda
Worcester Webster
West Seneca
</TABLE>
BUILDER'S MART
MEXICO
------
Monterrey
Within the 39 operating properties, 16 are owned and 23 are leased, of
which 12 have leases that expire without renewal or purchase options within the
next ten years. Historically, leases without renewal options have been actively
negotiated and renewed by the Company prior to expiration. Two leases have
options for the Company to purchase the stores from the lessors at various times
at an aggregate purchase price estimated to be below aggregate current market
value. The Company also leases a distribution center for Mr. 2nd's Bargain
Outlet stores. The Company's properties are considered well maintained and in
good condition.
The net book value of the Company's owned real properties as of December
31, 1995 is approximately $60.4 million, including $9.0 million for properties
in operation subsequent to the closing of the Grossman's stores in March 1996.
Mortgage debt of approximately $3.5 million was outstanding on December 31, 1995
on four of the Company's owned properties. Subsequent to year end, the Company
received a commitment for $33 million in mortgage financing, secured by owned
properties.
7
<PAGE> 8
NON-OPERATING PROPERTIES
<TABLE>
The Company has 55 owned properties available for sale, primarily former
store locations. The Company is actively marketing these properties, listed
below, with proceeds from sales to be used for debt repayment. In addition, the
Company has 25 leased facilities which were former operating stores.
<CAPTION>
CONNECTICUT NEW YORK MASSACHUSETTS
- ----------- -------- -------------
<S> <C> <C>
Branford* Auburn Auburn*
Bristol Ballston Spa Auburn
Brookfield Binghamton* Brockton
Groton Camillus Danvers
Manchester* Canandaigua Gardner
Middletown Cortland* Hatfield
Torrington Depew Hyannis
Waterbury Dewitt Indian Orchard*
West Haven* Glens Falls North Attleboro
Hamburg North Plymouth
NEW HAMPSHIRE Herkimer* Pittsfield*
- ------------- Hudson Randolph
Concord Ithaca* Raynham
Dover Johnstown* West Springfield*
Keene Kingston*
Laconia Lakewood PENNSYLVANIA
North Haverhill* Latham* ------------
Portsmouth Malone Bristol
Salem Niagara Falls Bustleton*
Olean Harbor Creek
MAINE Plattsburgh Hazelton
- ----- Rome Scranton
Auburn* Saranac Lake
Augusta Utica RHODE ISLAND
Bangor* Vestal* ------------
Bangor Wappingers Falls* Johnston
Brunswick Watertown* North Kingstown
Ellsworth West Babylon
Houlton* VERMONT
Portland* NEW JERSEY -------
Rockland ---------- Montpelier*
Scarborough Lawrenceville Rutland
Waterville South Burlington*
<FN>
- ---------------
*Leased facilities
</TABLE>
8
<PAGE> 9
<TABLE>
Changes in the number of stores since 1986 are as follows:
<CAPTION>
STORES STORES
OPENED CLOSED STORES OF
(INCLUDING (INCLUDING DIVISIONS PERIOD END
YEAR RELOCATIONS) RELOCATIONS) SOLD TOTAL
---- ------------ ------------ --------- ----------
<S> <C> <C> <C> <C>
1986................................. 3 7 -- 272
1987................................. 3 17 -- 258
1988................................. 8 20 -- 246
1989................................. 4 7 87 156
1990................................. 1 2 -- 155
1991................................. 1 17 -- 139
1992................................. 1 2 -- 138
1993................................. 5 24 -- 119
1994................................. 2 16 -- 105
1995................................. 6 15 -- 96
1996*................................ 3 60 -- 39
<FN>
- ---------------
* Through March 31, 1996
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to litigation incidental to the conduct of its
business, most of which is covered by insurance and none of which is expected to
have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS
<TABLE>
Grossman's Inc. Common Stock trades on The Nasdaq Stock Market under the
symbol GROS. The number of holders of record of the Company's Common Stock on
March 27, 1996 was 1,742. This number does not include beneficial owners holding
Common Stock in bank or broker name, which the Company believes represents
approximately 7,000 owners.
<CAPTION>
1995 1994
-------------------- -----------------
HIGH LOW HIGH LOW
----- -------- ----- -----
<S> <C> <C> <C> <C>
First Quarter............................. $2 7/8 $2 $4 3/4 $3
Second Quarter............................ 2 5/8 1 15/16 4 1/8 2
Third Quarter............................. 2 7/16 1 11/16 2 5/8 1 7/8
Fourth Quarter............................ 1 7/8 1 5/16 3 1/4 2 1/8
</TABLE>
No cash dividends have been paid on the Company's Common Stock since its
initial issuance on November 19, 1986.
9
<PAGE> 10
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
The following selected financial and statistical data for the nine years
ended December 31, 1995 are derived from the audited consolidated financial
statements of the Company and other available operating information. The data
should be read in conjunction with the consolidated financial statements,
related notes and Management's Discussion and Analysis of Financial Condition
and Results of Operations.
<CAPTION>
1993
1995 1994 (53 WEEKS)
-------- -------- ----------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT
PER SHARE AND PER SQUARE FOOT DATA)
<S> <C> <C> <C>
OPERATING INFORMATION
Sales.......................................................................... $669,899 $759,156 $841,974
Gross profit................................................................... 159,679 187,061 212,885
Operating expenses............................................................. 173,440 184,998 242,220
Operating income (loss)........................................................ (13,761) 2,063 (29,335)
Interest expense............................................................... 8,211 7,376 8,422
Other income (expenses)........................................................ (4,095) (3,322) 578
Income (loss) before income taxes.............................................. (198) (2,117) (38,120)
Income taxes (credits)......................................................... -- (212) 30,228
Extraordinary items, net....................................................... -- -- --
Net income (loss).............................................................. (198) (1,905) (68,348)
Net income (loss) per share.................................................... (0.01) (0.07) (2.66)
Weighted average number of shares(000's)....................................... 25,946 25,752 25,661
SELECTED OPERATING INFORMATION AS A PERCENTAGE OF SALES
Gross profit................................................................... 23.8% 24.6% 25.3%
Operating expenses............................................................. 25.9 24.4 28.8
Operating income (loss)........................................................ (2.1) 0.3 (3.5)
Interest expense............................................................... 1.2 1.0 1.0
Income (loss) before income taxes.............................................. -- (0.3) (4.5)
Net income (loss).............................................................. -- (0.3) (8.1)
BALANCE SHEET INFORMATION
Inventories.................................................................... $102,009 $116,602 $121,820
Current assets................................................................. 147,997 148,133 154,594
Property, plant and equipment, net............................................. 94,256 114,897 130,164
Total assets................................................................... 243,529 266,620 287,448
Current liabilities............................................................ 113,156 104,649 119,768
Working capital................................................................ 34,841 43,484 34,826
Long-term obligations.......................................................... 38,512 59,927 64,505
Total stockholders' investment................................................. 73,795 80,645 72,368
OTHER FINANCIAL INFORMATION
Capital expenditures, excluding capital lease additions........................ $ 9,452 $ 4,801 $ 15,050
Long-term debt to equity ratio................................................. 0.8:1 0.9:1 1.1:1
Inventory turnover (1)......................................................... 4.2 4.4 4.3
STORES AND EMPLOYEES
Number of stores -- year end................................................... 96 105 119
Average sales per store (2).................................................... $ 6,504 $ 6,718 $ 6,200
Square footage (000's)......................................................... 3,983 3,996 4,216
Average sales per square foot (3).............................................. $ 164.84 $ 183.20 $ 174.40
Number of employees
Full time.................................................................... 2,200 2,300 2,700
Part time.................................................................... 1,200 1,800 1,600
------ ------ ------
3,400 4,100 4,300
<FN>
- ---------------
(1) Calculated based upon inventory at the end of each quarterly period.
(2) Calculated based upon the number of stores in operation at the end of each
quarterly period (adjusted for divisions sold in 1989).
(3) Calculated based upon the square footage at the end of each quarterly period
(adjusted for divisions sold in 1989).
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
1992 1991 1990
-------- -------- ----------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT
PER SHARE AND PER SQUARE FOOT DATA)
<S> <C> <C> <C>
OPERATING INFORMATION
Sales.......................................................................... $833,370 $806,636 $812,485
Gross profit................................................................... 223,390 219,057 224,651
Operating expenses............................................................. 208,902 205,533 224,795
Operating income (loss)........................................................ 14,488 13,524 (144)
Interest expense............................................................... 8,275 9,444 11,410
Other income (expenses)........................................................ 3,839 2,833 8,105
Income (loss) before income taxes.............................................. 10,052 6,913 (3,449)
Income taxes (credits)......................................................... 3,820 2,622 (1,050)
Extraordinary items, net....................................................... -- -- --
Net income (loss).............................................................. 6,232 4,291 (2,399)
Net income (loss) per share.................................................... 0.24 0.17 (0.09)
Weighted average number of shares (000's)...................................... 26,193 25,878 26,052
SELECTED OPERATING INFORMATION AS A PERCENTAGE OF SALES
Gross profit................................................................... 26.8% 27.2% 27.6%
Operating expenses............................................................. 25.1 25.5 27.7
Operating income (loss)........................................................ 1.7 1.7 --
Interest expense............................................................... 1.0 1.2 1.4
Income (loss) before income taxes.............................................. 1.2 0.9 (0.4)
Net income (loss).............................................................. 0.7 0.5 (0.3)
BALANCE SHEET INFORMATION
Inventories.................................................................... $123,230 $109,815 $119,537
Current assets................................................................. 179,587 193,787 202,263
Property, plant and equipment, net............................................. 134,693 118,635 120,095
Total assets................................................................... 339,002 341,944 353,600
Current liabilities............................................................ 112,980 113,047 132,786
Working capital................................................................ 66,607 80,740 69,477
Long-term obligations.......................................................... 52,985 64,177 62,126
Total stockholders' investment................................................. 161,023 154,529 148,161
OTHER FINANCIAL INFORMATION
Capital expenditures, excluding capital lease additions........................ $ 26,602 $ 11,929 $ 20,864
Long-term debt to equity ratio................................................. 0.4:1 0.5:1 0.6:1
Inventory turnover(1).......................................................... 4.6 4.6 4.1
STORES AND EMPLOYEES
Number of stores -- year end................................................... 138 139 155
Average sales per store(2)..................................................... $ 5,995 $ 5,563 $ 5,208
Square footage (000's)......................................................... 4,628 4,565 4,718
Average sales per square foot(3)............................................... $ 180.57 $ 174.73 $ 172.22
Number of employees
Full time.................................................................... 3,100 2,900 3,200
Part time.................................................................... 1,900 1,800 2,000
-------- -------- --------
5,000 4,700 5,200
<FN>
- ---------------
(1) Calculated based upon inventory at the end of each quarterly period.
(2) Calculated based upon the number of stores in operation at the end of each
quarterly period (adjusted for divisions sold in 1989).
(3) Calculated based upon the square footage at the end of each quarterly period
(adjusted for divisions sold in 1989).
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
1988
1989 (53 WEEKS) 1987
---------- ---------- ----------
<S> <C> <C> <C>
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT
PER SHARE AND PER SQUARE FOOT DATA)
OPERATING INFORMATION
Sales....................................................................... $1,052,095 $1,141,602 $1,077,297
Gross profit................................................................ 296,387 331,762 315,733
Operating expenses.......................................................... 272,346 303,277 275,679
Operating income............................................................ 24,041 28,485 40,054
Interest expense............................................................ 19,818 22,013 26,131
Interest and other income................................................... 15,166 7,562 8,001
Income (loss) before income taxes........................................... 19,389 14,034 21,924
Income taxes................................................................ 7,396 5,209 9,753
Extraordinary items, net.................................................... (1,262) -- (1,204)
Net income (loss)........................................................... 10,731 8,825 10,967
Net income (loss) per share................................................. 0.41 0.34 0.49
Weighted average number of shares (000's)................................... 26,397 26,216 22,707
SELECTED OPERATING INFORMATION AS A PERCENTAGE OF SALES
Gross profit................................................................ 28.2% 29.1 % 29.3%
Operating expenses.......................................................... 25.9 26.6 25.6
Operating income............................................................ 2.3 2.5 3.7
Interest expense............................................................ 1.9 1.9 2.4
Income (loss) before income taxes........................................... 1.8 1.2 2.0
Net income (loss)........................................................... 1.0 0.8 1.0
BALANCE SHEET INFORMATION
Inventory................................................................... $ 132,825 $ 164,364 $ 155,964
Current assets.............................................................. 220,693 251,317 273,044
Property, plant and equipment, net.......................................... 107,602 156,722 115,922
Total assets................................................................ 357,310 434,689 421,994
Current liabilities......................................................... 112,417 129,091 126,821
Working capital............................................................. 108,276 122,226 146,223
Long-term obligations....................................................... 87,784 160,574 159,966
Total stockholders' investment.............................................. 154,189 143,432 134,657
OTHER FINANCIAL INFORMATION
Capital expenditures, excluding capital lease additions..................... $ 17,959 $ 43,402 $ 21,505
Long-term debt to equity ratio.............................................. 0.7:1 1.3:1 1.3:1
Inventory turnover(1)....................................................... 4.4 4.5 4.6
STORES AND EMPLOYEES
Number of stores -- year end................................................ 156 246 258
Average sales per store(2).................................................. $ 4,726 $ 4,505 $ 4,023
Square footage (000's)...................................................... 4,599 7,840 7,560
Average sales per square foot(3)............................................ $ 156.50 $ 150.33 $ 139.10
Number of employees
Full time................................................................. 3,300 5,600 5,200
Part time................................................................. 2,000 2,500 2,500
---------- ---------- ----------
5,300 8,100 7,700
<FN>
- ---------------
(1) Calculated based upon inventory at the end of each quarterly period.
(2) Calculated based upon the number of stores in operation at the end of each
quarterly period (adjusted for divisions sold in 1989).
(3) Calculated based upon the square footage at the end of each quarterly period
(adjusted for divisions sold in 1989).
</TABLE>
12
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
For the last several years, the Company has been working towards
repositioning its Grossman's stores in the East to focus store operations upon a
market niche to serve the professional customer and offset the loss of market
share with the retail customer. Sales for September 1995, which in the prior
year had been the largest volume month for professional sales, were below
expectations. Within Grossman's stores, comparable store sales to professionals
decreased by 7.0%, compared with a 23.3% increase one year ago. Comparable
retail sales in these stores declined by 23.5% in September 1995 versus a 0.5%
decline in September 1994. Eleven underperforming stores were closed
immediately, but sales results in the remaining stores continued to deteriorate.
Based upon these results, it became apparent that future professional sales
growth could not be anticipated to cover the continued erosion in the retail
sector. Losses and cash deficits attributable to the Grossman's stores
significantly impaired the Company's liquidity, and projections of future
results did not indicate a reversal of this trend. During the latter months of
1995, the Company met with potential strategic and financial buyers and lenders
to seek sources of capital or financing to meet the upcoming debt maturities and
provide sufficient liquidity to adequately stock the stores with merchandise for
the upcoming 1996 spring selling season.
No outside sources of capital for the continuation of the Grossman's stores
were found and the Company's revolving credit agreement did not provide
sufficient availability to enable the stores to secure sufficient inventory for
the 1996 spring selling season. Additionally, funds were not available for the
scheduled $17.3 million of principal and interest payments due on maturing 14%
Debentures. As a result, a course of action was undertaken to liquidate the
Grossman's stores, offer the owned properties for sale and provide the requisite
liquidity to service debt and to support the current operations and future
expansions of the Contractors' Warehouse and Mr. 2nd's Bargain Outlet divisions.
To improve liquidity during the latter part of 1995, the Company sought
offers for its $15.8 million note receivable from Kmart Corporation, received in
partial settlement from the sale of its former Braintree, Massachusetts
headquarters property. Due to Kmart's troubled financial situation at that time,
no reasonable non-contingent offers were received.
The Company continued to seek additional financing in 1996 and, after
lengthy negotiations, a restructuring and refinancing plan was announced on
March 28, 1996, under which the remaining 60 Grossman's stores, located in eight
Northeastern states, were closed. Four transactions were committed to in the
same time period: refinancing of the Company's 14% Debentures originally due
January 1996; sale of the note receivable from Kmart Corporation; obtaining a
$33 million mortgage loan, secured by owned properties to be offered for sale;
and a commitment for a new long-term revolving credit agreement, with increased
borrowing availability. An estimated $40 million restructuring charge will be
reflected in the 1996 first quarter financial statements related to severance
costs, lease payments, inventory liquidation costs, other expenses and the net
unrecoverable amount of property plant and equipment. Approximately one half of
the charge will result in a cash outflow, most of which will occur in 1996.
The Company began the closing and liquidation of its Grossman's stores on
March 29, 1996. Concurrent with the timing of the store closings, expected to
take up to ten weeks, administrative support functions in the Company's
headquarters were reduced. Upon completion of the store closings, the Company's
total workforce will have been reduced from approximately 3,400 to 1,800.
Holders of 14% Debentures will be paid for principal and interest due, in a
combination of cash and notes payable. Cash payments will total approximately
$12 million. Notes payable of $3 million, due in three years, with interest
payable semi-annually at 10%, will be issued. These notes will be convertible at
the holder's option into shares of the Company's Common Stock at $1.30 per
share. An additional $2.7 million of non-convertible notes payable, with
interest payable semi-annually at 15% per annum, will also be issued. These
notes are due in three years and may be repaid prior to maturity from proceeds
of real estate sales, after full
13
<PAGE> 14
repayment of mortgage notes, described below. Interest on these notes may be
deferred at the Company's option.
The Company's $15.8 million note receivable from Kmart Corporation,
originally discounted for financial reporting purposes to $12.4 million, was
sold for cash of $13 million on March 22, 1996.
The Company received a commitment for a series of mortgage notes, payable
principally from sales of closed store and other properties. The mortgage notes
are secured by both closed and operating owned properties. The notes total $32.9
million, $2.9 million of which will be non-interest bearing and is payable from
the first sale of properties. An additional $4.0 million will be non-interest
bearing and convertible into common stock at $0.75 per share, following
repayment of the remainder of the mortgage notes. The remaining $26.0 million
bears interest at 15% per annum, payable monthly. Principal is payable as
following: $2.5 million is due upon the sale of furniture, fixtures and
equipment from closed stores, $4.125 million is due in September 1996, $5.5
million is due in March 1997, $8.25 million is due in September 1997 and the
remainder is due in March 1998. Fees due under the various notes, totalling $2.9
million, will be paid from loan proceeds.
The Company also received a commitment to provide a three-year line of
credit for borrowings up to $50 million, including letters of credit up to $15
million, under a formula based arrangement based on 60% of qualified inventory
and 80% of qualified accounts receivable. Borrowings pursuant to this agreement
will be secured by inventory, receivables and other assets. This agreement,
which bears interest at 1% over Prime Rate, contains no financial covenants or
capital spending limitations. Upon closing, the Company's existing revolving
term note payable will be terminated.
Cash flow and liquidity difficulties during the last quarter of 1995 and
first quarter of 1996 resulted in an inability to fully stock stores to
historical seasonal levels. It is expected that the refinancing plan will again
allow for all stores to be fully stocked; however, 1996 first quarter and future
sales and operating results will be impaired until the in-stock inventory
positions reach the required levels.
In September 1995, the Company sold its former corporate headquarters to
Kmart Corporation for $32.0 million and recognized a pre-tax gain of $18.1
million. The purchase price was paid with $16.2 million in cash and the
remainder in a $15.8 million note receivable. Cash proceeds were used to repay
revolving credit borrowings. The note is due in two installments; $8.0 million
is due in January 1997 and the remainder is due September 1997. The note bears
interest at 1% over Prime Rate during the note's final eight month period. The
note was discounted for financial reporting purposes and was initially recorded
at $12.4 million. As described above, the note was sold for $13 million in March
1996.
During 1995, the Company sold its Eastern Division Distribution Center and
certain closed store properties, and repaid outstanding mortgage debt totalling
$11.1 million. Throughout 1995, the Company actively marketed properties vacated
as a result of previously closing a total of 40 stores in the past two years and
14 stores in 1995. Of the 32 owned stores within this group, 18 stores have been
sold, three stores were reopened as a Mr. 2nd's Bargain Outlets and the
remainder are available for sale. Proceeds received in 1995 from the sale of the
distribution center, the cash portion of the headquarters property sales and the
sale of closed store properties totalled $27.7 million.
Following the closing of stores in 1996, as described above, the Company
has 55 owned properties which are being actively marketed. Sales proceeds will
be used for payment of mortgage debt financing, with the Company retaining the
excess.
In March 1995, available borrowings under the Company's revolving credit
agreement, including letters of credit up to $15 million, were increased from
$60 million to $75 million. The agreement contains various covenants which,
among other things, require minimum levels of net worth, establish minimum
interest and fixed charge ratios, and establish maximum levels of capital
expenditures and investments in subsidiaries. The Company required amendments to
modify previously established covenants in the second, third and fourth quarters
of 1995. In March 1996, the loan facility was reduced to $40 million and
available borrowings were reduced to $37.5 million. As previously discussed, the
Company has received a commitment for a new three-year line of credit with
available borrowings up to $50 million.
14
<PAGE> 15
At December 31, 1995, cash borrowings under the revolving credit agreement
totalled $32.8 million and outstanding standby letters of credit totalled $9.0
million. The maximum total borrowings under this agreement during 1995 were
$70.8 million, including letters of credit of $12.0 million.
Total long-term debt, including the 14% Debentures and capital lease
obligations, decreased by $17.2 million. This decrease results from $11.1
million of payments associated with sold properties, and continuing scheduled
payments, offset by an increase in capital lease obligations, principally for
equipment in new Contractors' Warehouse stores.
Inventory at December 31, 1995 totalled $102.0 million, a $14.6 million
decrease from the prior year end. Inventory declines as a result of Eastern
Division store closings were offset in part by inventory in newly opened stores.
Accounts payable, which historically have trended along with inventory,
increased from $59.4 million in 1994 to $63.2 million in 1995, reflecting cash
management in light of the liquidity issues discussed above.
Declines in property, plant and equipment reflect the sale of closed store
properties, offset in part by the capital expenditures, principally to support
new stores, which totalled $9.5 million. During 1995, the Company opened new
Contractors' Warehouse stores in Indianapolis and Fort Wayne, Indiana and in
Columbus, Ohio. Two new Mr. 2nd's Bargain Outlet locations were opened, in
Schenectady and Renssalaer, New York, and one store was relocated in Braintree,
Massachusetts. Two additional Contractors' Warehouse locations are scheduled for
opening in 1996: Lexington, Kentucky in May 1996 and Cleveland, Ohio in the Fall
of 1996. Mr. 2nd's Bargain Outlet opened three stores in the first quarter of
1996, and four or more former Grossman's stores, presently leased, are expected
to be converted to new stores. It is the Company's plan to continue the
expansion of each of these divisions in future years.
The investment in the Company's 50% owned unconsolidated joint venture,
Construcentro, declined from $1.9 million in 1994 to $108 thousand in 1995,
reflecting a cash investment of $320 thousand, a net loss of $666 thousand, and
adjustments totalling approximately $1.4 million to reflect the devaluation of
the Mexican peso in relation to the U.S. dollar. Plans to build additional
stores in Mexican markets remain on hold awaiting stabilization of the Mexican
economy. At December 31, 1995, operations of the Company's consolidated
installed sales subsidiary ceased to be supported by the Company.
On December 31, 1995, the actuarial assumption for the discount rate used
to value pension benefit obligations was changed from 8.5% to 7.25%, on par with
yields for appropriate high-quality debt instruments. As a result, a non-cash
adjustment of $5.6 million was recorded to increase the minimum pension
liability, the intangible asset was reduced by $267 thousand to equal
unrecognized prior service cost, and the difference of $5.9 million was charged
to stockholders' investment. The minimum liability, intangible asset and
adjustment to stockholders' investment will be measured annually and will change
based upon interest rate assumptions, changes in the benefit obligation and
changes in the value of plan assets. Beginning in 1996, new employees of the
Company will not be eligible to participate in this pension plan.
The Company believes that existing funds, funds generated from operations,
proceeds to be received upon closing of financing activities and proceeds from
sales of non-operating properties, will be sufficient to pay existing
liabilities, to satisfy debt service requirements, to pay other liabilities in
the normal course of business and to finance planned capital expenditures.
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. This statement is effective for fiscal
years beginning after December 15, 1995. The Company believes that adoption of
this standard will not have a material impact on results of operations or
financial condition.
In November 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation", under which companies can
choose to account for stock compensation awards based on their fair value at the
date the awards are granted. This statement is effective for calendar
15
<PAGE> 16
year 1996. The Company will continue to account for stock compensation under the
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued To
Employees" ("APB 25"). Under APB 25, because the exercise price of options
granted are equal to the market price, no compensation expense will be
recognized.
RESULTS OF OPERATIONS
1995 COMPARED WITH 1994
A net loss of $198 thousand in 1995 compares to a net loss of $1.9 million
in 1994, with non-recurring items occurring in each year. The 1995 results
include a pre-tax gain on the sale of the Company's former headquarters site and
a provision for the closing of 11 Eastern Division stores. The 1994 results
include a provision for the closing of 18 Eastern Division stores. Before
non-recurring items, an operating loss of $9.3 million resulted in 1995, as
compared to operating income of $8.6 million in 1994. Operating expense savings
in 1995 were insufficient to offset a gross profit decrease of $27.4 million,
which resulted from both sales and margin rate decreases. Competitive
conditions, declining housing starts and turnover rates, low selling prices and
margins on commodity lumber prices, and sluggish economic conditions,
particularly in the Northeast, contributed to the 1995 results.
<TABLE>
The following table shows three year comparative sales results by store
type (dollars in millions):
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
SALES
Grossman's Stores
Retail Sales................................................... $190.0 $290.3 $361.3
Professional Sales............................................. 174.3 208.6 235.0
------ ------ ------
Total Grossman's Stores................................ 364.3 498.9 596.3
Mr. 2nd's Bargain Outlet Stores.................................. 48.0 43.5 46.2
------ ------ ------
Total Eastern Division........................................... 412.3 542.4 642.5
Contractors' Warehouse Division.................................. 257.6 216.8 199.5
------ ------ ------
Total Grossman's Inc................................... $669.9 $759.2 $842.0
====== ====== ======
% OF TOTAL SALES
Grossman's Stores
Retail Sales................................................... 28.4% 38.2% 42.9%
Professional Sales............................................. 26.0 27.5 27.9
------ ------ ------
Total Grossman's Stores................................ 54.4 65.7 70.8
Mr. 2nd's Bargain Outlet Stores.................................. 7.2 5.8 5.5
------ ------ ------
Total Eastern Division........................................... 61.6 71.5 76.3
Contractors' Warehouse Division.................................. 38.4 28.5 23.7
------ ------ ------
Total Grossman's Inc................................... 100.0% 100.0% 100.0%
====== ====== ======
SALES % INCREASE (DECREASE) VERSUS PRIOR YEAR
Grossman's Stores
Retail Sales................................................... (34.6)% (20.5)% (13.0)%
Professional Sales............................................. (16.4) (11.2) 11.5
------ ------ ------
Total Grossman's Stores................................ (27.0) (16.8) (4.7)
Mr. 2nd's Bargain Outlet Stores.................................. 10.3 (5.8) 1.8
------ ------ ------
Total Eastern Division........................................... (24.0) (15.6) (4.3)
Contractors' Warehouse Division.................................. 18.8 8.7 23.1
------ ------ ------
Total Grossman's Inc................................... (11.8)% (9.8)% 1.0%
====== ====== ======
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
COMPARABLE STORE SALES % INCREASE (DECREASE) VERSUS PRIOR YEAR
Grossman's Stores
Retail Sales................................................... (16.0)% (5.2)% (7.0)%
Professional Sales............................................. (0.8) 14.5 23.5
----- ----- -----
Total Grossman's Stores................................ (9.3) 2.2 2.5
Mr. 2nd's Bargain Outlet Stores.................................. 2.4 2.2 (13.0)
----- ----- -----
Total Eastern Division........................................... (8.1) 2.2 1.3
Contractors' Warehouse Division.................................. 4.3 (4.3) 1.0
----- ----- -----
Total Grossman's Inc................................... (3.7)% 0.4% 1.2%
===== ===== =====
NUMBER OF STORES AT YEAR END
Grossman's Stores................................................ 60 74 90
Mr. 2nd's Bargain Outlet Stores.................................. 21 19 18
Contractors' Warehouse Division.................................. 15 12 11
----- ----- -----
Total Number of Stores................................. 96 105 119
===== ===== =====
</TABLE>
Total sales results reflect 18 and 11 Grossman's stores closed in late 1994
and 1995, respectively, and four Contractors' Warehouse openings; one in 1994
and three in 1995. Three Mr. 2nd's Bargain Outlet stores opened, one in late
1994 and two in 1995.
Within Grossman's stores, throughout 1994 and 1995 the Company continued
its repositioning efforts to focus store operations upon a market niche
dedicated to serve the professional customer and offset the loss of market share
with the retail customer. Throughout 1994, this strategy produced comparable
store sales increases to professionals, more than offsetting retail comparable
store sales declines. In the first half of 1995, retail sales continued to
decline and professional sales continued to increase, but at lesser rates.
Beginning in April 1995, professional sales increases were insufficient to
offset retail declines and by the third quarter, comparable store sales to
professionals began to decline.
In advance of and during the fourth quarter of 1995, the Company undertook
initiatives to improve future sales, particularly with respect to professional
sales. Additional sales personnel, both on the road and within stores, were
added in both Contractors' Warehouse and Grossman's stores to expand service to
professional customers. These initiatives had positive results in Contractors'
Warehouse stores, and its comparable store sales increased by 9.7% in the fourth
quarter. Within Grossman's stores, however, both retail and professional
comparable store sales continued to decline, with fourth quarter decreases of
29.1% and 13.1%, respectively. As discussed above, in light of these results,
the Company began a course of action to explore alternatives including the
closing of the Grossman's stores.
Contractors' Warehouse comparable stores sales increased for the full year
1995 by 4.3%. Within these stores, a comparable store sales decline of 1.3% for
the first six months of 1995, affected by heavy rains in the first quarter, was
offset by the third and fourth quarter increases of 9.4% and 9.7%, respectively.
The gross profit decline of $27.4 million was the result of both the sales
decrease and a decline in the gross margin rate from 24.6% in 1994 to 23.8% in
1995, reflecting lower commodity lumber margins. Margin declines also continue
to occur as a result of increased sales to professional customers.
Operating expenses, excluding non-recurring store closing expense,
decreased by $9.6 million in 1995 compared to 1994, principally the result of
continued expense control and downsizing in selling and administrative expense
areas, which account for $7.5 million of the decrease; reduction in depreciation
and amortization of $1.4 million, due to the closing of Eastern Division stores
in both years and the sale of the Eastern Division Distribution Center in 1995;
and a reduction in store preopening expense of $654 thousand. Included in
selling and administrative expenses is pension expense, which decreased from
$4.5 million in 1994 to $2.5 million in 1995 as the result of changes in
assumptions used to actuarially determine the pension
17
<PAGE> 18
liability and expense. The reduction in selling and administrative expenses was
tempered by additional costs, principally payroll, incurred during the first
quarter related to Eastern Division store modifications directed toward the
professional. Operating expenses related to the Company's 80% owned installed
sales subsidiary totalled $3.5 million in 1995, compared to $5.3 million in
1994. The Company will not be supporting this subsidiary after December 31,
1995.
As a result of the closing of the Grossman's stores in 1996, office support
functions for this division will wind down over a period of months. In addition,
administrative costs within the corporate office functions will be reduced over
time, as new systems and procedures are installed to support the new smaller
infrastructure.
At the end of the third quarter in both 1994 and 1995, non-recurring
charges for store closings were recorded to cover costs related to leases,
severance and outplacement expenses, inventory writedowns, other expenses and
property, plant and equipment costs. In 1995, the Company closed 11
underperforming stores and a $4.5 million provision was recorded, and in 1994,
18 stores were closed and a $6.5 million provision was recorded. Sales from
stores closed represented 16.3% and 5.8% of total sales in 1994 and 1995,
respectively.
Interest expense increased to $8.2 million in 1995 from $7.4 million in
1994, reflecting both an increase in average revolving credit borrowings and the
rate on such borrowings. The weighted average rate on revolver borrowings
increased from 7.5% in 1994 to 8.8% in 1995.
Included in the 1995 results is a third quarter $18.1 million pre-tax gain
on the sale of the Company's former headquarters site, net of a discount on the
note received from Kmart Corporation, certain site shutdown costs which were
incremental to the normal operations of the facility and closing costs
associated with the transaction.
The 1995 full year results include a $666 thousand net loss related to the
Company's 50% owned Mexican joint venture, compared with a $490 thousand loss in
1994, when the venture began operation midway through the second quarter.
1994 COMPARED WITH 1993
The 1994 net loss of $1.9 million compared to a net loss of $68.3 million
in 1993. The 1994 results included a $6.5 million provision for store closings.
The 1993 results include a $34.3 million provision for store closings and a
non-cash adjustment to the provision for income taxes of $30.2 million to record
a valuation allowance against previously recorded deferred tax assets. Excluding
these non-recurring items, operating income improved to $8.6 million in 1994
from $4.9 million in 1993. Included in 1994 results were start up costs of the
Company's 80% owned installed sales subsidiary, and the Company's 50% share of
initial operating losses of its Mexican joint venture.
In both 1993 and 1994, the Company's strategy was to emphasize sales to the
professional customer. In both years, comparable retail sales declines were
offset by comparable professional sales increases. Total sales results included
Contractors' Warehouse store openings in both 1993 and 1994, offset by
Grossman's store closings.
Gross margin declined from 25.3% in 1993 to 24.6% in 1994. Throughout 1994,
margin declines occurred as the result of the increase in sales to professional
customers, who receive discounts from normal retail pricing, and the growth in
Contractors' Warehouse stores, which operate at higher per stores sales volume
with lower gross margins. Margin declines were also due to competitive market
conditions and volatile lumber prices. Gross profit declined by $25.8 million
reflecting the combination of the overall sales and gross margin declines.
Selling and administrative expenses declined in 1994 by $29.4 million, or
17.9%, reflecting reduced overhead as a result of closed stores and additional
Eastern Division staff reductions which occurred in the latter periods of 1993.
Included in administrative expenses is pension expense, which increased from
$1.8 million in 1993 to $4.5 million in 1994 as the result of changes in
assumptions used to actuarially determine the pension liability and expense.
18
<PAGE> 19
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 22 Eastern Division stores and $34.3 million was
provided, and in 1994 18 Eastern Division stores were closed and $6.5 million
was provided. Sales from stores closed represented 24.9% and 16.3%,
respectively, of total sales in 1993 and 1994.
Included in operating expenses in 1994 are $5.3 million of expenses related
to the development and start-up of the Company's 80% owned installed sales
subsidiary, which opened its first three project centers in 1994. Store
preopening expense, related to Contractors' Warehouse store openings, increased
by $200 thousand.
Interest expense declined from $8.4 million in 1993 to $7.4 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 is a $490 thousand 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.
In 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 of $30.2
million. In 1994, income taxes were insignificant.
19
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF MANAGEMENT
The management of Grossman's Inc. has prepared the accompanying financial
statements and is responsible for their integrity and objectivity. The
statements, which include amounts that are based on management's best estimates
and judgments, have been prepared in conformity with generally accepted
accounting principles and, in management's opinion, are free of material
misstatement. Management also prepared the other information in the annual
report and is responsible for its accuracy and consistency with the financial
statements.
Grossman's Inc. consolidated financial statements have been audited by
Ernst & Young LLP, independent auditors, whose appointment has been approved by
stockholders. Management has made available to Ernst & Young LLP the Company's
financial records and related data, as well as minutes of the stockholders' and
directors' meetings. Furthermore, management believes that representations made
to Ernst & Young LLP were correct and complete. The Company's Board of
Directors, through its Audit and Finance Committee, monitors the system of
internal control, as well as the Company's accounting and financial reporting
practices. Ernst & Young LLP has open access to, and meets regularly with, the
Audit and Finance Committee, with and without management present.
Grossman's Inc. maintains a system of internal control over financial
reporting, which is designed to provide reasonable assurance to the Company's
management and Board of Directors regarding the preparation of reliable annual
and interim financial statements. The system contains self-monitoring
mechanisms, and actions are taken to correct deficiencies as they are
identified. Even an effective internal control system, no matter how well
designed, has inherent limitations -- including the possibility of the
circumvention or overriding of controls -- and, therefore, can provide only
reasonable assurance with respect to financial statement preparation. Further,
because of changes in conditions, internal control system effectiveness may vary
over time.
The Company assessed its internal control system as of December 31, 1995 in
relation to criteria for effective internal control over the preparation of its
annual and interim financial statements described in "Internal
Control -- Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment, the Company
believes that, as of December 31, 1995, its system of internal control met those
criteria.
Management also recognizes its responsibility for fostering a strong
ethical climate so that the Company's affairs are conducted according to the
highest standards of personal and corporate conduct. This responsibility is
characterized and reflected in the Company's Code of Conduct, which addresses,
among other things, the necessity of ensuring open communication within the
Company; determining and avoiding potential conflicts of interest; compliance
with all domestic and foreign laws, including those relating to financial
disclosure; the confidentiality of insider and proprietary information; and
relationships with vendors and customers. The Company maintains a systematic
program to assess compliance with these policies.
/s/ SYDNEY L. KATZ /s/ MICHAEL J. SHEA /s/ STEVEN L. SHAPIRO
- ----------------------- --------------------------- -----------------------
President and Executive Vice President Vice President
Chief Executive Officer and Chief Financial Officer -- Controller
20
<PAGE> 21
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholders and Board of Directors
Grossman's Inc.
We have audited the accompanying consolidated balance sheets of Grossman's
Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, changes in stockholders' investment, and
cash flows for each of the three years in the period ended December 31, 1995.
Our audits included the financial statement schedule listed in the index of Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Grossman's Inc.
and subsidiaries as of December 31, 1995 and 1994, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Boston, Massachusetts
April 9, 1996
21
<PAGE> 22
GROSSMAN'S INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................................................ $ 2,536 $ 3,034
Receivables, less allowance of $3,339 in 1995 and $4,157 in 1994 for doubtful
accounts....................................................................... 23,940 19,449
Inventories...................................................................... 102,009 116,602
Note receivable, net............................................................. 13,000 --
Other current assets............................................................. 6,512 9,048
-------- --------
Total current assets.................................................... 147,997 148,133
PROPERTY, PLANT AND EQUIPMENT
Land........................................................................... 20,229 24,128
Buildings and leasehold improvements........................................... 78,783 95,325
Machinery and equipment........................................................ 47,902 54,214
Construction in progress....................................................... 2,005 2,665
-------- --------
148,919 176,332
Accumulated depreciation and amortization...................................... (54,663) (61,435)
-------- --------
94,256 114,897
INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED AFFILIATE........................... 108 1,896
OTHER ASSETS..................................................................... 1,168 1,694
-------- --------
TOTAL ASSETS............................................................ $243,529 $266,620
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable and accrued liabilities......................................... $ 91,308 $ 89,816
Accrued interest................................................................. 1,403 1,555
Current portion of long-term debt and capital lease obligations.................. 20,445 13,278
-------- --------
Total current liabilities............................................... 113,156 104,649
REVOLVING TERM NOTE PAYABLE...................................................... 32,844 29,888
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS..................................... 5,668 30,039
PENSION LIABILITY................................................................ 8,270 4,348
OTHER LIABILITIES................................................................ 9,796 17,051
-------- --------
Total liabilities....................................................... 169,734 185,975
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT
Common stock, $.01 par value:
Shares authorized -- 50,000
Shares issued -- 25,946 in 1995 and 1994....................................... 261 261
Retained earnings (deficit)...................................................... (64,206) (64,008)
Additional paid-in-capital....................................................... 155,768 155,840
Cumulative foreign currency translation adjustment............................... (1,442) --
Minimum pension liability........................................................ (16,476) (10,576)
Less 45 shares in 1995 and 359 shares in 1994 in treasury, at cost............... (110) (872)
-------- --------
Total stockholders' investment.......................................... 73,795 80,645
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT.......................... $243,529 $266,620
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE> 23
GROSSMAN'S INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
-------- -------- ----------
(53 WEEKS)
<S> <C> <C> <C>
SALES...................................................... $669,899 $759,156 $841,974
COST OF SALES.............................................. 510,220 572,095 629,089
-------- -------- --------
Gross Profit............................................. 159,679 187,061 212,885
OPERATING EXPENSES
Selling and administrative............................... 156,995 164,495 193,894
Depreciation and amortization............................ 11,221 12,625 13,433
Store closing expense.................................... 4,500 6,500 34,263
Preopening expense....................................... 724 1,378 630
-------- -------- --------
173,440 184,998 242,220
-------- -------- --------
OPERATING INCOME (LOSS).................................... (13,761) 2,063 (29,335)
OTHER EXPENSES (INCOME)
Interest expense......................................... 8,211 7,376 8,422
Net gain on disposals of property........................ (18,345) (364) (215)
Other.................................................... (4,095) (3,322) 578
-------- -------- --------
(14,229) 3,690 8,785
EQUITY IN NET LOSS OF UNCONSOLIDATED AFFILIATE............. 666 490 --
-------- -------- --------
(LOSS) BEFORE INCOME TAXES................................. (198) (2,117) (38,120)
PROVISION (CREDIT) FOR INCOME TAXES........................ -- (212) 30,228
-------- -------- --------
NET (LOSS)................................................. $ (198) $ (1,905) $(68,348)
======== ======== ========
NET (LOSS) PER COMMON SHARE (PRIMARY AND FULLY DILUTED).... $ (0.01) $ (0.07) $ (2.66)
======== ======== ========
WEIGHTED AVERAGE SHARES AND EQUIVALENT SHARES OUTSTANDING
Primary and Fully Diluted................................ 25,946 25,752 25,661
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE> 24
GROSSMAN'S INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss)................................................. $ (198) $ (1,905) $(68,348)
Adjustments to reconcile net (loss) to net cash (used for)
provided by operating activities:
Depreciation and amortization............................ 11,221 12,625 13,433
Deferred income taxes.................................... -- -- 30,228
Net gain on disposals of property........................ (18,345) (364) (215)
Provision for losses on accounts receivable.............. 1,841 1,300 2,911
Provision for store closing.............................. 4,500 5,100 19,069
Undistributed loss of unconsolidated affiliate........... 666 490 --
Increase (decrease) in assets:
Receivables........................................... (6,332) 2 (2,011)
Inventories........................................... 12,237 5,218 1,410
Other assets.......................................... (66) (2,007) 948
(Decrease) in accounts payable and accrued and
other liabilities..................................... (8,264) (19,614) (5,643)
-------- -------- --------
Total adjustments................................ (2,542) 2,750 60,130
-------- -------- --------
NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES..... (2,740) 845 (8,218)
INVESTING ACTIVITIES
Capital expenditures....................................... (9,452) (4,801) (15,050)
Proceeds from sales of property, net....................... 27,711 13,589 1,014
Investment in unconsolidated affiliate..................... (320) (1,900) (486)
-------- -------- --------
NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES..... 17,939 6,888 (14,522)
FINANCING ACTIVITIES
Payments on long-term debt and capital lease obligations... (18,942) (14,164) (27,637)
Proceeds from mortgage financings.......................... -- 422 6,974
Net borrowings from revolving term note payables........... 2,956 6,650 23,238
Issuance of common stock................................... 289 230 221
-------- -------- --------
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES..... (15,697) (6,862) 2,796
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....... (498) 871 (19,944)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........... 3,034 2,163 22,107
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................. $ 2,536 $ 3,034 $ 2,163
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE> 25
GROSSMAN'S INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
CUMULATIVE
FOREIGN
ADDITIONAL RETAINED MINIMUM CURRENCY TOTAL
COMMON STOCK PAID-IN- EARNINGS PENSION TREASURY TRANSLATION STOCKHOLDERS'
$.01 PAR VALUE CAPITAL (DEFICIT) LIABILITY STOCK ADJUSTMENT INVESTMENT
-------------- ---------- ---------- -------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1993........... $261 $155,857 $ 6,245 $ -- $(1,340) $ -- $161,023
Net (loss).................. (68,348) (68,348)
Exercise of stock options... (10) 215 205
Issuance of treasury
stock..................... 5 11 16
Minimum pension liability... (20,528) -- (20,528)
---- -------- -------- -------- ------- ------- --------
Balance at
December 31, 1993......... 261 155,852 (62,103) (20,528) (1,114) -- 72,368
Net (loss).................. (1,905) (1,905)
Exercise of stock options... (12) 242 230
Minimum pension liability... 9,952 -- 9,952
---- -------- -------- -------- ------- ------- --------
Balance at
December 31, 1994......... 261 155,840 (64,008) (10,576) (872) -- 80,645
Net (loss).................. (198) (198)
Cumulative foreign currency
translation adjustment.... (1,442) (1,442)
Issuance of restricted
stock..................... (17) 418 401
Exercise of stock options... 9 9
Minimum pension liability... (5,900) (5,900)
Issuance of treasury
stock..................... (55) 335 280
---- -------- -------- -------- ------- ------- --------
Balance at
December 31, 1995......... $261 $155,768 $(64,206) $(16,476) $ (110) $(1,442) $ 73,795
==== ======== ======== ======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE> 26
GROSSMAN'S INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements present the results of operations,
financial position and cash flows of Grossman's Inc. and its subsidiaries (the
"Company"). The investment in an unconsolidated affiliate is accounted for on
the equity method. All significant intercompany balances and transactions have
been eliminated.
Fiscal Periods
The Company's year end is December 31. The Company records activity in
quarterly accounting periods of equal length ending on the last Saturday of each
quarter. Differences in amounts presented and those which would have been
presented using actual quarter-end dates are not material.
Fiscal years 1995 and 1994 contained 52 weeks while fiscal year 1993
contained 53 weeks. The additional week in 1993 was included in the fourth
quarter.
Cash Equivalents
All highly liquid investments, with a maturity of three months or less at
date of purchase, are considered to be cash equivalents.
Accounts Receivable
Credit is extended on open account to qualified contractors and remodelers.
Finance charge income, included in other income, amounted to $444 thousand, $513
thousand and $587 thousand in 1995, 1994 and 1993, respectively.
Inventories
Merchandise inventories are valued at the lower of cost, as determined by
the average cost method, or market.
Property, Plant and Equipment
<TABLE>
Property, plant and equipment are stated at cost and are depreciated using
the straight-line method over estimated useful lives of the assets. Leasehold
improvements are amortized over the shorter of the lease term or the estimated
useful life of the improvements, which range up to 20 years. Ranges of useful
lives by principal classification for property, plant and equipment are as
follows:
<S> <C>
Buildings.......................................... 20 - 33 years
Machinery and equipment............................ 3 - 7 years
Furniture and fixtures............................. 3 - 10 years
</TABLE>
Accrued Insurance Claims
Insurance coverage is maintained for general liability and workers'
compensation risks under contractual arrangements which retroactively adjust
premiums for claims paid subject to specified limitations. Expenses associated
with such risks are accrued as amounts required to cover incurred incidents can
be estimated.
Leases
Capital leases, those leases which transfer substantially all benefits and
risks of ownership, are accounted for as acquisitions of assets and incurrences
of obligations. Capital lease amortization is included in
26
<PAGE> 27
GROSSMAN'S INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
depreciation and amortization expense, with the amortization period restricted
to the lease term. Interest on the related obligation is recognized over the
lease term at a constant periodic rate.
Income Taxes
Tax provisions and credits are recorded at statutory rates for taxable
items included in the consolidated statements of operations regardless of the
period for which such items are reported for tax purposes. Deferred income taxes
are recognized for temporary differences between financial statement and income
tax bases of assets and liabilities. Deferred tax assets are reduced by a
valuation allowance when the determination cannot be made that it is more likely
than not that some portion or all of the related tax asset will be realized.
Pension Plan
A noncontributory retirement plan is sponsored for the benefit of
substantially all associates employed at December 31, 1995. Pension costs are
funded in accordance with the Employee Retirement Income Security Act. Prior
service costs, the unrecognized net transition asset, and gains and losses,
whether realized or unrealized, are amortized over estimated average remaining
service periods.
Preopening Expense
Expenses associated with the opening of new stores and facilities and the
expansion or major remodeling of existing stores are expensed as incurred.
Store Closing Expense
Store closing costs include lease payments, other expenses and the net
unrecoverable amount from sales of property, plant and equipment.
Earnings Per Common Share
Earnings per common share are computed based on the weighted average number
of common and common equivalent shares outstanding, less shares in treasury.
Business Segment
The Company operates in one business segment: the retail sale, distribution
and installation of building materials and related products.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Classification
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.
Impact of Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", which requires
27
<PAGE> 28
GROSSMAN'S INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. This
statement is effective for fiscal years beginning after December 15, 1995. The
Company believes that adoption of this standard will not have a material impact
on results of operations or financial condition.
In November 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation", under which companies can
choose to account for stock compensation awards based on their fair value at the
date the awards are granted. This statement is effective for calendar year 1996.
The Company will continue to account for stock compensation under the Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued To Employees"
("APB 25"). Under APB 25, because the exercise price of options granted are
equal to the market price, no compensation expense will be recognized.
NOTE 2 -- SUBSEQUENT EVENT AND UNAUDITED CONDENSED PRO FORMA FINANCIAL
STATEMENTS
In March 1996, the Company announced a restructuring and refinancing plan
under which the remaining 60 Grossman's stores, located in eight Northeastern
states, were closed. A restructuring charge of approximately $40 million will be
recorded in the first quarter of 1996, reflecting the events described below.
The Company began the closing and liquidation of its Grossman's stores on
March 28, 1996. Concurrent with the timing of the store closings, expected to
take up to ten weeks, administrative support functions in the Company's
headquarters were reduced. Upon completion of the store closings, the Company's
total workforce will have been reduced from approximately 3,400 to 1,800.
Four transactions were undertaken during the first quarter in 1996 to
improve liquidity: refinancing of the Company's 14% Debentures due January 1996;
sale of the $15.8 million note receivable from Kmart Corporation; obtaining a
$33 million mortgage loan, secured by owned properties; and a commitment for a
new $50 million long-term revolving credit agreement, with increased borrowing
availability.
In December 1995, the Company announced that it was renegotiating the $16.2
million of 14% Debentures and related interest due in January 1996. In March
1996, settlement with holders of these Debentures was reached. Holders will be
paid for principal and interest due, in a combination of cash and notes payable.
Cash payments will total approximately $12 million. Notes payable of $3 million,
due in three years, with interest payable semi-annually at 10% will be issued.
These notes will be convertible at the holder's option into shares of the
Company's Common Stock at $1.30 per share. An additional $2.7 million of non-
convertible notes payable, with interest payable semi-annually at 15% per annum,
will also be issued. These notes are due in three years and may be repaid prior
to maturity from proceeds of real estate sales, after full repayment of the
mortgage notes, described below. Interest on these notes may be deferred at the
Company's option.
The Company's $15.8 million note receivable from Kmart Corporation,
originally discounted for financial reporting purposes to $12.4 million, was
sold for cash of $13 million on March 22, 1996.
The Company received a commitment for a series of mortgage notes, payable
principally from sales of closed store and other properties. The mortgage notes
are secured by both closed and operating owned properties. The notes total $32.9
million, $2.9 million of which is non-interest bearing and is payable from the
first sale of properties. An additional $4.0 million is non-interest bearing and
convertible into common stock at $.75 per share, subsequent to repayment of the
mortgage notes. The remaining $26.0 million bears interest at 15% per annum,
payable monthly. Principal is payable as follows: $2.5 million is due upon the
sale of furniture, fixtures and equipment from closed stores; $4.125 million is
due in September 1996; $5.5 million is due in
28
<PAGE> 29
GROSSMAN'S INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
March 1997; $8.25 million is due in September 1997 and the remainder is due in
March 1998. Fees due under the various notes, totalling $2.9 million, are due
upon closing from loan proceeds.
The Company also received a commitment for a three-year line of credit for
borrowings up to $50 million, including letters of credit up to $15 million,
under a formula based arrangement based on a percentage of qualified inventory
and accounts receivable. Borrowings pursuant to this agreement will be secured
by inventory, receivables and other assets. This agreement, which bears interest
at 1% over Prime Rate, contains no financial covenants or capital spending
limitations. Upon closing, the existing revolving term note payable will be
terminated.
The following unaudited condensed pro forma financial statements have been
prepared in accordance with applicable rules of the Securities and Exchange
Commission, giving effect to the restructuring and refinancing plan transactions
as if they had occurred, for balance sheet purposes, on December 31, 1995 and,
for statement of operations purposes, on January 1, 1995. The pro forma
information is not necessarily indicative of the results that would have been
reported had such events actually occurred on the dates specified, nor is it
indicative of the Company's future results.
29
<PAGE> 30
GROSSMAN'S INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
UNAUDITED CONDENSED PRO FORMA BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------
PRO FORMA
AS PRO FORMA CONTINUING
REPORTED ADJUSTMENTS OPERATIONS
-------- ----------- ----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................. $ 2,536 $ 976 $ 3,512
Receivables, net...................................... 23,940 351 24,291
Inventories........................................... 102,009 (50,766)(a) 51,243
Note receivable, net.................................. 13,000 (13,000)(b) --
Property held for sale................................ 2,572 13,922 (c) 16,494
Other current assets.................................. 3,940 (751)(a) 3,189
-------- -------- --------
Total current assets.......................... 147,997 (49,268) 98,729
PROPERTY, PLANT AND EQUIPMENT, NET...................... 94,256 (41,101)(a) 53,155
PROPERTY HELD FOR SALE.................................. -- 19,977 (c) 19,977
OTHER ASSETS............................................ 1,276 -- 1,276
-------- -------- --------
TOTAL ASSETS.................................. $243,529 $(70,392) $173,137
======== ======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable and accrued liabilities.............. $ 92,711 $(27,804)(a)(d) $ 64,907
Current portion of long-term debt and
capital lease obligations.......................... 20,445 (6,676)(d) 13,769
-------- -------- --------
Total current liabilities..................... 113,156 (34,480) 78,676
REVOLVING TERM NOTE PAYABLE............................. 32,844 (24,987)(a) 7,857
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS............ 5,668 29,075 (d) 34,743
OTHER LIABILITIES....................................... 18,066 -- 18,066
-------- -------- --------
Total liabilities............................. 169,734 (30,392) 139,342
TOTAL STOCKHOLDERS' INVESTMENT.......................... 73,795 (40,000)(e) 33,795
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT.......... $243,529 $(70,392) $173,137
======== ======== ========
<FN>
- ---------------
(a) Elimination of balances pertaining to closed Grossman's stores.
(b) Sale of note receivable from Kmart Corporation.
(c) Net book value of property held for sale after leasehold and other
writedowns.
(d) Payment of $16.2 million of 14% Debentures and related accrued interest, and
addition of notes payable totalling $38.6 million.
(e) Estimated store closing provision relating to Grossman's stores.
</TABLE>
30
<PAGE> 31
GROSSMAN'S INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
UNAUDITED CONDENSED PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------
LESS PRO FORMA
AS CLOSED PRO FORMA CONTINUING
REPORTED OPERATIONS ADJUSTMENTS OPERATIONS
-------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
SALES.......................................... $669,899 $364,357 $ -- $305,542
COST OF SALES.................................. 510,220 278,702 -- 231,518
-------- -------- -------- --------
Gross Profit................................. 159,679 85,655 -- 74,024
OPERATING EXPENSES
Selling and administrative................... 156,995 86,040 (3,681)(a) 67,274
Depreciation and amortization................ 11,221 7,741 3,480
Store closing expense........................ 4,500 4,500 -- --
Preopening expense........................... 724 177 -- 547
-------- -------- -------- --------
173,440 98,458 (3,681) 71,301
-------- -------- -------- --------
OPERATING INCOME (LOSS)........................ (13,761) (12,803) 3,681 2,723
OTHER EXPENSES (INCOME)
Interest expense............................. 8,211 1,709 (280)(b) 6,222
Net gain on disposals of property............ (18,345) 32 18,065 (c) (312)
Other........................................ (4,095) (961) -- (3,134)
-------- -------- -------- --------
(14,229) 780 17,785 2,776
-------- -------- -------- --------
EQUITY IN NET LOSS OF UNCONSOLIDATED
AFFILIATE.................................... 666 -- -- 666
-------- -------- -------- --------
(LOSS) BEFORE INCOME TAXES..................... (198) (13,583) (14,104) (719)
PROVISION FOR INCOME TAXES..................... -- -- -- --
-------- -------- -------- --------
NET (LOSS)..................................... $ (198) $(13,583) $(14,104) $ (719)
======== ======== ======== ========
NET (LOSS) PER COMMON SHARE (PRIMARY AND FULLY
DILUTED)..................................... $ (0.01) $ (0.03)
======== ========
WEIGHTED AVERAGE SHARES AND EQUIVALENT SHARES
OUTSTANDING
Primary and Fully Diluted.................... 25,946 25,946
======== ========
<FN>
- ---------------
(a) Net corporate overhead reduction related to the restructuring.
(b) Assumes retirement of 14% Debentures, capital lease obligation reductions,
reductions to revolving credit borrowings, and increases due to new secured
debt and notes payable.
(c) Elimination of the gain on the sale of the Company's former headquarters
site.
</TABLE>
31
<PAGE> 32
GROSSMAN'S INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
Accounts payable and accrued liabilities consist of the following (in
thousands):
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
Accounts payable................................................. $63,236 $59,383
Accrued salaries, wages, commissions and related taxes........... 3,630 6,007
Accrued income and franchise taxes............................... 391 844
Accrued taxes other than income and franchise.................... 2,819 3,107
Accrued store closing costs...................................... 4,593 2,240
Accrued insurance................................................ 9,933 10,618
Other accrued liabilities........................................ 6,706 7,617
------- -------
$91,308 $89,816
======= =======
</TABLE>
NOTE 4 -- REVOLVING TERM NOTE PAYABLE
On December 15, 1993, the Company entered into a loan and security
agreement which provides for borrowings up to $60 million, including letters of
credit up to $15 million, under a formula based arrangement based on a
percentage of qualified inventory and accounts receivable. Borrowings pursuant
to this agreement are secured by inventories, receivables and certain other
assets. In March 1995, available borrowings, including letters of credit up to
$15 million, under the loan and security agreement, were increased from $60
million to $75 million. In December 1995, the term of the agreement was extended
to April 30, 1997, with interest payable monthly at 1 3/4% over Prime Rate and
an available Eurodollar option. The agreement contains various covenants which,
among other things, require minimum levels of net worth, establish minimum
interest and fixed charge coverage ratios, and establish maximum levels of
capital expenditures and investments in subsidiary. In March 1996, the loan
facility was reduced to $40 million and available borrowings were reduced to
$37.5 million.
At December 31, 1995, cash borrowings under this agreement totalled $32.8
million and outstanding standby letters of credit totalled $9.0 million. The
maximum borrowings under this agreement during 1995 were $70.8 million,
including letters of credit of $12.0 million. The maximum borrowings under this
agreement in 1994 were $52.2 million, including letters of credit of $13.0
million. The weighted average annual interest rate on such borrowings in 1994
and 1995 was 7.5% and 8.8%, respectively.
See Note 2 for discussion of the refinancing of the loan and security
agreement.
NOTE 5 -- LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
<TABLE>
Long-term debt and capital lease obligations consist of the following (in
thousands):
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
14% Debentures, due January 1, 1996.............................. $16,201 $16,201
Mortgage notes................................................... 4,063 15,759
Capital lease obligations........................................ 5,849 11,357
------- -------
26,113 43,317
Less current portion............................................. 20,445 13,278
------- -------
$ 5,668 $30,039
======= =======
</TABLE>
32
<PAGE> 33
GROSSMAN'S INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Mortgage notes bear interest at a weighted average rate of 10.5% and are
secured by real estate and equipment with a net book value of $8.5 million at
December 31, 1995. The 14% Debentures, mortgage notes and certain lease
agreements contain various covenants which, among other things, restrict
dividends and distributions on and repurchases of Common Stock; require
specified levels of net worth; limit capital expenditures; restrict liens, the
incurrence of indebtedness and lease obligations; and restrict loans and
investments. Under the most restrictive of these agreements, the Company had no
retained earnings available for the payment of dividends at December 31, 1995.
<TABLE>
As of December 31, 1995, debt maturities in each of the next five fiscal
years and thereafter are as follows (in thousands):
<CAPTION>
14% DEBENTURES MORTGAGE NOTES
-------------- --------------
<S> <C> <C>
Year Ending December 31, 1996.......................... $16,201 $ 685
1997................................................. -- 609
1998................................................. -- 550
1999................................................. -- 544
2000................................................. 611
Thereafter........................................... -- 1,064
------- ------
$16,201 $4,063
======= ======
</TABLE>
Interest paid during 1995, 1994 and 1993 amounted to (in thousands) $8,363,
$7,995 and $7,639, respectively.
See Note 2 for discussion of repayment of the 14% Debentures and new debt
agreements for which commitments have been received subsequent to December 31,
1995.
NOTE 6 -- LEASE COMMITMENTS (IN THOUSANDS)
Leases have been entered into for certain retail locations, office space,
equipment and vehicles. The fixed terms of the leases range up to fourteen years
and, in general, leases for retail locations contain multiple renewal options
for various periods between one and ten years. Certain leases contain provisions
which include additional payments based upon sales performance, operating and
real estate tax escalations and purchase options.
Total rent expense charged to operations during 1995, 1994 and 1993
amounted to $8,635, $5,698 and $7,615, respectively. Total contingent rentals
included in rent expense were $545, $757 and $923, respectively.
Included in property, plant and equipment as of December 31, 1995 and 1994
is $26,360 and $32,158, respectively, of machinery and equipment under capital
leases. The related accumulated amortization is $20,901 and $23,673,
respectively. Capital lease additions for machinery and equipment totalled
$1,263 in 1995 and $813 in 1994.
33
<PAGE> 34
GROSSMAN'S INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
Future minimum lease payments in each of the next five years and thereafter
are as follows:
<CAPTION>
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
<S> <C> <C>
Year Ending December 31,
1996.................................................. $3,697 $ 8,049
1997.................................................. 1,691 6,995
1998.................................................. 727 5,833
1999.................................................. 87 4,398
2000.................................................. 87 2,943
Thereafter............................................ 84 11,078
------ -------
Total minimum lease payments............................ 6,373 $39,296
=======
Less imputed interest................................... 524
------
Present value of net minimum ease payments.............. 5,849
Less current portion.................................... 3,559
------
Long-term capital lease obligations..................... $2,290
======
</TABLE>
As discussed in Note 2, subsequent to year end 1995 the Company closed its
Grossman's stores. Minimum lease payments for capital and operating leases will
decline as settlements of these leases are reached.
NOTE 7 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values are estimated based on the following assumptions: cash and cash
equivalents are reported in the balance sheet at amounts which approximate fair
value; and the carrying values of long-term debt and revolving term note payable
are estimated using discounted cash flow analyses, based upon the Company's
current incremental borrowing rates for similar types of arrangements.
<TABLE>
The estimated fair values are as follows (in thousands):
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1995 1994
----------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Revolving term note payable............... $32,844 $32,844 $29,888 $29,888
14% Debentures, due January 1, 1996....... 16,201 16,201 16,201 17,000
Mortgage notes............................ 4,063 4,200 15,759 15,800
------- ------- ------- -------
$53,108 $53,245 $61,848 $62,688
======= ======= ======= =======
</TABLE>
The Company's $15.8 million note receivable from Kmart Corporation has been
valued in the December 31, 1995 balance sheet at the amount realized upon the
sale of this note in March 1996, as described in Note 2.
NOTE 8 -- SALE OF PROPERTY
In September 1995, the Company completed the sale of its 35 acre
headquarters site in Braintree, Massachusetts to Kmart Corporation for $32
million. Cash of $16.2 million was received, along with a note receivable for
the remaining balance of $15.8 million. The note is due in two installments;
$8.0 million is due January 1997 and the remainder is due September 1997. The
note bears interest at 1% over Prime Rate during its final eight month period.
The note has been discounted for financial reporting purposes. Under the
provisions of the note, the Company has indemnified Kmart Corporation for
potential third party claims
34
<PAGE> 35
GROSSMAN'S INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
against the property on the site, although no such liability is expected. See
Note 2 for discussion of the 1996 sale of this note receivable.
NOTE 9 -- STOCKHOLDERS' INVESTMENT
The Company's Restated Certificate of Incorporation contains certain
provisions restricting accumulations of Common Stock. Under these provisions, as
modified by the Board of Directors and currently in effect, no person may
acquire shares of Common Stock on or prior to December 31, 1996 (or such later
date as may be fixed by the Board of Directors) if the number of shares actually
and constructively owned by such person, as defined, would exceed 5% of the
outstanding Common Stock on any date. Attempted acquisitions of Common Stock in
excess of these limits will be null and void and all shares purportedly acquired
in excess of these limits will have no rights, except the right to receive out
of the proceeds of resale thereof an amount not in excess of the amount paid for
such excess shares plus brokers' commissions. Such restrictions may be waived by
the Board of Directors and are not applicable to an acquisition of more than 50%
of the outstanding shares of Common Stock for cash pursuant to a tender offer,
merger or other business combination in which all holders of Common Stock are
afforded an opportunity to sell all their shares.
NOTE 10 -- EMPLOYEE BENEFIT PLANS
A noncontributory defined benefit pension plan, the Grossman's Inc.
Retirement Plan (the "Retirement Plan"), is sponsored covering substantially all
associates employed at December 31, 1995. Benefits through 1990 are based upon
years of service multiplied by a percentage of reference earnings. Beginning in
1991, the benefit is based upon annual reference earnings.
<TABLE>
The components of net periodic pension cost are as follows (in thousands):
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Service cost for the year............................. $1,245 $1,942 $1,376
Interest accrued on projected benefit obligation...... 4,820 4,724 4,277
Return on plan assets................................. (4,628) (4,244) (4,019)
Net amortization and deferral......................... 1,040 2,120 180
------ ------ ------
Net periodic pension cost for the year................ $2,477 $4,542 $1,814
====== ====== ======
</TABLE>
35
<PAGE> 36
GROSSMAN'S INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status of the Retirement Plan is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Actuarial present value of projected benefit obligation:
Vested employees............................................. $ 67,105 $ 51,752
Non-vested employees......................................... 1,073 827
-------- --------
Accumulated benefit obligation................................. 68,178 52,579
Impact of future salary increases.............................. 2,606 2,011
-------- --------
Projected benefit obligation for service rendered to date...... 70,784 54,590
Market value of plan assets, primarily cash equivalents and
publicly traded stocks and bonds............................. 59,908 48,231
-------- --------
Projected benefit obligation in excess of plan assets.......... 10,876 6,359
Items not yet recognized in earnings:
Unrecognized net transition asset............................ 749 1,272
Unrecognized prior service cost.............................. (590) (858)
Adjustment required to recognize minimum liability........... 17,067 11,434
Unrecognized net loss........................................ (19,832) (13,859)
-------- --------
Pension liability.............................................. $ 8,270 $ 4,348
======== ========
</TABLE>
Statement of Financial Accounting Standards No. 87 requires the recognition
of a minimum liability, to the extent that actuarially computed plan benefits
exceed the fair value of plan assets, and the recognition of a related
intangible asset, to the extent of any unrecognized prior service cost. In 1994,
the discount rate assumption was changed from 7.0% to 8.5%, resulting in a
December 31, 1994 adjustment reducing the minimum pension liability by $10,504
thousand, reducing the intangible asset by $552 thousand, and the difference of
$9,952 thousand was credited to stockholders' investment. On December 31, 1995,
the discount rate assumption was reevaluated and changed to 7.25%. As a result,
an adjustment of $5,633 thousand was recorded to increase the minimum pension
liability, the intangible asset was reduced by $267 thousand, and the difference
of $5,900 thousand was charged to stockholders' investment.
<TABLE>
Assumptions used by the Retirement Plan's actuaries to develop the funded
status of the Retirement Plan under the unit credit actuarial cost method are as
follows:
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Discount rate................................................... 7.25% 8.5 % 7.0 %
Expected long-term rate of return on assets..................... 9.0 9.0 9.0
Rate of general wage increase................................... 4.5 4.5 4.5
</TABLE>
A savings plan is also sponsored for the benefit of substantially all
employees. The plan provides that employees may contribute up to 14% of their
compensation, with a fully vested Company match of a portion of the
contribution. The Company contributed $455 thousand in 1995, $552 thousand in
1994 and $574 thousand in 1993 to the plan.
36
<PAGE> 37
GROSSMAN'S INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- OTHER LIABILITIES
<TABLE>
Other long-term liabilities consist of the following (in thousands):
<CAPTION>
DECEMBER 31,
------------------
1995 1994
------ -------
<S> <C> <C>
Accrued insurance claims.......................................... $6,955 $ 8,014
Accrued store closing costs....................................... 2,347 8,307
Other accrued liabilities......................................... 494 730
------ -------
$9,796 $17,051
====== =======
</TABLE>
Standby letters of credit which guarantee general liability and workers'
compensation insurance claims are outstanding under the Company's revolving term
note payable.
NOTE 12 -- EMPLOYEE STOCK OPTION PLANS
A nonqualified stock option plan covers officers and other key management
employees ("1986 Plan"). The 1986 Plan provides for nonqualified options to
purchase a total of 3,750,000 shares of Common Stock.
A nonqualified stock option plan covers key management employees who are
not officers ("1993 Plan"). The 1993 Plan provides for nonqualified options to
purchase a total of 600,000 shares of Common Stock, with a maximum of 5,000
shares per employee. The maximum number of options which may be granted in any
calendar year is 300,000 shares.
The 1995 Non-Employee Directors' Stock and Option Plan (the "Directors'
Plan") was approved by stockholders in April 1995, covering Directors who are
not employees of the Company. The Directors' Plan provides for the issuance of
shares of Common Stock, or the granting of nonstatutory stock options for shares
of Common Stock, up to an aggregate total of 700,000 shares. The number of
shares issued is determined based upon the fair market value of shares as of the
payment date. During the year ended December 31, 1995, 115,709 shares of Common
Stock were issued to Directors for services rendered since November 23, 1994.
Stockholders also approved the grant of options to purchase 25,000 shares of
Common Stock to each non-employee Director and an additional grant of options to
purchase 50,000 shares to the Chairman of the Board. A total of 275,000 options
to purchase shares were granted, 55,000 of which are currently exercisable, with
the remainder exercisable in four equal annual installments from date of grant.
<TABLE>
A summary of option transactions is as follows:
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Options outstanding, January 1...................... 2,954,100 3,312,700 2,932,500
Options granted..................................... 627,950 668,300 915,300
Price range......................................... $1.31-$2.41 $2.25-$3.88 $2.75-$4.38
Options exercised................................... 3,750 99,500 88,000
Price range......................................... $2.31 $2.31 $2.31
Options cancelled................................... 831,700 927,400 447,100
Price range......................................... $2.13-$4.50 $2.31-$4.50 $2.31-$4.50
----------- ----------- -----------
Options outstanding, December 31.................... 2,746,600 2,954,100 3,312,700
Price range......................................... $1.31-$4.50 $2.25-$4.50 $2.31-$4.50
=========== =========== ===========
Options exercisable, December 31.................... 1,518,875 1,640,000 1,376,500
Price range......................................... $2.13-$4.50 $2.31-$4.50 $2.31-$3.75
=========== =========== ===========
</TABLE>
37
<PAGE> 38
GROSSMAN'S INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
All options granted are ten-year nonqualified options and were granted at
market value. Of the options outstanding at December 31, 1995, 255,000 were
exercisable when issued, and the balance become exercisable in either three or
four equal annual installments following the respective dates of grant. All
outstanding options become exercisable upon a change in control, as defined in
the option agreements. At December 31, 1995, 1,890,191 shares of Common Stock
were reserved for future issuance under the plans.
NOTE 13 -- INCOME TAXES
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109-Accounting for Income Taxes. This standard
requires, among other things, recognition of future tax benefits, measured by
enacted tax rates, attributable to deductible temporary differences between
financial statement and income tax bases of assets and liabilities and net
operating loss carryforwards to the extent that management assesses the
utilization of such net operating loss carryforwards to be more likely than not.
The statement also requires deferred tax assets to be reduced by a valuation
allowance if, based on the weight of available evidence, management cannot make
a determination that it is more likely than not that some portion or all of the
related tax benefits will be realized. Furthermore, the statement requires that
a valuation allowance be established or adjusted if a change in circumstances
causes a change in judgment about the future realizability of the deferred tax
assets.
At December 31, 1995, the Company has net operating loss carryforwards of
$123 million, expiring as follows: 1998-$15 million, 1999-$28 million, 2000-$23
million, 2001-$15 million, 2008-$28 million and 2009-$8 million and 2010-$6
million.
<TABLE>
The provision (credit) for income taxes consists of the following (in
thousands):
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1994 1993
----- ----- -------
<S> <C> <C> <C>
Federal
Current................................................ $ -- $ -- $ --
Deferred............................................... -- -- 27,046
----- ----- -------
-- -- 27,046
State
Current................................................ 357 319 --
Deferred............................................... (357) (531) 3,182
----- ----- -------
-- (212) 3,182
----- ----- -------
$ -- $(212) $30,228
===== ===== =======
</TABLE>
<TABLE>
The difference between income taxes at the Company's effective tax rate and
the U.S. federal statutory rate is as follows (in thousands):
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1994 1993
---- ----- --------
<S> <C> <C> <C>
U.S. federal income tax (benefit) at statutory rate...... $(69) $(720) $(12,961)
1993 taxable losses for which tax benefits were not
recognized............................................. -- -- 12,961
Valuation allowance for deferred tax assets.............. 69 720 30,228
Other items.............................................. -- -- --
---- ----- --------
Total federal.......................................... -- -- 30,228
State and other local income taxes (benefit)............. -- (212) --
---- ----- --------
$ -- $(212) $ 30,228
==== ===== ========
</TABLE>
38
<PAGE> 39
GROSSMAN'S INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
Deferred income taxes reflect the future tax benefits attributable to net
operating loss carryforwards and temporary differences as follows (in
thousands):
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Net operating loss carryforwards............................... $ 43,097 $ 40,940
Allowance for doubtful accounts................................ 1,217 1,480
Accrued store closing costs.................................... 1,983 3,492
Depreciation................................................... (667) (1,839)
Proceeds from sale of former headquarters site................. (2,691) --
Other.......................................................... (1,308) (1,097)
-------- --------
41,631 42,976
Less valuation allowance....................................... (41,631) (42,976)
-------- --------
Deferred income taxes.......................................... $ -- $ --
======== ========
</TABLE>
The Company's tax returns for years subsequent to 1982 have not been
reviewed by the Internal Revenue Service ("IRS"). Availability of the net
operating loss carryforwards might be challenged by the IRS upon review of such
returns and may be limited under the Tax Reform Act of 1986 as a result of
changes that may occur in the ownership of the Company's stock in the future,
principally relating to a change in control.
The Company believes; however, that IRS challenges that would limit the
utilization of available net operating loss carryforwards are unlikely, and that
the adjustments to tax liability, if any, for years through 1995 will not have a
material adverse effect on the Company's financial position.
Income and franchise taxes paid in 1995, 1994 and 1993 amounted to (in
thousands) $503, $423 and $920, respectively.
NOTE 14 -- INVESTMENT IN UNCONSOLIDATED AFFILIATE
<TABLE>
The Company has a 50% interest in a Mexican retailer of building materials
and related products. The joint venture was formed in 1993 and began operations
in 1994. Summarized financial information for this joint venture is as follows
(in thousands):
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
Assets:
Current assets................................................. $1,754 $5,139
Other assets................................................... 477 2,033
------ ------
Total assets................................................ $2,231 $7,172
====== ======
Liabilities and Equity:
Current liabilities............................................ $1,872 $3,878
Equity......................................................... 359 3,294
------ ------
Total liabilities and equity................................ $2,231 $7,172
====== ======
Company's share of equity........................................ $ 180 $1,647
====== ======
</TABLE>
39
<PAGE> 40
<TABLE>
GROSSMAN'S INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
Gross revenue.................................................... $ 8,460 $ 9,248
Cost of sales and expenses....................................... 9,792 10,228
------- -------
Net (loss)....................................................... $(1,332) $ (980)
======= =======
Company's interest in net loss................................... $ (666) $ (490)
======= =======
</TABLE>
In March and December 1995, the Company reduced its investment in this
joint venture by $872 thousand and $570 thousand, respectively, and recorded a
corresponding adjustment to stockholders' investment, to reflect devaluations of
the Mexican peso in relation to the U.S. dollar.
40
<PAGE> 41
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
The following selected quarterly financial data (in thousands, except per
share data) should be read in conjunction with the consolidated financial
statements, related notes and Management's Discussion and Analysis of Financial
Condition and Results of Operations. Certain amounts in individual quarters have
been reclassified to conform with year end presentation.
<CAPTION>
1995
------------------------------------------------------------
THREE MONTHS ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 FULL YEAR
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
SALES................................ $126,770 $193,990 $193,978 $155,161 $669,899
COST OF SALES........................ 95,777 149,258 146,778 118,407 510,220
-------- -------- -------- -------- --------
Gross Profit....................... 30,993 44,732 47,200 36,754 159,679
OPERATING EXPENSES
Selling and administrative......... 38,088 39,424 39,405 40,078 156,995
Depreciation and amortization...... 3,011 2,853 2,786 2,571 11,221
Store closing expense.............. -- -- 4,500 -- 4,500
Preopening expense................. 135 10 317 262 724
-------- -------- -------- -------- --------
41,234 42,287 47,008 42,911 173,440
-------- -------- -------- -------- --------
OPERATING INCOME (LOSS).............. (10,241) 2,445 192 (6,157) (13,761)
OTHER EXPENSES (INCOME)
Interest expense................... 2,197 2,130 2,111 1,773 8,211
Net gain on disposals of
property........................ (46) (152) (18,115) (32) (18,345)
Other.............................. (732) (833) (985) (1,545) (4,095)
-------- -------- -------- -------- --------
1,419 1,145 (16,989) 196 (14,229)
EQUITY IN NET LOSS OF UNCONSOLIDATED
AFFILIATE.......................... 198 127 158 183 666
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES.... (11,858) 1,173 17,023 (6,536) (198)
PROVISION (CREDIT) FOR INCOME
TAXES.............................. (1,186) 117 1,703 (634) --
-------- -------- -------- -------- --------
NET INCOME (LOSS).................... $(10,672) $ 1,056 $ 15,320 $ (5,902) $ (198)
======== ======== ======== ======== ========
NET INCOME (LOSS) PER COMMON SHARE
(PRIMARY AND FULLY DILUTED)........ $ (0.41) $ 0.04 $ 0.59 $ (0.23) $ (0.01)
======== ======== ======== ======== ========
WEIGHTED AVERAGE SHARES AND
EQUIVALENT SHARES OUTSTANDING
Primary............................ 25,782 25,935 26,031 26,028 25,946
======== ======== ======== ======== ========
Fully Diluted...................... 25,782 26,026 26,031 26,028 25,946
======== ======== ======== ======== ========
</TABLE>
41
<PAGE> 42
<TABLE>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) -- (CONTINUED)
<CAPTION>
1994
------------------------------------------------------------
THREE MONTHS ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 FULL YEAR
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
SALES................................ $135,076 $220,145 $226,111 $177,824 $759,156
COST OF SALES........................ 101,465 165,105 171,124 134,401 572,095
-------- -------- -------- -------- --------
Gross Profit....................... 33,611 55,040 54,987 43,423 187,061
OPERATING EXPENSES
Selling and administrative......... 37,768 43,378 43,735 39,614 164,495
Depreciation and amortization...... 3,157 3,213 3,214 3,041 12,625
Store closing expense.............. -- -- 6,500 -- 6,500
Preopening expense................. 192 440 103 643 1,378
-------- -------- -------- -------- --------
41,117 47,031 53,552 43,298 184,998
-------- -------- -------- -------- --------
OPERATING INCOME (LOSS).............. (7,506) 8,009 1,435 125 2,063
OTHER EXPENSES (INCOME)
Interest expense................... 1,881 1,903 1,837 1,755 7,376
Net gain on disposals on
property........................ (39) (213) (101) (11) (364)
Other.............................. (651) (934) (1,018) (719) (3,322)
-------- -------- -------- -------- --------
1,191 756 718 1,025 3,690
EQUITY IN NET LOSS OF UNCONSOLIDATED
AFFILIATE.......................... -- 82 156 252 490
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES.... (8,697) 7,171 561 (1,152) (2,117)
PROVISION (CREDIT) FOR INCOME
TAXES.............................. (870) 717 56 (115) (212)
-------- -------- -------- -------- --------
NET INCOME (LOSS).................... $ (7,827) $ 6,454 $ 505 $ (1,037) $ (1,905)
======== ======== ======== ======== ========
NET INCOME (LOSS) PER COMMON SHARE
(PRIMARY AND FULLY DILUTED)........ $ (0.30) $ 0.25 $ 0.02 $ (0.04) $ (0.07)
======== ======== ======== ======== ========
WEIGHTED AVERAGE SHARES AND
EQUIVALENT SHARES OUTSTANDING
Primary............................ 25,725 26,134 25,823 25,762 25,752
======== ======== ======== ======== ========
Fully Diluted...................... 25,725 26,134 25,899 25,762 25,752
======== ======== ======== ======== ========
</TABLE>
42
<PAGE> 43
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K, the information called
for by this item regarding Directors is hereby incorporated by reference to the
Company's definitive Proxy Statement for its 1995 Annual Meeting of Stockholders
to be filed pursuant to Regulation 14A with the Commission not later than 120
days after the end of the fiscal year covered by this Form 10-K. Information
regarding the Company's Executive Officers is set forth above following Item 1
of Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3) of Form 10-K, the information called
for by this item is hereby incorporated by reference to the Company's definitive
Proxy Statement for its 1995 Annual Meeting of Stockholders to be filed pursuant
to Regulation 14A with the Commission not later than 120 days after the end of
the fiscal year covered by this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3) of Form 10-K, the information called
for by this item is hereby incorporated by reference to the Company's definitive
Proxy Statement for its 1995 Annual Meeting of Stockholders to be filed pursuant
to Regulation 14A with the Commission not later than 120 days after the end of
the fiscal year covered by this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3) of Form 10-K, the information called
for by this item is hereby incorporated by reference to the Company's definitive
Proxy Statement for its 1995 Annual Meeting of Stockholders to be filed pursuant
to Regulation 14A with the Commission not later than 120 days after the end of
the fiscal year covered by this Form 10-K.
43
<PAGE> 44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
(a) 1 -- Index to Financial Statements
<CAPTION>
PAGE
NUMBER
IN
THIS
REPORT
------
<S> <C>
Consolidated Balance Sheets
December 31, 1995 and 1994........................................................ 22
Consolidated Statements of Operations
Years Ended December 31, 1995, 1994 and 1993...................................... 23
Consolidated Statements of Cash Flows
Years Ended December 31, 1995, 1994 and 1993...................................... 24
Consolidated Statements of Changes in Stockholders' Investment
Years Ended December 31, 1995, 1994 and 1993...................................... 25
Notes to Consolidated Financial Statements.......................................... 26
(a) 2 -- Index to Financial Statement Schedules
The following consolidated financial statement schedules of Grossman's Inc. and
Subsidiaries are included in Item 14(d) and filed herewith (page numbers refer to
page numbers in this Form 10-K):
Schedule II -- Valuation and Qualifying Accounts.................................... 50
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions, or are inapplicable, and, therefore, have been omitted.
(b) Reports on Form 8-K
None.
<TABLE>
(a) 3. and (c) -- Exhibits
<CAPTION>
EXHIBIT
NUMBER
-------
<S> <C>
2(e) Final Decree and Order Closing Cases, dated October 2, 1987, of the United
States Bankruptcy Court for the Southern District of Florida, filed as Exhibit
2(e) to the Company's Form 10-Q for the quarter ended September 30, 1987, is
incorporated herein by reference.
2(f) Asset Purchase Agreement between GNW Partners, L.P. and Grossman's Inc., dated
June 28, 1989, without exhibits, filed as Exhibit 2(f) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1989 (File 1-542), is
incorporated herein by reference.
2(g) Asset Purchase Agreement between Harcros Lumber & Building Supplies Inc. and
Grossman's Inc., dated August 14, 1989, without exhibits, filed as Exhibit
2(a) to the Company's Form 8-K, dated September 12, 1989, is incorporated
herein by reference.
3(a) Restated Certificate of Incorporation of the Company, as in effect November
19, 1986, filed as Exhibit 3(a) to the Company's Form 8-K, dated November 19,
1986 (File No. 1-542), is incorporated herein by reference.
</TABLE>
44
<PAGE> 45
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S> <C>
3(a)-1 Resolutions adopted by the Company's Board of Directors on December 15, 1987,
modifying and extending restrictions on acquisition of Common Stock under
Article Ninth of Company's Restated Certificate of Incorporation, filed as
Exhibit 3(a)-1 to the Company's Form 8-K, dated December 15, 1987 (File
1-542), is incorporated herein by reference.
3(a)-2 Notice to Stockholders of modification and extension of restrictions on
acquisition of Common Stock pursuant to Article Ninth of Company's Restated
Certificate of Incorporation, filed as Exhibit 3(a)-2 to the Company's Form
8-K, dated December 15, 1987 (File 1-542), is incorporated herein by
reference.
3(a)-3 Certificate of Designation Relating to Certain Restrictions on the Acquisition
of Common Stock pursuant to Article Ninth of the Company's Restated
Certificate of Incorporation, filed as Exhibit 3(1)-2 to the Company's Form
8-K dated November 19, 1986 (File No. 1-542), is incorporated herein by
reference.
3(a)-4 Resolutions adopted by the Company's Board of Directors on October 23, 1990
extending restrictions on acquisition of Common Stock under Article Ninth of
Company's Restated Certificate of Incorporation, filed as Exhibit 3(a)-4 to
the Company's Annual Report on Form 10-K for the year ended December 31, 1990
(File No. 1-542), is incorporated herein by reference.
3(a)-5 Notice to Stockholders of extension of restrictions on acquisition of Common
Stock pursuant to Article Ninth of the Company's Restated Certificate of
Incorporation, filed as Exhibit 3(a)-5 to the Company's Annual Report on Form
10-K for the year ended December 31, 1990 (File No. 1-542), is incorporated
herein by reference.
3(a)-6 Certificate of Designation Relating to Certain Restrictions on the Acquisition
of Common Stock pursuant to Article Ninth of the Company's Restated
Certificate of Incorporation, filed as Exhibit 3(a)-6 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1990 (File No. 1-542), is
incorporated herein by reference.
3(a)-7 Notice to Stockholders of extension of restrictions on acquisition of Common
Stock pursuant to Article Ninth of the Company's Restated Certificate of
Incorporation, is incorporated herein by reference.
3(a)-8 Certificate of Designation Relating to Certain Restrictions on the Acquisition
of Common Stock pursuant to Article Ninth of the Company's Restated
Certificate of Incorporation, is incorporated herein by reference.
3(b) By-Laws of the Company, as in effect November 19, 1986, filed as Exhibit 3(b)
to the Company's Form 8-K, dated November 19, 1986 (File No. 1-542), is
incorporated herein by reference.
3(b)-1 Copy of the amendments to the Grossman's Inc. By-Laws as adopted by the Board
of Directors of Grossman's Inc. on December 15, 1987, filed as Exhibit 3(b)-1
to the Company's Form 8-K, dated December 15, 1987 (File 1-542), is
incorporated herein by reference.
4(c) Indenture, dated January 1, 1986, from the Company to United States Trust
Company of New York, as Trustee, with respect to the Company's 14% Debentures
due 1996, filed as Exhibit 4(c) to the Company's Form 8-K, dated November 19,
1986 (File No. 1-542), is incorporated herein by reference.
4(c)-1 First Supplemental Indenture, dated January 1, 1987, to Indenture, dated
January 1, 1986 (Exhibit 4(c) above), for the Company's 14% Debentures due
1996, filed as Exhibit 4(h) to the Company's Registration Statement on Form
S-1, No. 33-15107, is incorporated herein by reference.
</TABLE>
45
<PAGE> 46
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S> <C>
4(c)-2 Second Supplemental Indenture, dated March 15, 1987, to Indenture, dated
January 1, 1986, for the Company's 14% Debentures due 1996 (Exhibit 4(c)
above), filed as Exhibit 4(j) to the Company's Registration Statement on Form
S-1, No. 33-15107, is incorporated herein by reference.
4(c)-3 Third Supplemental Indenture, dated June 15, 1987, to Indenture, dated January
1, 1986, for the Company's 14% Debentures due 1996 (Exhibit 4(c) above), filed
as Exhibit 4(c)-3 to the Company's Form 8-K, dated July 15, 1988 (File No.
1-542), is incorporated herein by reference.
4(c)-4 Fourth Supplemental Indenture, dated June 15, 1987, to Indenture, dated
January 1, 1986, for the Company's 14% Debentures due 1996 (Exhibit 4(c)
above), filed as Exhibit 4(c)-4 to the Company's Form 8-K, dated July 15, 1988
(File No. 1-542), is incorporated herein by reference.
4(c)-5 Form of Waiver dated December 21, 1988 of certain provisions of Section 5.11
to Indenture, dated January 1, 1986, for the Company's 14% Debentures due 1996
(Exhibit 4(c) above), filed as Exhibit 4(c)-5 to the Company's Form 8-K, dated
December 13, 1988, is incorporated herein by reference.
4(c)-6 Fifth Supplemental Indenture, dated September 30, 1989, to Indenture, dated
January 1, 1986, for the Company's 14% Debentures due 1996 (Exhibit 4(c)
above), filed as Exhibit 4(c)-6 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1989 (File No. 1-542), is incorporated herein
by reference.
4(c)-7 Sixth Supplemental Indenture, dated March 1, 1990, to Indenture, dated January
1, 1986, for the Company's 14% Debentures due 1996 (Exhibit 4(c) above), filed
as Exhibit 4(c)-7 to the Company's Form 10-Q for the quarter ended June 30,
1990, is incorporated herein by reference.
4(c)-8 Seventh Supplemental Indenture, dated May 17, 1991, to Indenture, dated
January 1, 1986, for the Company's 14% Debentures due 1996 (Exhibit 4(c)
above), filed as Exhibit 4(c)-8 to the Company's Form 10-K for the year ended
December 31, 1991 (File No. 1-542), is incorporated herein by reference.
4(o) Loan and Security Agreement between Grossman's Inc. and BankAmerica Business
Credit, Inc., dated December 15, 1993 (without exhibits), filed as Exhibit
4(o) to the Company's Form 10-K for the year ended December 31, 1993 (File No.
1-542), is incorporated herein by reference.
4(o)-1 Waiver and Second Amendment, dated as of July 11, 1994, to the Loan and
Security Agreement between Grossman's Inc. and BankAmerica Business Credit,
Inc., dated December 15, 1993, filed as Exhibit 4(o)-1 to the Company's Form
10-K for the year ended December 31, 1994 (File No. 1-542), is incorporated
herein by reference.
4(o)-2 Third Amendment, dated as of March 15, 1995, to the Loan and Security
Agreement between Grossman's Inc. and BankAmerica Business Credit, Inc., dated
December 15, 1993, filed as Exhibit 4(o)-2 to the Company's Form 10-Q for the
quarter ended September 30, 1995 (File No. 1-542), is incorporated herein by
reference.
4(o)-3 Fourth Amendment, dated as of July 27, 1995, to the Loan and Security
Agreement between Grossman's Inc. and BankAmerica Business Credit, Inc., dated
December 15, 1993, filed as Exhibit 4(o)-3 to the Company's Form 10-Q for the
quarter ended September 30, 1995 (File No. 1-542), is incorporated herein by
reference.
4(o)-4 Fifth Amendment, dated as of October 26, 1995, to the Loan and Security
Agreement between Grossman's Inc. and BankAmerica Business Credit, Inc., dated
December 15, 1993, filed as Exhibit 4(o)-4 to the Company's Form 10-Q for the
quarter ended September 30, 1995 (File No. 1-542), is incorporated herein by
reference.
</TABLE>
46
<PAGE> 47
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S> <C>
4(o)-5 Sixth Amendment, dated as of November 29, 1995, to the Loan and Security
Agreement between Grossman's Inc. and BankAmerica Business Credit, Inc., dated
December 15, 1993, filed as Exhibit 4(o)-5 to the Company's Form 8-K, dated
January 12, 1996, (File No. 1-542), is incorporated herein by reference.
4(o)-6 Seventh Amendment, dated as of December 29, 1995, to the Loan and Security
Agreement between Grossman's Inc. and BankAmerica Business Credit, Inc., dated
December 15, 1993, filed as Exhibit 4(o)-6 to the Company's Form 8-K, dated
January 12, 1996, (File No. 1-542), is incorporated herein by reference.
10(iii)(h)-2 Employment Agreement, dated December 1, 1994 between Grossman's Inc and Sydney
L. Katz, filed as Exhibit 10(iii)(h)-2 to the Company's Form 10-K for the year
ended December 31, 1994 (File No. 1-542), is incorporated herein by reference.
10(iii)(k) Amended and Restated Employment Agreement, dated July 1, 1991, between
Grossman's Inc. and Robert L. Flowers, filed as Exhibit 10(iii)(k) to the
Company's Annual Report on Form 10-K for year ended December 31, 1991 (File
No. 1-542), is incorporated herein by reference.
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 as Exhibit 10(iii)(k)-1 to the Company Form 10-Q for the
quarter ended September 30, 1994 (File No. 1-542), is incorporated herein by
reference.
10(iii)(l) Amended and Restated Employment Agreement, dated July 1, 1991, between
Grossman's Inc. and Richard E. Kent, filed as Exhibit 10(iii)(l) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1993
(File No. 1-542), is incorporated herein by reference.
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 as Exhibit 10(iii)(l)-1 to the Company's Form 10-Q for the quarter
ended September 30, 1994 (File No. 1-542), is incorporated herein by
reference.
10(iii)(n) Employment Agreement, dated June 8, 1992, between Grossman's Inc. and David
Krawczyk, filed as Exhibit 10(iii)(n) to the Company's Form 10-K for the year
ended December 31, 1994 (File No. 1-542), is incorporated herein by reference.
10(iii)(n)-1 Amendment No. 1, dated September 26, 1994, to Employment Agreement dated as of
June 8, 1992, between Grossman's Inc. and David Krawczyk, filed as Exhibit
10(iii)(n)-1 to the Company's Form 10-K for the year ended December 31, 1994
(File No. 1-542), is incorporated herein by reference.
10(iii)(o) Employment Agreement, dated November 23, 1994, between Grossman's Inc. and
Robert K. Swanson, filed as Exhibit 10(iii)(o) to the Company's Form 10-K for
the year ended December 31, 1994 (File No. 1-542), is incorporated herein by
reference.
10(b) Restated and Amended Grossman's Inc./Evans Asset Holding Company General
Pension Plan, filed as Exhibit 10(b) to the Company's Annual Report on Form
10-K for the year ended December 31, 1986 (File No. 1-542), is incorporated
herein by reference.
10(c) Agreement Re General Pension Plan, dated November 18, 1986, among Evans
Products Company, Grossman's Inc., Evans Financial Corp., Evans Transportation
Company and Evans Asset Holding Company, filed as Exhibit 10(c) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1986
(File No. 1-542), is incorporated herein by reference.
</TABLE>
47
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S> <C>
10(c)-1 Agreement Re Spin-off of General Pension Plan, dated January 1, 1987, among
the Company, Evans Asset Holding Company, Evans Financial Corp. and Evans
Transportation Company, filed as Exhibit 10(c)-1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1987 (File No. 1-542), is
incorporated herein by reference.
10(c)-2 Letter, dated December 30, 1987, documenting certain understandings reached
among the Company, Grossman's Inc. Retirement Plan, Evans Asset Holding
Company and Evans Asset Holding Company/Grossman's Inc. General Pension Plan,
regarding the proper interpretation of the Agreement Re Spin-off of General
Pension Plan (Exhibit 10(c)-1 above), filed as Exhibit 10(c)-2 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1987
(File No. 1-542), is incorporated herein by reference.
10(c)-8 Grossman's Inc. Restated Retirement Plan, dated February 15, 1995, filed as
Exhibit 10(c)-8 to the Company's Form 10-K for the year ended December 31,
1994 (File No. 1-542), is incorporated herein by reference.
10(c)-9 Grossman's Inc. ERISA Excess Plan, as amended and restated, effective October
26, 1995, filed herewith.
10(c)-10 Grossman's Inc. Supplemental ERISA Excess Plan, effective January 1, 1995,
filed herewith.
10(d) Claim Allocation Agreement, dated November 19, 1986, by and between Evans
Asset Holding Company, EFC Mortgage Trust and Grossman's Inc., filed as
Exhibit 10(d) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1986 (File No. 1-542), is incorporated herein by reference.
10(e) EPC Asset Transfer Agreement, dated November 19, 1986, among Evans Products
Company, Evans Asset Holding Company, EPC Properties Company, Minneapolis
Electric Steel Castings Company, Racine Steel Castings Company, RSC Properties
Company, Duluth Steel Castings Company, Aberdeen Forest Products Company and
Evans Engineered Products Company, filed as Exhibit 10(e) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1986 (File No.
1-542), is incorporated herein by reference.
10(f) EFC Asset Transfer Agreement, dated November 19, 1986, among Evans Financial
Corp. and EFC Mortgage Trust, filed as Exhibit 10(f) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1986 (File No. 1-542), is
incorporated herein by reference.
10(g) Assumption Agreement, dated November 19, 1986, among Evans Asset Holding
Company, EFC Mortgage Trust, Evans Products Company, Evans Financial Corp. and
Bank of America National Trust and Savings Association, as agent, filed as
Exhibit 10(g) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1986 (File No. 1-542), is incorporated herein by reference.
10(h) Grossman's Inc. 1986 Nonqualified Stock Option Plan, filed as Exhibit A to the
Company's Proxy Statement for the 1987 Annual Meeting of Stockholders, dated
September 28, 1987, is incorporated herein by reference.
10(h)-1 Amendment, dated December 11, 1990, to 1986 Nonqualified Stock Option Plan,
filed as Exhibit 10(h)-1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1990 (File No. 1-542), is incorporated herein by
reference.
10(h)-2 Amendment, dated January 28, 1992, to 1986 Nonqualified Stock Option Plan,
filed as Exhibit 10(h)-2 to the Company's Form 10-Q for the quarter ended
March 31, 1992 (File No. 1-542), is incorporated herein by reference.
</TABLE>
48
<PAGE> 49
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- --------------
<S> <C>
10(h)-3 Amendment, dated July 29, 1992, to 1986 Nonqualified Stock Option Plan and
certain Stock Option Agreements outstanding thereunder, filed herewith.
10(i)-3 Grossman's Inc. Restated Executive Severance Plan, dated December 14, 1994,
filed as Exhibit 10(i)-3 to the Company's Form 10-K for the year ended
December 31, 1994 (File No. 1-542), is incorporated herein by reference.
10(m)-1 Grossman's Inc. Supplemental Executive Retirement Plan, dated January 1, 1992,
filed as Exhibit 10(m)-1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1991 (File No. 1-542), is incorporated herein by
reference.
10(n)-5 Grossman's Inc. Restated Savings and Profit Sharing Plan, dated February 15,
1995, filed as Exhibit 10(n)-5 to the Company's Form 10-K for the year ended
December 31, 1994 (File No. 1-542), is incorporated herein by reference.
10(o) Grossman's Inc. 1993 Key Employee Stock Option Plan, dated April 27, 1993,
filed as Exhibit 10(o) to the Company's Form 10-K for the year ended December
31, 1993 (File No. 1-542), is incorporated herein by reference.
10(p) Grossman's Inc. 1995 Directors' Stock and Option Plan, filed as Exhibit 10(p)
to the Company's Form 10-Q for the quarter ended June 30, 1995 (File No.
1-542), is incorporated herein by reference.
10(q) Grossman's Inc. 1995 Restricted Stock Plan, filed as Exhibit 10(q) to the
Company's Form 10-Q for the quarter ended June 30, 1995 (File No. 1-542), is
incorporated herein by reference.
10(r) Agreement for Purchase of Real Estate by and Between Grossman's Inc. and
buyer, dated May 14, 1993, First Amendment to Agreement for Purchase of Real
Estate, dated September 2, 1993, Second Amendment to Agreement for Purchase of
Real Estate, dated September 29, 1993, Third Amendment to Agreement for
Purchase of Real Estate, dated June 20, 1995, and Fourth Amendment to
Agreement for Purchase of Real Estate, dated June 22, 1995, filed as Exhibit
10(r) to the Company's Form 8-K, filed June 23, 1995 (File No. 1-542), is
incorporated herein by reference.
11(a) Statement re computation of earnings per share, filed herewith.
22 Subsidiaries of the Company, filed herewith.
23 Consent of Ernst & Young LLP, Independent Auditors, filed herewith.
</TABLE>
49
<PAGE> 50
(D) FINANCIAL STATEMENT SCHEDULES
GROSSMAN'S INC. AND SUBSIDIARIES
<TABLE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS(1) OF YEAR
- ----------------------------------------------- ---------- ---------- ------------- -------
<S> <C> <C> <C> <C>
Year Ended December 31, 1995
Allowance for doubtful accounts.............. $4,157 $1,841 $ 2,659 $ 3,339
====== ====== ====== ======
Year Ended December 31, 1994
Allowance for doubtful accounts.............. $5,212 $1,300 $ 2,355 $ 4,157
====== ====== ====== ======
Year Ended December 31, 1993
Allowance for doubtful accounts.............. $3,904 $2,911 $ 1,603 $ 5,212
====== ====== ====== ======
</TABLE>
- ---------------
(1) Write-off of bad debts less recoveries.
50
<PAGE> 51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GROSSMAN'S INC.
--------------------------------------
Company
Date: April 9, 1996 By /s/ STEVEN L. SHAPIRO
------------------------------------
Steven L. Shapiro
Vice President -- Controller
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ---------------------------------- --------------
<C> <S> <C>
/s/ ROBERT K. SWANSON Chairman of the Board April 9, 1996
- ----------------------------------------
Robert K. Swanson
/s/ SYDNEY L. KATZ President and Chief Executive April 9, 1996
- ---------------------------------------- Officer (Principal Executive
Sydney L. Katz Officer)
/s/ MICHAEL J. SHEA Executive Vice President and Chief April 9, 1996
- ---------------------------------------- Financial Officer
Michael J. Shea
/s/ STEVEN L. SHAPIRO Vice President -- Controller April 9, 1996
- ---------------------------------------- (Principal Accounting Officer)
Steven L. Shapiro
/s/ RUSSELL COX Director April 9, 1996
- ----------------------------------------
Russell Cox
/s/ JOHN GREY Director April 9, 1996
- ----------------------------------------
John Grey
/s/ MAURICE GROSSMAN Director April 9, 1996
- ----------------------------------------
Maurice Grossman
/s/ LEO KAHN Director April 9, 1996
- ----------------------------------------
Leo Kahn
/s/ W. WALLACE MCDOWELL, JR. Director April 9, 1996
- ----------------------------------------
W. Wallace McDowell, Jr.
/s/ STEPHEN B. ORESMAN Director April 9, 1996
- ----------------------------------------
Stephen B. Oresman
</TABLE>
51
<PAGE> 52
<TABLE>
<CAPTION>
DIRECTORS OFFICERS
- --------------------------------------------- --------------------------------------
<S> <C>
Russell Cox 1,2,3 Sydney L. Katz
President of Resort Management, Inc. President and Chief Executive Officer
John R. Grey 1,3 David T. Krawczyk
Former President of Chevron Corporation Executive Vice President --
President of Contractors'
Maurice Grossman 4 Warehouse Division
Former Chairman of the Board,
President and Chief Executive Officer Michael J. Shea
Executive Vice President
Sydney L. Katz 1 and Chief Financial Officer
President and Chief Executive Officer
Michael S. Bergman
Leo Kahn 2 Vice President, Director of
Partner, United Properties, Management Information Systems
a real estate partnership
Charles L. Hofeller
W. Wallace McDowell, Jr. 1,2 Vice President -- Real Estate
Private Investor
Richard E. Kent
Stephen B. Oresman 3,4 Vice President, Secretary
President of Saltash Ltd. and General Counsel
Robert K. Swanson 1,2,4 Arthur S. Ryan
Chairman of the Board Vice President and Treasurer
Chairman of RKS, Inc.
Steven L. Shapiro
Vice President -- Controller
</TABLE>
- ---------------
1 -- Member of the Executive Committee.
2 -- Member of the Audit and Finance Committee.
3 -- Member of the Compensation Committee.
4 -- Member of the Nominating Committee.
52
<PAGE> 1
GROSSMAN'S INC.
ERISA EXCESS PLAN
(As amended and restated, effective October 26, 1995)
ARTICLE I
---------
INTRODUCTION
------------
The Grossman's Inc. Erisa Excess Plan (the "Excess Plan"), as
amended, has been established effective January 1, 1992 to preserve certain
benefits for selected highly compensated employees of Grossman's Inc. (the
"Company") and its participating subsidiaries (a "Participating Subsidiary"),
whose retirement benefits under the Grossman's Inc. Retirement Plan (the
"Retirement Plan") are impacted under Section 401 (a) (17) or 415 of the
Internal Revenue Code of 1986, as amended (the "Code").
ARTICLE II
----------
PARTICIPATION
-------------
2.1 ELIGIBILITY. Each employee of the Company or a
Participating Subsidiary who, (i) as of January 1, 1992, was a Participant in
the Retirement Plan and had not elected to draw a retirement benefit pursuant to
Section 4.2 (a)(ii) of the Retirement Plan prior to January 1, 1992, or (ii) was
a Participant in the Retirement Plan as of January 31, 1994, and in each case is
or was an officer of the Company or highly compensated, shall be eligible to
participate in this Excess Plan (a "Participant").
2.2 VESTING. Each Participant shall vest in the
<PAGE> 2
benefits made available hereunder at the same time and under the same
circumstances as apply to the Retirement Plan benefits supplemented hereby.
ARTICLE III
-----------
DETERMINATION OF SUPPLEMENTAL BENEFITS
--------------------------------------
Subject to Article IV hereof, each Participant shall be
entitled to receive (i) an annual amount equal to the annual pension benefit
which would have been payable to such Participant under the Retirement Plan as
in effect on the date payment to such Participant commences thereunder,
determined without regard to the dollar maximum limit upon Credited
Compensation, as defined in Section 2.15 of the Plan, both retroactively and
prospectively, and without regard to the limits of Section 415 of the Code,
reduced by (ii) any pension benefit actually payable to a Participant under the
Retirement Plan or under any other plan, program or arrangement (including
individual agreements) maintained by the Company.
ARTICLE IV
----------
PAYMENT OF BENEFITS
-------------------
4.1 PAYMENT OF BENEFITS. Amounts payable to a Participant in
accordance with Article III shall be paid to such Participant at the same time,
in the same manner (including, with respect to death or survivor benefits, to
the same beneficiary) and subject to the same reductions as the benefits payable
to such Participant under the Retirement
<PAGE> 3
Plan, except as provided in Section 4.2 hereof.
4.2 Notwithstanding the optional forms of payment of benefits under the
Retirement Plan, a Participant hereunder shall not be entitled to a lump sum
distribution, unless (a) specifically approved by resolution of the Board of
Directors of the Company (b) a Change in Control, as hereinafter defined or (c)
termination of the Retirement Plan. A retiree or an employee receiving a benefit
hereunder will be entitled a lump sum distribution which is the Actuarial
Equivalent, as defined in the Retirement Plan, of the remaining benefit payable
hereunder upon the occurrence of any of the events above. In addition, any
benefits otherwise payable hereunder shall terminate and the Participant shall
have no further right thereto upon employment or other engagement of such
Participant by any corporation, partnership or other entity which competes with,
or is a potential competitor of, the Company or any of its subsidiaries or in
the event the Participant otherwise competes with the Company or a subsidiary,
either directly or indirectly, in each case as determined by the Board of
Directors of the Company, in its sole discretion.
4.2.1 For purposes of this Plan, a "Change of
Control" will be deemed to have occurred if
(i) any corporation, person or entity (other
than the Company, a majority-owned
subsidiary
<PAGE> 4
of the Company or an employee benefit plan
maintained by the Company or any of its
subsidiaries), or any "group" as defined in
Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended (the "Act"), becomes
the beneficial owner of stock representing
more than twenty-five percent of the voting
power of the Company; (ii) the stockholders
of the Company approve a definitive
agreement to merge or consolidate the
Company with or into another corporation
other than a majority-owned subsidiary of
the Company, to sell or otherwise dispose of
all or substantially all of the Company's
assets or to liquidate the Company, or (iii)
within any 24 consecutive month period,
persons who were members of the Board
immediately prior to such 24-month period,
together with any persons who were first
elected as directors (other than as a result
of any settlement of a proxy or consent
solicitation contest or any action taken to
avoid such a contest) during such 24-month
period by or upon the recommendation of
persons who were members of the Board
immediately prior to such 24-month period
and who constituted a majority of the Board
at the time of such election, cease to
<PAGE> 5
constitute a majority of the Board.
4.3 NO RIGHTS TO SPECIFIC ASSETS. Benefits payable under the
Excess Plan shall be paid directly from the general assets of the Company or a
Participating Subsidiary. Nothing contained in this Excess Plan and no action
taken pursuant to the provisions of this Excess Plan shall create or be
construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Participating Subsidiary and any
Employee, any designated beneficiary or any other person. TO THE EXTENT THAT ANY
PERSON ACQUIRES A RIGHT TO RECEIVE PAYMENTS UNDER THIS EXCESS PLAN SUCH RIGHT
SHALL BE NO GREATER THAN THE RIGHT OF AN UNSECURED GENERAL CREDITOR.
ARTICLE V
---------
GENERAL PROVISIONS
------------------
5.1 COMMITTEE. The Excess Plan shall be administered by the
committee responsible for the administration of the Retirement Plan. The
Committee shall have, to the extent appropriate, the same powers, rights, duties
and obligations with respect to the Excess Plan as it has with respect to the
Retirement Plan, as well as such additional powers as may be elsewhere provided
in this Excess Plan.
5.2 NON-GUARANTEE OF EMPLOYMENT. Nothing
contained in this Excess Plan shall be construed as a contract of
employment between the Company or a Participating Subsidiary and
any Employee, or as a right of any Employee to continued
<PAGE> 6
employment, or to affect the right of the Company or a Participating Subsidiary
to discharge any of its Employees, with or without cause.
5.3 INTERESTS NOT TRANSFERABLE. Except as to withholding of
any tax under the laws of the United States, of any state or locality, no
supplemental benefits payable at any time under the Excess Plan shall be subject
in any manner to alienation, sale, transfer, assignment, pledge, attachment or
other legal process, or encumbrance of any kind. Any attempt to alienate, sell,
transfer, assign, pledge or otherwise encumber any such benefits, whether
currently or thereafter payable, shall be void. The Board of Directors of the
Company, however, may approve the payment of supplemental benefits hereunder
pursuant to a Qualified Domestic Relations Order issued by a court of competent
jurisdiction. No supplemental benefit shall, in any manner, be liable for or
subject to the debts or liabilities of any person entitled to such benefits. If
any person shall attempt to, or shall alienate, sell, transfer, assign, pledge
or otherwise encumber his supplemental benefits under the Excess Plan, or if by
any reason of his bankruptcy or other event happening at any time, such benefits
would devolve upon any other person or would not be enjoyed by the person
entitled thereto under the Excess Plan, then the Committee, in its discretion,
may terminate the interest in any such benefits of the person entitled thereto
under the Excess Plan and hold or apply them to or for the benefit of such
person entitled thereto under the Excess Plan, his spouse,
<PAGE> 7
children, other dependents or designated beneficiary, or any of the above, in
such manner as the Board of Directors of the Company may deem proper.
5.4 FACILITY OF PAYMENT. Any amounts payable hereunder to any
person under legal disability or who, in the judgment of the Committee, is
unable to properly manage his financial affairs, may be paid to the legal
representative of such person, or may be applied for the benefit of such person
in any manner which the Committee may select.
5.5 GENDER AND NUMBER. Words in the masculine gender shall
include the feminine gender, the plural shall include the singular and the
singular shall include the plural.
5.6 CONTROLLING LAW. To the extent not superseded by the law
of the United States, the law of the Commonwealth of Massachusetts shall be
controlling in all matters relating to the Excess Plan.
5.7 ACTION BY GROSSMAN'S. Any action required of or permitted
by the Company under the Excess Plan shall be by resolution of the Company's
Board of Directors or the committee of the Board of Directors responsible for
the supervisors of the Retirement Plan.
5.8 SUCCESSORS. This Excess Plan is binding on the Company and
each Participating Subsidiary designated by the Company to be covered by the
Excess Plan and will inure to the benefit of any successor of the Company or any
such Participating Subsidiary whether by purchase, merger, consolidation or
otherwise.
<PAGE> 8
ARTICLE VI
----------
AMENDMENT AND TERMINATION
-------------------------
The Company's Board of Directors reserves and delegates to its
Compensation Committee the right to make from time to time any amendment or
amendments to the Excess Plan or to terminate the Excess Plan, provided however,
that in no event shall any Participant's supplemental benefits accrued to the
date of any such amendment or termination be modified or reduced by such action.
IN WITNESS WHEREOF, and as conclusive evidence of the adoption
of the foregoing amended and restated instrument comprising the Excess Plan, the
Company has caused the Excess Plan to be duly executed in its name and behalf by
its proper officers thereunder authorized this _________ day of December 1995.
ATTEST: GROSSMAN'S INC.
By: ______________________ By: _________________________
Secretary Robert K. Swanson
Chairman of the Board
<PAGE> 1
GROSSMAN'S INC.
SUPPLEMENTAL ERISA EXCESS PLAN
ARTICLE I
---------
INTRODUCTION
------------
This Grossman's Inc. Supplemental Erisa Excess Plan (the
"Supplemental Plan") is established effective January 1, 1995 to provide
supplemental retirement benefits to the President and Chief Executive Officer of
Grossman's Inc. (the "Company") pursuant to his Employment Agreement with the
Company, dated December 1, 1994.
ARTICLE II
----------
PARTICIPATION
-------------
2.1 ELIGIBILITY. The President and Chief Executive Officer of
the Company, Sydney L. Katz, in such capacity as an employee of the Company as
he may be serving from time to time, and such other highly compensated executive
officers of the Company as the Board of Directors of the Company shall
designate, shall be eligible to participate in this Supplemental Plan
("Participant").
2.2 VESTING. Each Participant shall vest in the benefits made
available hereunder at the same time and under the same circumstances as apply
to the Retirement Plan benefits supplemented hereby.
<PAGE> 2
ARTICLE III
-----------
DETERMINATION OF SUPPLEMENTAL BENEFITS
--------------------------------------
Subject to Article IV hereof, each Participant shall be
entitled to receive an annual amount equal to (i) the annual pension benefit
which would have been payable to such Participant under the Company's Retirement
Plan ("Retirement Plan") as in effect on the date payment to such Participant
commences thereunder, determined without regard to the dollar maximum limit upon
Credited Compensation, as defined in Section 2.15 of the Retirement Plan, the
limits of Section 415 of the Internal Revenue Code of 1986, as amended, and the
amendment to the Retirement Plan, effective August 1, 1990, to base benefits on
career average pay rather than final pay, in each case both prospectively and
retroactively, reduced by (ii) any pension benefit actually payable to a
Participant under the Retirement Plan plus any benefit actually payable to a
Participant under the Grossman's Inc. ERISA Excess Plan, dated as of January 1,
1992, as amended from time to time ("ERISA Excess Plan"), plus any retirement or
pension benefit payable under any other plan, program or arrangement, whether
individual or otherwise, maintained by the Company.
2
<PAGE> 3
ARTICLE IV
----------
PAYMENT OF BENEFITS
-------------------
4.1 PAYMENT OF BENEFITS. Amounts payable to a Participant in
accordance with Article III shall be paid to such Participant at the same time,
in the same manner (including, with respect to death or survivor benefits, to
the same beneficiary) and subject to the same reductions as the benefits payable
to such Participant under the Retirement Plan, except as provided in Section 4.2
hereof.
4.2 Notwithstanding the optional forms of payment of benefits
under the Retirement Plan, a Participant hereunder shall not be entitled to a
lump sum distribution, except in any of the following events:
4.2.1 Approval by resolution of the Board of
Directors of the Company
4.2.2 A Change in Control as defined in the ERISA
Excess Plan
4.2.3 Termination of the Retirement Plan
4.3 NO RIGHTS TO SPECIFIC ASSETS. Benefits payable under the
Supplemental Plan shall be paid directly from the general assets of the Company
or a Participating Subsidiary. Nothing contained in this Supplemental Plan and
3
<PAGE> 4
no action taken pursuant to the provisions of this Supplemental Plan shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Participating Subsidiary and
any Employee, any designated beneficiary or any other person. TO THE EXTENT THAT
ANY PERSON ACQUIRES A RIGHT TO RECEIVE PAYMENTS UNDER THIS SUPPLEMENTAL PLAN
SUCH RIGHT SHALL BE NO GREATER THAN THE RIGHT OF AN UNSECURED GENERAL CREDITOR.
ARTICLE V
---------
GENERAL PROVISIONS
------------------
5.1 COMMITTEE. The Supplemental Plan shall be administered by
the committee responsible for the administration of the Retirement Plan. The
Committee shall have, to the extent appropriate, the same powers, rights, duties
and obligations with respect to the Supplemental Plan as it has with respect to
the Retirement Plan, as well as such additional powers as may be elsewhere
provided in this Supplemental Plan.
5.2 NON-GUARANTEE OF EMPLOYMENT. Nothing contained in this
Supplemental Plan shall be construed as a contract of employment between the
Company and any Participant, or as a right of any Participant to continued
employment, or to affect the right of the Company to discharge any Participant,
with or without cause.
4
<PAGE> 5
5.3 INTERESTS NOT TRANSFERABLE. Except as to withholding of
any tax under the laws of the United States, of any state or locality, no
supplemental benefits payable at any time under the Supplemental Plan shall be
subject in any manner to alienation, sale, transfer, assignment, pledge,
attachment or other legal process, or encumbrance of any kind. Any attempt to
alienate, sell, transfer, assign, pledge or otherwise encumber any such
benefits, whether currently or thereafter payable, shall be void. The Board of
Directors of the Company, however, may approve the payment of supplemental
benefits hereunder pursuant to a Qualified Domestic Relations Order issued by a
court of competent jurisdiction. No supplemental benefit shall, in any manner,
be liable for or subject to the debts or liabilities of any person entitled to
such benefits. If any person shall attempt to, or shall alienate, sell,
transfer, assign, pledge or otherwise encumber his supplemental benefits under
the Supplemental Plan, or if by any reason of his bankruptcy or other event
happening at any time, such benefits would devolve upon any other person or
would not be enjoyed by the person entitled thereto under the Supplemental Plan,
then the Committee, in its discretion, may terminate the interest in any such
benefits of the person entitled thereto under the Supplemental Plan and hold or
apply them to or for the benefit of such person entitled thereto under the
Supplemental Plan, his spouse, children,
5
<PAGE> 6
other dependents or designated beneficiary, or any of the above, in such manner
as the Board of Directors of the Company may deem proper.
5.4 FACILITY OF PAYMENT. Any amounts payable hereunder to any
person under legal disability or who, in the judgment of the Committee, is
unable to properly manage his financial affairs, may be paid to the legal
representative of such person, or may be applied for the benefit of such person
in any manner which the Committee may select.
5.5 GENDER AND NUMBER. Words in the masculine gender shall
include the feminine gender, the plural shall include the singular and the
singular shall include the plural.
5.6 CONTROLLING LAW. To the extent not superseded by the law
of the United States, the law of the Commonwealth of Massachusetts shall be
controlling in all matters relating to the Supplemental Plan.
5.7 ACTION BY GROSSMAN'S. Any action required of or permitted
by the Company under the Supplemental Plan shall be by resolution of the
Company's Board of Directors or the committee of the Board of Directors
responsible for the supervision of the Retirement Plan.
5.8 SUCCESSORS. This Supplemental Plan is binding on the
Company and will inure to the benefit of any successor of the Company whether by
purchase, merger,
6
<PAGE> 7
consolidation or otherwise.
ARTICLE VI
----------
AMENDMENT AND TERMINATION
-------------------------
The Company's Board of Directors reserves and delegates to its
Compensation Committee the right to make from time to time any amendment or
amendments to the Supplemental Plan or to terminate the Supplemental Plan,
provided however, that in no event shall any Participant's supplemental benefits
accrued to the date of any such amendment or termination be modified or reduced
by such action.
IN WITNESS WHEREOF, and as conclusive evidence of the adoption
of the foregoing amended and restated instrument comprising the Supplemental
Plan, the Company has caused the Supplemental Plan to be duly executed in its
name and behalf by its Chairman of the Board this _______ day of December 1995.
ATTEST: GROSSMAN'S INC.
By: ______________________ By: _________________________
Secretary Robert K. Swanson
Chairman of the Board
7
<PAGE> 8
GROSSMAN'S INC.
CERTIFICATE OF RESOLUTION
-------------------------
The undersigned hereby certifies that he is the Secretary of GROSSMAN'S
INC., a Delaware Corporation (the "Company"), and that annexed hereto and
initialed by the undersigned is a true and correct copy of resolutions duly
adopted by the Board of Directors of the Company at a meeting held on July 29,
1992, and that such resolutions have not been rescinded and remain in full force
and effect on the date hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
affixed the seal of the Company as of the day of April, 1996.
GROSSMAN'S INC.
By: ________________________
Richard E. Kent
Secretary
<PAGE> 1
GROSSMAN'S INC.
<TABLE>
RESOLVED, that amendments to presently outstanding employee stock
options heretofore granted to active employees of the Company age 56 or
older as of the date hereof, excluding therefrom the Chairman and Chief
Executive Officer of the Company, as listed below:
<CAPTION>
Employee Age Total Option Shares
-------- --- -------------------
<S> <C> <C>
Robert Flowers 66 93,000
Timothy Brennock 66 5,000
Robert Goodman 63 45,000
Richard Kent 64 90,000
Frank Lynch 60 233,750
Edward Garrepy 60 5,000
Alan Zack 56 78,000
-------
TOTAL 549,750
</TABLE>
to be effective in each case upon acceptance of the option holder and
providing that upon retirement of such an option holder at age 65 or
older, installments for the exercise of options will continue to mature
and such options shall continue to be exercisable throughout the
remaining ten year term of each such option, notwithstanding the
provisions of Section 6(e) to the Company's 1986 Nonqualified Stock
Option Plan, as amended, ("Plan"), be, and they hereby are, authorized
and approved;
FURTHER RESOLVED, that the provisions of Section 6(e) to the Plan,
respecting the exercise of options granted under the Plan, are hereby
waived only, however, for the purposes of the amendments to options
granted under the Plan, as authorized and approved in the foregoing
resolution; and
FURTHER RESOLVED, that each of the officers of the Company, for and on
behalf of the Company, is authorized to execute and deliver such
amendments to option agreements in such form as the Chairman and Chief
Executive Officer of the Company shall approve, together with such
further agreements, instruments and certificates and to take such
measures, as shall be necessary or appropriate to carry out the intents
and purposes of the foregoing resolutions.
<PAGE> 1
EXHIBIT 11(a)
<TABLE>
GROSSMAN'S INC.
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net (loss) for primary and fully diluted earnings per
share............................................... $ (198) $(1,905) $(68,348)
======= ======= ========
Weighted average number of shares outstanding......... 25,946 25,752 25,661
Net effect of dilutive stock options.................. -- -- --
------- ------- --------
Total weighted average shares outstanding and common
stock equivalents used in primary calculation of
earnings per share.................................. 25,946 25,752 26,661
Additional dilution from stock options................ -- -- --
------- ------- --------
Total weighted average shares outstanding and common
stock equivalents used in fully diluted calculation
of earnings per share............................... 25,946 25,752 26,661
======= ======= ========
Net (Loss) Per Common Share (Primary and
Fully Diluted)...................................... $ (0.01) $ (0.07) $ (2.66)
======= ======= ========
</TABLE>
<PAGE> 1
EXHIBIT 22
GROSSMAN'S INC.
SUBSIDIARIES
Domestic Subsidiaries (all 100% owned):
Alamo Enterprises Building Supplies Inc. (Texas) (inactive)
Bacon Street, Inc. (Massachusetts) (inactive)
Contractors' Warehouse, Inc. (California) (inactive)
Evans Adco Inc. (Delaware) (inactive)
Evans Financial Corp. (Washington) (inactive)
Evy Canco, Inc. (Ohio) (inactive)
GRS Realty Company, Inc. (Delaware)
GRS Holding Company, Inc. (Delaware)
P.D.I. Inc. (Ohio) (inactive)
Project-Pro's, Inc. (Delaware) (inactive)
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-18114 and 33-52861) pertaining to the stock option plans of
Grossman's Inc. of our report dated April , 1996 with respect to the
consolidated financial statements and schedule of Grossman's Inc. and
subsidiaries included in the Annual Report (Form 10-K) for the year ended
December 31, 1995.
ERNST & YOUNG LLP
Boston, Massachusetts
April , 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,536
<SECURITIES> 0
<RECEIVABLES> 27,279
<ALLOWANCES> 3,339
<INVENTORY> 102,009
<CURRENT-ASSETS> 147,997
<PP&E> 148,919
<DEPRECIATION> 54,663
<TOTAL-ASSETS> 243,529
<CURRENT-LIABILITIES> 113,156
<BONDS> 38,512
0
0
<COMMON> 261
<OTHER-SE> 73,534
<TOTAL-LIABILITY-AND-EQUITY> 243,529
<SALES> 669,899
<TOTAL-REVENUES> 669,899
<CGS> 510,220
<TOTAL-COSTS> 510,220
<OTHER-EXPENSES> 173,440
<LOSS-PROVISION> 1,841
<INTEREST-EXPENSE> 8,211
<INCOME-PRETAX> (198)
<INCOME-TAX> 0
<INCOME-CONTINUING> (198)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (198)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
