<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 March 31, 1997
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.
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(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
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(Registrant's telephone number, including area code)
Not applicable
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(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 by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes No
The Company filed a Voluntary Petition pursuant to the provisions of
Chapter 11 of the U.S. Bankruptcy Court on April 7, 1997. No plan has
been submitted to the Court.
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 - 27,978,074 shares as of May 15, 1997.
<PAGE> 2
GROSSMAN'S INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
INDEX
Page Number
-----------
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
GROSSMAN'S INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1997, December 31, 1996 and March 31, 1996.......... 3
Consolidated Statements of Operations
Three Months Ended March 31, 1997 and 1996.................... 5
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996.................... 6
Notes to Unaudited Interim Consolidated Financial Statements.... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................. 12
PART II. OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS.......................................... 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................... 18
SIGNATURES......................................................... 19
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
GROSSMAN'S INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(Unaudited)
March 31, December 31, March 31,
1997 1996 1996
--------- ------------ ---------
<S> <C> <C> <C>
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 4,702 $ 1,058 $ 1,745
Receivables, less allowance of
$3,602 at March 31, 1997,
$2,810 at December 31, 1996
and $3,041 at March 31, 1996
for doubtful accounts 4,625 10,710 20,604
Inventories 39,360 56,662 53,106
Property held for sale 11,139 15,199 4,500
Other current assets 3,265 1,559 2,852
-------- -------- --------
Total current assets 63,091 85,188 82,807
PROPERTY, PLANT AND EQUIPMENT,
net of accumulated depreciation
of $16,696 at March 31, 1997,
$16,114 at December 31, 1996 and
$14,608 at March 31, 1996 25,150 25,549 50,955
PROPERTY HELD FOR SALE - - 31,294
PREPAID PENSION ASSET 9,466 9,536 -
OTHER ASSETS 2,874 3,168 1,188
-------- -------- --------
TOTAL ASSETS $100,581 $123,441 $166,244
======== ======== ========
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
GROSSMAN'S INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(Unaudited)
March 31, December 31, March 31,
1997 1996 1996
--------- ------------ ---------
<S> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable and accrued
liabilities $ 59,061 $ 60,229 $ 97,040
Accrued interest 459 397 1,829
Revolving term note payable 21,359 30,024 -
Current portion of long-term debt
and capital lease obligations 11,331 12,228 22,986
-------- -------- ---------
Total current liabilities 92,210 102,878 121,855
REVOLVING TERM NOTE PAYABLE - - 68
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS 358 634 2,002
PENSION LIABILITY - - 8,206
OTHER LIABILITIES 7,238 7,241 15,005
--------- --------- ---------
Total liabilities 99,806 110,753 147,136
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT
Common stock, $.01 par value:
Shares authorized - 50,000
Shares issued - 27,930 in 1997,
27,676 at December 31, 1996
and 26,137 at March 31, 1996 279 277 261
Additional paid-in-capital 157,931 157,825 155,762
Retained earnings (deficit) (157,435) (145,414) (118,893)
Minimum pension liability - - (16,476)
Cumulative foreign currency
translation adjustment - - (1,442)
Less 43 shares in treasury at
March 31, 1996, at cost - - (104)
--------- --------- ---------
Total stockholders' investment 775 12,688 19,108
--------- --------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' INVESTMENT $100,581 $123,441 $166,244
========= ========= =========
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
GROSSMAN'S INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
SALES $ 49,375 $112,981
COST OF SALES 39,358 86,481
--------- ---------
Gross Profit 10,017 26,500
OPERATING EXPENSES
Selling and administrative 20,864 38,034
Depreciation and amortization 1,022 1,849
Store closing expense - 40,150
Preopening expense 134 361
--------- ---------
22,020 80,394
--------- ---------
OPERATING LOSS (12,003) (53,894)
OTHER EXPENSES (INCOME)
Interest expense 687 1,620
Net gain on disposals of property - (27)
Other (669) (1,008)
--------- ---------
18 585
EQUITY IN NET LOSS OF UNCONSOLIDATED AFFILIATE - 208
--------- ---------
LOSS BEFORE INCOME TAXES (12,021) (54,687)
PROVISION FOR INCOME TAXES - -
--------- ---------
NET LOSS $(12,021) $(54,687)
========= =========
NET LOSS PER COMMON SHARE
(PRIMARY AND FULLY DILUTED) $ (0.43) $ (2.10)
========= =========
WEIGHTED AVERAGE SHARES AND EQUIVALENT
SHARES OUTSTANDING (PRIMARY AND FULLY DILUTED) 27,818 26,089
========= =========
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
GROSSMAN'S INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(12,021) $(54,687)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 1,022 1,849
Net gain on disposals of property - (27)
Provision for losses on accounts receivable 1,676 465
Provision for store closings - 40,150
Undistributed loss of unconsolidated affiliate - 208
(Increase) decrease in assets:
Receivables 4,409 3,071
Inventories 17,302 35,572
Note receivable and other assets (1,339) 13,507
(Decrease) in accounts payable and
accrued and other liabilities (1,109) (7,603)
--------- ---------
Total adjustments 21,961 87,192
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,940 32,505
INVESTING ACTIVITIES:
Capital expenditures (204) (1,550)
Proceeds from sales of property, net 3,641 2,474
Investment in unconsolidated affiliate - (200)
--------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES 3,437 724
FINANCING ACTIVITIES:
Payments on long-term debt and capital lease
obligations (1,173) (1,244)
Net repayments of revolving term note payable (8,665) (32,776)
Issuance of common stock 105 -
--------- ---------
NET CASH (USED FOR) FINANCING ACTIVITIES (9,733) (34,020)
Net increase (decrease) in cash and cash
equivalents 3,644 (791)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,058 2,536
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,702 $ 1,745
========= =========
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
</TABLE>
6
<PAGE> 7
GROSSMAN'S INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 1 - BASIS OF PRESENTATION
------------------------------
On April 7, 1997, the Company and two of its wholly owned affiliates, GRS
Holding Company, Inc. and GRS Realty Company, filed Chapter 11 bankruptcy
petitions under Title 11 of the United States Code ("Chapter 11"). The
Company is presently operating its business as a debtor-in-possession
subject to the jurisdiction of the United States Bankruptcy Court for the
District of Delaware (the "Court"). The Company will continue to operate
as a debtor-in-possession while pursuing a reorganization plan to
restructure operations and the Company's capitalization. As a debtor-in-
possession in Chapter 11, the Company may not engage in transactions
outside of the ordinary course of business, without approval, after notice
and hearing, of the Court. The accompanying consolidated financial
statements do not include any adjustments to reflect the possible future
effects of the recoverability and classification of assets, the amounts
and classification of liabilities which may be allowed in the Chapter 11
plan, or the ultimate capitalization of the Company.
The accompanying Unaudited Interim Consolidated Financial Statements have
been prepared on a going concern basis 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, 1996. The balance sheet as of December 31, 1996
has been derived from the audited financial statements as of that date.
The Unaudited Interim Consolidated Financial Statements include the
accounts of Grossman's Inc. and its wholly-owned subsidiaries (the
"Company") after elimination of intercompany balances and transactions.
The Company's fiscal year end is December 31. The Company records
activity in quarterly accounting periods of equal length, ending on the
last Saturday of each quarter. The differences in amounts presented and
those which would have been presented using actual quarter end dates are
not material.
Certain amounts in the consolidated financial statements for prior years
have been reclassified to conform to the current year presentation. Such
reclassifications had no effect on previously reported results of
operations.
7
<PAGE> 8
NOTE 2 - REFINANCING AND PROJECTED REORGANIZATION
-------------------------------------------------
In each of the past four years, the Company has downsized its operations
and closed stores. Net losses were reported in each of these years and
significant operating losses were reported in the past two years. The
largest group of store closings occurred in March 1996 when the Company
closed its 60 store Grossman's Division. Inventory shortages were
experienced in all divisions prior to and shortly after these store
closings, and sales results following the closure of the Grossman's
Division were harmed through the remainder of 1996. During early January
1997, limited availability under the Company's revolving credit agreement,
combined with operating deficits, resulted in an inability to meet current
obligations.
On January 22, 1997, the Company announced that it was experiencing a
severe liquidity shortage. The Company also announced that it was
exploring all available options, including seeking protection from
creditors under Chapter 11 of the U.S. Bankruptcy Code.
On February 7, 1997, the Company and JELD-WEN, inc. ("JELD-WEN"), a major
supplier to the Company and an affiliate of its largest shareholder,
entered into a letter of intent which stipulated terms under which the
Company would be provided financing involving JELD-WEN.
On March 4, 1997, the Company announced an agreement with GDI Company,
Inc. ("GDI"), a subsidiary of JELD-WEN, pursuant to which GDI purchased
the $4 million convertible note payable by GRS to Combined Investors LLP,
an affiliate of Gordon Brothers Partners, Inc. Following the purchase,
$1.1 million of segregated cash collateral from the sale of real estate
was released to the Company. The funds received by the Company also
included $1.99 million pursuant to a note secured by three parcels of real
estate of GRS Realty, Inc. ("GRS"), previously pledged to secure the $4
million note.
Following the loan from GDI Company, Inc., Congress Financial Corporation
("Congress") amended its credit agreement with the Company and provided
the Company an additional $10 million, guaranteed and supported by a
stand-by letter of credit obtained by an affiliate of JELD-WEN, in favor
of Congress, and $5 million of real estate previously pledged to secure
the $4 million note. The total $13.1 million of proceeds received were
used for essential expenses and the restocking of inventories. This loan
was refinanced, as discussed below.
On April 8, 1997, first day orders granting the Company authority to pay
employees, honor customer practices and take certain other actions which
assist business operations in Chapter 11 were entered by the Court.
Pursuant to interim financing orders entered by the Court on April 9 and
10, 1997, Congress, Grossman's principal pre-bankruptcy revolving credit
lender, continued to extend credit on essentially pre-bankruptcy terms
under a revolving loan facility, and GDI made available up to $11 million
in advances of which the Company drew approximately $6 million as of April
30, 1997.
8
<PAGE> 9
NOTE 2 - REFINANCING AND PROJECTED REORGANIZATION (CONTINUED)
-------------------------------------------------------------
On April 30, 1997, GDI purchased the Congress loan and collateral
position, with the exception of a $1 million senior lien on inventory and
receivables retained by Congress, related to a termination fee in dispute.
Congress also received a release from the Company as part of the
assignment of its loans. The loan and security agreement was amended and
restated, and under the terms of the final amended DIP financing facility
from GDI, availability is calculated on a borrowing base of 60% of
eligible inventory plus 80% of eligible accounts receivable. There is
also an available overadvance above this borrowing base of $11 million,
which is currently subject to a $1 million reserve pending resolution of
the disputed Congress termination fee. The interest rate for the DIP
facility is prime plus 1.00% and the maximum amount which can be borrowed
is $50 million (or if less, the sum of the borrowing base and the
overadvance). This GDI DIP facility is in addition to the $5.99 million
of pre-petition real estate loans held by GDI.
Both the final DIP facility and the assignment of the loan from Congress
to GDI were approved by the Court on April 30, 1997.
NOTE 3 - 1996 STORE CLOSINGS
----------------------------
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.
NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
-------------------------------------------------
<TABLE>
Accounts payable and accrued liabilities consist of the following (in
thousands):
<CAPTION>
March 31, December 31, March 31,
1997 1996 1996
--------- ------------ ---------
<S> <C> <C> <C>
Accounts payable $39,243 $37,856 $55,448
Accrued salaries, wages,
commissions and related taxes 2,403 2,857 4,853
Accrued income and franchise taxes 264 245 318
Accrued taxes other than income
and franchise 1,732 3,218 2,921
Accrued store closing costs 6,177 4,322 15,813
Accrued insurance 6,769 7,403 11,136
Other accrued liabilities 2,473 4,328 6,551
------- -------- -------
$59,061 $60,229 $97,040
======= ======= =======
</TABLE>
9
<PAGE> 10
NOTE 5 - LONG-TERM DEBT AND REVOLVING CREDIT AGREEMENT
------------------------------------------------------
<TABLE>
Long-term debt consists of the following (in thousands):
<CAPTION>
March 31, December 31, March 31,
1997 1996 1996
--------- ------------ ----------
<S> <C> <C> <C>
14% Debentures, paid April 1996 $ - $ - $16,201
Convertible notes payable, due
April 1999 1,500 1,500 -
Non-convertible notes payable,
due April 1999 3,011 2,971 -
Mortgage notes 5,811 6,552 3,419
Other notes payable 185 224 386
Capital lease obligations 1,142 1,615 4,982
------- ------- -------
11,689 12,862 24,988
Less current portion 11,331 12,228 22,986
------- ------- -------
$ 358 $ 634 $ 2,002
======= ======= =======
</TABLE>
At March 31, 1997, cash borrowings under the Company's loan and security
agreement totalled $21.4 million and outstanding standby letters of credit
totalled $5.2 million. The maximum borrowings under this agreement during
the three months ended March 1997 were $35.4 million, including letters of
credit of $5.4 million. The maximum borrowings under the loan and
security agreement in effect for the three months ended March 31, 1996
were $52.3 million, including letters of credit of $9.2 million. The
weighted average annual interest rates on such borrowings in the first
quarters of 1997 and 1996 were 8.8% and 11.6%, respectively. At March 31,
1997, the loan and security agreement provided for borrowings of $21.7
million.
See Note 2 for discussion of restructuring of the loan and security
agreement, and subsequent termination and replacement of the agreement
with debtor-in-possession financing.
NOTE 6 - OTHER LIABILITIES
--------------------------
<TABLE>
Other long-term liabilities consist of the following (in thousands):
<CAPTION>
March 31, December 31, March 31,
1997 1996 1996
--------- ------------ ---------
<S> <C> <C> <C>
Accrued insurance claims $6,129 $6,129 $ 6,281
Accrued store closing costs 768 768 8,332
Other accrued liabilities 341 344 392
------ ------ -------
$7,238 $7,241 $15,005
======= ====== =======
</TABLE>
10
<PAGE> 11
NOTE 7 - EARNINGS PER SHARE
---------------------------
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("FAS 128"), which is required to be adopted in the fourth quarter of
1997. At that time, the Company will be required to change the method
currently used to compute earnings per share ("EPS") and to restate all
prior periods. FAS 128 simplifies the previous standard for computing EPS
and replaces the presentation of primary and fully diluted EPS with the
presentation of basic and diluted EPS. The basic EPS calculation will not
include the dilutive effects of stock options, previously included in the
determination of primary EPS. As a result, in profitable periods the
Company's basic EPS calculation will exceed primary EPS. The calculation
of diluted EPS will not differ materially from fully diluted EPS. The
differences between the FAS 128 calculations, as compared to primary and
fully diluted EPS, for the first quarters of 1996 and 1997 are not
material.
11
<PAGE> 12
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
MARCH 31, 1997 COMPARED WITH DECEMBER 31, 1996
----------------------------------------------
INTRODUCTION
This discussion should be read in conjunction with the financial
statements contained in Item 1 hereof, and the consolidated financial
statements, related notes and Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in
the Annual Report on Form 10-K for the year ended December 31, 1996.
PETITION FOR RELIEF UNDER CHAPTER 11
On April 7, 1997 (the "Petition Date"), the Company and two of its wholly
owned affiliates, GRS Holding Company, Inc. and GRS Realty Company, Inc.,
filed Chapter 11 petitions for reorganization under Title 11 of the United
States Code ("Chapter 11"). The Company is presently operating its
business as a debtor-in-possession, subject to the jurisdiction of the
United States Bankruptcy Court for the District of Delaware (the "Court").
The Company will continue to operate its business as a
debtor-in-possession while pursuing a reorganization plan to restructure
operations and the Company's capitalization. As a debtor-in-possession in
Chapter 11, the Company may not engage in transactions outside of the
ordinary course of business, without the approval, after notice and
hearing, of the Court.
The Chapter 11 filing results in an automatic stay of the commencement or
prosecution of claims against the Company that arose before the Petition
Date. Until a reorganization plan is confirmed by the Court, payments of
pre-petition liabilities will be limited to those payments approved by the
Court. As a result of the filing, the Company may sell or otherwise
realize assets and liabilities for amounts other than those reflected in
the financial statements. In addition, a plan of reorganization could
materially change the amounts currently recorded in the financial
statements. The financial statements do not include any adjustments to
reflect the possible future effects of the recoverability and
classification of assets, the amounts and classification of liabilities
which may be allowed in the reorganization plan, or the ultimate
capitalization of the Company.
In each of the past four years, the Company has downsized its operations
and closed stores. Net losses were reported in each of these years and
significant operating losses were reported in both 1995 and 1996. The
largest group of store closings occurred in March 1996 when the Company
closed its 60 store Grossman's Division. Inventory shortages were
experienced in all divisions prior to and shortly after these store
closings, and sales results following the closure of the Grossman's
Division were harmed through the remainder of 1996. During early January
1997, limited availability under the Company's revolving credit agreement,
combined with operating deficits, resulted in an inability to meet
obligations.
12
<PAGE> 13
MARCH 31, 1997 COMPARED WITH DECEMBER 31, 1996 (CONTINUED)
----------------------------------------------------------
On January 22, 1997, the Company announced that it was experiencing a
severe liquidity shortage. The Company also announced that it was
exploring all available options, including seeking protection from
creditors under Chapter 11 of the U.S. Bankruptcy Code. For a period of
approximately six weeks, during which the Company sought, negotiated and
obtained interim financing, almost no inventory was received from
suppliers.
On March 4, 1997, the Company announced an agreement with GDI Company,
Inc. ("GDI"), a subsidiary of JELD-WEN, pursuant to which GDI purchased
the $4 million convertible note payable by GRS to Combined Investors LLP,
an affiliate of Gordon Brothers Partners, Inc. Following the purchase,
$1.1 million of segregated cash collateral from the sale of real estate
was released to the Company. The funds received by the Company also
included $1.99 million pursuant to a note secured by three parcels of real
estate of GRS Realty, Inc. ("GRS"), previously pledged to secure the $4
million note.
Following the loan from GDI Company, Inc., Congress Financial Corporation
("Congress") amended its credit agreement with the Company and provided
the Company an additional $10 million, guaranteed and supported by a
stand-by letter of credit obtained by an affiliate of JELD-WEN, in favor
of Congress, and $5 million of real estate previously pledged to secure
the $4 million note. The total $13.1 million of proceeds received were
used for essential expenses and the restocking of inventories. This loan
was refinanced, as discussed below.
Funding levels under the interim financing provided by GDI and Congress
did not allow for the purchase of inventory sufficient to restock the
Company's stores.
Pursuant to interim financing orders entered by the Court on April 9 and
10, 1997, Congress Financial Corporation, Grossman's principal pre-
bankruptcy revolving credit lender, continued to extend credit on
essentially pre-bankruptcy terms under a revolving loan facility, and GDI
made available up to $11 million in advances of which the Company drew
approximately $6 million as of April 30, 1997.
On April 30, 1997, GDI purchased the Congress loan and collateral
position, with the exception of a $1 million senior lien on inventory and
receivables retained by Congress, related to a termination fee in dispute.
Congress also received a release from the Company as part of the
assignment of its loans. The loan and security agreement was amended and
restated, and under the terms of the final amended DIP financing facility
(the "DIP facility") from GDI, availability is calculated on a borrowing
base of 60% of eligible inventory plus 80% of eligible accounts
receivable. There is also an available overadvance above this borrowing
base of $11 million, which is currently subject to a $1 million reserve
pending resolution of the disputed Congress termination fee. The interest
rate for the DIP facility is prime plus 1.00% and the maximum amount which
can be borrowed is $50 million (or if less, the sum of the borrowing base
and the overadvance). This GDI DIP facility is in addition to the $5.99
million of pre-petition real estate loans held by GDI.
13
<PAGE> 14
Both the final DIP facility and the assignment of the loan from Congress
to GDI were approved by the Court on April 30, 1997. The Company
anticipates that the DIP financing will allow for the stores to be fully
restocked during the second quarter. The Company is in the process of
formulating its business plan. That process will include a determination
of the adequacy of the DIP facility to fund the restructuring of stores
and normal operations.
The Company and the Subsidiaries filed a motion on May 6, 1997 which asks
the Court to establish procedures requiring prior written notice to the
Company by any party or group proposing (i) acquire shares of Company's
stock resulting in a more than 1,350,000 share block, or (ii) acquire
prepetition unsecured claims against the Company or those subsidiaries
resulting in a more than $6 million block of such claims. The procedures
would also require such notice by any party or group proposing to acquire
such stock or claims if such party or group hold or are acquiring both
stock and claims. If the Company objects during a 30 day period after
such notice, the transaction would become effective only upon Court
approval. The Company believes that this relief is necessary to protect
the Net Operating Loss Carryforwards (approximately $300 million at
December 31, 1996), which it believes will be critical to its ability to
reorganize. An order granting interim approval was signed on May 14, 1997
by the Court, with a final hearing date set for June 17, 1997.
OTHER FINANCIAL CONDITION CHANGES
During the first quarter, inventory levels would normally increase due to
a seasonal build up of inventory in advance of the spring and summer
months. Due to the lack of inventory received, inventory levels decreased
by over 30%, from $56.7 million at December 31, 1996 to $39.4 million at
quarter end. Accounts payable, which would normally trend with inventory,
rose slightly during this period, due to payments being made only for
critical expenses during most of the quarter.
Real property held for sale declined by $4.0 million during the quarter,
reflecting the continued sale of surplus properties.
Two Mr. Second Bargain Outlet stores were opened during the quarter, with
limited capital investment, as the stores were opened in former leased
Grossman's store locations closed in 1996. Due to the lack of inventory
received during the quarter, inventory for these stores was allocated from
inventory which otherwise would have been stocked in existing stores.
Included in accrued liabilities is accrued store closing costs, which
increased by $1.8 million during the quarter, principally due to the
refund of fees paid in 1996.
Total long-term debt declined by $1.1 million, reflecting payments related
to the property sales, offset in part by interim GDI financing.
Statements contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations that are not based on
historical fact are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Important factors,
beyond the Company's control, that could cause actual results to differ
materially from those in the forward-looking statements include, but are
14
<PAGE> 15
MARCH 31, 1997 COMPARED WITH DECEMBER 31, 1996 (CONTINUED)
----------------------------------------------------------
not limited to, the need for Bankruptcy Court approvals, adequacy and
absence of default under the DIP facility, competition, stability of
customer demand, and the sufficiency of capital resources. The Company
undertakes no obligation to publicly release revisions to these
forward-looking statements to reflect events or circumstances which occur
between financial statement filing dates.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1996
------------------------------------------------------------------
Results of operations during the three months ended March 31, 1996 include
the results of the Grossman's Division, whose operations terminated on
March 31, 1996.
The Company's first quarter historically has been a period of low sales
activity with resultant losses, as fewer home improvement projects and
construction activities in the Company's markets are undertaken during the
winter months. Sales from ongoing operations during 1997 were
significantly below both planned and historical levels due to out-of-stock
situations which resulted from limited inventory receipts. Sales results
in 1996 were also affected by inventory supply problems encountered in
advance of the closing of the Grossman's stores, but not to the extent
that 1997 sales were affected.
<TABLE>
The following table shows comparative sales results by store type and
the significant sales decline from 1996 to 1997 (dollars in millions):
<CAPTION>
Three Months
Ended March
------------------
1997 1996
---- ----
<S> <C> <C>
SALES (in millions)
Ongoing Operations
Contractors' Warehouse $ 38.0 $ 54.5
Mr. 2nd's Bargain Outlet 11.4 10.5
------ ------
Total Ongoing Operations 49.4 65.0
Closed Stores
Grossman's - 48.0
------ ------
Total Grossman's Inc. $ 49.4 $113.0
====== ======
</TABLE>
15
<PAGE> 16
THREE MONTHS ENDED MARCH 31, 1997 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1996 (CONTINUED)
------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months
Ended March
------------------
1997 1996
---- ----
<S> <C> <C>
% OF TOTAL SALES
Ongoing Operations
Contractors' Warehouse 76.9 % 48.2 %
Mr. 2nd's Bargain Outlet 23.1 9.3
------ ------
Total Ongoing Operations 100.0 57.5
Closed Stores
Grossman's - 42.5
------ ------
Total Grossman's Inc. 100.0 % 100.0 %
====== ======
SALES % INCREASE (DECREASE)
VERSUS PRIOR YEAR
Ongoing Operations
Contractors' Warehouse (30.3)% 6.7 %
Mr. 2nd's Bargain Outlet 8.6 1.9
------- -------
Total Ongoing Operations (24.0) 5.9
Closed Stores
Grossman's (100.0) (26.6)
------- -------
Total Grossman's Inc. (56.3)% (10.9)%
======= =======
COMPARABLE STORE SALES % INCREASE
(DECREASE) VERSUS PRIOR YEAR
Ongoing Operations
Contractors' Warehouse (32.8)% (3.7)%
Mr. 2nd's Bargain Outlet (9.8) (12.7)
------- -------
Total Ongoing Operations (29.0) (5.2)
Closed Stores
Grossman's NA NA
------- -------
Total Grossman's Inc. (29.0)% (5.2)%
======= =======
NUMBER OF STORES AT MONTH END
Ongoing Operations
Contractors' Warehouse 15 15
Mr. 2nd's Bargain Outlet 28 24
Closed Stores
Grossman's - -
------ ------
Total Number of Stores 43 39
====== ======
</TABLE>
16
<PAGE> 17
THREE MONTHS ENDED MARCH 31, 1997 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1996 (CONTINUED)
------------------------------------------------------------------
Sales results were also affected by store openings and closings. The 1997
results include the results of four Mr. 2nd's Bargain Outlet stores opened
subsequent to the first quarter of 1996. Contractors' Warehouse results
reflect one Midwest store opened in May 1996 and the December 1996 closing
of the Reno, Nevada store.
Gross profit declined by $16.5 million, reflecting the sales decline and a
decrease in gross margin from 23.5% to 20.3%. The decrease in gross
margin was due principally both to the closing of the Grossman's stores,
which operated at higher margin rates, and a decline within Contractors'
Warehouse stores, due to the sales mix experienced as inventories became
depleted.
Selling and administrative expenses declined by $17.2 million, reflecting
the Grossman's store closings, but experienced a large increase as a
percent of sales, from 33.7% in 1996 to 41.7% in 1997, due to the
extremely low sales volume.
Depreciation and amortization declined from $1.8 million in 1996 to $1.0
million in 1997, reflecting the downsizing. Depreciation on all
Grossman's stores ceased after March 1996.
Store closing expense in 1996 totalled $40.2 million, related to the
Grossman's store closings.
Interest expense declined from $1.6 million in 1996 to $687 thousand in
1997, reflecting lower revolving credit borrowings, lower levels of
capital lease financing due to store closings, and savings related to
long-term debt paid with proceeds from property sales.
Other income declined by $339 thousand, principally due to lower volume of
tool rentals in Contractors' Warehouse stores.
The Company's Mexican joint venture, for which the Company's share of net
loss in the first quarter of 1996 was $208 thousand, was terminated in
December 1996.
17
<PAGE> 18
PART II. OTHER INFORMATION
---------------------------
Item 1. LEGAL PROCEEDINGS
The Company previously reported on its Form 8-K dated April 22,
1997, the filing on April 7, 1997 by the Company and two of its
subsidiaries (the "Subsidiaries") of voluntary Chapter 11 bankruptcy
petitions in the United States Bankruptcy Court for the District of
Delaware (the "Court") under Title 11 of the United States Code. Due to
its pre-petition liquidity crisis, the Debtors were past due on
significant amounts of trade and other unsecured obligations. In the
Company's Chapter 11 petition, it listed $74,177,000 of unsecured debt.
As a general matter, such debt will only be paid when and to the extent
provided in a confirmed Chapter 11 plan.
The Company files monthly operating reports with the Court, copies
of such reports are available from the Clerk of the Court.
The Company and the Subsidiaries filed a motion on May 6, 1997 which
asks the Court to establish procedures requiring prior written notice to
the Company by any party or group proposing (i) acquire shares of
Company's stock resulting in a more than 1,350,000 share block, or (ii)
acquire prepetition unsecured claims against the Company or those
subsidiaries resulting in a more than $6 million block of such claims.
The procedures would also require such notice by any party or group
proposing to acquire such stock or claims if such party or group hold or
are acquiring both stock and claims. If the Company objects during a 30
day period after such notice, the transaction would become effective only
upon Court approval. The Company believes that this relief is necessary
to protect the Net Operating Loss Carryforwards (approximately $300
million at December 31, 1996), which it believes will be critical to its
ability to reorganize. An order granting interim approval was signed on
May 14, 1997 by the Court, with a final hearing date set for June 17,
1997.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
11(a) Statement re computation of earnings per share,
filed herewith.
99 Press release, dated May 12, 1997, announcing
Grossman's Reorganization Team.
(b) REPORTS ON FORM 8-K
The Company filed a Form 8-K with the Securities and
Exchange Commission, dated and filed April 22, 1997,
reporting Bankruptcy or Receivership.
18
<PAGE> 19
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
(Principal Accounting Officer)
DATE: May 15, 1997
19
<TABLE>
EXHIBIT 11(a)
<CAPTION>
GROSSMAN'S INC.
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
---- ----
<S> <C> <C>
Net loss for primary and fully
diluted earnings per share $(12,021) $(54,687)
========= =========
Weighted average number of shares
outstanding 27,818 26,089
Net effect of dilutive stock options - -
Total weighted average shares
outstanding and common stock
equivalents used in primary
calculation of earnings per share 27,818 26,089
Additional dilution from stock
options - -
Total weighted average shares
outstanding and common stock
equivalents used in fully diluted
calculation of earnings per share 27,818 26,089
========= ========
Primary loss per share $ (0.43) $(2.10)
========= ========
Fully diluted loss per share $ (0.43) $(2.10)
========= ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,702
<SECURITIES> 0
<RECEIVABLES> 8,227
<ALLOWANCES> 3,602
<INVENTORY> 39,360
<CURRENT-ASSETS> 63,091
<PP&E> 41,846
<DEPRECIATION> 16,696
<TOTAL-ASSETS> 100,581
<CURRENT-LIABILITIES> 92,210
<BONDS> 358
<COMMON> 279
0
0
<OTHER-SE> 496
<TOTAL-LIABILITY-AND-EQUITY> 100,581
<SALES> 49,375
<TOTAL-REVENUES> 49,375
<CGS> 39,358
<TOTAL-COSTS> 22,020
<OTHER-EXPENSES> 18
<LOSS-PROVISION> 1,676
<INTEREST-EXPENSE> 687
<INCOME-PRETAX> (12,021)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,021)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,021)
<EPS-PRIMARY> (0.43)
<EPS-DILUTED> (0.43)
</TABLE>
<PAGE> 1
FOR IMMEDIATE RELEASE CONTACT: Steven L. Shapiro
VP - Controller
(617) 830-4020
GROSSMAN'S INC. ANNOUNCES REORGANIZATION TEAM
---------------------------------------------
CANTON, Mass. (May 12, 1997) - Grossman's Inc. (Nasdaq-GROS)
announced today that the Board of Directors has elected Thomas E.
Arnold, Jr., President and Chief Executive Officer on an interim
basis, replacing Seymour Kroll, who resigned effective today. Mr.
Arnold, a current member of the Board and its Audit Committee,
will also continue to fulfill the duties previously assigned to
him by the Board as the person principally responsible for
Grossman's reorganization effort and its related Chapter 11
bankruptcy proceedings.
Grossman's also announced that Dirck Iacobelli will assume the
responsibilities of Acting Executive Vice President, Chief
Financial Officer. Thomas A. Ford, who is Executive Vice-
President, Chief Operating Officer, and President-Bargain Outlet
Division, will now have overall responsibility for the
Contractors' Warehouse Division (Midwest and Western Region),
along with the Bargain Outlet Division. Mr. Ford has been
recently concentrating his efforts on the Bargain Outlet Division.
Both Mr. Iacobelli and Mr. Ford will report directly to Mr.
Arnold.
Mr. Arnold, 52, has extensive experience working with financially
distressed companies. He recently served as Chairman, Board of
Trustees, of three separate trusts responsible for the orderly
management and disposition of over $1 billion in assets of
Executive Life Insurance Company. Mr. Arnold also served as
-more-
<PAGE> 2
court-appointed Chairman of the Board, Chief Executive Officer and
President of American Continental Corporation, formerly one of the
largest public finance-related real estate development companies.
Mr. Arnold was appointed following the resignation of Charles
Keating in conformance with the confirmed Plan of Reorganization
in the American Continental case.
Mr. Iacobelli, 48, has been a financial consultant to troubled
companies since 1986 and has worked closely with Mr. Arnold on a
number of assignments, including Executive Life Insurance Company
and American Continental Corporation matters. Mr. Iacobelli, who
holds an MBA from Amos Tuck School at Dartmouth College, has on
many occasions acted as chief financial officer (whether so
formally denominated or not) in engagements where the companies
were restructuring and, in many cases, disposing of assets.
Mr. Ford, 40, has been with Grossman's his entire 23 year career.
He has held positions of authority at all levels of operations,
including district manager, regional manager, director of store
operations, and Vice-President and General Manager of the Bargain
Outlet Division.
Robert K. Swanson, Chairman of the Board of Grossman's, stated,
"The Board is pleased that Tom Arnold has agreed to assume the
positions of President and CEO. He brings the skills necessary to
work effectively with Tom Ford in operations and Dirck Iacobelli
on the financial side. We have now assembled an excellent team to
work through the problems of the bankruptcy and towards a
reorganization."
Grossman's Inc. operates 15 stores under the name Contractors'
Warehouse in California, Indiana, Kentucky and Ohio, and 28 stores
under the name Mr. 2nd's Bargain Outlet in Massachusetts, New York
and Rhode Island.
Statements contained in this release that are not based on
historical fact are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.
-more-
<PAGE> 3
Important factors, beyond the company's control, that could cause
actual results to differ materially from those in the forward-
looking statements include, but are not limited to, the need for
approvals by the Bankruptcy Court, competition, stability of
customer demand, and the sufficiency of its capital resources.
Undue reliance should not be placed on these forward-looking
statements, which speak only as of the date hereof. The company
undertakes no obligation to publicly release revisions to these
forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of
unanticipated events.
Grossman's Inc. press releases and public filings can be accessed
on the Internet through Business Wire's Home Page:
http://www.businesswire.com/cnn/gros.htm
Mr. 2nd's Bargain Outlet maintains a web site for product
information, store locations and feedback:
http://www.bargain-outlets.com
###
