<PAGE> 1
CONFORMED
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________
Commission file number 1-542
GROSSMAN'S INC.
-----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-0524830
----------------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
in corporation or organization) Identification No.)
45 Dan Road
Canton, Massachusetts 02021
----------------------------------------- --------------------------
(Address of principal executive offices) (Zip Code)
(617) 830-4000
-----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
200 Union Street, Braintree, Massachusetts
-----------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock - $.01 Par Value - 27,371,605 shares as of November 8, 1996.
<PAGE> 2
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
INDEX
Page Number
-----------
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
GROSSMAN'S INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1996, December 31, 1995 and September 30, 1995... 3
Consolidated Statements of Operations
Three Months and Nine Months Ended September 30, 1996 and 1995. 5
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1996 and 1995.................. 6
Notes to Unaudited Interim Consolidated Financial Statements..... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 14
PART II. OTHER INFORMATION
--------------------------
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS.......... 26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 27
SIGNATURES.......................................................... 28
<PAGE> 3
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
GROSSMAN'S INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(Unaudited)
<CAPTION>
SEPT. 30, DEC. 31, SEPT. 30,
1996 1995 1995
------------ ------------ -------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 734 $ 2,536 $ 4,944
Receivables, less allowance of
$1,322, in 1996, $3,339 at
December 31, 1995 and $3,339
at September 30, 1995 in
doubtful accounts 13,279 23,940 26,342
Inventories 60,131 102,009 133,025
Note receivable, net - 13,000 -
Property held for sale 12,824 2,572 -
Other current assets 3,788 3,940 3,770
-------- -------- --------
Total current assets 90,756 147,997 168,081
PROPERTY, PLANT AND EQUIPMENT,
NET OF ACCUMULATED DEPRECIATION
OF $16,108 ON SEPTEMBER 30, 1996,
$54,663 ON DECEMBER 31, 1995 AND
$58,770 ON SEPTEMBER 30, 1995 27,605 94,256 97,796
PROPERTY HELD FOR SALE 25,762 - -
INVESTMENT IN AND ADVANCES TO
UNCONSOLIDATED AFFILIATE 174 108 736
NOTE RECEIVABLE, NET - - 12,528
OTHER ASSETS 577 1,168 1,539
-------- -------- --------
TOTAL ASSETS $144,874 $243,529 $280,680
======== ======== ========
</TABLE>
<F1>
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
<PAGE> 4
<TABLE>
GROSSMAN'S INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(Unaudited)
<CAPTION>
SEPT. 30, DEC. 31, SEPT. 30,
1996 1995 1995
--------- --------- ---------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 56,884 $ 91,308 $105,570
Accrued interest 533 1,403 567
Current portion of long-term debt
and capital lease obligations
14% Debentures, paid April 1996 - 16,201 16,201
Mortgage notes, paid April 1996 - 385 385
Mortgage notes payable 12,982 - -
Other notes and capital lease
obligations 1,687 3,859 5,404
-------- -------- --------
Total current portion of long-term
debt and capital lease obligations 14,669 20,445 21,990
-------- -------- --------
Total current liabilities 72,086 113,156 128,127
REVOLVING TERM NOTE PAYABLE 30,301 32,844 42,757
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS
Mortgage notes payable 5,606 3,126 3,564
Other long-term debt and capital
lease obligations 688 2,542 3,147
-------- -------- --------
Total Long-Term Debt and Capital
Lease Obligations 6,294 5,668 6,711
PENSION LIABILITY 1,116 8,270 2,984
OTHER LIABILITIES 8,772 9,796 14,050
-------- -------- ---------
Total liabilities 118,569 169,734 194,629
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT
Common stock, $.01 par value,
Shares authorized - 50,000
Shares issued - 27,372 on
September 30, 1996 and 26,137
on December 31, 1995 and
September 30, 1995 274 261 261
Additional paid-in-capital 157,292 155,768 155,807
Retained earnings (accumulated deficit) (120,269) (64,206) (58,304)
Minimum pension liability (9,550) (16,476) (10,576)
Cumulative foreign currency translation
adjustment (1,442) (1,442) (872)
Less shares in treasury, at cost -
45 at December 31, 1995 and
109 at September 30, 1995 - (110) (265)
--------- --------- ---------
Total Stockholders' Investment 26,305 73,795 86,051
--------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
INVESTMENT $144,874 $243,529 $280,680
========= ========= =========
</TABLE>
<F1>
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
<PAGE> 5
<TABLE>
GROSSMAN'S INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPT. 30, ENDED SEPT. 30,
-------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES $ 95,972 $193,978 $296,657 $514,738
COST OF SALES 71,122 146,778 224,051 391,813
--------- --------- --------- ---------
Gross Profit 24,850 47,200 72,606 122,925
OPERATING EXPENSES
Selling and administrative 22,675 39,405 83,638 116,917
Depreciation and amortization 1,043 2,786 3,889 8,650
Store closing expense - 4,500 40,150 4,500
Store preopening expense 51 317 807 462
--------- --------- --------- ---------
23,769 47,008 128,484 130,529
--------- --------- --------- ---------
OPERATING INCOME (LOSS) 1,081 192 (55,878) (7,604)
OTHER EXPENSES (INCOME)
Interest expense 1,444 2,111 4,080 6,438
Net gain on disposals of
property (72) (18,115) (99) (18,313)
Other (1,939) (985) (4,190) (2,550)
-------- --------- --------- ---------
(567) (16,989) (209) (14,425)
EQUITY IN NET LOSS OF
UNCONSOLIDATED AFFILIATE 78 158 394 483
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 1,570 17,023 (56,063) 6,338
PROVISION FOR INCOME TAXES - 1,703 - 634
--------- --------- --------- ---------
NET INCOME (LOSS) $ 1,570 $ 15,320 $(56,063) $ 5,704
========= ========= ========= =========
NET INCOME (LOSS) PER COMMON
SHARE (Primary and Fully
Diluted) $ 0.05 $0.59 $(2.11) $ 0.22
========= ========= ========= =========
WEIGHTED AVERAGE SHARES AND
EQUIVALENT SHARES OUTSTANDING
(Primary and Fully Diluted) 34,044 26,031 26,571 25,949
========= ========= ========= =========
</TABLE>
<F1>
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
<PAGE> 6
<TABLE>
GROSSMAN'S INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share data)
(Unaudited)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(56,063) $ 5,704
Adjustments to reconcile net loss to net
cash (used for) operating activities:
Depreciation and amortization 3,889 8,650
Net (gain) on disposals of property (99) (18,313)
Provision for losses on accounts receivable 1,777 1,262
Provision for store closing 25,911 -
Undistributed loss of unconsolidated affiliate 394 483
(Increase) decrease in assets:
Receivables 8,067 (8,155)
Inventories 28,834 (16,423)
Note receivable and other assets 12,839 303
(Decrease) in accounts payable and accrued
liabilities and other liabilities (42,403) 6,726
--------- ---------
Total adjustments 39,209 (20,802)
NET CASH (USED FOR) OPERATING ACTIVITIES (16,854) (15,098)
INVESTING ACTIVITIES
Capital expenditures (1,871) (6,150)
Proceeds from sales of property, net 24,277 26,828
Investment in unconsolidated affiliate (460) (194)
--------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES 21,946 20,484
FINANCING ACTIVITIES
Proceeds from mortgage financing 33,000 -
Payments on mortgage financing (18,876) -
--------- ---------
Net proceeds from mortgage financing 14,124 -
Payments on long-term debt and capital lease
obligations (18,540) (16,354)
Net borrowings from (repayments to) revolving
term note payable (2,543) 12,869
Issuance of common stock as payment for
Directors' fees 65 165
Issuance of other common stock - 9
--------- ---------
NET CASH (USED FOR) FINANCING ACTIVITIES (6,894) (3,476)
Net increase (decrease) in cash and cash equivalents (1,802) 1,910
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,536 3,034
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 734 $ 4,944
========= =========
</TABLE>
<F1>
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
<PAGE> 7
GROSSMAN'S INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 1 - BASIS OF PRESENTATION
------------------------------
The accompanying Unaudited Interim Consolidated Financial Statements have
been prepared in conformity with generally accepted accounting principles
applied on a consistent basis and, in the opinion of management, include
all adjustments, consisting of normal recurring accruals, necessary for a
fair presentation of the results for the interim periods. The results of
operations for the interim periods are not necessarily indicative of
results to be expected for the year.
These interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
contained in the Annual Report on Form 10-K of Grossman's Inc. for the
year ended December 31, 1995 and the Quarterly Reports on Form 10-Q for
the quarterly periods ended March 31, 1996 and June 30, 1996. The balance
sheet as of December 31, 1995 has been derived from the audited financial
statements as of that date.
The Unaudited Interim Consolidated Financial Statements include the
accounts of Grossman's Inc. and its wholly-owned subsidiaries (the
"Company") after elimination of intercompany balances and transactions.
The Company's fiscal year end is December 31. The Company records
activity in quarterly accounting periods of equal length, ending on the
last Saturday of each quarter. The differences in amounts presented and
those which would have been presented using actual quarter end dates are
not material.
Certain amounts in the consolidated financial statements for prior periods
have been reclassified to conform to the current period classification.
Such reclassifications had no effect on previously reported results of
operations.
NOTE 2 - RESTRUCTURING, REFINANCING AND UNAUDITED CONDENSED PRO FORMA
FINANCIAL STATEMENTS
---------------------------------------------------------------------
In March 1996, the Company announced a restructuring and refinancing plan
under which its 60 Grossman's stores, located in eight Northeastern
states, were closed and a $40.2 million restructuring charge was recorded.
The total non-cash portion of the reserve was approximately $22.2 million;
$12.8 million for inventory liquidation costs and $9.4 million for the net
unrecoverable amount of property, plant and equipment. Included in the
restructuring charge were estimated severance payments of $8.0 million,
incremental professional fees of $6.0 million and $4.0 million expected to
be paid over a three year period for estimated lease payments and carrying
costs to be incurred during the period in which leases are terminated and
properties sold.
The Company began the closing and liquidation of its Grossman's stores on
March 28, 1996 and all stores were closed by the end of May 1996.
Concurrent with the timing of the store closings, administrative support
functions in the Company's headquarters were reduced.
<PAGE> 8
NOTE 2 - RESTRUCTURING, REFINANCING AND UNAUDITED CONDENSED PRO FORMA
FINANCIAL STATEMENTS (CONTINUED)
---------------------------------------------------------------------
Four transactions were undertaken to improve liquidity. The $15.8 million
note receivable from Kmart Corporation was sold in March 1996. The
Company's 14% Debentures due January 1996 were refinanced, with cash and
notes issued in April 1996. A $33.0 million mortgage loan, secured by
owned properties, was funded in April 1996. A new $50.0 million long-term
revolving credit agreement, with increased borrowing availability, was
signed in May 1996.
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 been completed, for balance sheet
purposes, on September 30, 1996 and, for statement of operations purposes,
on January 1, 1996. 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.
<PAGE> 9
NOTE 2 - RESTRUCTURING, REFINANCING AND UNAUDITED CONDENSED PRO FORMA
FINANCIAL STATEMENTS (CONTINUED)
---------------------------------------------------------------------
<TABLE>
UNAUDITED CONDENSED PRO FORMA BALANCE SHEET
(in thousands, except per share data)
<CAPTION>
SEPTEMBER 30, 1996
---------------------------------
Pro Forma
As Pro Forma Continuing
Reported Adjustments Operations
-------- ----------- ----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 734 $ - $ 734
Receivables, net 13,279 (192)(a) 13,087
Inventories 60,131 - 60,131
Note receivable, net - - -
Property held for sale 12,824 - 12,824
Other current assets 3,788 - 3,788
--------- --------- ---------
Total current assets 90,756 (192) 90,564
PROPERTY, PLANT AND EQUIPMENT, NET 27,605 - 27,605
PROPERTY HELD FOR SALE 25,762 - 25,762
OTHER ASSETS 751 - 751
--------- --------- ---------
TOTAL ASSETS $144,874 $ (192) $144,682
========= ========= =========
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
CURRENT LIABILITIES
Accounts payable and accrued
liabilities $ 57,417 $ (1,836)(a) $ 55,581
Current portion of long-term debt
and capital lease obligations 14,669 (631)(a) 14,038
--------- --------- ---------
Total current liabilities 72,086 (2,467) 69,619
REVOLVING TERM NOTE PAYABLE 30,301 2,275 (b) 32,576
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS 6,294 - 6,294
OTHER LIABILITIES 9,888 - 9,888
--------- --------- ---------
Total liabilities 118,569 (192) 118,377
TOTAL STOCKHOLDERS' INVESTMENT 26,305 - 26,305
--------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
INVESTMENT $144,874 $ (192) $144,682
========= ========= =========
</TABLE>
<F1>
(a) Elimination of amounts pertaining to closed Grossman's stores.
<F2>
(b) Projected borrowings necessary after reflecting activity described
in (a).
<PAGE> 10
NOTE 2 - RESTRUCTURING, REFINANCING AND UNAUDITED CONDENSED PRO FORMA
FINANCIAL STATEMENTS (CONTINUED)
---------------------------------------------------------------------
<TABLE>
UNAUDITED CONDENSED PRO FORMA STATEMENT OF OPERATIONS
(in thousands, except per share data)
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
-----------------------------------------
Less Pro Forma
As Closed Pro Forma Continuing
Reported Operations Adjustments Operations
-------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
SALES $296,657 $ 47,953 $ - $248,704
COST OF SALES 224,051 36,161 - 187,890
--------- --------- --------- ---------
Gross Profit 72,606 11,792 - 60,814
OPERATING EXPENSES
Selling and administrative 83,638 17,060 (921)(a) 65,657
Depreciation and amortization 3,889 875 3,014
Store closing expense 40,150 40,150 - -
Preopening expense 807 45 - 762
--------- --------- --------- ---------
128,484 58,130 (921) 69,433
--------- --------- --------- ---------
OPERATING INCOME (LOSS) (55,878) (46,338) (921) (8,619)
OTHER EXPENSES (INCOME)
Interest expense 4,080 645 112 (b) 3,547
Net gain on disposals
of property (99) (12) - (87)
Other (4,190) (173) - (4,017)
--------- --------- --------- ---------
(209) 460 112 (557)
EQUITY IN NET LOSS OF
UNCONSOLIDATED AFFILIATE 394 - - 394
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME
TAXES (56,063) (46,798) 809 (8,456)
PROVISION FOR INCOME TAXES - - - -
--------- --------- --------- ---------
NET INCOME (LOSS) $(56,063) $(46,798) $ 809 $ (8,456)
========= ========= ========= =========
NET LOSS PER COMMON SHARE
(Primary and Fully Diluted) $(2.11) $(0.32)
========= =========
WEIGHTED AVERAGE SHARES AND
EQUIVALENT SHARES OUTSTANDING
(Primary and Fully Diluted) 26,571 26,571
========= =========
</TABLE>
<F1>
(a) Represents amounts previously allocated to the closed operations,
reduced by reductions to corporate overhead occurring as a result of
the reorganization.
<F2>
(b) Assumes increases for the new secured debt and notes payable, net of
savings from the retirement of the 14% Debentures, and reductions to
capital lease obligations and revolving credit borrowings.
<PAGE> 11
NOTE 3 - LONG-TERM DEBT AND REVOLVING CREDIT AGREEMENT
------------------------------------------------------
<TABLE>
Long-term debt consists of the following (in thousands):
<CAPTION>
SEPT. 30, DEC. 31, SEPT. 30,
1996 1995 1995
--------- ------------ ---------
<S> <C> <C> <C>
14% Debentures, due January 1, 1996 $ - $16,201 $16,201
Convertible notes payable, due
April 1999 1,500 - -
Non-convertible notes payable, due
April 1999 2,700 - -
Mortgage notes 14,388 3,511 4,022
Other notes payable - 552 256
Capital lease obligations 2,375 5,849 8,222
------- ------- -------
20,963 26,113 28,701
Less current portion 14,669 20,445 21,990
------- ------- -------
$ 6,294 $ 5,668 $ 6,711
======= ======= =======
</TABLE>
In May 1996, the Company received a three year line of credit for
borrowings up to $50 million, including letters of credit up to $15
million, under a formula based on a percentage of qualified inventory and
accounts receivable. The new agreement replaces the revolving credit
agreement previously in effect. Borrowings pursuant to this new agreement
are secured by inventory, receivables and other assets. The new
agreement, which bears interest at 1% over Prime Rate, contains no
financial ratio covenants or dollar limitations on spending for new store
properties.
At September 30, 1996, cash borrowings under the Company's new loan and
security agreement totalled $30.3 million and outstanding standby letters
of credit totalled $5.6 million. The maximum borrowings under this new
agreement during the nine months ended September 30, 1996 were $38.5
million, including letters of credit of $5.6 million. The weighted
average annual interest rate on such borrowings was 10.1%. At
September 30, 1996, the loan and security agreement provided for
borrowings of $39.4 million.
Upon entering into the loan and security agreement, the Company's prior
revolving credit agreement with BankAmerica Business Credit, Inc. was
terminated. The maximum borrowings in 1996 under this agreement were
$52.3 million, including letters of credit of $9.2 million. The maximum
borrowings in 1995 under this agreement was $63.1 million, including
letters of credit of $11.8 million. The weighted average annual interest
rate on such borrowings in 1996 and 1995 was 9.9% and 9.5%, respectively.
In April 1996, as part of the restructuring and refinancing plan
undertaken, $33.0 million mortgage notes payable, secured by owned
properties, were funded. Notes of $4.0 million are non-interest bearing
and convertible into Common Stock at $0.75 per share. The remaining notes
bear interest at 15% per annum, payable monthly, and include a right to
convert $2.0 million into shares of Common Stock at $1.50 per share upon
certain events, including a default at maturity. The interest bearing
notes are required to be repaid with proceeds from the sale of closed
stores. At September 30, 1996, the remaining loan balance totalled $14.1
<PAGE> 12
NOTE 3 - LONG-TERM DEBT AND REVOLVING CREDIT AGREEMENT (CONTINUED)
------------------------------------------------------------------
million, $10.1 million of which has been classified as current,
representing the non-convertible portion. Subsequent to September 30,
1996, an additional $2.4 million has been repaid. Although the remaining
principal is not due until April 1998, the Company expects to sell
properties and repay the remaining balance within a 12 month period.
Also as part of the restructuring and refinancing plan, the Company's 14%
Debentures due January 1996 were refinanced in cash and notes. Cash
payments totalled approximately $12 million. Convertible notes payable of
$3 million due in three years, with interest payable semi-annually at 10%
per annum, were issued. These notes are convertible at the holder's
option into shares of Common Stock at $1.30 per share. On each of April
9, July 9, and July 26, 1996, $500 thousand was converted into 384,615
shares of Common Stock, for a total of 1,153,845 shares converted. The
remaining $1.5 million is classified as long-term. An additional $2.7
million of non-convertible notes payable, with interest payable semi-
annually at 15%, were also issued. These notes are due in April 1997 and
may be repaid prior to maturity from proceeds of real estate sales, after
full repayment of the mortgage notes described above. These notes have
been classified as current, as the Company expects to repay these notes
with proceeds from property sales within a 12 month period.
NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
-------------------------------------------------
<TABLE>
Accounts payable and accrued liabilities consist of the following (in
thousands):
<CAPTION>
SEPT. 30, DEC. 31, SEPT. 30,
1996 1995 1995
--------- ------------ ---------
<S> <C> <C> <C>
Accounts payable $34,948 $63,236 $ 71,001
Accrued salaries, wages, commissions
and related taxes 2,834 3,630 4,655
Accrued income and franchise taxes 252 391 1,109
Accrued taxes other than income and
franchise 3,726 2,819 3,746
Accrued store closing costs 2,026 4,593 9,855
Accrued insurance 8,606 9,933 7,459
Other accrued liabilities 4,492 6,706 7,745
------- ------- --------
$56,884 $91,308 $105,570
======= ======= ========
</TABLE>
NOTE 5 - OTHER LIABILITIES
--------------------------
<TABLE>
Other long-term liabilities consist of the following (in thousands):
<CAPTION>
SEPT. 30, DEC. 31, SEPT. 30,
1996 1995 1995
---------- ------------ ---------
<S> <C> <C> <C>
Accrued insurance claims $6,729 $6,955 $ 9,340
Accrued store closing costs 1,685 2,347 4,154
Other accrued liabilities 358 494 556
------ ------ -------
$8,772 $9,796 $14,050
====== ====== =======
</TABLE>
<PAGE> 13
NOTE 6 - DEFINED BENEFIT PENSION PLAN
-------------------------------------
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.
As of May 31, 1996, a revaluation of the Retirement Plan was performed,
including a recalculation of net periodic pension cost for 1996,
recognizing the reduction in number of associates as a result of the
restructuring of the Company in March 1996.
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:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Discount rate 8.25% 7.25%
Expected long-term rate of return on assets 9.0 9.0
Rate of general wage increase 4.5 4.5
</TABLE>
The components of net periodic pension cost through the valuation dates
are as follows (in thousands):
<TABLE>
<CAPTION>
FIVE MONTHS ENDED YEAR ENDED
MAY 31, 1996 1995
----------------- ----------
<S> <C> <C>
Service cost for the period $ 602 $ 1,245
Interest accrued on projected benefit
obligation 2,193 4,820
Return on plan assets (2,135) (4,628)
Net amortization and deferral 608 1,040
-------- --------
Net periodic pension cost for the period $ 1,268 $ 2,477
======== ========
</TABLE>
For the nine month period ended September 1996, total net periodic pension
cost was $1,844 thousand, including $265 thousand required to reflect a
partial termination of the plan related to the Company's downsizing in
March 1996. The $265 thousand curtailment expense and $447 thousand of
pension expense related to terminated employees was provided for in the
store closing provision recorded in March 1996. Accordingly, these
amounts have been charged against store closing reserves, resulting in a
net amount of $1,132 thousand being reflected as pension expense for the
nine month period in the accompanying statement of operations. Net
pension expense reflected in the statement of operations for the third
quarter of 1996 was $86 thousand. Additional pension expense of $166
thousand will be recorded in the fourth quarter.
<PAGE> 14
NOTE 6 - DEFINED BENEFIT PENSION PLAN
-------------------------------------
The pension liability at September 30, 1996 totals $1,113 thousand. The
funded status of the Retirement Plan as of the valuation dates is as
follows (in thousands):
<TABLE>
<CAPTION>
MAY 31, 1996 DECEMBER 31, 1995
------------ -----------------
<S> <C> <C>
Actuarial present value of projected
benefit obligation:
Vested employees $ 57,978 $ 67,105
Non-vested employees 1,568 1,073
--------- ---------
Accumulated benefit obligation 59,546 68,178
Impact of future salary increases 663 2,606
--------- ---------
Projected benefit obligation for service
rendered to date 60,209 70,784
Market value of plan assets, primarily cash
equivalents and publicly traded stocks and
bonds 58,244 59,908
--------- ---------
Projected benefit obligation in excess of
plan assets 1,965 10,876
Items not yet recognized in earnings:
Unrecognized net transition asset 531 749
Unrecognized prior service cost (265) (590)
Adjustment required to recognize minimum
liability 9,816 17,067
Unrecognized net loss (10,745) (19,832)
---------- ---------
Pension liability $ 1,302 $ 8,270
========== =========
</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 1996, the discount rate assumption
was changed from 7.25% to 8.25%, resulting in an adjustment decreasing the
minimum pension liability by $7,251 thousand, reducing the intangible
asset by $325 thousand, and the difference of $6,926 thousand was credited
to stockholders' investment.
Prior to the plan revaluation and change in the discount rate assumption,
total net periodic pension expense was estimated to be $700 thousand for
the third quarter, $2.1 million for the nine month period and $2.8 million
for the full year. The change in estimate resulted in an improvement to
third quarter and year to date net income by $520 thousand. Additionally,
earnings per share for the third quarter and nine month period improved by
1 cent and 2 cents, respectively, as a result of the change.
<PAGE> 15
NOTE 7 - EMPLOYEE STOCK OPTION PLANS
------------------------------------
A nonqualified stock option plan covering officers and other key
management employees ("1986 Plan") expired on August 31, 1996. The 1986
Plan provided for granting of nonqualified options through August 31,
1996, up to a total of 3,750,000 shares of Common Stock. At September 30,
1996, 2,082,333 shares were outstanding under the 1986 Plan and no shares
were available for future grants of options.
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. At September 30,
1996, 402,875 shares were available for future grants of options under the
1993 Plan.
The 1995 Non-Employee Directors' Stock and Option Plan (the "Directors'
Plan") provides for the issuance of Common Stock, or the granting of
nonstatutory stock options for shares of Common Stock, up to an aggregate
of 700,000 shares. During the nine months ended September 30, 1996,
55,885 shares if Common Stock were issued to Directors for services
rendered. At September 30, 1996, 343,406 shares were available for future
grants of options or payment for services rendered under the Directors'
Plan.
A summary of option transactions during the nine months ended September
30, 1996 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Options outstanding, January 1, 1996 2,746,600
Options granted 601,000
Price range $1.63-$1.84
Options exercised 6,250
Price range $ 2.31
Options cancelled 876,892
Price range $1.84-$4.50
-----------
Options Outstanding, September 30, 1996 2,464,458
Price range $1.31-$4.50
===========
Options Exercisable, September 30, 1996 1,651,321
Price range $1.63-$4.50
===========
</TABLE>
All options granted are ten-year nonqualified options and were granted at
market value. Of the options outstanding at September 30, 1996, 455,000
were exercisable when issued, and the balance become exercisable in either
three or four annual installments following the respective dates of grant.
All outstanding options become exercisable upon a change of control, as
defined in the option agreements. At September 30, 1996, 3,210,739 shares
of Common Stock were reserved for future issuance under the plans.
<PAGE> 16
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
FINANCIAL CONDITION
-------------------
September 30, 1996 Compared with December 31, 1995
--------------------------------------------------
Financial condition at September 30, 1996 reflects the actions taken with
regard to the restructuring and refinancing plan announced on March 28,
1996. Under this plan, the remaining 60 Grossman's stores were closed and
several actions were taken to improve liquidity. A $40.2 million
restructuring charge was recorded in March 1996. The total non-cash
portion of the reserve was approximately $22.2 million; $12.8 million for
inventory liquidation costs and $9.4 million for the net unrecoverable
amount of property, plant and equipment. Included in the restructuring
charge were estimated severance payments of $8.0 million, incremental
professional fees of $6.0 million and $4.0 million expected to be paid
over a three year period for estimated lease payments and carrying costs
to be incurred during the period in which leases are terminated.
All stores operating under the name "Grossman's" were closed by the end of
May 1996. The Company entered into an Agency Agreement for the
liquidation of inventories at closed stores, and payments for inventory
totalling approximately $34.0 million were received between March and June
1996. Furniture, fixtures and equipment in the stores were also
liquidated during this time period, with net proceeds of approximately
$3.0 million. Forty of the stores closed were owned and have been
actively marketed for sale, along with 15 other owned surplus properties
which were already being marketed for sale.
Four transactions were undertaken to improve liquidity. The $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 in March 1996. The Company's 14% Debentures were refinanced, with
cash and notes issued in April 1996. A $33.0 mortgage loan, secured by
owned properties was obtained, with funding occurring in April 1996. A
new $50 million long-term revolving credit agreement, with increased
borrowing availability, was obtained in May 1996.
The $16.2 million of 14% Debentures and related interest, which were due
in January 1996, were settled in April 1996 in a combination of cash and
notes payable. Cash payments totalled approximately $12 million. Notes
payable of $3 million due in three years, with interest payable
semi-annually at 10%, were issued. These notes are convertible at the
holder's option into shares of the Company's Common Stock at $1.30 per
share. On April 9, July 9, and July 26, 1996, $500 thousand of notes were
converted into 384,615 shares of Common Stock, respectively. An
additional $2.7 million of non-convertible notes payable, with interest
payable semi-annually at 15% per annum, were also 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.
<PAGE> 17
FINANCIAL CONDITION
-------------------
September 30, 1996 Compared with December 31, 1995 (CONTINUED)
--------------------------------------------------------------
GRS Realty Company, Inc., a subsidiary of the Company, issued a series of
mortgage notes payable to a non-affiliated investor group. The mortgage
notes are secured by both closed and operating owned properties conveyed
to GRS Realty Company, Inc. and are required to be repaid with proceeds
from the sale of closed stores. Proceeds received in the second quarter
of 1996 total $33.0 million, $2.9 million of which was non-interest
bearing and repaid from the first sale of properties. An additional $4.0
million is non-interest bearing and convertible into Common Stock at $0.75
per share, subsequent to repayment of the mortgage notes. The remaining
$26.1 million bears interest at 15% per annum, payable monthly and include
a right to convert $2 million into shares of the Company's Common Stock at
$1.50 per share upon certain events, including default at maturity.
Significant progress has been made with respect to sales of the 55 surplus
properties and payment of the mortgage notes. As of September 30, 1996,
23 properties have been sold, with net proceeds of $18.9 million. Three
additional properties have subsequently been sold, with net proceeds of
$2.4 million, and the remaining properties continue to be actively
marketed. Minimum required payments for the total series of mortgage
notes have been met with respect to $4.5 million due in October 1996, $6.0
million due in April 1997 and $9.0 million due in October 1997. The
remainder of the note is due in April 1998. The $10.1 million
non-convertible portion of the note has been classified as current, along
with the $2.7 million non-convertible note discussed above, as the Company
expects to sell properties and retire this debt within a 12 month period.
Fees due under the various notes, totalling $2.9 million, were paid in
April 1996 upon the loan closing.
In May 1996, the Company entered into a three year line of credit for
borrowings up to $50 million, including letters of credit of up to $15
million, under a formula based upon a percentage of qualified inventory
and accounts receivable. The new agreement replaces the revolving term
note agreement previously in effect. Borrowings pursuant to this new
agreement are secured by inventory, receivables and other assets. The
agreement, which bears interest at 1% over Prime Rate, contains no
financial ratio covenants or dollar limitations on spending for new stores
properties. At September 30, 1996, cash borrowings under the new loan and
security agreement totalled $30.3 million, outstanding standby letters of
credit totalled $5.6 million, and availability under the loan totalled
$3.5 million. Management anticipates the use of the revolving credit
facility throughout the remainder of 1996 and beyond, with availability
sufficient to meet requirements.
In November 1996, the Company announced the engagement of TM Capital Corp.
as its investment banker and financial advisor. Alternative sources of
both fixed and working capital are being sought to allow for accelerated
expansion of the Contractors' Warehouse concept.
In April 1996, the Company repaid $3.4 million of outstanding mortgage
notes.
<PAGE> 18
FINANCIAL CONDITION
-------------------
September 30, 1996 Compared with December 31, 1995 (CONTINUED)
--------------------------------------------------------------
Receivables, inventories, accounts payable and accrued liabilities at
September 30, 1996, compared to December 31, 1995, reflect the closing of
the Grossman's stores. Inventory supply problems, which were experienced
during the first quarter, normalized during the second quarter, as vendors
were paid for amounts due. The final $2.0 million of payments due former
suppliers of Grossman's stores were paid in July 1996. All stores have
been considered fully stocked with inventory since late in the second
quarter.
Property held for sale at September 30, 1996 totals $38.6 million,
reflecting the net book value of owned real property. The $12.8 million
current portion of property represents the property necessary to be sold
to retire the non-convertible debt discussed above. As stated, the
Company expects to sell sufficient properties to retire this debt within
the next twelve months.
In the March 1996 restructuring charge discussed above, the $9.4 million
provided for the net unrecoverable amount of property, plant and equipment
related to leasehold improvements, furniture and fixtures and machinery
and equipment. Estimated market values of properties to be sold were
expected to exceed book values and, accordingly, no impairment to the book
values was recorded. In the fourth quarter of 1996, management is
reviewing cash flow alternatives, including marketing the remaining
properties to be sold more aggressively than an original self-imposed
three year liquidation period. An impairment to book value is likely,
although the amount is undeterminable until the strategies to be employed
are finalized.
In September 1996, the Company recorded the effects of a May 1996
revaluation of its defined benefit pension plan. 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 1996, the
discount rate assumption was changed from 7.25% to 8.25%, resulting in an
adjustment decreasing the minimum pension liability by $7,251 thousand,
reducing the intangible asset by $325 thousand, and the difference of
$6,926 thousand was credited to stockholders' investment.
In November 1996, the Company announced plans to relocate its corporate
offices from Canton, Massachusetts to one of the existing Contractors'
Warehouse offices in either Cincinnati, Ohio or Sacramento, California.
Estimated costs of closing the Canton office, including severance and
lease expenses, will be accrued in the fourth quarter, when determinable.
<PAGE> 19
RESULTS OF OPERATIONS
---------------------
Nine months ended September 30, 1996 compared with nine months ended
--------------------------------------------------------------------
September 30, 1995
------------------
Results of operations include both the results of ongoing operations and
of the Grossman's Division, whose operations terminated on March 28, 1996,
as previously described. Pro forma results of operations, which exclude
the Grossman's Division, are presented in the Notes To Financial
Statements.
Sales and results of operations during 1996 were affected by first quarter
inventory supply problems and out-of-stock-situations. During the second
quarter, vendor relationships were reestablished, vendors were paid for
past obligations, inventory positions returned to required levels, and
substantial progress was made toward reestablishing customer
relationships, which had been strained during the period of inventory
shortages. Efforts are continuing to both renew old and establish
customer relationships.
Of the Company's two ongoing operating divisions, the Contractors'
Warehouse Division was more significantly impacted by low inventory levels
earlier in 1996. Contractors' Warehouse sales are often dependent on the
ability to supply customers with a complete array of merchandise necessary
to complete projects. Inability to provide this expected level of service
resulted in a decline in customer traffic, which the division has been
gradually recovering from.
Mr. 2nd's Bargain Outlet stores advertise on a "quantities limited" basis
and customers do not necessarily expect to find all of their required
items. The inability to stock sufficient quantities earlier in 1996
affected sales, but recovery in this division was quicker once the low
inventory levels were rectified.
<PAGE> 20
RESULTS OF OPERATIONS
---------------------
Nine months ended September 30, 1996 compared with nine months ended
--------------------------------------------------------------------
September 30, 1995 (CONTINUED)
------------------------------
The following table shows comparative sales results by division and store
type (dollars in millions):
<TABLE>
<CAPTION>
Six Months Three Months Nine Months
Ended June Ended Sept. Ended Sept.
-------------- -------------- --------------
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SALES
Ongoing Operations
Contractors' Warehouse $124.7 $116.4 $ 79.9 $ 70.7 $204.6 $187.1
Mr. 2nd's Bargain Outlet 28.0 24.9 16.1 12.0 44.1 36.9
------ ------ ------ ------ ------ ------
Total Ongoing
Operations 152.7 141.3 96.0 82.7 248.7 224.0
Closed Stores
Grossman's 48.0 179.5 - 111.4 48.0 290.8
------ ------ ------ ------ ------ ------
Total Grossman's Inc. $200.7 $320.8 $ 96.0 $194.1 $296.7 $514.8
====== ====== ====== ====== ====== ======
% OF TOTAL SALES
Ongoing Operations
Contractors' Warehouse 62.1% 36.2% 83.2% 36.4% 68.9% 36.3%
Mr. 2nd's Bargain Outlet 14.0 7.8 16.8 6.2 14.9 7.2
------ ------ ------ ------ ------ ------
Total Ongoing
Operations 76.1 44.0 100.0 42.6 83.8 43.5
Closed Stores
Grossman's 23.9 56.0 - 57.4 16.2 56.5
------ ------ ------ ------ ------ ------
Total Grossman's Inc. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ====== ======
</TABLE>
<PAGE> 21
RESULTS OF OPERATIONS
---------------------
Nine months ended September 30, 1996 compared with nine months ended
--------------------------------------------------------------------
September 30, 1995 (CONTINUED)
------------------------------
<TABLE>
<CAPTION>
(TABLE CONTINUED)
Six Months Three Months Nine Months
Ended June Ended Sept. Ended Sept.
-------------- -------------- --------------
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SALES % INCREASE (DECREASE)
VERSUS PRIOR YEAR
Ongoing Operations
Contractors' Warehouse 7.1 % 13.0 % 13.0 % 20.2 % 9.4 % 35.0 %
Mr. 2nd's Bargain Outlet 12.4 17.5 34.2 2.6 19.5 29.9
------ ------ ------- ------ ------ ------
Total Ongoing
Operations 8.1 13.8 16.1 17.3 11.0 34.1
Closed Stores
Grossman's (73.3) (22.3) (100.0) (28.4) (83.5) (10.2)
------ ------ ------- ------ ------ ------
Total Grossman's Inc. (37.4)% (9.8)% (50.5)% (14.2)% (42.4)% 4.8 %
====== ====== ======= ====== ====== ======
COMPARABLE STORE SALES %
INCREASE (DECREASE)
VERSUS PRIOR YEAR
Ongoing Operations
Contractors' Warehouse (6.4)% (1.3)% (3.6)% 9.4 % (5.4)% 1.5 %
Mr. 2nd's Bargain Outlet (7.2) 6.6 7.3 - (2.8) 4.2
------ ------ ------- ------ ------ ------
Total Ongoing
Operations (6.5) 0.1 (2.0) 7.9 (4.9) 1.9
Closed Stores
Grossman's NA (4.1) NA (13.7) NA (6.4)
------ ------ ------- ------ ------ ------
Total Grossman's Inc. (6.5)% (2.4)% (2.0)% (6.1)% (4.9)% (3.2)%
====== ====== ======= ====== ====== ======
TOTAL NUMBER OF STORES
Ongoing Operations
Contractors' Warehouse 16 13 16 14
Mr. 2nd's Bargain Outlet 24 20 26 19
Closed Stores
Grossman's - 72 - 71
------ ------ ------ ------
Total Number of Stores 40 105 42 104
====== ====== ====== ======
</TABLE>
<PAGE> 22
Nine months ended September 30, 1996 compared with nine months ended
--------------------------------------------------------------------
September 30, 1995 (CONTINUED)
------------------------------
Sales results were also affected by store openings and closings. The 1996
results include the results of three Contractors' Warehouse stores opened
in 1995, two of which were opened subsequent to the second quarter, and
one store opened in mid-May 1996. The 1996 results also include the sales
of two Mr. 2nd's Bargain Outlets opened in 1995, one which opened late in
the first quarter and one in the second quarter, and the results of three
stores opened in March 1996 and three additional stores opened in May
1996. The 1996 results exclude the results of 18 Grossman's stores which
closed in late 1995. Additionally, Contractors' Warehouse sales results
in 1995 reflect heavy rainfall in California in the months of January and
March, which were partially offset by second quarter increases.
Gross profit declined by $50.3 million, reflecting the closing of the
Grossman's stores, the store openings described above, and an increase in
gross margin from 23.9% in 1995 to 24.5% in 1996. A first quarter gross
margin decline from 24.4% in 1995 to 23.5% in 1996 was offset by increases
in the second quarter from 22.9% to 24.2% and third quarter from 24.3% to
25.9%.
First quarter margin declines reflected the increase in Contractors'
Warehouse sales, which focus on lower margin professional sales, as a
percent of total sales. First quarter 1996 margins were also affected by
the Company's inability to avoid out-of-stock situations. The margin
increase in the second and third quarters principally relates to margins
on commodity lumber. Commodity lumber margins, which were extremely low
in 1995 due to falling prices, rebounded in 1996 when prices were
relatively stable.
Gross margins on a divisional basis for the nine month period were as
follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1996
------------------
1996 1995
------ ------
<S> <C> <C>
Ongoing Operations:
Contractors' Warehouse 23.0% 23.2%
Mr. 2nd's Bargain Outlet 31.2 30.5
----- -----
Total Ongoing Operations 24.5 24.4
Closed Stores
Grossman's 24.5 23.4
----- -----
Total Grossman's Inc. 24.5% 23.9%
===== =====
</TABLE>
Contractors' Warehouse overall margin decline of 0.2% for the nine month
period principally relates to Midwest stores, where the impact of first
quarter out-of-stock situations was most severe, in part due to the larger
size of these stores.
<PAGE> 23
Nine months ended September 30, 1996 compared with nine months ended
--------------------------------------------------------------------
September 30, 1995 (CONTINUED)
------------------------------
Selling and administrative expenses declined by $33.3 million from 1995 to
1996 and increased as a percent of sales from 22.7% in 1995 to 28.2% in
1996, both resulting from the effect of downsizing. Selling and
administrative expenses, the largest component of which is payroll, are
expected to remain at higher than historic percentages of sales, due to
the Company's structure following the downsizing. Management continues to
reevaluate and adjust administrative service levels and functions, which
is expected to yield future savings. Included in the items expected to
yield future cost savings is the planned move of the corporate offices to
one of the existing Contractors' Warehouse divisional offices sometime
prior to September 1997.
Included within selling and administrative expense is pension expense,
which decreased from $2.2 million for the nine month period in 1995 to
$1.1 million for the comparable period in 1996. The reduction resulted
from both the downsizing and a revaluation of the pension plan as of May
1996, relative to the downsizing. In the revaluation, the discount rate
assumption was changed from 7.25% to 8.25%, The change in estimate
resulted in an improvement to nine month net income by $520 thousand, or 2
cents per share.
Depreciation and amortization declined from $8.7 million in 1995 to $3.9
million in 1996, reflecting the store closings, partially offset by
depreciation for new stores. Depreciation for ongoing operations was
approximately $1.0 million in each of the first three quarters of 1996, as
limited capital spending has occurred.
As a result of the restructuring and refinancing plan, the Company
reflected a $40.2 million restructuring charge in the first quarter of
1996 related to severance costs, lease payments, inventory liquidation
costs, other expenses and the net unrecoverable amount of property plant
and equipment.
Store preopening expense increased from $462 thousand in 1995 to $807 in
1996, reflecting the store opening activity described above.
Interest expense declined from $6.4 million in 1995 to $4.1 million,
reflecting lower revolving credit borrowings, lower levels of capital
lease obligations as a result of closing stores in both 1995 and 1996, and
savings related to long-term debt paid as part of the refinancing.
Interest expense is expected to continue to decline as properties are sold
and mortgage debt is paid.
Other income increased by $1.6 million due primarily to an increase in
tool rental income in both new and existing Contractors' Warehouse stores.
<PAGE> 24
Three months ended September 30, 1996 compared with three months ended
----------------------------------------------------------------------
September 30, 1995
------------------
Third quarter 1996 net income was $1.6 million, or 5 cents per share,
compared with $15.3 million, or 59 cents per share, in the same period in
1995. The 1995 third quarter results included an $18.1 million gain on
the sale of the company's former headquarters and establishment of a $4.5
million reserve for store closing expenses. The lingering effects of
first quarter inventory supply problems and out-of-stock situations
affected sales and results of operations during the third quarter of 1996,
particularly in Contractors' Warehouse stores.
Third quarter sales in 1995 include $111.4 million from the now closed
Grossman's stores. Sales from ongoing operations increased by 11.0% from
1995 to 1996, reflecting sales from the new stores described above, offset
in part by a 4.9% comparable store sales decline.
Gross profit declined by $22.4 million, reflecting the closing of the
Grossman's stores and the store openings described above. The increase in
gross margin from 24.3% in 1995 to 25.9% in 1996, reflects the elimination
of the Grossman's division, which operated at a 23.0% margin in 1995, and
flat margins from the combined ongoing operations.
Gross margins on a divisional basis for the third quarter were as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1996
------------------
1996 1995
------ ------
<S> <C> <C>
Ongoing Operations:
Contractors' Warehouse 25.0% 25.4%
Mr. 2nd's Bargain Outlet 30.3 29.0
----- -----
Total Ongoing Operations 25.9 25.9
Closed Stores
Grossman's NA 23.0
----- -----
Total Grossman's Inc. 25.9% 24.3%
===== =====
</TABLE>
Within Contractors' Warehouse stores, a decline in margins, particularly
in Midwest stores, was partially offset by improved margins on commodity
lumber. Commodity lumber margins, which were extremely low in 1995 due to
falling prices, rebounded in 1996 when prices were relatively stable.
Selling and administrative expenses declined by $16.7 million from 1995 to
1996 and increased as a percent of sales from 20.3% in 1995 to 23.6% in
1996, both resulting from the effect of downsizing. Selling and
administrative expenses, the largest component of which is payroll, are
expected to remain at higher than historic percentages of sales, due to
the Company's structure following the downsizing. Management continues to
reevaluate and adjust administrative service levels and functions, which
is expected to yield future savings.
<PAGE> 25
Three months ended September 30, 1996 compared with three months ended
----------------------------------------------------------------------
September 30, 1995 (CONTINUED)
------------------------------
Included within selling and administrative expenses is pension expense,
which decreased from $784 thousand for the third quarter in 1995 to $84
thousand for the comparable period in 1996. The reduction resulted from
both the downsizing and a revaluation of the pension plan as of May 1996,
relative to the downsizing. In the revaluation, the discount rate
assumption was changed from 7.25% to 8.25%, The change in estimate
resulted in an improvement to third quarter net income by $520 thousand,
or 1 cent per share.
Depreciation and amortization declined from $2.8 million in 1995 to $1.0
million in 1996, reflecting the store closings, partially offset by
depreciation for new stores.
Store preopening expense, increased from $51 thousand in the third quarter
of 1995 to $317 thousand in 1996, reflecting the store opening activity
described above.
Interest expense declined from $2.1 million in 1995 to $1.4 million,
reflecting lower revolving credit borrowings, lower levels of capital
lease obligations as a result of closing stores in both 1995 and 1996, and
savings related to long-term debt paid as part of the refinancing.
Interest expense is expected to continue to decline as properties are sold
and mortgage debt is paid.
Other income increased by $950 thousand due primarily to an increase in
tool rental income in both new and existing Contractors' Warehouse stores.
<PAGE> 26
PART II - OTHER INFORMATION
---------------------------
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
(a) The date of the meeting and whether it was an annual
or special meeting:
Annual Meeting of Stockholders of Grossman's Inc. was
held on September 12, 1996.
(b) All nominees as directors were elected as set forth
in paragraph (c) below.
(c) A brief description of each matter voted upon at the
meeting and state the number of votes cast for,
against or withheld, as well as the number of
abstentions and broker nonvotes, as to each such
matter, including a separate tabulation with respect
to each nominee for office.
The following matters were voted upon at the Annual Meeting
of Stockholders of Grossman's Inc.
<TABLE>
(i) Election of Directors
<CAPTION>
Name For Withheld
<S> <C> <C>
Russell N. Cox 21,507,951 1,511,753
John R. Grey 21,508,251 1,511,453
Maurice Grossman 21,510,584 1,509,120
Leo Kahn 21,544,229 1,475,475
Sydney L. Katz 21,499,091 1,520,613
Robert K. Swanson 21,547,429 1,472,275
</TABLE>
An aggregate of 3,876,287 were not present at the meeting
in person or by proxy and were not voted on the election
of directors.
(ii) Approval of Ernst & Young as independent auditors
for registrant for 1996
<TABLE>
<CAPTION>
For Against Abstentions
<S> <C> <C>
22,764,169 218,760 36,775
</TABLE>
An aggregate of 3,876,287 were not present at the meeting
in person or by proxy and were not voted on the approval of
Ernst & Young as independent accountants.
(iii) Approval of the issuance of registrant's Common
Stock upon the conversion of convertible notes.
<TABLE>
<CAPTION>
For Against Abstentions
<S> <C> <C>
15,025,340 552,382 441,406
</TABLE>
(d) Not applicable.
<PAGE> 27
PART II - OTHER INFORMATION (CONTINUED)
---------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3(a)-9 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 filed
herewith.
10iii(h)-3 Retirement Agreement, dated as of October 4, 1996,
between Grossman's Inc. and Sydney L. Katz, filed
herewith.
10iii(o)-1 Amended and Restated Agreement, dated as of
October 4, 1996, between Grossman's Inc. and Robert
K. Swanson, filed herewith.
11(a) Statement re computation of earnings per share,
filed herewith.
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K
during the three months ended September 30, 1996.
<PAGE> 28
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
GROSSMAN'S INC.
Company
by /s/ Steven L. Shapiro
--------------------------------------
Steven L. Shapiro
Vice President - Controller
DATE: November 14, 1996
CERTIFICATE OF DESIGNATION
RELATING TO CERTAIN RESTRICTIONS ON THE
ACQUISITION OF COMMON STOCK
OF
GROSSMAN'S INC.
GROSSMAN'S INC., a Delaware corporation (the "Corporation"),
certifies that its Board of Directors, at a meeting duly called, convened
and held on October 29, 1996, adopted the following resolutions in order
to provide for certain limitations and restrictions upon the transfer and
ownership of its Common Stock, which limitations and restrictions are not
set forth in this Corporation's Restated Certificate of Incorporation but
which the Board of Directors is authorized to provide for pursuant to the
authority contained in Article Ninth, Paragraph I of its Restated
Certificate of Incorporation:
RESOLVED, that pursuant to Paragraphs A and I of Article
Ninth of the Restated Certificate of Incorporation of the Company,
the period of time during which the restrictions on acquisition of
the Company's Common Stock contained in such Paragraph A (as
heretofore modified and extended) shall apply, be and it hereby is
further extended to December 31, 1999, subject to further extension
or earlier termination, and to further modification, in accordance
with said Paragraph I by resolution of the Board of Directors of the
Company; and
FURTHER RESOLVED, that this Board of Directors hereby
determines that the foregoing extension of such restrictions is
necessary to preserve the Company's Net Operating Loss Carryover and
Investment Tax Credit Carryover by virtue of the amendment of the
applicable provisions of the Internal Revenue Code effected by the
Tax Reform Act of 1986.
IN WITNESS WHEREOF, said Grossman's Inc. has caused this Certificate
of Designation to be duly executed by its Vice President and
Secretary and has caused its corporate seal to be affixed hereto,
this 4th day of November, 1996.
GROSSMAN'S INC.
By: /s/ Richard E. Kent
-------------------------
Vice President
and Secretary
RETIREMENT AGREEMENT
Grossman's, Inc., a Delaware corporation ("Grossman's"), and Sydney
L. Katz ("Mr. Katz") hereby agree with respect to Mr. Katz' retirement
from the employ of Grossman's, as follows:
1. Mr. Katz hereby resigns from the offices of President and
Chief Executive Officer and as a member of the Board of Directors of
Grossman's and such of its subsidiaries and affiliates effective at 11:59
p.m. Eastern Standard Time, on October 4, 1996. Mr. Katz also hereby
resigns as an employee of Grossman's, effective at 11:59 p.m., Eastern
Standard Time, on October 4, 1996.
2. Through October 4, 1996, Mr. Katz will continue to receive his
Base Salary (as defined in the Employment Agreement dated as of December
1, 1994, as amended to date (the "Employment Agreement"), between
Grossman's and Mr. Katz) in accordance with past practice, and shall
otherwise be considered an employee of Grossman's for all purposes through
such date.
3. On October 4, 1996, Grossman's shall pay to Mr. Katz an amount
equal to $506,447, less all applicable withholdings for taxes for amounts
paid on October 4, 1996, by wire transfer of immediately available funds
or by delivery of a certified or bank check.
4. On January 3, 1997, Grossman's shall pay to Mr. Katz an amount
equal to $356,445 together with interest thereon at an annual rate equal
to 1% in excess of the prime rate of interest from time to time publicly
announced by CoreStates Bank, N.A. or its successors at its office in
Philadelphia, PA, from the date hereof to the date of payment, less all
applicable withholding for taxes, by wire transfer of immediately
available funds or by delivery of a certified or bank check.
5. On April 4, 1997, Grossman's shall pay to Mr. Katz an amount
equal to $356,445, together with interest thereon at an annual rate equal
to 1% in excess of the prime rate of interest from time to time publicly
announced by CoreStates Bank, N.A. or its successors at its office in
Philadelphia, PA, from the date hereof to the date of payment, less all
applicable withholding for taxes, by wire transfer of immediately
available funds or by delivery of a certified or bank check.
6. On October 4, 1996, Grossman's shall issue to Mr. Katz 200,000
shares of Common Stock (the "Shares") having an agreed value of $300,000.
The certificates evidencing the Shares will bear a legend thereon
restricting transfer in the absence of registration under the Securities
Act of 1933, as amended (the "Act") or an exemption therefrom.
7. The amounts set forth in Paragraphs 2 through 6 will be deemed
"covered compensation" in 1996 for purposes of Mr. Katz' supplemental
employee retirement plan.
8. The Company will, at its expense, file a registration
statement on Form S-3 (or such other form as may be appropriate) covering
the Shares (together with such other shares currently held by Mr. Katz
which would otherwise be treated as "restricted securities" within the
meaning of Rule 144 under the Act) as soon as practicable after the date
hereof, but in any event not later than October 22, 1996. The Company
will use its best efforts to cause the Securities and Exchange Commission
to declare said registration statement effective as soon after the filing
thereof as is reasonably practicable.
9. Payment of the amounts and delivery of the Shares as set forth
in Paragraphs 3 through 6 will be in full satisfaction of Grossman's
obligations under the Employment Agreement (including all bonuses and
vacation pay), except as provided in Paragraph 13 below. In the event of
a Change of Control (as defined in the Employment Agreement), any unpaid
amounts owed to Mr. Katz pursuant to Paragraphs 4 and 5 shall thereupon be
paid in full.
10. Grossman's agrees that the shares of restricted stock issued
to Mr. Katz under the 1995 Restricted Stock Plan (the "Plan") shall not be
subject to forfeiture as a result of the execution of this Agreement, that
any repurchase right on the part of Grossman's is hereby terminated, and
that it will cooperate in Mr. Katz' obtaining certificates evidencing such
shares which do not bear any legend thereon regarding restrictions under
the Plan.
11. Following the execution of this Agreement, Mr. Katz will not
disparage Grossman's, including its products or management, in any
communications (whether in writing or otherwise) with or to any of its
customers, suppliers, employees or investors (including investment
analysts). It shall not be considered disparagement of Grossman's for Mr.
Katz to state publicly that he has retired in part as a result of a
disagreement in philosophy with the Board of Directors of Grossman's
concerning operations and management.
12. Grossman's will issue the attached press release regarding Mr.
Katz' retirement at the close of business on October 4, 1996. Inquiries
from third parties to Grossman's directors and officers will be referred
to Robert K. Swanson, Chairman of the Board, who will respond in a manner
which is consistent with the press release. Grossman's agrees not to
disparage Mr. Katz, including his work, in any communications (whether in
writing or otherwise). It shall not be considered disparagement of Mr.
Katz for Grossman's to state publicly that Mr. Katz has retired in part as
a result of a disagreement in philosophy with the Board of Directors of
Grossman's concerning operations and management.
13. Except as otherwise set forth herein and except for the
provisions of Paragraphs 7(g)(iii), 8(b), 9, and 10 of the Employment
Agreement, which shall survive in full force and effect the execution and
delivery of this Agreement, the Employment Agreement shall terminate and
be of no further force and effect after October 4, 1996, it being
understood that Grossman's shall remain obligated to continue to provide
certain benefits in accordance with the provisions of Paragraph 7(g)(iii)
of the Employment Agreement through October 4, 1999.
14. On October 4, 1996, Mr. Katz shall return to Grossman's any
credit cards, records and other property of Grossman's which he may have
in his possession, except for certain used electronic equipment in his
possession for which he has reimbursed Grossman's $1,000. Grossman's
agrees to indemnify and hold Mr. Katz harmless from and against any claim,
expense or damage relating to or arising as a result of the automobile
currently used by Mr. Katz which will be returned to the Company,
including, without limitation, any claims, damages or other causes of
action relating to the lease thereof.
15. Nothing in this Agreement shall impair or prejudice Mr. Katz'
rights to indemnification under Grossman's charter or bylaws or to the
benefits of any directors and officers liability insurance policies
maintained by Grossman's.
16. Grossman's shall, promptly after the receipt of appropriate
documentation, reimburse Mr. Katz for any business expenses incurred by
him prior to the date of this Agreement.
17. In the event that any amounts paid to Mr. Katz pursuant to
this Agreement are sought to be set aside or recovered as a "preference"
item in any proceeding under the federal bankruptcy laws, or are otherwise
sought to be disallowed, Mr. Katz shall be entitled to pursue (or assert
in his defense) any claims for monetary or other damages he may then have
against Grossman's.
18. Mr. Katz shall be entitled to receive, in accordance with the
terms of the respective plans, all benefits under Grossman's pension plan,
ERISA Excess Plan, and the supplemental employee retirement plan.
19. The obligations of Grossman's set forth herein are in full
payment of any amounts due Mr. Katz in respect of his employment by
Grossman's and the termination thereof, except as provided in Paragraph 13
hereof. Except as provided herein, Mr. Katz has no claim of any nature
against Grossman's related to such employment or termination, and Mr.
Katz, on behalf of himself and his heirs and legal representatives,
releases and discharges Grossman's and its directors and officers from all
such claims, including without limitation any such claim arising under
federal or state laws relating to the payment of compensation or benefits
or to discriminatory employment practices.
20. Except as provided herein, Grossman's has no claim of any
nature against Mr. Katz related to his employment and Grossman's, on
behalf of itself, its officers and directors, releases and discharges Mr.
Katz, his heirs and legal representatives from all such claims.
21. Grossman's agrees to pay, within 10 days of the submission of
an invoice therefor, the reasonable fees and expenses of Mr. Katz'
counsel, Hale and Dorr, in connection with the negotiation of this
Agreement, not in excess of $4,500.
22. This Agreement shall be governed by and construed in
accordance with the internal laws of The Commonwealth of Massachusetts.
If any provision of this Agreement should for any reason be held invalid
or unenforceable in any respect, such holding shall not affect any other
provision of this Agreement, and such invalid or unenforceable provision
shall be construed so as to be enforceable to the maximum extent
compatible with applicable law.
23. In signing this Agreement, Mr. Katz represents that he does so
voluntarily and that he has been afforded a full and reasonable
opportunity to consider its terms and to consult with or seek advice from
any person of his choosing. Mr. Katz further represents that in signing
this Agreement he has not relied on any agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter
hereof which are not set forth expressly in this Agreement.
GROSSMAN'S INC. SYDNEY L. KATZ
___________________________ _____________________________
Dated: As of October 4, 1996 Dated: As of October 4, 1996
AMENDED AND RESTATED AGREEMENT
This is an Amended and Restated Agreement (the "Agreement") between
Robert K. Swanson ("Swanson") and Grossman's, Inc. ("Grossman's" or the
"Company") intended to be effective as of October 4, 1996.
WHEREAS, Swanson has served as a director of Grossman's since 1987;
and
WHEREAS, in November 1994, Swanson was elected to serve as Chairman
of the Board in accordance with the terms of an Agreement dated as of
November 23, 1994 (the "Original Agreement"); and
WHEREAS, in connection with the retirement of the President and
Chief Executive Officer of the Company on October 4, 1996, Swanson has
been elected to serve in the additional capacity of Chief Executive
Officer; and
WHEREAS, this Agreement is intended to supersede the Original
Agreement in all respects from and after October 4, 1996; and
WHEREAS, in recognition of the additional services to be performed
by Swanson, the Board has authorized the arrangements set forth in this
Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Effective October 5, 1996, Swanson has been elected to serve
as (a) Chief Executive Officer of Grossman's, (b) Chairman of the Board of
Grossman's, (c) Chairman of the Executive Committee of the Board of
Grossman's, and (d) a member of the Nominating Committee of the Board of
Grossman's.
2. For Swanson's services in the positions listed in paragraph 1,
Grossman's will pay to Swanson (a) an annual retainer of $15,000, payable
in shares of the Company's common stock (valued at the average closing
price (the "Market Price") on the NASDAQ National Market System during the
ten trading days immediately preceding the date of issuance), (b) $2,000
per year, payable in cash, for each full or partial year that Swanson
serves as Chairman of the Executive Committee, (c) $500, payable in cash,
for attending each meeting of the Board or each meeting of any committee
of the Board of which Swanson is a member, and (d) reimbursement of all
expenses incurred by Swanson in connection with his service as an officer
and/or director of Grossman's (upon submission by Swanson of reasonable
substantiation thereof).
3. (a) Grossman's hereby grants to Swanson, subject to approval
by shareholders at the next Annual Meeting of Shareholders, a non-
transferable stock option (the "Option") covering 500,000 shares of common
stock at an exercise price of $1.375 per share, the fair market value on
October 4, 1996.
(b) Unless earlier terminated in accordance with Paragraph
3(d) below, the Option will be fully vested on October 1, 1997 (or earlier
as provided in the next succeeding sentence), and will terminate on
October 1, 2006. In addition, the Option will become fully vested in the
event that, prior to October 1, 1997, either (a) Swanson is terminated by
Grossman's without Cause (as defined in Paragraph 6(e) below), (b) in one
or a series of transactions, all or substantially all of the assets of
Grossman's are sold or otherwise disposed of, or control of more than 50%
of the outstanding shares of common stock is acquired by a "person" or
"group" (as those terms are defined in Rule 13d-3 unless the Securities
Exchange Act of 1934, as amended) (a "Sale of the Company"), or (c)
Swanson dies or becomes disabled.
(c) In the event that the stockholders fail to approve the
grant of the Option, Grossman's shall pay to Swanson, in cash, an amount
equal to (x) 500,000 times (y) the difference between (i) the greater of
(x) the closing price of the common stock on the NASDAQ National Market
System on date of the 1997 Annual Meeting of Stockholders or (y) the
closing price of the common stock on the NASDAQ National Market System on
December 31, 1997, and (ii) $1.375.
(d) In the event that (i) Swanson voluntarily terminates his
employment with the Company on or before December 31, 1997, or (ii)
Swanson is terminated for Cause, the Option shall forthwith terminate and
be of no further force and effect and Grossman's shall have no obligation
to make any payments pursuant to Paragraph 3(c) above.
(e) Following the earlier of December 31, 1997 or the date of
termination of Swanson's employment with the Company, other than a
termination for Cause or a voluntary termination by Swanson prior to
December 31, 1997, the Option shall be exercisable for a period of 3 years
from the date of such termination.
(f) The remaining terms and conditions of the Option will be
as set forth in a mutually acceptable Option Agreement between Grossman's
and Swanson.
4. In further consideration of Swanson's agreement to accept the
responsibilities set forth herein, the Company will immediately issue to
Swanson 100,000 shares of common stock (the "Shares"). The certificates
evidencing the Shares will bear a legend thereon restricting transfer in
the absence of registration under the Securities Act of 1933, as amended
(the "Act") or an exemption therefrom. The parties agree that the fair
market value of the Shares is $1.375 per Share.
5. The Company will, at its expense, file a registration
statement on Form S-3 (or such other form as may be appropriate) covering
(a) the Shares and (b) the Shares of common stock issuable upon exercise
of the Option, if approved by the Company's stockholders, as soon as
reasonably practicable after the date hereof and the date of the 1997
Annual Meeting of Stockholders, respectively.
6. Swanson has also agreed that, as Chief Executive Officer and
Chairman of the Board, he will be available to devote his time to
Grossman's affairs for up to a maximum of 150 days per calendar year (in
addition to days spent in Board or committee meetings), unless Swanson and
the Board mutually agree to a greater number of days. For these services,
Grossman's will pay Swanson (a) $1,000 per day payable in cash within 30
days after the end of each calendar quarter upon submission of his invoice
therefor, (b) $1,000 per day payable in shares of common stock pursuant to
the 1995 Directors' Stock and Option Plan (valued at the Market Price)
payable within 30 days after the end of each calendar quarter upon
submission of his invoice therefor, and (c) reimbursement of all expenses
incurred by him (including travel expenses for his wife at his discretion
and reasonable costs incurred for improving his Phoenix/Paradise Valley
office) in connection with his service as Chief Executive Officer and
Chairman of the Board of Grossman's (upon submission by him of reasonable
substantiation thereof). Subject to Paragraph 13 below, Swanson shall
otherwise be free to perform services for other persons or entities.
7. Swanson shall be entitled to receive such bonuses as may be
determined from time to time by the Compensation Committee of the Board of
Directors; provided, however, that (A) for the period from October 5, 1996
through December 31, 1996, Swanson shall be entitled to a minimum bonus,
payable in shares of common stock (valued at the Market Price) on or
before February 10, 1997, equal to (a) 100,000 times (b) the difference
between (i) the closing price of Grossman's common stock on the NASDAQ
National Market System on December 31, 1996 and (ii) $1.375; and (B) for
the period from January 1, 1997 through December 31, 1997, Swanson shall
be entitled to a minimum bonus, payable in shares of common stock (valued
at the Market Price) on or before February 10, 1998, equal to (x) 100,000
times (y) the difference between (I) the closing price of Grossman's
common stock on the NASDAQ National Market System on December 31, 1997,
and (II) the closing price of the common stock on the NASDAQ National
Market System on December 31, 1996.
8. (a) Either Swanson or Grossman's may terminate this Agreement
and Swanson's services as Chief Executive Officer and/or Chairman of the
Board hereunder upon the giving of not less than 30 days' prior written
notice. Unless earlier terminated, this Agreement shall terminate on
December 31, 1997.
(b) In the event of a termination by Grossman's for any
reason prior to December 31, 1997 other than Cause or in connection with
or as a result of the Sale of the Company, Grossman's will immediately pay
Swanson $300,000 in cash, plus a pro rata portion of the bonus minimum
bonus to which he would have been entitled under Paragraph 7 above for the
period in which such termination occurs.
(c) In the event of a termination by Grossman's in connection
with or as a result of the Sale of the Company, or in the event of
Swanson's death or disability, Swanson (or his executors or
representatives) will be entitled to receive a cash payment equal to the
greater of (i) $150,000, or (ii) the product of (A) 6,000 times (B) the
average number of days spent by Swanson on Grossman's affairs during each
of the immediately preceding six months (or such shorter period as this
Agreement has been in effect), together in each case with a pro rata
portion of the minimum bonus to which he would have been entitled under
Paragraph 7 above for the period in which such termination occurs.
(d) In the event of a voluntary termination by Swanson or a
termination by Grossman's for Cause at any time, Grossman's shall have no
obligation to make any payments pursuant to this Paragraph 8.
(e) For purpose of this Agreement, "Cause" means a good faith
finding by the Board of a material willful breach of this Agreement by
Swanson or of willful malfeasance or gross negligence in the performance
by Swanson of his duties, resulting in material harm to the Company. The
Company may terminate Swanson for Cause only after (i) giving him written
notice of intention to terminate and the cause or reason through and of
his right to a hearing , (ii) conducting a hearing before the full Board
at which he may be represented by counsel on a date specified in the
notice but no less than 10 days after the date of the notice, and (iii)
giving him 10 days' written notice of the results of the hearing. The
provisions of this Paragraph 8(e) shall not restrict or limit Swanson's
rights in law or at equity or otherwise.
9. All notices and other communications shall be in writing
mailed by first class registered mail, postage prepaid, if to Swanson at
the address set forth below under Swanson's signature, or, if to
Grossman's, at 45 Dan Road, Canton, Massachusetts 02021, attention of the
Secretary, or at such other address as either party shall designate by
written notice to the other. No notice shall be deemed to have been given
until actually received by the party to whom it is addressed; provided
that a certified or registered mail return receipt shall be conclusive
evidence of such receipt.
10. This Agreement may not be changed, waived, discharged or
terminated orally, but only by an instrument in writing, signed by the
party against which enforcement of such change, waiver, discharge or
termination is sought.
11. Neither this Agreement nor any rights or obligations hereunder
may be assigned by either party without the written consent of the other,
except that this Agreement will be binding upon and inure to the benefit
of any successor or successors of Grossman's whether by merger,
consolidation, sale of assets or otherwise and reference herein to
Grossman's is intended to include any such successor or successors.
12. Grossman's agrees to pay the reasonable fees and expenses of
Swanson's counsel in connection with the negotiation, interpretation,
enforcement, preparation and defense of this Agreement or any dispute
arising under this Agreement.
13. While this Agreement is in effect and for a period of one year
after its termination Swanson may not, without the consent of the Company,
in any manner compete, nor may he own or acquire any equity interest in
any corporation, partnership or other entity that competes, with the
Company or any of its subsidiaries in any part of the United States in the
retain sole of building materials or supplies or in any other business
conducted by the Company presently or while this Agreement is in effect;
provided, that Swanson may own an equity interest in any publicly-owned
corporation that does not exceed 1% of that corporation's total equity.
14. Swanson will be entitled to indemnification by the Company and
limitation of liability for acts and omissions in his capacity as an
officer and/or director of the Company or any subsidiary to the fullest
extent provided by the Restated Certificate of Incorporation and By-laws
of the Company as in affect or the effective date of this Agreement or to
any greater extent provided by any amendment to those documents.
15. This Agreement shall be governed by and construed in
accordance with the internal laws of The Commonwealth of Massachusetts.
This Agreement embodies the entire agreement of the parties with respect
to the subject matter hereof and supersedes all prior agreements and
understandings, including the Original Agreement. If any one or more of
the provisions of this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such provision shall be
in effective to the extent, but only to the extent, of such invalidity,
illegibility or unenforceability without invalidating the remainder of
such invalid, illegal or unenforceable provision or provisions or any
other provision hereof.
16. All payments to be made to Swanson pursuant to this Agreement
shall be subject to all applicable withholding and similar taxes.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
GROSSMAN'S INC.
By:________________________________
Name:
Title:
________________________________
Robert K. Swanson
c/o RKS,Inc.
5600 North Palo Cristi Road
Paradise Valley, Arizona 85253
EXHIBIT 11(a)
-------------
<TABLE>
GROSSMAN'S INC.
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) for
primary and fully diluted
earnings per share $ 1,570 $15,320 $(56,063) $ 5,704
======== ======== ========= ========
Weighted average number
of shares outstanding 27,159 26,031 26,571 25,949
Net effect of convertible
shares 6,872 - - -
Net effect of dilutive
stock options 13 - - -
-------- -------- --------- --------
Total weighted average
shares outstanding and
common stock equivalents
used in primary
calculation of earnings
per share 34,044 26,031 26,571 25,949
Additional dilution from
stock options - - - -
-------- -------- --------- --------
Total weighted average
shares outstanding and
common stock equivalents
used in fully diluted
calculation of earnings
per share 34,044 26,031 26,571 25,949
======== ======== ======== ========
Primary earnings (loss)
per share $0.05 $0.59 $(2.11) $0.22
======== ======== ======== ========
Fully diluted earnings
(loss) per share $0.05 $0.59 $(2.11) $0.22
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 734
<SECURITIES> 0
<RECEIVABLES> 14,601
<ALLOWANCES> 1,322
<INVENTORY> 60,131
<CURRENT-ASSETS> 90,756
<PP&E> 43,713
<DEPRECIATION> 16,108
<TOTAL-ASSETS> 144,874
<CURRENT-LIABILITIES> 72,086
<BONDS> 36,595
<COMMON> 274
0
0
<OTHER-SE> 26,031
<TOTAL-LIABILITY-AND-EQUITY> 144,874
<SALES> 95,972
<TOTAL-REVENUES> 92,972
<CGS> 71,122
<TOTAL-COSTS> 71,122
<OTHER-EXPENSES> 23,769
<LOSS-PROVISION> 1,777
<INTEREST-EXPENSE> 1,444
<INCOME-PRETAX> 1,570
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,570
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,570
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
