<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
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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
incorporation 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)
--------------------------------------------------------------------------
(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 and Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes ____ 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 - 28,080,215 shares as of November 12, 1997.
1
<PAGE> 2
GROSSMAN'S INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1997
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
GROSSMAN'S INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1997, December 31, 1996 and September 30,
1996.......................................................... 3
Consolidated Statements of Operations
Three Months and Nine Months Ended September 30, 1997 and 1996. 5
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 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................................... 14
PART II. OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS........................................... 24
ITEM 5. OTHER INFORMATION........................................... 25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 25
SIGNATURES.......................................................... 26
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)
SEPT. 30, DECEMBER 31, SEPT. 30,
1997 1996 1996
--------- ------------ --------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 210 $ 1,058 $ 734
Receivables, less allowance of
$1,974 at September 30, 1997
$2,810 at December 31, 1996
and $1,322 at September 30, 1996 4,377 10,710 13,279
Inventories 60,717 56,662 60,131
Property held for sale 3,491 15,199 12,824
Other current assets 2,293 1,559 3,788
-------- -------- --------
Total current assets 71,088 85,188 90,756
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation of $18,109
at September 30, 1997, $16,114 at
December 31, 1996 and $16,108 on
September 30, 1996 23,941 25,549 27,605
PROPERTY HELD FOR SALE - - 25,762
PREPAID PENSION ASSET 9,608 9,536 -
OTHER ASSETS 2,915 3,168 751
-------- -------- --------
TOTAL ASSETS $107,552 $123,441 $144,874
======== ======== ========
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)
SEPT. 30, DECEMBER 31, SEPT. 30,
1997 1996 1996
-------- ----------- ---------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 27,005 $ 60,229 $ 56,884
Liabilities subject to compromise 45,838 -- --
Accrued interest 387 397 533
Revolving term note payable 35,150 30,024 --
Current portion of long-term debt and
capital lease obligations 2,102 12,228 14,669
--------- -------- ---------
Total current liabilities 110,482 102,878 72,086
REVOLVING TERM NOTE PAYABLE -- -- 30,301
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS 164 634 6,294
PENSION LIABILITY -- -- 1,116
OTHER LIABILITIES 9,172 7,241 8,772
-------- -------- ---------
Total liabilities 119,818 110,753 118,569
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT
Common stock, $.01 par value,
Shares authorized - 50,000
Shares issued - 28,080 in 1997,
27,676 at December 31, 1996 and
27,373 at September 30, 1996 281 277 274
Additional paid-in-capital 157,992 157,825 157,292
Retained earnings (deficit) (170,539) (145,414) (120,269)
Minimum pension liability -- -- (9,550)
Cumulative foreign currency translation
adjustment -- -- (1,442)
--------- --------- ---------
Total Stockholders' Investment (12,266) 12,688 26,305
--------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
INVESTMENT $107,552 $123,441 $144,874
========= ========= =========
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 NINE MONTHS
ENDED SEPT. 30, ENDED SEPT. 30,
---------------- ----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES $ 69,596 $ 95,972 $174,720 $296,657
COST OF SALES 53,115 71,520 134,792 225,364
--------- --------- --------- ---------
Gross Profit 16,481 24,452 39,928 71,293
OPERATING EXPENSES
Selling and administrative 18,863 22,675 58,112 83,638
Depreciation and amortization 898 1,043 2,869 3,889
Store closing expense - - - 40,150
Preopening expense 74 51 272 807
--------- --------- --------- ---------
19,835 23,769 61,253 128,484
--------- --------- --------- ---------
OPERATING INCOME (LOSS) (3,354) 683 (21,325) (57,191)
OTHER EXPENSES (INCOME)
Interest expense 997 1,444 2,396 4,080
Net gain on disposals of
property - (72) - (99)
Other (1,194) (2,337) (3,298) (5,503)
-------- --------- --------- ---------
(197) (965) (902) (1,522)
EQUITY IN NET LOSS OF
UNCONSOLIDATED AFFILIATE - 78 - 394
--------- --------- --------- ---------
(LOSS) BEFORE REORGANIZATION
ITEMS AND INCOME TAXES (3,157) 1,570 (20,423) (56,063)
REORGANIZATION ITEMS 2,381 - 4,702 -
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (5,538) 1,570 (25,125) (56,063)
PROVISION FOR INCOME TAXES - - - -
--------- --------- --------- ---------
NET INCOME (LOSS) $ (5,538) $ 1,570 $(25,125) $(56,063)
========= ========= ========= =========
NET INCOME (LOSS) PER COMMON
SHARE (PRIMARY) $(0.20) $ 0.05 $(0.90) $(2.11)
========= ========= ========= =========
WEIGHTED AVERAGE SHARES AND
EQUIVALENT SHARES OUTSTANDING
(Primary) 28,080 34,044 27,988 26,571
========= ========= ========= =========
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)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(25,125) $(56,063)
Adjustments to reconcile net loss to net
cash (used for) operating activities:
Depreciation and amortization 2,869 3,889
Net gain on disposals of property -- (99)
Provision for losses on accounts receivable 1,245 1,777
Provision for store closings -- 25,911
Reorganization items 4,702 --
Undistributed loss of unconsolidated affiliate -- 394
(Increase) decrease in net assets:
Receivables 5,088 8,067
Inventories (4,055) 28,834
Note receivable and other assets (550) 12,839
Increase (Decrease) in accounts payable and
accrued and other liabilities 14,507 (42,403)
--------- ---------
Total adjustments 23,806 39,209
NET CASH (USED FOR) OPERATING ACTIVITIES (1,319) (16,854)
BEFORE REORGANIZATION PAYMENTS
Reorganization payments (4,674) --
-------- ---------
NET CASH (USED FOR) OPERATING ACTIVITIES (5,993) (16.854)
INVESTING ACTIVITIES
Capital expenditures (495) (1,871)
Proceeds from sales of property, net
Pre-Bankruptcy 3,641 24,277
Post-Bankruptcy 7,301 --
Investment in unconsolidated affiliate -- (460)
--------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES 10,447 21,946
FINANCING ACTIVITIES
Proceeds from mortgage financing -- 33,000
Payments on mortgage financing -- (18,876)
--------- ---------
Net proceeds from mortgage financing -- 14,124
Payment in total of pre-bankruptcy revolver (15,703) --
Proceeds from Debtor in Possession
financing, net 20,829 --
Payments on long-term debt and capital
lease obligations (10,596) (18,540)
Net (repayments) of revolving
term note payable -- (2,543)
Issuance of common stock as payments for
Directors fees 168 65
--------- ---------
NET CASH (USED FOR) FINANCING ACTIVITIES (5,302) (6,894)
Net(decrease) in cash and cash equivalents (848) (1,802)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,058 2,536
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 210 $ 734
========= =========
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
SEPTEMBER 30, 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, Inc.,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. The Company and its subsidiaries, together with JELD-WEN,
inc. ("JELD-WEN"), a major supplier to the Company and an affiliate of its
largest shareholder, have filed a joint Chapter 11 plan of reorganization.
As discussed in more detail below, the disclosure statement describing
that plan has been approved by the Bankruptcy Court as containing adequate
information and a hearing to confirm the plan is scheduled for December 8,
1997. 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.
The Company is following the American Institute of Certified Public
Accountants' (AICPA) Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code". This statement
modifies standard reporting practices, requiring, among other things,
separate disclosure of all liabilities subject to compromise in a Plan of
Reorganization and the segregation of items directly related to the
Chapter 11 filing from operating results.
The principle categories of claims classified as "Liabilities subject to
compromise" are identified below and may be subject to future adjustments
depending on Bankruptcy Court actions, further developments with respect
to disputed claims or other events.
7
<PAGE> 8
<TABLE>
<CAPTION>
NOTE 1 - BASIS OF PRESENTATION (CONTINUED)
------------------------------------------
<S> <C>
Accounts Payable pre-petition $ 40,811
Convertible notes payable, due
April 1999 1,500
Non-convertible notes payable,
due April 1999 3,355
Other 172
---------
$ 45,838
=========
</TABLE>
The Company provided for or incurred the following expense items directly
associated with the Chapter 11 reorganization
proceedings:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, 1997 Sept. 30, 1997
------------------ -----------------
<S> <C> <C>
Professional fees $ 1,421 $ 3,456
Other (Mailing, Printing, Bank Fees) 960 1,246
--------- ---------
$ 2,381 $ 4,702
========= =========
</TABLE>
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.
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 adversely affected 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.
8
<PAGE> 9
NOTE 2 - REFINANCING AND PROJECTED REORGANIZATION (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 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 Realty Company, Inc.
("GRS"), a subsidiary of Grossman's, to Combined Investors LLP, an
affiliate of Gordon Brothers Partners Realty, 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 Company, Inc., 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. The $10 million 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. In addition GDI made available up to $11
million in overadvances, of which the Company had drawn approximately $5.6
million as of September 30, 1997.
On April 30, 1997, GDI purchased the Congress loan and collateral
position, subject to a $1 million senior lien on inventory and receivables
retained by Congress, related to a termination fee (the "Congress
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 (Debtor in Possession)financing facility from GDI (the "GDI
Loan Agreement"), availability is calculated on a borrowing base of 60% of
eligible inventory plus 80% of eligible accounts receivable. There was
also an available overadvance above this borrowing base of $11 million.
At September 30, 1997 the overadvance was subject to a $1 million reserve
pending resolution of the disputed Congress termination fee which was
settled during October 1997 for $695 thousand. The interest rate for the
DIP facility is prime plus 1.0% and the maximum amount which can be
9
<PAGE> 10
NOTE 2 - REFINANCING AND PROJECTED REORGANIZATION (CONTINUED)
-------------------------------------------------------------
borrowed is $50 million (or, if less, the sum of the borrowing base and
the overadvance). This GDI DIP financing facility is in addition to the
$5.99 million of pre-petition real estate loans held by GDI which was paid
down to $1.59 million by the end of the third quarter. See Note 5 for
outstanding long term indebtedness as of September 30, 1997.
Both the final DIP financing facility and the assignment of the loan from
Congress to GDI were approved by the Court on April 30, 1997.
Pursuant to an order of the Court dated October 9, 1997, the GDI Loan
Agreement was amended to eliminate the $11 million overadvance and to
replace such provision as of September 8, 1997 with an addition to the
borrowing base of 75% of stipulated values of real estate held as
collateral less a reserve for certain senior secured indebtedness held by
GDI. In addition, on October 21, 1997, the Congress Termination Fee was
settled for payment of $620,000 plus $75,000 attorney's fees, thereby
releasing the $1 million senior lien of Congress on inventory and
receivables.
On September 16, 1997, the Company announced that it had reached an
agreement in principle with its Official Unsecured Creditors Committee on
the terms of a plan of reorganization ("the Plan"). The Plan and
Disclosure Statement were filed on October 1, 1997 and the Court approved
the Disclosure Statement on October 27, 1997. Acceptance or rejection of
the Plan is subject to balloting by those creditors eligible to vote, and
a Plan confirmation hearing is scheduled for December 8, 1997.
Upon confirmation of the Plan, the reorganized company would emerge from
bankruptcy as a privately held company owned 50% by certain creditors and
50% by JELD-WEN.
The Plan's basic terms provide for 23 cents on the dollar to all unsecured
creditors holding valid claims of $25,000 or less and 17 cents on the
dollar plus 50% of the common stock of the reorganized Grossman's to all
qualified unsecured creditors holding valid claims above $25,000.
Outstanding common stock will be cancelled, and no distribution will be
made to stockholders prior to the reorganization. The remaining 50% of
Grossman's stock will be purchased by JELD-WEN for $8.25 million. Under
certain circumstances after the first anniversary of the effective date of
the Plan, the creditor/shareholders have the right to offer their shares
for sale to the reorganized Grossman's for a pro rata share (depending on
the number of shares) of the sum of $8.25 million plus $577,500 per annum.
The Company is not obligated to accept the offer. If such an offer by the
holders of at least 80% of the creditor/stockholders is rejected, the
creditor/stockholders have the right to require the Company to register
their shares for sale. In the event valid unsecured claims exceed $46.2
million, the Plan may be altered.
An affiliate of JELD-WEN is the current debtor-in-possession lender to
Grossman's and has agreed, as part of the plan of reorganization, to lend
(directly or through support of a third-party loan) sufficient funds to
make the distributions contemplated in the plan and to provide working
capital for the reorganized Grossman's.
Although Grossman's has reserved the right to pursue offers from third-
parties that are more beneficial than the JELD-WEN sponsored plan, none
10
<PAGE> 11
NOTE 2 - REFINANCING AND PROJECTED REORGANIZATION (CONTINUED)
-------------------------------------------------------------
has been received to date, despite efforts through Grossman's investment
banking firm.
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) to acquire shares of Company's
stock resulting in a more than 1,350,000 share block, or (ii) to acquire
prepetition unsecured claims against the Company or its subsidiaries
resulting in a more than $6 million block of such claims. The procedures
also would 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
and the Court entered a final approval order on October 9, 1997, which
reduced the amount of claims allowed to be acquired to $3.5 million.
See Management's Discussion and Analysis of Financial Condition and
Results of Operations for further information with respect to refinancing
and projected reorganization of the Company.
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>
Sept. 30, December 31, Sept. 30,
1997 1996 1996
-------- ------------ --------
<S> <C> <C> <C>
Accounts payable $ 6,042 $37,856 $34,948
Accrued salaries, wages,
commissions and related taxes 2,622 2,857 2,834
Accrued income and franchise taxes 369 245 252
Accrued taxes other than income
and franchise 3,152 3,218 3,726
Accrued store closing costs 5,244 4,322 2,026
Accrued insurance 5,990 7,403 8,606
Other accrued liabilities 3,586 4,328 4,492
------- ------- -------
$27,005 $60,229 $56,884
======= ======= =======
Accounts payable pre-petition $40,811 $ -- $ --
======= ======= =======
</TABLE>
11
<PAGE> 12
NOTE 5 - LONG-TERM DEBT AND REVOLVING CREDIT AGREEMENT
------------------------------------------------------
<TABLE>
<CAPTION>
Long-term debt consists of the following (in thousands):
Sept. 30, December 31, Sept. 30,
1997 1996 1996
-------- ------------ ---------
<S> <C> <C> <C>
Convertible notes payable, due
April 1999 $ -- $ 1,500 $ 1,500
Non-convertible notes payable,
due April 1999 -- 2,971 2,700
Mortgage notes 1,592 6,552 14,388
Other notes payable -- 224 --
Capital lease obligations 674 1,615 2,375
------- ------- -------
2,266 12,862 20,963
Less current portion 2,102 12,228 14,669
------- ------- -------
Long term debt $ 164 $ 634 $ 6,294
======= ======= =======
Pre-petition long term debt
Convertible notes payable, due
April 1999 $ 1,500 -- --
Non-convertible notes payable,
due April 1999 3,355 -- --
Other 172
------- ------- -------
$ 5,027 -- --
======= ======= =======
</TABLE>
In April 1997, the Company received a DIP financing facility from GDI, 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, accounts receivable and other assets. The new
agreement bears interest at 1.0% over Prime Rate. See Note 2 for
additional description of the GDI Loan Agreement.
At September 30, 1997, cash borrowings under the Company's new DIP
financing facility totalled $35.2 million and outstanding standby letters
of credit totalled $5.0 million. The maximum borrowings under this
agreement during the nine months ended September 1997 was $40.4 million,
including letters of credit of $5.0 million. The weighted average annual
interest rate on such borrowings in the first nine months of 1997 was
9.5%. At September 30, 1997, the DIP financing facility provided for
borrowings of up to $45.7 million.
Upon entering into the DIP financing facility, the Company's prior
revolving credit agreement with Congress was assigned to GDI. The maximum
borrowings in 1997 under this agreement was $35.4 million, including
letters of credit of $5.4 million. The maximum borrowings in 1996 under
this agreement was $31.1 million, including letters of credit of $8.8
million. The weighted average annual interest rates on such borrowings in
1997 and 1996 were 10.3% and 11.1%, respectively.
See Note 2 for discussion of restructuring of the loan and security
agreement, subsequent termination and replacement of the agreement with
debtor-in-possession financing and the amendment to the GDI Loan Agreement
as of September 8, 1997.
12
<PAGE> 13
NOTE 6 - OTHER LIABILITIES
--------------------------
<TABLE>
<CAPTION>
Other long-term liabilities consist of the following (in thousands):
Sept. 30, December 31, Sept. 30,
1997 1996 1996
------- ------------ --------
<S> <C> <C> <C>
Accrued insurance claims $7,528 $6,129 $6,729
Accrued store closing costs 768 768 1,685
Other accrued liabilities 876 344 358
------ ------ ------
$9,172 $7,241 $8,772
====== ====== ======
</TABLE>
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 third quarters and nine month periods of 1996
and 1997 are not material.
13
<PAGE> 14
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
FINANCIAL CONDITION
-------------------
SEPTEMBER 30, 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 adversely affected 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.
14
<PAGE> 15
SEPTEMBER 30, 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 Realty Company, Inc.
("GRS"), to Combined Investors LLP, an affiliate of Gordon Brothers
Partners Realty, 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 Company,
Inc., previously pledged to secure the $4 million note.
Following the loan from GDI Company, Inc., Congress Financial Corporation
("Congress"), Grossman's principal pre-bankruptcy revolving credit lender,
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 $10 million 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 continued to extend credit on essentially
pre-bankruptcy terms under a revolving loan facility, and GDI made
available up to $11 million in overadvances of which the Company drew
approximately $6.0 million as of April 30, 1997.
On April 30, 1997, GDI purchased the Congress loan and collateral
position, subject to 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 was also an
available overadvance above this borrowing base of $11 million. At
September 30, 1997 the overadvance was subject to a $1 million reserve
pending resolution of the disputed Congress termination fee which was
settled during October for $695 thousand. The interest rate for the DIP
financing facility is prime plus 1.0% and the maximum amount which can be
borrowed is $50 million (the sum of the borrowing base and the
overadvance, if less). This GDI DIP financing facility is in addition to
the $5.99 million of pre-petition real estate loans held by GDI which was
paid down to $1.59 million by the end of the third quarter.
15
<PAGE> 16
FINANCIAL CONDITION
-------------------
SEPTEMBER 30, 1997 COMPARED WITH DECEMBER 31, 1996 (CONTINUED)
--------------------------------------------------------------
For further information see Note 2 to the Company's Financial Statements
included in this Report on Form 10-Q and incorporated herein by reference.
Both the final DIP financing facility and the assignment of the loan from
Congress to GDI were approved by the Court on April 30, 1997. The DIP
financing has allowed for the stores to be fully restocked during the
second and third quarters. At September 30, 1997 cash borrowings under
the Company's new DIP financing facility totalled $35.2 million and
outstanding standby letters of credit totalled $4.7 million. At that date
the DIP financing facility provided for borrowings/letters of credit up to
$45.2 million. In August 1997, the Company began to experience cash
shortages. The shortage was primarily due to unavailability of vendor
credit and larger than anticipated payments in advance of receipt and
inclusion of inventory in the borrowing base. GDI has agreed to a
temporary loan of up to $2 million, provided in transit inventory is at
least $5 million. The Company completed formulating its revised 1997
business plan during June.
On September 16, 1997, the Company announced that it had reached an
agreement in principle with its Official Unsecured Creditors Committee on
the terms of a plan of reorganization ("the Plan"). The Plan and
Disclosure Statement were filed on October 1, 1997 and the Court approved
the Disclosure Statement on October 27, 1997. Acceptance or rejection of
the Plan is subject to balloting by those creditors eligible to vote and a
Plan confirmation hearing is scheduled for December 8, 1997.
The reorganized company would emerge from bankruptcy as a privately held
company owned 50% by certain creditors and 50% by JELD-WEN.
The Plan's basic terms provide for 23 cents on the dollar to all unsecured
creditors holding valid claims of $25,000 or less and 17 cents on the
dollar, plus 50% of the common stock of the reorganized Grossman's, to all
qualified unsecured creditors (original holders of trade debt) holding
valid claims above $25,000. The remaining 50% of Grossman's stock will be
purchased by JELD-WEN for $8.25 million. No distribution will be made to
stockholders prior to the reorganization. Under certain circumstances
after the first anniversary of the effective date of the plan, the
creditor/shareholders have the right to offer their shares for sale to the
reorganized Grossman's for a pro rata share (depending on the number of
shares) of $8.25 million plus $577,500 per annum. The Company is not
obligated to accept the offer. If the offer is rejected, the
creditor/shareholders have the right to require the Company to register
their shares for sale, in which case the Company will do so. In the event
valid unsecured claims exceed $46.2 million, the Plan may be altered.
JELD-WEN is the current debtor-in-possession lender to Grossman's and has
agreed, as part of the plan of reorganization, to lend (directly or
through support of a third-party loan) sufficient funds to make the
distributions contemplated in the plan and to provide working capital for
the reorganized Grossman's.
Under the proposed plan, existing Grossman's shareholders will receive no
interest in the reorganized Grossman's and their shares will be cancelled.
16
<PAGE> 17
SEPTEMBER 30, 1997 COMPARED WITH DECEMBER 31, 1996 (CONTINUED)
--------------------------------------------------------------
Although Grossman's has received the right to pursue offers from third-
parties that are more beneficial than the JELD-WEN sponsored plan, none
has been received to date, despite efforts through Grossman's investment
banking firm.
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) to acquire shares of Company's
stock resulting in a more than 1,350,000 share block, or (ii) to acquire
prepetition unsecured claims against the Company or its subsidiaries
resulting in a more than $6 million block of such claims. The procedures
also would 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
and the Court entered a final approval order on October 9, 1997, which
reduced the amount of claims allowed to be acquired to $3.5 million.
OTHER FINANCIAL CONDITION CHANGES
Inventory levels increased by $4.1 million during the period as the stores
were restocked to support seasonal demand.
Real property held for sale declined by $17.2 million during the nine
months, reflecting the continued sale of surplus properties.
Pre-petition accounts payable are subject to compromise, and any payment
must be approved by the Bankruptcy Court.
RESULTS OF OPERATIONS
---------------------
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED
--------------------------------------------------------------------
SEPTEMBER 30, 1996
------------------
Results of operations during the nine months ended September 30, 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 the first nine months
of 1997 were adversely affected by out-of-stock situations which did not
improve until late in the second quarter. 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.
17
<PAGE> 18
RESULTS OF OPERATIONS
---------------------
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED
--------------------------------------------------------------------
SEPTEMBER 30, 1996 (CONTINUED)
------------------------------
<TABLE>
<CAPTION>
The following table shows comparative sales results by division and store
type (dollars in millions):
Six Months
Ended June
------------------
1997 1996
---- ----
<S> <C> <C>
SALES
Ongoing Operations
Contractors' Warehouse $ 77.8 $ 124.7
Bargain Outlet 27.3 28.0
------- -------
Total Ongoing
Operations 105.1 152.7
Closed Stores
Grossman's -- 48.0
------- -------
Total Grossman's Inc. $ 105.1 $ 200.7
======= =======
% OF TOTAL SALES
Ongoing Operations
Contractors' Warehouse 74.0% 62.1%
Bargain Outlet 26.0 14.0
------- -------
Total Ongoing
Operations 100.0 76.1
Closed Stores
Grossman's -- 23.9
------- -------
Total Grossman's Inc. 100.0% 100.0%
======= =======
</TABLE>
18
<PAGE> 19
RESULTS OF OPERATIONS
---------------------
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED
--------------------------------------------------------------------
SEPTEMBER 30, 1996 (CONTINUED)
------------------------------
<TABLE>
<CAPTION>
(TABLE CONTINUED)
Six Months
Ended June
------------------
1997 1996
---- ----
<S> <C> <C>
SALES % INCREASE (DECREASE)
VERSUS PRIOR YEAR
Ongoing Operations
Contractors' Warehouse (37.6)% 7.1 %
Bargain Outlet (2.5) 12.4
------- -------
Total Ongoing
Operations (31.2) 8.1
Closed Stores
Grossman's (100.0) (73.3)
------- -------
Total Grossman's Inc. (47.6)% (37.4)%
======= =======
COMPARABLE STORE SALES %
INCREASE (DECREASE)
VERSUS PRIOR YEAR
Ongoing Operations
Contractors' Warehouse (37.7)% (6.4)%
Bargain Outlet (18.0) (7.2)
------ ------
Total Ongoing
Operations (34.0) (6.5)
Closed Stores
Grossman's NA NA
------ ------
Total Grossman's Inc. (34.0)% (6.5)%
====== ======
TOTAL NUMBER OF STORES
Ongoing Operations
Contractors' Warehouse 15 16
Bargain Outlet 28 24
Closed Stores
Grossman's - -
------ ------
Total Number of Stores 43 40
====== ======
</TABLE>
19
<PAGE> 20
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED
--------------------------------------------------------------------
SEPTEMBER 30, 1996 (CONTINUED)
------------------------------
<TABLE>
<CAPTION>
The following table shows comparative sales results by division and store
type during each quarter and for the total nine months (dollars in
millions):
Three Months Nine Months
Ended September Ended September
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES
Ongoing Operations
Contractors' Warehouse $ 51.9 $ 79.9 $129.7 $204.6
Bargain Outlet 17.7 16.1 45.0 44.1
------- ------- ------- -------
Total Ongoing
Operations 69.6 96.0 174.7 248.7
Closed Stores
Grossman's - - - 48.0
------- ------- ------- -------
Total Grossman's Inc. $ 69.6 $ 96.0 $174.7 $296.7
======- ======= ======= =======
% OF TOTAL SALES
Ongoing Operations
Contractors' Warehouse 74.6 % 83.2 % 74.2 % 68.9 %
Bargain Outlet 25.4 16.8 25.8 14.9
------- ------- ------- -------
Total Ongoing
Operations 100.0 100.0 100.0 83.8
Closed Stores
Grossman's - - - 16.2
------- ------- ------- -------
Total Grossman's Inc. 100.0 % 100.0 % 100.0 % 100.0 %
======= ======= ======= =======
SALES % INCREASE (DECREASE)
VERSUS PRIOR YEAR
Ongoing Operations
Contractors' Warehouse (35.0)% 13.0 % (36.6)% 9.4 %
Bargain Outlet 10.0 34.2 2.0 19.5
------- ------- ------- -------
Total Ongoing
Operations (27.4) 16.1 (29.8) 11.0
Closed Stores
Grossman's - NA NA (83.5)
------- ------- ------- -------
Total Grossman's Inc. (27.4)% (50.5)% (41.1)% (42.4)%
======= ======= ======= =======
</TABLE>
20
<PAGE> 21
RESULTS OF OPERATIONS
---------------------
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED
--------------------------------------------------------------------
SEPTEMBER 30, 1996 (CONTINUED)
------------------------------
<TABLE>
<CAPTION>
(TABLE CONTINUED)
Three Months Nine Months
Ended September Ended September
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
COMPARABLE STORE SALES %
INCREASE (DECREASE)
VERSUS PRIOR YEAR
Ongoing Operations
Contractors' Warehouse (31.4)% (3.6)% (35.2)% (5.4)%
Bargain Outlet (11.9) 7.3 (18.0) (2.8)
------ ------ ------ ------
Total Ongoing
Operations (28.0)% (2.0) (33.1) (4.9)
Closed Stores
Grossman's NA NA NA NA
------ ------ ------ ------
Total Grossman's Inc. (28.0)% (2.0)% (33.1)% (4.9)%
====== ====== ====== ======
TOTAL NUMBER OF STORES
Ongoing Operations
Contractors' Warehouse 15 16
Bargain Outlet 29 26
Closed Stores
Grossman's - -
------ ------
Total Number of Stores 44 42
====== ======
</TABLE>
21
<PAGE> 22
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED
--------------------------------------------------------------------
SEPTEMBER 30, 1996 (CONTINUED)
------------------------------
Sales results also were affected by store openings and closings. The 1997
results include the results of six Bargain Outlet stores opened and one
store closed subsequent to the second 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 $31.4 million, reflecting the sales decline and a
decrease in gross margin from 24.0% to 22.9%. 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 $25.5 million, reflecting
the Grossman's store closings and reductions in head office expense, but
experienced a large increase as a percent of sales, from 28.2% in 1996 to
33.3% in 1997, due to the low sales volume.
Depreciation and amortization declined from $3.9 million in 1996 to $2.9
million in 1997, reflecting the downsizing. Depreciation on all
Grossman's Division 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 $4.1 million in 1996 to $2.4 million 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 $2.2 million, 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 during the nine months ended September 30, 1996 was $394 thousand,
was terminated in December 1996.
22
<PAGE> 23
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH THREE MONTHS ENDED
----------------------------------------------------------------------
SEPTEMBER 30, 1996
------------------
A net loss of $5.5 million for the third quarter of 1997 compared with a
profit of $1.6 million in 1996. The lingering effects of inventory supply
problems affected sales and results of operations throughout the third
quarter, although to a lesser extent as the quarter progressed.
Gross profit declined by $8.0 million, as a result of decreased sales.
Gross margin was 23.7% for the third quarter of 1997, compared with 25.5%
during the third quarter 1996.
Selling and administrative expenses declined by $3.8 million from 1996 to
1997, due in part to reduction of head office expenses, but increased as a
percent of sales from 23.6% in 1996 to 27.1% in 1997. Selling and
administrative expenses, the largest component of which is payroll, are
expected to remain at higher than historic percentages of sales during the
Company's restructuring.
Interest expense declined from $1.4 million in 1996 to $1.0 million,
reflecting lower revolving credit borrowings, lower levels of capital
lease obligations as a result of closing stores 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 decreased by $1.1 million as a result of lower tool rental
income.
Reorganization costs of $2.4 million were incurred during the third
quarter of 1997 and are anticipated to continue until the Company is
reorganized.
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
not limited to, the need for Bankruptcy Court approvals, approval of the
Plan of Reorganization, 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 filing dates for the Company's reports
under the Security Exchange Act of 1934.
23
<PAGE> 24
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 approximately $41.9 million 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. A claims bar date has been fixed
and claims are being processed as set forth in the Disclosure Statement.
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 to (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 and the Court entered a final approval order on October 9,
1997.
Information on the Company's projected Plan of Reorganization is
contained in Note 2 to the Financial Statements included in this Report on
Form 10-Q and incorporated herein by reference.
Statements contained in this Item 1, Legal Proceedings, 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 not limited to, the need for Bankruptcy Court approvals
and approvals by creditors entitled to vote on the Company's Plan of
Reorganization, 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 filing dates for the Company's reports
under the Security Exchange Act of 1934.
24
<PAGE> 25
ITEM 5. OTHER INFORMATION
In addition to the previously announced engagement of Thomas E.
Arnold, Jr., as President and Chief Executive Officer on an interim basis,
and Dirck Iacobelli as Acting Executive Vice President and interim Chief
Financial Officer and the elimination of certain executive positions, the
following additional changes have occurred during the third quarter of
1997.
(a) Arthur S. Ryan, Vice President and Treasurer left the company
effective August 31, 1997, as his position was eliminated.
(b) Robert J. Haggerty, Vice President, Human Resources left the
company effective August 3, 1997, as his position was eliminated.
On July 23, 1997, the Company's common stock was delisted from the
NASDAQ National Market.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
11(a) Statement re computation of earnings per share,
filed herewith.
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K
during the three months ended September 30, 1997.
25
<PAGE> 26
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/ Dirck K. Iacobelli
--------------------------------------
Dirck K. Iacobelli
Executive Vice President and
Chief Financial Officer
(Chief Accounting Officer)
DATE: November 14, 1997
26
EXHIBIT 11(a)
-------------
<TABLE>
<CAPTION>
GROSSMAN'S INC.
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) for
primary and fully diluted
earnings per share $(5,538) $ 1,570 $(25.125) $(56,063)
======== ======== ========= =========
Weighted average number
of shares outstanding 28,080 27,159 27,988 26,571
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 28,080 34,044 27,988 26,571
Additional dilution from
stock options - - - -
-------- -------- --------- ---------
Total weighted average
shares outstanding and
common stock equivalents
used in fully diluted
calculation of earnings
per share 28,080 34,044 27,988 26,571
======== ======== ======== =========
Primary earnings (loss)
per share $(0.20) $0.05 $(0.90) $(2.11)
======== ======== ======== =========
Fully diluted earnings
(loss) per share $(0.20) $0.05 $(0.90) $(2.11)
======== ======== ======== =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 210
<SECURITIES> 0
<RECEIVABLES> 5,351
<ALLOWANCES> 1,974
<INVENTORY> 60,717
<CURRENT-ASSETS> 71,088
<PP&E> 42,050
<DEPRECIATION> 18,109
<TOTAL-ASSETS> 107,552
<CURRENT-LIABILITIES> 110,482
<BONDS> 164
<COMMON> 281
0
0
<OTHER-SE> (12,547)
<TOTAL-LIABILITY-AND-EQUITY> 107,552
<SALES> 69,596
<TOTAL-REVENUES> 69,596
<CGS> 53,115
<TOTAL-COSTS> 53,115
<OTHER-EXPENSES> 19,835
<LOSS-PROVISION> 1,245
<INTEREST-EXPENSE> 997
<INCOME-PRETAX> (5,538)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,538)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,538)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
